Lendlease Global Reit's 313@somerset may see impact on rents during lease renewals

THE manager of Lendlease Global Commercial Reit (LReit) on Tuesday noted that the subdued retail sector and leasing demand may potentially depress 313@somerset's rents during lease renewals and when entering into new leases.

"Leasing activities are expected to remain soft due to weak demand against Covid-19 headwinds," it said in a business update for LReit's first fiscal quarter ended Sept 30.

"Retail tenants are adopting a wait-and-see approach and are recalibrating their cost structures, which may pose a challenge during lease renewal," the manager added.

Occupancy at the Singapore mall totalled 95.6 per cent by the end of September, although LReit's manager has secured a new tenant since then, which will improve the occupancy to 98 per cent.

Its tenant sales recovered to about S$42.6 million for July to September this year, more than triple that of S$11.7 million for the previous quarter and about 70 per cent of pre-Covid-19 levels.

Visitation also improved quarter on quarter, totalling 6.2 million people for the latest quarter, almost triple that of 2.2 million for April to June, and about 60 per cent of pre-Covid-19 levels.

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Domestic demand will continue to support the mall's tenant sales and visitor numbers, seeing as travel restrictions are still in place, LReit's manager said on Tuesday.

313@somerset's tenant retention rate held steady at 80 per cent during the quarter.

Meanwhile, Sky Complex in Milan, comprising three Grade-A office buildings, is fully leased till 2031, excluding the tenant's break option in 2026.

The tenant, satellite TV platform Sky Italia, has made all its rental payments in a timely manner with no rental waiver granted, LReit's manager said. This came as Sky Italia continued to operate its broadcasting business during the pandemic, with safe management measures in place.

The stable revenue from Sky Complex is expected to help protect LReit's income as the coronavirus pandemic takes a toll on the retail sector.

Overall, LReit's portfolio properties were almost fully occupied, although the occupancy rate edged down to 99 per cent as at Sept 30, from 99.5 per cent as at June 30.

Leases that are expiring by June 2021 make up about 3 per cent of net lettable area (NLA) and 12 per cent of gross rental income (GRI).

Thus, the weighted average lease expiry of LReit's portfolio amounted to 9.5 years by NLA and 4.9 years by GRI as at end-September.

LReit's gearing ratio was 35.6 per cent as at Sept 30, up slightly from 35.1 per cent as at June 30.

On Oct 1, LReit bought a stake in the Jem suburban mall in Singapore via a 5 per cent interest in Lendlease Asian Retail Investment Fund 3, for about S$45 million. The fund, managed by a subsidiary of LReit's sponsor Lendlease Corp, indirectly holds a 75 per cent interest in Jem.

This acquisition provides income diversification, as the office component of the property, accounting for about 35 per cent of NLA, is fully leased on a long-lease term to Singapore's Ministry of National Development, LReit's manager said.

LReit units rose 0.5 Singapore cent or 0.8 per cent to close at 61.5 cents on Monday.