Lendlease Global Commercial Italy Fund, the landlord of Sky Complex, has entered into a new lease agreement with its tenant, Sky Italia, announced Lendlease Global Commercial REIT JYEU (LREIT) on Dec 18. Sky Complex comprises three buildings. Buildings 1 and 2 are located at Via Luigi Russolo 4, 20138 Milan, Italy, and Building 3 is located at Via Luigi Russolo 9, 20138 Milan, Italy.
The original lease for Sky Complex was due to expire in May 2032 and subject to an option held by Sky Italia to terminate its lease in 2026.
Under the terms of the new lease, Buildings 1 and 2 will be leased to Sky Italia for an initial term of nine years and one month starting from Dec 15, 2023. Sky Italia is also given the option to renew for an additional term of six years. It will not have the right to pre-terminate the new lease.
The starting annual rent for Buildings 1 and 2 will be about 1.5% higher than the existing in-place rent for both buildings based on the original lease. The increase is in addition to the recent positive 5.9% rental increase in May. The new lease also includes a tenant incentive in line with market standards.
Under the new lease, Sky Italia will return Building 3 to Lendlease once the reinstatement works are completed. Sky Italia will also pay the landlord an amount that’s equal to around two years of the building’s existing annual rent.
Once Building 3 is returned, Lendlease will redesign the building for multiple tenants. The transition will reduce its single-tenant exposure to Sky Italia while broadening the tenancy base for the property.
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After the lease restructuring, the percentage of LREIT’s portfolio tenant base in the broadcasting sector will be reduced on a pro forma basis to 10.2% as at Sept 30 by monthly gross rental income, down from 13.6%.
According to Lendlease, the REIT will be able to enjoy long-term stable cash flow without the risk of pre-termination in addition to lowering its tenant concentration risk with the new lease. It will also enjoy rental growth on both Buildings 1 and 2 while having Building 3 securing multi-tenancies at market rents.
The lease restructuring is not expected to materially impact LREIT’s distribution and net asset value (NAV) for the FY2024 ending June 30, 2024.
As at 10.04am, units in LREIT are trading 2 cents lower or 3.05% down at 63.5 cents.
