A strategic and timely addition to Ascott’s global portfolio
- Proposed acquisition of Oakwood Worldwide from Mapletree Investments a “win-win” solution
- Complimentary brand offerings and market exposures with revenue and cost synergies to be extracted over time
- Doubling down on the fast recovering lodging segment boosting recurring fee-related income
- BUY call and TP S$4.00 maintained.
CapitaLand Investment Limited (CLI) hospitality division, Ascott Limited announced the acquisition of Oakwood Worldwide (“Oakwood”), a global serviced residence provider from Mapletree investments Pte Ltd. Oakwood is a well recognised lodging brand with a track record of over 50 years and brings to the group a portfolio of 81 properties with 15,000 units. With 8,500 units operational across 51 properties, we understand that Oakwood will be immediately accretive to Ascott’s recurring fee income stream upon completion in 3Q2022. With the acquisition, Ascott Limited overall operationally footprint will leapfrog to c.150,000 units, on track to hit its target of 160,000 units by 2023.
What does Oakwood bring ?
– Manager of some 81 properties and c.15,000 units (c.8,500 operational)
– Well recognised brands amongst travellers will broaden Ascott’s stable of lodging offerings to drive revenue and cost efficiencies
– Expanded network and relationships with asset owners of which 90% are new to the group
– Revenue and cost synergies to be extracted given complimentary geographical footprint anchored within Asia with introduction of new markets to the group.
Our view.
Ride on the post COVID-19 recovery trend; synergies to be extracted. The acquisition of Oakwood anchors the group’s exposure in the fast recovering lodging sector which is expected to post strong rebound in RevPAR (or RevPAU) from 2022. We understand that operational metrics of Oakwood is fairly similar to the Ascott with the target portfolio reporting c.40-50% occupancies over the COVID-19 pandemic owing to its longer stay lodging customer base. RevPAR growth profile is also expected to post a similar trajectory as travel restrictions ease through the course of 2022. In terms of exposure, we note that China is Oakwood’s 2nd largest market (3.1k rooms) after South East Asia (5.7k rooms). We believe this will benefit Ascott once China’s travel policies eases, which we believe could be in 2H22.
In terms of income contributions, we understand that Oakwood’s fee income model to be fairly similar to Ascott (c.S$20m of fee related earnings per 10,000 stabalised units) and will continue to grow as portfolio RevPAU post a recovery heading in 2022 and beyond. Over the medium term, the group believes that once Oakwood properties are onboarded into Ascott’s network (loyalty program, digital platforms and analytics tools) will allow the group to yield up and extract improvement in operating margins over time.
We have maintained our estimates for now pending 1H22 results and maintain our BUY call, TP pegged to S$4.00 based on SOTP.