Forward bookings indicate sustained pent-up demand, with more corporate and international travel returning, enabling CLAS to raise room rates and abate rising utility and labor costs. Electricity cost has increased but remain <10% of OPEX. Most of CLAS’ electricity requirements have been hedged through fixed rate contracts. Electricity charges are passed through to tenants in US student accommodation and Japan rental housing properties, while utility usage above a certain threshold will be passed through to guests in long-staying SRs.
In terms of capital management, CLAS’ gearing of 35.8% means a debt headroom of c.S$2bn, leaving room for it to reach its medium term asset allocation of 25-30% for longer-stay accommodation.
Upgrade to BUY, DDM-based TP lowered from S$1.24 to S$1.13
FY22e-FY24e DPU lowered by 5-7% on the back of foreign currency headwinds and an enlarged share base from the private placement. We also pencilled in the acquisition of S$318.3mn in assets that are expected to be completed in 4Q22. Our cost of equity increased from 8.14% to 8.34% on a higher risk-free rate assumption. Catalysts include the reopening of China, opportunistic divestments, and acquisitions of extended stay assets to raise the proportion of stable income sources to 25-30% to cushion the impact from recessionary concerns, rising inflation and macroeconomic uncertainties. CLAS remains our top pick in the REIT sector with its geographically diversified portfolio, range of lodging asset classes, stable income base which has proven its resilience through COVID-19, and a strong sponsor.