More revenue and great rental revisions, but the Macro risk still hovers with low ICR.

Added: 2026-05-31

[00:00:00]Okay, good day, fellow investors. This is Lendlease Global Commercial REIT the quarter FY 2026 business update data 18 May 2026.

[00:00:09]Right, the quarter highlights, we can see positive rental reversion of 12.12% uh achieved in the quarter FY 2026.

[00:00:17]Right, positive rental uplift of 1.5% for office building in one and two in Milan effective uh April 2026. Right, but Milan is the issue with occupancies, uh. Right? So, uh they completed their 30% interest rate in PLQ as of the last video that we talked about because that was the first half 2026 results. Right, achieving full ownership to drive asset initiatives.

[00:00:43]Right, so there are some There are two positive drivers for this video, uh. If you Even if you explore their positive rental revisions, which is pretty good.

[00:00:52]Right, so uh one of them is they they can They're trying to make more retail space in PLQ. Right, on top of the fact PLQ is doing well, then uh they're also uh finally making progress on their uh Orchard Road open space, uh. Right, which we'll talk about later, right? So, occupancy has gone up slightly 95.3% and 94 from 94.9%, uh. Okay. Uh tenant sales up 17.6%, right? But, if you exclude PLQ mall is 2.5% year on year, which I think is the more realistic performance, uh. Right, because the sales if you include PLQ when last year the PLQ is not fair. So, the 17.

[00:01:33]6% is a bit bloated. Right, there's enhancement works at PLQ mall target for completion of 4 and 2026 to support higher rental rates, uh. So, I think what this means is they have extra space at PLQ now that they fully own the mall, they can do uh pull out extra space to uh support more rent to be collected. Right, electricity has been contracted at fixed rates until FY 2028. Right, this they risk against potential rate hikes. Right, so this is a good thing.

[00:02:02]They already did this in the last uh report. So, it's a good thing because they did this before the uh Iraq war. All right, so uh I believe it was before the Iraq war.

[00:02:12]So, I believe that their electricity rate should be decent good.

[00:02:15]All right, I think this new CEO is not bad. The old CEO really uh messed up the REIT.

[00:02:21]All right, gearing has gone down slightly to uh 37.5% right, but their interest coverage ratio is still be high. And also, they have about $80 million worth of debt outstanding that they haven't go and fixed because they issued perpetual securities at $180 million, but they had to refinance $200 million perpetual securities. Right, so this is another big problem with the REIT. Their perpetual securities uh is very high. So, even though their gearing ratio looks okay, right? Like 38.7% or 37.5%, but their real gearing is more likely closer to 45%.

[00:02:55]All right, if I just make a rough estimate. All right, because their interest coverage ratio is very low. All right, and that's a potentially a ticking time bomb. All right, okay, it's not as bad as it seems, but but I'll explain that later.

[00:03:08]All right, so uh they completed refinancing of PLQ Mall loans uh $2 million all in debt savings cost, which is fine. So, that's a good thing. The rest I won't talk too much about. All right, so this one I think they're trying to reconfigure space and PLQ Mall to produce more space uh as far as I understand it. All right, so this should be able to get uh better rental rates.

[00:03:29]All right, so PLQ Mall should help to drive uh their revenues up.

[00:03:34]Okay, occupancy is not 100% because of the Milan side. All right, uh retail rental reversion is pretty good and healthy at 12%.

[00:03:44]All right, uh tenant sales we already discussed more like 2.5%. I think 17.6% is a bit on the high side and bloated.

[00:03:52]All right. Uh average uh weighted average lease expiry is 4.7 years.

[00:03:57]Tenant retention 62.5%.

[00:04:01]Office rental reversion is quite poor.

[00:04:03]The office side they should just carry on selling off if they can. All right.

[00:04:07]Then uh in terms of borrowings, slight drop in the cost of debt. All right. So, the concern right now is the $80 million that they have not uh refinance. What kind of rates are they going to get that at? My concern is that it's possible that this will increase the cost of debt rather than decrease it. All right.

[00:04:28]Because uh they this debt was originally, you can see the $200 million, right? It was 5. uh 25%, right? Yeah.

[00:04:38]Yeah, they didn't say, but I think it's 5.5% if I remember correctly. Right. The new debt $120 million is 4.28%. So, uh they actually managed to get cheaper at the $120 million that was cheaper than the $200 million that that they have to pay off, right? So, actually this was a net positive. But actually I think they should have just done the whole $200 million at 4.28. But I'm not sure if it was a demand issue. All right. So, the $80 million left may actually cause cost of debt to go up slightly. That's my opinion because the current environment is not very good for refinancing.

[00:05:15]Right. Interest coverage ratio is 1.8 times, right? Which is uh much better than in the past. I think in the past it was 1.6 times. So, very very close to 1.5. If you get to 1.5 times interest coverage ratio, all right, uh you have some issues. All right. The interest coverage ratio part you shouldn't go below 1.5 times. All right. So, this is the uh issue with uh going below 1.5 times interest coverage ratio. All right. So, MAS actually requires REITs to maintain uh trailing uh minimum trailing 12-month interest coverage ratio of 1.5x, right?

[00:05:50]So, that's how they calculate it, but so EBITDA but uh divide EBITDA by interest expense and distributions on hybrid securities. So, interest coverage ratio and gearing, the difference is that gearing don't include perpetual securities, right? Which which is hybrid securities, but interest coverage ratio does cover it. So, if you really worry about it, actually a better metric to look at is interest coverage ratio. Right? So, if you interest coverage ratio falls below 1.5x, it's considered breached. They cannot borrow any more money. Right? And uh they can still refinance their debt. They can still pay dividends, but the also dividends dropping is actually quite high. All right? So, that's the concern with this uh going below 1.5x. And what's the probability of going below 1.5x? I think uh 10% decrease in EBITDA is uh I don't think super likely because most of their assets are now malls that are very high demand, but the bigger concern is 1% increase in interest rates, but uh I don't think the Fed will increase by 1%, right? Every time they increase interest rates, normally it's 0.25%, right? So, it's not that likely that they will breach this uh interest coverage ratio threshold, but it's something to look out for. All right? And And what One of the reasons why this REIT was so badly uh damaged uh in the recent few years, especially in the rising interest rate environment. Okay? So, they were they were all worried, and they're still rightfully so worried about their interest coverage ratio. Okay? It's still very low. Okay? 1.8 is still very low. Right? So, uh yeah, you can see the details on uh perpetual securities. All right? MAS has a uh single leverage uh single aggregate leverage limit of 50% for all REITs.

[00:07:34]Currently, it's 45% if you have uh it's at 40 Okay, currently, the aggregate leverage cap for REITs is 45% or if you have uh ICR of at least 2.5 x the rate can go up to 50%. All right, so if your interest coverage ratio is greater than 2.5 x actually the rate gearing can go up to 50%. All right, but for Lendlease it doesn't apply that. So, they are kept at 45%. All right, because their interest coverage ratio is only 1.8 x. All right.

[00:08:01]Uh I don't think I'll talk too much about this all right. So, this was just some discussion from OCBC and then I took online. All right. Anyway, coming back here there's no debt to be refinanced in FY 2026 which is decently lucky for them, all right, because I think >> [laughter] >> it's going to go up the cost of interest rates, but FY 2027 uh which is not too far away also is already yeah, it's only about one quarter away.

[00:08:27]They still have about $200 million uh to refinance. So, this one we have to watch the interest rates on that. Likely the interest rate go up if the war doesn't end.

[00:08:37]All right, uh very little expiry over uh one quarter left, all right. So, don't expect too much from the rental revisions bringing up revenue. All right, FY 2020 seven also not that much, all right. You can see 7.3% by NLA and 15.9% by GRI.

[00:08:57]All right, so a lot of their leases are pretty long-term. So, actually if you look at the rental revisions it may not be that good as uh it appears to be because if you 12.

[00:09:08]uh uh 12% revision over four years, right.

[00:09:11]That means the next four years you're not going to get any increase in rental revisions. All right, although you front load the the revenue uh collection which is that is a good thing. All right, you can see quality retail side, right. PLQ Mall, Jem, and Somerset 313 are more or less all full, right. Office is the weak side, but luckily office is 10% only, all right. Hopefully they're going to sell off their Milan office so that the whole asset as a whole I think they can be revalued higher without the office side. Right?

[00:09:41]I think I won't talk talk too much about this, all right? Uh they don't look like they want to do any more acquisitions, huh? Hopefully, all right? Uh so, they're just going to try and unlock value from PLQ as well as they will try to uh do the last thing, which is the space near 313. All right? They try to open that up soon, hopefully. Okay? So, uh we'll just have a look at a little bit of this. I don't think there's too much to say, lah. But, rental yields across all This is across Singapore, lah. Orchard Road rent increased by 2.1% year-on-year. Suburban rent uh 1.4% year-on-year, right? So, islandwide 2.2%, right? So, I think their malls are better than average, lah, in general.

[00:10:22]All right? Uh Yeah, I don't think worry too much about Milan, lah.

[00:10:31]Yeah. Okay. So, anyway, this is their uh stats, all right? Dividend is actually selling 1 cent, right? Uh dividend yield is 6.9% based off the price of uh 53.5 cents, but the price has gone up, lah. I think it's around 56 cents now, right?

[00:10:48]So, maybe dividend is maybe 8 points uh 6.7%, right? You have to decide if this is uh worth the risk of the interest coverage ratio dropping below 1.5x and perhaps dividends being cut in a very bad interest rate environment, right? Uh not sure why they have a little bit of Somerset that they didn't fully buy, lah. But, the other hope is this one, all right? I hope they don't carry on buying by the by, all right? Because uh please no more debt.

[00:11:14]They just dropped their debt, so let's keep it that way. In fact, I think they should drop their debt further, right?

[00:11:19]And this uh development of multifunctional event space at Somerset.

[00:11:23]This one has been in the works for a very long time under the old CEO, and they just never got it running, right?

[00:11:29]And hopefully, they can complete it second half 2026, which means that there are two uh uh drivers of possible increase in DPU in uh FY2027, all right? So, uh yeah, that's the end, all right? If you wish to uh watch other things related, all right? You can watch this perpetual securities article I did of uh which was written by DBS, but I explain what perpetual securities are, and also you can look at the dividend history and other issues with this REIT. Okay, with that, I thank you for listening, all right? Uh have a good day.