Bond Reviews: Commercial Property Sector

Following the deadline for the majority of bond issuers and their guarantors to publish their updated Financial Analysis Summary (FAS), over recent weeks I published a short overview of some of the main findings and financial metrics across a number of companies within the hospitality sector and also the maritime sector to assist the investing community to assess the financial strength of each of the issuers or guarantors.

Within the commercial property sector, there has been a marked increase in the number of companies using the bond market as a source of funding for their investment plans. In view of space restrictions, it is not possible to publish a summary on the findings of each of the companies. Instead, some main outliers will be highlighted.

While the interest cover ratio and the net debt-to-EBITDA ratio remain important financial metrics to determine the financial strength of a company and the extent of leverage, another important ratio especially important for commercial property companies is the debt-to-asset ratio. This is a calculation of the proportion of a company’s assets that are financed by debt. A higher ratio indicates greater financial risk as such a company could encounter challenges in securing additional debt for eventual repayment of their bonds.

Mediterranean Investments Holding plc, whose only operational asset is the Palm City Residence in Libya, has continued to perform very strongly in recent years despite reporting modest occupancy levels albeit on the rise. During the current financial year, revenues are expected to increase further to a record of €33.2 million reflecting the anticipated improvement in the occupancy of Palm City to 65.7 per cent compared to 60.6 per cent last year. Monthly revenue per available unit is projected to rise to €6,227. Given the expected EBITDA of €22.6 million, the interest cover is projected to improve to 8.0 times compared to 5.8 times in 2024. Total debt is projected to fall to €49.6 million as MIH anticipates the repayment in cash of the €11 million unlisted bonds maturing in October 2025. The net debt-to-EBITDA multiple is anticipated to improve to 1.5 times compared to 2.5 times as at the end of 2024 with a debt-to-asset ratio of only 0.16 times in 2025.

Exalco Properties Limited, as guarantor to the €15 million in bonds issued by Exalco Finance plc, also continues to report a consistently strong financial performance as its portfolio of six properties maintain very high occupancy levels. The company however reported that the single tenant occupying the Golden Mile centre will be downscaling and the business centre will shift toward hosting several tenants. The 2025 forecasts assumed that some space in the business centre will not be occupied in the second half of 2025. Nonetheless, the company received encouraging demand and a number of contracts have already been signed.

EBITDA is expected to decrease marginally to just over €4 million and despite this, the interest cover is projected to remain strong at over five times. With a net debt estimated at only €12.8 million, the net debt-to- EBITDA multiple is forecasted at 3.1 times at the end of this year and a debt-to-asset ratio of only 0.19 times. Exalco expects to incur additional borrowings in the coming years relating to the €11 million development of their new business centre previously named the Savoy hotel which is expected to be fully completed by December 2027. Given the fundamental strength as shown by the above credit metrics, the company can easily take on additional borrowings for their new project.

Malta Properties Company plc is also expected to report a decline in revenue since certain properties within their portfolio will be vacant and undergoing renovations in the anticipation of new tenants. GO’s previous head office in Fra Diego Street Marsa will become partly occupied during the second half of this year. Furthermore, the Swatar property became fully occupied during the second quarter of 2025. Meanwhile, the final stage of the works in The Exchange office building in Marsa will be finished by the third quarter of 2025 and it will then be fully leased out to Government of Malta entities. Despite this, the interest cover is still expected to remain comforting at 2.5 times with a debt-to-asset ratio forecasted at 0.29 times.

The revenue being generated by Central Business Centres plc remains relatively low since they still have a number of properties which are not fully occupied. In fact, among its peer group, the company ranks among the weaker ones with an interest cover of only 1.3 times in 2024 and expected to rise to 1.7 times in 2025 with a debt-to-asset ratio of almost 0.5 times. The company reported that improved occupancy levels are anticipated in a number of its properties, particularly in Valletta (44 per cent occupancy), which is projected to be fully occupied by the end of 2026 following a 2,400 sqm expansion. Meanwhile, the company issued an announcement calling upon holders of a zero-coupon bond for an extension in the redemption date of this instrument. It is interesting to note that the meeting will be held on 28 August and the redemption date of the bond is only three days later. Moreover, in the company’s interim financial report recently published, no reference was made to the need of extending the redemption date of the bond. Furthermore, the company has another bond of €3 million maturing on 30 December 2025 and is on a promise of sale to purchase another property while undergoing a major capital expenditure programme at the Savoy complex in Valletta.

The financial year of Shoreline Mall plc is 30 June and the latest FAS published in December 2024 includes forecasts for the 2025/26 financial year which commenced a few weeks ago. Rental income is expected to rise to €4.6 million and at the time the company anticipated to generate income from the sale of most of the 7 residential units held by the issuer. The interest cover and net debt-to-EBITDA multiples need to be calculated on the basis of rental income only without the one-off revenue from sale of the 7 residential units. Meanwhile, as at 30 June 2026, the debt-to-asset ratio is projected to be high at 0.68 times. The company had issued two bonds totalling €40 million. One of the bonds amounting to €14 million is due to mature on 1 August 2026 and in a media article related to the garnishee order filed by the contractor against the wider Shoreline Group, a spokesperson of Shoreline stated that the is currently evaluating refinancing arrangements for the repayment of this upcoming bond.

In view of the bond structure of Plaza Centres plc with a minimum investment requirement of €50,000 nominal per investor, the company is not obliged to publish an FAS. However, from the 2024 financial statements, it is evident that the company has a very robust balance sheet with virtually no net debt as the company has a portfolio of financial investments which is equivalent to the outstanding bond of €4.9 million due for maturity in September 2026.

Given the challenging conditions across the commercial property sector in Malta, the investing community needs to remain vigilant and selective given the clear discrepancies in the financial strength of the companies who issued bonds to the market.

Read more of Mr Rizzo’s insights at Rizzo Farrugia (Stockbrokers).

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