CapitaLand Ascott Trust Benefits from Return to Travel: Q1 2023 Review

April 26, 2023

In the first quarter of FY2023 (Q1 FY2023), CapitaLand Ascott Trust (SGX: HMN), or simply known as CLAS, reported a 59% year-on-year (yoy) growth in gross profit.

The increase was attributed to enhanced operating performance and contributions from newly-acquired properties.

Excluding these new properties, CLAS’s gross profit saw a 53% yoy increase.

I’ll take a look at some of the key business updates and how the travel upswing will continue to support demand for accommodation.

Higher occupancy and room rates drive RevPAU

One of the key takeaways from the trust’s latest business update is the 90% yoy increase in its revenue per available unit (RevPAU), led by its higher occupancy and room rates during the quarter.

Source: CLAS Q1 FY2023 Business Update

The quarter’s RevPAU was 93% of the pro forma RevPAU in Q1 FY2019, which included Ascendas Hospitality Trust’s portfolio performance.

The merger with Ascendas Hospitality Trust was finalised on 31 December, 2019.

All key markets for CLAS experienced RevPAU increase

Source: CLAS Q1 FY2023 Business Update

CLAS saw yoy RevPAU growth across all key markets, with notable increases in Japan (351%) and Singapore (169%).

These increases, along with Australia and the US, can be attributed to factors like easing travel restrictions, strong corporate demand, and more leisure travellers.

Positive outlooks are expected for Q2 FY2023 in these markets, driven by factors such as large-scale events and trade shows.

In China, RevPAU improved by 16% yoy to RMB 256 (S$49.40) as domestic travel restrictions eased in December 2022, and inbound travellers only required a negative test result within 48 hours of departure from January onwards.

CLAS anticipates international demand to improve in the coming months as flight frequencies to and from China recover.

City-wide events in Paris, MICE events and other increased activity and events will also attract more domestic and international travel.

In Singapore and the UK, where CLAS has management contracts with minimum guaranteed income, Singapore’s RevPAU for the quarter was S$362, and the UK’s RevPAU increased by 60% y-o-y to GBP 112 (S$185.99).

The UK’s recovery momentum remains strong, with a positive outlook for Q2 FY2023 due to demand from international corporate and leisure travellers, supported by holidays and city-wide events.

CLAS to enhance portfolio to drive sustainable returns

Source: CLAS Q1 FY2023 Business Update

In its update, CLAS aims to raise its asset allocation in longer-stay accommodation to 25-30% in the medium term, as this type of lodging provides a stable income base.

Including acquisitions announced year-to-date (ytd), approximately 19% of CLAS’s portfolio currently consists of longer-stay accommodations.

The trust also plans to allocate 70% to 75% of its assets to serviced residences and hotels to capture growth as travel resumes.

Additionally, CLAS intends to pursue suitable acquisitions, asset enhancement initiatives (AEIs), and development opportunities moving forward.

Source: CLAS Q1 FY2023 Business Update

Among some of the developments that will take place include the student accommodation in South Carolina, US, as well as the redevelopment of Somerset Liang Court in Singapore.

CLAS well poised to ride the travel upswing

Investors who are looking to benefit from the return to travel should consider adding CLAS to their portfolio.

Revenue growth for CLAS has outpaced the increase in operating costs and with strong demand from both international and domestic travel, its outlook in the near term remains positive.

The reopening in China is also another boost to global travel, which is likely to sustain the trust’s earnings growth potential.

CLAS’s healthy financial position and strong stable income base also gives downside protection to investors.

As of 31 March 2023, CLAS had a net asset value (NAV) per stapled security of $1.13. Its gearing was at 38.7%, with an interest coverage ratio (ICR) of 4.4 times.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.

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