• CLAS reported 2H23 revenue of S$397.6m (+12% y-o-y) and gross profit of S$140.8m (+24% y-o-y); DPS for full year FY23 at 6.57 Scts (+16% y-o-y) exceeds our estimates
• Portfolio RevPAU builds up a 23% y-o-y increase on a full year basis, with 4Q23 RevPAR rising c.4% q-o-q to S$161,  c.103% of pre-COVID levels
• Portfolio valuation rose c.2.0% y-o-y on a same store basis and in SGD terms 
• Estimates under review, CLAS trades at an attractive c.7.0% yield based on FY23 DPS

FY23 Full Year Results First Take

• CLAS reported 2H23 revenue of S$397.6m (+12% y-o-y) and gross profit of S$140.8m (+24% y-o-y).
• Full year revenue and gross profit at S$744.5m (+20% y-o-y) and S$338.2m (+20% y-o-y) was incrementally higher on a lower operating base in 1H23.
• Topline increase in portfolio RevPAR, which rose 23% y-o-y for full year 2023 (2H23: +10% y-o-y) fully shielded higher operating and financing cost.
• DPU for FY23 at 6.57 Scts represents a 16% y-o-y increase, exceeding our estimates.
• Gearing remains at a healthy level of 37.9%, while average cost of debt remains low at 2.4%
• 81% fixed hedged ratio with a interest coverage ratio of 4.0x.
• Overall portfolio valuation rose c.2.0% against net book value (same-store basis) with cash flow uplift more than mitigating cap rate expansion within the portfolio.
• Dividend yield of c.7.0% on the last traded share price of S$0.93.

More room for organic growth through moving occupancy back to pre-COVID levels. CLAS outperformance continues to stem from strong ADR its assets command, with occupancy in the latest quarter of 4Q23 at 77% is still at c.92% of pre-COVID levels, with further room for normalisation. We continue to see opportunity for CLAS to increase overall portfolio occupancy to extract further growth within the portfolio, which will also be aided by the ramp up of AEI completions within the portfolio, including Singapore’s The Robertson House asset. Master lease contracts continue to see strong renewal from both a higher variable rent component and higher base component, rising 21% y-o-y in 2H23. Longer stay properties maintained their resilience with high occupancy in the range of c.95%. MCMGI RevPAU rose c.16% y-o-y on a same store basis, reaching c.110% of pre-COVID levels. 

Strategic enhancements to yield accretion to NAV in the coming years while maintaining strong growth visibility. Over the past year, CLAS has undergone portfolio tweaks to divest a total of 9 assets within its portfolio that have limited potential for further value extraction. These divestments total c.S$260.1m, with the latest being the divestment of three Japan assets in Osaka (WBF portfolio), with an average exit yield of 4.3%. Staggered acquisition and AEI completions in the next 2-3 years will boost CLAS portfolio with a visible pipeline of incremental rooms, including The Cavendish London and Temple Bar Hotel, which will be a boost to underlying NAV for the REIT. We see further visibility to strengthen and complement the existing Singapore portfolio with Somerset Liang Court Singapore, which is expected to see completion in 2H25 to add another c.200 rooms to the portfolio. 

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate[1] does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests[2]  in relation to an issuer or a new listing applicant that the analyst reviews.  DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports.  The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.  There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS"), DBSVUSA, or their subsidiaries and/or other affiliates have a proprietary position in Capitaland Ascott Trust recommended in this report as of 31 Dec 2023.

Compensation for investment banking services:

2. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Capitaland Ascott Trust as of 31 Dec 2023.
3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Capitaland Ascott Trust in the past 12 months, as of 31 Dec 2023.
4. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

5. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed on page 1 of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

[1] An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 

[2] Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis.  This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.