S-REITs: Four Key Reasons to Invest in CapitaLand Ascott Trust Despite Near-term Weakness

April 17, 2024

In the current economic climate, where interest rates could remain high for an extended period, many investors are cautious about their choices, particularly in sectors like real estate investment trust (REIT). However, this environment presents a unique opportunity to invest in CapitaLand Ascott Trust (SGX: HMN), or CLAS, while its share price is trading at an attractive level.

CLAS also stands out to capture the rising “travel-tainment” trend. With the global excitement surrounding major events like concerts and sports, CLAS’s focus on locations that are central to these events has shown promising results, particularly in light of recent performances by global music sensations.

Here are four key reasons why investing in CLAS now could be advantageous.

1. The Ripple Effect of Global Tours on Hospitality

The influence of global music tours, such as those by Taylor Swift and Coldplay, on the hospitality sector cannot be overstated. Data from Smith Travel Research (STR) highlights a significant uplift in revenue per available room (RevPAR) during concert dates in cities like Singapore, Tokyo, Melbourne, and Sydney. For instance, on concert days, these cities witnessed a RevPAR growth ranging from 40% to 120% year-over-year (yoy), a stark contrast to the more modest increases on non-concert days.

CLAS, with properties in 10 of the 46 cities visited by Swift and in 6 of the cities by Coldplay, finds itself in a favorable position to benefit from such events. The trust’s strategic property locations, chosen for their proximity to major event venues, have allowed it to tap into the increased demand generated by these concerts. This is particularly evident in its substantial room inventory within a 40-minute commute of concert venues, making it a significant beneficiary of the concert fever.

2. Strategic Positioning and Portfolio Diversification

CLAS’s investment strategy, focusing on key gateway cities, is not just about geographical positioning but also about diversifying its portfolio across different segments of the hospitality market, including rental housing and student accommodations. This diversification, coupled with the strategic locations, not only buffers the trust against market volatilities but also positions it to capitalise on various demand sources, including the increasingly popular travel-tainment sector.

3. Financial Performance and Future Prospects

Despite facing challenges such as divestments and currency fluctuations, CLAS has shown resilience, with adjustments in its forecast showing optimism in its growth trajectory. The adjustments reflect a nuanced understanding of the market and a strategic response to external factors, illustrating the trust’s proactive management approach.

The uplift in FY24F RevPAR growth, especially in the major concert markets, translates into a positive outlook for the trust’s gross profit. This is a testament to the effectiveness of CLAS’s investment strategy and its ability to leverage global events to enhance its operational performance.

4. Attractive yield for dividend investors

Another key aspect for investors to consider is its current forward dividend yield of around 6.7%, which is notably attractive for those focused on long-term wealth growth. This high dividend yield signals a potentially lucrative return on investment, reflecting both the trust’s strong cash flow and its commitment to delivering value to shareholders. Such a yield is particularly compelling in the context of the current economic landscape, where stable income streams are highly valued.

Opportune time to buy CLAS

While higher interest rates generally pose challenges for REITs, CLAS presents a unique case. Its strategic advantages in terms of location, diversified portfolio, resilience in economic downturns, and attractive dividend yield make it a standout option for investors looking for potential growth and income in a challenging market. This could be an opportune time to buy into CLAS, as its current share price may not fully reflect its long-term potential, especially as the global economy begins to stabilise and the travel sector continues to rebound. Our analyst has set a target price of S$1.17, which represents an upside of 31.5% from its current share price of S$0.89.

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