{"id":146908,"date":"2025-03-21T03:05:15","date_gmt":"2025-03-21T03:05:15","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/rising-interest-rates-quadrupled-lendlease-reits-cost-of-debt-4x-from-0-88-2021-to-3-37-2024\/"},"modified":"2025-03-21T03:05:15","modified_gmt":"2025-03-21T03:05:15","slug":"rising-interest-rates-quadrupled-lendlease-reits-cost-of-debt-4x-from-0-88-2021-to-3-37-2024","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=146908","title":{"rendered":"Rising Interest Rates Quadrupled Lendlease REIT’s Cost Of Debt 4x From 0.88% (2021) To 3.37% (2024)"},"content":{"rendered":"


\n<\/p>\n

\"Lendlease<\/p>\n

When interest rates go up, it becomes more expensive for REITs to borrow money to refinance their loans, which erodes dividends.<\/strong><\/p>\n

This has a negative impact on Real Estate Investment Trusts (REITs), and Lendlease Global Commercial REIT (LREIT) is definitely feeling the heat.<\/p>\n

Over the last few years, LREIT\u2019s cost of debt has almost quadrupled, going from 0.88% in 2021 to 3.37% in 2024.<\/p>\n

Such a significant increase not only affects borrowing costs but also eats into the dividends that investors have come to expect.<\/p>\n

In a previous article, I did a similar exercise for Frasers Centrepoint Trust<\/a>. This time, let us do it for Lendlease REIT as well.<\/p>\n

In case you haven\u2019t realised it, I have a particular penchant for retail REITs and I like to write about the ones that I am interested in.<\/p>\n

Cost Of Debt Spiked For Lendlease REIT Since Fed Rate Hikes<\/h2>\n

Borrowing costs have hovered at a two-decade high for nearly a year and this has placed tremendous stress on REITs. ,<\/p>\n

When REITs need to refinance their existing loans (which were secured at a much lower cost in the past), they have to borrow at much higher rates now.<\/p>\n

The table below illustrates the average cost of debt of Lendlease REIT since the pandemic days in 2021 to the present day.<\/p>\n

\"1<\/a><\/figure>\n

The dates listed in the first column of the table correspond to Lendlease REIT\u2019s release of financial results, which shows how harsh the interest-rate environment has been, and why the prices of REITs have tanked.<\/p>\n

\"2\"2<\/figure>\n

The cost of debt for Lendlease REIT has almost quadrupled since 2021, going from 0.88% to 3.37%. This eats into the income generated by the portfolio of properties. And yes, it is definitely a little higher than I would have liked.<\/p>\n

In comparison, it is still significantly lower than Frasers Centrepoint Trust\u2019s 4.20% as of April 2024<\/a>, whereas CapitaLand Integrated Commercial Trust (CICT) is clocking in at 3.50%.<\/p>\n

In the table above, I have also included gearing and the percentage of debt that is hedged to fixed rate.<\/p>\n

Remember that REITs use borrowed money (loans) to manage their daily activities (operations), buy new properties (acquisitions), and improve existing ones (asset enhancement initiatives, i.e. AEI).<\/p>\n

This is why gearing, cost of debt and percentage of debt pegged fixed rates are important.<\/p>\n

REITs don\u2019t ever fully repay their debts<\/strong>\u00a0but only service the interest expense on their loans. Therefore, the cost of debt is an important factor affecting REITs\u2019 yield.<\/p>\n

\"3\"3<\/figure>\n

Looking at the debt maturity profile, the borrowings are spread out over five years, but of course, a not insignificant portion of debt maturity in FY2025 needs to be addressed.<\/p>\n

Expensive Perpetual Securities Adds To The Debt Complexity<\/h2>\n

In particular, I want to highlight that Lendlease REIT has used expensive perpetual securities<\/a> that is not reflected in gearing.<\/p>\n

Lendlease REIT has launched two tranches of perpetual securities of SGD $200 million each.<\/p>\n

The first tranche was issued in May 2021, and the second tranche was issued in April 2022.<\/p>\n