Ascott Reit and A-HTRUST on proposed combination at SIAS dialogue sessions
Ascott Residence Trust and Ascendas Hospitality Trust highlighted merits of proposed combination at SIAS dialogue sessions
Combined entity to cement position as the largest hospitality trust in Asia Pacific
Singapore, 14 October 2019– Ascott Residence Trust (Ascott Reit) and Ascendas Hospitality Trust (A-HTRUST) held their respective dialogue sessions with unitholders facilitated by Securities Investors Association (Singapore) (SIAS) to proactively engage retail unitholders on their proposed combination. There was a good turnout with a total of over 300 retail investors attending the two townhall meetings held separately on 10 and 11 October 2019.
Ms Beh Siew Kim, Ascott Residence Trust Management Limited’s Chief Executive Officer, and Mr Tan Juay Hiang, Chief Executive Officer of the A-HTRUST Managers, took attendees through the merits of the proposed combination and how the combined entity will create value for unitholders. They also addressed unitholders’ queries and feedback via Q&A sessions moderated by Mr David Gerald, President and Chief Executive Officer of SIAS, and Mr Richard Dyason, General Manager of SIAS, at dialogue sessions of Ascott Reit and A-HTRUST respectively.
The following points were discussed during the sessions:
Largest hospitality trust in Asia Pacific
“The proposed combination of Ascott Reit and A-HTRUST creates value for unitholders, and is a marriage made in heaven. This S$1.9 billion transaction will cement Ascott Reit’s position as the largest hospitality trust in Asia Pacific with an asset value of S$7.6 billion. Amongst the Singapore real estate investment trusts (REITs), we will be the largest hospitality trust, 2.5 times larger than the next hospitality trust by asset size. The combined entity will continue to be named Ascott Residence Trust with a global mandate to acquire hospitality or lodging assets in any part of the world. Besides Asia Pacific, we will also keep a lookout for quality assets in Europe and the USA.”
- Ms Beh Siew Kim, Ascott Residence Trust Management Limited’s Chief Executive Officer
Mr Tan said: “The combined entity will be the proxy hospitality trust in Asia Pacific and will likely be one of the first stocks that investors look at if they want to invest in a hospitality trust in Asia Pacific.”
Enhanced portfolio diversification and capacity for growth
Ms Beh said: “We are acquiring a quality portfolio of 14 properties in key gateway cities in Asia Pacific and will strengthen our financial capacity for future growth. With S$1 billion debt headroom, we will have more opportunities to continue acquiring quality assets, enhancing our properties and undertaking development or conversion projects. Most importantly, this is distribution per unit (DPU) accretive on a pro forma basis.
Ms Beh said: “The combined entity’s well-diversified, global portfolio will help generate sustainable, stable income to unitholders. With 88 properties across 15 countries and 39 cities, each country contributes less than 20% of total gross profit, and each property contributes less than 5% to gross profit.”
Win-win proposition accretive to distribution per unit
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 (5%) in cash and 0.7942 (95%) Ascott Reit-Business Trust stapled units issued at a price of S$1.30. The consideration is predominantly based on a gross exchange ratio of 0.836x, derived from the latest audited net asset values (NAV) per A-HTRUST stapled unit and Ascott Reit unit.
Ms Beh said: “The proposed combination is a win-win for both unitholders of Ascott Reit and A-HTRUST. On a FY2018 pro forma basis, the combination is 2.5% accretive to Ascott Reit’s DPU and largely neutral on the NAV per unit.”
Mr Tan said: “A-HTRUST unitholders will receive a cash component, which is 5% of the consideration, and get to enjoy potential upside from the new stapled units as the combined entity continues to grow and develop. The transaction is a 1.8% accretion to A-HTRUST’s FY2018/19 distribution per stapled security on a pro forma basis. The consideration also presented a premium to the Initial Public Offering (IPO) price of A-HTRUST as well as historical trading price of A-HTRUST stapled securities.”
Mr Tan added: “The combination of A-HTRUST with Ascott Reit allows us to further explore opportunities to improve the earnings of the assets, such as undertaking substantial works on the assets for repositioning or maximising of space, which may be more disruptive to the earnings of a smaller portfolio. These are not factored in the pro forma DPU, so there is definitely upside potential.”
Continue to provide stable income as stapled units
Ms Beh said: “Under the combined entity, Ascott Reit will create a business trust and will trade as a stapled unit comprising both REIT and business trust components going forward. Existing Ascott Reit unitholders will continue to own units they have post combination, which will be traded as stapled units. Unitholders need to vote for the transaction and once unitholders’ approval are obtained, the business trust units will be stapled with the existing REIT units.”
“Post combination, we will still comply with Monetary Authority of Singapore’s guidelines, including those pertaining to gearing and limit for development. The combined portfolio will comprise a balanced mix of stable and growth income, with approximately 50% gross profit generated from master leases and management contracts with minimum guaranteed income, as well as 50% from management contracts.”
Ms Beh added: “Since the IPO in 2006, Ascott Reit has transformed over the past 13 years with unitholder returns totalling over 300% and unit price going up by more than 20% year-to-date. The combined entity will remain committed to growing stable returns to our unitholders.”
Positive market outlook on Asia Pacific
Ms Beh said: “Post-combination, more than 70% of the portfolio value will be in Asia Pacific, which has a lot of growth potential as demand for business and leisure travel remains robust. Asia Pacific is the fastest growing economic region, underpinned by strong macroeconomic conditions, tourism boom and rising middle-income demographics. Our growth strategy is to expand in key gateway cities, predominantly in developed markets and Asia.”
Mr Tan gave an optimistic view of the long-term prospects of Australia. He noted that Melbourne, a destination with major international events, as well as Sydney, a business hub, will continue to attract travellers. He added that Brisbane has a multi-billion-dollar integrated resort development coming up in the next few years, which can help drive both domestic and international travellers into the city.
Mr Tan also pointed out the continual attractiveness of Japan as a tourism destination, being a host country to major events such as the 2019 Rugby World Cup, 2020 Olympic Games and 2025 World Expo.
Higher trading liquidity and lower cost of capital
Ms Beh said: “Size and scale matter. Trusts with bigger market capitalisation tend to trade better and at a higher volume. Post-combination, the free float of the combined entity is expected to increase by about 50%. This will facilitate our inclusion into the FTSE EPRA Nareit Developed Index which will offer us higher trading liquidity, a larger investor base and lower cost of capital.”
Mr Tan said: “Certain institutional investors tend to invest in stocks that are included in indexes. When the combined entity is included in the FTSE EPRA Nareit Developed Index, it will potentially enjoy higher trading volume, attract more investors and greater analyst coverage, which may result in a positive re-rating.”
Ms Beh said: “The combined entity will be CapitaLand’s sole listed hospitality trust platform and is well-positioned to benefit from a strong sponsor in CapitaLand’s lodging unit, The Ascott Limited (Ascott). One of the leading international lodging owner-operators, Ascott has over 30 years of strong management expertise and a global network of over 700 properties across more than 180 cities. The combined entity will also benefit from Ascott’s investment in resources and technology to ensure brand loyalty, customer stickiness and operational efficiencies.”
Management team of combined entity
Both CEOs mentioned that the team from A-HTRUST will join either Ascott or CapitaLand.
Every vote matters
Both CEOs called upon unitholders of Ascott Reit and A-HTRUST to cast their votes for the proposed combination at the respective Extraordinary General Meetings (EGMs) and Scheme Meetings at Raffles City Convention Centre on Monday, 21 October 2019. Proxy forms are to be submitted by Saturday, 19 October 2019.
Ms Beh said: “Every vote counts. This transaction can only go through if we have the majority support of individual unitholders like you. We need your approval for the various resolutions at the EGMs and Scheme Meetings. We need your vote, no matter the number of units you hold.”
Mr Tan added that it is important for unitholders to vote at the meeting in person or by proxy as every individual unitholder can make a difference.
For both Ascott Reit and A-HTRUST, the respective independent financial advisors have given their recommendations to vote in favour of the proposed transaction.
Trading of new stapled units
If the proposed combination of Ascott Reit and A-HTRUST is approved by unitholders at their respective EGMs and Scheme Meetings, the new Ascott Reit-Business Trust stapled units under the combined entity are expected to begin trading on the Singapore Exchange on Thursday, 2 January 2020.
Watch the video for the top five reasons unitholders should vote for the proposed combination of Ascott Reit and A-HTRUST.
Both CEOs interacted with unitholders of Ascott Reit and A-HTRUST after the SIAS dialogue sessions ended.
 The proposed combination of Ascott Reit and A-HTRUST is subject to unitholders’ approval at their respective Extraordinary General Meetings and Scheme Meetings to be convened on Monday, 21 October 2019.