As per market expectations, on July 7, the manager of First REIT announced that it will not redeem a $60 million 5.68% tranche of perpetual securities on July 8, 2021. Instead the distribution rate shall be reset on July 8 to 4.9817% a year, which takes into account the prevailing 5-year swap offer rate of 1.0567% a year plus the initial spread of 3.925%. The manager says it remains committed to paying distributions on these perpetual securities.

For REITs, perpetual securities can be classified as equity so long as there is no step up, and a dividend stopper is present.

The manager said: “In arriving at the decision to allow the distribution rate for the perpetual securities to be reset and not redeem the perpetual securities on 8 July 2021, the manager has considered the long term interests of First REIT and the current macroeconomic environment, including but not limited to the following factors: (i) given the uncertain economic environment, the manager is adopting a prudent stance to preserve cashflow and liquidity; (ii) drawing down on debt to redeem the perpetual securities will increase First REIT’s leverage and reduce the debt headroom available for acquisition opportunities and asset enhancement initiatives during a market recovery; and (iii) current market conditions are not favourable for First REIT for the issuance of perpetual securities at a lower yield than the reset distribution rate.”

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