Analysts from Maybank Securities and UOB Kay Hian (UOBKH) continue to like CapitaLand Ascott Trust HMN (CLAS) after the REIT’s business update for the 3QFY2024 ended Sept 30.
During the quarter, CLAS reported that gross profit grew 8% y-o-y, comprising same-store growth of 2% y-o-y and boosted from acquisitions of 6% y-o-y, meeting UOBKH’s expectations.
Gross profit from master leases grew 4% y-o-y, while gross profit from longer-stay properties jumped 11% y-o-y.
Portfolio revenue per available unit (RevPAU) grew 3% y-o-y to $158, which is 5% above pre-pandemic levels. The higher RevPAU was driven by higher portfolio occupancy of 79%, which is 2 percentage points (ppt) higher y-o-y and 7ppt below pre-pandemic levels.
Maybank analyst Li Jialin called the 3QFY2024 an “upbeat” one with higher RevPAUs across most of CLAS’s key markets for its assets under management contracts as well as management contracts with minimum guaranteed income (MCMGIs).
UOBKH analyst Jonathan Koh notes that CLAS’s gross profit met his expectations with growth from higher occupancies and acquisitions. He adds that “there is room for sustained recovery by pushing occupancies higher.”
Li and Koh have both maintained their “buy” calls with maintained target prices of $1.15 and $1.38 respectively.
CLAS’s Singapore portfolio
RevPAU for properties under management contracts increased 5% y-o-y on a same-store basis.
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UOBKH’s Koh notes that The Robertson house completed renovations in 1QFY2024 and contributed to high revenue and CLAS benefited from higher leisure demand during the F1 Grand Prix in September.
Lyf Funan is a 329-room property providing earnings before interest, taxes, depreciation and amortisation (ebitda) yield of 4.7%, 1.5 percentage points (ppt) higher than the exit ebitda yield of 3.2% for the divestment of Citadines Mount Sophia.
The valuation of lyf Funan at $799,000 per key is also more attractive than Citadines Mount Sophia’s $961,000 per key.
CLAS’s purchase consideration for lyf Funan of $146 million will be funded by proceeds of $148 million from the divestment of Citadines Mount Sophia.
CLAS will also draw down on its debt at an all-in interest rate of 3.5% to repay Lyf Funan’s existing loan of $120 million.
According to UOBKH’s Koh, the proposed acquisition is expected to increase CLAS’s total distribution by $3.5 million is provide a distribution per unit (DPU) accretive of 1.5% on a pro forma basis for 2023.
Aggregate leverage is expected to increase from 37.2% to 39.1%.
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CLAS’s Japan portfolio
In Japan, RevPAU for serviced residences and hotels under management contracts grew 6% y-o-y on a same-store basis and exceeded pre-pandemic levels by 24%.
According to UOBKH’s Koh, the weak Japanese yen triggered strong demand from international leisure travellers over the summer holidays.
Furthermore, occupancy for rental housing was above 95% and gross profit from master leases for hotels increased 22% y-o-y attributed to strong operating performance, which contributed to variable rents.
CLAS’s UK portfolio
In CLAS’s UK portfolio, RevPAU increased 7% y-o-y to GBP164 ($280) attributed to the newly acquired The Cavendish London (TCL).
Excluding TCL and units under renovation at Citadines Holborn-Covent Garden (CHCG), RevPAU would be 5% higher y-o-y and 16% above pre-pandemic levels.
Maybank analyst Li Jialin notes that “events and concerts in the UK underpinned strong leisure and group bookings in the summer months.”
“4QFY2024 is seasonally stronger and CHCG is expected to generate higher room rates post-completion of Asset Enhancement Initiatives (AEI),” UOBKH’s Koh adds.
CLAS’s US portfolio
With regards to CLAS’s US portfolio, its US student accommodation portfolio continues to have 90% occupancy and rent increase of 4.5%.
“Notably, ebitda yield for Standard at Columbia crept up to approximately 7% from 6.2% in the original underwriting,” Maybank’s Li notes.
CLAS’s Europe portfolio
CLAS saw an 11% revenue increase in France during the Paris Olympics.
Three assets were renewed on a fixed rent with an annual escalation structure, which is estimated to deliver a 4% increase in 2025, as compared to the previous structure of fixed plus variable rents in 2023.
“Overall, management remains confident in achieving growth, led by its Japan, UK and Singapore portfolio, which would benefit from recent renovations, or favourable supply-demand dynamics,” Maybank’s Li adds.
CLAS’s capital recycling
Year-to-date (ytd), CLAS’s divestments reached $504.5 million, excluding the recent Somerset Tianjin sale.
In 3Q2024, CLAS divested Citadines Kyoto at 40% premium to book, Infini Garden at 55% premium to book, and Somerset and Olympic Tower Tianjin at a premium pending disclosure.
CLAS completed the divestment for Citadines Kyoto at $53.1 million and divestment of Infini Garden for $108 million.
“These divestments demonstrated CLAS’ uncanny ability to create value through capital recycling,” UOBKH’s Koh notes.
Maybank’s Li notes that “buyers were mainly lured by the unique mandates or redevelopment plans for the assets.”
Acquisitions undertaken by the REIT ytd reached $359 million.
CLAS observed that cap rates range from 3% to 4% for Japan rental housing, and 5% to 6% for US purpose-built student accommodation. CLAS sold Infini Garden, rental housing in Fukuoka, at 3.4% yield.
“In view of the capital expenditure (capex) needed, we expect the entry yield for the buyer to be tighter. CLAS intends to continue reconstitution of its Japan portfolio and divest more assets in China as the transaction market had thawed,” Maybank’s Li notes.
As at 4.17pm, units in CLAS are trading 90.5 cents flat.
