Riding the Swift Wave: Why CapitaLand Ascott Trust is a Smart Bet in Tourism’s Recovery?

March 7, 2024

As Taylor Swift descends on Singapore, captivating hearts and headlines with her six-day concert extravaganza, an unlikely hero rises in the investment arena: CapitaLand Ascott Trust (CLAS) (SGX:HMN). This gem in the hospitality REIT market is tuning up for a spectacular performance, fueled by skyrocketing hotel rates and a tidal wave of Swifties. In the grand comeback tale of global tourism, CLAS stands out as the savvy investor’s ticket to the show, promising not just a front-row seat to the industry’s revival but a stake in its thriving future.

Here are a few reasons investors should take advantage of the share price weakness in recent weeks.

Strong tourism recovery in Singapore to continue with high-profile events

Singapore’s tourist arrivals more than doubled to 13.6 million in 2023, representing about 71% of the number in 2019, before international travel came to a halt in 2020 due to the COVID-19 pandemic. With high-profile events like Taylor Swift’s The Eras Tour concert, the hospitality industry will continue seeing sustained demand. This has translated into heightened occupancy rates and higher average daily rates (ADRs) for properties under CLAS’s management. With a well-established presence and a reputation for excellence, CLAS’s properties will likely be at the top of the list for incoming tourists, whether they are in town for a Taylor Swift concert or a multinational conference.

Investors could shift to dividend stocks as US Fed could cut rate in H2

Unlike traditional stocks, REITs like CLAS offer investors a unique proposition. With a mandate to distribute at least 90% of their taxable income, CLAS provides a steady income stream in an uncertain market landscape. Furthermore, with predictions of a potential cut in the U.S. Federal Reserve’s interest rates by the middle of 2024, REITs stand to benefit from lower funding costs, further bolstering their appeal.

Diversified portfolio to tap into recovery of the tourism industry

CLAS’s dominance in the Asia-Pacific lodging market is unparalleled, boasting a portfolio valued at S$8.7 billion as of December 31, 2023. With properties spanning 16 countries and brands such as Ascott and Somerset, CLAS offers investors stability and significant upside potential in the recovering hospitality sector.

Strong earnings recovery supported with a mix of growth and stable income streams

CLAS’s portfolio revenue per available unit (RevPAU) rebounded to approximately 103% of normalized levels in the fourth quarter of 2023 (4Q2023). Moreover, its occupancy rates were circa 92% of pre-COVID levels. With gearing at a healthy 37.9% while the average cost of debt was low at 2.4% at the end of FY2023, CLAS stands on solid financial ground.

It is also worth to note that CLAS has a diversified portfolio with a mix of growth and stable income streams. In H2 2023, 54% of its gross profit was derived from stable income assets including fixed or minimum rent and long-term management contracts. The other 46% of the profit was attributed to the management contracts of serviced residences and hotels, which stand to gain from the uptick in daily rates.

Source: CLAS’s H2 FY2023 Presentation

Attractive dividend yield

In terms of dividends, CLAS outshines its peers. In 2023, CLAS reported a distribution per security (DPS) of 6.57 Singapore cents, marking a 16% y-o-y increase and surpassing analysts’ expectations by 115.4%. Looking ahead, CGS forecasts a dividend yield of above 7% for CLAS, cementing its status as a top choice for income-focused investors.

Source: CGS International’s Research

Retail investors love CLAS

As of February 15, 2024, CLAS was ranked among the top 10 hospitality REITs favoured by retail investors on the SGX, attracting a substantial inflow of S$16.7 million.

Take advantage of market weakness to construct your stock portfolio in the hospitality sector

As the final notes of Taylor Swift’s tour fade out, the investment beat goes on. Capitalise on CLAS’s momentary share price dip to curate a portfolio that hits all the high notes in the hotel industry’s comeback. With a spotlight on recovery and the promise of a strong dividend lineup, CLAS offers a front-row seat to the resurgence of tourism. Yet, like any seasoned investor tuning into the market’s melodies, one must heed the underlying risks. A portfolio diversified across sectors, informed by meticulous research and attuned to the shifting economic rhythms, is your best strategy for a standing ovation in your financial journey. So go ahead, grab this chance to be in harmony with the sector’s growth, but make sure you’re composing your investment symphony with both passion and prudence.

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

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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