The last five years have seen a significant rise in medium-term note (MTN) issuances as an alternative source of financing real estate portfolios by S-REITs. Since 2008, S-REITs have become less reliant on traditional senior loans secured against specific assets, choosing instead to finance acquisitions and existing portfolios using MTNs. The use of MTNs is proving popular and now represents around 30% of total borrowing by S-REITs.
MTNs are issued bonds, often guaranteed by the S-REIT’s trustee, rather than secured against a specific asset or a portfolio of assets. S-REITs, assisted by the lead arranger and dealer, will establish an MTN program, offering different structures—including multi-currency, maturity (two to seven years), fixed/floating coupon, listed/unlisted and embedded ‘call or put’ options—for each tranche issued. MTNs offer greater flexibility compared with traditional senior loans, and their net proceeds can be used to refinance existing secured loan facilities or finance acquisitions, developments and other capital expenditures. The ability to offer investors tailor-made investment products have contributed to the increasing popularity of MTNs.
Bastian van Halder of Jones Lang LaSalle’s Corporate Finance team said, “MTNs are likely to remain a popular source of finance to S-REITs in the medium term, given their current approach to increase assets under management while adopting a more flexible debt management strategy. The majority of large-cap and mid-cap S-REITs have started deploying MTNs, including Mapletree, Ascendas, Keppel Land and Cambridge Industrial Trust, and we anticipate more S-REITs to explore options around this source of financing.”