Broker: UOB Kay Hian
Date of Report: 11 August 2025

Lendlease Global Commercial REIT (LREIT): Accelerating Growth with Strategic Focus on Singapore and Asset Recycling

Overview: LREIT’s Resilient Performance and Strategic Shift

Lendlease Global Commercial REIT (LREIT) has delivered a solid performance in the second half of FY25, posting distribution per unit (DPU) growth of 1.8% year-on-year despite headwinds such as a S\$2 million provision for outstanding rentals from Cathay Cineplexes. With a current share price of S\$0.575 and a target price of S\$0.79, LREIT offers an attractive 37.4% upside potential. The REIT’s strategic focus on its Singapore portfolio, robust asset quality, and disciplined asset recycling underpin its competitive advantage and future growth trajectory.

LREIT Portfolio Snapshot and Market Position

• Portfolio Composition: Two major Singapore retail malls (313@Somerset at Orchard Road and Jem at Jurong East) and the Sky Complex (three Grade A office buildings in Milan, Italy).
• Singapore Focus: 87% of portfolio valuation is anchored in Singapore, enabling LREIT to leverage local market strength and the sponsor’s extensive footprint.
• Competitive Edge: Dominant precinct presence, long leasehold tenures (83 years), and a sponsor pipeline exceeding S\$6b in Singapore.
• Major Shareholder: Lendlease Corp Ltd holds a 28% stake.

2HFY25 Results: Stable Growth Despite Headwinds

• DPU: 1.77 S cents in 2HFY25 (+1.8% yoy), meeting expectations.
• Gross Revenue: S\$101.0m (+1.9% yoy), despite the absence of supplementary rent from Sky Complex lease restructuring.
• Net Property Income: S\$71.9m (+2.7% yoy), after S\$2m provision for Cathay Cineplexes’ outstanding rental.
• Distributable Income: S\$42.1m (+4.8% yoy), supported by a 9.8% reduction in finance costs.

Portfolio Performance and Leasing Metrics

• High Occupancy: 98.8% for 313@Somerset and 99.8% for Jem (as of June 2025).
• Rental Reversion: Positive 10.2% for FY25 (high single digit for 313@Somerset; low teens for Jem).
• Tenant Retention: Healthy at 83.3% (by NLA).
• Shopper Traffic: Up 1.3% yoy, though tenant sales declined 5.1% due to outbound travel and sector-specific weaknesses (fashion, shoes & bags) and fit-out works during Jem’s cinema transition.
• New F&B Offerings: Casa Vostra and Lau Wang Claypot at Jem; One Fermented Rice and Ottie Pancakes at 313@Somerset.

Strategic Focus: Singapore-Centric Investments

• Singapore Assets: Jem and 313@Somerset represent 87% of portfolio valuation.
• Asset Quality: Long leaseholds and precinct dominance amplify value.
• Sponsor Pipeline: Over S\$6b in potential assets, including PLQ Mall, PLQ Office, Paya Lebar Green, and Comcentre.

• Portfolio Valuation: Up 2.2% overall, with Jem up 2% and Sky Complex in Milan up 8.7%.
• Fair Value Gain: S\$46.8m recognised from investment properties.

Financial Discipline: Gearing and Debt Management

• Interest Coverage Ratio (ICR): Improved to 1.6x in June 2025, underpinned by higher base rent and refinancing at lower rates.
• Cost of Debt: Stable at 3.46% in 4QFY25; 68% of borrowings hedged at fixed rates. FY26 cost of debt guided to the low-3% range.

Key Corporate Actions: Divestment, Asset Enhancement, and Pipeline Growth

• Jem Office Divestment: Sale of 12 levels (311,000 sf, 35% of Jem’s NLA) to reduce aggregate leverage from 42.6% to 35%. Sale consideration: S\$462m. Lease to Ministry of National Development with a WALE of 19.4 years. Exit NPI yield: low-4%. Divestment gain: S\$8.9m. Completion expected 2QFY26. Pro forma FY25 DPU impact: -2.2%.
• Sky Complex Enhancement: Building 3 lobby upgraded; repositioned as multi-tenanted. Occupancy at 31%, with a target of 50% by end-2025. Building 1 and 2 saw a 1.7% rental uplift. Sky Complex flagged as a potential asset recycling candidate.
• 313@Somerset Music Hall: Live Nation is developing a 3,000-seat music hall (plus a 350-seat artists’ lane) at Grange Road Car Park, seamlessly connected to Discovery Walk. Expected completion: 2H26. Anticipated to boost shopper traffic.

Earnings Revision and Valuation

• FY26/FY27 DPU Forecasts: Raised by 4% on lower cost of debt, partially offset by Jem office divestment.
• Valuation: Target price S\$0.79, based on DDM (cost of equity: 6.75%, terminal growth: 2.2%).
• Distribution Yield: Attractive at 6.7% for FY26. P/B ratio remains at 0.8x, indicating value.

Key Operating Metrics (Recent Quarters)

Portfolio and Income Diversification

• Portfolio Valuation by Property: Jem (61%), 313@Somerset (28%), Sky Complex (11%).
• Gross Rental Income by Trade Sector:
  • Food & Beverage: 27.5%
  • Government: 12.5%
  • Broadcasting: 10.1%
  • Fashion & Accessories: 12.3%
  • Beauty & Health: 7.0%
  • Supermarket: 5.0%
  • Lifestyle: 4.1%
  • Shoes & Bags: 3.8%
  • Sporting Goods & Apparel: 2.4%
  • Others: 15.3%

Debt Maturity Profile

• Debt is well staggered, with both SGD and EUR term loans and revolving facilities distributed across FY26 to FY30, ensuring prudent capital management and liquidity.

Investment Catalysts and Outlook

• Jem: Poised to benefit from Jurong Gateway’s emergence as Singapore’s second CBD.
• 313@Somerset: Expected surge in shopper traffic from the new music hall.
• Asset Recycling & Accretive Acquisitions: Ongoing focus to further enhance value and reduce gearing.

Conclusion: LREIT Positioned for Sustainable Growth

Lendlease Global Commercial REIT continues to sharpen its competitive edge through a clear Singapore-centric strategy, disciplined capital management, and value-accretive asset recycling. With healthy DPU growth, robust occupancy, an attractive yield, and visible catalysts on the horizon, LREIT remains a compelling buy for investors seeking stable, income-generating real estate exposure.

About the Analyst

The report was produced by Jonathan Koh, CFA, MSc Econ, of UOB Kay Hian.

Important Disclosures

This article is for informational purposes only and does not constitute an offer, solicitation, advice, or recommendation to deal in any securities. Please consult a financial adviser before making investment decisions.