First Reit skips call on S$60m perpetual; distribution rate reset at 4.9817%

Tay Peck Gek
Published Thu, Jul 8, 2021 · 05:50 AM

FIRST Real Estate Investment Trust (Reit) will not be redeeming its S$60 million, 5.68 per cent perpetual securities on its first call date on July 8, the Reit's manager announced in a late night regulatory filing on Wednesday.

Also, it announced the reset distribution rate of 4.9817 per cent per annum for the period from the first reset date on July 8 to the next one five years later. This comes from the prevailing five-year swap offer rate of 1.0567 per cent per annum plus the initial spread of 3.925 per cent.

And it is lower than the 5.68 per cent when the issue was launched in 2016.

Bid price for the perpetual was half of its par value on Wednesday.

First Reit Management, the Reit's manager, said in the statement issued on the eve of the call date that both the issuer and itself "remain committed to paying distributions on the perpetual".

The manager said it seeks to diversify the sources of funding to optimise capital structure of the Reit, and had considered the long-term interests of the Reit and the current macroeconomic environment in deciding to skip the call.

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Among its considerations were:

(i) preserving liquidity amid the uncertain economic environment;

(ii) keeping its leverage and the debt headroom at the current levels for acquisition opportunities and asset enhancement initiatives during a market recovery; and

(iii) current market conditions are not favourable for the issuance of new perpetual securities at a lower yield than the reset distribution rate.

In spite of skipping the call, the issuer has the option to exercise its right to redeem the perpetual on future distribution payment date when market conditions normalise, the manager added.

The Reit had said at the time when it issued the perpetual that the proceeds would be used to pare existing loans, giving it capacity for future acquisitions.

Shares of First Reit closed at S$0.27, up 1.89 per cent on Wednesday, before this announcement was filed.

When Ascott Residence Trust skipped the first call on its S$250 million, 4.68 per cent perpetual issue in 2020 amid the pandemic, it set a precedent for real estate investment trust (Reit) perpetuals.

Phillip Securities Research bond analyst Timothy Ang then had said he would not be surprised to see more non-calls in these unprecedented times.

OCBC Credit Research analyst Ezien Hoo had opined that perpetual investors in general would prefer issuers to call, especially as the reset rate is lower, although issuers have the legal right to not call at first call. As such, investors may choose to opt out of future perpetual issuances by issuers who skipped the call.

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