Mapletree Logistics Trust

[egghead]

I have an idea.

Say A has the CPF minimum sum of $131,000 at 55. A puts this sum into this type of securities. Taking the MLT example, and say he can compound at 5%. By 65, A will have $213,385. 5% income on $213,385 is $889 per month forever (better than for life as in CPF LIFE). Does this sound good?

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On second thought, this will be subject to default risk of the issuing company; not as risk free as CPF.

[RBM]

I thought The Edge Weekend issued a well written, lucid summary on MLT's Perp - issued by The Edge earlier today ................

I believe the title of the article poses an interesting question to consider. Would I be wrong in assuming that higher borrowing costs - as a result of raising money via Preference Shares (rather than e.g. bank loans) a la MLT - would mean higher rentals for their beleagured tenants?

While low bank interest rates prevail, I'll bet we see more Preference Shares and Bonds being issued ........... and in more sectors.

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The EDGE Weekend Comment March 9th 2012

Will more REITS follow MapletreeLog's perps steps?
By Chan Chao Peh

Investors have given Mapletree Logistics Trust’s sale of $350 million worth of perpetual securities with a 5.375% coupon a warm response, subscribing to over three times the number of units issued.

Following the latest round of fund-raising, analysts are positive on MLT and betting that other REITs -- constantly worrying about how to fund their next acquisition at a palatable cost to keep growing -- will also tap into this new fund-raising channel. “(Perpetual securities) could potentially be a future equity fund raising option for other REITs approaching their gearing targets,” writes Credit Suisse analyst Yvonne Voon. “We believe such issuances will likely be more popular with the private banking market segment given the low interest rate environment and close-to-zero fixed deposit rates,” states Voon, who has an “outperform” recommendation and target price of $1.09 on this counter.

A perpetual security, also known as a “perp”, is a mix of debt and equity. Under accounting guidelines issued by the Monetary Authority of Singapore, perpetual securities are to be treated as equity. Within the pecking order, perpetual securities sit higher than shareholders’ equity but lower than other forms of debt. Compared to long-term debt, perpetual securities tend to be more costly, but, when put against a rights issue or private placement, it is a cheaper form or raising new equity without diluting existing unit holders’ stakes.

“Our view is that as long as the funds are raised are used to finance new acquisitions and not to pay debt, the net impact to unit holders would be positive,” write UOB KayHian analysts Terence Khi and Vikrant Pandey in a March 9 note. The brokerage currently has a buy call and target price of $1 on the stock, which closed on Friday one cent higher at 91.5 cents. “The successful offering is a testament to

MLT’s financial stability and resilience, underpinned by cash flows from a diversified portfolio of assets,” says Richard Lai, CEO of the trust’s manager, Mapletree Logistics Trust. “MLT’s balance sheet will be further strengthened when the securities are issued, thereby providing more debt headroom and financial flexibility to capitalise on growth opportunities and optimise returns to its unitholders,” he adds. MLT is raising funds to buy some $400 million worth of assets in Japan and South Korea, on top of two already announced acquisitions in Malaysia. With this new injection of funds, MLT’s gearing will drop below 40%. As of December 31 2011, MLT owns a portfolio of 98 logistics properties across Asia, with a book value of more than $3.7 billion.

While MLT is the first REIT to issue perpetual securities, it is but the latest addition to the string of similar issues by other stocks. They include Olam International’s $275 million tranche at 7% for the first decade, and Global Logistic Properties’ $250 million at 5.5% and, of course, the biggest to date: Genting Singapore’s $1.8 billion issue at 5.125%, described by HSBC, a joint coordinator of the issue, as “truly ground-breaking”.

Meanwhile, other REITs have been raising funding in their own ways. For example, the CapitaLand-linked Ascott Residence Trust, which owns a string of service apartments, is acquiring a property in Kyoto for 1.2 billion yen, or $19 million -- offering a 35% discount to valuation and an initial yield of 5%. This acquisition, which will be funded using borrowings, will bring its gearing up to 41% -- still within the management’s desired range of 40 to 45%. Another CapitaLand-linked vehicle, CapitaMall Trust, meanwhile, has secured lines worth $800 million to refinance its borrowings under the commercial mortgage backed securities (CMBS) which will mature later in October 31 this year. “The facilities have maturities of up to 3 years from the date of draw down and were secured without any collateralised property. We understand that the interest is likely to be better than the existing cost of debt of about 3.5% under the CMBS structure,” states DBS Vickers in a report.

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Have a restfull weekend everybody.

Not Vested - In either MLT equity or the MLT Perp

[freedom]

but we do not have the intention to pay you back the principal.

You missed out something very important in your IOU note. The above ought to be replaced with,

"We reserve the rights to redeem the IOU at any time, after z no. of years."

That's to protect you from continuing to pay "exhorbitant" rates should interest rate drop even further (which may be triggered by huge demand for such IOUs).

no need interest rate is low. Even when the share price of MLT goes high enough and the yield is suppressed enough to make perpetual coupon higher than distribution, it will issue common equity by rights and/or placement to redeem its perpetual equity.

[newyorkcityboy]

Seems the smart investment bankers have conjured another wonderful instrument and found a fantastic application to the REIT structure.

PERP does, at prima facie, appear to be a "silver bullet" and win win proposition for all parties - from the highly geared REIT to the PERP investor...

With its S$350 million PERP issue, MLT will bring down its gearing from 41%. Analysts estimate MLT's gearing post PERP to be c. 38%. So it achieved extra debt headroom at a much cheaper cost. This allows it to gear up for more acquisitions if it so wishes.

Furthermore, DPU will increase because there is intention to direct the PERP's proceeds to buy new assets in Japan, South Korea and Malaysia. For so long as the acquisitions' yield above the coupon, the PERP will be accretive to equity unitholders.

With a PERP coupon of 5.35%, the PERP holders also enjoy an enhanced yield in the current low interest rate environment.

Finally, more importantly, fees for the investment bankers for their hard work to stitch this together.

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"?

[KopiKat]

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.

[Drizzt]

its not cheap i feel. perp make it that u need to offer a premium and that competes for cash flow

[newyorkcityboy]

KopiKat - thanks for your response where you outlined the possibility of PERPS circulating to the broader public.

Perhaps a smart fund house would soon launch a PERP fund for S$1000 per bite size or some manager of a retail bond fund will find that its mandate allows it to buy such paper to enhance its yield.

As it is, the broader public may want to have its antenna up, especially MLT's equity unitholders (whose profile, if it follows typical REIT holders, are folks who want boring and safe income). MLT's capital structure has altered with the PERP.

Not suggesting that MLT's capital structure is risky but there could be more lurking behind its the prima facie headline gearing figure in future.

All in all, investors in MLT and the PERP would have to do more homework to read terms etc, so perhaps there will be more separation of the men from the boys.

[freedom]

perp is just a cheaper equity funding only. it is a substitute of rights/placement, not debt funding. It is very important that MLT does not use its proceed to pare down its debt, but to do more DPU-accretive acquisitions to lower its gearing.

what does a perp investor win in the situation? I don't see anything. It gets similar risk with the rest of common equity investor (specifically to MLT only, might not apply to other share or REITs), but lower yield than common equity investors.

to me, it is a win(MLT, cheap equity)-win(Investment Banks, fees)-lose(Perp Investors, reward does not match its risk) situation.

[yeokiwi]

After a few years, the bankers will package the perps of several REITs, trusts, banks, companies together. They will then cut them up to different tranches with different yield and risk.

And then sell it at $1000/lot to uncles and aunties that were dying to have a high yield to their savings.

[Nick]

I think perps has been pretty useful for FCOT ? It did help lower their gearing. Now its trading above par value.