In 2021, CLI’s management justified the inclusion of Ascott in the RAM because by then, it was increasingly just a management business, like Marriott International, Accor, Hyatt Hotels and Hilton Worldwide, getting fee income from its management contracts all over the world.
Ascott’s lodging management revenue largely comprises fees from management contracts and franchise agreements, with 92% of units on asset-light management contracts and franchise fees. The recurring fee income comprises long-term contract terms stretching 10–20 years.
Lodging management fees come from two main sources — management contracts and franchise agreements.
Management contracts comprise a base management fee, which depends on a percentage of the property’s underlying profits, and an incentive management fee when profits hit certain performance benchmarks.
See also: How to value asset management firms
Franchise agreements, where Ascott manages third-party properties, provide a franchise fee, which is a portion of the property’s revenue, and a one-off acquisition fee.
Revenue per available unit (RevPAU) drives the property’s revenue, while the number of operating units drives fees. Lodging management’s fee-income-related earnings (FRE) also depend on scale, where technology and the booking system underpin economies of scale and market factors. More travellers, more tourism, more business opportunities and more projects which require longer stays are all factors that drive Ascott’s FRE.
As part of its strategy, CLI has stated that the target is for lodging management FRE to be $500 million by 2028, compared to FY2024’s $343 million. Unlike asset-heavy hospitality entities, Ascott’s operating expenses are relatively low, including its headcount. Hence, margins on FRE should be quite high.
See also: CapitaLand Investment’s dynamic growth proposition
Is Ascott ready for a separate listing?
CLI group CEO Lee Chee Koon says the group is open to the idea of a separate listing for Ascott. “At some point, when it grows to a certain scale, we can look at a potential, separate listing for Ascott. We will not rule out the possibility of a separate, standalone vehicle, including the possibility of a capital market solution.”
As analysts have pointed out, lodging management is a different type of company from RAM.
Although Lee would prefer a listing in a jurisdiction such as New York or Hong Kong that understands companies like Ascott, the Singapore market desperately needs a solid blue-chip IPO. “If you don’t have an active capital market, it affects everything, from high-paying jobs to valuations. Asset management companies are generally valued much higher in other jurisdictions,” Lee notes.
How do the analysts view Ascott? In its CLI report, JP Morgan has assigned a 15 times EV/Ebitda to CLI’s lodging management FRE, which is lower than comparables such as Accor, Hilton Worldwide, Hyatt and Marriott, given the quality of Ascott’s earnings.
Is Ascott ready for a separate listing?
Lee Chee Koon, group CEO, says CLI is open to the idea of a separate listing for Ascott. “At some point, when it grows to a certain scale, we can look at a potential, separate listing for Ascott. We will not rule out the possibility of a separate, standalone vehicle, including the possibility of a capital market solution.”
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As analysts have pointed out, lodging management is a different type of company from RAM.
Although Lee would prefer a listing in a jurisdiction that understands companies like Ascott, such as New York or Hong Kong, the Singapore market desperately needs a solid blue-chip IPO. “If you don’t have an active capital market, it affects everything, high-paying jobs, valuations. Asset management companies are generally valued much higher in other jurisdictions,” Lee observes.
How do the analysts view Ascott? In its CLI report, JP Morgan has assigned a 15 times EV/Ebitda to CLI’s lodging management FRE, which is lower than comparables such as Accor, Hilton Worldwide, Hyatt and Marriott, given the quality of Ascott’s earnings.
Other options
Lee believes that at some point, CLI could offer a private credit-type product akin to the Astrea bonds for Singaporean investors.
“I want to make sure with our private credit team that the product is very safe for Singaporeans,” Lee says. The yield product would provide a yield of 5% to 6%. “We are looking at retail investors because with the private credit venture we are building up, there is potential to create a product, but we want to make sure the curation of the product is very safe,” Lee says.
For Lee, nothing is off the table, be it privatisation or a new listing. “Our gearing is so low. If things get really bad, we can be aggressive. As an asset manager, we look at the private equity situation in different markets.” He is willing to look at acquisitions, including the acquisition of a platform or a developer trading at significant discounts to net asset value (NAV).
What about CLI’s REITs? Is CLI committed to its REITs? What if there is a hostile bid? “If you look at the risk of, say, CapitaLand Integrated Commercial Trust(CICT) or other REITs, they generally trade at NAV,” Lee says, adding that 20% of CICT is substantial. “I don’t think it’s easy for anybody to get hostile on the vehicle.”
On the other hand, there is a bit of pressure on CapitaLand China Trust. “We will sort out China. The important thing is to be able to manage all your vehicles very well, and to have the ability to make sure that investors are happy and we continue to look at opportunities for them. Being the sponsor, being CLI, we are able to get better financing as a group, which makes a big difference. Capital structure makes a big difference to the distribution per unit of investors,” Lee explains.
After all, some other market sponsors have 1% to 2% of the REITs and funds they manage. “I don’t think we will get there because we want to make sure that there is a very strong alignment of interest with the investors,” Lee assures. “Every CEO we put in place must be very careful about reconstituting, whether they will look at overseas or not.”
A couple of analysts The Edge Singapore sounded out on a separate Ascott listing had differing views. “Better to just keep it in-house; otherwise, there will be too many separate listings,” said one. Another analyst said he always thought lodging management did not quite fit into the CLI’s RAM model, but went along with it because it is a fee-income business. A separate Ascott listing with CLI holding on to 51% makes perfect sense, he says. But when? With the spate of privatisations on the local bourse this year getting to an alarming level, a blue-chip listing cannot come soon enough.
