CapitaLand Ascott Trust (“CLAS”) announced that they would be issuing a new bond at the Final Price Guidance (“FPG”) of 5%. The senior unsecured bond has a maturity of 3.5 years and is expected to receive an issue rating of BBB- from Fitch. The proceeds from the new issue will be used to refinance the ARTSP 4.205% 23Nov2022 Corp (SGD), which will be maturing on 23 November 2022.
Previously Ascott Residence Trust, it has been renamed to CapitaLand Ascott Trust on 27 September 2022. CLAS is currently the largest hospitality trust in Asia Pacific, holding a total of 95 properties across 44 cities in 15 countries. As at 30 June 2022, the total assets of the trust amount to SGD 7.6b. The majority of its assets lie in Asia Pacific region at 61.4%, followed by in USA at 20.7%, and lastly in Europe at 17.9%.
In the latest third quarter results ending 30 September 2022 (“3Q22”), most notably its 3Q22 gross profits rose to an estimated 90% of pre-COVID-19 levels in 3Q19 on a pro forma basis. Excluding its recent acquisition of eight properties and their respective contributions, the same-store gross profit rose by 70% on a year-on-year basis.
From its results in six months ending 30 June 2022 (“1H22”), the gross profit was SGD 118.2m in 1H22, an increase from SGD 82.1m in 1H21. The net cash generated from operating activities increased substantially to SGD 106.5m in 1H22, from SGD 40.8m in 1H21. However, its cash and cash equivalent fell to SGD 319.5m in 1H22, from SGD 471.5m in 1H21. This is mostly due to the loss in cash flow from investing activities, primarily the acquisition of other investment properties.
For 3Q22, its total debt currently amounts to SGD 2.6b which has a weighted average debt to maturity of 3.5 years. The effective borrowing cost remains relatively low at approximately 1.7% and their gearing has improved from 37.5% as of 1H22 to 35.8% as of 3Q22. While 76% of the total debt is on fixed rates, the interest cover has improved from 3.9x as at 1H22 to 4.3x as at 3Q22. Currently, CLAS has a headroom of approximately SGD 1.2b and SGD 2.0b to reach the aggregate leverage limit of 45% and 50% respectively.
Against the maturing ARTSP 4.205% 23Nov2022 Corp (SGD), the additional yield while at the same seniority and bond rating undeniably makes it an attractive one. Among other notes from CLAS, its ARTSP 3.630% 20Apr2027 Corp (SGD) has a yield to worst (“YTW”) of 4.73% with 4.44 years to maturity, at the ask price of 95.850. With shorter years to maturity and higher coupon, we find that the new issue is much more attractive. Compared against other investment grade issuers of similar profile, LLCAU 3.900% 27Apr2027 Corp (SGD) has a YTW of 4.80% with 4.46 years to maturity, at the ask price of 96.651, while SGREIT 3.150% 05Jun2025 Corp (SGD) has a YTW of 4.44% with 2.57 years to maturity, at the ask price of 98.025. The new issue has a maturity in the middle of these two while providing for a higher coupon. Investors should strongly consider this new issue.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in ARTSP 3.070% Perpetual Corp (SGD) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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