LendLease Global Commercial REIT: FY24/25 results in line with estimates
- Full year NPI declined 10% y/y to SGD148.8mn; DPU declined 6.9% y/y to 3.60 scts after bad debt provision for Cathay, in line with our estimates
- JEM office divestment at SGD462mn to bring debt down to 35% and improve ICR to 2.0x; Portfolio valuations rose 2.2% on uplift at Sky Complex
- Divestment crystalised c.12% of portfolio at book, a leap to re-rate stock from its current 0.74 P/B
- Maintain BUY with a TP of SGD0.75; forward yields attractive at 6.7%
FY24/25 results – in line with estimates. LREIT reported full year FY24/25 results, with lower gross revenue of SGD206.5mn (-6.5% y/y) and an NPI of SGD148.8mn (-10% y/y) due to the absence of one-off supplementary rent (adjusted to distributable income). On a same-store basis, revenue and NPI would have been marginally higher at 1.1% and 0.1% y/y respectively. This is based on strong rental reversions within SG retail assets (+10.2% for full year), close to full occupancy (99.5%) within the Singapore portfolio, and a +1.7% uplift in Sky Complex income post-inflation step up.
DPU decline of 7% owed to a one-off debt provision on Cathay Cineplexes arrears. Net property income also accounted for a one-off bad debt provision linked to Cathay Cineplexes, which is reflected as a higher SGD2.2mn in property operating expenses this financial year. The lease awaits incoming rent contribution from replacement tenant Shaw Theatres (targeted to open year-end). Distributable income decreased 4.2% y/y to SGD87.6mn after a 3% y/y savings in finance expense, with full year DPU declining 6.9% y/y to 3.60 scts and in line with our estimates of 3.65 scts.
Divestment of JEM office crystalised c.12% of portfolio value at book. LREIT announced the divestment of Jem office for SGD462mn (close to last valuation) in arguably the best news to end the financial year. The divestment is expected to complete 4QCY25 on an estimated exit yield of c.4%. Managers intend to use the proceeds to pare down debt. LREIT’s gearing is expected to reduce from the current 42.6% to 35% on a pro forma basis, but be marginally dilutive to DPU at -2.2%.
Interim paring down of debt to bring gearing down 8ppt to 35%; DPU accretive move to redeem FY26 perpetuals with debt. The divestment will be pivotal in removing gearing overhang on the stock and with JEM office sold close to last valuations. This is about 12% of portfolio value, and to be crystalised at book is a catalyst, in our view, to re-rate the stock – currently at 0.74x P/B. We see potential for the divestment proceeds to be used to redeem FY26 perpetuals (SGD200mn quantum at 4.2% coupon), which we estimate will bring +1.7% full year DPU accretion on a pro forma basis when replaced with debt at current cost.
SG-centric portfolio continues to bring across stability in valuations. LREIT’s portfolio valuation rose 2.2% y/y to SGD3.76bn in FY2025, driven by valuation uplift at Jem (+2.0% y/y) and 313@somerset (+0.2%) on unchanged cap rates of 3.5% for office and 4.25-4.50% for retail. Sky Complex posted a surprise in valuation uplift (+8.7%) on a mix of a stronger EUR and rise in underlying asset valuations from higher rents (+5.4% y/y).
ICR to stabilise to 2.0x on our estimates post-recycling of divestment proceeds. On the capital management front, cost of debt continued to yield savings with an 8 bps decline q/q to 3.46% and ICR improved to 1.6x (vs 1.5x last quarter). Gearing as of FY-end landed at 42.6% with 68% of debt on fixed rate hedges. We expect ICR to improve from the current 1.6x to 2.0x with full recycling of divestment proceeds to pare down debt.
Going forward, we maintain our BUY call on LREIT. With a stronger balance sheet core, we believe LREIT will have greater flexibility to further finetune its capital structure and overtime redeem higher costing perpetuals. With gearing reduced to a comfortable level of 35%, LREIT can potentially restart portfolio rejuvenation, where Singapore retail assets will rank high in their preference to complement the current portfolio mix. In the medium term, sponsor’s stakes in PLQ retail mall and incremental stakes in Parkway Parade mall (currently c.10%) could come into the picture.
Maintain BUY with an unchanged TP of SGD0.75. We assumed the completion of JEM office divestment by year end (Dec ’25), with full proceeds recycled to pare down debt. Operationally, we have assumed the contribution of Shaw theatres from 2HFY26 onwards (starting Jan ’25), and Sky Complex building 3 to maintain at last occupancy of c.31% as of reporting year end. Any progress in rental arrears owed by Cathay Cineplexes and improvement in occupancy of building 3 will pose as upsides to our estimates. We keep a watch for the decline of supplementary rents associated with Sky Italia master lease (to end Oct ’25) to pose as potential risks for EUR-income but accounted for in our estimates.
Maintain BUY with DPU revised to 3.70 scts/3.89 scts for FY26/27, representing 6.7%/7.1% yields on last share price of SGD0.55.
Interim Income Statement (SGDmn)
FY Jun | 2H2024 | 1H2025 | 2H2025 | % chg y/y | % chg h/h |
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Gross revenue | 101 | 104 | 103 | 1.9 | (0.6) |
Property expenses | (29.1) | (28.7) | (29.1) | 0.1 | 1.5 |
Net Property Income | 71.9 | 74.9 | 73.8 | 2.7 | (1.4) |
Other Operating expenses | (0.8) | (1.5) | (1.0) | 35.0 | (32.1) |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | - | - |
Associates & JV Inc | 1.47 | 1.23 | 1.65 | 12.6 | 33.8 |
Net Interest (Exp)/Inc | (34.9) | (33.7) | (31.6) | 9.6 | 6.3 |
Exceptional Gain/(Loss) | 18.3 | (2.4) | 8.08 | nm | nm |
Net Income | 46.8 | 29.1 | 41.7 | (11.0) | 43.2 |
Tax | 0.0 | 0.0 | 0.0 | - | - |
Minority Interest | 0.09 | 0.05 | 0.09 | (8.5) | 68.6 |
Net Income after Tax | 37.5 | 19.6 | 32.8 | (12.5) | 67.2 |
Total Return | 37.5 | 19.6 | 32.8 | (12.5) | 67.2 |
Non-tax deductible Items | 4.57 | 23.9 | 11.3 | 146.9 | (52.8) |
Net Inc available for Dist. | 42.1 | 43.5 | 44.1 | 4.8 | 1.3 |
Ratio (%) |
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Net Prop Inc Margin | 71.2 | 72.3 | 71.7 | nm | nm |
Dist. Payout Ratio | 100.0 | 100.0 | 100.0 | nm | nm |
Source of all data: Company, DBS
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