• ASCOTT RESIDENCE TRUST (SGX:A68U) and ASCENDAS HOSPITALITY TRUST (SGX:Q1P) propose a combination via a scheme of arrangement.
• Positive benefits from DPU, inorganic growth and equity perspectives.
• Maintain HOLD; Target Price unchanged at S$1.15.

Combining ART and ASCHT

• ASCOTT RESIDENCE TRUST (SGX:A68U) and ASCENDAS HOSPITALITY TRUST (SGX:Q1P) have announced a proposed combination via a scheme of arrangement.
• Under the structure, Ascott Residence Trust will acquire all the stapled units in Ascendas Hospitality Trust and the latter will be delisted. The deal is subject to approvals from both sets of unitholders via EGMs scheduled in Oct 19; the combination exercise is expected to be completed by Dec 19.

Scheme Consideration of S$1.0868/ASCHT Stapled Unit

• The combination will be effected through a scheme of arrangement for a consideration of S$1.0868/Ascendas Hospitality Trust stapled unit comprising S$0.0543 in cash and 0.7942 units in Ascott Residence Trust at an issue price of S$1.30. The scheme consideration is arrived based on a gross exchange ratio of 0.836x, based on Ascott Residence Trust’s Dec 18 BV of S$1.22 and Ascendas Hospitality Trust’s Mar 19 BV of S$1.02.

DPU Accretive Deal; Potential Upside Kicker From Index Inclusion

• The transaction will leapfrog Ascott Residence Trust to become the Asia Pacific, the combined entity will NAREIT developed index.
• In addition to enhancing portfolio headroom.
• The deal will also be DPU accretive with a proforma 2.4% and 1.8% boost to Ascott Residence Trust’s FY18 and Ascendas Hospitality Trust’s FY3/19 DPUs, respectively.

Maintain HOLD

• We leave our DPU estimates unchanged pending inclusion of Ascendas Hospitality Trust’s earnings, post completion. Our DDM-based Target Price remains at S$1.15. Ascott Residence Trust is currently trading at 5.4% FY19-20F (before adjustments) DPU yield. Retain our HOLD rating for now.
• Upside risks include successful completion of Ascendas Hospitality Trust combination and inclusion into the FYSE EPRA NAREIT developed index; downside risks include dampened demand due to slower macro growth outlook.

Source: CGS-CIMB Research - 3 Jul 2019