CapitaLand Ascott Trust’s gross profit rose 31% in 1H 2023 with stronger operating performance

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Olivia Lim
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CapitaLand Ascott Trust’s (CLAS) gross profit for 1H 2023 rose 31% to S$154.4 million compared to 1H 2022. Revenue for 1H 2023 increased by 30% to S$346.9 million compared to 1H 2022. This was mainly attributed to the strong operating performance of CLAS’ properties as travel continues to pick up pace.

The higher revenue and gross profit were also due to additional contributions from CLAS’ 14 quality operating assets acquired in FY 2022 and 2Q 2023 , which were largely longer-stay assets. On a same-store basis, revenue and gross profit for 1H 2023 increased by 26% and 25% respectively compared to 1H 2022.

With the strong portfolio performance, CLAS has increased its Distribution per Stapled Security (DPS) for 1H 2023 by 19% year-on-year (y-o-y) to 2.78 cents. CLAS’ total distribution for 1H 2023 also grew 26% y-o-y to S$96.3 million compared to 1H 2022. Excluding one-off items, adjusted DPS rose 37% y-o-y to 2.44 cents.

CLAS’ REVPAU increased 44% y-o-y to S$138 for 1H 2023. In 2Q 2023, REVPAU was S$149, a 20% increase y-o-y, reaching 98% of pre-pandemic 2Q 2019 pro forma REVPAU. 2Q 2023 REVPAU for key markets such as Australia, Japan, Singapore, United Kingdom (UK), and USA have performed above pre-pandemic pro forma levels based on same-store comparison.

Mr Bob Tan, Chairman of CapitaLand Ascott Trust Management Limited and CapitaLand Ascott Business Trust Management Pte. Ltd. (the Managers of CLAS), said: “CLAS’ strong performance is supported by the twin pillars of growth and stable income. In 1H 2023, our growth income contribution rose to 42% from 32% in 1H 2022 as we continued to capitalise on the increasing travel demand. Gross profit and REVPAU have further increased, moving closer to our pre-pandemic performance. Our yield-accretive investments of largely longer-stay assets further enhanced our stable income, which will strengthen CLAS’ resilience and provide downside protection against potential headwinds. CLAS remains committed to delivering sustainable returns to our Stapled Securityholders.”

Ms Serena Teo, Chief Executive Officer of the Managers of CLAS, said: “We expect continued demand for CLAS’ properties as international arrivals are projected to further recover to between 80% and 95% of pre-pandemic levels by the end of 2023 . We also expect international travel to pick up pace as flight capacities increase. Despite macroeconomic uncertainties, CLAS’ performance is expected to remain resilient given our geographic diversification, range of lodging asset classes and different contract types.”

“In 2Q 2023, we completed the turnkey acquisitions of two rental housing properties in Japan, Eslead Residence Osaka Fukushima East in Osaka and Granfore Hakata Waterfront in Fukuoka. Both properties are well-leased, and our rental housing portfolio continues to register an average occupancy rate of over 95%, contributing stable income to CLAS. As part of our ongoing portfolio reconstitution efforts, we have entered into conditional sale and purchase agreements to divest four mature properties in the regional cities of France. This will give us the flexibility to recycle capital into higher-yielding investments. We will continue to exercise financial discipline as we seek investment, asset enhancement and portfolio reconstitution opportunities across our lodging asset classes,” added Ms Teo.

Twinning growth with stability
CLAS’ growth income sources such as hotels and serviced residences under management contracts contributed 42% of the total gross profit in 1H 2023, while stable income sources contributed the remaining 58%. CLAS remains focused on maintaining a balanced mix of income streams with a medium-term asset allocation target to have 25-30% of its total portfolio value in longer-stay assets such as rental housing and student accommodation properties, and the remaining 70-75% in hospitality assets.

To further uplift the value and profitability of its assets, five properties will undergo asset enhancement initiatives (AEI) in FY 2023 and are expected to command higher room rates post-refurbishment. The latest asset slated for AEI is La Clef Tour Eiffel Paris by The Crest Collection in France. The five properties will remain open during the refurbishment and the upgrades are expected to be completed by 1H 2024. Construction of the new Somerset serviced residence at Clarke Quay in Singapore is on track to be completed in 2H 2025.

CLAS’ master leases registered a 9% y-o-y increase in gross profit mainly due to higher variable rent and contributions from new acquisitions. CLAS’ longer-stay properties, which include student accommodation and rental housing properties, maintained a strong average occupancy rate of over 95%. CLAS’ operating student accommodation properties in the USA were 98% leased for the academic year (AY) 2022-2023. Pre-leasing for the next AY is healthy, with an expected rent growth of about 6% y-o-y.

To further strengthen its stable income stream, in addition to the completion of two turnkey rental housing acquisitions in Japan, CLAS’ student accommodation property in the USA, Standard at Columbia, has received its temporary certificate of occupancy on 30 June 2023. The property has a pre-leased occupancy rate of 87% as at June 2023 and is set to welcome its first batch of students for the AY 2023-2024, starting in August 2023.

CLAS maintains a strong financial position through disciplined capital management
CLAS is in a strong financial position and remains prudent in its capital management. As at 30 June 2023, 80% of its debt are on fixed rates and the weighted average debt to maturity is 3.6 years, mitigating the impact of rising interest rates. CLAS’ effective borrowing cost remains low at 2.3% per annum with an interest cover of 4.3 times. It has a debt headroom of S$1.8 billion and a gearing of 38.6%, which is well below the 50% gearing limit allowable under the property funds appendix issued by the Monetary Authority of Singapore. CLAS has a total of approximately S$1.11 billion in cash on-hand and available credit facilities. CLAS’ geographically diversified portfolio with exposure to 12 foreign currencies mitigates the volatility in foreign exchange.