- Perpetual securities (perps) have been a popular class of hybrid instruments among S-REITs in the last decade of low interest rates, allowing them to diversify their capital bases. Perps, accounted as equity, offered “additional debt headroom” to pursue growth at a moderately higher cost – ranging 3.0% to 5.25% compared to debt.
Rise of the hybrids.
- - Read this at SGinvestors.io -
- For S-REITs, perps are a double-edged sword.
- Gearing levels are lowered given that they are recorded as equity, providing REITs with more headroom to debt fund acquisitions.
- - Read this at SGinvestors.io -
Features of perps issued by S-REITs
- A typical series of perps issued by S-REITs have the following features:
- Priced using the current Singapore benchmark rate (SOR, SORA, etc.), with an added credit spread.
- Credit spread is usually a function of the issuer’s credit rating (i.e. larger REITs with a strong track record, or those with a strong Sponsor able to command a lower spread) and has a wide range – from as low as 1.8% to a high of 5.2%.
- First call date will be in five years (for majority of perps) where the issuer can choose to redeem the series at par, or reset the perps based on the prevailing benchmark rate with the option to call the series at every distribution payment date thereafter (i.e. semi-annually).
S-REITs started the first perps’ issuance in 2012.
- Read more at SGinvestors.io.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Dale LAI DBS Group Research | Derek TAN DBS Research | Amanda SEAH DBS Research | https://www.dbs.com/insightsdirect/ 2024-04-11
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