Brief Overview
Phillip Securities Research has issued an update on Lendlease REIT (LREIT), maintaining a BUY recommendation while lowering the target price to S$0.73, down from S$0.77. Limited financials were provided this quarter. Retail rental reversion was strong at 10%, driven mainly by PLQ Mall and 313 Somerset, while Jem’s retail reversion was slightly weaker. Tenant sales rose 8.1% year on year (excluding PLQ Mall), with gold and jewellery, beauty and wellness, and sports and athletics performing particularly well. PLQ Mall’s asset enhancement initiative (AEI) is progressing across two floors, on track for completion by end-2026. Uniqlo and Footlocker’s space at Level 2 has been split into five units, of which two are signed — one by a new-to-market tenant — while three remain in leasing. The cost of equity has been increased by 25 basis points to reflect a higher interest-rate environment. LREIT is trading at a FY27e price to net asset value ratio (P/NAV) of 0.81x with a dividend yield of approximately 7.14%.
Investment Positives
Strong Operational Performance
LREIT’s portfolio demonstrated robust operational metrics during the quarter. Portfolio retail rental reversion stood at 10%, compared with 11.7% in FY26, indicating sustained pricing power across its Singapore malls. Retail portfolio occupancy remained strong at 98.2%, with a marginal dip of 0.3 percentage points quarter on quarter attributed to PLQ Mall reconfiguration works rather than any fundamental weakening in demand.
Tenant sales and visitation increased 8.1% and 6.7% year on year respectively, excluding PLQ Mall. When PLQ Mall is included, the increases were even more pronounced at 45.5% and 27.4% year-on-year. Footfall was bolstered by several catalysts: the reopening of Jem’s cinema, a heavy events and promotions calendar at 313@somerset, and National Day-related events near PLQ Mall. Tenant retention was healthy at 87%, and notably, the tenants that replaced outgoing ones over the past year are outperforming their predecessors.
Strong Capital Management
The REIT’s capital management continued to improve. The cost of debt fell to 2.5%, down from 2.75% during FY26, driven mainly by PLQ Mall loans that were refinanced at a lower borrowing cost. Gearing declined from 38.9% to 38.7% as gross borrowings fell 1.5% quarter on quarter to S$1,679 million. Liquidity remains ample, with S$383 million of undrawn committed facilities available. S$300 million of facilities, of which S$200 million is drawn, mature in April 2027 and will be refinanced at that time.
Investment Challenges
Slow Leasing Progress with Milan Building 3
The key negative identified in the report relates to the Milan Sky Complex Building 3, which is only 51% occupied. The building did not see any leasing progress during the quarter, despite floors being subdivided into smaller units. While agents have received the reconfigured space well, this interest has yet to convert into signed leases. Management described the past six to nine months as among the softest periods on record for Milan leasing. Improved occupancy is needed before a divestment of the asset can be pursued at attractive valuations.
Additionally, management flagged aggressive low-cost Chinese e-commerce platforms as a new threat to multi-product stores, including those selling blind boxes and generic accessories, across its malls. Some established food and beverage brands have also been outcompeted by new entrants and mainland Chinese operators.
Outlook
The reconfiguration of 16,000 square feet of space at PLQ Mall is on track to be completed by the end of 2026. Grange House, adjacent to 313@somerset, is expected to be operationally ready by mid-2027, with rent commencing towards end of 2026 or early 2027. While Grange House represents less than 1% of portfolio income, the primary benefit will be the halo effect of a 3,000-person capacity Live Nation venue on 313@somerset footfall, enlarging the combined net lettable area to approximately 330,000 square feet in the Somerset precinct.
Rent-free periods on the 51% leased portion of Building 3 should roll off, contributing income over FY27. Management is not pursuing acquisitions in the near term, with the Jem divestment gain held in reserve and larger Jem AEIs now feasible.
Future performance depends on three key factors: the PLQ AEI completing on schedule across Levels 1 and 2, the successful divestment and capital recycling of Sky Complex Building 3, and Singapore retail reversions continuing at a strong pace.
Recommendation & Target Price
Phillip Securities Research maintains a BUY recommendation on Lendlease REIT. The DDM-based target price has been lowered to S$0.73, from the previous S$0.77, reflecting a 25-basis-point increase in the cost of equity to account for a higher interest-rate environment.
Frequently Asked Questions
Q: What is Phillip Securities Research's recommendation and target price for Lendlease REIT?
A: Phillip Securities Research maintains a BUY recommendation with a lowered DDM-based target price of S$0.73, reduced from S$0.77.
Q: Why was the target price reduced?
A: The target price was lowered because the cost of equity was increased by 25 basis points to reflect a higher interest-rate environment.
Q: How strong were Lendlease REIT's rental reversions this quarter?
A: Portfolio retail rental reversion stood at 10%, driven mainly by PLQ Mall and 313 Somerset. This compares with 11.7% in FY26.
Q: What is the occupancy rate of LREIT's retail portfolio?
A: Retail portfolio occupancy remained strong at 98.2%, with a marginal 0.3 percentage point decline quarter-on-quarter attributed to PLQ Mall reconfiguration works.
Q: What is the status of the PLQ Mall AEI?
A: The AEI is progressing across two floors and is on track for completion by end-2026. Uniqlo and Footlocker's space at Level 2 has been split into five units, with two signed and three still in leasing.
Q: What challenges does Milan Building 3 face?
A: Building 3 is only 51% occupied and saw no leasing progress this quarter. Management described the past six to nine months as among the softest periods on record for Milan leasing. Improved occupancy is needed before a divestment can be pursued at attractive valuations.
Q: What is the REIT's current dividend yield and valuation?
A: LREIT is trading at a FY27e P/NAV of 0.81x with a dividend yield of approximately 7.14%.
Q: What new competitive threats has management identified?
A: Management flagged aggressive low-cost Chinese e-commerce platforms as a new threat to multi-product stores across its malls, while some established food and beverage brands have been outcompeted by new entrants and mainland Chinese operators.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
Disclaimer
These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.
Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance.
Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries.
The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.
Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
