Is Ascott Residence Trust Worth Looking At After Its Latest Acquisitions?

Ascott Residence Trust

Ascott Residence Trust  (SGX: A68U) is a real estate investment trust with a focus on hospitality-related assets and is one of the largest REITs of its kind listed here in Singapore. The REIT is managed by CapitaLand  (SGX: C31), one of the largest property developers in the Southeast Asian region.

Ascott Residence Trust’s hospitality assets are located in a dozen countries (including Singapore, China, Spain, and Japan amongst others) and are operated under the Ascott, Citadines and Somerset brands.

First step into Malaysia

The REIT had recently announced that it will be acquiring three properties in Malaysia and China for a total sum of S$173.9 million.

In Malaysia, Ascott REIT would be acquiring Somerset Ampang Kuala Lumpur from The Ascott Limited, a fully-owned subsidiary of CapitaLand, for RM175 million (around S$67.4 million). This marks the first residential property that the REIT owns in Malaysia, thus expanding the REIT’s geographical footprint to 13 countries from the current 12. Somerset Ampany Kuala Lumpur targets mainly corporate travellers and the REIT expects the property to be well-positioned for growth given Malaysia’s attempt to attract more foreign investors into the country.

The REIT will also be purchasing two more properties in China in the cities of Wuhan and Xi’an. The properties are the Citadines Zhuankou Wuhan and Citadines Gaoxin Xi’an and they would cost the REIT S$51.4 million and S$55.1 million respectively. Ascott REIT is buying the pair of properties from the Ascott Serviced Residence (China) Fund, of which The Ascott Limited owns a 36% stake.

Financial impacts

Ascott REIT is expected to borrow to finance the purchase of the three properties.

Based on the REIT’s number crunching, the pro-forma financials for the REIT (prepared using the REIT’s financials as of 31 December 2013) shows no change in its net-asset value before and after the acquisition. The REIT’s total asset value, however, would increase by 5.3% from S$3.8 billion to S$4.0 billion.

Meanwhile, the REIT’s distributions – one of the most important aspects of a REIT for investors – would increase. With the acquisition, the REIT’s numbers show that its distributions per unit would be increased from S$0.084 to S$0.0881; this would also increase Ascott REIT’s distribution yield from 6.7% to 7.0% based on its current price of S$1.255.

Foolish Summary

The acquisition looks like good news for the REIT’s unit-holders as it does not require any additional input of capital from them. In addition, distributions would also increase on a per-unit basis due to the extra income from the three new properties.

But that said, given that the acquisition is relatively small compared to the overall size of Ascott REIT’s portfolio, there would likely not be any game-changing positives stemming from the acquisition.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.