While perps were popular in the last decade due to the low interest rate environment, the instrument is less attractive today due to the higher rates and could hurt distributions upon their reset.
The upcoming reset in perpetual securities (perps) may become an “increasingly pressing issue” for Singapore REITs (S-REITs) as interest rates remain elevated, says DBS Group Research analysts Dale Lai, Derek Tan and Amanda Seah. About $1.1 billion worth of perps can be called in FY2024. Of that amount, 42% have their first call date this year. The remaining 58% can be redeemed at every coupon date for most of the perp issues.
In FY2025 and FY2026, S-REITs will have a further $1.3 billion (in FY2025) and $1.7 billion (FY2026) in perps due for their first calls.
