Should You Invest In CapitaLand Ascott Trust [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of CapitaLand Ascott Trust and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To Feb 2024

Business Description

CapitaLand Ascott Trust is a hospitality REIT that was incepted on 31 December 2019 via an M&A between Ascendas Hospitality Trust and Ascott Residence Trust. The trust now owns 106 hospitality properties across the world with a larger focus within the Asia region.  

What I Like About CLAS:

• The manager had demonstrated competency in managing their capital management with healthy weighted average debt maturity, a relatively lower cost of borrowing and a decent percentage of hedge in borrowing which had helped mitigate the impact of a high-interest rate environment (Figures 4 & 5)
  

• The manager had demonstrated strong capabilities in delivering yield accretive capital recycling and acquisition and had a very clear strategy in managing their existing portfolio.
  

What I Do Not Like About CLAS:

• The timing of the merger between Ascendas Hospitality Trust and Ascott Residence Trust is truly unfortunate as it was completed in Dec 2019 when the COVID-19 pandemic occurred directly afterwards. As a result of the timing and CLAS's ongoing portfolio reconstitution strategy, it is difficult to determine what is the “base-case” operating performance pre-pandemic time.
  

Updates From Recent Performance (FY 2023)

General Comments:

• Top-line growth is attributed to the strong operating performance of the existing portfolio and contributions from new properties
  

• Portfolio RevPAU had reached its pre-COVID levels mainly due to higher average daily rates.

Positive Headwinds:

• Current portfolio occupancy (77%) is still significantly below pre-covid (92%) levels which presents more room for further improvement in performance without increasing its overall capacity.
  

• International travel is projected to fully recover to pre-pandemic levels in 2024.

Negative Headwinds:

• The cost of borrowing is still expected to increase moving forward as around 28% of the debt is due for renewal over the next two years where the interest rate is expected to slowly come back down. However, as the current cost of borrowing is lower than the expected neutral rate, I believe it is likely that the cost of borrowing will increase slightly as their debt is refinanced.

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore