Property landlords are now weighing into the favourable debt markets with close to $900 million raised in the past week to provide the real estate investment trusts with secure and longer-termed bank facilities.
With a continued focus on bond/credit markets and the risk of rising funding costs over time, the debt issuances are seen as “pseudo bonds”, according to property analysts.
Charter Hall Long WALE REIT is the latest to tap into the international debt markets with a US private placement of $200 million to provide funding and retire some expiring bank debt.
It was undertaken by the Long WALE Investment Partnership, in which the Long WALE REIT owns a 45 per cent interest, alongside Hostplus and Charter Hall Group. The REIT owns a 100 per cent interest in 54 hotel assets across , which are leased to pub operator, ALH Group for 17.5 years.
The deal is the first for the partnership and comprises a 10-year $200 million note priced at an all-in cost of debt of 5 per cent and is due to settle on May 11, 2017.
The Long WALE REIT fund manager, Avi Anger said the trust will continue to focus on actively managing the portfolio, acquiring assets with long leases to “high-quality tenants and implementing prudent capital management initiatives” to create value and “deliver sustainable and growing returns for investors”.
“Charter Hall Long WALE REIT’s 2017 operating earnings and distribution guidance is unchanged. The issuance is also expected to be net tangible asset neutral.”
Retail giant Scentre Group last week priced a $US500 million ($650 million) 10-year fixed-rate senior guaranteed notes with a coupon of 3.75 per cent. Proceeds of the issue will be used to repay borrowing under the group’s revolving bank facilities.
“After swapping this back into floating $A exposure, and assuming a 170 basis point margin, this implies a cost of about 3.5 per cent. For 10-year money, we thought this was pretty good pricing,” brokers at Shaw & Partners said.
The debt issues also come as the Reserve Bank retained the official cash rate at 1.5 per cent.
Investa Office Fund has also moved to the bond sector with the issue of its inaugural Green Medium Term Note. This is the first certified n-dollar green bond to be issued by an n REIT.
IOF will issue $150 million of seven-year green bonds with a fixed coupon of 4.262 per cent per annum and a maturity date of April 5, 2024. The issue of the green bond primarily addresses the expiry of IOF’s $125 million of medium-term notes in November 2017.
According to IOF’s fund manager, Penny Ransom, the offering was received “favourably by the market and was over-subscribed”.
“It reinforces Investa’s corporate sustainability leadership and provides important support to the growth in the green finance market. IOF has selected to have its inaugural green bond independently assured, and ultimately certified by the Climate Bonds Initiative,” Ms Ransom said.
Proceeds from the green bond issue will be used to reduce IOF’s existing bank debt facilities and will be fully allocated against a portfolio of low-carbon buildings 1 within IOF’s portfolio.