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Ascott’s proposed acquisition of Oakwood to provide CLI with immediate and medium term benefits

Khairani Afifi Noordin
·2-min read

CLI will benefit from immediate fee contribution as well as potential to drive further revenue and operational strategies.

The Ascott’s proposed acquisition of Oakwood Worldwide from Mapletree Investments will provide CapitaLand Investment (CLI) with immediate fee contribution as well as potential to drive further revenue and operational strategies, said CGS-CIMB Research analyst Lock Mun Yee.

Oakwood is a leading global serviced apartment provider with a presence in more than 15 countries, Lock explains. Its portfolio comprises 81 properties with about 15,000 units under management. Oakwood’s flagship properties include Oakwood Premier Tokyo and Oakwood Coex Center Seoul.

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The transaction — which is slated to complete in 3QFY2022 — 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 the US, said Lock.

“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, Lock added.

The acquisition will also boost Ascott’s global portfolio to more than 150,000 units under management, close to its target of 160k units by 2023. Of Oakwood’s 15,000 units under management, 8,500 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,” said Lock.

Meanwhile, analysts at DBS Group Research said the transaction anchors on the group’s exposure in the fast recovering lodging sector, which is expected to post a strong rebound in RevPAR from 2022.

“We understand that operational metrics of Oakwood are fairly similar to The Ascott with the target portfolio reporting about 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,” they add.

In terms of exposure, the DBS analysts note that China is Oakwood’s second largest market after Southeast Asia — this will benefit Ascott once China’s travel policies ease, which could be in 2HFY2022.

The analysts at CGS-CIMB and DBS have maintained their “add” and “buy” calls on CLI, with target prices of $4.59 and $4 respectively.

As at 3.47pm, shares in CLI are trading unchanged at $3.80.

 

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