October 31, 2023

Portfolio of growth and stable income assets offers resilience 

CapitaLand Ascott Trust (CLAS) has reported a 13% YoY increase in gross profit on its 3Q23 results, while Revenue per available unit (RevPAU) climbed 17% YoY to S$154. The demand for lodging continued to be healthy, with portfolio RevPAU reaching 102% above pre-COVID levels. Key markets such as Japan, Australia, and USA showed the strongest QoQ growth, with their respective RevPAU reaching 117%, 113%, and 110% of pre-COVID same-store pro forma RevPAU levels. 

Revenue growth outpaced increases in operating and financing costs, resulting in 3Q2023 gross profit rising to 103% of 3Q 2019 pro forma gross profit. Stable income from master leases, MCMGI, rental housing, and student accommodation contributed 56% of 3Q23 gross profit. Master lease gross profit rose 20% YoY due to contributions from two new properties and higher variable rent. Occupancy of rental housing properties remained stable at over 95%.

Strong financial capacity and healthy liquidity position 

The gearing ratio of CLAS decreased from 38.6% to 35.2% QoQ, and the company expects to remain under 40%. The interest cover ratio remained healthy at 4.2X, and there was just a low impact of foreign exchange on gross profit after hedges, decreasing by only 0.7%. Proceeds from the EFR in Aug 2023 were partially used to pare down loans maturing in 2023 and higher-interest floating rate debt, pending deployment into acquisitions in 4Q23. CLAS maintains a healthy financial position with a low effective borrowing cost of 2.4% and a high proportion of debt on fixed rates of 83% as at 30 Sep 2023.

Valuation and Technical Analysis 

The stock price of CLAS (HMN) rebounded before the 3Q23 results. CLAS has a P/E (TTM) of 12.9x and a dividend yield close to 6.2%, which is undervalued compared to the industry level. Fundamentally, Acquisitions and AEIs are expected to offer the next wave of uplift beyond travel recovery; Divestments also improve CLAS’ portfolio quality and yield, offering greater financial flexibility. 

From a technical point of view, MACD had turned bullish confirmation signal before the quarter result. The stock price also had a breakthrough down trend line from $1.092. There are two signs indicating that the downtrend will stop in the future, and shortly the stock may hit $1.00, which is a recovery of 61.8% of the previous downtrend.

Further analysis 

2023 has been a challenging year, with very uncertain macro-economic environment espeically for companies with multiple overseas portfolio including ASEAN, China, Japan, Korea, Australia, Europe & United States. Despite this, CLAS’s revenue managed to outpace their increase in operating & financing cost. With a higher-for-longer interest rate environment, investors looking for opportunities with CLAS will have to dive deeper and take into account of the key lending rates of each country in operation, as well as the foreign exchange fluctuations to SGD. At the current dividend yield of over 6%, investors with higher risk appetite compared to safer investment products like SSB & T-bills may look to accumulate positions in CLAS.

By Moomoo Financial Singapore Pte. Ltd. (Moomoo Singapore).  Share price closed at S$0.90