CapitaLand Limited’s (SGX: C31) wholly-owned lodging business unit, The Ascott Limited, announced the signing of 26 properties. The properties are mostly signed under management contracts, with three on franchise agreements. Here’s why CapitaLand investors should be pleased with the latest news.
Growing its recurring income
The 26 properties have a total of 6,000 units and will be open in phases from 2019 to 2023. Kevin Goh, Ascott’s chief executive officer, said that for every 10,000 serviced residence units signed, he expects Ascott to earn S$25 million in fee income annually.
Recurring income is important for CapitaLand as its development arm’s revenue is more erratic. A higher recurring income will, therefore, smoothen out quarterly and annual earnings. For the first quarter, fee income from operational units contributed S$59.7 million, arising from slightly over 60,000 operating units.
Expanding its global footprint
The 26 new properties signed are located across 22 cities and 11 countries. With these new properties, Ascott has entered into six new cities — Atyrau in Kazakhstan, Nairobi in Kenya, Yokohama in Japan, Seongnam in South Korea, and Cam Ranh and Hoi An in Vietnam.
While entering new markets may have operational challenges, it diversifies Ascott’s income stream. Importantly, most of the new properties are in the Asia Pacific region, which continues to see strong demand for lodging.
A step closer to its annual and long-term goals
The signing of the 26 properties also brings Ascott closer to reaching its annual target to open at least 40 properties with about 8,500 units this year. Year-to-date, Ascott has opened 16 properties with over 2,000 units, a 70% increase in operational units compared with the same period in 2018.
The new signings also bring Ascott’s total operating units (64,000) and units under development (48,000) to 112,000.
“Through these growth strategies, we are looking forward to the fee income boost when we achieve our target of 160,000 units worldwide by 2023.”
The Foolish bottom line
The signing of the 26 properties will provide CapitaLand with a higher proportion of recurring income when the properties begin operations between 2019 and 2023. It also widens its reach into new territories, which could open more opportunities for expansion. At its current price, CapitaLand has a dividend yield of 3.3% and a price-to-book ratio of 0.79.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Limited. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.