Is there any value in the property sector? I’ve taken a look at the sector and found two property-related stocks that have not performed well on the share market in recent times; but where some brokers believe the market is failing to understand the story well enough.
Lendlease (LLC, $5.24)
Market capitalisation: $3.6 billion
12-month total return: –8.2%
3-year total return: –16.1% a year
Expected FY26 dividend yield: 3.4%, 20.3% franked (grossed-up, 3.7%)
Analysts’ consensus target price: $6.96 (Stock Doctor, six analysts)
Australian property icon Lendlease built an integrated real estate and investment company operating in Australia, Asia, Europe and the Americas, in Development, Construction, and Investments segments. The company was involved in everything from apartments to retail, retirement villages, commercial and social developments, but after the glory days of a share price above $21 in 2018, LLC has retraced to a 16-year low of $5.24.
It has been a bruising experience for long-time shareholders, and in May 2024, the company bit the bullet, announcing plans to sell most of the international business and re-focus on Australia. Lendlease got out of its offshore Construction and Development business, but retained investments in the US, Europe and Asia. The focus of the strategic re-design was to bring $4.5 billion in capital that was tied up in development outside Australia back into the business, as well as simplify and reduce its overall business risk profile.
Lendlease is pivoting toward higher-margin Australian investment management operations and leveraging its top-shelf reputation for sustainable urban infrastructure. The company’s core operation is now called Investment, Development and Construction (IDC), with the aim of delivering consistent sustainable returns to shareholders, and it has also established the Capital Release Unit (CRU) to liberate and recycle capital.
Lendlease wants to accelerate the release of capital from international development through capital partnering, joint ventures and land sales, while maximising the value it has created across the portfolio. A good example is the deal announced in May, which will see Lendlease enter a 50/50 joint venture with The Crown Estate involving six UK development assets, to unlock value within its UK development portfolio, and accelerate the release of capital. This should help the company achieve its FY25 capital recycling target of $2.8 billion, given that it achieved $2.2 billion of this in the first half.
At the half-year, Lendlease had an investment management platform totalling $49.6 billion under management, spread across workplace (50%), retail (29%), residential (8%), datacentres and industrial (6%) and other property (7%). For the full year, the company expects earnings per security (EPS) to come in at 54 cents–62 cents, up from 38.1 cents in FY24.
Brokers are mostly bullish on Lendlease at this price, with the most positive being Macquarie, which has a price target on LLC of $7.79.
DigiCo Infrastructure REIT (DGT, $2.99)
Market capitalisation: $1.6 billion
12-month total return: n/a (listed 13 December 2024)
3-year total return: n/a
Expected FY26 dividend yield: 5%, unfranked
Analysts’ consensus target price: $5.08 (FN Arena, four analysts)
Datacentre landlord DigiCo Infrastructure REIT (externally managed by ASX-listed HMC Capital Limited, or HMC) listed in December 2024 in a $2 billion initial public offering (IPO) – the biggest of 2024 – at an offer price of $5.00, but has struggled in its listed life, with a peak price of $4.77 in February 2025.
That might surprise many investors, given that DGT owns, operates and develops datacentres, with a portfolio of 13 assets across Australia and North America, and datacentres are tied into the great investment theme of AI, particularly the growth in the “hyperscale” space. Hyperscale AI datacentres are massive facilities designed to handle the immense computational demands of artificial intelligence workloads. They are characterised by their large scale, high performance, and ability to rapidly scale-up or down to meet fluctuating demands; hyperscale clients include the likes of Microsoft, Meta, Alphabet, Amazon and NVIDIA.
Datacentre demand is expected to grow substantially over the next decade, driven by three major structural tailwinds: 1) the ongoing transition to the cloud, 2) rapid adoption of generative artificial intelligence (GenAI), and 3) exponential growth in global data creation and consumption. Large language models like OpenAI’s GPT-4 (used in ChatGPT) need massive computing power, which is fuelling demand for next-generation datacentres.
That’s the thesis, and DGT is well-positioned to benefit with a portfolio comprising 13 properties across crucial Australian and North American markets. There are four datacentres in Brisbane (BNE 1, BNE 2, BNE 3 and BNE 4), one in Sydney (SYD 1), two in Adelaide (ADL 1 and ADL 2), one in Townsville (TSV 1); and in North America, one in Dallas (DAL 1), one in Kansas City (KCM 1), one in Chicago (CHI 1) and two in Los Angeles (LAX 1 and LAX 2). In total, the portfolio has an aggregate portfolio asset value of just under $4 billion, a contracted IT capacity of 67 megawatts (MW) and contracted utilisation of 88% of currently installed capacity. (LAX 1 and LAX 2) and Brisbane (BNE 4) are major “greenfield” development opportunities.
In comparison, the incumbent ASX-listed datacentre leader NEXTDC has contracted capacity of 244MW, in a network comprises 23 datacentres in Australia, two datacentres in Japan, one in Malaysia and one in New Zealand.
DigiCo’s leased assets (North America) underpin income, while broker Morgans describes its main value-add asset (SYD 1) as a “high-quality property with significant expansion potential – it could easily double its deployable capacity by 2030. Expansion/development potential is the main likely source of future outperformance.
Over time, DGT expects to have a high-quality portfolio that holds US operating assets (target weighting about 40%–50%), Australian co-location assets (target weighting about 40%–50%) and US development assets (target weighting about 10%–20%), generating stable and diverse cashflows from Tier 1 customers. (“Co-location” refers to the housing of a company’s IT equipment in a third-party datacentre, such as DGT’s; this involves renting space, power, and cooling in a facility that provides these resources, rather than a company managing its own datacentre.) The management team sees capital partnerships as the major opportunity to accelerate growth across the DigiCo platform: in time, DGT expects to own 50%–75% of the US operating assets; 50%–75% of the Australian co-location assets; and about 50% of the US development assets.
As DGT executes on its strategy, brokers expect double-digit earnings growth at the earnings before interest, tax, depreciation and amortisation (EBITDA) level in the medium-term, underpinned by development and built-in rent escalations.
The share price performance of DGT has not gone the way that IPO subscribers hoped, but that could play into the hands of investors coming in to the stock now, at a cheaper entry price.
