If perps were debt and not equity…

The Edge Singapore published released quite a brilliant article by Tong Kooi Ong (The Edge chairman) on 1 Apr 2019. (Note that full article is only available for paid subscribers).

In it, Mr Tong put forward his case that perpetual securities and preference shares should be considered as debt and not equity in accounting practice.

Using a hypothetical company,

If perps are to be presented as equities –  as it usually are – the hypothetical company will be a hugely profitable company with 5% gearing.

If perps are to be presented as debt, the same company would have reported an after tax loss of $20M, and gearing of 567%!

How does perps affect SREITS profitability and gearing?

Some SREITS has issued perps. How will the perp issuance affect the profitability and their gearing if their perps were considered as debt and not equity? The following table is a strip down version of the table published in The Edge magazine. Hyflux was added to illustrate the impact of perps as debt.

The gearing of Cache Log, Lippo Malls, Mapletree Log would be much higher.

Lippo Malls earnings would be reduced by 29% from $61M to S$43M.

How nice it would be if there is some software that can adjust such financial data for us on demand;-)

  • I'm a remisier with Maybank Kim Eng, and as a bonds and REITs investor myself, I guide my clients to build resilient bonds and REITs portfolios. If you like to be guided, please open a trading account to become my client; It's free!