CapitaLand Ascott Trust has just announced the issuance of its 3.5-years senior bonds at a final price guidance of 5%. The net proceed arising from this issuance will be used for refinancing the existing borrowings of CapitaLand Ascott Trust. The bonds comes with a 3.5 years tenor that will mature on the 18 May 2026 and a semi-annual coupon payment scheduled on every 18 May and 18 November each year, with the first coupon payment being paid out on 18 May 2023.
Company Background
Formerly known as Ascott Residence Trust (ART), CapitaLand Ascott Trust (CLAS) is the largest lodging trust in Asia-Pacific with an asset value of $7.6 billion as at 30 June 2022. CLAS invests primarily in income-producing real estate and real estate-related assets which are used or predominantly used as serviced residences, rental housing properties, student accommodation and other hospitality assets across 15 countries mainly in Asia Pacific (61.4%), Europe (17.9%) and the United States (20.7%). CLAS has a credit rating of BBB- by Fitch (Investment grade).
CLAS’s 3Q2022 business update
There were no financials that were provided in this 3Q2022 business update. However, management did mention that gross profit has reached approximately 90% of its pre-COVID levels in 2019. Revenue Per Available Room (RevPAU) also rose 88% YoY to $132 and was driven up due to higher occupancy (>70% in 3Q 2022) and average daily rates (ADR). This is also approximately 87% of 3Q 2019 pro forma RePAU (pre-COVID level). Demand remains robust across all its market segments (Figure 1) with Singapore experiencing the highest growth in RevPAU (+174% YoY). The strong performance was largely contributed by the F1 Singapore Grand Prix that was held in September and October, which boosted the demand for accommodation. Japan’s RevPAU was slightly lower by 12% YoY, but this decline was due the Tokyo properties benefitting from the Olympic Games in 3Q 2021 last year. However, a recovery is expected with forward booking for 4Q 2022 reflecting a strong rebound in demand from international travellers with inbound travel restrictions easing on 11 October 2022.
Figure 1. Change in RevPAU
Source: Phillip Bond Desk
In terms of cash flow stability, occupancy rate of the properties remained stable at >95%. Additionally, 99% of its student accommodation, a stable income source for CLAS, are leased for the academic year 2022-2023. (Higher compared to >95% in the previous academic year; with above-market rent growth of approx. 6% YoY). CLAS has also stated that 15% of its 3Q 2022 gross profit was contributed by its longer-stay properties and the firm is targeting to achieve a 25-30% asset allocation into longer-stay accommodation, to further diversify from its usual cyclical revenue-generating assets and give more income stability to its unitholders.
Capital Management
CLAS also has a healthy credit profile with its gearing ratio improving from 37.5% on 30 June 2022 to 35.8% as at 30 September 2022. This enables CLAS to have a debt headroom of approx. $2 billion for additional financing if needed. Approx. 76% of CLAS debts are fixed with a weighted average debt to maturity of 3.5 years.
The debt maturity profile as of 30 September 2022 is as follows:
Figure 2: Debt Maturity profile
Source: CapitaLand Ascott Trust
Within the CLAS debt maturity profile, there are $216 million of debts that will be maturing in 2022 while majority of its debt will be maturing at a later period at 2026 and after. As of 30 September 2022, CLAS has approx. $1.2 billion of liquidity reserve, ($375 million cash on hand + $820 million in credit facilities) enabling CLAS to tide through any unforeseen short-term liquidity strains. Additionally, CLAS’ effective borrowing cost remained low at approx. 1.7% after repaying and refinancing majority of debt due in 2022.
Overview
With international travel recovering, this would translate to higher demands for accommodation stays and CLAS would be well positioned to capture this recovery. Additionally, with CLAS’s robust capital management and efforts to ramp up its longer stay properties to provide more stability in their cash flows, CapitaLand Ascott Trust is an interesting option that investors may add to their fixed income portfolio mix.
Bond Overview
