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.
Table of ContentsThe 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 REITHigher borrowing costs due to rising interest ratesOnly 61% of the borrowings are hedged to fixed ratesLendlease REIT will have its leverage limit capped at 45% and not 50% because its adjusted ICR is only at 1.9x (having issued perpetual securities)Sky Italia Building 3 will need to secure tenantsLower 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
