CapitaLand Ascott Trust’s manager eyes stronger second half amid travel recovery

THE manager of CapitaLand Ascott Trust (Clas) sees upside for its portfolio in the second half, after delivering a “strong” set of results in the first half ended Jun 30.

Serena Teo, chief executive of the manager, said at a results briefing on Friday (Jul 28) that indicators for the second half look positive on a sequential basis, and when considered against H2 2022.

“Demand for accommodation from various leading indicators, as well as what we see, continues to be strong,” she said. “We expect upside in the second half, whether it’s from seasonal demand, (or) contributions from new assets.”

Clas reported on Thursday that distribution per stapled security (DPS) rose 19 per cent year on year in the first half to S$0.0278.

This came on the back of a 30 per cent improvement in revenue, mainly due to strong operating performance of Clas properties as travel continued to pick up pace.

Portfolio revenue per available unit (RevPAU) grew 20 per cent year on year to S$149 in Q2 2023, around 98 per cent of pre-Covid levels. Teo said this was largely due to higher average daily rates (ADRs), which have already surpassed pre-pandemic levels in many key markets.

While there are market concerns over macroeconomic uncertainties, she said she is optimistic Clas will be able to sustain the room rates, as it has not seen any pressure coming from corporate budget cuts so far.

“Given the location strength, as well as the property strength, we’ve actually not seen any pressure in terms of the ability to increase room rates,” she said, and added that rates have continued rising for forward bookings.

She pointed out, however, that occupancy still has “room for improvement”. Clas’ portfolio occupancy in the first half stood at about 75 per cent – around 90 per cent of what it used to be before Covid-19.

Teo noted that most in the hospitality industry expect the second half to be seasonally stronger than the first half.

Key factors for the optimism include the summer travel season, increased flight capacities and the resumption of events. The Singapore properties could also clock strong performances in the third quarter, with the Formula 1 night race being held in the city-state in September.

Apart from seasonal trends, contribution from new assets that were acquired or have undergone asset-enhancement initiatives could also boosted performance.

Teo added that the trust’s portfolio also has both stable and growth components. Around 20 per cent of gross profit comes from longer-stay assets such as rental housing and student accommodation. The remainder of the portfolio is split between master leases, management contracts and management contracts with minimum guaranteed income.

In terms of acquisitions, Teo said that the manager would consider opportunities presented by well-located properties in places with sustained travel demand.

“We would be looking for accretive acquisitions across all asset segments… preferably with a possibility of further uplift through value-add,” she said, adding that it would consider both sponsor and third-party sources.

The trust is divesting four mature properties in France for 44.4 million euros (S$63.4 million), in line with its portfolio reconstitution efforts. The proceeds could potentially be recycled into higher-yielding investments.

Clas had a gearing of 38.6 per cent as at Jun 30, with 80 per cent of its debt on fixed rates. Its effective borrowing cost remained at 2.3 per cent per annum.

CGS-CIMB analysts Natalie Ong and Lock Mun Yee noted on Friday that the first-half distributions for Clas were in line with its forecasts. They kept the brokerage’s “add” rating, with an unchanged target price of S$1.27.

“Clas’ diversified and balanced portfolio provides both stability and upside exposure to the hospitality sector, as well as portfolio reconstitution opportunities,” they said.

Other hospitality trusts in Singapore also reported higher H1 earnings on Friday, in line with CGS-CIMB forecasts.

CDL Hospitality Trusts reported that H1 DPS rose 23 per cent on year to S$0.0251. Similarly, Far East Hospitality Trust said its DPS for the first half was up 24.7 per cent to S$0.0192.

Units of Clas fell 0.9 per cent or S$0.01 to close at S$1.10 on Friday.