CapitaLand Ascott Trust Earnings: Strong Results Driven by Global Travel Recovery

CapitaLand Ascott Trust HMN, or CLAS, is a beneficiary of the robust global travel recovery, with first-half 2023 revenue and gross profit growing 30% and 31% year on year, respectively. The strong results were in line with our expectations, and we anticipate second-half 2023 to be seasonally better due to the summer and year-end holidays. Aside from the seasonal effects, we also expect the trust’s newly acquired Japan rental housing and completed U.S. student housing, Standard at Columbia, to contribute to the trust’s second-half performance. That said, we think that flight capacity constraints to and from China may cap some of the growth figures and expect some of the China-led recovery to spill over to 2024 as the constraints ease. We retain our fair value estimate of SGD 1.24 and continue to like the trust as a proxy to the global travel recovery. Based on its last closing price of SGD 1.09, we think the trust is slightly undervalued and trades at an attractive 2023 dividend yield of 5.8%.

Driven by strong average daily room rates, CLAS’ portfolio revenue per available unit, or RevPAU, continues to recover, growing 20% year on year in the second quarter of 2023 to reach 98% of its pre-COVID-19 (2019) level. Notably, CLAS’ key markets—Australia, Japan, Singapore, United Kingdom, and the U.S.—achieved RevPAU above its pre-COVID-19 levels. Management believes that there is still room for improvement as portfolio occupancy rates are currently around 90% of pre-COVID-19 levels, and it expects the increase in international flight capacities to drive further improvement. Management also expects the trust to benefit from better operating leverage, with faster top-line growth over its near-term fixed labor and utility costs.