SINGAPORE (July 3): Ascott Residence Trust (ART) and Ascendas Hospitality Trust (AHT), both members of the CapitaLand group after its acquisition of Ascendas-Singbridge, are proposing a deal which will result in the combination of both entities into one.

See: CapitaLand and Ascendas-Singbridge in $11 bil deal to create Asia’s largest diversified real estate group

The combined entity will become the largest hospitality trust in Asia Pacific and the 8th largest globally, with an asset value of $7.6 billion.

It will also become the seventh largest trust listed on the Singapore Exchange by asset value.

See also: Quarz Capital proposes merger of Ascendas Hospitality Trust and Ascott Residence Trust

The total consideration of the deal is $1.235 billion, comprising $61.8 million in cash and the issue of 902.8 million new Ascott REIT-BT stapled units.

ART will acquire all AHT stapled units at $1.0868 each, comprising $0.0543 in cash and 0.7942 Ascott REIT-BT stapled units issued at a price of $1.30.

The transaction brings together ART’s global portfolio that comprises predominantly serviced residences and AHT’s 14 quality hotels in Asia Pacific, 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 Brisbane and Seoul.

The proposed deal is said to be DPU accretive on a historical pro forma basis for both ART and AHT unitholders. The pro forma DPU for ART would have increased 2.5% from 7.16 cents to 7.34 cents and the DPU for AHT would see an accretion of 1.8% from 6.03 cents to 6.14 cents.

In addition, the pro forma gearing of the combined entity will be 36.9%, below the regulatory gearing limit of 45%. This represents an available debt headroom of about $1 billion, which will provide for greater financial flexibility to drive growth.

The combined entity’s free float will also increase by 50% to $2.4 billion. Its 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 combined entity could also potentially enjoy a positive re-rating of its unit price and gain a wider investor base,” says the duo in a joint announcement.

The proposed transaction is subject to approval of both ART and AHT unitholders.

Units in ART and AHT closed at $1.31 and $0.98 on Tuesday.