Lendlease Global Commercial REIT (LREIT SP) – 1HFY25 Performance and Outlook

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

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​.

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