OCBC Investment Research Private Limited

28 April 2025

CapitaLand Ascott Trust (CLAS): Navigating Macroeconomic Uncertainty with a Resilient Portfolio

Investment Thesis

CapitaLand Ascott Trust (CLAS), the largest lodging trust in Asia Pacific, holds a diverse portfolio of 102 properties. These include hotels, serviced residences, rental housing, and student accommodation, spread across 46 cities in 16 countries [[1]]. CLAS benefits from a mix of stable and growth-oriented income sources and has been recognized as a Global Sector Leader (Listed – Hotel) by GRESB for four consecutive years [[1]]. The trust’s resilience stems from its well-diversified portfolio, exposed to various geographies at different recovery stages [[1]].

While discretionary travel spending is susceptible to economic cycles, CLAS’s exposure to long-term stay properties, such as student accommodation in the US and rental housing in Japan, provides a buffer against broad macroeconomic weaknesses [[1]]. Ongoing portfolio rejuvenation efforts are expected to contribute positively to long-term growth and sustainability [[2]].

1Q25 Performance Highlights

• Gross profit increased by 4% year-on-year (YoY), driven by acquisitions and asset enhancement initiatives (AEIs) [[1]]. On a same-store basis, gross profit would have been 1% higher YoY [[2]].
• Portfolio Revenue per Available Unit (RevPAU) rose by 4% YoY to an estimated SGD 140, supported by a 4 percentage point (ppt) improvement in occupancy to 77% [[2]].
• Most key markets showed YoY RevPAU growth in local currency terms, with the UK and US leading at +12% and +11% YoY, respectively [[2]]. Japan was an exception, with RevPAU down 11% YoY due to portfolio reconstitution. However, on a same-store basis, Japan’s RevPAU grew by 17% YoY [[2]].
• Singapore’s RevPAU would have been down 3% YoY on a same store basis, potentially due to a high base effect from events like Taylor Swift concerts and the Singapore Airshow in 2024 [[2]].

Gearing and Debt Management

• CLAS’s gearing ratio increased by 1.6 ppt from 38.3% as at 31 December 2024, to 39.9% as at 31 March 2025, due to an interim loan for acquisitions in Tokyo and Kanazawa [[2]]. Management anticipates a slight decrease upon receipt of divestment proceeds [[2]].
• The cost of debt remained stable, decreasing by 10 bps to 2.9% due to lower interest rates on floating EUR and GBP loans [[2]]. 76% of total debt is on fixed rates [[2]]. Every 100 bps increase in interest rates is projected to impact distribution per stapled security (DPS) by 0.28 Singapore cents [[2]].

Navigating Tariff Uncertainties

Management has highlighted that ongoing tariff uncertainty could lead to higher operating costs, reduced lodging demand, and increased interest rate and FX volatility [[2]]. Despite global growth concerns, CLAS is considered well-positioned to navigate a potential downcycle due to its:

Fair Value Estimate Adjustment

The fair value (FV) estimate has been reduced to SGD 0.92, factoring in expectations of lower RevPAU growth and gross profit margins [[2]]. However, FY25 and FY26 DPS forecasts remain relatively stable, with management committed to maintaining FY25 DPS YoY [[2]]. The cost of equity input has been increased by 25 bps to 7.9% to account for greater recession risk, and the terminal growth rate assumption has been lowered by 25 bps to 1.25% [[2]]. Despite the lowered FV estimate, the BUY rating is maintained [[2]].

ESG Updates

CLAS’s ESG rating was downgraded in June 2024 due to concerns about corporate governance practices [[3]]. While there were observations regarding employee turnover and related-party transactions, CLAS has been ranked first in the Singapore Governance and Transparency Index and received the Singapore Corporate Sustainability Award at the SIAS Investors’ Choice Awards 2024 [[3]]. CLAS demonstrates leadership in business ethics practices and has opportunities for green investments, promoting energy conservation among tenants [[3]]. As of May 2023, 37% of CLAS’s portfolio area was certified to green building standards, aligning with the industry average of 39.4% [[3]].

Potential Catalysts

• Stronger-than-expected lodging demand [[3]]
• Better-than-anticipated RevPAUs [[3]]
• DPS-accretive acquisitions and effective capital recycling [[3]]

Investment Risks

• A slowdown in macroeconomic conditions may curtail business travel and corporate demand [[3]]
• Competition from new supply [[3]]
• Unfavorable foreign exchange rate fluctuations [[3]]

Valuation Analysis

Comparison with peers:

[[3]]

Company Overview (as of 27 January 2025)

CapitaLand Ascott Trust (CLAS), formerly Ascott Residence Trust, invests in income-producing real estate and related assets, including serviced residences, rental housing, student accommodation, and other hospitality assets [[4]]. CLAS is a constituent of the FTSE EPRA Nareit Global Real Estate Index Series (Global Developed Index) [[4]].

Since listing on the Singapore Exchange in March 2006, CLAS’s international portfolio has grown to SGD 8.8 billion as at 31 December 2024, spanning 100 properties or more than 18,000 units in 45 cities across 16 countries in Asia Pacific, Europe, and the US [[4]].

CLAS’s properties are mostly operated under the Ascott, Somerset, Quest, and Citadines brands, located in key gateway cities such as Barcelona, Berlin, Brussels, Hanoi, Ho Chi Minh City, Jakarta, Kuala Lumpur, London, Manila, Melbourne, Munich, New York, Paris, Perth, Seoul, Singapore, Sydney, and Tokyo [[4]].

FY24 Gross Profit by Contract Type:

• Management Contracts: 38% [[4]]
• Master Leases: 23% [[4]]
• Longer-Stay Properties: 15% [[4]]
• Management Contracts with Minimum Guaranteed Income: 24% [[4]]

Total Assets (31 Dec 2024) by Geography:

• Singapore: 19% [[4]]
• US: 19% [[5]]
• Japan: 16% [[5]]
• UK: 11% [[5]]
• Australia: 10% [[5]]
• France: 7% [[5]]
• Others: 17% [[5]]

GP Margins by Contract Type:

• GP Margin (Mgt Contracts): Increased from FY21 to FY24 [[5]]
• GP Margin (Master Leases): Increased from FY21 to FY24 [[5]]
• GP Margin (Mgt Contracts with min guaranteed income): Increased from FY21 to FY24 [[5]]

Distribution per unit:

• DPU (S cents): Decreased from 6.57 in FY23 to 6.10 in FY24 [[5]]

Company Financials

Income Statement (In Millions of SGD except Per Share)

[[5]]

Profitability Ratios

[[5]]

Credit Ratios

[[5]]