OCBC Investment Research
Date of Report: 1 August 2025

CapitaLand Ascott Trust: Strategic Portfolio Moves Set Stage for Growth and Resilience Amid Global Uncertainty

Introduction: Navigating Uncertainty with Strategic Portfolio Management

CapitaLand Ascott Trust (CLAS), the largest lodging trust in Asia Pacific, is making strategic moves to bolster its portfolio and deliver resilient growth, even as the broader macroeconomic outlook remains uncertain. With 101 hotels, serviced residences, rental housing, and student accommodation across 45 cities in 16 countries as of 30 June 2025, CLAS stands out for its diversified income streams and its award-winning sustainability practices. This company update, rated BUY with a Fair Value estimate of SGD1.02, explores the trust’s latest divestment, financial performance, and investment thesis.

Key Highlights: Divestment of Citadines Central Shinjuku Tokyo

• Proposed Divestment: CLAS has announced the proposed sale of Citadines Central Shinjuku Tokyo for JPY25.0 billion (SGD222.7 million), representing a remarkable 100% premium over book value and a 40.4% premium to the average of two independent valuations.
• Accretive Impact: On a pro forma basis, if net proceeds are used to reduce debt, the divestment is accretive to FY24 distribution per stapled security (DPS) by 1%.
• Exit EBITDA Yield: The transaction translates to an exit EBITDA yield of 3.2% (based on FY24 EBITDA) and an estimated net gain after tax of JPY5.7 billion (SGD50.8 million).
• Financial Flexibility: After estimated divestment costs of SGD35.3 million, net proceeds of ~SGD187.4 million can be used to repay higher interest debt, fund asset enhancement initiatives (AEIs), reinvest in higher-yielding assets, or for general corporate purposes.

Strategic Rationale for the Divestment

• Mature Asset: The Tokyo property is considered mature and would require substantial capital expenditure and temporary closure for enhancements. Divesting allows CLAS to redeploy funds more effectively.
• Attractive Premium and Financial Flexibility: The sale provides a significant net gain and boosts financial flexibility. If proceeds are used to repay debt, FY24 DPS would have been 6.16 Singapore cents, 1% higher than reported, and aggregate leverage is expected to improve by 1.8 percentage points to 37.8% as at 30 June 2025.
• Stable Debt Costs: Management anticipates the cost of debt will remain stable at around 2.9% for the year, with no significant improvement expected until the divestment completes in 4Q25.
• Portfolio Rejuvenation: CLAS has a strong track record of divesting assets at attractive premiums and redeploying proceeds into higher-yielding opportunities, such as the living sector in Japan, especially rental housing.

Financial Overview and Performance Summary

• DPS Yield (%): 6.8 (FY24), 6.9 (FY25E), 7.1 (FY26E)
• P/NAV (x): 0.8 across FY24–FY26E
• Gross Profit Margin (%): 45.8 (FY24), 46.0 (FY25E), 45.9 (FY26E)
• Gearing (%): 38.3 (FY24), 37.9 (FY25E), 38.0 (FY26E)

Additional figures highlight strong growth: 1H25 gross profit was up 6% year-on-year, but on a same-store basis, would have grown 4%.

ESG Leadership and Corporate Governance

• ESG Rating Upgrade: In June 2025, CLAS received an ESG rating upgrade, reflecting its leadership in corporate governance, business ethics, and green building efforts.
• Green Building Certification: 43.4% of CLAS’s portfolio (by number of assets) is certified to green building standards, well above the industry average of 33.4% as of May 2024.
• Awards: CLAS was ranked first among REITs and business trusts in the latest Singapore Governance and Transparency Index and clinched the Singapore Corporate Sustainability Award at the SIAS Investors’ Choice Awards 2024.

Growth Catalysts and Investment Risks

Potential Catalysts:

• Stronger-than-expected lodging demand
• Higher-than-anticipated Revenue per Available Unit (RevPAU)
• DPS-accretive acquisitions and effective capital recycling

Key Investment Risks:

• Macroeconomic slowdown impacting business travel and corporate demand
• Increased competition from new supply
• Unfavourable foreign exchange rate fluctuations

Peer Comparison: Hospitality Trusts in Focus

Company Overview: CapitaLand Ascott Trust at a Glance

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

• Portfolio Value: SGD8.8 billion as at 31 December 2024
• Assets: Over 100 properties, more than 18,000 units, in 45 cities across 16 countries (Asia Pacific, Europe, US)
• Key Brands: Ascott, Somerset, Quest, Citadines
• Major Locations: Barcelona, Berlin, Brussels, Hanoi, Ho Chi Minh City, Jakarta, Kuala Lumpur, London, Manila, Melbourne, Munich, New York, Paris, Perth, Seoul, Singapore, Sydney, Tokyo

Geographical and Contract Type Diversification

• By Geography: US (19%), Australia (10%), Japan (16%), Singapore (19%), France (7%), UK (11%), Others (17%)
• By Contract Type: Management Contracts (38%), Master Leases (23%), Longer-Stay Properties (15%), Management Contracts with Minimum Guaranteed Income (24%)

Historical Distribution per Unit (DPU)

• FY20: 3.03 S cents
• FY21: 4.32 S cents
• FY22: 5.67 S cents
• FY23: 6.57 S cents
• FY24: 6.10 S cents

In-Depth Financials

Profitability and Credit Ratios

• Return on Common Equity: -5.79% (FY20), 7.17% (FY21), 4.85% (FY22), 4.78% (FY23), 4.76% (FY24)
• Return on Assets: -3.09% (FY20), 4.17% (FY21), 2.87% (FY22), 2.74% (FY23), 2.78% (FY24)
• Total Debt/EBIT: 29.37 (FY20), 23.22 (FY21), 14.40 (FY22), 12.47 (FY23), 11.36 (FY24)
• Net Debt/EBIT: 24.16 (FY20), 20.54 (FY21), 12.73 (FY22), 10.84 (FY23), 9.22 (FY24)
• EBIT to Interest Expense: 1.38 (FY20), 2.08 (FY21), 2.48 (FY22), 2.06 (FY23), 2.09 (FY24)

Conclusion: Positive Outlook with Portfolio Agility

CapitaLand Ascott Trust’s proactive portfolio management, commitment to sustainability, and disciplined financial strategy position it well for continued growth despite macroeconomic challenges. The strategic divestment of a mature Tokyo asset, robust financials, and a track record of value-accretive recycling underscore its readiness for the next growth phase. With a strong BUY rating and a fair value estimate of SGD1.02, CLAS remains a compelling option for investors seeking both stability and upside potential in the hospitality and lodging REIT sector.

Disclaimer

The information provided is for general informational purposes only and does not constitute investment advice. Please consult a financial adviser before making any investment decisions.