UOB Kay Hian Private Limited
Date of Report: 03 July 2025

Lendlease Global Commercial REIT: Deleveraging Moves, Asset Recycling, and New Growth Catalysts

Overview: Lendlease Global Commercial REIT (LREIT) – A Strategic Shift Under New Leadership

Lendlease Global Commercial REIT (LREIT) continues to chart its course as a prominent real estate investment trust with a diversified portfolio spanning retail and office properties in Singapore and Europe. With the appointment of a new CEO, LREIT is sharpening its focus on balance sheet strength and asset recycling to optimize returns and support sustainable growth.

• Share Price: S\$0.53
• Target Price: S\$0.76 (Upside: 43.4%)
• Market Cap: S\$1,296.7m
• Distribution Yield (FY26F): 7%
• Key Assets: 313@Somerset and Jem in Singapore, Sky Complex in Milan, Italy

Portfolio Composition and Major Tenants

LREIT owns and operates a robust property portfolio comprising:

• 313@Somerset (Singapore)
• Jem (Singapore): Retail and office components
• Sky Complex (Milan, Italy): Three Grade A office buildings

The Ministry of National Development (MND), occupying Jem Office, is a key tenant contributing 12.3% of LREIT’s gross rental income as of March 2025.

Strategic Deleveraging: Asset Recycling and Gearing Reduction

The new CEO, Guy Alexander Cawthra, brings over 20 years of global real estate investment management experience and is spearheading LREIT’s drive to deleverage and strengthen its balance sheet. Key initiatives include:

• Potential Divestment of Jem Office: The Jem office, fully leased to MND with a long WALE of 19 years (lease expiry: Dec 2044), is under consideration for divestment. The office contributes a modest NPI yield of 4% and is valued at S\$450m.
• Impact of Divestment:
  • Aggregate leverage projected to drop by 1.3ppt to 43.4%
  • Interest Coverage Ratio (ICR) to improve from 1.57x to 1.76x
  • FY27 DPU impact expected to be neutral
• Short-term Leverage Dynamics: LREIT recently refinanced S\$200m 5.25% perpetual securities (due Apr 2025) with S\$120m 4.75% perpetual securities (due Apr 2030) and a new S\$80m loan, reducing the coupon rate by 50bp.
• Aggregate Leverage Movements: Dropped temporarily to 38% in Mar 2025 after initial repayment; increased to 43% after redemption of previous perpetual securities in Apr 2025.

Growth Catalysts: Rental Uplift and Asset Enhancements

• Jem Office Rent Review: Completed in Feb 2025, yielding a 13% uplift for five years effective Dec 2024, enhancing asset value for potential divestment.
• Purpose-built Music Hall at 313@Somerset:
  • 48,200sf site handed to Live Nation, construction underway, completion expected 2H26
  • 3,000-seat state-of-the-art venue, plus 350-capacity artists’ lane
  • Aims to drive significant shopper and tourist traffic to 313@Somerset
• Sky Complex Asset Enhancement:
  • Building 3 lobby transformed and repositioned as a multi-tenanted block, supporting improved leasing
  • Ongoing search for new tenants to address stubborn vacancy

Operational and Financial Stability: Key Metrics

• Portfolio Occupancy: Improved to 92.1% in 3QFY25
• Cost of Debt: Stabilized at 3.54% in 3QFY25, with 76% of borrowings on fixed rates
• ICR: Stands at 1.5x as of Mar 2025, barely above MAS minimum; expected to rise post-deleveraging

Portfolio Valuation by Property

• Jem: 62%
• 313@Somerset: 28%
• Sky Complex: 10%

Gross Rental Income by Trade Sector

• Food & Beverage: 28.4%
• Government: 12.3%
• Fashion & Accessories: 12.2%
• Broadcasting: 9.9%
• Beauty & Health: 7.1%
• Supermarket: 4.9%
• Lifestyle: 4.0%
• Shoes & Bags: 3.5%
• Sporting Goods & Apparel: 2.6%
• Others: 15.2%

Debt Maturity Profile (S\$ million)

Includes SGD/EUR term loans and revolving facilities

Financial Performance: Key Figures and Forecasts

Key Risks and Earnings Revisions

• ICR Sensitivity: Current low ICR (1.5x) is a key risk, especially in a downturn. Divestment of Jem Office would lift ICR to 1.76x, providing a buffer above the MAS minimum.
• Vacancy at Sky Complex: Ongoing vacancy issues at Building 3 led to a 2.6% reduction in FY26 DPU forecast.
• Equity Fund Raising: LREIT may require a S\$120m equity raise to bring leverage below 40% after deleveraging exercises.

Valuation and Recommendation

• Valuation Methodology: DDM with 6.75% cost of equity and 2.2% terminal growth rate
• Recommendation: Maintain BUY
• Target Price: S\$0.76

Share Price Catalysts

• 313@Somerset: Expected to benefit from increased office occupancy in the CBD and tourist traffic, further boosted by the new music hall.
• Jem: Poised to gain from the development of Jurong Gateway as Singapore’s second CBD.

Conclusion: LREIT Positioned for Sustainable Growth

With a renewed focus on deleveraging, proactive asset management, and growth initiatives, Lendlease Global Commercial REIT is strategically positioned to navigate market uncertainties and capitalize on emerging opportunities. The combination of strong leadership, a resilient asset base, and targeted capital management underpins the trust’s potential to deliver attractive, sustainable returns to unitholders.

Appendix: Additional Operating Metrics

• Portfolio Occupancy (Mar 2025): 92.1%
• Aggregate Leverage (Mar 2025): 38.0%
• Average Cost of Debt (3QFY25): 3.54%
• % Borrowings on Fixed Rate (3QFY25): 76%
• Weighted Average Lease Expiry by NLA: 7.3 years

Disclaimer

This article is based solely on the analysis and figures provided in UOB Kay Hian’s research as of the stated date. It does not constitute investment advice. Investors should consider their own circumstances and consult with a financial adviser before making investment decisions.