1. Overview
Lendlease Global Commercial REIT (LREIT) is a Singapore-listed real estate investment trust (REIT) that focuses on stabilized income-producing retail and office properties globally. Its key portfolio comprises:
- 313@Somerset (a retail mall on Orchard Road, Singapore)
- Jem (a mixed-use commercial property in Jurong East, Singapore)
- Sky Complex (three Grade A office buildings in Milan, Italy)
The REIT’s primary objective is to generate sustainable and growing distributions for unitholders by maintaining high occupancy levels, optimizing rental income, and managing a stable balance sheet.
2. 1HFY25 Performance Summary
Financial Highlights
- Gross Revenue: S$103.6 million (-13.6% YoY)
- Net Property Income (NPI): S$74.9 million (-19.8% YoY)
- Distributable Income: S$43.5 million (-11.8% YoY)
- Distribution per Unit (DPU): 1.80 Singapore cents (-14.3% YoY)
Key Drivers of Financial Performance
- Absence of supplementary rent from lease restructuring in FY24 contributed to lower revenue.
- Property operating expenses rose by 8.1% YoY due to one-off equipment replacement at Sky Complex.
- Finance costs increased by 4.4% YoY, affecting net distributable income.
Operational Performance
Singapore Assets (313@Somerset & Jem)
- Stable Rental Reversions:
- 313@Somerset: Positive rental reversion in high single digits.
- Jem: Positive rental reversion in low teens.
- Occupancy Rate:
- 313@Somerset & Jem: 99.9% (near full occupancy).
- Tenant Retention: 86%, indicating strong leasing demand.
- Retail Sales Performance: Declined by 5.2% YoY in 1HFY25 due to increased outbound travel but remained 23% above pre-pandemic levels in 2QFY25.
Italian Asset (Sky Complex, Milan)
- Building 3 Occupancy: Improved from 8% to 31% after securing two new tenants:
- An international school.
- A co-working operator.
- Rental Uplift: New leases signed at €300 per square meter per month, achieving a positive rental reversion of 50%.
- Overall Sky Complex Occupancy: Increased 6.6 percentage points (ppt) QoQ to 81.6% in 2QFY25.
- Future Leasing: Management is actively working to fill the remaining vacancies in Building 3.
Debt and Capital Management
- Aggregate Leverage: 40.8%, slightly down from 40.9% in 4QFY24.
- Average Cost of Debt: 3.57%, slightly lower than 3.74% in 1QFY25.
- Fixed Debt Ratio: Increased from 61% to 70%, reducing exposure to interest rate fluctuations.
- Weighted Average Lease Expiry (WALE): 7.2 years, ensuring income stability.
3. Growth Prospects & Upcoming Developments
1. Office Block at Jem
- Upcoming Rent Review with Ministry of National Development (MND):
- In the final stage of negotiations.
- Expected rental uplift in the low teens.
2. Multi-Functional Event Space at Grange Road Car Park
- Completion expected in 2H26.
- Aims to enhance foot traffic and drive rental demand for nearby retail properties.
4. Valuation and Investment Case
1. Key Valuation Metrics
| Metric |
Value |
| NAV/Share (FY25) |
S$0.73 |
| Net Debt/Share (FY25) |
S$0.62 |
| P/B Ratio (FY25) |
0.7x |
| DPU Yield (FY25) |
7.0% |
| Target Price |
S$0.72 |
| Upside Potential |
35.8% (from S$0.53) |
2. Portfolio Valuation
- Jem (62% of portfolio value) – Anchored by top-tier tenants.
- 313@Somerset (28% of portfolio value) – Strong positioning in Orchard Road.
- Sky Complex (10% of portfolio value) – Gradual occupancy improvement.
5. Risks and Challenges
- Higher interest rates: Rising finance costs impacting distributable income.
- Retail sales slowdown: Decline in tenant sales (-5.2% YoY).
- Macroeconomic uncertainty: Potential downside risks in leasing demand.
6. Analyst Recommendation
- Maintained BUY rating based on resilient Singapore operations, improving Italian occupancy, and stable distributions.
- FY25 distribution yield of 7.0% remains attractive.
- Target price of S$0.72, implying 35.8% upside from the last closing price of S$0.53.
Thank you
