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Analysts upbeat on CLAS following positive 1QFY2024 results

Samantha Chiew
Samantha Chiew • 5 min read
Analysts upbeat on CLAS following positive 1QFY2024 results
"Buy" calls around for CLAS. Photo: The Ascott Limited
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Analysts are overall positive on CapitaLand Ascott Trust (CLAS) following its 1QFY2024 ended March results announcement on April 24.

To recap, gross profit for the first quarter period saw a 15% y-o-y growth, due to stronger operating performance and contributions from the trust’s new properties. No specific figures were shared in its business update.

Excluding acquisitions and divestments, gross profit rose by 7% y-o-y on a same-store basis due to stronger operating performance.

During the quarter, CLAS acquired one property and divested five.

See more: CapitaLand Ascott Trust sees gross profit up by 15% y-o-y in 1QFY2024

Following which, OCBC Investment Research has kept its “buy” call and $1.13 fair value estimate. Analyst Ada Lim says: “We like CLAS for its resilient and well-diversified portfolio, which is exposed to many geographies in various stages of recovery.”

See also: UOB Kay Hian sees Civmec's bid to shift domicile to Australia a positive move

While a recession remains a key overhang for discretionary travel spending, Lim takes comfort in the fact that CLAS has exposure to long-term stay properties like student accommodation in the US and rental housing in Japan, for which demand is less likely to be affected by a weakening  macroeconomic outlook.

She also sees CLAS’s ongoing portfolio rejuvenation as a positive for long-term growth and sustainability.

In her April 24 report, Lim notes that CLAS was a beneficiary of the “Swift” action, where the trust’s properties, which are located in key gateway cities, continued to enjoy strong demand during the quarter, with Taylor Swift’s The Eras Tour contributing to a notable, albeit transient spike.

See also: UOBKH keeps ‘buy’ and TP unchanged on BRC Asia, sees bullish medium-term outlook

To provide some colour, management shared that the concert drove an 82% y-o-y increase in revenue per available unit (RevPAU) for specific concert dates, underpinned by both higher average daily rates (ADRs) and occupancy (which reached 94%).

Furthermore, Lim is upbeat on CLAS’ assets in France, which constitutes 8% if the trust’s total assets, given the pipeline of exciting events including concerts, fashion shows, and the 2024 Olympic Games.

“Notwithstanding macroeconomic uncertainties and geopolitical tensions, we turn incrementally more bullish on CLAS’s organic growth prospects for the year, while management has guided that operating margins are likely to remain fairly stable y-o-y,” says Lim.

However, she points out that foreign exchange and finance costs still remain a concern.

Maybank Research too has reiterated its “buy” call and $1.10 target price, as analyst Krishna Guha is upbeat on the improving operations and the trust’s prudent capital management.

However, he notes: “With limited financial disclosures in 1QFY2024 and the operating trend broadly in line with our assumptions, we leave our estimates, rating and target price unchanged.”

“While we are mindful that the global travel rebound is past its peak and funding cost is normalising, we expect CLAS to benefit from its diversified presence and proactive portfolio management,” he adds.

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CGS International also continues to rate CLAS an “add” with a $1.17 target price, as analysts Natalie Ong and Lock Mun Yee also highlight that trust’s properties that have benefitted from the recovery in tourism industry, boosted by events in certain countries, such as Australia, Singapore, France and UK.

CLAS is also CGS International’s top sector pick, as its diversified portfolio provides both stability and upside exposure to the hospitality sector, while offering portfolio reconstitution opportunities.

While cost of borrowing has jumped from 2.4% in FY2023 to 3.0% in 1QFY2024, the analysts are still positive, as the trust maintains a healthy gearing of 37.7%.

More portfolio rebalancing efforts are expected. Management had shared that it is in negotiations for several potential acquisitions and reiterated its portfolio reconstitution strategy of divesting assets with limited growth and/or require significant capex. The management also said that some of its China and Vietnam assets could be divested if the selling price translates to an exit yield below the operating yield.

Similarly, DBS Group Research is reiterating its “buy” recommendation and $1.30 target price on CLAS, while keeping it as the research house’s top hotel pick.

While the operational updates were in line with expectations, DBS is bullish on France too, as the master lease expireies in France are expected to see strong renewals. “CLAS will see the renewal of Master Lease renewals this year, all of which are in France and contributes to about 7% of total master lease gross rental income (GRI). Master lease renewals in FY2023 will see a 21% total rental uplift post renewal, which sets expectations for the master leases to be renewed this year.

DBS too have pointed out the upcoming and recent past events in several of CLAS markets to give an uplift to the trust’s RevPAU.

DBS also highlights that CLAS is yielding attractively at 7.1%.

PhillipCapital too has a bullish stance as it has upgraded its call on CLAS to “buy” from “accumulate” with an unchanged target price of $1.04, due to the recent share price performance.

“CLAS remains our top pick in the sector with its geographically diversified portfolio, wide range of lodging asset classes, stable income base which has proven its resilience through Covid-19,and a strong sponsor,” says analyst Darren Chan.

Apart from the positive 1QFY2024 update, Chan highlights the trust’s strong capital management, with its healthy gearing and interest cover. Despite the increase in borrowing cost, he notes that the trust’s overall borrowing costs have remained relatively low compared to industry peers.

“Additionally, we think CLAS will recall its $150 million, 3.88% perpetual bond at its first call date in September to save on interest costs. Gearing will remain below 40% even if debt fully funds this,” says Chan.

Chan also highlights the trust’s portfolio recycling efforts, which is in “full swing”. While CLAS acquired Teriha Ocean Stage, a rental housing property in January with a with an estimated net operating income yield of 4% on a stabilised basis, it also divested five properties in 1QFY2024, all of which were divested at a premium above book value, locking in net gains of over $25 million. Proceeds from the divestments have been used to par down higher interest rate debt.

As at 3.45pm, units in CLAS are trading at 91 cents.

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