‘Undervalued’ CapitaLand Ascott Trust presses on with diversification for stability and growth

[SINGAPORE] The share price of CapitaLand Ascott Trust (Clas) – the largest lodging trust in the Asia-Pacific by total assets – is undervalued, said Serena Teo, the chief executive officer of the managers of the stapled group.

“Today, we trade at just under 0.8 times to book, and we’re offering a distribution yield of a high 6 per cent,” she said.

The S$0.885 closing price for the counter on Friday (Aug 29) is 79 per cent of the S$1.12 net asset value per stapled security as at Jun 30, 2025. The price also reflects 6.9 per cent distribution yield based on the S$0.061 distribution per stapled security (DPS) for the financial year ended Dec 31, 2024.

Teo, who became CEO of Clas’ managers in June 2022, has put her money where her mouth is.

Last year, she received 38 per cent of her total remuneration of S$1.16 million in Clas stapled securities. In February this year, she bought 500,000 stapled securities at S$0.895 each, amounting to S$447,500. This raised her direct interest in Clas to 0.018 per cent from 0.005 per cent.

Teo said Clas’ market capitalisation, at close to S$3.4 billion, is “probably what’s preventing us from being in the Straits Times Index (STI)”, when asked what it would take for the counter to be included in the benchmark index. “If the share price recovers to a level that is closer to the book value/NAV (net asset value), the market cap will go up… I think that would be when we’ll be able to enter the STI,” she added.

Clas began life as Ascott Residence Trust (ART), which was floated on the Singapore Exchange in 2006 as the first pan-Asian serviced residence real estate investment trust (Reit) with an initial portfolio value of S$856 million comprising 12 assets with more than 2,000 units in Singapore, China, Indonesia, the Philippines and Vietnam.

In late 2019, ART merged with Ascendas Hospitality Trust (AHT), a stapled group comprising a Reit and a business trust.

The combined entity, a stapled group, retained the ART name.

In September 2022, ART was renamed Clas.

Clas’ portfolio currently comprises serviced residences, hotels, rental housing and student accommodation across 104 properties with more than 19,000 units in 45 cities in 16 countries including Singapore, Australia, Japan, France, the UK and the US.

Out of the total portfolio value of about S$8 billion, hospitality assets (serviced residences and hotels) have a 83 per cent share; rental housing and student accommodation (or the living sector) account for the balance 17 per cent.

The group’s mid-term target is to grow the living sector share to 25-30 per cent of portfolio value, with the balance 70-75 per cent in hospitality assets.

Sometimes misunderstood

“I think some people still feel that Clas is a hospitality-only type of portfolio. And there is a view that, compared with other asset classes, the revenue streams of hospitality products are seasonal and volatile,” noted Teo.

However, she said that Clas offers a “distinct value proposition of combining stability with growth”.

Clas’ living sector assets as well as management contracts with minimum guaranteed income (MGI) and master leases on some of its hospitality assets provide a stable income stream, which accounted for 66 per cent of Clas’ H1 2025 gross profit of S$182.5 million.

“This strengthens our portfolio resilience through market cycles, insulating Clas from seasonal fluctuations in the hospitality trade,” said Teo.

“On the other hand, our hospitality assets that are on management contracts (without MGI) enable us to capture upside from the strong travel demand,” she added. This is the growth income part of Clas’ business, which accounted for the balance 34 per cent of the gross profit in H1 2025.

Growing investor interest in lodging

Asked about the potential competition to Clas from the expected listings of Centurion Accommodation Reit (which will hold purpose-built worker accommodation and purpose-built student accommodation assets) and the Coliwoo Group co-living business on the SGX, Teo said the planned flotations are in tandem with growing investor interest in lodging assets; this is also a bright spot for Clas.

Lodging assets beckon investors with strong sector fundamentals, underpinned by evolving mobility trends and growing living sector demand, Teo noted. “With investors recognising the growth potential of the lodging sector, we expect more liquidity as they seek quality investment opportunities,” she added.

“With almost 20 years of experience, Clas has grown to be the largest lodging trust in Asia-Pacific. Our global scale, diversification across geographies, asset classes and contract types, and support by our strong sponsor CapitaLand Investment set Clas apart from others,” said Teo.

The lodging asset classes that the stapled group has exposure to, cater to varying durations of stay – from the shorter stay of hotels to a slightly longer stay of serviced residences, followed by student accommodation and rental housing.

Leases at Clas’ 26 rental housing properties, all in Japan, are typically for two years. For student accommodation, the lease duration is typically for an academic year.

The longer-stay properties add stability and resilience to the portfolio, said Teo. “Our average length of stay in the entire portfolio comes in at about two months. It’s quite different from a portfolio that is fully hotel.”

Clas’ eight student accommodation assets in the US serve universities where 90 per cent of students, on a blended basis, are domestic.

“For whatever reason, if the international student demand is affected, there’s more than sufficient domestic demand to replace the international demand,” said Teo.

Scale opens doors

While Teo does not have a target portfolio size for Clas, she acknowledges that size does matter.

Following the merger with AHT, the trust had sufficient scale to be included in the FTSE EPRA Nareit Global Real Estate Index Series (Global Developed Index) in June 2020.

That opened the door for Clas to have access to global investors, boosting trading liquidity in the counter. In 2024, the average daily trading volume for Clas stapled securities was about seven million.

“When you have a certain size, there are better economies of scale. There’s also better diversification, investor awareness and lender support,” said Teo.

Tested playbook

“We have demonstrated a track record of creating value for stapled security holders through strategic portfolio reconstitution and timely redeployment of divestment proceeds into DPS-accretive opportunities.” These include embarking on higher-yielding acquisitions and asset enhancement initiatives (AEIs) and paring down high-interest debt.

“Since the start of 2024, we have divested more than S$500 million worth of properties and completed acquisitions of about S$560 million. And the acquisitions are all DPS accretive,” said Teo.

Growing Clas further will be about being “laser focused on making sure we are able to increase the portfolio’s quality of earnings and deliver stable distributions to stapled security holders, being able to have that very disciplined capital management so that when the need arises, we have the ability to top up distributions to stapled security holders”.

During Covid – the most difficult period for the hospitality sector – the group had enough reserves through undistributed divestment gains to top up distributions in 2020 and 2021.

Another scenario when it would be appropriate to distribute some of the undistributed divestment gains is when there is an AEI that involves closing the property temporarily, Teo said.