I was honoured to attend a presentation by Ms. Serena Teo, CEO of CapitaLand Ascott Trust (SGX: HMN), held last Thursday, 07 November, at lyf Funan Singapore.

Photo Credit: CapitaLand Ascott Trust

with CapitaLand Ascott Trust’s CEO, Ms. Serena Teo

Despite a busy schedule, I always prioritise such events, as they offer invaluable opportunities to engage directly with management and gain a deeper understanding of the company.

It was also a pleasure to reconnect with friends during the event, including REIT specialist Kenny Loh, AlphaInvest Director Shanison Lin and his colleague, and The Joyful Investors.

Photo Credit: CapitaLand Ascott Trust

In her presentation, Ms. Teo provided an overview of the REIT’s 3rd quarter business update and its proposed acquisition of lyf Funan Singapore, followed by a tour of the property.

In this post, I’ll share key takeaways from this insightful session to help fellow retail investors gain a better understanding of CapitaLand Ascott Trust, or CLAS for short.

3rd Quarter Business Update

• As of 30 September 2024, CLAS owns 101 properties across 16 countries, including 53 serviced residences, 15 hotels/business hotels, 24 rental housing units, and 9 student accommodations, with a total assets under management (AUM) of S$8.5 billion.
• The REIT is primarily focused on 6 key markets: Australia, Japan, Singapore, the United Kingdom, the United States, and France. Collectively, they account for approximately 80% of its AUM.
• In Q3 FY2024, CLAS’ gross profit rose 8% year on year, driven by portfolio reconstitution efforts (including acquisitions, asset enhancements, and interest savings) and improved operating performance. However, if acquisitions and divestments are excluded, same-store gross profit grew by 2% year-on-year, supported by stronger operational performance.
• Stable income sources, including master leases and Management Contracts with Minimum Guaranteed Income (MCMGI), longer-stay properties (rental housing and student accommodation), account for 66% of CLAS’ gross profit, providing income stability. The remaining 34% is derived from growth income through management contracts for hotels and serviced residences.
• Revenue per available unit (RevPAU) for Q3 FY2024 improved by 3% year-on-year to S$158 (105% of pre-Covid levels), largely due to an increase in average occupancy rate to 79%, which is approximately 92% of pre-Covid levels.
• In terms of the REIT’s 6 key markets in Q3 FY2024, only Australia reported a 11% year-on-year decline in RevPAU, due to last year’s high base from the FIFA Women’s World Cup. Meanwhile, Japan, Singapore, the United Kingdom, and the United States reported low- to mid-single-digit improvements. CLAS’ properties in France are operating under master leases, which is common in the country, and revenue increased 11% on a same-store basis.
• CLAS derives income in Singapore Dollars and 12 other currencies, adding to the portfolio’s currency diversification.
• Management regularly reviews asset performance to determine whether to retain, enhance, or divest properties, thereby optimising the portfolio’s returns.
• In the first 9 months of FY2024, CLAS completed over S$500 million in divestments at premiums to book value, unlocking approximately S$60 million in net gains. Additionally, 3 assets were acquired, including Teriha Ocean Stage (a rental housing property in Fukuoka, Japan, with modest 0.5% DPS accretion as it is a very small property), a 10% stake in Standard at Columbia (a student accommodation which serves the University of South Carolina in the USA, which has a strong domestic enrolment), and the proposed acquisition of lyf Funan Singapore (pending unitholders’ approval at the EGM on 18 November, with expected completion by Q4 FY2024).
• CLAS has embarked on 8 asset enhancement initiatives, with 5 completed (1 in Singapore, 2 in France, 1 in Germany, and 1 in the United Kingdom), one (in Ireland) set to complete by Q4 FY2024, and 2 (in London and Australia) slated to start in 2025 and complete the following year. Notably, Sydney Central Hotel in Australia is projected to yield an 11.3% return on enhancement costs due to the building of an additional block on the existing carpark.
• Additionally, a development project at Somerset Liang Court Singapore is expected to complete by 2026.
• Ms. Teo also shared that asset enhancement initiatives for assets are staggered strategically for effective capital management.
• CLAS maintains strong capital management, with gearing at 38.3% as of 30 September and debt headroom of S$1.9 billion before reaching 50%. Ms. Teo shared that a target gearing level of around 40% is optimal, offering a buffer for potential valuation declines (of approximately 10-15%) while allowing flexibility for new opportunities.
• The REIT’s average cost of debt as of 30 September is 3.0%, which Ms. Teo anticipates will remain stable in the near term.
• Looking forward, Ms. Teo expressed optimism in traveller demand and confidence in CLAS’ portfolio reconstitution strategy, which she expects to help offset headwinds such as high interest rates and foreign currency fluctuations.

Proposed Acquisition of lyf Funan Singapore

Entrance to lyf Funan Singapore, Accessible via the 4^th Level of Funan Singapore

• Proceeds from the divestment of Citadines Mount Sophia Singapore, completed in March 2024, are being used to fund the proposed acquisition, with Ms. Teo noting the decision to divest was due to the property’s age. This sale achieved an exit yield of 3.2%, with proceeds reinvested at an EBITDA yield of 4.7%.
• Post-acquisition, CLAS’ aggregate leverage is projected to reach 39.1%, with the acquisition expected to be 1.5% DPS-accretive on an FY2023 pro-forma basis (from 6.57 cents prior to the transaction to 6.67 cents after completion).
• As lyf Funan Singapore is already certified Green Mark Gold^PLUS by the Building and Construction Authority, no additional capex is required for further green certification.
• CLAS’ share of total assets in Singapore is expected to increase from 16% to 19% following the acquisition, with potential for further growth after the completion of Somerset Liang Court Singapore in 2026.
• When asked about increasing the number of Singapore assets for income stability, Ms. Teo advised caution, as a higher concentration could heighten reliance on Singapore’s tourism numbers, posing a risk if these numbers were to decline. Diversification across 6 key markets, each contributing no more than 20% of total assets, provides a balanced approach.

Photo Credit: CapitaLand Ascott Trust

• Regarding the guest profile at lyf Funan Singapore, 85% are short-term stayers, while the remaining 15% are longer-term guests (over one month), supported by laundry and kitchenette facilities. The mix includes 20% corporate guests  and 80% leisure guests, aligning well with CLAS’ portfolio profile.

Closing Thoughts

For those who have been following me, you may already know that CLAS is one of the REITs on my investment shortlist. For anyone looking to invest in a hospitality REIT in Singapore, CLAS remains my top recommendation due to its strong diversification (with no single market exceeding a 20% concentration) and its consistent financial performance over the years.

I thoroughly enjoyed my conversation with Ms. Teo – she is warm, friendly, and genuine. Her presentation and thoughtful responses to our questions left a strong impression, exemplifying the qualities of a solid REIT led by a CEO with deep business insight.

I would like to extend my sincere thanks to Ms. Denise Wong from investor relations for the invitation, and to the entire team for organising such an insightful event.

This presentation has further reinforced my interest in adding this REIT to my portfolio, and I hope this summary has also provided you with valuable insights into CLAS’ 3rd quarter business update and its proposed acquisition of lyf Funan Singapore.

Disclaimer: At the time of writing, I am not a unitholder of CapitaLand Ascott Trust.

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