SINGAPORE (July 4): CapitaLand has wasted no time in merging Ascott Residence Trust (ART) with Ascendas Hospitality Trust (AHT) following the completion of the acquisition of Ascendas-Singbridge last week.
Ascott Residence Trust and Ascendas Hospitality Trust combining to form $7.6 bil behemoth
Under a scheme of arrangement, ART will acquire all AHT stapled units for $1.24 billion or $1.0868 per unit, based on ART's share price of $1.30.
AHT unitholders will get $0.0543 in cash and 0.7942 ART unit for each AHT unit they own.
With the acquisition, ART will become the largest hospitality trust in Asia Pacific with assets under management rising to $7.6 billion from $5.7 billion.
ART will add 14 quality hotels in Asia Pacific from AHT, 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 US. It will also further diversify ART’s global portfolio with forays into new gateway cities – Brisbane and Seoul.
So what do analysts have to say about the merger?
CGS-CIMB Research lead analyst Eing Kar Mei says ART’s enhanced scale, liquidity and developed markets focus will help facilitate its inclusion into FTSE EPRA NAREIT Developed Index, in addition to enhancing portfolio diversification and benefits from an owner-operator platform.
As a proxy for the hospitality sector in Asia Pacific, the combined entity will derive 82% of its EBITDA from developed markets. ART’s free float will also increase by 50% to $2.4 billion, exceeding index inclusion threshold of $1.7 billion.
Maybank KimEng analyst Chua Su Tye says ART’s debt headroom will rise from $0.8 billion to $1.0 billion, on the back of the 37.2% and 36.0% increases in revenue and gross profit.
“We see limited risk to the deal closure, as AHT’s units have suffered from low liquidity, and will likely gain from a larger sponsor,” says Chua, adding “Revenue and cost synergies from its expanded AUM, driven by a rebranding of AHT’s properties with the expiry of its master leases, could support medium term DPU upside.”
UOB KayHian lead analyst Jonathan Koh says ART’s presence in Asia Pacific, where demand for business and leisure travel is robust, should strengthen by 11% to account for 71% of portfolio valuation.
ART’s freehold properties will expand by 8% to account for 61% of portfolio valuation, says Koh, and no country will contribute more than 20% gross profit for pro-forma 2018.
The merged entity will continue to have a balanced mix of stable and growth income with gross profit breakdown of 54% from management contracts, 36% from master lease, and 10% from management contracts with minimum guaranteed income.
Maybank and CIMB are keeping their “hold” calls while waiting for clearer signs of synergies and pending inclusion of AHT’s earnings. UOB is maintaining its “buy” call with $1.48 target on existing earnings forecasts.
As at 3.44pm, units in ART are trading at 3 cents higher at $1.31 while units in AHT are trading 2 cents higher at $1.06.
