• 3Q23 gross profit rose 13% YoY to reach 103% of pre-COVID 3Q19 levels.
• 3Q23 portfolio RevPAU rose 17% YoY to S$154, reaching 102% of pre-COVID 3Q19 levels on the continued improvement in portfolio occupancy (77% vs 70% in 3Q22) and average daily rates (ADR). We expect effective borrowing cost to rise from 2.4% in 3Q23 to c.3% for FY24e after refinancing all loans due in FY24.
• Upgrade from ACCUMULATE to BUY due to recent share price performance, DDM-TP lowered from S$1.20 to S$1.04. FY23e/FY24e DPU is lowered by 6%/14% after accounting for the higher share base (+9%) from the 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 FY23e/24e dividend yield of 6.6%.

The Positives

• 3Q23 RevPAU grew 17% YoY to S$154 reaching 102% of pre-pandemic 3Q19 pro-forma RevPAU. Average daily rates (ADRs) remained above pre-COVID levels, while occupancy improved 2ppts QoQ to 77% in 3Q23 (3Q22: 70%). All markets experienced RevPAU growth YoY (see Figure 1), with Singapore, Australia, USA, UK, and Japan performing above pre-COVID levels. Japan saw a spike in RevPAU by 198% YoY after its re-opening to independent leisure travellers in Oct 2022. Performance in China and Vietnam continued to improve, with RevPAU at 80% and 84% of 3Q19 levels respectively. The stabilisation of the newly rebranded The Robertson House, which saw a 30% increase in room rates during early-bird sales, will provide further uplift to revenue from Singapore once renovation works complete in 1Q24.

• Resilience from stable income sources. All 7 French master leases due in 2023 have been renewed in Oct 23 with total projected rents to be c.28% above existing rents under the new structure. Occupancy at the rental housing properties remained stable at >95%. 4Q23 will be the first full quarter contribution for Standard at Columbia, the student accommodation development in South Carolina, USA, which began receiving students from Aug 23 and was >90% occupied upon opening.

• Proactive capital management. CLAS’s effective borrowing cost remained unchanged at 2.4% QoQ. The percentage of loans on fixed rate increased from 80% to 83% QoQ, and interest cover remained healthy at 4.2x. Gearing improved from 38.6% to 35.2% QoQ after proceeds from the EFR in Aug 23 were partially used to pare down loans maturing in FY23 and higher floating rate debt, pending deployment into acquisitions in 4Q23. We expect FY24 cost of debt to increase to c.3% after refinancing 18% of its total debt (c.S$496mn) due in FY24 denominated in EURO, USD and JPY. A 0.6% increase in CLAS’s borrowing cost to 3% will impact full-year DPU by 0.1 Singapore cents.

The Negatives

• Nil

No financials were provided in this business update.

Source: Phillip Capital Research - 1 Nov 2023