CapitaLand Investment announces new 10.5Y SGD senior notes at IPG of 3.75%

CapitaLand Investment Treasury (“CLI”) plans to issue a new 10.5-year SGD senior unsecured bond at the initial price guidance (“IPG”) of 3.75%. The new bond is expected to be issued on 22 August 2024, with a maturity date on 22 February 2035. Both the issuer and the bond are also expected to be unrated. CLI indicated that the net proceeds will be used for the refinancing of existing borrowings, financing investments, and general corporate purposes. 

CLI is a leading global real estate investment manager with a strong Asia foothold. The company had SGD 134B of real estate assets under management, and SGD 39B of real estate funds under management held via six listed real estate investment trusts and business trusts, and more than 30 private vehicles. CLI’s core markets include Southeast Asia, China, and India. Temasek Holdings holds around 54% of CLI.

For the six months ended 30 June 2024 (“1H24”), revenue of CLI improved 1% year-on-year (“YoY”) to SGD 1,365M, with higher contributions from its Fee Income-Related Business (“FRB”) while its Real Estate Investment Business (“REIB”) saw a marginal decline in revenue. The company continues to prioritise FRB in recent years and has made efforts to diversify fee-related earnings and fortify recurring and event-driven fees. Consequently, FRB has also made up an increasing portion of the CLI’s operating profit after tax and minority interest (“PATMI”) (around 63% of operating PATMI).

For CLI’s REIB, Singapore and India assets remained resilient and have continued to contribute to positive net property income. Assets in both geographies have enjoyed positive rental reversion, with occupancy rates above 90%, on aggregate. On the contrary, China assets saw negative net property income as investor and consumer sentiments remain largely cautious.

CLI’s operating PATMI for 1H24 was SGD 296M, a 14% YoY drop from 1H23 as higher FRB was offset by weaker REIB. The latter was weighed down by higher interest expense, currency exchange losses, and the lack of contribution from divested assets. The company managed to achieve higher portfolio gains of SGD 35M in 1H24, up from SGD 7M in 1H23, helped by gains from earlier divestments and CLI REIT’s distribution reinvestment plans. As such, CLI’s total PATMI was SGD 331M (operating PATMI of SGD 296M and portfolio gains of SGD 35M), down 6% YoY.

In terms of its credit profile, CLI has a strong liquidity position with SGD 7.5B total cash and available undrawn facilities, of which cash and cash equivalent stands at SGD 2.0B as of 30 June 2024. Total liquidity is more than sufficient to cover its short-term borrowings of SGD 2.2b. CLI’s debt maturity profile is rather evenly spread out with an average debt maturity of 2.8 years. The company is expecting larger amount of debt due in 2025 and 2026 (at SGD 2.6B each), with lower debt thereafter. With CLI’s strong available liquidity and access to financing, we do not foresee any issues servicing debt, at least in the near term.  

CLI’s credit metrics have deteriorated given the moderation in financial performance but we do not see any red flags. Net debt-to-equity ratio saw a slight increase to 0.59x in 1H24, from 0.56x in 1H23, while net debt-to-total assets remained stable at 0.34x in the same period, against last year’s 0.33x. Interest coverage ratio has dropped to 3.4x in 1H24 from 4.1x in 1H23 but coverage remains sufficient in our opinion.

Overall, we think credit profile of CLI remains decent but has weakened due to a poorer financial half year. At the IPG of 3.75%, CLI’s new issuance looks fairly priced against its 2027 and 2030 bonds, accounting for the difference in tenor. We are expecting the final price guidance to adjust downwards from the current IPG for CLI’s new issue. 

There is a narrow list of bond issues from SGD real estate space that are of such long tenor, making CLI’s new issue one of the rare few. This also means that there are limited comparable peers. Against MCTSP 3.900% 07Mar2034 Corp (SGD) and AREIT 3.730% 29May2034 Corp (SGD), the new issue looks fairly priced. That said, CAPITA 3.750% 10Jul2034 Corp (SGD) by CapitaLand Mall Trust looks better priced considering the likelihood for the FPG (of CLI’s new issue) to fall from the current IPG.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in CLIVSG 3.330% 12Apr2027 Corp (SGD) while the analyst who produced this report hold a NIL position in the abovementioned securities.