THE Ascott Limited (Ascott), known for its serviced apartments, will be deepening its hospitality experiences across its properties worldwide as the company adapts to changing travel preferences post-pandemic. 

 

To welcome a wider range of guests including short- and long-term visitors, solo travellers and families, Ascott &ndash its flagship brand &ndash will be enhancing the room mix. It will also launch themed suites and offer local experiences.

 

This comes after its sister brands Citadines and Somerset went through a brand refresh last year. Two other brands under the company &ndash Oakwood and The Crest Collection &ndash will undergo a similar exercise later this year.

 

The increased focus on a hotel-in-residence model &ndash where guests stay at serviced apartments with the facilities and amenities of a hotel &ndash comes as travel preferences have evolved.

 

Tan Bee Leng, Ascott&rsquo s managing director for brand and marketing, said: &ldquo Ascott was traditionally thought of as an accommodation provider specifically geared towards business travellers working on long-term projects, or perhaps relocating. 

 

&ldquo Our apartments have now become a lodging option even for those staying for (just) a few days.&rdquo

 

Ascott&rsquo s transformation began during the Covid-19 pandemic, which proved to the lodging operator that demand and market segments can change any time, Tan said. 

 

She added: &ldquo We wanted to have a model that allows us to capture market demand regardless of the times.&rdquo

 

In 2021, despite the pandemic, Ascott opened more than 8,200 units across 40 properties, more than double the units it opened in 2020.

 

With the recovery of international travel, the company plans to launch over 13,500 units across 70 properties &ndash its highest number of openings to date.

 

Ascott&rsquo s rapid expansion was made possible through its asset-light strategy, which allowed it to double its number of units every five years. It grew from 20,000 units in 2008 to more than 160,000 units across some 900 properties today.

 

The company focuses on managing quality hospitality assets, as opposed to owning them. To date, more than 80 per cent of the units are under management and franchise contracts, up 43 per cent from 10 years ago.

 

It has also set an ambitious target of doubling fee revenue to over S$500 million in the next five years. It plans to accomplish this by focusing on quality growth and securing contracts for prime properties that generate higher fees. 

 

In 2022, Ascott recorded S$258 million in earnings. Fee revenue from the lodging business increased by 36 per cent year on year compared to 2021, driven by signings and property openings.

 

Kevin Goh, chief executive officer of Ascott, said the hotel-in-residence model will help diversify the company&rsquo s revenue streams, intensify asset utilisation and optimise operational costs.

 

&ldquo The agility empowers Ascott to deploy its resources strategically, to generate higher returns for our investors and owners.&rdquo  

 

The company has plans to continue expanding the range of properties it manages, which now include serviced apartments, hotels and co-living spaces ranging from economy to luxury scales.

 

It has also begun exploring the senior living segment, with the opening of the 100-unit Domitys Bangsar Kuala Lumpur in October 2022. The property, designed for independent seniors, offers facilities such as karaoke and wellness rooms, and organises activities like outings to local museums. 

 

Ascott will soon manage more properties under The Crest Collection, its luxury brand. The Robertson House by The Crest Collection is slated to soft-open in Singapore in October, while The Cavendish London will undergo renovation from Q4 2024 to become a luxury hotel under The Crest Collection.

CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have increased their target price on CapitaLand Ascott Trust (CLAS)  HMN  -1.92%  after the REIT&rsquo s managers announced a proposed acquisition of three lodging assets and equity fundraising (EFR) of $300 million earlier this week.

THE Ascott Limited (Ascott) aims to double its portfolio of assets bearing its global brands in China by 2028, and plans to open over 20 new Chinese properties this year alone.

 

The lodging operator, which now manages over 17,000 units spanning 90 properties in China across its global brands such as Ascott, Somerset, lyf and Oakwood, sees strong potential for growth coming from China.

 

Tan Bee Leng, Ascott&rsquo s managing director for brand and marketing, said: &ldquo From a business perspective, China is a very key contributor for us at The Ascott.&rdquo

 

Despite the pandemic restrictions in China in 2022, Chinese guests still accounted for almost 20 per cent of Ascott&rsquo s revenue in 2022, driven by strong domestic demand.

 

Revenue growth contributed by Chinese guests grew by 24 per cent in 2022, compared to 2019. 

 

With the resumption of flights and visa-free travel to China, Tan expects to &ldquo see a lot of potential&rdquo for further growth. From Jul 26, 2023, China resumed the 15-day visa-free entry for Singaporeans more than three years after it was suspended. 

 

This year, Ascott plans to open over 20 properties in China to cater to growing traveller demand with the rise of corporate travel and the rebound of tourism. It has almost 100 properties in the pipeline slated to open in the country by 2028.

 

When asked whether she sees China&rsquo s contribution to Ascott&rsquo s revenue growing, Tan said: &ldquo By the sheer size of China, in terms of brand representation, we have the widest representation here. But the other geographies such as Australia, Japan and Europe are also extremely important from an average day rate perspective.&rdquo

 

She noted that other factors such as the strength of a market&rsquo s currency also have an impact on revenue contribution.

 

Since Ascott began operating in China in 1998, it has gradually expanded the range of properties it manages to cater to families, working professionals and millennials.

 

In January 2023, the lodging operator opened Ascott Dadonghai Bay Sanya, a 186-unit property surrounded by mountains and facing the sea. The Sanya property marks the group&rsquo s first resort destination for its Ascott assets, which are typically urban city properties.

 

The Ascott Dadonghai Bay Sanya can welcome both short and long-term visitors and offers guest experiences such as pearl jewellery-making, in line with Ascott&rsquo s strategy to deepen hospitality experiences across its properties worldwide. 

 

Lydia Li, Ascott China&rsquo s head of sales, marketing and digitalisation, said having the flexibility to offer shorter stays is in &ldquo response to market demand&rdquo in China. 

 

While first-tier cities such as Shanghai and Beijing often have properties with 100 per cent occupancy by long-stay guests, in other regions of China, long-stay guests may only account for up to half of occupancy. The remaining occupancy would need to be filled with short-stays, she said. 

 

&ldquo The hotel-in-residence model allows us to expand opportunities to cater to the needs from both extended and short-term stay (guests).&rdquo

 

CAPITALAND Ascott Trust (Clas) will issue 191.8 million new stapled securities through a private placement at S$1.043 apiece, and another 100.5 million through a preferential offering at S$1.025 per new stapled security, to raise total gross proceeds of S$303.1 million.

 

New stapled securities from the preferential offering will be issued based on 29 preferential new stapled securities for every 1,000 existing stapled securities.

 

Trading of new stapled securities from the private placement is expected to commence at 9 am on Aug 14.

 

At S$1.043, the private placement issue price represents a discount of about 6.8 per cent of Clas&rsquo volume weighted average price for all trades on the stapled group&rsquo s last trading day &ndash Aug 1.

 

The preferential offering issue price of S$1.025 represents an 8.4 per cent discount to the same, said the stapled group&rsquo s managers on Thursday (Aug 3).

 

Both issue prices for the private placement and preferential offering were fixed at the lower end of the ranges stated on Wednesday, when its managers proposed the fundraising exercise. The earlier-announced ranges were S$1.041 to S$1.065 for each private placement new stapled security, and S$1.025 to S$1.044 for each preferential offering new stapled security.

 

About S$170.2 million, or 56.1 per cent of proceeds from the overall fundraising exercise, will go into funding the stapled group&rsquo s proposed S$530.8 million acquisition of assets from its sponsor, which includes The Cavendish London, a hotel in London.

 

Another S$82.8 million or 27.3 per cent will go into financing Clas&rsquo planned extension and renovation of Novotel Sydney Central, its hotel asset in Australia.

 

Some S$19.9 million or 6.6 per cent will go into financing the renovation of Citadines Holborn-Covent Garden London, the stapled group&rsquo s serviced residence in London.

 

Clas will set aside S$24.4 million or 8.1 per cent of gross proceeds for the repayment of debt, with the remaining S$5.8 million or 1.9 per cent of gross proceeds to pay estimated fees and expenses incurred from the equity fundraising exercise.

 

STAPLED securities of (Clas) fell on Thursday (Aug 3) morning, as the stapled group began trading ex-dividend and distribution, following the results of its recent fundraising exercise.

 

As at 10.18 am, its stapled securities were down as much as 5.7 per cent or S$0.0622 to S$1.03, from the stapled group&rsquo s adjusted closing price of S$1.0922 on Tuesday, ahead of the trading halt on Wednesday morning.

 

Without adjustments, the counter was down 8 per cent or S$0.09 from Tuesday&rsquo s closing price. It later recovered to trade at S$1.04 as at 1.26 pm, down 7.1 per cent or S$0.08 from Tuesday&rsquo s close.

 

This represented a 4.8 per cent or S$0.0522 decline on an adjusted ex-dividend basis.

 

The counter&rsquo s price movement comes after 16.7 million stapled securities of Clas had changed hands &ndash well above the counter&rsquo s average volume of about six million.

 

Before requesting to lift the stapled group&rsquo s trading halt on Thursday morning, Clas&rsquo manager announced it would issue 191.8 million new stapled securities through a private placement at S$1.043 apiece, and 100.5 million through a preferential offering at S$1.025 per new stapled security, to raise total gross proceeds of S$303.1 million.

 

Both issue prices for the private placement and preferential offering were fixed at the low end of the ranges stated on Wednesday, when its managers proposed the fundraising exercise to partially fund a planned S$530.8 million acquisition from its sponsor.

 

Barely a year after CapitaLand Ascott Trust (CLAS) HMN 0.00% raised $170 million via a private placement, its managers announced an equity fund raising (EFR) to raise $300 million on August 2. Last year&rsquo s $170 million was priced at $1.12.

 

This year, the EFR comprises $200 million in a private placement and $100 million in a preferential EFR. The guide price for the private placement is $1.041 to $1.065 per new stapled security the pricing for the preferential new stapled security is likely to be in the $1.025 to $1.044 range.

 

CLAS managed a slow recovery following the last plunge in its stapled security price following the August 2022 EFR. At the time, prices fell to a low of 88 cents post-placement, and as at Aug 1, prices managed to recover to $1.12, last year&rsquo s placement price.

 

Undoubtedly, market watchers expect and are prepared for CLAS&rsquo s stapled security prices to fall when trading resumes. Following the placement in August 2022, CLAS&rsquo s stapled security price fell from $1.17 to 88 cents, for a loss of more than 24% in the weeks following the announcement of the private placement and the subsequent issuance of 151.8 million new stapled securities. Investors may be wondering why they are invested in CLAS if there is constant pressure on stapled security prices via regular EFRs, market watchers say.

 

Moreover, in February this year, CapitaLand Investment (CLI) 9CI 0.3% , CLAS&rsquo s sponsor, announced a distribution-in-specie (DIS) of 292 million of CLAS stapled securities representing 8.48% of CLAS stapled securities at the time. Following the DIS, CLI&rsquo s stake dropped to 29.05%.

 

Size is the reason

 

Last year, most of the EFR proceeds were used to acquire nine serviced residences, rental housing and student accommodation properties across five countries from CLAS&rsquo sponsor.

 

The &ldquo total capitalised cost&rdquo of the acquisition at $318.3 million would consolidate CLAS&rsquo s position as Asia-Pacific&rsquo s largest lodging trust, a press release dated Aug 15, 2022, stated. This year&rsquo s acquisition is larger, and will increase CLAS&rsquo s AUM by at least $530.8 million.

 

The acquisitions in 2022 were estimated to be 2.8% accretive to CLAS&rsquo s FY2021 distribution per stapled security (DPS).

On Aug 2, CLAS&rsquo s managers announced the proposed acquisition of three lodging properties in UK, Ireland and Indonesia for an agreed property value of $530.8 million, subject to the approval of CLAS&rsquo s stapled security holders in an EGM. The acquisition is expected to add $13.5 million to CLAS&rsquo s pro forma 2022 total distribution, and to be 1.8% accretive to CLAS&rsquo s DPS, pro forma, based on the current EFR plan.

 

Gerry Chan, managing director, REIT investment at CLAS&rsquo s managers says that the blended ebitda yield of 6.5% on a stabilised basis is higher than the cost of debt of around 5%. Based on an assumed placement price of $1.04 or so, the historic DPS yield is likely to be around 5.45%.

 

Of the monies raised in the EFR, 56.7% will be used for the acquisition, 27.6% for an extensive asset enhancement initiative (AEI) for Novotel Sydney Central, 6.7% is for the AEI of Citadines Holborn-Covent Garden, 7.1% to be used for debt repayment and 1.9% for fees and expenses.

 

The acquisition properties comprise The Cavendish London, Temple Bar Hotel Dublin and Ascott Kuningan Jakarta.

 

Eight floors and 72 rooms will be added to the Novotel Sydney Central, with an estimated yield on AEI cost of 11.3%. The yield on AEI cost for Citadines Holborn-Covent Garden is estimated at 10.6%.

 

The Cavendish to shutter for several months

 

Both Novotel Sydney Central and Citadines Holborn-Covent Garden will remain open during the renovation period, says Serena Teo, CEO of CLAS&rsquo s managers.

The main property in the $530.8 million acquisition is The Cavendish London, a 250-room hotel in Mayfair. The property&rsquo s &ldquo as-is&rdquo valuation as at June 30 is GBP215 million (the equivalent of $372.3 million).

 

Following a renovation and &ldquo stabilisation&rdquo of the property to be carried out in phases from 4Q2024 to 4Q2025, the valuation is likely to increase by GBP101 million from the June 30 valuation. The property is expected to achieve an ebitda yield on total capitalised cost of approximately 6.5% at stabilisation.

 

&ldquo For The Cavendish the renovation period is 15 months, takes place in phases and about half the time property may be temporarily closed to facilitate the renovation,&rdquo Teo reveals.

 

Analysts are wondering why The Cavendish is likely to shutter its doors for AEI just as London&rsquo s visitor arrivals are ramping up.

 

Chan says: &ldquo In terms of AEI it is intended to turn The Cavendish into a luxury product in the Mayfair market with GBP500 a night. The ADR (average day rate) is around GBP250. The Cavendish is a Triple-A location. Its &lsquo typical&rsquo occupancy is around 80%.&rdquo Temple Bar Dublin will also undergo AEI but remain open.

 

One of the questions that popped up during the Q& A session on Aug 2 is whether the sponsor benefits from the AEI.

 

&ldquo There is an expected uplift in value post-AEI on top of the price of the agreed property value. Secondly, the AEI cost is co-shared with the sponsor. With this acquisition, 30% of consideration will be paid on completion of AEI. So alignment of interests is there between sponsor and CLAS,&rdquo Teo replies.

 

In addition, for the duration of the AEI, The Cavendish will be supported by the operator (who is also the sponsor) with a management contract with minimum guaranteed income. The minimum guaranteed income for The Cavendish will be GBP10.8 million or $18.7 million a year. Temple Bar&rsquo s contract is also a management contract with minimum guaranteed income of EUR4.2 million a year, and will be reduced depending on the downtime of the hotel.

 

Impact on DPS

 

Although the accretion of 1.8% appears modest, CLAS&rsquo s DPS is expected to rise a lot more in FY2023. In 1H2023, DPS rose 19% y-o-y to 2.87 cents. While this is lower than the 3.33 cents announced for 2H2022, the hospitality sector&rsquo s metrics continue to improve both in Singapore and CLAS main markets, which include &ldquo gateway&rdquo cities such as London, Paris, New York, Sydney and Tokyo.

 

&ldquo The London market has been performing very well since the Covid recovery and we believe that there are further legs to grow in the London market based on forward valuation by independent valuer HVS,&rdquo Teo says.

 

In 1H2023 though, CLAS&rsquo s DPS was below expectations. &ldquo While 1H2023 revenue of $346.9 million (+30% y-o-y) was in line, representing 49% of our FY2023 estimate, 1H2023 gross profit of $154.4 million (+31% y-o-y) disappointed, with 1H2023 gross margin stable at 44.5% (44.2% in 1H2022),&rdquo JP Morgan says.

 

The main cause was margins for management contracts, with minimum guaranteed income in 1H2023 &ldquo falling to 43.5% from 51.9% in 1H2022 owing to higher staff costs, property tax expense and maintenance expenses,&rdquo the bank added.

 

&ldquo While we expect a seasonally stronger 2H2023, results were below our/Street expectations, representing 43%/46% of our estimate/consensus. Underperformance was due to a lack of fixed cost leverage, with gross margins flat y-o-y owing to increases in operating expenses and higher borrowing costs,&rdquo JP Morgan continues.

 

Following the EFR, JP Morgan may need more convincing of DPS accretion for the $530.8 million of acquisitions.

 

JP Morgan says " After accounting for the equity raising to fund Novotel Sydney and Citadines Holborn-Covent Garden AEIs and interest savings post initial repayment of loans, CLAS estimates flattish accretion to proforma FY2022 DPS. However, there is risk of DPS dilution to FY2023/2024 DPS subject to quantum of prior divestment gains to be distributed and deployment of equity raising proceeds for other acquisitions to offset loss of income during the AEIs/renovations."