Analysts at DBS Group Research, Maybank Securities and UOB Kay Hian are keeping “buy” on CapitaLand Ascott Trust HMN (CLAS) following its 3QFY2023 ended September business update. PhillipCapital has upgraded its call to "buy" due to CLAS's recent share price performance although analyst Darren Chan has lowered his target price to $1.04 from $1.20.
Maybank analyst Krishna Guha, who has lowered his target price to $1 from $1.20 previously, notes that CLAS’s update indicates continued mid-teens gross profit and revenue per available unit (RevPAU) growth. However, the high base of the second half of last year as well as receding reopening tailwinds are likely to result in slower growth for subsequent quarters, Guha adds.
In its 3QFY2023, CLAS’s portfolio RevPAU recovered about 102% of 2019 levels — the first quarter to surpass 2019 levels. DBS analysts Geraldine Wong and Derek Tan point out that the trust’s operational performance going forward will be on the back of improvements in occupancy back to pre-pandemic levels at around 85%.
On the back of the Singapore portfolio performance, which has taken the lead across CLAS’s markets, DBS continues to see further income upside from Ascott lease conversion and stabilisation of revenue per available room (RevPAR), supported by higher rates at the newly rebranded The Robertson House hotel. Other markets will continue to see broad based recovery but at a more modest pace, the analysts add. DBS has lowered their target price to $1.20.
CLAS has also renewed seven master leases in France with rental upside of about 28% for FY2024 under the new lease rental structure, indexed to the French commercial lease index. The renewed master lease contracts on higher terms will provide support to valuations for FY2023 year-end valuations, DBS notes.
UOBKH analyst Jonathan Koh highlights that CLAS’s The Cavendish will be renovated and rebranded under The Crest Collection brand, a luxury brand managed by Ascott. Its average daily rate is expected to increase from GBP250 to GBP500, given The Cavendish’s positioning as an entry-level luxury hotel. The property’s valuation is expected to increase by GBP101 million to GBP316 million after renovation and stabilisation in 2027.
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Koh has lowered his target price to $1.25 from $1.27 previously.
Despite the challenging operating environment, CLAS’s revenue managed to outpace their increase in operating and financing costs, Moomoo Singapore equity dealer Too Juncheong notes. With a higher-for-longer interest rate environment, investors looking for opportunities with CLAS will have to dive deeper and take into account the key lending rates of each country in operation, as well as the foreign exchange fluctuations to the Singapore dollar.
“At the current dividend yield of over 6%, investors with higher risk appetite compared to safer investment products like Singapore Savings Bonds and Treasury Bills may look to accumulate positions in CLAS,” he adds.
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PhillipCapital's Chan has also lowered its distribution per unit (DPU) estimates for the FY2023 and FY2024 by 6% and 14% after accounting for the 9% increment in CLAS's share base from its equity fund-raising exercise, proposed acquisitions and higher finance costs.
"CLAS remains our top pick in the sector owing to its mix of stable and growth income and geographical diversification. Growth in RevPAU going forward will come from higher portfolio occupancy. The current share price implies an FY2023/FY2024 dividend yield of 6.6%," says Chan.
As at 9.07am, units in CLAS are trading 0.5 cents lower or 0.55% down at 89.5 cents.
