Ascott REIT and Ascendas Hospitality Trust propose merger to create largest hospitality trust in APAC

It will comprise 88 properties across 15 countries with an asset value of $7.6b.

Ascott Residence Trust (Ascott Reit) and Ascendas Hospitality Trust (A-HTRUST) have announced a proposed combination, which will result in the combined entity becoming the largest hospitality trust in Asia Pacific (APAC) with an asset value of $7.6b.

The combined entity will also become the seventh largest trust listed on the Singapore Exchange (SGX) by asset value. The total consideration for the combination is $1,24b, comprising $61.8m in cash and 902.8 million new Ascott Reit-BT stapled units.

Also read: REITs and tech firms drive Singapore's M&A frenzy

As the largest hospitality trust in Asia Pacific, its earnings before interest, tax, depreciation and amortisation (EBITDA) 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 combination will be effected by way of a trust scheme of arrangement, with Ascott Reit acquiring all the A-HTRUST stapled units for $1.0868 apiece, 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 unit.

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. Ascott Reit will also acquire all the unstapled units in A-HTRUST REIT, whilst Ascott BT will acquire all the unstapled units in AHTRUST BT. A-HTRUST will then be delisted.

Also read: Quarz Capital urges merger between Ascendas Hospitality Trust and Ascott Residence Trust

The transaction brings together Ascott Reit’s global portfolio that comprises predominantly serviced residences and A-HTRUST’s 14 hotels in the region, creating an enlarged portfolio of 88 properties with more than 16,000 units in 39 cities and 15 countries across APAC, Europe and the US. It will also further diversify Ascott Reit’s global portfolio with new gateway cities, Brisbane and Seoul.

The pro forma gross revenue for the combined entity for FY 2018 will reportedly jump 37% to approximately $705m whilst the pro forma FY 2018 gross profit will rise 36% to about $325m. APAC 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.

According to Bob Tan, Ascott Residence Trust Management’s chairman, Ascott Reit as a combined entity will see its asset value climb 33% to $7.6b and its distribution per unit (DPU) edge up 2.5% for FY 2018 on a pro forma basis.

“With access to a larger capital base and a higher debt headroom of about $1b, we will have greater financial flexibility to seek more accretive acquisitions and value enhancements,” he said.

Also read: Ascott REIT profits leapt 12% to $54.62m in Q1

The proposed transaction is subject to approval of the Ascott Reit unitholders and A-HTRUST stapled unitholders at their respective extraordinary general meetings (EGM) and scheme meetings expected to be held in 2019.

Citigroup Global Markets Singapore and Morgan Stanley Asia (Singapore) 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.