First REIT announces 5Y SGD social bonds at 3.50% IPG

First REIT is intending to launch a 5Y SGD social bond guaranteed by the Credit Guarantee and Investment Facility (“CGIF”) at an initial price guidance of 3.50%. The new issue will be ranked senior and is unsecured.

The new issue will be guaranteed by the CGIF which is a trust fund of the Asian Development Bank. The guarantor is rated AA (stable) by S&P and the issue is expected to be also rated AA (stable) by S&P. The use of proceeds will be used to refinance existing term loan due in May 2022.

The CGIF was established in November 2010 and promotes financial stability and investments in the ASEAN+3 region. The CGIF has over USD 1.2b of assets kept in cash or liquid securities with a minimum rating of A+. As part of the guarantee terms, the CGIF will cover a non-payment event and guarantee any unpaid portion of the principal amount, scheduled interest, and additional accrued interest. In an event where there is a missed payment, CGIF retains the right to accelerate principal claim payments or maintain a payment schedule.

First REIT (“FIRTSP”) was first listed on the SGX on 11 December 2006 and they are the first healthcare REIT in Singapore. Currently, they are the 2nd largest Asian healthcare REIT by total assets. The REIT has 31 properties in its portfolio located mainly in Indonesia and some properties in Japan and Singapore. Property composition is made up of hospitals, integrated hospitals and malls, and nursing homes.

The sponsors of FIRTSP are OUE Limited (“OUE”) and OUE Lippo Healthcare Limited (“OUELH”). OUE is a diversified real estate owner and developer with real estate properties in Asia. OUELH is an integrated healthcare services and facilities provider and is a subsidiary of OUE. Some examples of support by FIRTSP’s sponsors include the acquisition of 12 nursing homes from OUELH on 1 March 2022 which the agreed price was at a 2.9% discount and also a sponsor-led recapitalisation of FIRTSP in 2021 with OUE provided an undertaking to take up any unsubscribed rights units.

For full year financial results ending 31 December 2021 (“FY21”), FIRTSP reported 28.5% year on year (“YoY”) growth in rental and other income to SGD 102.3m. However, the growth was due to a change in accounting treatment. Total profit after tax rebounded from a loss of SGD 352.4m in FY20 to SGD 63.1m in FY21. This rebound was largely attributed to the absence of project expenses incurred in FY20 from the REIT’s Indonesia properties Master Lease Agreement restructuring and right issues.

For FY21, FIRTSP had cash and cash equivalents of SGD 51.2m and a revolving credit facility of SGD 42.5m. We think FIRTSP has a weak liquidity profile with a current ratio of 0.64x. Total borrowings amounted to SGD 409.2m (including perpetual securities) of which SGD 250.0m of bank loans are set to mature in 2023. Even though the proceeds from this new issue will be used to repay SGD 99.2m of bank loans expiring in 2022, we think that FIRTSP might have difficulty in tapping the bond market for a regular issuance as SGD 60m of its FIRTSP 4.9817% Perpetual Corp (SGD) have yet to be called as FIRTSP allowed the perps to reset on their reset date on 8 July 2021.

Comparing other bonds from FIRTSP, the FIRTSP 4.9817% Perpetual Corp (SGD) is currently trading at an indicative yield to worst of 10.5% with approximately 4 years to its next reset date. The new issue is priced much lower due to the AA credit rating of the guarantor.  As the notes are unconditional and irrevocable, the CGIF will cover non-payment event in a situation whereby FIRTSP is unable to redeem the bonds. Comparing to other issues guaranteed by the CGIF, such as  IVLSP 3.730% 07Oct2025 Corp (SGD), it is currently trading at an indicative yield to maturity of 2.62% with 3.5 years to maturity. We think that the pricing on this new issue is fair and is suitable for stable income seekers. Investors should note that the final price guidance for the new bond would likely be lower than the initial price guidance.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in FIRTSP 4.9817% Perpetual Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.