G8 has a much improved credit profile and liquidity position given a significant equity raising and a new $200m revolving facility, during 1H17
With only circa six months to maturity, the remaining G8 AUD bond is unlikely to experience any material upside in terms of pricing and we recommend investors consider exiting their positions and move to higher yielding bonds as detailed below, in order to help manage reinvestment risks.
Source: FIIG Securities
Main points
- Revenue increased 3% from the prior corresponding period (pcp) to $368.7m. While like-for-like occupancy decreased by 3.4ppt to 77% from December 2016 driven by increased national supply of 3.7%, strong cost control improved margins
- G8 reiterated guidance for FY17 of underlying EBIT of mid $170m, compared to our forecast of $165m
- During the 1H17, the group raised $195m via a $100m domestic institutional placement and a $95m private placement. This decreased the group’s net leverage to 1.2x at 30 June 2017 from 2.2x at 31 December 2016. G8 has reduced its target net leverage level to 1.5-1.7x from 2.0x
- Since June 2017, the group repaid its $70m 7.65% fixed AUD notes
- On 18 August 2017, G8 executed a $200m three year club bank debt facility with CBA, Westpac and Sumitomo Mitsui Banking Corporation, replacing a $50m facility. This indicates to us that G8 maintains good support from its senior lenders and we believe that the group is well placed to refinance its remaining BBSW+3.90% AUD notes due 3 March 2018
Relative value
Note: Prices accurate as of 25 August 2017 but subject to change; indicative only
Source: FIIG Securities, Bloomberg
The above table gives trading margins to worst for similar AUD unrated bonds. With a significant equity raising during the half and its new $200m revolving facility, G8 has a much improved credit profile and liquidity position. However, with circa six months to maturity, the G8 bond is trading around par and there is limited upside in terms of pricing. We recommend investors consider exiting their positions and move to a higher yielding bond, in order to help manage reinvestment risks – such as RSEA Oct-21, Sunland Nov-20 or WA Stockwell June-21 with indicative yields to worst of 7.17%, 6.19%, 7.56% respectively.
Note: Prices are accurate as of 25 August 2017 but subject to change; indicative only
Source: FIIG Securities, Bloomberg