Brokers' take: Lendlease Global Reit a top Orchard Road recovery play for DBS

DBS Group Research on Thursday maintained Lendlease Global Commercial Reit (Lendlease Global Reit) as its top pick for an Orchard Road recovery play due to attractive risk-to-reward perspective.

The research team believes Lendlease Global Reit is "best leveraged" to deliver stronger metrics given its higher concentration in retail segments with greater upside potential. These segments are food and beverage, luxury, health and beauty, and IT and electronics.

Between Starhill Global Reit and SPH Reit, DBS prefers the former due to its discounted valuation and higher-income visibility from master and anchor leases.

Starhill Global Reit's valuation - which appears to be low - is justified by a shorter lease term remaining of about 45 years compared with the 84 to 91-year range for its peers, DBS said.

On the same note, recovery is priced in at about S$4,450 price per square foot for SPH Reit's Paragon mall. The research team also noted potential downside earnings from the potential non-renewal at the Metro department store in the coming few years.

DBS said its valuations for Orchard Road mall Reits "remain undemanding" and at a discount to sector average at 0.97 times price to net asset value. All three Orchard Road plays are trading at a current 30-80 basis point yield premium to the sector average of 5.8 per cent.

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The research team has also noted that Orchard Road malls' shopper traffic and tenant sales lag the broader retail index, where sales have narrowed to pre-Covid-19 levels in December 2020.

"However, we believe that the trend will narrow, driven by various festivities in Q1 2021," DBS said.

It has a "buy" call for Lendlease Global Reit with a target price of S$0.90. The research team also has "hold" calls for both Starhill Global Reit and SPH Reit, with target prices of S$0.55 and S$0.80 respectively.

As at the midday trading break on Thursday, Lendlease Global Reit units were trading 3.1 per cent or 2.5 Singapore cents lower at 78.5 cents, Starhill Global Reit units were trading 2 per cent or S$0.01 higher at S$0.52, while units of SPH Reit were trading 1.2 per cent or S$0.01 lower at S$0.82.

READ ALSO: Broker's take: Metro's possible department store exit may impact SPH Reit, FCT, says DBS