Fast tracking lodging management growth
? CLI to acquire serviced apartment operator Oakwood Worldwide
? Transaction will benefit CLI from immediate fee contribution, with potential to
drive further revenue and operational synergies
? Reiterate Add, with an unchanged TP of S$4.59
Buys Oakwood Worldwide from Mapletree Investments
Capitaland Investments (CLI) announced that its wholly-owned subsidiary The Ascott is
acquiring serviced apartment operator Oakwood Worldwide (Oakwood) from Mapletree
Investments for an undisclosed sum. Oakwood is a leading global serviced apartment
provider with a presence in more than 15 countries. Its portfolio comprises 81 properties
with about 15k units under management. Oakwood’s flagship properties include Oakwood
Premier Tokyo and Oakwood Coex Center Seoul. The transaction is slated to complete in
3Q22.
Potential to drive revenue and operational synergies
The transaction should enhance Ascott’s stable of lodging offerings with exposure to new
markets such as Cheongju in South Korea, Zhangjiakou and Qingdao in China, Dhaka in
Bangladesh, and Washington DC in USA. Oakwood and Ascott’s complementary footprint
and product offerings could also result in significant synergies between the two extended
stay serviced residence providers. Furthermore, Oakwood’s properties can be onboarded
onto Ascott’s loyalty programme, Ascott Star Rewards, to accelerate customer base
expansion, drive direct distribution as well as expand the suite of product offerings available
for Ascott members. The ability to drive revenue and cost efficiencies within the expanded
portfolio could improve the operating margins of the Oakwood portfolio in the medium term.
Immediate fee contribution to CLI from operational units
The acquisition will boost Ascott’s global portfolio to more than 150k units under
management, close to its target of 160k units by 2023F. Of Oakwood’s 15k units under
management, 8.5k are operational and should contribute immediately to Ascott and CLI’s
fee income streams. In the longer run, this deal could expand Ascott’s network of asset
owners and strategic alliances to drive growth as more than 90% of Oakwood’s asset
owners are new to Ascott.
Reiterate Add rating
We keep our FY22-24F EPS estimates unchanged pending the completion of the
transaction, and maintain our RNAV-based TP at S$4.59. We believe that as CLI continues
to lighten its balance sheet and accelerate the growth of its fee income business, there is
room for a further re-rating of the valuation of its fund management business. Key downside
risks include slower-than-expected scaling up of its funds under management (FUM) or
dampened real estate outlook that could weaken its fund performance and hamper its pace
of capital recycling activities.