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REITs investing & personal finance

Sunday, October 17, 2021

How many Singapore REITs are having Perpetual Securities?

Previously I've blog about Which Singapore REIT had the Most Frequent Equity Fundraising? Besides EFR, there is another way to raise funds without increasing gearing, which is through perpetual securities. Perpetual securities are also known as perps, perpetual bonds or perpetual notes and the interest rate is higher. In fact, with perps, the existing gearing could even be reduced.

Image by Tumisu from Pixabay

For perps, there is no maturity date, therefore perps are treated as equity instead of debt. The coupon payment (interest or dividend in other terms) could be stopped/deferred at any time without the holders' consent. Though there might be a call schedule, it is up to the issuer's decision whether to redeem it or not. If you would like to read for more detail about perpetual securities, check out the following:

1) Understanding perpetual securities​ by Money Sense

2) Perpetual Bonds and REITs by Investment Moat

3) This is What You Should Know About Perpetual Bonds by Zuu Online

4) Perpetual Bond by Investopedia

So how many Singapore REITs (and BizTrusts that operate similar to REITs) are having perpetual securities in their balance sheet rights now? The number is 17 out of 40, which is more than 40% of counters and the list is increasing. Refer below for the existing list of REITs:

* Total debts = perps + total borrowings

There are various metrics for investors to compare the perps with. Personally, I would prefer the perps / total debts to gauge whether REITs having a higher proportion of perps. Nonetheless, let's see which are the top 5 REITs with the highest % according to each metric:
From the above, AIMS APAC REIT scores the top for 3 comparisons while LMIRT has the highest perps to market cap ratio. Look closely, you would notice that the top 3 would always be the same 3 counters: AIMS APAC REIT, Lendlease Global Commercial REIT and Lippo Malls Indonesia Retail Trust.

To date, there is no mandatory requirement from MAS to include perpetual securities into the calculation of gearing ratio and cost of debt. The interest coverage ratio, on the other hand, is required to include perps into the calculation (known as adjusted interest coverage ratio) should a REIT exceed 45% gearing ratio after 1 Jan 2022. Refer below for the extra from Code on Collective Investment Schemes by MAS, revised on 1 Jul 2021:

Hopefully, in the near terms, MAS would require all REITs to include perpetual securities into the cost of debt, interest coverage ratio (even below 45% gearing) and gearing ratio. This could provide better information transparency to investors. Besides, hopefully, the formula/criteria for REVPAU for the hospitality sector and rent reversion could be standardized as well.

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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