Lendlease Global Commercial Trust (LREIT) celebrates its fifth listing anniversary, marking a significant milestone in its journey of growth and success. Since its listing in October 2019, LREIT has demonstrated remarkable progress, increasing its assets under management by 2.6 times to $3.68 billion as at June 30. Its market capitalisation has also grown by 1.3 times to $1.3 billion as at June 30, following the REIT’s acquisition of Jem, underscoring the trust’s financial performance and strategic expansion throughout the years. LREIT’s sponsor continued to have a strong presence in Singapore with an asset under management (AUM) size of approximately $10 billion.
Kelvin Chow, CEO of the REIT’s manager, says: “Over the past five years, our REIT has achieved significant milestones, making history through the successful acquisition of Jem. Jem’s valuation gained 8.4% over the purchase price of $2,079 million in 2022.”
The way Chow sees it, the REIT’s listing has been a successful one and beneficial throughout the years so far. “We have secured a two-year electricity tariff contract for our Singapore portfolio at a lower rate to effectively hedge against volatile electricity markets. This would reduce utilities expenses by approximately 30% per annum for the next two years. Utilities expenses is one of the key expenses to REIT. The saving will help to improve the REIT’s performance,” adds Chow.
Over the past five years, LREIT has successfully navigated the complexities of the Singapore and Italy markets, where it is present. The REIT has managed to maintain high occupancy rates and positive rental reversions of 14.0% in FY2024 amid a volatile economic landscape. Tenant sales have been trending above pre-Covid-19 average levels and Chow expects the positive momentum to continue.
A new era
See also: CapitaLand China Trust remains the best proxy for a Chinese recovery
While Chow highlights the challenges the REIT faced especially during the Covid-19 pandemic, which heavily impacted and disrupted Singapore’s entire retail industry, he saw a “silver lining” in the situation, which held a valuable lesson for LREIT — change is inevitable and constant. “Being resilient and adaptable to change are two important qualities that we strongly believe in,” says Chow.
“Fast forward to today, if you look across the malls that Lendlease operates in Singapore, we understand the changes in consumer behaviour and we are embracing what motivates shoppers to visit brick-and-mortar stores. The redevelopment of the multifunctional event space adjacent to 313@somerset will create synergy and bring unique lifestyle and entertainment experiences to the Somerset precinct,” he adds.
With the suburban malls displaying signs of resiliency throughout the pandemic, LREIT seized the opportunity to acquire a stake of 31.8% in Jem in 2020, increasing to 100% in 2022. The acquisition made history in the industry. It was the largest capital fundraising exercise among peers relative to portfolio size, with approximately $1.7 billion raised.
See also: Proposed Japan and Singapore acquisitions to support ESR-LOGOS REIT’s ‘4R Strategy’
Through this acquisition, LREIT gained a stronger footing on sustainability, as its first sustainability-linked loan of $860 million formed part of the capital requirement. Since the establishment of its green finance in 2022, LREIT has achieved interest savings from the sustainability-linked financing. To date, approximately 85% of the REIT’s debt is sustainability-linked financing, the highest among S-REITs.
As for the Italian market, where LREIT has office assets in Milan, Chow shares that it provided a “very stable income” during the pandemic. But like all offices globally, there was a shift in working style, as businesses increased emphasis on flexible and collaborative work environments.
“Hence, in December last year, we pivoted our strategy to restructure our office lease to reduce tenant concentration risk and reposition one of the office buildings for multitenancy to secure market rent,” Chow says.
LREIT’s latest financial results for full-year FY2024 ended June 30 reflect its resilience, with 100% occupancy and a healthy retention rate of 84.9% in its retail segment. For its office segment, it obtained rental uplift of 1.2% for Building 1 and 2 of Sky Complex, effective from April 2024, while Building 3 is undergoing repositioning for multi-tenancy to secure market rents. Building 1 and 2 of the Sky Complex are fully leased to Sky Italia until January 2033, ensuring a steady revenue stream.
Leading the way in sustainable practices
Apart from its obvious growth in numbers, the REIT has also made substantial progress on the ESG front. In August 2022, LREIT was the first REIT in Singapore to achieve net-zero carbon status, nearly three years ahead of the original target of June 30, 2025.
“Following that, we adopted target-setting best practices by resetting the baseline year to FY2022 and set five-year environmental targets. This commitment towards sustainability will strengthen LREIT’s appeal to investors who prioritise ESG considerations,” Chow explains, adding that the group has outlined a roadmap for implementing initiatives and enacting operational changes to drive progress towards absolute-zero carbon
For more stories about where money flows, click here for Capital Section
target.
Some key initiatives include energy efficiency initiatives, implementing sensor technologies to optimise energy usage and energy-saving elevators; water-saving initiatives, implementing rainwater harvesting to collect rainwater for non-potable use; as well as food waste initiatives, where food waste digestors have been installed in malls to break down organic waste into usable by-products.
In addition to leveraging the group’s scope 3 emission protocol, it is working to enhance its green leases — a proactive approach to engaging tenants in collective efforts towards environmental responsibility. Through green leases, tenants are encouraged to actively monitor and manage their energy, waste and water usage, fostering a shared commitment to sustainability and resource efficiency.
Furthermore, the REIT has maintained its position as the Regional Sector Leader in the Global Real Estate Sustainability Benchmark real estate assessment (Asia Retail) for four consecutive years since listing. In 2023, LREIT was recognised as the Global Sector Leader (Retail), underscoring its dedication to responsible investment practices.
LREIT’s stake acquisition in Jem made history in the industry. It was the largest capital fundraising exercise among peers relative to portfolio size
Most recently, LREIT has demonstrated its commitment by joining the early adopter programme of the Sustainable Philanthropy Framework, an initiative by the National Council of Social Service. This framework outlines a strategic path for businesses to make a lasting social impact in Singapore.
In April, LREIT established an ESG Committee comprising four directors to oversee its sustainability strategy. This committee ensures that the company’s ESG efforts are aligned with evolving local and global trends. LREIT’s dedication to sustainability has earned it multiple awards, including an ‘A’ score in the Global Real Estate Sustainability Benchmark Public Disclosure for four consecutive years since its listing.
“With the increasing complexity and development of sustainability standards such as that of ISSB [the International Sustainability Standards Board], LREIT has established an ESG board committee to assist the Board in providing oversight on ESG matters and set strategic objectives, with a focus on value creation, innovation and sustainability,” says Chow, adding that the REIT will be adding a new sub-topic on Sustainable Supply Chain to Business Ethics and Governance. This sub-topic covers environmental and social screening of suppliers, and its supply chain management approach.
LREIT’s portfolio comprises all green buildings, which adhere to stringent environmental standards. The REIT remains focused on enhancing its ESG performance, aiming to further integrate sustainability into its business operations.
A strong foundation for growth
Governance remains a cornerstone of LREIT’s strategy. The REIT’s governance practices have been recognised. The governance component in the MSCI ESG Index improved to 7.2 points in July 2024, exceeding the industry average of 6.3 points.
To be sure, LREIT was awarded the Best Investor Relations (Gold award) under the REITs and Trust category of the Singapore Corporate Awards 2024 on Aug 27. This award recognises the REIT’s efforts in corporate governance and transparency, as well as adopting best practices in investor relations.
“Governance holds significant importance as it ensures that LREIT consistently operates with the best interests of its unitholders at the forefront. Upholding strong governance practices serves as a fundamental safeguard, enabling the REIT to make decisions that align with the long-term sustainability and prosperity of its stakeholders. Good governance is vital for building trust and confidence, providing a solid foundation for sustainable growth and resilience in the face of evolving market dynamics,” says Chow.
Looking ahead, LREIT has ambitious growth plans, including further diversification of its tenant base and the exploration of new market opportunities. The REIT’s forward-looking strategies and strong governance practices underscore its commitment to delivering value to its unitholders.
“While growth is the way to go, it is not without purpose. For us, expansion is not just about increasing the size of our assets under management. It is about having the capacity to do asset recycling — strategically selling properties while acquiring new ones,” says Chow.
LREIT will be adopting a prudent approach to balance growth and maintain financial stability. While looking out for opportunities, Chow emphasises that they have to align with the REIT’s stated purpose of delivering regular and stable distributions, long-term DPU and NAV per unit growth for unitholders.
“We have to ensure that distributions to investors remain stable and uninterrupted while we manage growth effectively,” he adds. As for inorganic growth, Singapore remains its primary focus if the opportunity arises.
Click here to learn more insights about REITs from the REITs Reiterated series.
