Recovery intact
? Maintains high portfolio occupancy of 99.9% as at 3Q.
? Positive rent reversion, tenant sales at 313@somerset, close to FY20 level.
? Reiterate Add rating with a slightly lower DDM-based TP of S$1.05.
3QFY6/22 business update
LREIT’s 3QFY6/22 portfolio occupancy remained unchanged qoq at 99.9%, with
313@somerset (313) achieving an occupancy rate of 99.4%. Tenant retention ratio at 313
stood at 71.1% for the quarter. Sky Complex remained 100% occupied. As at end-3Q,
LREIT had managed to de-risk its lease expiry profile to a remainder of 3% of gross rental
income for 4QFY22F and 28% in FY23F. During the quarter, LREIT saw positive leasing
momentum at 313 and continued to adopt a proactive leasing strategy and strengthened
the tenancy mix at the mall, including changing the food court operator. In addition, part of
the utilised bonus gross floor area at 313 had been leased to new offerings such as PUMA,
which is slated to open in Jun 2022. Meanwhile, tenant sales YTD at 313 have recovered
to close to FY20 levels.
Positive rent reversion
According to management, LREIT enjoyed a positive single-digit reversion in 3Q. In terms
of cost management, management indicated that utilities costs account for 6-8% of total
opex. LREIT also guided that its current utilities contracts will be in place until next year
and LREIT will likely enjoy the lower existing contracted utilities rates. Interest rate hikes
and a weaker € are also less of an immediate concern for LREIT as it has hedged >90%
of its debt into fixed rates and has hedged close to 100% of € income for the next 1.5 years.
Contributions from Jem to be felt from 4Q onwards
The acquisition of the remaining stake in Jem was completed on 22 Apr. The impact of
new contributions from Jem is expected to be felt from 4QFY22F onwards. To recap, the
transformative deal boosted LREIT’s total portfolio NLA to c.2.2m sqft and expanded its
portfolio value to c.S$3.6bn, of which 47% is exposed to the more resilient suburban retail
sector. Post-acquisition proforma gearing as at Mar 2022 is 40.7%.
Reiterate Add rating
We tweak our FY23-24F DPU estimates up by 0.26-0.87% post update and fine-tune our
DDM-based TP to S$1.05. LREIT’s visible DPU growth will be underpinned by annual
rental escalations in c.60% of the mall’s NLA, the long lease at Sky Complex, the
redevelopment of Grange Road carpark as well as the full impact of contributions from
Jem. Re-rating catalysts/downside risks include accretive acquisitions/weaker rental
reversion.