With the current Perps craze, even REITs are joining the party. I think it's going to be popular with other REITs as it looks like a loop-hole that reduces their Aggregate Leverage (cos' it's being recognised as a securities rather than debts!). Perhaps we'll see a day when REITs have zero Aggregate Leverage (they pay off all Debts, redeem all Bonds and just issue Perps, a perpetual amount of Perps as long as they're takers)!
Extracts from MLT
SGX Annc,
The net proceeds arising from the issue of the Securities (after the deduction of fees and expenses in connection with the issue) will be used by MLT for general corporate funding purposes, including the funding of acquisitions (see further details below). Given that the Securities will be accounted as equity, the Manager expects that the Aggregate Leverage of MLT will decrease from 41.4% following the issuance of the Securities.
<Not Vested>
no much different from placement of more shares. maybe lower distribution?
anyone buying such securities from REITs is kidding themselves.
(08-03-2012, 09:49 AM)freedom Wrote: [ -> ]no much different from placement of more shares. maybe lower distribution?
anyone buying such securities from REITs is kidding themselves.
Very true!
But, as a REIT investor, I'd look favourably into any REITs that issue Perps for my own selfish reasons,
1) The REIT is in a win-win situation. It's a perpetual source of cheap funding as the interest rate is locked in. If market interest rate drops further, just redeem (after any stated minimum period of time) and issue new perps.
2) As it's not recognised as Debts, it reduces the Aggregate Leverage which'll likely mean a better Credit Rating, which means easier to borrow more. But then again, with this new powerful weapon of Perps, Debts / Bonds may be a thing of the past assuming there're a perpetual number of suckers (oops.. I mean investors) out there who wants to own Perps.
3) It's a lot better than any Private Placements (often at a good discount). Not as dilutive as Perps holders will be paid at a much lower interest rate eg. 2%-5% vs averagely 7%++ for current REITs Yield. It'll be easier for REITs Managers to acquire Yield Accretive assets with this cheaper source of funds.
I think I'm also in love with Perps!
It is interesting how this can be pulled-off. As far as I know, bond holders are creditors (i.e. they lend money to companies issuing the bonds); equity holders are owners (i.e. they put money into a company to own a part of it). Aren't there accounting rules that governing this?
it is perpetual, means it is kinda equity; but if it is callable, it exhibit certain feature of bond.
basically it is a hybrid between equity and bond.
Perpetual+Callable Preference Shares:
i have coined this category of financial instrument as the issuers playing a game of:
"Head they win, Tail you lose" type of products.
You can read under "Singapore Post by Temperament (S - S)"
really wonder who on earth will buy a reit hybrid that offers lower yield than the boring reit itself
(08-03-2012, 09:44 AM)KopiKat Wrote: [ -> ]With the current Perps craze, even REITs are joining the party. I think it's going to be popular with other REITs as it looks like a loop-hole that reduces their Aggregate Leverage (cos' it's being recognised as a securities rather than debts!). Perhaps we'll see a day when REITs have zero Aggregate Leverage (they pay off all Debts, redeem all Bonds and just issue Perps, a perpetual amount of Perps as long as they're takers)!
Extracts from MLT SGX Annc,
The net proceeds arising from the issue of the Securities (after the deduction of fees and expenses in connection with the issue) will be used by MLT for general corporate funding purposes, including the funding of acquisitions (see further details below). Given that the Securities will be accounted as equity, the Manager expects that the Aggregate Leverage of MLT will decrease from 41.4% following the issuance of the Securities.
<Not Vested>
My Respect:
You seem to be very quick to see a bargain or loop-hole very fast. You are really "On the BOLA". i just read a little about it somewhere but not so much details as you. Please share more if you can or willing. Thanks, thanks.
Not Vested.
but how low can MLT reduce? if i am not wrong their cost of debts is pretty low already. like 2.6%
(08-03-2012, 12:02 PM)Drizzt Wrote: [ -> ]but how low can MLT reduce? if i am not wrong their cost of debts is pretty low already. like 2.6%
the bank debt has certain covenants and a mature date, which perpetual securities normally does not have. accordingly, you pay a higher coupon.