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LREIT maintains portfolio resiliency in 1QFY2023

Samantha Chiew
Samantha Chiew • 4 min read
LREIT maintains portfolio resiliency in 1QFY2023
LREIT has managed to maintain its portfolio resiliency in 1QFY2023.
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in its latest 1QFY2023 ended September business update, Lendlease Global Commercial REIT (LREIT) announced that it has managed to maintain its portfolio resiliency.

Its portfolio committed occupancy remained high at 99.7% with a long weighted average lease expiry (WALE) of 8.5 years by net lettable area (NLA) and 5.5 years by gross rental income (GRI).

The REIT’s manager had de-risked leases expiring for the year to 8.0% (from 11.9%) by NLA and 14.5% (from 23.9%) by GRI, in the first three months of FY2023.

The REIT boasts a long WALE of 12.7 years by NLA and 15.5 years by GRI for its office portfolio, saying that this will ensure a stable income stream for its unitholders.

The manager has also mentioned that LREIT’s office rental escalation increased approximately 4% in 1QFY2023, which results in stable cashflow for its unitholders.

Jem continues to be well-placed to tap the upcoming transformation of Jurong Gateway and the surrounding manufacturing and industrial landscape as part of the government’s decentralisation efforts. Its Grade A office building is leased to the Ministry of National Development till 2044 with a rental review every five years.

See also: Cordlife posts net loss of $11.57 mil for 1QFY2024 due to refund fulfilment

Meanwhile, the Milano Santa Giulia business district, where Sky Complex is located, was awarded LEED Neighborhood Development Gold certification. The certification is a globally recognised symbol of achievement and a benchmark for quality of life and sustainability.

On the other hand, the REIT’s retail portfolio was supported by the return of tourists, as well as its resilience suburban mall.

LREIT’s retail portfolio maintained its high committed occupancy rate of 99.3% as at Sept 30. The strong occupancy was driven by healthy leasing momentum and the manager’s proactive leasing strategy which focuses on curating unique F&B and retail options to keep the malls vibrant for its shoppers.

See also: Changi Airport Group reports FY2024 earnings of $431 mil, 13.1 times higher y-o-y

As at the period end, a positive rental reversion of approximately 1% was recorded with a healthy tenant retention rate of approximately 69%. Tenant sales for the first three months of FY2023 continued to surpass pre-Covid-19 average levels.

The manager has also seen an increasing interest on leasing of the atrium space at the malls. In the near-term, the manager is looking to optimise the remaining untapped gross floor area of 10,200 sqft from the URA Master Plan 2019 to maximise the full potential of 313@somerset and create new value for LREIT’s unitholders.

For Jem, while there is no additional plot ratio granted, the manager is constantly looking to convert spaces into leasable units to generate additional revenue.

As at Sept 30, gross borrowings were $1,451.1 million with a gearing ratio of 39.4%. Approximately 63% of its borrowings are sustainability-linked financing, which are expected to generate net interest savings to LREIT’s unitholders. The weighted average debt maturity was 2.8 years with a weighted average cost of debt of 2.24% per annum. LREIT has an interest coverage ratio of 6.9 times, which provides ample buffer from its debt covenant of 2.0 times.

As at the period end, LREIT has undrawn debt facilities of $172.2 million to fund its working capital. All of its debt is unsecured with approximately 61% of its borrowings hedged to fixed rate.

Looking forward, the manager says that it will continue to be vigilant in maintaining a healthy balance sheet and prudent cash flow management.

Kelvin Chow, CEO of the manager says: “We are encouraged to see the gradual return of tourists and an increased return-to-office crowd. Alongside LREIT’s exposure in the suburban retail segment and the high concentration in essential services trades at 59% (by GRI), the positive momentum will continue to underpin LREIT’s performance for FY2023.”

“In addition, we are looking to increase non-rental revenue, unlock savings through the adoption of smart technologies to improve the efficiency of the assets and reduce non-core expenses to cushion the impact from rising interest rates and utilities costs,” he adds.

Units in LREIT last traded at 70 cents on Nov 4.

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