On Dec 30, 2022, ESR-LOGOS REIT (E-LOG) announced it would redeem $100 million of perpetual securities it inherited from ARA LOGOS Logistics Trust (ALOG) when it acquired ALOG. The merger was completed on April 28, 2022.
REIT managers are guiding for higher interest expense and higher cost of debt for the 12 months to Dec 31. Although the interest rate cycle is closing in on its peak, and rates may reach a plateau in 1Q2023, REITs will continue to battle with higher interest costs as they refinance their debt because rates are higher now than they have been for the past five years.
As it is, interest coverage ratios (ICR) have deteriorated for most REITs that have announced their results for the October to December 2022 quarter. It is no surprise that REIT managers are trying to keep interest expenses in check. And this includes keeping a lid on perpetual securities (perps) issuance despite their equity treatment on the balance sheet of REITs.
