Combination of Ascott REIT and Ascendas Hospitality Trust

People are sort of expecting this to happen but this was simply too sudden! Given that the Ascendas-Singbridge acquisition just completed a few days ago?! Anyway, I am not sure why they are calling it a combination instead of a merger but I guess it is because they already owned it?

What is Happening?

Ascott REIT shareholders:
Nothing to get too excited about.

Ascendas Hospitality Trust shareholders:
Ascott REIT will be buying over your shares! This will comes in the form of $0.0543 cash/dividends + 0.7942 of new Ascott REIT-BT shares. Value unlocked? It really depends on how one looks at it.

Let's look back at one of our posts where I blogged about the open letter by Quarz Capital in our Portfolio - April 2019 and decided to buy more Ascott REIT.

As you can see, the offer is pretty similar to what Quarz Capital proposed - a mixture of cash (lesser) and Ascott REIT share (more) offer at a 5-10% premium to book value. In my opinion, the offer is quite fair and it does unlock the value for Ascendas Hospitality Trust. The next question will be is this better for Ascott REIT and/or Ascendas Hospitality Trust shareholder?

NAV and DPU

During such event (acquisition/merger), they will always market that it is good for the shareholders but it is not always the case e.g. Another Bad Deal - Merger of OUE Commercial REIT & OUE Hospitality Trust. One glance on the presentation slides or newspaper article will reveal that DPU will improve for both Ascott REIT and Ascendas Hospitality Trust shareholders.

Based on the closing price on 2nd July before the announcement

With more assets and "better" branding, it should be expected/normal for the new entity to trade at higher PB. Unfortunately, the dividend yield actually decreases for Ascendas Hospitality Trust shareholders. The dividend yield increases for Ascott REIT shareholders. On a side note, the pro forma NAV should have been $1.21, decrease by $0.01 including all the fees/costs but I found it amusing that they only stated that in the fine print and marketed it as DPU accretion, NAV neutral. lol.

Arbitrage Opportunity

Based on the latest closing price of both shares on 3rd July 2019, buying Ascendas Hospitality Trust still provides an estimated 2.96% return (before fees/commissions and higher return if annualized). Technically, both prices should be "supported" by this combination - Ascott REIT ~$1.30 and Ascendas Hospitality Trust ~$1.08. So whenever Ascott REIT price is > $1.30 or Ascendas Hospitality Trust price is < $1.08 are buying opportunities...

Having said that, nothing is stopping Trump from pulling any stunt that will lead to the whole market turning red again. In addition, with both stock prices at an all-time high, the chances of them falling is definitely much higher.

Indicative Timeline

Simply buying Ascendas Hospitality Trust when it is below $1.08. What's the risk? If you look at the indicative timeline, you will know that it is not happening immediately and has to be voted by the shareholders during the October 2019 EGM. There is a possibility of it not happening. Imagine market sentiment turns weak and Ascott REIT price falls to $1.10 (back in December 2018). The combination/merger will be an immediate loss for Ascendas Hospitality Trust shareholders!

Odd Lots

If you are wondering if there is any way NOT to end up with odd lots, the answer is going to disappoint you. You will almost definitely end up with odd lots but you can definitely try to end up with the least odd lots. A realistic example - if you have 3000 Ascendas Hospitality Trust shares now, you can buy 400 more shares so that you will be given 2700 Ascott REIT shares. This will only make sense if you have no minimum commission. Otherwise, you will be better off with odd lots.

I would have preferred more cash to be paid out vs getting new Ascott REIT shares at $1.30. Oh well, we are sitting on decent profits for both stocks so not going to complain further. So will you buy or bye?

You can find the spreadsheet here:
- Combination of Ascott REIT and Ascendas Hospitality Trust Calculator

You can refer to the official announcements here:
- Ascott REIT Announcements
- Presentation Slides

Do like any of the following for the latest update/post!
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Portfolio - April 2019

Long overdue post because I was on vacation! Just came back from a Europe Trip with my family a few days ago. It was nice to be able to spend time and travel with my parents (it has been a long long time since we travelled overseas). Unfortunately, the trip was not perfect because Europe just isn't safe. We bought a Prada handbag (Euro $630 = ~S$945) at Designer Outlet Parndorf on day 6, kept it in the luggage (locked whenever we leave the room or on the tour bus). We were trying to repack the night before our flight back home only to discover that it has magically disappeared from our luggage on day 9. Tried to make a police report (to file for insurance) in Munich but the police officer refused/rejected us because the suspected loss was not in the same country (we were in Austria from day 6 to 8 and Germany on day 9). Oh well, Europe remains one of my least favorite places.

Our portfolio increase by 2.65% to $410,873 - $3,803.44 of capital injection and $6,805.98 of capital gain. The one in blue is the StashAway portfolio, green is SGX and the total is in black.

If you prefer to look at numbers, this is the raw data used to generate the above bar graph. These numbers are as of the last day of the month.

"Cash Flow" is the amount of money being injected/withdrawn from the portfolio (buying stocks = +ve cash flow while selling stocks and collecting dividends = -ve cash flow)

SOLD
None

BOUGHT
- Ascott REIT (3,400 units) @ $1.18

After selling Hong Fok last month, we wanted to redeploy the money back into the market.  Assuming if the DPU remains the same going forward, the dividend yield should be around 6.07% and that is above our target. It is worth noting that Ascott REIT and Ascendas Hospitality Trust is in a pretty interesting spot after CapitaLand acquired Ascendas-Singbridge. There is also an open letter by Quarz Capital proposing to merge these 2 REITs due to their overlapping investment mandate.

Dividends
The total dividends collected this month is $3,101.95. The breakdown is as follows:

Company	Symbol	ExDate	Shares	Total
Frasers Commercial Trust	ND8U	30-Apr-19	7,500	$180.00
Mapletree Commercial Trust	N2IU	30-Apr-19	500	$11.55
City Developments Ltd	C09	30-Apr-19	1400	$196.00
Soilbuild Business Space REIT	SV3U	25-Apr-19	15,000	$179.70
CapitaLand Ltd	C31	23-Apr-19	9,000	$1,080.00
First Real Estate Investment Trust	AW9U	17-Apr-19	11,009	$236.70
Pacific Century Regional Developments Ltd	P15	5-Apr-19	14,000	$1,218.00

Total dividends collected for 2019: $5,569.79
Average dividends per month for 2019: $1,392.45

StashAway

KPO

CZM

Capital: $19,000.00
Current: $20,093.55

You might be interested in previous months update too:
- Portfolio Performance in 2018 - $354,145
- Portfolio - January 2019 - $376,381
- Portfolio - February 2019 - $379,814
- Portfolio - March 2019 - $400,263
- Portfolio - April 2019 - $410,873

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)

Portfolio Update - Apr 2017

Our portfolio grew by 9.25% this month (through both capital injection and capital gain) bringing it to $236k! Total capital injection YTD (Year Till Date) is $57,818 and capital growth of $11,349. With that we have exceeded our target/goal for the year and we are on track to our 1 million portfolio in 10 years time - refer to Our Goals.

For the month of April, we bought 1 stock (GuocoLand) and subscribed to Ascott REIT rights issue. GuocoLand has a NAV of $2.96 and has been paying dividends ($0.05/$0.08) over the years. This stock was brought to my attention by one of AK's blog post where he gave a detailed analysis over here - Invested in Guocoland with Mr. Quek Leng Chan.

I fully subscribe to Ascott REIT 1,450 rights issue and over subscribe/allocated another 1,150 shares. Based on my last analysis on the rights issue, I was previously sitting on a loss of -$395.62 (-6.66%). However, as of the last closing price ($1.11), I am currently sitting on a gain of +325.98 (+3.91%). That is how it is, up and down, there is no need to be too affected by the volatility of the stock price.

BOUGHT

- GuocoLand (9,000 units) @ $1.85

- Ascott REIT (2,600 units) @ $0.919 [Total units: 7,600 units]

The total dividends collected this month is $678.40. The breakdown is as follows:

- CapitaLand Mall Trust - $81.90

- First REIT - $149.80
- Soilbuild Business Space REIT - $446.70

Total dividends collected for 2017: $2771.01
Average dividends per month for 2017: $230.92

[Sneak Peek] May will be an excellent month for dividends! StocksCafe is showing me $1,183.75 as of now xD

Portfolio Update - Mar 2017

March did not turn out as bad as I expected it to be. The Fed rate hike did not have much of an impact this time round, I guess it has already been price in. Our portfolio increased by another 6.68% from both capital injection and capital gain to $216,083. This month, we saw a lot of green green for our daily PnL from the report sent out daily by SGXcafe :)

There was quite a bit of actions/transactions that happened during March. KPO decided to sell 2 stocks (SHS and Viva Industrial Trust) away to make room for newer better one. I bought SHS when I first started investing purely based on recommendation by someone from a forum (not a wise thing). Viva has already hit its NAV ($0.7661) and my idol published an article - VIVA Industrial Trust more attractive with 9% yield?. KPO wants to hold stocks for a long long time which makes 14 years a short time and the thought of half of the distribution income disappear is a very scary thought.

SOLD
- SHS (19,000 units) @ $0.215 (PnL: $416.46)
- Viva (4,000 units) @ $0.785 (PnL: $475.99)

With the sale of the above stocks, KPO became cash rich again and I immediately deployed it by purchasing another REIT that has been on my watchlist for a long time - Starhill Global REIT. Starhill has a NAV of $0.92 and even at its current price, there is a 20% room for capital growth with 6-7% dividend yield while waiting. At a price of $0.73, it was very near its 52 week low, hence KPO pulled the trigger. KPO also purchase Frasers L&I Trust because it is one of the lowest geared REIT with potential to growth in the future. There is also a rights issue by Ascott REIT where I fully subscribed 1,450 units and over subscribed by another 4,550 units. Based on my previous analysis and the current price of Ascott REIT, I believe its PnL has already turn positive but I shall confirm that on April update.

BOUGHT

- Frasers L&I Trust (8,000 units) @ $0.96

- Starhill Global REIT (5,000 units) @ $0.73 [Total units: 12,000 units]

The total dividends collected this month is $161.25. Feb was a more exciting month. The breakdown is as follows:

- Asian Pay Television Trust - $81.25

- OUE Commercial Real Estate Investment Trust - $80.00

Total dividends collected for 2017: $2092.61
Average dividends per month for 2017: $174.38

KPO Analysis on Ascott Residence Trust (REIT) Rights Issue

Ascott Residence Trust (REIT) announce 29 rights units for every 100 existing units at a discounted price of $0.919 per share few weeks back to raise gross proceeds of approximately S$442.7 million. If you do not know what is a rights issue, you can read about it here. It is one of the way the company raise more fund to do all sort of things (acquire more property, expand business, pay debt, etc.).

People generally do not like rights issue because it would dilute the equity/value that belongs to existing shareholders and it feels like the company is asking for more cash/taking the dividend back. KPO is rather neutral (secretly likes it), I guess it depends on each and every individual situation. For example, rights issue would not be good for people at later stage of their life, people using CPF or people having tight cash flow.

Let's take a look at the numbers:

Latest Annual Report 2016 (’000):
Total Assets = 4,791,281
Total Liabilities = 2,109,018
Unitholders' Funds = 2,200,625
Shares Outstanding = 1,653,471

Net Asset Value (NAV) per Unit attributable to Unitholders = 1.33

My average price for Ascott REIT is $1.188 for 5000 units. There is room (~11.9%) for the share price to move nearer to its NAV and assuming DPU (Dividend Per Unit) is around $0.0743 (decided to be more conservative by using the lower DPU as estimate after dilution), I will be getting around 6.3% dividend yield.

After Rights Issue (’000):
Total Assets = 4,791,281 + 442,700 = 5,233,981
Total Liabilities = 2,109,018

Unitholders' Funds = 2,200,625 + 442,700 = 2,643,325
Shares Outstanding = 1,653,471 + 481,688 = 2,135,159 2,136,615(4)

Net Asset Value (NAV) per Unit attributable to Unitholders = 1.23

There is a fine print!

(4) Includes adjustments to include approximately 0.9 million new Units issued as payment of the acquisition fee and Manager’s management fees for the German Acquisitions. The Manager’s acquisition fee was assumed to be paid in Units based on an issue price of S$1.19 on 1 January 2016. The Units issued as payment of the Manager’s fees were assumed to be issued at the same prices as those that were actually issued as payment for management fees for the existing properties for FY2016.

Hmm. They paid themselves around S$1 million (0.9 million x 1.19) for acquiring the German asset and diluting our shares... I guess this could be the reason as to why B said they are aggressive? 

Assuming if I were to subscribe for the rights:

My new average price would be (5000*1.188 + 1450*0.919)/(5000+1450) = $1.12 with about 9.8% room for share price to hit NAV and the new dividend yield would be around 6.6%.

KPO likes to buy things that are in discount and taking free GrabShare ride in KL but the one thing KPO really like about rights issue is that I get "buy" more shares without paying any commission as well as over subscribe for more discounted shares!!

Assuming if I were to over subscribe by double of my rights:

Average Price = (5000*1.188 + 2900*0.919)/(5000+2900) = $1.09 with about 12% discount from NAV and dividend yield of 6.8%. The number gets better and better if you are given more discounted units.

Given that the current market price is at $1.065, I am sitting at a loss of -$395.62 (-6.66%) :'( I will subscribe to my rights and over subscribe by at least 2850 units to turn it green!

Portfolio Update - Jan 2017

Happy Chinese New Year!!

Hope everyone got big ang bao!

January has always been a good month because lots of company will be declaring dividends! Total dividends is $761.25 (based on XD Date) contributed by First REIT, CMT, Soilbuild REIT and Ascott REIT. You can refer to the exact breakdown here.

I have also added 2 new stocks - Ascott REIT and Raffles Medical which brings our investment to $184k! Another $15k and we will be able to become SCB priority customer with no minimum commission! I had to sell off some CNAV stocks that are illiquid/with extremely low volume before SCB implemented thier new commission structure last year.

The reason why I buy those stocks? I prefer REIT that are undervalued (PB < 1, price < NAV, etc.) because I can collect dividend while waiting for them to hit NAV. An example is Saizen REIT which gave me about 50% return when they got bought over last year! As for Raffles Medical, I just wanted to diversify slightly and was looking at healthcare stocks.

On a side note, CZM is very lazy. She seems to have lost interest already. I guess there will be a lot more posts on money than food. Lol.