Ong and Lock call the proposed acquisition “likely DPU-neutral” in FY2023 owing to a time lag between the EFR and completion of the acquisition in 4QFY2023.

In an Aug 3 note, Ong and Lock maintain “add” on CLAS with a higher target price of $1.32 from $1.27 previously.

This comes even as stapled securities in CLAS closed 9 cents lower, or 8% down, at $1.03 on Aug 3, after CLAS lifted a trading halt before the market opened. CLAS’s stapled securities touched a low of $1.02 during trading hours, compared to a previous close of $1.12.

CLAS’s managers estimate the proposed acquisition is 1.8% DPU-accretive on a FY2022 pro forma basis before considering the income uplift post AEIs at The Cavendish London and Temple Bar Hotel.

The long-stop date for the acquisition is Nov 30. The total purchase consideration of $373.3 million is based on the net asset value of the assets, which takes into account the aggregate property valuation of $530.8 million, note Ong and Lock.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/news/reits/capitaland-ascott-trust-closes-8-lower-after-300-mil-equity-fundraising-private-placement?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>CapitaLand Ascott Trust closes 8% lower after $300 mil equity fundraising, private placement 2.7 times covered</a>

Ebitda yield of the proposed acquisition is 5.1% and 6.5% pre- and post-AEI of The Cavendish London on a FY2022 pro forma basis, according to the managers.

The acquisition price represents a 1.8% discount to the latest valuation of $530.8 million, as valued by independent valuers HVS and Cushman & Wakefield, on June 30.

“We expect the acquisition to be DPU neutral at +0.2% in FY2023 given the time lag between the EFR and the completion of acquisitions, and +1.1% accretive in FY2024,” write Ong and Lock.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/news/equity-raising/capitaland-ascott-trust-raise-300-mil-proposes-acquire-three-lodging-assets-5308?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>CapitaLand Ascott Trust to raise $300 mil, proposes to acquire three lodging assets for $530.8 mil</a>

According to an Aug 2 bourse filing, the private placement was issued at $1.043 and was approximately 2.7 times covered, while the issue price per preferential offering was fixed at $1.025.

At $1.043, the private placement issue price represents a 6.8% discount to the volume weighted average price (VWAP) of $1.1195 on Aug 1.

At $1.025, the preferential offering issue price represents an 8.4% discount to the VWAP.

The total gross proceeds of the EFR is approximately $303.1 million, comprising $200.0 million from the private placement and approximately $103.1 million from the preferential offering.

Asset enhancement initiatives

In addition to the acquisition, the managers have announced asset enhancement initiatives (AEI) at two existing properties: Novotel Sydney Central and Citadines Holborn-Covent Garden London.

Real estate investment management firm Colliers and HVS estimate that AEIs will deliver yields on AEI cost of approximately 11%.

See also: <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/news/reits/capitaland-ascott-trusts-300-million-efr-follows-2022s-170-million-efr-may-pressure?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>CapitaLand Ascott Trust’s $300 million EFR follows 2022’s $170 million EFR, may pressure equity prices</a>

The AEI at Novotel Sydney Central will take place during 4Q2024-1Q2026, costing $82.8 million, and increase room inventory by 72 rooms, or 28%.

According to Colliers, the AEI is expected to increase ebitda by $9.3 million and provide a $159.5 million valuation uplift, translating to a yield on AEI cost of 11.3%.

AEI works at Citadines Holborn-Covent Garden London will run during 3Q2023-1Q2024 and cost $19.9 million.

According to HSV, the AEI is expected to increase ebitda by $2.1 million and provide a $51.1 million valuation uplift, translating to a yield on AEI cost of 10.6%.

Ong and Lock tweak their FY2023-FY2025 DPU by -2.8% to +1.1% to reflect the proposed acquisitions and AEIs, forecasting DPU of 6.1 cents, 6.9 cents and 7.2 cents for FY2023, FY2024 and FY2025 respectively.

CLAS is CGS-CIMB’s top sector pick as its diversified and balanced portfolio provides stability and upside exposure to the hospitality sector, and portfolio reconstitution opportunities. “Catalysts include accretive M&As/divestments and strong revenue per available room. Downside risks include weak leisure/corporate travel demand, which could impact CLAS’s occupancy and room rates.”

As at 3.48pm, stapled securities in CLAS are trading flat at $1.03.

CGS-CIMB ups CapitaLand Ascott Trust target price after $300 mil equity fundraising, calls acquisitions 'DPU-neutral'

CGS-CIMB ups CapitaLand Ascott Trust target price after $300 mil equity fundraising, calls acquisitions 'DPU-neutral'

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