Mapletree Logistics Trust

[freedom]

FCOT one is CPPU. it has a valuable convertible feature at the holders' option, which none of the current perps offer.

[RBM]

Interesting, well-balanced piece (IMHO) on Page 5 of today's Business Times by Siow Li Sen ("Hock Lock Siew"). Good discussion about Perps, particularly the latest Genting and MLT offerings.

Vested in the Genting Perp .......... not the MLT Perp.

[Contrarian]

Very good extrapolation.

Issue of perpetual bonds is damn good deal for the investment bankers and damn good deal for REITs. This kind of deal sure sell in bad times.

Good for REITs
Good for investment bankers & private bankers (still got deals in such slow times, and much much more secure than Lehman)
Not bad yield...

Actually the HK companies are first to this...

To me better to buy starhub...

The last time markets found a similar grail was in an instrument called CDO and its cousin CDS where risk was conveniently dissipated throughout the entire financial system. And people started believing that there is truth to Dire Straits' hit song titled "Money for Nothing"?

Very different lah... Unless the REITs had been able to 'cook' their books like many of those fradulent S-Chips.

What I see happening next is as more REITs start to offer PERPS, we'll start to see a more varied spread of different Interest Rate offered, depending on the REIT quality. As the competition become more intense, either rates offered will go up or some of the REITs will start to open subscription to the non-HNWI market. The non-HNWI market is collectively a bigger market and they can even get away with offering lower rates.

Even during CDO days, it was initially only offered to HNWIs (High Net Worth Individuals) but subsequently, re-packaged and sold to the rest of the 'poorer' individuals. The rates 'enjoyed' by HNWIs was as high as 1-2% higher back then.

[KopiKat]

A report (dated 12-Mar-12) from UOBKH best summarises all the points discussed here on PERPS and includes some points we had not thought of. Extracts,

Property Nuggets: A closer look at perpetuals

What’s New
• Mapletree Logistics Trust (MLT) is the first S-REIT to issue perpetual securities (perpetuals), raising S$350m at an interest rate of 5.375%.
• Our view is that this form of fund raising is generally positive for REITs if used to finance accretive acquisitions, but would be expensive to replace debt.
• We anticipate that this may be the beginning of more such issuance to come and highlight some of the implications for REITs.

Essentials
• Avoiding additional leverage. The Monetary Authority of Singapore’s (MAS) guidelines allow REITs to account for perpetuals as equity, as opposed to debt, thus reducing aggregate leverage when used to finance acquisitions. However, credit rating agencies do treat these hybrid securities as 50% debt/ 50% equity in calculating leverage, and excessive levels of perpetuals would trigger a credit downgrade.

• More competitive than equity fund-raising. Given that the cost of debt for REITs ranges from 2-4%, 5-5.5% perpetuals would be an expensive replacement for debt. However, when matched against the cost of equity at between 6-9% for REITs, perpetuals can be a viable alternative to raising equity.

• Essential to acquire properties with funds raised. Due to their costs, REIT managers should only issue perpetuals to fund acquisitions, and our view is that the issuance of perpetuals is a market signal that sizeable acquisitions are forthcoming. REIT managers would likely take care to closely match the timing of acquisitions and the issuance of perpetuals due to their high holding costs.

• Higher likelihood of being used by industrial and hospitality REITs due to higher acquisition NPI yields for industrial (6.5-8.5%) and hospitality (6-6.5%) properties compared against lower NPI yields for office (3.5-4.5%) and retail (5- 6%) properties. This would enable acquisitions financed through the perpetuals to be DPU-accretive to ordinary unitholders. Perpetuals could also be used to fund overseas acquisitions, especially in countries where the cost of debt is high, such as Australia, although this exposes the REIT to exchange rate risk.

• Risk is in fixed payments and higher priority vs ordinary unitholders. The main risk for REITs is in the fixed payout for the perpetuals, which would not change due to shifts in occupancies or rentals. Holders of perpetuals would also rank higher in priority than ordinary unitholders, but would not enjoy potential dividend growth in the longer term.

Action
• Larger REITs with higher exposure to the industrial and hospitality sectors are likely to issue perpetuals to fund yield-accretive acquisitions. Top picks include Ascott Residence Trust, MLT and Mapletree Industrial Trust.

[Musicwhiz]

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.

[Temperament]

"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. "

Unquote:
This looks like another situation where "Head they win, Tail you lose". Just like the movement of interest rate + callable feature of this perpetual product.

---

From:
MLT – UOBKH
12 March 2012
Property Nuggets: A closer look at perpetuals
What’s New
• Mapletree Logistics Trust (MLT) is the first S-REIT to issue perpetual securities (perpetuals), raising S$350m at an interest rate of 5.375%.
• Our view is that this form of fund raising is generally positive for REITs if used to finance accretive acquisitions, but would be expensive to replace debt.
• We anticipate that this may be the beginning of more such issuance to come and highlight some of the implications for REITs.
Essentials
• Avoiding additional leverage. The Monetary Authority of Singapore’s (MAS) guidelines allow REITs to account for perpetuals as equity, as opposed to debt, thus reducing aggregate leverage when used to finance acquisitions. However, credit rating agencies do treat these hybrid securities as 50% debt/ 50% equity in calculating leverage, and excessive levels of perpetuals would trigger a credit downgrade.
• More competitive than equity fund-raising. Given that the cost of debt for REITs ranges from 2-4%, 5-5.5% perpetuals would be an expensive replacement for debt. However, when matched against the cost of equity at between 6-9% for REITs, perpetuals can be a viable alternative to raising equity.
• Essential to acquire properties with funds rose. Due to their costs, REIT managers should only issue perpetuals to fund acquisitions, and our view is that the issuance of perpetuals is a market signal that sizeable acquisitions are forthcoming. REIT managers would likely take care to closely match the timing of acquisitions and the issuance of perpetuals due to their high holding costs.
• Higher likelihood of being used by industrial and hospitality REITs due to higher acquisition NPI yields for industrial (6.5-8.5%) and hospitality (6-6.5%) properties compared against lower NPI yields for office (3.5-4.5%) and retail (5- 6%) properties. This would enable acquisitions financed through the perpetuals to be DPU-accretive to ordinary unitholders. Perpetuals could also be used to fund overseas acquisitions, especially in countries where the cost of debt is high, such as Australia, although this exposes the REIT to exchange rate risk.
• Risk is in fixed payments and higher priority vs ordinary unitholders. The main risk for REITs is in the fixed payout for the perpetuals, which would not change due to shifts in occupancies or rentals. Holders of perpetuals would also rank higher in priority than ordinary unitholders, but would not enjoy potential dividend growth in the longer term.
Action
• Larger REITs with higher exposure to the industrial and hospitality sectors are likely to issue perpetuals to fund yield-accretive acquisitions. Top picks include Ascott Residence Trust, MLT and Mapletree Industrial Trust.

[greengiraffe]

wider implications for overseas investors that is investing down under

[Stocker]

wider implications for overseas investors that is investing down under

Is this new ruling applicable to operation of St****** ?

[greengiraffe]

wider implications for overseas investors that is investing down under

Is this new ruling applicable to operation of St****** ?

very good question indeed - we will have to go through the annual report and see if their hotels are being held under trusts... if u find an answer please let me know

[KopiKat]

Huge married deal, >5%,

08:41:12 0.960 139,340,000 X

I wonder who and who?