Lendlease Global Commercial REIT: Progress and Challenges

The Lendlease Global Commercial REIT (LREIT) showcased a mixed bag of results for the first half of FY6/25. Revenue and net property income (NPI) declined by 13.6% and 19.8% year-on-year, respectively, reaching S\$103.6 million and S\$74.9 million. This slide was attributed to the absence of supplementary rent from the Sky Complex lease restructure, despite an uptick in Singapore contributions.

1HFY25’s distribution per unit (DPU) fell 14.3% year-on-year to 1.80 Singapore cents due to increased interest expenses and a larger unit base under its dividend reinvestment plan. The NPI margin dipped to 72.3%, reflecting higher operational expenses and provisions for rental arrears in Singapore, partially offset by utility cost savings.

Occupancy rates remained robust, with the retail portfolio occupancy hitting 99.9% by the end of 1HFY25. However, retail tenant sales dipped 5.2% year-on-year due to factors such as outbound travel and asset enhancement activities at 313@Somerset. Despite this, rental reversions were strong at 10.7%, driven by JEM and 313@Somerset.

The office portfolio also showed promise, with committed occupancy at Building 3 of Sky Complex increasing to 31% from 8.1% in March 2024. However, cash contributions from these leases are expected only from FY26 onwards after the rent-free period ends. Construction of a multifunctional event space near 313@Somerset commenced, with completion scheduled for 2H26.

Management is exploring refinancing strategies for its S\$200 million perps (call date April 2025) and potential asset divestments, including JEM office. The report maintains an “Add” rating for LREIT with a target price of S\$0.69, reflecting a dividend yield of 7.2% and potential re-rating catalysts like faster backfilling of Sky Complex and divestment of JEM.

CapitaLand Integrated Commercial Trust: A Stable Performer

CapitaLand Integrated Commercial Trust (CICT) remains a solid player in the retail REIT space. With a market capitalization of US\$10.55 billion and a last reported asset leverage of 39.4%, CICT has consistently delivered stable returns. Its dividend yield stands at 5.5% for FY24F, increasing to 6.2% by FY26F. The trust continues to benefit from its diversified portfolio of retail and commercial assets in Singapore.

CICT’s pricing power in the retail segment and its ability to maintain high occupancy rates across its properties make it a preferred choice for investors. The report recommends an “Add” rating for CICT, with a target price of S\$2.45.

Frasers Centrepoint Trust: A Reliable Investment

Frasers Centrepoint Trust (FCT) is another top performer in the retail REIT sector. With a market capitalization of US\$2.86 billion, FCT has maintained a last reported asset leverage of 39.3%. Its dividend yield is projected at 5.7% for FY24F, with consistent performance expected through FY26F.

FCT’s portfolio of suburban retail malls has proven resilient, offering stable rental income and high occupancy rates. The report assigns an “Add” rating to FCT, with a target price of S\$2.68.

Mapletree Pan Asia Commercial Trust: Consistency Across Borders

Mapletree Pan Asia Commercial Trust (MPACT) stands out for its diversified portfolio across Asia. With a market capitalization of US\$4.68 billion and an asset leverage of 38.2%, MPACT offers an attractive dividend yield of 7.4% for FY24F, tapering slightly to 6.9% by FY26F.

MPACT’s focus on commercial properties in key Asian markets positions it well for long-term growth. The report recommends an “Add” rating for MPACT, with a target price of S\$1.53.

Starhill Global REIT: A Solid Dividend Payer

Starhill Global REIT (SGREIT) continues to deliver strong dividend yields, projected at 7.2% across FY24F to FY26F. With a market capitalization of US\$857 million and a last reported asset leverage of 36.2%, SGREIT remains a reliable option for income-focused investors.

Its portfolio of retail and office properties in Singapore and Australia provides a stable income stream. The report assigns an “Add” rating to SGREIT, with a target price of S\$0.60.

Overseas-Centric REITs: Promising High Yields

Several overseas-centric REITs have shown strong performance, driven by attractive yields and strategic asset locations. Key players include:

• CapitaLand China Trust (CLCT): With a dividend yield of 8.4% for FY24F, increasing to 8.6% by FY26F, CLCT offers exposure to China’s retail market. The trust has a market capitalization of US\$916 million and a last reported asset leverage of 41.6%.
• Elite UK REIT: This UK-focused REIT boasts a dividend yield of 9.3% across FY24F to FY26F. Its market capitalization stands at US\$219 million, with a last reported asset leverage of 45.5%.
• Sasseur REIT: Focused on outlet malls in China, Sasseur REIT offers a dividend yield of 9.1% for FY24F, climbing to 10.0% by FY26F. It has a market capitalization of US\$630 million and a last reported asset leverage of 25.5%.

All three REITs are recommended with an “Add” rating, reflecting their strong yield potential and strategic market positioning.

Healthcare REIT: Parkway Life REIT

Parkway Life REIT (PREIT) continues to be a standout in the healthcare sector. With a market capitalization of US\$1.9 billion and an asset leverage of 37.5%, PREIT offers stable dividend yields of 3.8% for FY24F, rising to 4.3% by FY26F. Its portfolio of healthcare-related properties ensures consistent rental income, making it a defensive play for investors.

The report recommends an “Add” rating for PREIT, with a target price of S\$4.91.

Key Takeaways and Recommendations

The report by CGS International highlights the resilience and potential of REITs across various sectors. From retail and office spaces to healthcare and overseas-centric REITs, the insights provide a comprehensive view of the opportunities and challenges in the market. Investors are encouraged to consider the recommendations and target prices to make informed decisions.