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13-03-2012, 07:53 AM
The Straits Times
Mar 13, 2012
Reit's first perpetual bond sale may spur others to follow
By Goh Eng Yeow SENIOR CORRESPONDENT
THE success of Mapletree Logistics Trust (MLT) in raising $350 million by selling perpetual bonds last week has spurred hopes that other real estate investment trusts (Reits) may follow suit.
But some analysts worry MLT may be paying too much for the borrowed money at 5.375 per cent a year, and will not be able to better that rate in returns from the assets it buys with the funds.
Perpetual bonds, as the name suggests, do not have to be redeemed by a certain date. But like other bonds, they pay a coupon rate, or annual interest payout to investors. Analysts believe perpetual bonds may be especially rewarding for Reits trading at a discount to their book value, or the total market value by share price, or unit price in the case of Reits.
A glance at the Reits table provided by OCBC Investment Research shows many trading at a discount to book value, such as office-based Suntec Reit, with a 0.6 time price-to-book value. Still, the acid test is how Reit-holders view a perpetual bond issue which pushes them down the pecking order in terms of their rights and claims to the company's payout and assets in the unlikely event of a default. So far, reactions from market experts to MLT's perpetual bond issue, the first by a Reit here, have been mostly positive. MLT ended 0.5 cent down at 91 cents on a volume of 1.175 million units yesterday.
In a note to investors, UOB Kay Hian Research said that the perpetual nature of the bonds will enable the Reit to better match the long-term risks it takes in buying properties for investments.
But it conceded that the 5.375 per cent MLT is paying on the perpetual bonds makes it far more expensive than the recent $150 million 10-year bond issue made by the Reit, which has a 2.71 per cent coupon rate. However, this is still cheaper than issuing new units which may attract a dividend yield of over 7 per cent.
UOB Kay Hian noted that selling perpetual bonds also solves another problem - fears they may not be able to roll over short-term loans to buy properties if there is a fresh credit crunch.
JP Morgan analysts Joy Wang and Ong Choon Keong said another tick for perpetual bonds is that they are treated as part of the equity structure by regulators and rating agencies. This means the headline debt-to-equity ratio, a key measure of debt, for MLT would drop from 42 per to 38 per cent, with the bond issue. But they also flagged their worry about the impact to MLT's dividend yield, if the fresh funds were not deployed efficiently. This is notwithstanding the fact the MLT had signed letters of intent to make acquisitions in Japan and South Korea worth $400 million.
Still, MLT's perpetual bonds offer well-heeled investors a choice between holding them for a fixed income or sticking to the Reit for the dividends based on the rental income generated.
While more risk-averse investors would be happy to get the 5.375 per cent payout from the perpetual bonds, those with bigger risk appetites can look forward to a bigger payout from the Reit whose dividend yield is well over 7 per cent.
Mar 13, 2012
Reit's first perpetual bond sale may spur others to follow
By Goh Eng Yeow SENIOR CORRESPONDENT
THE success of Mapletree Logistics Trust (MLT) in raising $350 million by selling perpetual bonds last week has spurred hopes that other real estate investment trusts (Reits) may follow suit.
But some analysts worry MLT may be paying too much for the borrowed money at 5.375 per cent a year, and will not be able to better that rate in returns from the assets it buys with the funds.
Perpetual bonds, as the name suggests, do not have to be redeemed by a certain date. But like other bonds, they pay a coupon rate, or annual interest payout to investors. Analysts believe perpetual bonds may be especially rewarding for Reits trading at a discount to their book value, or the total market value by share price, or unit price in the case of Reits.
A glance at the Reits table provided by OCBC Investment Research shows many trading at a discount to book value, such as office-based Suntec Reit, with a 0.6 time price-to-book value. Still, the acid test is how Reit-holders view a perpetual bond issue which pushes them down the pecking order in terms of their rights and claims to the company's payout and assets in the unlikely event of a default. So far, reactions from market experts to MLT's perpetual bond issue, the first by a Reit here, have been mostly positive. MLT ended 0.5 cent down at 91 cents on a volume of 1.175 million units yesterday.
In a note to investors, UOB Kay Hian Research said that the perpetual nature of the bonds will enable the Reit to better match the long-term risks it takes in buying properties for investments.
But it conceded that the 5.375 per cent MLT is paying on the perpetual bonds makes it far more expensive than the recent $150 million 10-year bond issue made by the Reit, which has a 2.71 per cent coupon rate. However, this is still cheaper than issuing new units which may attract a dividend yield of over 7 per cent.
UOB Kay Hian noted that selling perpetual bonds also solves another problem - fears they may not be able to roll over short-term loans to buy properties if there is a fresh credit crunch.
JP Morgan analysts Joy Wang and Ong Choon Keong said another tick for perpetual bonds is that they are treated as part of the equity structure by regulators and rating agencies. This means the headline debt-to-equity ratio, a key measure of debt, for MLT would drop from 42 per to 38 per cent, with the bond issue. But they also flagged their worry about the impact to MLT's dividend yield, if the fresh funds were not deployed efficiently. This is notwithstanding the fact the MLT had signed letters of intent to make acquisitions in Japan and South Korea worth $400 million.
Still, MLT's perpetual bonds offer well-heeled investors a choice between holding them for a fixed income or sticking to the Reit for the dividends based on the rental income generated.
While more risk-averse investors would be happy to get the 5.375 per cent payout from the perpetual bonds, those with bigger risk appetites can look forward to a bigger payout from the Reit whose dividend yield is well over 7 per cent.
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