Singapore REITs - DBS Research 2020-09-15: S-REIT Perpetuals Market Reopens

Singapore REITs - DBS Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Singapore REITs - S-REIT Perpetuals Market Reopens

  • Year-to-date issuance of c.S$575m of perpetual securities a sign that demand is returning to perpetuals.
  • Proceeds have been utilised to fund acquisitions and refinancing driving 1-1.9% to distributions.
  • Ascott Residence Trust may consider calling back its recently reset perpetual securities at the next available call date in December 2020.


Perpetuals market reopens

  • The low interest rate environment has led to the return of life in the S-REIT perpetuals space, which was previously “shut” due to the heightened volatility and cashflow uncertainty among the S-REITs back in 1H20. However, with a rebound in markets fuelled by liquidity infusion and an extended period of low interest rates, we are seeing a gradual reopening of the S-REIT perpetuals market.
  • In 3Q20, we saw the issuance of three perpetual securities totalling S$575m. See summary table in PDF report attached below. Proceeds have been utilised for either funding of acquisitions or refinancing existing perpetual securities prior to their first upcoming reset dates.


Our thoughts:


Perpetual security market offers S-REITs wider financing options.

  • While S-REITs have not tapped the perpetuals market in a big way (c.S$2.4bn of perpetuals v S$45bn in debt instruments [including bank loans] and equity value of S$105bn), this however opens up another funding option for the S-REITs to tap.
  • Based on our initial estimates, other S-REITs with upcoming perpetuals reset dates (nearest being Frasers Hospitality Trust’s 100m 4.45% perps in May 2021) may potentially explore the market again to refinance their perpetual securities at upcoming call dates, subject to the ability to achieve lower/similar spreads (vs choosing to let it reset rates). This will over time infuse confidence in investors on the viability of the perpetuals market over time.
  • We believe that the ability for the S-REITs to maintain fairly healthy financial metrics through the depth of the recession in 1H20, could have led to improved confidence on the financing/re-financing ability of these S-REITs. See also recent report: Singapore REITs - DBS Research 2020-09-01: Turn Of The Tide.

Positive impact on Ascendas REIT of +1% (BUY, Target Price S$4.00).

Ascott Residence Trust (BUY, Target Price S$1.10) – ample liquidity to consider a call of its perpetual security in December 2020.






Derek TAN DBS Group Research | Rachel TAN DBS Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-09-15
SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100
BUY MAINTAIN BUY 4.000 SAME 4.000



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