CapitaLand Ascott Trust raises dividends again. Can its recovery continue?

What happened?

CapitaLand Ascott Trust, or CLAS, recently held its pre-AGM dialogue session with investors.

There was much to update investors, especially after the completion of its preferential offering in August last year.  

Earlier, we shared that CapitaLand Ascott Trust was one of the few Singapore REITs that raised its dividends in 2023. 

This would make it the third consecutive year that CapitaLand Ascott Trust has raised its dividends as it staged a strong rebound from the Covid-19 pandemic. 

However, the increase in dividends did not translate into a solid share price performance.

The share price of CapitaLand Ascott Trust has fallen by close to 6% so far this year, and is now 10% below its preferential offering price of S$1.025.

In this article, we dive deeper into CapitaLand Ascott Trust to determine if it can continue to deliver growth in dividends.

What you need to know about CapitaLand Ascott Trust

CapitaLand Ascott Trust is the largest hospitality trust in the Asia Pacific region with total assets of S$8.7 billion.

Its portfolio comprises 106 properties with more than 19,000 units that are located in 45 cities across 16 countries (see graphic above).

Of the total asset base, close to 56% belong in Asia Pacific with Singapore (16.9%), Japan (16.1%) and Australia (11.7%) being the three largest contributors to its portfolio within this region.

CapitaLand Ascott Trust has 19.6% of its assets in the US with the remaining 24.6% located in Europe, with the UK (10.8%) and France (7.6%) being the countries with the largest presence.

CapitaLand Ascott Trust’s manager and trustee-manager are both wholly-owned subsidiaries of CapitaLand Investment Limited or CLI.

CLI is a large and reputable global real estate manager with S$134 billion of assets under management and S$100 billion of funds under management as of 31 December 2023.

#1 – RevPAU exceeds pre-COVID levels

CapitaLand Ascott Trust’s RevPAU has been steadily increasing since the second quarter of 2020 except for two dips in the first quarter of 2022 and of 2023.

For the latest fourth quarter of 2023, RevPAU enjoyed a 4% year-on-year rise to end at S$161, which was 3% above pre-pandemic levels.

The rise was due to higher average daily rates along with stable occupancy at 77% for the quarter, representing just an 8% fall below pre-COVID levels.

The increase was also fairly broad-based as can be seen in the table below.

Of all the major markets that CapitaLand Ascott Trust operates in, only Singapore and Australia reported a marginal year-on-year fall in RevPAU.

Most of the hospitality trust’s markets saw a year on year increase in RevPAU, with Japan posting the most impressive performance with a 90% year on year surge to JPY 17,500.

Amongst the markets that CapitaLand Ascott Trust operate in, its RevPAU in China and Vietnam have yet to recover to pre-COVID levels.

#2 – Moderate gearing with a low cost of borrowing

Moving on to CapitaLand Ascott Trust’s debt metrics, gearing stood at 37.9% with the trust having a S$2 billion debt headroom for acquisitions.

Around 81% of its loans are pegged to fixed rates and the trust also enjoys a low cost of borrowing of just 2.4%.

The management of CapitaLand Ascott Trust noted that with higher proportion of debt in British Pound (GBP) and Euro (EUR) arising from the acquisitions in November 2023, its effective borrowing cost may increase in the coming year. 

#3 – Active capital recycling

Apart from organic growth through higher RevPAU, CapitaLand Ascott Trust’s manager is also active in capital recycling.

Capital recycling involves the sale of older properties that possess lower yields and then channelling the money to purchase higher-yielding, newer properties.

For divestments, CapitaLand Ascott Trust announced the sale of a total of 9 properties last year, with 4 in France, 2 in Australia, and 3 in Japan (see below).

All the properties were sold at a premium to their book values.

In addition, the trust also announced the divestment of Citadines Mount Sophia Singapore back in February this year at a 19% premium to its book value.

Apart from divestments, CapitaLand Ascott Trust also conducted a slew of acquisitions amounting to S$530.8 million in cities such as London, Dublin, and Jakarta.

These acquisitions were completed in November last year and will add 1.8% to the trust’s dividends per stapled security.

#4 – A slew of asset enhancement initiatives

Elsewhere, the hospitality trust also engaged in an asset enhancement initiative (AEI) for The Robertson House in Singapore.

Originally known as the Riverside Hotel Robertson Quay, the plan is to rebrand and refurbish the hotel into a luxury one managed by The Ascott Limited.

The AEI was completed in the first quarter of this year. Post-renovation, the property is expected to report higher profitability and boast a better valuation.

CapitaLand Ascott Trust also announced a slew of AEIs for properties located in key gateway cities.

These projects aim to unlock organic growth potential to drive higher returns that will benefit the trust’s valuation and rental income.

The capital expenditure for these AEIs is expected to be partially funded by the master lessee or operators for these properties.

#5 - Dividends raised

With the increase in RevPAU for its portfolio of assets and active capital recycling, CapitaLand Ascott Trust was able to raise its dividends in 2023.

Its dividends per stapled security rose to 6.57 cents in 2023, a 16% increase compared to the previous year. 

This would still be below its dividend per stapled security prior to the pandemic of 7.61 cents in 2019.

Find out how much dividends you would have received as a shareholder of CapitaLand Ascott Trust in the past 12 months with the calculator below.  

What would Beansprout do?

For investors looking for a well-diversified REIT with a strong sponsor to gain exposure to the recovery in the travel sector, CapitaLand Ascott Trust has always been one of the top options.

CapitaLand Ascott Trust managed to grow its dividends in 2023 as it was able to ride on the recovery in the tourism sector, managed its financing costs well, and took active steps to manage its portfolio. 

Heading into 2024, global travel demand is expected to continue staying robust, which may lead to a further improvement in CapitaLand Ascott Trust’s RevPAU.

CapitaLand Ascott Trust is also active in recycling its capital and taking on asset enhancement initiatives (AEI).

At the current share price, CapitaLand Ascott Trust offers a dividend yield of 7.1%.  This is above the dividend yield of 5.9% offered by CDL Hospitality Trust. 

CapitaLand Ascott Trust trades at a price-to-book valuation of 0.8x, above its historical average of 0.7x. 

With interest rates expected to stay persistently high this year, we will be watchful about a potential increase in effective borrowing costs and its impact on dividends this year.

If you are keen to understand more about how higher interest rates may impact Singapore REITs, join us for our free webinar on "What's next for Singapore REITs?" on 24th April by registering here. 

Related Links:

• CapitaLand Ascott Trust dividend history and dividend yield

• CapitaLand Ascott Trust share price and analysis

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