OCBC Investment Research is keeping its “buy” call on CapitaLand Ascott Residence Trust (CLAS) with a lower target price of $1.29 from $1.20 previously.
This is following the trust’s recent 3QFY2022 ended September business update. During the business update, the trust announced that gross profit has risen to about 90% of its pre-Covid-19 levels, driven by contributions from new properties and stronger performances of its existing portfolio.
This came on the back of revenue per available unit (RevPAU) increasing by 88% y-o-y and 27% q-o-q to $132, on the back of both higher occupancy and average daily rate (ADR). This recovery was led by the trust’s assets in US, UK and Australia, boosted by strong demand from both leisure and corporate travel. RevPAU for Singapore also saw y-o-y growth, driven by international travel and events.
However, RevPAU for China and Japan declined y-o-y during the quarter, but is expected to improve following the shortening of quarantine duration in China and further reopening in Japan.
As at Sept 30, CLAS’ gearing stood at 35.8% but is expected to increase to 38.5% following the completion of its acquisitions in 4QFY2022. About 76% of debt was hedged on fixed rate with effective borrowing cost at 1.7%.
“Factoring the acquisitions and higher interest rate assumptions, we lower our DPU forecast by 0.2%- 3.4% for FY2022-FY2026. We also increase our risk-free rate to 3.5% while lowering terminal growth rate assumption to 1.25% due to weaker economic outlook,” says analyst Chu Peng in a Nov 28 report.
For Chu, some potential catalysts for the trust include stronger-than-expected growth in demand for serviced residence globally and better-than-anticipated RevPAUs. The risks include a slowdown in macroeconomic conditions that may curtail business travel and corporate demand, as well as competition from new supply.
As at 3.35pm, units in CLAS are trading at 95 cents or 0.8x FY2022 P/NAV with a DPU yield of 5.2%.
Photo: CapitaLand Ascott Residence Trust
