Hotel Properties Limited announces SGD 5Y senior unsecured notes at IPG of 4.650%

Hotel Properties Limited (“HPL”) plans on issuing new SGD 5-year senior unsecured notes at the initial price guidance (“IPG”) of 4.650%. It is expected to be issued on 10 June 2025, with a maturity date of 10 June 2030. The proceeds will be used for general corporate purposes which include refinancing of borrowings and financing working capital of the issuer and its subsidiaries. We wish to highlight that the new issuance is made available only for accredited and institutional investors.

Related article: Hotel Properties Limited announces SGD NC5 perpetuals at an IPG of 5.75%

HPL is a Singapore-based investment holding company specialising in hotel ownership, management, and property development. Incorporated in 1980 and listed on the Singapore Exchange since 1982, HPL operates across three main segments:

• Hotels: This segment encompasses the operation of hotels and shopping galleries, along with the provision of hotel management services. Revenue is primarily generated from room rentals, retail space leases, food and beverage sales, and management fees.
• Properties: This segment involves the rental and sale of residential and commercial properties. In Singapore, revenue from condominium developments is recognised based on the percentage of completion method, while overseas projects follow the completion of construction method.
• Others: This segment includes distribution and retail operations, as well as activities related to quoted and unquoted investments.

HPL has interests in 41 hotels across 17 countries, including Singapore, the Maldives, the United Kingdom, the United States, Japan, and Italy. These properties operate under renowned hospitality brands such as Four Seasons Hotels & Resorts, COMO Hotels & Resorts, Hard Rock Hotels, Six Senses Hotels & Resorts, IHG Hotels & Resorts, and Marriott International.

In Singapore, HPL has developed luxury residential projects like Four Seasons Park, Cuscaden Residences, Tomlinson Heights, and Scotts 28. The company also owns prime commercial properties, including Forum The Shopping Mall and Concorde Shopping Mall.

For the financial year ended 31 December 2024 (“FY24”), HPL reported a 7.9% year-over-year (YoY) increase in revenue, reaching SGD 692.9 million, up from SGD 642.1 million in 2023. The hotel segment remained the primary revenue driver, contributing ~96% of total revenue (Figure 1). The improved performance was attributed to the opening of Six Senses Kanuhura Maldives in late 2023 and Four Seasons Hotel Osaka in August 2024. Gross profit decreased by 2.0% to SGD 143.7 million, reflecting increased cost of sales.

Figure 1: HPL’s revenue breakdown by business segments

Notably, HPL’s other operating income doubled, amounting to SGD 51.3 million in FY24 from SGD 25.8 million in FY23, due to the completion of Brillia Tower Dohima residential apartments in Osaka, which the company has a 25% share via a partnership arrangement and a distribution of SGD 38.7 million was received. However, administrative expenses grew by 7.5% to SGD 78.8 million, and finance costs rose by 7.4% to SGD 105.6 million, due to higher borrowings and interest rates. As a result, loss before tax and fair value changes in investment properties improved slightly to - SGD 64.0 million from - SGD 74.1 million.

After accounting for fair value changes in investment properties, pre-tax profit declined sharply by 94.3% to SGD 27.2 million, compared to SGD 570.9 million in the previous year. This significant drop in profitability was primarily due to lower net fair value gains on investment properties, which had bolstered earnings in FY23. In summary, while HPL achieved revenue growth in FY24, the Group remains loss-making before accounting for fair value gains.

Looking at its credit profile, HPL reported a total cash and bank balance of approximately SGD 131.3 million as of FY24, reflecting a SGD 36.5 million increase from SGD 94.8 million in FY23. This improvement was primarily driven by additional borrowings, complemented by positive operating cash flows.

However, the company's total debt rose to SGD 1.8 billion by year-end 2024, up from SGD 1.5 billion in FY23, driving net debt (total borrowings less cash) to rise to SGD 1.7 billion from SGD 1.4 billion. This pushed net-debt-to-equity ratio to ~71% at the end of FY2024, higher than the ~58% in FY23, indicating a more leveraged position. That said, HPL’s interest coverage ratio improved slightly from 1.04x in FY23 to 1.22x in FY24, helped by higher EBITDA.

As of FY24, HPL has SGD 236 million in debt due within this year, including SGD 16 million in secured borrowings and SGD 220 million in unsecured borrowings. Given its cash position of SGD 131.3 million, we expect the proceeds from this new issuance to help in refinancing upcoming maturities. Beyond tapping into the SGD bond market, we believe HPL may be limited in achieving secured loans, as around SGD 1.40 billion of HPL's properties were pledged as collateral for credit facilities in FY24. This represents about 99% of its investment properties valued at SGD 1.42 billion.

In summary, while HPL has improved its cash position, we continue to find the company highly levered as compared to peers, suggesting a riskier credit profile. We think that HPL will need to demonstrate further improvements in profitability and its leverage profile to improve its broader credit metrics.

Our recommendations

Table 1: Comparable real estate SGD papers

We compare this new issue against existing bonds from HPL, Shangri-La, and other property developers with similar tenors. As shown in Table 1, the initial price guidance (IPG) of 4.65% appears fair when compared to its former issuances, considering the differences in tenors and the likelihood that for the final price guidance to adjust downwards.

Compared to peer issuances with closer tenors, HPL’s new issue has a higher IPG, but we attribute it to its more levered balance sheet and poorer credit profile. Amongst the SGD real estate developer peers, we still favor OUESP 4.000% 08Oct2029 Corp (SGD) and HOBEE 4.350% 11Jul2029 Corp (SGD) as we do not think that the yield pickup from HPL’s new issue is justified for the additional credit risk.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in HOBEE 4.350% 11Jul2029 Corp (SGD). The analyst who produced this report holds an NIL position in the abovementioned securities.

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