Ascott Residence Trust (Ascott Reit) and Ascendas Hospitality Trust (A-HTRUST) today jointly announced a proposed combination, which will result in the combined entity becoming the largest hospitality trust in Asia Pacific1 , and the eighth largest globally1
, with an asset value of S$7.6 billion (the “Combination”). The combined entity will also become the seventh largest trust1 listed on the Singapore Exchange by asset value.
The total consideration for the Combination is S$1,235.4 million, comprising S$61.8 million in cash and 902.8 million new Ascott Reit-BT Stapled Units2 . The Combination will be effected by way of a trust scheme of arrangement, with Ascott Reit acquiring all the A-HTRUST
Stapled Units for a consideration of S$1.0868 per A-HTRUST Stapled Unit, comprising S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units issued at a price of S$1.30. The consideration is based on a gross exchange ratio of 0.836x, derived from the audited net asset
values (NAV) per A-HTRUST Stapled Unit and Ascott Reit Unit3
.
The transaction brings together Ascott Reit’s global portfolio that comprises predominantly serviced residences and A-HTRUST’s 14 quality hotels in Asia Pacific, creating an enlarged portfolio of 88 properties with more than 16,000 units in 39 cities and 15 countries across Asia Pacific, Europe and the United States of America. It will also further diversify Ascott Reit’s global portfolio with foray into new gateway cities – Brisbane and Seoul.
Mr Bob Tan, Ascott Residence Trust Management Limited’s Chairman, said: “The Combination is a win-win for both Ascott Reit’s and A-HTRUST’s unitholders. Ascott Reit as a combined entity will see our asset value grow by 33% to S$7.6 billion and our Distribution
per Unit increase by 2.5% for FY 2018 on a pro forma basis. The combined entity will have a higher proportion of stable income derived from master leases; well balanced by growth income derived from management contracts. With access to a larger capital base and a higher debt headroom of about S$1.0 billion, we will have greater financial flexibility to seek more accretive acquisitions and value enhancements. The combined entity can then be strategically positioned to potentially enjoy a positive re-rating of the unit price and gain a wider investor base, which would be beneficial to all our unitholders.”
Ms Beh Siew Kim, Ascott Residence Trust Management Limited’s Chief Executive Officer, said: “The Combination is in line with Ascott Reit’s commitment to deliver stable returns to unitholders through continual portfolio optimisation. It will present us with an enlarged
capacity to acquire more quality assets as well as undertake more development and conversion projects, thereby increasing their asset values over time – all with an aim to bring about greater income stability through a resilient and well-diversified portfolio. Earnings contribution from developed countries is expected to increase to 82% on a pro forma basis. This will facilitate the inclusion of Ascott Reit into the FTSE EPRA Nareit Developed Index4 and potentially result in higher trading liquidity and a larger investor base for us.”
Mr Chia Kim Huat, Lead Independent Director of the A-HTRUST Managers, said: “The combined entity would be well-positioned to benefit from a strong sponsor in CapitaLand and its lodging unit, The Ascott Limited. The Combination is a transformational transaction
consistent with A-HTRUST’s strategy to create a stronger, diversified and resilient platform that will deliver sustainable growth to investors. The combined entity will be CapitaLand’s sole listed hospitality trust platform with an enlarged portfolio and mandate to invest globally.
It will also become Asia Pacific’s largest hospitality trust, raising its profile amongst the investment community and increasing its funding flexibility, setting it up for long-term success.”
Commenting on the transaction, Mr Tan Juay Hiang, Chief Executive Officer of the A-HTRUST Managers, said: “The Combination, which will see the addition of 14 quality properties from A-HTRUST to the combined entity, would be a landmark event in the
development of both A-HTRUST and Ascott Reit. The enlarged portfolio will be further diversified with no single country accounting for more than 20% of gross profit, thereby reducing concentration risk. Besides being Distribution per Unit-accretive for the A-HTRUST
Stapled Unitholders, the Combination will result in a significant increase in market capitalisation and free float for the enlarged trust, thereby enhancing the combined entity’s flexibility and ability to drive growth.”
Transaction Structure
A-HTRUST is a stapled group comprising Ascendas Hospitality Real Estate Investment Trust (A-HTRUST REIT) and Ascendas Hospitality Business Trust (A-HTRUST BT). Ascott Reit will establish Ascott Hospitality Business Trust (Ascott BT) and all the units in Ascott Reit
will be stapled with the units in Ascott BT to form a stapled trust. Pursuant to the trust scheme of arrangement, all the units in A-HTRUST will be unstapled, Ascott Reit will acquire all the unstapled units in A-HTRUST REIT and Ascott BT will acquire all the unstapled units in AHTRUST BT, and A-HTRUST will then be delisted.
Rationale for Proposed Transaction
1. Proxy hospitality trust in Asia Pacific As the largest hospitality trust in Asia Pacific, the enlarged scale will enhance its attractiveness
to the investment community with a greater capital pool and facilitate better access to competitive sources of funding. The pro forma gearing of the combined entity will be 36.9%, a level well below the regulatory gearing limit of 45%. This represents an available debt
headroom of about S$1.0 billion, which will provide for greater financial flexibility to drive growth.
The combined entity’s free float will increase by approximately 50% to S$2.4 billion 5. Its EBITDA6 contribution from developed countries is expected to increase to 82% on a pro forma basis. This will facilitate the inclusion of the combined entity into the FTSE EPRA Nareit
Developed Index, leading to higher trading liquidity. The combined entity could also potentially enjoy a positive re-rating of its unit price and gain a wider investor base.
2. Enhanced portfolio With the addition of 14 quality, predominantly freehold properties in developed markets, the profile of the combined entity will be more attractive with the freehold component increasing to about 61% of the total portfolio valuation.
The combined entity will comprise a well-diversified portfolio of 88 properties and over 16,000 units in 15 countries in Asia Pacific, Europe and the United States of America. The pro forma gross revenue for the combined entity for FY 2018 will increase by 37% to approximately
S$705 million while the pro forma FY 2018 gross profit will increase by 36% to about S$325 million.
It will also enjoy a stronger presence in Asia Pacific, where accommodation continues to be underpinned by the growing middle-income demographics, increasing tourism and economic activities, as well as infrastructure development. Asia Pacific will make up about 71% of its total portfolio valuation and contribute 68% of its gross profit, with a balance between stable and growth income. No single country will contribute more than 20% of its gross profit on a historical pro forma basis.
By 2030, Asia will account for more than two-thirds of the global middle-class population7 .
The growing affluence of the middle-class and low-cost carrier services in the region has led to strong growth in domestic and international tourist arrivals8 . The share of international in 20309
.
3. DPU accretive to unitholders
The proposed deal will be Distribution per Unit (DPU) accretive on a historical pro forma basis for both Ascott Reit Unitholders and A-HTRUST Stapled Unitholders. The pro forma DPU for Ascott Reit would have increased 2.5% from 7.16 cents to 7.34 cents and the DPU for AHTRUST would see an accretion of 1.8% from 6.03 cents to 6.14 cents. On an adjusted pro forma basis, the NAV per Unit for the Combination is expected to be neutral9
.
Approvals required
The proposed transaction is subject to approval of the Ascott Reit Unitholders and A-HTRUST Stapled Unitholders at their respective Extraordinary General Meetings and scheme meetings expected to be held by this year.
Financial & legal advisers
Citigroup Global Markets Singapore Pte. Ltd. and Morgan Stanley Asia (Singapore) Pte. are the financial advisers to the Managers of Ascott Reit and A-HTRUST respectively for the proposed deal. Allen & Gledhill LLP and WongPartnership LLP are acting as legal counsels
to the Managers of Ascott Reit and A-HTRUST respectively.
