Perpetual Securities vs Preference Shares: The Hybrid Instruments Behind Many S-REIT Yields
Two hybrid capital instruments that sit between debt and equity on a Singapore issuer’s balance sheet — and carry very different risks for the retail investors who buy them.
Perpetual securities are hybrid debt-like instruments with no fixed maturity date that pay a periodic distribution and are typically classified as equity (not debt) on the issuer’s balance sheet under accounting rules, while preference shares are a class of company shares that rank ahead of ordinary shares for dividends and liquidation proceeds but behind all creditors, including perpetual securities holders.
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Not financial advice. All figures for educational reference only. Data as at August 2026.
Last updated: August 2026
Key Takeaways
- Both instruments sit in the capital structure between ordinary equity and conventional debt, but perpetual securities are generally structured to allow the issuer to defer distributions without triggering a default, while preference shares typically carry a more explicit dividend obligation once declared.
- Several Singapore S-REITs (including names disclosed in public issuance announcements such as Suntec REIT, CDL Hospitality Trusts, and Keppel REIT among others) have issued perpetual securities as a way to raise capital without diluting unitholders through new unit issuance and without increasing the REIT’s reported aggregate leverage ratio under MAS’s Property Funds Appendix rules.
- Preference shares are less commonly issued by REITs specifically (since REITs issue “units,” not “shares,” in the strict legal sense) but are used by ordinary Singapore-listed companies, including some REIT sponsors or related entities, as a hybrid capital-raising tool.
- The 2018 collapse of Hyflux Ltd, whose retail perpetual securities and preference shares became effectively worthless, remains the most widely cited cautionary example in the Singapore market of the risk these instruments carry when the issuer becomes financially distressed.
- Distributions on both instrument types are discretionary to varying degrees depending on the specific terms, meaning retail investors should not treat the quoted distribution rate as guaranteed in the way a bond coupon or bank fixed deposit rate is.
What Is Perpetual Securities vs Preference Shares?
Perpetual securities and preference shares both belong to a broader category of hybrid capital instruments — securities that blend features of debt (a regular, bond-like distribution) and equity (no fixed maturity, subordination to other creditors, and in many cases the issuer’s right to defer or skip payments without triggering default). Perpetual securities, as the name suggests, have no fixed redemption date, though most Singapore issuances include a call option allowing the issuer to redeem the securities after an initial period (commonly five years), often with a step-up in the distribution rate if the issuer chooses not to call — creating a strong commercial incentive for issuers to redeem at the first opportunity even though they are not legally obligated to. Preference shares are technically a class of share capital in a company (distinct from a REIT’s “units,” since REITs are trusts, not companies, and typically use perpetual securities rather than preference shares for hybrid capital raising), carrying a preferential right to a fixed or floating dividend rate ahead of ordinary shareholders, and a preferential claim on liquidation proceeds ahead of ordinary shares but behind all bondholders and other creditors. Both instrument types are attractive to issuers because they generally receive favourable accounting and regulatory treatment (often classified as equity rather than debt, which does not worsen leverage or gearing ratios), while being attractive to yield-seeking investors because they typically offer a higher distribution rate than the issuer’s senior bonds, reflecting their lower priority in the capital structure.
How Does Perpetual Securities vs Preference Shares Work in Singapore?
In the Singapore market, several S-REITs have issued perpetual securities specifically to raise capital for acquisitions or refinancing while preserving headroom under the aggregate leverage limit set by the Monetary Authority of Singapore’s Code on Collective Investment Schemes (Property Funds Appendix) — because perpetual securities are typically classified as equity for regulatory gearing purposes even though they behave much like debt from a cash-flow perspective. Public announcements of such issuances (for example, various S-REITs pricing subordinated perpetual securities at a fixed distribution rate for an initial multi-year period before a rate reset mechanism kicks in) are a recurring feature of the Singapore capital markets calendar, and some of these issuances have subsequently been called and redeemed by the REIT at the first available call date, which is generally viewed favourably by the market since it signals financial discipline. Retail investors can sometimes access these instruments directly if a specific tranche is offered to the public (rather than solely to institutional investors), though many Singapore REIT perpetual securities issuances are placed primarily with institutional investors, limiting direct retail access — retail investors more commonly gain economic exposure to the credit risk of these instruments indirectly, through income or bond funds that hold them, or by holding units in the REIT itself, which bears the ultimate obligation to service these instruments ahead of paying ordinary unitholder distributions. Preference shares issued by Singapore-listed companies (a structure historically used, among others, by Hyflux Ltd for retail fundraising, and by various banks and corporates for regulatory or balance-sheet capital purposes) have in some well-known cases been sold directly to retail investors through public offers, which is part of why the risks of preference shares became a prominent public issue following high-profile defaults.
Perpetual Securities vs Preference Shares Example
Consider a hypothetical Singapore REIT issuing S$150,000,000 of perpetual securities at a 4.0% distribution rate for the first five years, callable at the REIT’s option after year five, with a rate reset (commonly structured as the initial credit spread plus the prevailing benchmark rate at reset) if not called. An investor holding these securities receives S$4.00 per S$100 face value annually, ranking ahead of the REIT’s ordinary unitholders for any distribution priority, but behind the REIT’s secured and unsecured lenders in a wind-up scenario. If the REIT chooses not to call the securities at year five (uncommon, but possible if refinancing conditions are unfavourable or the reset rate is still attractive to the issuer relative to alternatives), the investor continues holding an instrument with no fixed maturity date, and the market price of the security prior to any call date will fluctuate based on prevailing interest rates and the market’s perception of the issuer’s credit quality — similar to how a long-dated bond’s price is sensitive to rate movements, but with the added uncertainty of the discretionary distribution feature and the absence of a hard maturity date to anchor its eventual redemption value.
Advantages of Perpetual Securities vs Preference Shares
- Both instruments typically offer a materially higher yield than the issuer’s senior secured or unsecured bonds, compensating investors for the additional subordination risk and (for perpetual securities) the absence of a fixed maturity date.
- Issuers gain balance-sheet flexibility — raising capital via perpetual securities or preference shares without increasing reported leverage or diluting existing unitholders/shareholders through new ordinary unit or share issuance.
- Call features with step-up distribution rates create a strong commercial incentive for issuers to redeem at the first opportunity, which has historically meant many Singapore-issued perpetual securities are redeemed on schedule rather than left outstanding indefinitely.
- For REITs specifically, perpetual securities preserve headroom under the MAS aggregate leverage ceiling, giving the REIT more flexibility to pursue future debt-funded, DPU-accretive acquisitions without breaching regulatory gearing limits.
- Both instruments rank ahead of ordinary equity (units or ordinary shares) for distributions and liquidation proceeds, offering somewhat better downside protection than holding the issuer’s ordinary units or shares directly, even though they remain subordinate to all conventional debt.
Risks and Limitations
- Distributions on both instruments are typically discretionary to some degree — issuers can often defer or skip a distribution under specified conditions without triggering a formal default, unlike a missed bond coupon payment, which materially reduces the reliability of the quoted yield compared to conventional fixed income.
- Both instruments rank behind all secured and unsecured creditors in a liquidation, meaning holders can suffer significant or total capital loss if the issuer becomes insolvent, as demonstrated by the 2018 Hyflux Ltd collapse, where retail holders of perpetual securities and preference shares recovered a small fraction of their original investment.
- The absence of a fixed maturity date on perpetual securities means investors bear open-ended interest rate and credit risk unless and until the issuer chooses to call the instrument, which is entirely at the issuer’s discretion, not the investor’s.
- Market liquidity for these instruments, especially retail-targeted tranches, can be significantly thinner than for the issuer’s ordinary shares or units, meaning investors wanting to exit before a call date may face a wider bid-ask spread or difficulty finding a buyer at a fair price.
- Retail investors may underestimate the complexity of these instruments’ terms — including step-up mechanics, deferral conditions, and ranking in a wind-up — because they are often marketed with a headline yield figure that does not fully convey the subordination and discretionary-payment risks involved.
Perpetual Securities vs Preference Shares
The table below compares the two instrument types as commonly issued in the Singapore capital market.
| Feature | Perpetual Securities | Preference Shares |
|---|---|---|
| Issuer type | REITs, business trusts, and corporates (via trust structures) | Companies (issued as a class of share capital) |
| Maturity | None — perpetual, subject to issuer call option | Typically none, or very long-dated, depending on terms |
| Distribution obligation | Often discretionary/deferrable under specified conditions | Preferential but can also be non-cumulative or deferrable depending on terms |
| Ranking in liquidation | Ahead of ordinary units/shares, behind all debt | Ahead of ordinary shares, behind all debt and perpetual securities in most structures |
| Common Singapore issuers | Several S-REITs (e.g. hospitality and diversified REITs) | Corporates including some historically prominent retail offers |
Source: General Singapore capital markets practice. Specific terms (call dates, deferral conditions, ranking) vary by individual issuance — always read the specific offering document.
The Bottom Line
For Singapore investors chasing yield, perpetual securities and preference shares can look like an attractive middle ground between low-yielding bank deposits and volatile equities, but both carry real subordination and discretionary-payment risk that the headline distribution rate does not fully convey. The Hyflux experience is a standing reminder that these instruments should be sized as a modest, risk-aware allocation, not treated as a bond-equivalent core holding.
Frequently Asked Questions
What is the main difference between perpetual securities and preference shares in Singapore?
Perpetual securities are hybrid debt-like instruments with no fixed maturity, commonly issued by REITs and trusts and typically classified as equity for accounting and regulatory leverage purposes. Preference shares are a class of company share capital, issued by corporates rather than trusts, with a preferential dividend and liquidation claim ahead of ordinary shares.
Why do Singapore REITs issue perpetual securities instead of raising equity or debt directly?
Perpetual securities let a REIT raise capital without diluting existing unitholders (as a rights issue would) and without increasing reported leverage under the MAS aggregate leverage ceiling (as conventional debt would), since these instruments are generally classified as equity for regulatory gearing purposes despite behaving similarly to debt in cash-flow terms.
Are distributions on perpetual securities guaranteed in Singapore?
No. Most perpetual securities include terms that allow the issuer to defer or skip a distribution under specified conditions without triggering a formal default, which is a key risk difference compared to a conventional bond coupon or bank fixed deposit interest payment.
What happened to Hyflux perpetual securities and preference shares, and why is it a cautionary example?
Hyflux Ltd, a Singapore-listed company, issued retail perpetual securities and preference shares that became effectively worthless following the company’s 2018 financial collapse and subsequent restructuring, leaving many retail investors with significant losses. It remains the most widely cited example in Singapore of the subordination risk these instruments carry.
Can retail investors in Singapore buy REIT perpetual securities directly?
It depends on the specific issuance. Some tranches are offered to retail investors directly, but many Singapore REIT perpetual securities issuances are placed primarily with institutional investors, meaning retail investors more commonly gain indirect exposure through income or bond funds, or by holding the REIT’s units directly.
Do perpetual securities ever get redeemed, or do they last forever?
Most Singapore-issued perpetual securities include a call option allowing the issuer to redeem them after an initial period (commonly around five years), often with a step-up in the distribution rate if not called — creating a strong incentive for issuers to redeem at the first opportunity, which many historically have done, though there is no legal obligation to call.