GuocoLand announces new SGD NC5 perpetuals at an IPG of 4.65%

GuocoLand Limited ("GuocoLand") plans to issue a new subordinated perpetual (“perp”) at the initial price guidance (“IPG”) of 4.65%. The new notes are expected to be issued on 25 February 2025, with the first call date of 25 February 2030. If uncalled, the coupon will reset based on SGD 5-year SORA OIS rate, a step-up margin of 100 basis points and the initial spread. GuocoLand indicated that the net proceeds will be used to finance general working capital and corporate requirements of the Group.

GuocoLand and its subsidiaries are a leading real estate group with operations in Property Investment and Property Development. It owns, invests in, and manages a portfolio of quality commercial and mixed-use assets. The Group’s investment properties are located across its key markets of Singapore, Chin,a and Malaysia, which are also the reportable operating segments. GuocoLand is a subsidiary of Guoco Group Limited, which is a member of the Hong Leong Group.

GuocoLand reported revenue of SGD 1.82B (FY23: SGD 1.54B) in FY24 (full year ended 30 June ‘24), an 18% YoY increase driven by robust growth from both the property development and investment business. Higher revenue and reductions in administrative and other expenses contributed to a 13% YoY increase in the Group’s operating profit to SGD 320.0 million (FY23: 282.0M). 

However, profit attributable to equity holders fell 38% YoY to SGD129.0 M (FY23: SGD 207.1M) in FY24. This was mainly attributed to a 60% YoY increase in financing costs (FY24: SGD 239.4M) due to the higher interest backdrop and the recognition of interest expense from Guoco Midtown (capitalised upon the property’s completion). 

Our view of GuocoLand’s outlook remains unchanged as we expect revenue to remain resilient, supporting earnings. We expect its Singapore business to grow and remain a key revenue driver. The Group’s Singapore investment properties continue to see positive rental reversion for Grade A offices and near-full occupancy rates. Guoco Midtown II is also expected to complete in 1H 2025 which should contribute to the Group’s rental income. On the other hand, GuocoLand’s Singapore development properties have demonstrated strong sales across all its projects, particularly the Midtown and Lentor projects. We expect a healthy pipeline of Singapore projects to come with the Group’s acquisition of the Lentor central site, Upper Thomson Road (Parcel B) site, Margaret Drive site, and River Valley Green (Parcel B) site.

Total borrowings for GuocoLand rose by 3% YoY at SGD 5.3B in FY24 from SGD 5.1B in FY23. Despite higher levels of borrowings, a majority are backed by assets in Singapore which we deem to be more resilient. GuocoLand has also grown its cash position to SGD 984.2M as of June ’24, from SGD 890.4M a year ago. The Group’s short-term borrowings continue to exceed its cash position, but we believe it is unlikely to face difficulties in meeting short-term obligations due to strong sales momentum from the Singapore residential projects. Recurring revenue from investment properties (SGD 228.8M) should also help offset the bulk of financing costs (FY24: SGD 239.4M) moving forward.

Adjusting for perpetual securities, net debt to EBITDA was estimated to be 14.7x in FY24, improving slightly from last year (FY23: 16.0x). Net debt-to-total asset was estimated to be 41.3% in FY24, nearly unchanged from last year (FY23: 42.0%). Adjusted net gearing was estimated to be 90.5% in FY24, slightly higher than previous year (FY23: 89.7%). Interest coverage also weakened with EBITDA-interest coverage (accounting for perpetual distribution) falling to 1.2x in FY24 (FY23: 1.7x). 

Bond	Ask Price	Yield to Call	Years to Call
GUOLSP Perp Corp (SGD)*	100*	4.65%*	5.00*
FPLSP 4.380% Perpetual Corp (SGD)	100.57	2.96	0.41
WINGTP 4.350% Perpetual Corp (SGD)	89.85	6.20	0.51
ESRCAY 5.650% Perpetual Corp (SGD)	99.30	6.36	1.03
ARTSP 4.600% Perpetual Corp (SGD)	103.22	3.88	4.97
KITSP 4.750% Perpetual Corp (SGD)	103.23	3.93	4.32
Source: Bondsupermart, Bloomberg L.P., iFAST Compilations. Data as of 17 Feb 2025. *Not yet issued. Yield is based on IPG and is likely to be revised downwards (FPG).

Bond	Ask Price	Yield to Maturity	Years to Maturity
GUOLSP 3.400% 10Aug2025 Corp (SGD)	100.07	3.26	0.48
GUOLSP 3.290% 26Oct2026 Corp (SGD)	99.75	3.44	1.69
GUOLSP 4.050% 04Jun2027 Corp (SGD)	101.00	3.59	2.29
GUOLSP 3.307% 15Nov2027 Corp (SGD)	99.20	3.61	2.74
GUOLSP 4.400% 27Jul2028 Corp (SGD)	102.60	3.59	3.44
Source: Bondsupermart, Bloomberg L.P., iFAST Compilations. Data as of 17 Feb 2025.

Overall, we think GuocoLand remains a stable issuer despite some moderation across credit metrics over the past six months. Regarding its new issue, we do not see any comparable SGD real estate developer perp with similar years to call. Compared against those with shorter years to call (Table 1), the IPG for GuocoLand’s new perp is generally lower than their yields, particularly against WINGTP 4.350% Perpetual Corp (SGD) and ESRCAY 5.650% Perpetual Corp (SGD). Furthermore, the final price guidance (FPG) is likely to come in lower than the IPG of 4.65%. 

To find comparable peers with similar years to call, we extend beyond SGD real estate developers and look at SGD REITS (Table 1). We find the IPG (of the new issue) – and likely the FPG - to be generally more attractive, particularly against ARTSP 4.600% Perpetual Corp (SGD) and KITSP 4.750% Perpetual Corp (SGD). Using GuocoLand’s fixed rate bonds as a benchmark (Table 2), we think the IPG – and potential FPG - is priced more attractive than a potential 5-year fixed rate bond. The higher yield is fair for investors taking on greater risks, given the lower seniority and potential non-call risk on the perpetual security.