Lendlease REIT 1H FY2024 Update (Jul 2023 To Dec 2023) | Turtle Investor (2024)

Lendlease REIT released the presentation of the results for the first half of the financial year 2024, which ended on 31 December 2023.

I took a closer look to see if everything was smooth sailing or if there were any bumps in the road.

The Important Things First

The one thing that stood out was that the lower DPU was primarily due to higher borrowing costs amidst the higher interest rates.

No surprises there. All REITs are suffering.

Even if you haven’t been paying attention, the daily news would inevitably shove it in your face that we are going to be staying higher (interest rates) for longer.

Nothing will improve in the short term, so investors are basically being paid to wait.

Meanwhile, single-tenant exposure to Sky Italia for the Milan property has reduced from 13.6% to 10.2% by gross rental income.

Sky Italia has made an upfront payment equivalent to approximately two years of the prevailing annual rent of Building 3 for returning the building early.

Buildings 1 and 2 remain leased to Sky Italia till January 2033 for long-term stable cashflow without pre-termination risk.

Building 3 will need to be repositioned to secure multi-tenancies at market rents, and I’m not sure if the environment out there is exactly that positive right now.

👎 Bad News For Lendlease REIT

• Higher borrowing costs due torising interest rates
• Only 61% of the borrowings are hedged to fixed rates
• Lendlease REIT will have its leverage limit capped at 45% and not 50% because itsadjusted ICR is only at 1.9x (having issued perpetual securities)
• Sky Italia Building 3 will need to secure tenants
• Lower occupancy (mainly due to the lease restructuring with Sky Italia)

👍 Good For Lendlease REIT

Looking past the negatives, there are some green shoots to be happy about.

• Gross revenue increased by 5.1% YoY (excluding supplementary rent from the lease restructuring with Sky Italia)
• No refinancing risks until FY2025
• Retail portfolio positive rental reversion 15.7%
• Grange Road event space updates

Portfolio Value by Geographic vs. Asset Class

Singapore continues to account for approximately 88% of the portfolio by valuation, which is what attracted me in the first place. These local properties are extremely resilient and stable.

• 313@Somerset – Prime retail (28%)
• Jem & Parkway Parade – Suburban retail and office (60%)
• Milan – Overseas office (12%)

Grange Road Open-air Car Park(Q4 2024)

Let’s take a short trip back in time to the pre-pandemic era.

• October 2019 –
  URA, STB and the Singapore Land Authority announced that the open-air car park at Grange Road beside 313@somerset will be turned into an event space for flea markets and pop-up attractions.
• June 2020 –
  Lendlease REIT won a tender to redevelop the 48,200 sq ft space and will collaborate with Live Nation to create a calendar of concerts and events for the site.
• April 2024 –
  In an update on Wednesday, STB said the site will accommodate 3,000 people and is expected to be ready in Q4 2024. In the grand scheme of things, I don’t think the financial impact will be significant, but the synergy is going to be complementary for 313@somerset, and it would be nice to get this nagging item out of the way.

Ending Thoughts On LREIT

At the end of the day, there isn’t really anything new that I didn’t already know about.

Earlier, I had picked up some units of Lendlease REIT when the share price was battered.

I am sitting tight and collecting biannual distributions while waiting for the interest rate situation to improve.

The official Lendlease REIT 1H 2024 financial results can be found here.

More About Lendlease REIT

• Lendlease REIT Results 2023 H2 DPU $0.0225 (Down 8%)
• Lendlease REIT Vs Paragon REIT – Battle Of Small Singapore Retail REITs
• Breaking Down Lendlease REIT Debt Profile For A Layman Like Myself
• Lendlease REIT Improves Suburban Retail Exposure By Acquiring 10% Of Parkway Parade Partnership
• Why Invest In LendLease REIT Although I’m Already Using Syfe REIT+? (2023)