- The purchase price will be 70% of the principal amount of the perpetual securities.
- The expiration deadline for the tender offer will be on 2 September 2022, 5pm.
- First REIT is still able to service interest payments on its perps and the issuer may still call back the perps sometime down the road.
- We do not think taking a 30% haircut is justified given First REIT’s credit ratios and would not be beneficial to bondholders.
On 22 August 2022, First REIT invited holders of its FIRTSP 4.9817% Perpetual Corp (SGD) to a tender offer to purchase the perps at a price of 70% of its principal amount. In this article, we will take a quick look at the tender offer and provide our thoughts on the offer.
About the tender offer
First REIT will be offering to purchase for cash its outstanding FIRTSP 4.9817% Perpetual Corp (SGD). The purchase price will be 70% of the principal amount of the perpetual securities. This means the issuer will purchase SGD 175,000 for each SGD 250,000 in principal amount of the perpetual securities. The tender offer was announced on 22 August 2022 and the expiration deadline for the tender offer will be on 2 September 2022, 5pm.
First REIT have stated in their invitation memorandum that the rationale for the tender offer was to provide liquidity to its bondholders given the illiquidity of the FIRTSP 4.9817% Perpetual Corp (SGD) in the market as well as to optimise its debt capital structure.
Financial highlights
In the six-month period ended 30 June 2022 (“1H22”), First REIT reported a 38.2% increase in rental and other income to SGD 53.8m. The increase was attributed to contributions from 12 Japan nursing homes acquired on March 2022. First REIT has a long weighted average lease expiry (“WALE”) profile of 13.0 years which could provide stable rental income revenue for the REIT.
In terms of capital management, First REIT had a total debt of SGD 462.7m with no debt expiring in 2022 and SGD 252.4m of term loan due on March 2023. Gearing ratio for First REIT is adequate at 35.6% and interest coverage ratio is strong at 5.6x. One point to note is the REIT’s low weighted average debt to maturity of 1.28 years. Approximately 54.6% of First REIT’s debt (SGD 252.4m of term loan) is due to mature on March 2023 and First REIT is currently in negotiations to refinance the term loan.
Quick Comments
The tender offer from First REIT results in a 30% haircut in principal amount to bondholders. An offer of 70 represents approximately 27% premium to the indicative ask price from the market (as of 19 Aug 22). We do not think the tender offer from First REIT is attractive to bondholders as First REIT’s credit ratios do not justify realising a loss on the perps.
First REIT’s liquidity risks is low as they have strong interest paying ability and decent gearing ratio. Although they have a huge term loan set to mature in 2023, the REIT is already in the midst of refinancing the debt. For bondholders who bought the perps above the price of 70, it may not be the best choice to tender the bonds. First REIT is still able to service interest payments on its perps and the issuer may still call back the perps sometime down the road. We do not think taking a 30% haircut is justified given First REIT’s credit ratios and accepting the tender offer would not be beneficial to bondholders.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in FIRTSP 3.250% 07Apr2027 Corp (SGD), FIRTSP 4.9817% Perpetual Corp (SGD), LMRTSP 6.600% Perpetual Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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