Date of Report
October 3, 2024
Broker Name
Maybank Research Pte Ltd
Overview
CapitaLand Ascott Trust (CLAS) is a Singapore-based real estate investment trust (REIT) that focuses on income-producing hospitality properties and real estate-related assets. CLAS primarily invests in serviced residences, hotels, rental housing, and student accommodation units, leveraging a global footprint with its portfolio spread across key gateway cities. The trust is externally managed by wholly-owned subsidiaries of its sponsor, CapitaLand, which also provides a pipeline of property assets for growth.
Recent Acquisition: lyf Funan Singapore
CLAS is acquiring the hotel-licensed lyf Funan Singapore for SGD263 million, which translates to SGD800,000 per key. This acquisition is expected to offer a 1.5% accretion in distribution per unit (DPU) and comes after a series of divestments totaling SGD340 million in Singapore, Japan, and Australia, yielding between 3.2% and 4.4%. The deal enhances CLAS’s portfolio with a focus on communal living, an asset type that is increasingly gaining traction, particularly in Singapore.
Key Financial Metrics
- EBITDA Yield: 4.7%
- DPU Accretion: 1.5%
- Occupancy Rate: YTD occupancy of lyf Funan is above 80%, with the average daily rate (ADR) around SGD200.
- Master Lease Structure: Rent is based on 93.5% of gross operating profit (GOP), with no rental income in case of negative GOP. The margin is estimated to be 60-65%.
- Gearing: Post-acquisition gearing is expected to rise to 39.1%, which remains comfortably below the 40% threshold set by management.
Portfolio and Strategic Growth
CLAS continues to execute its growth strategy by adding high-yielding assets. In the first half of 2024, it added SGD221.9 million worth of student and rental housing in the United States and Japan, with net property income (NPI) and EBITDA yields ranging from 4% to 7%. The acquisition of lyf Funan Singapore increases its exposure to the Singapore market from 16% to 19%.
Financial Forecasts and Adjustments
The acquisition of lyf Funan is expected to impact CLAS’s FY24-25E financials as follows:
- Revenue: Raised by 0.1% in FY24E and 1.5% in FY25E to SGD773 million and SGD799 million, respectively.
- NPI: Increased by 0.1% in FY24E and 1.5% in FY25E to SGD351.7 million and SGD371.6 million.
- Distributable Income: Revised upward by 2.3% in FY24E and 3.2% in FY25E to SGD227.3 million and SGD243.2 million.
- DPU: Expected to rise to 6.01 cents in FY24 and 6.37 cents in FY25, up from previous forecasts of 5.88 cents and 6.17 cents.
Balance Sheet Strength and Gearing
CLAS’s balance sheet remains strong, with pro-forma gearing expected to rise to 39.1% post-acquisition. The trust remains well-positioned to tap into more acquisition opportunities, especially in Singapore, Japan, and Europe, as the transaction market picks up. Management remains committed to maintaining a gearing level below 40%, ensuring financial flexibility.
Key Risk Factors
- Global Economic Conditions: A potential slowdown in the global economy could affect the trust’s revenue per available unit (RevPAU) and overall performance.
- Interest Rate Hikes: Rising borrowing costs could impact refinancing rates, which are currently estimated at 3.5%, slightly above the portfolio’s current average interest cost of 2.7%.
- FX Volatility: Fluctuations in foreign exchange rates could impact distributions and asset values, especially with its global portfolio.
Environmental, Social, and Governance (ESG) Initiatives
CapitaLand Ascott Trust is committed to sustainability, with approximately 35% of its portfolio being green-certified. The trust has implemented significant energy and water conservation measures, achieving a 40% reduction in carbon emissions intensity since 2008. Notably, it secured the first green loan among hospitality S-REITs to fund a co-living property development in Singapore and launched a sustainability-linked bond.
The trust’s governance structure is robust, with high board independence (4 out of 7 members) and strong female representation in management (75% at management level, including the CEO).
Conclusion
CapitaLand Ascott Trust continues to deliver stable growth while expanding its portfolio with accretive acquisitions. The recent lyf Funan acquisition aligns with its strategy to enhance revenue through high-yield communal living assets while maintaining a strong balance sheet and commitment to ESG principles. With an expected increase in DPU and solid portfolio performance, CLAS remains well-positioned for future growth.
