CapitaLand Proposes Merger to Create S$7.6B Super Ascott REIT

A proposed consolidation of two CapitaLand-sponsored real estate investment trusts is set to create the largest hospitality trust in Asia Pacific, according to a joint announcement by the REIT managers.

Southeast Asia’s largest real estate group is proposing to merge Ascott Residence Trust (Ascott REIT) and Ascendas Hospitality Trust (A-HTRUST), with the combined publicly traded real estate funds holding assets valued at S$7.6 billion ($5.61 billion).

The trust merger was proposed just three days after CapitaLand announced the completion of its merger with Ascendas-Singbridge, the sponsors of A-HTrust, with this latest merger set to create the seventh largest trust listed on the Singapore stock exchange, and the eighth largest globally.

Ascott REIT Asset Value to Grow by 33%

The proposed combination of the two REITs will be carried out under a trust scheme of arrangement, with Ascott Reit acquiring all the stapled units of the A-HTRUST at a per unit price of S$1.0868, based on S$0.0543 in cash and 0.7942 Ascott Reit-BT stapled units priced at S$1.30.

The total consideration for the transaction, which is dependant on the approval of unitholders, is S$1.2 billion, comprising S$61.8 million in cash and 902.8 million new Ascott Reit-BT stapled units.

“The combination is a win-win for both Ascott REIT’s and A-HTRUST’s unitholders,” said Bob Tan, Ascott Residence Trust Management Limited’s chairman. “Ascott Reit as a combined entity will see our asset value grow by 33 percent to S$7.6 billion and our distribution per unit increase by 2.5 percent for the fiscal year 2018 on a pro forma basis.”

The supersized trust is expected to enjoy improved access to funding, while the merger is also expected to expand Ascott REIT’s debt headroom to approximately S$1 billion with the post-merger vehicle to have pro forma gearing of 36.9 percent.

“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,” said Beh Siew Kim, Ascott Residence Trust Management Limited’s chief executive officer, in relation to the proposed merger.

Asia Hotels Pull Ascott REIT Closer to Home

The merger of the two trusts will would add A-HTrust’s S$1.8 billion in hotels, which are located in Australia, Japan, South Korea and Singapore, to Ascott REIT’s S$5.7 billion portfolio, which is dominated by CapitaLand branded serviced residences, operated under the Ascott, Citadines and Somerset nameplates.

The total number of assets in the combined REIT will rise to 88 properties across 15 countries in Asia Pacific, Europe and the US, increasing the pro forma gross revenue for the combined entity by 37 percent over Ascott REIT’s gross revenue last year to S$705 million, while the pro forma gross profit will increase by 36 percent to about S$325 million.

The proposed super REIT will also be more heavily weighted to Asia Pacific, which will make up about 71 percent of its total portfolio asset valuation, while no single country will contribute more than 20 percent of its gross profit on a historical pro forma basis.

Reaping the Benefits of CapitaLand’s Reach

The proposed transaction comes three days after CapitaLand completed its acquisition of Temasek-owned developer Ascendas-Singbridge for an estimated S$11 billion, which created one of Asia’s largest real estate groups with assets under management of over S$123 billion.

“The combined entity would be well-positioned to benefit from a strong sponsor in CapitaLand and its lodging unit, The Ascott Limited,” said Chia Kim Huat, lead independent director of the A-HTRUST managers, adding that the combined entity will be CapitaLand’s sole listed hospitality trust platform with an enlarged portfolio and mandate to invest globally.