The eastern part of is island is an area it would like to focus on, says its manager&rsquo s CEO

 

LENDLEASE Global Commercial Reit : JYEU +5.22%&rsquo s (LReit) expansion focus has been largely on the Singapore market in recent years, although the Reit is still on the lookout for opportunities in overseas markets, the real estate investment trust&rsquo s (Reit) manager told The Business Times.

 

Since its initial public offering on the mainboard in October 2019, the Reit has acquired Jem &ndash a mixed-use development in Jurong East &ndash a 10 per cent stake in Parkway Parade shopping mall, and a multifunctional event space at Grange Road.

 

The other properties in its portfolio include 313 @ Somerset retail mall along Orchard Road, and three Grade A office buildings at Sky Complex in Milan, Italy.

 

Kelvin Chow, CEO of Lendlease Global Commercial Trust Management, told BT that for the Singapore market, the focus remains on office and retail assets.

 

He related the experience of acquiring Jem in 2022, where the Reit managed to achieve the &ldquo full support&rdquo of unitholders for the purchase.

 

That acquisition, which raised approximately S$1.7 billion, garnered 99 per cent support from institutional and retail investors at its extraordinary general meeting.

 

Post-acquisition, LReit&rsquo s assets under management grew approximately 2.6 times to S$3.65 billion, while its equity market capitalisation increased about two times to S$1.4 billion.

 

Chow attributed the strong support from unitholders to the reason that they can &ldquo touch and feel, and can go there and examine the asset for themselves&rdquo .

 

The Reit&rsquo s sponsor is Lendlease Corporation, an international property and infrastructure group headquartered in Australia.

Strong pipeline

The sponsor has several properties under its portfolio in Singapore which could be injected into LReit eventually &ndash Paya Lebar Quarter, Paya Lebar Green, and the remaining stakes in Parkway Parade.

 

The company is also involved in the construction, development management and project management of projects such as the Shaw Tower and Singtel Comcentre, which could open up new opportunities for the Reit to take over in sale and leaseback arrangements.

 

When asked if any of these developments are in the pipeline, Chow said: &ldquo Of course, as soon as the numbers stack up. But I do tell some of our investors that based on our current trading price, it does not make sense for us to do any acquisitions.&rdquo

 

&ldquo We have an internal number that the trading price has to achieve, for us to make the acquisitions,&rdquo he explained.

 

&ldquo We are not pressured to acquire, unlike some other Reits (which) continue to make acquisitions even when the market condition is not favourable. We are very disciplined.&rdquo

 

The eastern part of Singapore is an area that LReit would like to focus on, he added. &ldquo Parkway Parade is something that we already have one foot in, for example.&rdquo

 

Acquisitions and divestments, focusing on Singapore

There is market talk that LReit may divest some of its assets.

 

In May, BT reported that the Reit was looking to sell the office component of its Jem asset. The 12-storey tower has 311,217 square feet of net lettable area and is fully leased to the Ministry of National Development under a 30-year lease that runs until 2044.

 

&ldquo We are constantly looking at our acquisition and divestment plan. We do have some plans to rejuvenate our portfolio and (are looking for) the right time to diversify,&rdquo Chow said.

 

Its sponsor also recently announced a change of strategy to exit its overseas construction operations. For LReit, this has no significant impact given that Singapore remains its primary focus.

 

Investors and brokerage analysts have noted the relatively high gearing of the Reit, which is 41 per cent.

 

&ldquo The gearing is high compared to the whole industry because for other Reits, they are focusing on different assets, their size of acquisition is small. But for a commercial asset like Jem, which we acquired, that size is big,&rdquo Chow said.

 

&ldquo We are just waiting for the right time to do either divestment or acquisitions to reset the gearing levels so that it gets to a more comfortable level.&rdquo

 

He added: &ldquo We want to continue to focus on Singapore because we want to build that (kind of) confidence and (comfort among) the unitholders before we seriously think of moving out of Singapore to advance further.&rdquo

 

Chow is aware that the Reit has not made that many property acquisitions compared to its peers in the market.

 

&ldquo I think the main reason is... the macro-environment conditions. At this moment, we look at the interest rate &ndash it remains at a record high. Sooner or later, you will see that going down, but at this peak, there are a lot of challenges to enter the market and get the right asset,&rdquo he said, also citing buy-ins from unitholders to support acquisitions.

 

Looking overseas

 

With only one overseas asset under its portfolio, LReit remains interested in expanding beyond Singapore.

 

Chow said that LReit remains interested in Australia and the UK. Italy, where Lendlease has a presence, is also of interest.

 

&ldquo Overseas assets are still within our radar&hellip (looking at) currency risks, interest rate risk, potential for growth, economies of scale, whether we have people managing the overseas assets for us, whether we are familiar with the market, and so on. At this moment, I don&rsquo t see any kind of sizeable growth (asset) that we can look into,&rdquo he said.

 

Boosting asset performance

LReit will continue to focus on enhancing the asset performance, said Chow.

 

Beyond asset performance, he said the manager also has to look at capital management, managing interest rates and its position. &ldquo We just need to be patient, because we do see that it is slowly moving in our favour.&rdquo

 

As at Mar 31, 2024, LReit&rsquo s committed portfolio occupancy was at 88.8 per cent, and continues to maintain a long portfolio weighted average lease expiry of 7.8 years by net lettable area and 4.8 years by gross rental income.

 

Its retail portfolio occupancy hit 99.4 per cent, with positive rental reversion of 15.3 per cent. The Reit has also maintained a healthy retail tenant retention rate of 86.2 per cent.

 

It also noted that tenant sales were up 2.6 per cent year on year to S$207.9 million in Q3 FY2024, while visitation increased 6.1 per cent from 15.4 million in the year-earlier period to 16.4 million.