1HFY24: DPU Augmented By Supplementary Rent In 2024 And 2025
LREIT achieved strong positive rental reversion of 15.7% (313@Somerset: 20%, Jem: 10%) in 1HFY24. Committed occupancy for its retail properties was stable at 99.6%. LREIT has received supplementary rent, estimated at S$13m and equivalent to 0.55 S cents per unit, from Sky Italia for Building 3. It will distribute the supplementary rent to unitholders over a two-year timeframe in 2024 and 2025. LREIT provides an attractive FY25 distribution yield of 7.6%. Maintain BUY. Target price: S$0.93.
RESULTS
• Lendlease Global Commercial REIT (LREIT) reported DPU of 2.10 S cents for 1HFY24 (- 14.5% yoy), which is slightly below our expectations of 2.27 S cents.
• Recognised supplementary rent from Sky Complex. Gross revenue and NPI increased 17.9% and 22.2% yoy respectively in 1HFY24 due to supplementary rent from lease restructuring with Sky Italia recognised in advance. The supplementary rent, estimated at S$13m and equivalent to 0.55 S cents per unit, will be distributed to unitholders over a two-year timeframe in 2024 and 2025. Excluding the supplementary rent, gross revenue increased by 5.1% yoy.
• Retail properties generated strong positive reversions. LREIT’s retail portfolio generated positive retail rental reversion of 15.7% in 1HFY24 (313@Somerset: 20%, Jem: 10%) (FY23: 4.8%). It maintained high committed occupancies of 98.9% for 313@Somerset and 100.0% for Jem. Tenant retention rate was healthy at 80.6%. Tenant sales increased 0.5% yoy. Essential services accounted for 57% of gross rental income.
• Option to pre-terminate removed from restructured leases. The lease expiry for Building 1 and Building 2 remains relatively unchanged in Jan 33, although Sky Italia has an option to renew for another six years. Sky Italia no longer has the option to terminate the leases in 2026. Rentals for Building 1 and Building 2 of Sky Complex have been revised upwards by 1.5% from the existing in-place rents due to the lease restructuring, on top of the recent positive 5.9% rental escalation in May 23.