CapitaLand Ascott REIT announced that it is planning to issue a new 5 year senior bond at a final price guidance (“FPG”) of 3.69%. The issuer is rated BBB (Stable) by Fitch Ratings, while the issuance is expected to be rated BBB by Fitch. It stated that the net proceeds will be used for refinancing the existing borrowings of the CapitaLand Ascott REIT group.
CapitaLand Ascott REIT, together with CapitaLand Ascott Business Trust, formed the stapled group of CapitaLand Ascott Trust (“ARTSP”), formerly known as Ascott Residence Trust. ARTSP is currently the largest lodging trust in the Asia Pacific region, with an asset value of SGD 8.7b as of 31 December 2023. The Group's international portfolio comprises 106 properties with more than 19,000 units in 45 cities, across 16 countries in Asia Pacific, Europe, and the United States of America.
Looking at the portfolio composition by geography, the bulk of ARTSP’s assets are in Asia Pacific (55.8%), followed by the Americas (19.6%) and Europe (24.6%). It also has diversified lodging asset classes, with 54 serviced residences, 20 hotels, 23 rental housing properties, and 9 student accommodation assets.
For the year ended 31 December 2023 (“FY23”), both ARTSP’s revenue and gross profit grew 12% year-on-year (“YoY”), driven by stronger operating performance from the current portfolio and contributions from new properties. The increase in revenue was able to offset higher operating and financing costs. For 2H2023, approximately 44% of ARTSP’s gross profit was derived from growth income sources (Management contracts of serviced residences and hotels) while 56% was derived from stable income sources (Master Leases, Management Contracts with minimum guaranteed income, rental housing and student accommodation).
Contribution to gross profit from stable income sources has increased as compared to the previous year (“2H2022”). Stable income sources continue to exhibit resiliency despite a more challenging macro backdrop last year, with gross profit rising YoY from i) master leases, ii) longer-stay properties, and iii) management contracts with minimum guaranteed income (MCMGI).
For 2H2023, the portfolio revenue per available unit (“RevPAU”) increased by 23% YoY due to sustained lodging demand and key markets (Australia, Japan, Singapore, UK and USA) continuing to exceed pre-Covid levels. RevPAU saw an uptick in 4Q23 relative to the previous year due to higher average daily rates while average portfolio occupancy remained stable.
As of 31 December 2023, ARTSP expects SGD 563M of debt due in 2024, which is roughly 18% of gross debt. The Group has cash and cash equivalent of an estimated SGD 432M and a credit facility of SGD 890M, which collectively translates to SGD 1.3B of available liquidity. With more than sufficient liquidity to cover short term debt, refinancing risks should remain manageable this year. Beyond 2024, debt due over the next several years should be manageable (2025/2026/2027: SGD302M, 468M, 430M), especially with strong profit contributions from stable income sources.
Gearing for the ARTSP remains decent at 37.9%, roughly unchanged from FY22, and management expects it to remain under 40%. While interest coverage slid slightly to 4.0X from the prior year’s 4.4X, it remains healthy and finance costs are sufficiently covered. To immunises against rising interest rates, the Group has 81% of its debt fixed or hedged into fixed rate. This is a relatively high proportion as compared across its operating history which we think helps to keep finance costs manageable. Effective borrowing cost is also kept low at around 2.4% which we believe will keep debt metrics in control if maintained.
Overall, the credit profile of ARTSP remains healthy while the earnings outlook is stable. At an FPG of 3.69%, we think the bond is less attractive relative to comparable peers like OUECT 3.950% 05May2027 Corp (SGD) and SLHSP 4.400% 01Aug2028 Corp (SGD) – both with an indicative ask yield to maturity of above 4.0%. Within ARTSP’s fixed rate issuance, we find the ARTSP 4.200% 06Sep2028 Corp (SGD) more attractive with its higher yield of 3.80% and shorter years to maturity.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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