2 S-REITs That Reported Strong Earnings Growth on Travel Recovery

October 31, 2023

As global tourism bounces back, it is not just vacationers celebrating but also sharp-eyed investors seizing opportunities in the real estate realm. In Singapore, S-REITs such as OUE Commercial REIT (SGX: TS0U) and CapitaLand Ascott Trust (SGX: HMN), have stood out in terms of their financial performance. Their recent earnings reports underscore a strong financial footing, suggesting they’re well-poised to harness the revival in tourism. Here are some key highlights from their latest earnings updates.

OUE Commercial REIT

  1. Robust growth in the hospitality segment

OUE Commercial REIT, or simply OUE C-REIT, reported a significant 29.8% y-o-y increase in net property income (NPI) to S$62.7 million in Q3 2023. This growth was primarily driven by its hospitality segment, signalling that this sector is flourishing and has potential for further enhancement.

  1. Strong financial management

The REIT showcased a prudent approach by strengthening its capital structure. It recently achieved an investment grade credit rating of BBB- and also secured favourable terms for its fixed rate notes, reflecting sound financial management and positioning.

  1. Future-ready asset enhancements

With an asset enhancement initiative (AEI) at Crowne Plaza Changi Airport on track for completion by December, OUE C-REIT is proactively preparing to capture the anticipated influx of leisure and business travellers in the coming years. This AEI is also expected to be DPU-accretive, offering an attractive return on investment.

  1. Attractive dividend yield

At its current price of S$0.23 per unit, OUE C-REIT is trading at an attractive level with a 12-month forward dividend yield of 9.3%.

CapitaLand Ascott Trust

  1. Strong performance metrics

CapitaLand Ascott Trust or in short for CLAS, reported a y-o-y increase in gross profit by 13% in Q3 2023. The trust’s revenue per available unit (RevPAU) showed impressive growth across key markets, standing at 102% of its pre-Covid-19 levels, with a significant driving factor being the upward trend in room rates.

  1. Stable financial position with room for growth

With a gearing of 35.2% and substantial debt headroom, CLAS exhibits a stable financial position. Moreover, even though there are upcoming refinancing needs, the management remains optimistic, estimating the FY2024 cost of debt to remain below 3%. This presents an opportunity for potential growth in the near future.

  1. Diversified and balanced portfolio

CLAS’s diversified portfolio offers a blend of stability and upside exposure to the hospitality sector. This, combined with its ongoing asset enhancement initiatives and acquisitions, puts the trust in a prime position to benefit from the revival of the hospitality and tourism sectors.

  1. Attractive dividend yield

At its current price of S$0.90 per unit, CLAS is trading at an attractive level with a 12-month forward dividend yield of 7.4%.

Capitalise on travel upswing

OUE C-REIT and CLAS are standout options for investors in this era of travel resurgence. Their portfolios, geared towards popular destinations, hint at lucrative returns from rising room demands and rents. Plus, their broad asset mix helps buffer against regional market swings.

However, as with all investments, there are inherent risks, and it is wise to tread with caution. Global recovery patterns can vary, with some regions bouncing back faster than others. Also, factors such as geopolitical tensions, emerging variants of diseases, and potential travel restrictions can impact the tourism sector. Hence, while OUE C-REIT and CLAS look promising, it is essential for investors to stay informed and judicious.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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