The manager has plans to optimise the remaining untapped gross floor area to maximise the full potential of 313@somerset. 

Lendlease Global Reit&rsquo s : JYEU -1.43% portfolio occupancy for the quarter ended Sep 30 fell 0.1 percentage point to 99.7 per cent, down from 99.8 per cent last quarter, said the manager on Monday (Nov 7).

 

Weighted average lease expiry (WALE) &ndash the mean time remaining on its leases &ndash stood at 8.5 years when adjusted by net lettable area (NLA) and 5.5 years when adjusted by gross rental income (GRI).

 

The Reit&rsquo s manager, however, highlighted a long WALE for its office portfolio at 12.7 years by NLA and 15.5 years by GRI. This will ensure a stable income for the Reit&rsquo s unitholders, said the manager.

 

Meanwhile, Lendlease Reit&rsquo s retail portfolio saw a 99.3 per cent occupancy in Q1 FY2023, driven by healthy leasing momentum.

 

&ldquo As at the period end, a positive rental reversion of approximately 1 per cent was recorded with a healthy tenant retention rate of approximately 69 per cent. Tenant sales for the first three months of FY2023 continued to surpass pre-Covid-19 average levels,&rdquo said the manager, adding that interest in leasing the atrium space of the malls has also risen.

 

In the near term, the manager has plans to optimise the remaining untapped gross floor area of 10,200 square feet from the Urban Redevelopment Authority Master Plan 2019 to maximise the full potential of 313@somerset and create new value for Lendlease Reit&rsquo s unitholders.

 

For Jem, while there is no additional plot ratio granted, the manager will look to convert spaces into leasable units to generate additional revenue.

 

The Reit has a gearing ratio of 39.4 per cent with gross borrowings amounting to S$1.415 billion. As at Sep 30, Lendlease Reit has undrawn debt facilities of S$172.2 million to fund its working capital, with over two-thirds of its borrowings hedged to a fixed rate.

 

Kelvin Chow, chief executive of the manager, said he expects the positive momentum driven by tourism recovery and a rising number of the return-to-office crowd to underpin the Reit&rsquo s performance for the financial year.

 

&ldquo In addition, we are looking to increase non-rental revenue, unlock savings through the adoption of smart technologies to improve the efficiency of the assets and reduce non-core expenses to cushion the impact from rising interest rates and utilities costs,&rdquo added Chow.

LENDLEASE strategically focuses on larger projects in more expensive markets like Singapore as they are better able to absorb the additional cost associated with greening the built environment, said Lendlease&rsquo s chief executive officer (CEO) for Asia, Justin Gabbani.

 

A test is the land cost make-up of a development&rsquo s capital value, he said, pointing out that any increase in construction cost would be more acutely felt where the land cost component is low.

 

Gabbani considers Singapore favourable as 60 to 70 per cent of a building&rsquo s cost in Singapore is the land itself, versus places like Malaysia and Sydney, where the land cost is about 20 per cent.

 

Gabbani was discussing how Lendlease financially justifies its decarbonisation efforts as the Australian Securities Exchange-listed real estate giant aims to be one of the industry&rsquo s first to achieve net-zero carbon for construction delivery in Asia.

 

Working with the supply chain to advance low-carbon material uptake and innovation is a critical step in decarbonising construction, but contractors in South-east Asia have lagged behind Europe and the US on this aspect, driving up the cost of going green.

 

To overcome this, &ldquo we tend to figure on bigger developments (in) higher capital value (markets) because then you can amortise the cost better&rdquo , he said in the Tuesday (Oct 18) interview.

 

Gabbani&rsquo s views were sought as two of Lendlease&rsquo s Asia funds and its Singapore-listed real estate investment trust (Reit) &ndash Lendlease Global Commercial Reit (LReit) &ndash emerged as regional leaders in the Global Real Estate Sustainability Benchmark (GRESB) rankings.

 

The rating that GRESB issues is one of the indications of whether a company or fund stands a good chance at obtaining interest rate savings from their sustainability-linked loans and bonds. Investors also look at the achievement of sustainability performance targets when making an evaluation, as sustainability-linked loans typically require a real reduction in an organisation&rsquo s carbon emissions. 

 

Lendlease has indeed been focusing on green financing, with LReit launching the largest sustainability-linked loan in the Singapore Reit market in the past 12 months. The S$860 million unsecured loan was intended to help the Reit fund its acquisition of a 100 per cent stake in Jem mall. 

 

Financing costs usually go up by 5 to 10 basis points if takers of such loans miss their sustainability targets, Gabbani said.

 

In meeting the targets, Lendlease&rsquo s approach in Singapore is to &ldquo go above and beyond&rdquo the Building and Construction Authority&rsquo s Green Mark certification, to &ldquo help write the next standard&rdquo , he said. 

 

The rationale: &ldquo If we lift the bar, that&rsquo s only going to bring the rest of the market up.&rdquo  

 

&ldquo I think that is coming and playing to fruition now,&rdquo Gabbani added. &ldquo Our partners, our investors, our tenants are moving towards wanting to be associated with that, and that&rsquo s helping us win projects, win work, win partnerships.&rdquo Lendlease&rsquo s latest win is the project to redevelop Singtel&rsquo s Comcentre headquarters into a S$3 billion sustainable workplace. 

 

Asked how the bar is raised, Joelle Chen, Lendlease&rsquo s sustainability director in Singapore, said it has looked into addressing the health and well-being aspects of a building by pushing for materials with low or zero volatile organic compounds, among others.

 

Chen added that Lendlease is working with the Singapore Green Building Council on some specifications relating to this for it to be recognised under the Green Mark.

 

Raising the bar is also in Lendlease&rsquo s interest as today&rsquo s green bond proceeds typically go towards funding green building projects, but these projects are increasingly becoming a norm, potentially making it harder for developers to stand out.

 

Sensitive to this, Gabbani said Lendlease has trended towards sustainability-linked notes, which hold entities to a higher account.

 

Even so, he is already anticipating the next version of such sustainability-linked lending options, which may be even more stringent in criteria. &ldquo Sure, there will be another innovation. It is an evolving market,&rdquo he said.

Standing amongst the retail titans

A growing Singapore-centric retail play

Lendlease Global Commercial REIT (LREIT) had announced the acquisition of the remaining stakes of the mixed development JEM back in February 2022. The deal stands as the largest suburban retail transactions this year at a deal size of S$2,079m. With LREIT&rsquo s first major milestone to fully acquire JEM under its belt, the value of investment properties has more than doubled from c.S$1.4b to S$3.6b over the span of 1.5 years.

JEM to deliver multi-faceted benefits to LREIT&rsquo s overall portfolio.  We see JEM complimenting LREIT&rsquo s overall portfolio in multiple ways. JEM is one of the most established and dominant malls in Singapore&rsquo s west and enjoys excellent transport connectivity located next to Jurong East MRT, a key transit station. The addition of JEM&rsquo s tenant mix to the overall portfolio will carve out new trade sectors within the necessity spending space including supermarkets and home furnishing

Rental income from suburban retail will now make up close to half (46.8% by portfolio valuation) of revenue as a newly carved out income stream. Suburban tenant mix will also add new trade sectors to LREIT&rsquo s retail portfolio to compliment 313@Somerset&rsquo s exposure, especially within the necessity spending space.

 

Distributable income to almost double on more diversified sources of income.  On a pro-forma 1H22 basis, NPI with the inclusion of JEM will more than double from S$29.6m to S$72.1m (including one-off impact due to COVID arising from rental rebates and discounts)  Distributable income will almost double from S$28.6m to S$57.2m for the same period. LREIT&rsquo s FY22 results exceeded our full year expectations with JEM&rsquo s acquisition delivering one quarter worth of rental contribution for the full year. We continue to expect further rental upside from JEM in FY23F primarily from higher reversionary rents, ancillary income and further NLA optimization within JEM retail

24-year office WALE under JEM to support income for the portfolio.  JEM&rsquo s office component also paints a familiar picture to LREIT&rsquo s Sky Complex, a master-leased office asset in Milan. The office component of JEM is fully leased to the Ministry of National Development of Singapore (&ldquo MND&rdquo ) on a long WALE of 24 years, a solid tenant to have in one&rsquo s portfolio. Portfolio portion of stable income will increase from the previous c.23.5% (including 31.8% ownership stake in JEM) to 24.9%.

Lendlease Global Commercial Reit (Lendlease Reit) on Monday (Aug 8) posted an improved second-half performance, with distribution per unit (DPU) gaining 4.9 per cent to 2.45 cents from 2.34 cents a year ago.

 

Gross revenue was 68.6 per cent higher at $62.5 million, following the acquisition of Jem in the second half of financial year 2022.

 

Net property income (NPI) for the real estate investment trust (Reit) grew 72.9 per cent year on year to $45.9 million in the second half, from $26.5 million earlier.

 

The total amount distributable to unit holders rose 55.6 per cent to $42.9 million in the second half of financial year 2022 from $27.6 million a year ago. The final distribution for the period from March 31 to June 30 will be paid out by Sept 30.

 

Meanwhile, for the full year ended June 30, DPU was 3.7 per cent higher at 4.85 cents, versus 4.68 cents last year. Distributable income grew 29.7 per cent to $71.5 million. Gross revenue was 29.3 per cent higher at $101.7 million, while NPI rose 32.7 per cent to $75.5 million for the full year.

 

Commenting on its Milan office assets, the manager said: " A faster recovery from Covid-19 and the increasing demand for spaces in line with ESG (environmental, social and governance) requirements should continue to support investment and leasing activities for the sector."

 

For its Singapore offices, the manager expected rental growth in the midterm to be supported by the rapid expansion in demand from the technology sector and limited new supply, with vacancy tightening further before the next wave of office supply in 2023.

 

Its fully leased office assets will continue to benefit and enjoy strong and stable cashflow, it added.

 

The manager was also confident that the Reit would benefit from an " increased exposure in the suburban retail segment and the high concentration in the essential services trade" as trade and travel-related sectors pick up pace post-Covid-19.

Its distribution per unit grew 4.9% year-on-year (YoY).

Tenant sales already exceed pre-covid levels. 

https://sbr.com.sg/commercial-property/news/lendlease-reit-net-property-income-327-yoy-in-fy22