• No financials were provided in this business update. 1Q24 gross profit rose 15% YoY due to stronger operating performance and contributions from new properties. It was 7% higher YoY on a same-store basis.
• 1Q24 portfolio RevPAU rose 6% YoY to S$135, in line with pre-COVID 1Q19 levels. 1Q24 average portfolio occupancy was stable YoY at 73%, and it was at 88% of pre-COIVD levels.
• Upgrade from ACCUMULATE to BUY with an unchanged DDM-TP of S$1.04 due to the recent share price performance. FY24e DPU is slightly lowered by 2% on higher interest costs assumptions. CLAS remains our top pick in the sector owing to its mix of stable and growth income sources and geographical diversification, which provide resilience amidst global uncertainties. Growth in RevPAU going forward will be driven by portfolio occupancy as ADR stabilises. The current share price implies an FY24e/25e dividend yield of 6.6/6.8%.

The Positives

• 1Q24 RevPAU grew 6% YoY to S$135, in line with pre-pandemic 1Q19 pro-forma RevPAU mainly due to higher ADRs. Average portfolio occupancy was stable YoY at 73% – it was down 4ppts QoQ due to seasonality. RevPAU for CLAS’s five key markets in Australia, Japan, Singapore, UK, and the USA continued to improve YoY (see Figure 1) and exceed pre-COVID 1Q19 levels on a same-store basis (excluding units under renovation).

• Strong capital management. Gearing and interest cover remained healthy at 37.7% and 3.7x, respectively. CLAS’s effective borrowing cost increased 60bps QoQ to 3%, mainly due to a higher proportion of GBP and EUR debt arising from the new acquisitions. Despite this increase, CLAS’s borrowing costs remain relatively low compared to those of its industry peers. 82% of debt on a fixed rate. Additionally, we think CLAS will recall its S$150mn, 3.88% perpetual bond at its first call date in Sep 24 to save on interest costs. Gearing will remain below 40% even if debt fully funds this.

• Portfolio recycling is in full swing. In Jan 2024, CLAS acquired Teriha Ocean Stage, a rental housing property in Fukuoka, Japan, for JPY 8bn with an estimated net operating income yield of 4% on a stabilised basis. Five properties were divested in 1Q24, and they were Courtyard by Marriott Sydney-North Ryde in Australia, Hotel WBF Kitasemba East, Hotel WBF Kitasemba West and Hotel WBF Honmachi in Osaka, Japan, and Citadines Mount Sophia Singapore. All assets were divested at a premium above book value, locking in net gains of over S$25mn. Proceeds from the divestments have been used to par down higher interest rate debt.

The Negatives

• Nil