Lendlease Global Commercial REIT announces SGD PerpNC3 subordinated bond at 5.00% IPG

Lendlease Global Commercial REIT (“LREIT”) plans to issue an SGD NC3 perpetual security (“perp”) at the initial price guidance (“IPG”) of 5.00%. The newly announced perp is expected to be issued on 28 February 2025, with a first call date of 28 February 2028. If uncalled, the coupon on the perp will reset based on the prevailing 3-year SGD SORA-OIS plus the initial spread to be determined upon issuance.

The proceeds from this new issuance are intended for refinancing the SGD 200m LREIT 5.250% Perpetual Corp (SGD), as well as other general working capital and capital expenditure requirements of the issuer. Both the issuer and the new issue are unrated. Lastly, we wish to highlight that this new issuance is made available only to accredited and institutional investors.

LREIT invests in a diversified portfolio of stabilized income-producing real estate assets located globally, primarily for retail and office purposes. Its portfolio value stands at SGD 3.68b as of 30 June 2024, of which 90% are located in Singapore (JEM and 313@Somerset) and 10% in Italy (Sky Complex, Milan). LREIT is managed and sponsored by Lendlease Corporation, a part of Lendlease Group – a market-leading Australian integrated real estate group with footprints across the globe. We note that while LREIT is unrated, Lendlease Group is rated BBB- and Baa3 by Fitch and Moody’s respectively, with a ‘Stable’ outlook by both.

For the six months ended 31 December 2024 (“1H25”), LREIT reported a drop in both revenue and net property income (“NPI”) year-on-year (“YoY”). Gross revenue fell from SGD 119.9m in 1H24 to SGD 103.6m in 1H25, while NPI declined from SGD 93.4m to SGD 74.9m during the same period. LREIT highlighted that 1H24 revenue and NPI included the upfront recognition of supplementary rent received from the lease restructuring of Sky Complex previously in December 2023. Excluding the impact of supplementary rent on 1H24 results, on a pro-forma basis 1H25 revenue would be up +0.4% YoY while NPI will be slightly down by 2.2% YoY.

Meanwhile, finance costs increased by +4.4% YoY for LREIT, rising from SGD 32.7m in 1H24 to SGD 34.2m in 1H25. Owing to the lower NPI and higher finance costs, LREIT’s distributable income fell from SGD 49.3m to SGD 43.5m during the same period, seeing a -14.3% YoY drop in DPU.

LREIT’s portfolio of properties stands relatively resilient, with an overall portfolio occupancy of 92.3% as of 1H25. Of which, its retail portfolio sees an occupancy of 99.9% while the office portfolio is at 86.6%. Across both portfolios, retail saw a positive rental reversion of +10.7% YoY while office saw a rental uplift of 1.2% YoY. The weighted average lease expiry (by NLA) is at 7.2 years, which should help with sustaining the high portfolio occupancy.   

On LREIT’s credit profile, gross borrowings remained roughly flat across the quarter with a marginal increase from SGD 1,554m as of 1Q25 to SGD 1,565m as of 2Q25. All of LREIT’s borrowings are unsecured, with 70% of the borrowings being fixed-rate. It reported a drop in the weighted average cost of debt quarter-on-quarter (“QoQ”), falling from 3.74% (1Q25) to 3.57% (2Q25).

LREIT’s gearing ratio rose slightly from 40.7% (1Q25) to 40.8% (2Q25), owing to the slight increase in gross borrowings but still has some headroom to the MAS limit of 45%. Meanwhile, we note that LREIT’s adjusted interest coverage ratio (accounting for perpetual distributions) is relatively weak at just 1.5 times.  

While LREIT sees about SGD 480m borrowings to mature in the next one year, the management has obtained SGD 560m unsecured sustainability-linked loan facilities for the refinancing of loans maturing in April and September 2025. As a result, LREIT does not have any outstanding refinancing needs for 2025 (i.e. for their FY25 and 1H26 reporting). The remainder of LREIT’s borrowings are well-distributed across FY26 to FY29. We see minimal liquidity concerns for LREIT at the moment, given the current cash position of SGD 45.3m and undrawn debt facilities amount of SGD 156.1m.

Table 1 – Comparable SGD perpetual securities

Issue	Ask Price	Yield to Call	Years to Call	Reset date and rate
LREIT Perpetual Corp (SGD)*	100*	5.00%*	3.00*	28 February 2028 SGD 3Y SORA-OIS + Initial Spread*
LREIT 4.200% Perpetual Corp (SGD)	99.67	4.47%	1.29	4 June 2026 SGD 5Y SOR + Initial Spread (3.24%)
EREIT 5.500% Perpetual Corp (SGD)	100.92	5.07%	2.30	9 June 2027 SGD 5Y SORA-OIS + Initial Spread (2.958%)
EREIT 6.000% Perpetual Corp (SGD)	100.95	5.76%	4.50	20 August 2029 SGD 5Y SORA-OIS + Initial Spread (3.58%)
MAGIC 3.500% Perpetual Corp (SGD)	98.83	4.44%	1.30	8 June 2026 SGD 5Y SORA-OIS + Initial Spread (2.53%)
MLTSP 4.300% Perpetual Corp (SGD)	102.10	3.79%	4.51	22 August 2029 SGD 5Y SORA-OIS + Initial Spread (1.871%)
ARTSP 4.600% Perpetual Corp (SGD)	103.23	3.88%	4.97	7 February 2029 SGD 5Y SORA-OIS + Initial Spread (1.957%)
KITSP 4.750% Perpetual Corp (SGD)	103.29	3.91%	4.31	12 June 2029 SGD 5Y SOR + Initial Spread (2.737%) + 100 bps step-up margin
Sources: Bondsupermart, iFAST Compilations. Data as of 19 February 2025. *Yet to be issued and yield might see a downward adjustment on the final price

While overall performance has been stable for LREIT across recent years, its credit metrics look slightly weaker as compared to similar retail and office REITs. Accounting for the potential downward adjustment in the final price guidance, we believe the new issuance will be fairly priced in contrast to its credit profile.

On the other hand, we note that LREIT’s new issuance compares well against its other perp - LREIT 4.200% Perpetual Corp (SGD), and also perps by other REITs. Investors may consider the LREIT new issuance for the relatively shorter years to call as compared to the other perpetuals of ~5 years.  

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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