SINGAPORE (July 10): CapitaLand recently announced that its serviced residence segment, The Ascott, will acquire for A$180 million ($191 million) an additional 60% stake in Quest Apartment Hotels.
See: CapitaLand’s Ascott group acquires additional 60% stake in Quest Apartment Hotels for $191 mil
This will boost CapitaLand’s stake to 80% after which the group will become the largest serviced residence provider in Australasia.
In addition to entrenching Ascott’s presence in Australia, the acquisition will boost Ascott’s portfolio by over 11,000 units to more than 67,000 units.
In a Friday report, lead analyst Eli Li is taking a favourable view on the acquisition.
The acquisition also means Ascott remains on track to exceed its target of having 80,000 units in its portfolio globally by 2020.
CapitaLand’s management believes they will be able to leverage on Quest’s established brand and highly scalable business format franchise systems as a growth driver.
“We understand that, since Ascott’s acquisition of a 20% stake in 2014, Quest’s network revenue has grown at an annual average rate of 6%, which has resulted in healthy annual profits from recurring fee income,” says Li.
Meanwhile, CapitaLand will also be marking a milestone in its integrated development strategy this year with the opening of four projects in China.
See: CapitaLand’s Raffles City projects come of age as China’s retail sector matures
These are Raffles City Shenzhen, Raffles City Changning, Raffles City Hangzhou and CapitaMall Westgate in Wuhan.
Excluding car park area, these four developments comprise over 1 million sqm in GFA and will provide significant recurring income for the group.
Management indicates that they currently have over 6.2 million sqm of GFA in terms of integrated development exposure in China, of which more than half is greenfield.
As the greenfield component of the group’s portfolio gets developed and becomes operational, CapitaLand will be well positioned to expand its recurring income base and improve its ROE.
As at end 1Q17, 77% of the group’s total assets contribute to recurring income and 44% of the group’s total assets is currently attributed to China.
OCBC has a “buy” on CapitaLand with an unchanged fair value estimate of $4.07.
Its shares are up 2 cents at $3.51 at 10.37am.
