CapitaLand Ascott Trust Expands Singapore Portfolio with Exciting New Acquisition: Should You Invest?

• CLAS’s acquisition of lyf Funan Singapore boosts its Singapore exposure with a 4.7% EBITDA yield.
• The deal is DPS-accretive, offering a 1.5% increase in distribution for investors.
• A 20-year master lease with Ascott ensures income stability and potential upside.

CapitaLand Ascott Trust (CLAS) (SGX: HMN) has agreed to acquire the 329-room lyf Funan Singapore from Ascott Serviced Residence Global Fund (ASRGF) for SGD146.4 million, reflecting a property value of SGD263 million. The property was independently valued between SGD265 million and SGD271 million by top valuation firms. The deal is expected to boost CLAS’s distribution by SGD3.5 million (1.5% DPS accretion), largely financed through proceeds from the divestment of Citadines Mount Sophia Singapore and additional debt.

This acquisition marks a significant increase in CLAS’s presence in the competitive Singapore market, with the EBITDA yield of 4.7% offering substantial growth compared to the 3.2% exit yield of Citadines Mount Sophia. CLAS’s aggregate leverage post-acquisition is expected to reach 39.1%. The acquisition is set for completion in Q4 2024, with a 20-year master lease agreement in place.

Key Takeaways for Investors

Here are five key takeaways for investors considering this acquisition:

1. Increased Singapore Exposure: The acquisition raises CLAS’s exposure to Singapore, one of the world’s key gateway cities.
2. DPS Accretion: A 1.5% increase in DPS is expected, translating into more cash returns for investors.
3. Higher EBITDA Yield: The 4.7% yield significantly outperforms the 3.2% yield from Citadines Mount Sophia, reflecting better income potential.
4. Master Lease Stability: The 20-year master lease with Ascott ensures income stability with potential upside tied to gross operating profit.
5. Strategic Timing: The Singapore hospitality market is set for growth, with rising global connectivity boosting demand.

Should You Invest?

CLAS’s latest acquisition offers investors a strong opportunity for growth and higher returns. The 4.7% EBITDA yield is a solid improvement, and the property’s prime location in Singapore’s Civic District, with an occupancy rate of over 80%, makes it an attractive asset. The master lease arrangement with Ascott adds stability, making this a strategic acquisition that aligns with growing demand in the hospitality sector.

Key Risks to Watch Out

Despite the attractive benefits, here are five risks to consider:

1. Leverage: The increased aggregate leverage (39.1%) could limit financial flexibility.
2. Market Volatility: Any downturn in the Singapore real estate market could impact the expected returns.
3. Rising Interest Rates: Higher borrowing costs may reduce overall profitability.
4. Leasehold Tenure: lyf Funan Singapore has 54 years left on its leasehold tenure, which could affect long-term value.
5. Execution Risks: Integrating the property into CLAS’s portfolio may face unforeseen challenges.

Take the Leap or Hold Back?

The lyf Funan Singapore acquisition is a strong addition to CLAS’s portfolio, boosting Singapore exposure, returns, and distribution growth. However, the increased leverage and interest rate risks are important considerations. If you’re looking for solid returns in the booming Singapore hospitality sector, CLAS’s latest move is a smart opportunity—but, as always, weigh the risks before diving in!

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.