On Sept 4, 2019, CapitaLand Ascott Trust HMN (CLAS) issued $150 million perps at 3.88% p.a. The first distribution rate reset falls on Sept 4 this year. OCBC Credit Research calculates that a potential reset would cost 5.6% assuming that the Sora rate on March 15 is used as a replacement benchmark. As aggregate leverage as at end-FY2023 was 37.9%, replacing with debt would push leverage above 40%.
OCBC Credit Research expects CLAS’s manager to replace the 3.88% perps with a new perpetual if it were to call.
CLAS did not call its 3.68% $250 million perpetual securities on its first call date of June 30, 2020. Instead, CLAS’ manager announced they would not be redeemed and the distribution rate was reset to 3.07%.
On March 11, Frasers Property TQ5 (FPL) announced it is redeeming its $600 million 4.98% perpetual securities ahead of its first call date of Aprill 11 this year. OCBC Credit Research says this is the first Singapore dollar non-financial corporate perpetual redemption at the first call date since March 2023.
Issuers which have opted not to redeem their perpetual securities on the first call data include ARA Asset Management’s 5.65% perpetual with a call date of March 14, 2023 and Mapletree Logistics Trust M44U ’s 5.2074% perp with a call date on March 28, 2023.
OCBC Credit Research says FPL’s call is likely to have been driven by the discontinuation of Sor as a benchmark for the 4.98% perp.
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“In comparison, FPL’s 4.38% $300 million perp was not called on its 1st call date on January 17 2023 and remains outstanding despite the option for the issuer to call every six months,” OCBC says. “We believe this is due to presence of step-up and reset on the first call date for FPL’s 4.98% perp while FPL’s 4.38% perp’s step-up and reset dates are five years after its first call date.”
‘Even if a replacement benchmark were inserted, FPL should be economically incentivised to redeem the FPL 4.98% perp as the step-up and reset should drive distribution rates above 7% upon non-call. Comparatively, we estimate the cost of debt at around 4% or above,” OCBC adds.
On October 5, 2022, FPL redeemed and cancelled $350 million, 3.95% perpetual securities with issue dates of Sept 21, 2017, and Oct 3, 2017.
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AIMS APAC REIT (AA REIT) issued $125 million 5.65% perpetual securities on Aug 14, 2020, and a further $250 million 5.375% perpetual securities on Sept 1, 2021. A reset in August 2025 at current Sora levels would cause a reset distribution rate of 8.5%, OCBC Credit Research calculates.
Although AA REIT's aggregate leverage was 32.2% as at Dec 31, 2023, it has a high proportion of perps in its capital structure. Hence, OCBC Credit Research reckons the $125 million perp tranche is likely to be replaced with a new perp. If the $125 million perps were replaced with debt, aggregate leverage would rise to 37%.
CapitaLand Ascendas REIT (CLAR) issued $300 million of perpetual securities priced at 3% with the first distribution reset rate falling on Sept 17, 2025. As at Dec 31, 2023, CLAR's aggregate leverage was 37.9%. OCBC Credit Research says redemption would lift leverage to 39.6% of redemption is funded by debt.
Keppel REIT issued a total of $300 million perpetual securities at 3.15% on Sept 11 2020 and Oct 7 2020. Based on current levels of Sora, a reset in September 2025 would lead to a reset distribution of 5.9%.
Keppel REIT's aggregate leverage as at Dec 31, 2023 was 38.9%. If the perps were refinanced with debt, aggregate leverage would rise to around 42%. Hence OCBC Credit Research expects these two tranches of perpetuals to be replaced with new perps if Keppel REIT redeems these perps.
