25 April 2019

Activist Fund Urges Singapore REIT Merger to

Boost Value
 Ascendas Hospitality, Ascott Residence should merge: Quarz
 Deal could generate a potential gain for Ascendas of 35%

(Bloomberg) – Two Singapore REITs are being urged to join

the wave of consolidation starting to sweep the industry.

Ascendas Hospitality Trust and Ascott Residence Trust

should join forces to boost shareholder value and avoid
potential conflicts following a separate deal in January that
will see CapitaLand Ltd. gain ownership of the managers of
both REITs, according to Quarz Capital Management Ltd.

As part that transaction, CapitaLand will hold 45 percent of

Ascott units and about 28 percent of Ascendas Hospitality.
The firms’ overlapping investment mandates could lead to
corporate governance concerns, particularly when it comes
to acquisitions, Quarz said in a letter to the board of Ascendas Hospitality and obtained by Bloomberg News.

“Despite its prime asset base, Ascendas Hospitality trades at about a 10 percent discount to its net asset value,”
Quarz said in the letter. “We believe the continued undervaluation is due to its sub-optimal size.”

Spokespeople for Ascendas Hospitality, Ascott Residence and CapitaLand didn’t immediately respond to
queries seeking comment on the letter.

The push for a deal comes as other Singapore REITs join

forces. Earlier this month, OUE Commercial REIT agreed,
subject to various approvals, to buy OUE Hospitality Trust to
create one of Singapore’s 10 biggest REITs, giving the
combined entity greater firepower to make acquisitions.

Last year, ESR-REIT and Viva Industrial Trust merged to

create a larger logistics trust, and in January, developer
CapitaLand struck a S$6 billion ($4.4 billion) deal to buy
Temasek Holdings Pte units Ascendas Pte and Singbridge
Pte.

A merger between Ascendas Hospitality and Ascott would

create a firm with a market value of more than S$3.6 billion,
and total assets of S$7.2 billion, making it the eighth-largest
REIT in the city-state, Quarz said. That would qualify for inclusion in global benchmark indexes, potentially
boosting trading volumes and the share price, the fund said.

The recommendations would result in Ascendas Hospitality generating a potential return of more than 35
percent in capital appreciation and dividends in the mid to long-term, Quarz said.

Ascendas Hospitality shares were steady 90.5 Singapore cents, having gained 18 percent this year, beating the
benchmark Straits Times Index’s 9.4 percent rally. Ascott fell 0.8 percent, trimming gains since January to 10
percent.

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 25 April 2019

The enlarged trust would also have increased financial

flexibility to make larger acquisitions and “establish itself as
market leader in new and lucrative hospitality formats,”
Quarz said. Ascendas Hospitality owns hotels in Tokyo,
Osaka, Seoul and Sydney, while Ascott has a portfolio of
hotels targeting business travelers.

Pooja Thakur Mahrotri

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