Conservative Capital Management by CapitaLand Ascott Trust

Shawn Sng  |   03 Jan 2024  |    71 views

CapitaLand Ascott Trust (CLAS), formerly known as Ascott Residence Trust (ART), is the largest lodging trust in Asia-Pacific with an asset value of $8.1 billion as at 30 September 2023. CLAS invests primarily in income-producing real estate and real estate-related assets that are used or predominantly used as serviced residences, rental housing properties, student accommodation, and other hospitality assets across 15 countries mainly in Asia Pacific (59%), Europe (20%) and the United States (21%). As of 2nd January 2024, CapitaLand Ascott Trust has a market capital of $3.726bn.



CLAS’s 3Q 2023

In 3Q 2023, CLAS’s portfolio RevPAU has continued to improve with its portfolio Revenue Per Available Unit (RevPAU) increasing by 17% YoY ($154) exceeding pre-Covid 3Q2019 Pro forma RevPAU levels by 102%. Secondly, CLAS’s stable income source such as its longer-stay properties segment has also remained resilient with >95% occupancy for its rental housing properties. One main contributor in this segment would be its Standard at Columbia (student accommodation) which has >90% student occupancy upon opening. All these improvements depict that CLAS property demand remains healthy and attractive in the market.


Capital Management

CLAS has always approached its capital management conservatively. In 3Q 2023, CLAS’s gearing level came down from 38.6% in 2Q 2023 to 35.2% in 3Q 2023 while Interest Coverage slid slightly but remained at a comfortable range of 4.2 times. This was attributable to the Equity Fund Raising (EFR) that was raised back in August 2023, when proceeds from the EFR were partially used to pare down loans that were maturing in 2023 and higher-interest floating rate debt. As shown in (Figure 1) most of its debts which were due in 2023 were largely refinanced or repaid. As for the remaining $100m in 2023, CLAS currently has approx. $1.3bn in liquidity reserves ($500m cash on hand + $790m credit facilities). Therefore, CLAS should not face difficulty in repaying its near-term debt obligations. Additionally, CLAS’s property’s value is unencumbered and has also been bumped up from 61% to 63%, while also maintaining its investment grade of BBB by Fitch (Investment grade), which is an improvement from BBB- previously in May 2023.




Above listed are some of the SGD-denominated bonds that are under CLAS. At the time of writing, the 5yr SOR is currently hovering at 2.66%.


ARTSP 3.880% Perpetual Corp (SGD)

The size of this issuance is $150m, and if we were to utilize the current 5-year SOR as a benchmark during the reset (if these bonds are not being called on the 4th of Sep 2024) the coupon will then be reset to a rate of approx. 5.012% (2.66% + 2.352%) which is higher than the current coupon rate. Thus, with a much higher borrowing cost after the reset, this might entice the REIT to do a redemption on the 4th of Sep 2024.


ARTSP 3.070% Perpetual Corp (SGD)

The size of this issuance is $250m, and if we were to utilize the current 5-year SOR as a benchmark during the reset (If these bonds are not being called on the 30th of Jun 2025) the coupon will then be reset to a rate of approx. 5.16% (2.66% + 2.5%) which is higher than the current coupon rate. However, rate expectations are pointing towards a lower rate outlook in 2025. Therefore, the coupon might then be reset to a similar coupon range or even lower which may deteriorate the possibility of a call action being made. A lower borrowing rate would be more favorable for the REIT.


All in all, as mentioned above, CLAS should not face difficulty in the repayment of its debt obligations given its prudent capital management.

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