Date: October 3, 2024
Broker: Maybank Research Pte Ltd
Overview of CapitaLand Ascott Trust (CLAS SP)
CapitaLand Ascott Trust (CLAS SP) is a leading real estate investment trust (REIT) that invests in income-producing hospitality properties and real estate-related assets. Its portfolio includes serviced residences, hotels, rental housing, and student accommodation units, strategically located in major gateway cities globally. CLAS continues to focus on growth through acquisitions and operational optimization.
Strategic Acquisition of lyf Funan Singapore
CapitaLand Ascott Trust recently announced the acquisition of the hotel-licensed lyf Funan Singapore for SGD263 million, approximately SGD800,000 per key. This acquisition adds to CLAS’s communal living portfolio and is expected to be DPU (Distribution Per Unit) accretive by 1.5%, assuming 50% of management fees are paid in units. This purchase follows a series of divestments totaling SGD340 million in Singapore, Japan, and Australia during the year. The yield from these divestments ranged from 3.2% to 4.4%.
Portfolio Expansion
As of 1H24, CLAS has invested SGD221.9 million in student and rental housing in the US and Japan, offering yields between 4% to 7%. This highlights the company’s strategy of targeting higher-yielding assets to improve performance and returns. The portfolio now includes 19,000 units across the globe, with a focus on properties in key urban centers.
EBITDA Yield and Pro-Forma Gearing
The lyf Funan acquisition comes with an EBITDA yield of 4.7%, which is attractive compared to other assets in the portfolio. Post-acquisition, the pro-forma gearing for CLAS will rise to 39.1%, still comfortably below the management’s threshold of 40%. The acquisition will be funded using SGD142.8 million from the divestment of Citadines Mount Sophia Singapore and a drawdown of debt. The company aims to maintain a steady gearing level while continuing to explore opportunities in Singapore, Japan, and Europe.
Strong Performance Metrics
For FY24, CLAS has projected revenue of SGD773 million, a slight increase from previous estimates. Net property income (NPI) for the year is forecasted at SGD351.7 million. The company’s distributable income is expected to be SGD227.3 million, translating to a DPU of 6.01 cents, a slight growth from prior estimates.
Communal Living and Demand Drivers
Lyf Funan, situated in a prime location near universities, offices, and the civic district in Singapore, is well-positioned to capitalize on the communal living trend. The property caters to both leisure (80%) and corporate (20%) demand, with a room profile that supports both short-term and long-term stays. Management has guided that the average daily rate (ADR) remains stable at around SGD200, with occupancy rates exceeding 80%. Events like Formula 1 have contributed to this strong performance, and management plans to focus on increasing occupancy for incremental growth.
Master Lease Arrangements
Lyf Funan operates under a master lease structure, with rent payable set at 93.5% of gross operating profit (GOP). The GOP margin is expected to be between 60% and 65%. Though there is no downside protection, the management is confident about the asset’s growth potential due to its location and the popularity of the communal living concept. The property’s valuation, which comes with 54 years remaining on its lease, was acquired at a 1.9% discount relative to independent valuations.
ESG Commitments
CLAS is committed to sustainability and ESG (Environmental, Social, and Governance) initiatives. Approximately 35% of its portfolio by gross floor area (GFA) is green-certified. The trust has reduced its carbon emissions intensity by 40% since FY08, aligning with the sponsor’s science-based targets for a “well-below 2°C” scenario. Furthermore, CLAS was the first hospitality REIT globally to issue a sustainability-linked bond and has secured green loans to finance various projects.
Financial Outlook
CLAS projects a 3.8% revenue growth for FY24 and FY25, driven primarily by increases in RevPAR (Revenue per Available Room). RevPAR is expected to grow by 4% in FY24 and 3% in FY25. The trust’s gross margins are expected to be stable between 44% and 46%. Borrowing costs are projected to rise, with refinance rates between 3.0% and 3.5%, up from the current portfolio interest cost of 2.7%.
Risks and Opportunities
The management highlights several factors that could impact performance positively or negatively. Upside opportunities include a stronger-than-expected pickup in corporate and leisure demand, accretive acquisitions, and efficiency gains from operational leverage. On the downside, risks include a global economic downturn that could affect RevPAR, foreign exchange volatility, and rising borrowing costs, which could pressure distribution payouts.
This comprehensive information on CapitaLand Ascott Trust is derived solely from the attached PDF document.
