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CapitaLand Ascott Trust Expands Singapore Portfolio with Yield-Accretive Acquisition of lyf Funan

Date: October 2, 2024
Broker: UOB Kay Hian Private Limited


Company Overview

CapitaLand Ascott Trust (CLAS) is a real estate investment trust (REIT) that invests in income-producing real estate, primarily used as serviced residences, rental housing, student accommodation, and other hospitality assets globally. As of the report’s date, CLAS has a market capitalization of S$3.69 billion (US$2.87 billion) with 3,786.5 million shares issued.


Stock Data

  • Bloomberg Ticker: CLAS SP
  • Share Price (as of October 2, 2024): S$0.975
  • Target Price: S$1.38 (previous TP: S$1.37)
  • Upside Potential: 41.5%
  • Major Shareholders: Temasek Holdings owns 33.6% of the trust.
  • Sector: Real Estate

Key Financial Metrics

Financial Metric 2023 2024F 2025F 2026F
Net Turnover (S$m) 745.0 762.0 741.0 764.0
EBITDA (S$m) 302.0 329.0 351.0 362.0
Net Profit (Adjusted, S$m) 99.0 146.0 161.0 168.0
Distribution per Unit (DPU) (S$ cent) 6.6 5.5 5.9 6.1
DPU Yield (%) 6.7 5.6 6.0 6.3

Recent Acquisition of lyf Funan

Acquisition Details:

  • CLAS has entered into an agreement to acquire lyf Funan, a 329-room property located in Singapore’s Civic District.
  • The acquisition is priced at S$263 million, representing a 1.9% discount to independent valuations.
  • The property provides an EBITDA yield of 4.7%, higher than the exit EBITDA yield of 3.2% from the divestment of Citadines Mount Sophia in March 2024.
  • The acquisition is expected to be DPU-accretive at 1.5% on a pro forma basis for 2023.

Strategic Importance:

  • lyf Funan is tailored for next-generation travelers, offering social living spaces and dynamic design. Occupancy exceeded 80% in 1H24, outperforming comparable properties.
  • After the acquisition, CLAS’s exposure to Singapore will increase from 16% to 19% of total assets.

Funding:

  • The purchase consideration of S$146.4 million will be funded by proceeds from the divestment of Citadines Mount Sophia and a debt drawdown at an all-in interest rate of 3.5%.
  • The acquisition is expected to increase CLAS’s total distribution by S$3.5 million.

Long-term Lease Agreement:

  • CLAS will enter a long-term master lease with its sponsor, Ascott Limited, for lyf Funan, with an initial term of 20 years, renewable for another five years.
  • Rent payable will be 93.5% of the gross operating profit of the property.

Stock Performance

CLAS’s stock has shown the following price performance over different time periods:

  • 1-month: 7.1%
  • 3-month: 10.8%
  • 6-month: 3.2%
  • 1-year: 1.6%
  • Year-to-date: -1.5%

The stock’s 52-week high was S$1.01, and the low was S$0.845.


Financial Outlook and Risks

  • The 2025 DPU forecast has been raised by 1.6% due to the acquisition of lyf Funan.
  • CLAS maintains a strong distribution yield of 6.0% for 2025.
  • Aggregate leverage is expected to be 39.1% following the acquisition, providing a stable debt-to-equity structure for future growth.

Valuation and Recommendation

UOB Kay Hian maintains a BUY recommendation for CapitaLand Ascott Trust, with a target price of S$1.38 based on the dividend discount model (DDM), which assumes a cost of equity of 7.0% and terminal growth of 2.8%.

Share Price Catalysts:

  • Recovery of international arrivals and increased leisure travel demand.
  • Yield-accretive acquisitions in student accommodation and rental housing segments.

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