Is Ascott REIT a Good Buy?

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.