Latest / Investor Exchange / CapitaLand Ascott Trust Gross Profit Soars 1H2025: Strategic Growth & Performance Gains

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CapitaLand Ascott Trust Gross Profit Soars 1H2025: Strategic Growth & Performance Gains · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Okay, let's unpack this. Welcome to the deep dives, where we try to cut through
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  the noise and get you truly well-informed.
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  Today, we're taking a real deep dive into Capital and Ascot Trust,
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  CLAS, you might know it as, major player in global lodging.
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  You've sent us, well, quite a stack of their reports, specifically focusing
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  on their first half 2025 financial performance. And our mission today, pretty simple, really.
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  Slice through the jargon, pull out the most important bits and give you a clear
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  picture of what's actually going on.
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  We're going to break down their main financial results first.
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  Then we'll dig into the why behind them, you know, what strategies work,
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  what maybe didn't go exactly to plan.
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  And then, crucially, look ahead. What's their outlook?
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  What are their plans for growth and stability?
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  Think of it as getting under the hood of how a big trust like this manages its assets. Yeah.
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  And what's really fascinating here, I think, and it's key to understanding sea
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  life is just how broad their operations are. They're not just about one thing.
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  They cover the whole lodging sector, service residences, sure,
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  but also rental housing, even student accommodation.
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  And it's not just one place either. They're in 45 cities, 16 countries.
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  This spread, this diversification, it isn't just a detail.
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  It's really central to how they operate, how resilient they are.
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  And we'll see how that shows up in the numbers. All right, let's get into those
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  numbers then, because that's where the story starts, right? Yeah.
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  So first half of 2025, CLAS put up some, well, pretty solid figures.
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  Gross profit, that saw a healthy 6% jump year on year, came in at S182.5 million
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  dollars, and revenue followed suit, climbing 3% to S398.5 million dollars.
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  Good starting points, definitely.
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  Absolutely. But we need to look a bit deeper than just those headline numbers,
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  connect it to the bigger picture.
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  For a company like CLAS, this same-store performance metric is really insightful.
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  It basically tells you how their existing properties are doing,
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  tripping out the noise from new buys or sells.
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  And what's interesting is, on that same-store basis, both gross profit and revenue
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  grew by 4% year-on-year in H1 2025.
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  That's strong. It signals that the core engine, their existing assets,
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  is running really efficiently. It's not just growth from adding new things.
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  The 4% organic growth, that really does highlight the core strengths.
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  Okay, sticking with key metrics, Ray VPO, revenue per available unit, big one in lodging.
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  For H1 2025, that rose 3% to $150 compared to the year before.
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  And you said this was mainly because occupancy rates were up.
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  Largely, yes. Higher average occupancy across most of their key markets.
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  So filling more units and getting good revenue from them. Makes sense.
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  Now, what about distributions? What actually gets back to the security holders?
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  Right, so the total core distribution for H1 2025, that nudged up 1% year-on-year to $91.6 million.
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  And the core distribution per stapled security, the DPS, that stayed pretty stable at 2.40 cents.
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  Okay, but I did see the overall DPS figure dipped slightly, like 1% down from 2.55 to 2.53 cents.
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  What's that about? Good catch. That slight dip in the overall DPS was influenced
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  by what they call non-periodic items, things like realized foreign exchange gains.
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  The key takeaway for you as someone looking at this is that their core distribution,
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  the part reflecting actual operations, held firm.
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  So that slight overall dip isn't really a warning sign about the fundamental
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  business health, more like financial noise.
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  Got it. Core stability is the main message there. And then the bottom line itself, net income.
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  That was up quite notably 19% to $100.5 million. What, 19 percent? Yeah.
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  And total return before tax also saw a good increase, up 11 percent to $115.7 million.
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  So looking across the board, the numbers definitely paint a picture of a company performing well.
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  OK, so these positive figures, they didn't just appear out of thin air,
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  right? There must be some deliberate strategies behind this.
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  What does this all mean for you, the listener, trying to understand CLS?
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  It means these results came from specific actions. Let's unpack those. Exactly.
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  It wasn't just luck. CLES management pointed to three main drivers for the higher
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  gross profit and revenue.
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  First, that stronger operating performance we talked about, the same-store growth.
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  Second, their ongoing portfolio reconstitution strategy, actively managing what they own.
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  And third, the Strategic Asset Enhancement Initiatives, or AEIs,
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  basically upgrading their properties.
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  Let's dig into that portfolio reconstitution piece. It sounds like they're constantly
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  tweaking their assets. So in H1 2025, revenue got a boost, about S13 million
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  dollars, from acquisitions.
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  That's right. They brought in a rental housing property in Japan,
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  acquired back in Jan 24, which is now ramping up.
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  Also, a hotel in Singapore picked up in Desun 24.
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  And then those two freehold limited service hotels in Japan,
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  Ibis Styles Tokyo Ginza and Shisun Budget Kanazawa Ekumai, acquired Jan 25.
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  That was a JPY 21 billion needle, about 178.5 million dollars.
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  Okay, so actively buying in specific markets.
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  But then you also mentioned divestments, selling things off.
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  That actually reduced revenue by about $14.5 million.
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  It did, yes. They sold hotels in Australia and Japan, some service residences
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  in Singapore, Japan, China. So the obvious question then is,
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  Why sell if it lures your revenue figure right now? What's the strategy?
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  Yeah, it seems counterintuitive at first glance, doesn't it?
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  But it's all about long-term value.
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  The strategy is to sell properties when they're, let's say, at the optimal point in their life cycle.
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  Maybe peak value, maybe they don't fit the future strategy anymore,
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  and then crucially, take that money and reinvest it into assets with better
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  potential returns, either new acquisitions or those AEIs.
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  For instance, those two new hotels they bought in Japan, they're projected to
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  actually increased the DPS by 1.6%. So the idea is that the new income will
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  be higher quality, more credo, more than making up for the income lost from
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  the four properties they sold in Japan previously.
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  It's about improving the overall portfolio yield. Right. It's like pruning a
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  plant to get stronger growth elsewhere.
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  Strategic capital recycling. And that brings us to the AEIs,
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  the Asset Enhancement Initiatives. That's the other big piece.
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  They finished six of these upgrades in 2024 and have more planned.
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  That's right. Six done last year. Three more planned for 2025.
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  And 2026, plus two others already announced. It's a continuous process.
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  One was just completed, you said, in Seoul.
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  Yes. The IBIS Ambassador Seoul in Sadang upgrade was completed in this first half of 2025.
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  Okay. And the total investment for the one still in the pipeline is pretty significant.
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  Around over $205 million total, with CLAS putting in about $145 million.
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  Correct. And these aren't just cosmetic touch-ups. They're designed specifically
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  to boost the property's value, make sure it meets current guest demands,
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  and ultimately lift its profitability.
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  It's investing to earn more down the line. Makes sense. Investing back into the core assets.
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  Beyond those big strategic moves, there were a few other financial points affecting the results.
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  Finance income, for example, was higher, mostly because they had more cash placed
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  in fixed deposits, smart cash management.
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  Okay. But on the flip side, finance costs also went up.
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  That was mainly interest expense from the loans they took out to pay for those
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  acquisitions we discussed. Right, the cost of funding growth.
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  Exactly. And operationally, staff costs rose too.
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  Partly annual pay increases, minimum wage impacts, sure, but also because they
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  hired more people for their in-house food and beverage operations.
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  That's a strategic choice. Potentially better control in margins,
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  but higher initial costs. Interesting.
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  Taking more control there. And one last significant item.
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  Foreign exchange. They had a gain of about $5.6 million in H1 2025.
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  Which is quite a turnaround from H1 2024 when they had a loss of over S6 million dollars.
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  Shows how currency swings can impact a global company's bottom line.
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  Yeah, FX is always a factor for these global players.
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  OK, one of the things that jumped out from the financials was the income tax
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  expense. It went up by 66 percent. That sounds like a lot. What's driving that?
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  It does look like a big jump. You're right to flag it.
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  It breaks down into a few parts. Part of it is simply higher current tax expense
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  because, well, they made more profit.
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  That's actually a good sign in a way. Higher profits often mean higher taxes.
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  There was also an increase in withholding tax on income from some foreign locations.
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  But a critical piece of that 66 percent increase was what's called a prior year
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  under provision of deferred tax expense.
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  OK, what does that mean in simpler terms? Basically, it's an accounting adjustment.
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  They had previously underestimated a future tax liability, and they had to correct
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  that estimate in this period's accounts.
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  So it's not all a reflection of this period's operations.
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  It's a mix of tax on current growth and fixing an old estimate,
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  not necessarily a recurring issue at that level. Ah, okay.
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  That context is important. It's not just a sudden massive tax hit on current earnings.
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  So we've covered the performance, the why behind it.
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  Now let's shift focus, looking ahead. How does CLAS look positioned for the
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  future, given everything?
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  Well, I think the word that comes to mind is resilient.
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  Despite, you know, ongoing global uncertainties, CLAS seems well supported.
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  And that comes back to that diversification we mentioned earlier.
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  Across geographies, across different types of lodging, across different contract
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  types, long stay, short stay, it really buffers them.
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  Plus, the fact that about two-thirds, 66% of their gross profit comes from stable
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  income sources, things like master leases or management contracts with minimum
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  guaranteed income, that provides a solid foundation.
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  That stability factor is key for investors, isn't it? Absolutely.
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  And their capital management looks very prudent, too.
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  Gearing their debt level is at 39.6%. That's comfortably below the 50% limit,
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  giving them lots of flexibility.
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  They've also been smart about managing interest rate risk. About 82% of their
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  borrowings are now at fixed rates.
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  Locking in rates in the current environment seems wise.
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  Definitely. It helps keep their average cost of debt quite low at 2.9% per year.
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  And their interest coverage ratio is healthy at 3.1 times they earn enough to
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  easily cover their interest payments.
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  They also highlighted having S1.46 billion dollars in cash and available credit
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  lines. And they're meeting all their debt agreement terms.
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  So financially, they look pretty solid. Okay, strong financial footing.
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  What about specific future projects? Anything major on the horizon besides the ongoing AEIs? Yes.
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  One really significant project is the redevelopment of the Somerset Service
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  residence at Clark Quay in Singapore.
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  It's a 192-unit property. This isn't just a refresh. It's a major redevelopment.
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  Slated for completion in 2026 and then reopening for operations in 2027.
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  That signals quite a bit of long-term value creation they're aiming for from
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  that prime location. It shows forward planning.
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  A big Singapore project. That will be one to watch. And something else that's
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  really fascinating and maybe points to where the industry is heading is how
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  CLAS is using sustainability-linked financing.
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  Okay, tell me more about that. How does that work? Well, they've secured several
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  loans and notes, a S-165 million revolving credit facility, a S-120 million
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  loan, plus $200 million and JPY $16.5 billion in notes.
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  And the key thing is, these aren't just standard loans. They are linked to specific
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  sustainability targets. Calls targets.
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  Things like reducing their greenhouse gas emissions intensity or achieving certain
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  green building certifications for their properties, like getting a four-star
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  GR ESB rating that's a major global benchmark for ESG and real estate.
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  And here's the really clever part. If they meet these targets,
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  they get financial benefits, like a lower interest rate margin on the loan,
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  or they might avoid paying an interest premium.
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  Wow, so they're directly linking their environmental performance to their cost of capital.
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  Exactly. It creates a powerful financial incentive to pursue their sustainability goals.
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  It aligns environmental responsibility directly with financial performance.
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  It's quite an innovative approach. That is genuinely interesting.
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  A tangible link between ESG and the bottom line.
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  Okay, so wrapping this up then. It feels like we have a much clearer picture
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  of Capital and Ascot Trust now.
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  We've seen their strong H1 2025 performance wasn't accidental.
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  It was driven by deliberate strategies, portfolio changes, those ADIs, solid operations.
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  We also looked at their careful financial management, keeping debt in check,
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  managing interest rates.
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  And that innovative use of sustainability-linked finance really stands out as
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  a forward-looking element. I certainly feel much better informed now.
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  It's been a good dive, and it does leave you with a key question, I think.
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  As the whole hospitality world keeps changing with new demands, new pressures,
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  will this model that CLAS has built, the wide diversification,
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  the active portfolio management, and the strong commitment to both financial
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  prudence and environmental sustainability,
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  will that turn out to be the winning blueprint for generating stable long-term
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  returns in the global logic market going forward?