A little bit of credit score will probably be made later when RioCan Investment Trust redeems an issue of cumulative rate reset preferred trust units.
When occurring C and holders possess the return from the original $125 million investment along with the payment in the quarterly distribution C you will notice another REIT with preferred trust units as part of its capital structure. Artis REIT raised $75 million in September 2012 and $100 million six months later.
But RioCan was the initial: In January 2011 it raised $125 million at 5.25 percent inside a spread of 262 basis points above five-year Canada bonds.
But at least 3 years of labor was expected to get RioCan to the stage where it might issue such securities. Those steps included: Canadianizing the concept are actually very popular among Australian REITs; getting approval from RioCan’s unitholders to issue such a security (a problem looked after at its June 2010 annual meeting); obtaining a sophisticated tax ruling from Revenue Canada (received in October 2010); and while using rating agencies (DBRS assigned a Pfd-3 high rating for that units.)
So in late January 2011, RioCan launched its breakthrough deal. RioCan liked the safety enough that later in 2011 it did something. It raised $149.50 million at 4.Seventy percent along with a spread of 318 basis points.
RioCan’s decision to redeem C and never give holders a variety of converting their stake either to another fixed rate preferred unit or perhaps a floating rate preferred unit C surprised some market participants. Those participants argued for RioCan to think about advantage of the reduced spread (262 basis points) and also the low 5 year Canada bond yield (about 50 basis points) to garner $125 million of cheap capital.
But those arguments didn’t cut the mustard with Cynthia Devine, RioCan’s chief financial officer.
In an interview, Devine, that’s been relayed through some holders, listed three good reasons for selecting to redeem:
- Preferred units inside the REIT are in fact treated as 100 % debt using the rating agencies. Which means that RioCan doesn’t receive any equity credit on its balance sheet to possess issued preferred units. “They notice fat loss of the obligation similar to debt,” said Devine who noted the rating agencies possess a different view in relation to corporations. And assigning a 100 percent debt for that securities seems completely different from what prevailed Five years back. When Artis completed its offer 2012, it said rate resets were a substitute for debentures “with the overriding feature there’s likely to be equity on our balance sheet.”The refinancing rate of 262 basis points is certainly not attractive. “Both of these spreads [on the newest fixed and floating rate preferreds] are more than spreads we can borrow at,” she said. Apart from its operating lines [which cost “125 basis points over” the U.S. or Canadian prime rate] RioCan can borrow five-year cash on the groundwork about 50 basis points less than the 262 basis points it might be essential to pay whether it extended the fermentation preferreds.In December, RioCan announced the sale from the U.S. assets. “We have a very lot of proceeds and now we inform you that certain from the primary uses should be to reduce debt. This could be simple to execute as it is coming due in March,” she said.
bcritchley@postmedia.com
