OPERATIONS REVIEW 1 Source: Reserve Bank of Australia (2024) 2 Source: Australian Bureau of Statistics (2023) 3 Source: Colliers (2023) 4 Source: Tourism Research Australia (2023) 5 The combination with Ascendas Hospitality Trust (A-HTRUST) was completed on 31 December 2019 and the 2019 pro forma RevPAU includes the performance of the A-HTRUST properties. 6 Source: Reuters (2024) 7 Based on the valuation by Colliers. attractions and the main restaurant and entertainment precinct along Church Street. The 378-unit Pullman and Mercure Melbourne Albert Park is a unique dual-branded business hotel comprising 169 Pullman and 209 Mercure units. Overlooking the scenic Albert Park where the annual Formula 1 Australian Grand Prix is held, the property is also located close to the Melbourne CBD, the popular St Kilda Road precinct and the Royal Botanic Gardens. The 438-unit Pullman and Mercure Brisbane King George Square comprises a 16-storey Pullman Tower with 210 units and a 16-storey Mercure Tower with 228 units. Prominently situated in the Brisbane CBD and facing Brisbane City Hall, the hotel is within walking distance to the city’s key attractions and landmarks. The properties under management contracts have an average length of stay of less than a month. 2023 REVIEW Australia’s GDP is estimated to have increased 1.5% in 20231, a softer growth compared to the 3.8% expansion in 2022. The growth in 2023 was mainly driven by increased government consumption and capital investment, partially offset by soft household consumption on the back of higher inflation and interest rates2. Despite the lower consumer spending in 2023, domestic travel in Australia was robust, with visitors and visitor nights slightly behind 2019 levels3. The recovery in international travel lagged that of the domestic segment – international arrivals were forecasted to have increased to 7.3 million in 2023 and expected to cross 2019 levels only in 20254. CLAS’ Australia properties performed well in 2023 mainly due to an increase in occupancies YoY. Domestic travellers continued to drive the performance, with healthy demand from both the corporate and leisure segments. International bookings also continued to return, particularly to the serviced residences. Large-scale sporting events such as the F1 Grand Prix, FIFA Women’s World Cup and AFL Grand Final were significant drivers of demand in 2023. Other concerts and notable events such as the Royal Easter Show, Vivid Festival and SXSW also resulted in an increase in transient bookings. In FY 2023, the RevPAU of CLAS’ properties under management contracts increased 24% YoY in AUD terms. RevPAU in 4Q 2023 was 13% above 4Q 2019 pro forma RevPAU5, although 1% lower YoY due to the higher base in 4Q 2022. The master leases, which have fixed rent terms with annual indexation, continued to provide a source of stable income to the portfolio. Revenue of the master leases rose 6% YoY in AUD terms in FY 2023. 2024 OUTLOOK Australia’s GDP growth is expected to fall from 1.5% in 2023 to 1.3% in June 2024, before improving gradually for the rest of 2024. Household consumption and public demand are forecasted to remain soft. However, headline inflation is expected to decline from 4.1% to 3.2%1. Should inflation ease on a sustainable path towards the central bank’s 2% to 3% target, the Reserve Bank of Australia could look to loosen its monetary policy6. The pace of recovery in international visitors is expected to surpass that of domestic travel in 2024, as the latter moderates after a strong rebound since the reopening of Australia. International arrivals are projected to increase to 9.3 million in 2024, 98% of pre-pandemic levels, while international visitor spend is expected to surpass pre-pandemic levels during the year. Domestic trip numbers and travel spend are forecasted to continue growing and to remain above pre-pandemic levels over the next few years4. As pent-up demand eases, the RevPAU growth of CLAS’ Australia properties is expected to normalise in 2024. Nonetheless, the outlook remains healthy, as the recovery in both corporate and leisure travel segments continues to drive demand for accommodation. Concerts and large-scale events, such as the Australian Open 2024 and F1 Grand Prix in Sydney and Melbourne, are also expected to benefit the properties. Sydney Central Hotel has been earmarked for renovation and extension from 4Q 2024 to 1Q 2026. During the AEI, 72 rooms across eight floors will be added, increasing the hotel’s inventory by 28% and gross floor area (GFA) by 10%. Development approval has been obtained for this brownfield initiative. Post AEI and stabilisation, the property is expected to achieve a valuation of AUD339.8 million in 20287, an increase of AUD173.3 million from the valuation as at 31 December 2023. The incremental EBITDA on stabilisation is expected to translate to a yield on AEI cost of approximately 11.3%7. 32 CAPITALAND ASCOTT TRUST
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