Portfolio occupancy inched up as new leases were signed in Sky Complex, Milan. Malls in Singapore maintained near-full occupancy with mid-teens rent reversions. However, gearing and funding cost inched up due to capex drawdown and hedge repricing.
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Resilient operations
Portfolio occupancy was 88.8%, inching up from 87.9% in 2QFY24. This was on the back 8.1% of the NLA of Building 3 of Sky Complex securing commitments at market rents. Retail portfolio occupancy was 99.4% vs 99.6% in 2QFY24.
Tenant sales increased 2.6% y-o-y in 3QFY24, reversing from a decline in 2Q. Footfall increased 6.1% y-o-y in 3Q.
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Gearing & funding cost up; pose downside risk to distribution
Lendlease REIT's gearing rose from 40.5% to 41% as ~S$20m of debt was drawn down for capex in Sky Complex Building 1 and 2. According to management, tenant Sky Italia also contributed to the capex. Funding cost increased from 3.37% to 3.5% q-o-q and the adjusted interest coverage ratio fell to 1.8x from 1.9x.
We expect Lendlease REIT's gearing and funding cost to rise as capex related to Building 3 is drawn down unless it is funded from the ~S$13m of supplementary rental income received from the restructuring of leases. That in turn will pose downside risk to distribution.
While management can acquire an incremental stake in Parkway Parade, divestment is more in focus. Enquiries have been fielded for the Jem office component, though management is seeking a more optimal price.
Interestingly, last week Lendlease REIT set up a S$500m multi-currency Euro commercial paper programme to issue short-term (less than a year) notes.
Maintain BUY
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Above is an excerpt from a report by Maybank Research. Clients of Maybank Securities may be the first to access the full PDF report @ https://www.maybanktrade.com.sg/.
