Company Background
CapitaLand Ascott Trust (CLAS), formerly known as Ascott Residence Trust (ART), is the largest lodging trust in Asia-Pacific with an asset value of $8.1 billion as at 30 June 2023. CLAS invests primarily in income-producing real estate and real estate-related assets which are used or predominantly used as serviced residences, rental housing properties, student accommodation and other hospitality assets across 15 countries mainly in Asia Pacific (59%), Europe (20%) and the United States (21%). CLAS has a credit rating of BBB by Fitch (Investment grade), which is an improvement from BBB- previously in May 2023.
CLAS’s 1H FY23 update
In 1H FY23, CLAS reported its revenue was up 30% YoY from $267.3mil in 1HFY22 to $346.9mil in 1HFY23, while gross profit was up 31% YoY from $118.2mil in 1HFY22 to $154.4mil in 1HFY23, respectively attributed to the strong operating performance of CLAS’ properties as travel continues to pick up pace. In 2Q23 Portfolio RevPAU grew 20% YoY to $149, and this is at 98% of pre-Covid 2Q19 pro-forma’s RevPAU. This stronger operating performance was due to average daily rates (ADR) which have surpassed pre-Covid levels (which is highlighted in yellow below).
Figure 1: Change in RevPAU with comparison to Pre-Covid level
Capital Management
For CLAS’s capital management, its gearing ratio improved slightly QoQ from 38.7% to 38.6% giving it a debt headroom of approx. $1.8bn. As at 30 June 2023, 80% of its debt was on fixed rates and the weighted average debt to maturity is 3.6 years, mitigating the impact of rising interest rates. CLAS also maintained its effective cost of borrowings at 2.3% while having an interest coverage of 4.3 times. In terms of its liquidity, CLAS has a total of approx. $1.1bn in cash-on-hand ($414m) and available credit facilities ($700m). This is well sufficient to meet their obligation for both FY23 and FY24 (Figure 2)
Figure 2: Debt Maturity Profile
Additional positive pointers
+Strong Occupancy for longer stay properties:
CLAS’ longer-stay properties, which include student accommodation and rental housing properties, maintained a strong average occupancy rate of over 95%. CLAS’ student accommodation property in the USA (Standard at Columbia) which obtainted its temporary certificate of occupancy on 30 Jun 2023, is ready to receive students for AY 2023-2024 in Aug 2023. Its pre-leased occupancy is at 87% as of Jun 2023.
+Revenue stream remains while Asset Enhancement Initiatives are ongoing
Currently, CLAS so has 5 properties undergoing AEI to increase their value and profitability. Despite the disruption which will happen, several properties will still remain operational during the refurbishment thus ensuring there is no cessation of revenue flow coming in.
Conclusion
Overall, the reopening of borders for international travel will provide CLAS with a boost in its growth segment. Even though there is economic uncertainty, CLAS’s careful financial management and two-pronged revenue stream (stable and growth) will provide a buffer and ensure a steady stream of revenue, which will instill more confidence in their noteholders.
