1QFY23 Update – [email protected] tenant sales blooms to c.125% of normalised levels
- Key positives: (i) [email protected] sales blows past expectations, reaching c.125% of normalised levels in the quarter, (ii) Footfall gap narrows to just c.10% below pre-COVID levels, (iii) Cost of borrowing stable q-o-q given margins compression unlocked through sustainability-linked loans
- Datapoints to watch: (i) Higher reversions moving forward as occupancy cost shrinks a further c.10% at [email protected], (ii) Potential delays in Grange carpark completion vs our forecast (to complete by CY mid-23)
- TP under review
Tenant sales at [email protected] surges to c.125% of normalised levels in the quarter
- Portfolio occupancy remained stable at 99.7%, against 99.8% as at end FY22.
- Retail reversions was at a positive c.1% while office reversions was stronger at c.4% on annual escalations.
- Wale stood at 5.5 years by GRI, with 14.5% of leases by GRI expiring for the rest of the financial year.
- On a portfolio basis, tenant sales continued to surpass pre-COVID levels in 1QFY23, with sales at [email protected] surging to c.125% of pre-COVID levels in the quarter, far out-pacing our expectations
- Footfall gap against pre-COVID has also moderated c.90% of pre-COVID levels.
- New portfolio tenants include Japanese fashion brand Bathing Aape and Ramen chain Kanada-Ya.
Margin compression unlocked with sustainability-linked loans
- Gearing ratio stood at 39.4% with average cost of debt of 2.24%.
- Approximately 61% of borrowings are hedged on fixed rate, with a weighted average debt maturity of 2.8 years.
- Sustainable financing accounts for c.63% of total borrowings, which saw some margin compression during the period from LREIT’s sustainability-linked loans.
- LREIT attained net zero carbon this year, ahead of their original target of 2025.
- ICR ratio stood at 6.9x.
- Loans due in FY23 has been refinanced to FY28, with c.28% of loans that is denominated in Euro dollar up for renewal in FY24.
Grange carpark to see potential delays against our forecast; Expect higher reversions moving forward
- We observe that Grange carpark is still within early stages of construction and we see potential delays against our initial forecast (completion in mid-23 calendar year).
- Given 1 – 1.5 years of construction, completion might be pushed back 1 year against our forecast to complete in CY 1H24.
- Asset enhancements continue to be explored by LREIT to further unlock plot ratio within the retail segment of the portfolio.
- Given the robust tenant sales performance at [email protected], occupancy cost has further reduced by 10%.
- We foresee stronger reversions going forward in the range of a mid single-digit to drive reversionary rents for the retail portfolio going forward.
