Brokers’ take: RHB lowers EC World Reit target price to S$0.55 on ‘onerous loan refinancing terms’

AFTER EC World Reit ’s recent “disappointing” refinancing outcome, RHB has lowered its target price for the real estate investment trust (Reit) to S$0.55 from S$0.65, citing “limited catalysts” in a Monday (Jun 27) report.

This represents a further drop from RHB’s report in May, where it had previously lowered the target price for EC World Reit to S$0.65 from S$0.76. 

RHB has maintained its “neutral” call on the Reit. The new target price represents a 0.9 per cent upside from the counter’s trading price as at 10.50 am. Units of EC World Reit were trading at S$0.545, down S$0.005 or 0.9 per cent, at the time.

EC World Reit has currently secured onshore borrowing facilities of S$300 million and US$87 million, which were due in June. While it was granted a temporary loan extension to Apr 30 next year, this is conditional to a 25 per cent (approximately S$100 million) repayment of loans by the end of 2022.

Furthermore, the Reit has onshore borrowings of 907 million yuan (S$187.7 million) that are due for refinancing this month – except a 64 million yuan portion of debt that expires in July 2029 – and is currently in talks to extend the maturity till April 2023, noted analyst Vijay Natarajan.

These “onerous refinancing terms” indicate the Reit’s concerns over its China assets, despite repeated earlier assurances that banks remain supportive, he said.

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Natarajan expects the similar maturity dates of the loans to continue posing risks and limiting the Reit’s negotiating capabilities. He predicts updated refinancing costs will be 30 to 100 basis points higher than 4.2 per cent per annum, the existing blended interest rate.

With EC World Reit’s non-binding plans to divest 2 of its Chinese assets – which account for approximately 27 per cent of total asset value and 30 per cent of total income – to a sponsor, it will likely record a dividends drop and size reduction.

This will dry up liquidity and further widen the yield gap vis-à-vis larger Reits, Natarajan said. “With this news in the price, we see limited catalysts – except for the Reit’s possible privatisation.”