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Willie Keng, CFA

Willie Keng, CFA

Chief Editor

Is Ascott REIT a Good Buy?

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Ascott Residence Trust, or Ascott REIT (SGX:HMN) is one of the truly great businesses of CapitaLand. 

And the man behind Ascott is a visionary.

The late Mr. Ameerali Jumabhoy was always willing to challenge conventions.

Without him, CapitaLand wouldn’t have built one of the best trophy assets of today — The Ascott brand. 

I’d say Ascott is one of Singapore’s iconic, yet overlooked property brands.

Read Also: CapitaLand Restructuring 2021, Is it Worth Buying Now?

Mr. Jumabhoy founded Scotts Holdings (a property company) in 1982. And used it to open The Ascott Singapore (or Ascott) two years later — the first world-class serviced residence in Asia Pacific at that time. 

Ascott got its name from its Scotts Road location.

And it was inspired by the famous British races at Ascot — an extra “t” was added to prevent copyright issues. 

Mr. Jumabhoy had a love for these equestrian sports. 

At its peak, Scotts Holdings had more than S$600 million worth of assets. 

Scotts Holdings later on merged with Stamford Group, owned by DBS Land at that time, to form The Ascott Limited.

Then, Ascott was bought by CapitaLand Ltd. (a merger between DBS Land and Pidemco Land). 

 

Ascott REIT is the cash cow of The Ascott

Ascott REIT is the biggest hospitality trust in the Asia Pacific region. And the eight largest hospitality REIT worldwide.

After a merger with Ascendas Hospitality Trust, Ascott REIT has a market cap of S$3.3 billion.

Today, Ascott REIT has more than S$7 billion worth of property assets across the world.

This Singapore REIT runs more than 86 properties in 38 different cities and has over 16,000 residence units. 

Casual travelers like you and I might rely on online travel websites — Agoda, TripAdvisor and Expedia — to plan our holiday stay.

But for many business travellers, they turn to the more luxurious, medium to longer stay places. 

And Ascott REIT caters to these group of people with its rich portfolio of global brands — Ascott, Citadines, Somerset Serviced Residence, Sheraton, Pullman, Doubletree by Hilton, Courtyard by Marriott, The Credit Collection, ibis and lyf by Ascott. 

Now, what I like about Ascott REIT is this.

Most of its properties are freehold leases. 

This means Ascott REIT virtually owns its properties forever

This is unlike many of our Singapore properties where a property sits on a land lease of up to 99 years. Industrial properties? Up to 60 years only. 

You see, when leases expire, Singapore REITs have to raise money to renew their 99 year or 60 year leases.

But not Ascott REIT. 

And I find freehold lease a valuable asset.

This also means that Ascott REIT’s properties will get more valuable over time. 

Since investors know they don’t have to put in money to renew those leases.

 

But Ascott REIT is more than just freehold leases

Half of its gross revenues come from “long-term” fixed management contracts.

These contracts are always paid to Ascott REIT, whether there’s a pandemic crisis or not.

That keeps Ascott REIT going. 

The other half is what I call a variable fee structure. 

This means, Ascott collects a small, fixed fee from its hotel tenants.

So, as the hotel makes more money, Ascott REIT collects a larger percentage of that profits.

Ascott is not profiting now because its hotels are shut down across the world. 

But, in my opinion, its full potential gains will immediately see a strong rebound once the COVID pandemic ends. 

Read Also: Check out my 8 best Singapore REIT guide for retirement.

Source: Yahoo! Finance

What’s even better is Ascott REIT’s share price works like a bond — largely stable.

Even after the Covid-19 pandemic, share price quickly recovered back to its average S$1.00 per share. 

Because the market know it always pays out close to 100% of its distribution as dividends. 

This creates share price stability.

That’s why I find this a strong dividend payer. 

Read Also: Lendlease REIT Shares Are Up 66%… Is It a Buy Now?

 

Ascott REIT’s growth is set to recover

And what’s more, Ascott REIT has a strong balance sheet. That allows them to borrow more money to grow their property portfolio. 

And also allows them to comfortably refinance any debt that is maturing. 

I don’t think Ascott REIT will hit any financing issues at all. 

Ascott REIT has the largest exposure of its properties to countries with a low rate of infection — Singapore, Australia, Vietnam and China. 

And these properties already take up 41% of its total property assets.

Now, with vaccines underway and governments signalling herd immunity? I feel Ascott REIT is ready to profit greatly from this return to normal. 

I quickly cannot imagine companies will stop being global. 

I cannot quickly imagine companies will stop sending their staff across the world for business. 

I think world will get more inter-connected not only online, but physically too. 

And travellers, whether for work or leisure, will still need a comfortable, affordable place to stay in. 

Ascott REIT should continue to benefit. 

If you’re looking to grow your REIT portfolio for dividends, I think this is one Singapore REIT worth buying.

Always here for you, 
Willie Keng, CFA
Founder, Dividend Titan

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Willie Keng, CFA

Willie Keng, CFA is the founder of Dividend Titan, a financial publication for self-managed investors. A former research analyst for top private banks, Willie today runs his own consulting firm. Some of his clients include asset managers and family offices. Willie has a deep passion for helping everyday investors take control of their financial future. And has spent over 10,000 hours researching, analyzing and recommending investment ideas.

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