The Ascott, CapitaLand Investment’s (CLI) wholly owned lodging business unit, is acquiring serviced apartment provider Oakwood Worldwide, from Mapletree Investments.
Both CLI and Mapletree Investments share the same ultimate parent entity in the form of Temasek Holdings. The proposed transaction amount wasn’t disclosed in the announcement out before the market opened on July 4.
The acquisition, according to The Ascott, will increase its global portfolio by 81 properties and about 15,000 units. Oakwood’s approximately 8,500 operational units are seen to contribute to Ascott’s recurring fee income streams upon completion of the transaction, which is slated in 3Q 2022.
The acquisition will boost Ascott’s global presence to more than 150,000 units in about 900 properties across over 200 cities in 39 countries, adding new markets such as Cheongju in South Korea; Zhangjiakou and Qingdao in China; Dhaka in Bangladesh as well as Washington D.C.
With this acquisition, Ascott is “well ahead” to achieve or sign 160,000 units worldwide by 2023.
Kevin Goh, CLI’s CEO for its lodging businesses, describes the acquisition as part of Ascott’s roadmap to play a bigger role in this market. “There are significant synergies between Ascott and Oakwood, given our complementary footprint and product offerings,” he adds.
CLI plans to keep the Oakwood brand. Besides Ascott’s own brand, it runs its business via other brands such as Citadines, Quest and lyf.
“Besides strategic alignment, this acquisition is also notable to Ascott commercially.
Goh says that the acquisition will accelerate the growth of CLI’s asset-light business, with added recurring fee income streams, expanded lodging offerings and increased customer base.
How much did The Ascott pay?
Based on ballpark figures, and hints from a media and analyst briefing on July 4, The Ascott could have paid in the range of $40 million to $50 million for Oakwood.
During the briefing, Goh declined to provide this number. "The IHGs etc are in 100,000 keys segment, so Oakwood on its own with 15,000 keys is a little small to run on stand-alone basis. We have the infrastructure established, the ecosystem and technology. This business is a scale business because you need scale for it to be viable."
Of Oakwood's 15,000 keys, 8,500 are operational. Goh says that fee-related earnings (FRE) per 10,000 operational and stabilised keys is around $20 million. Hence, Oakwood's 8,500 keys would generate FRE of around $4 million to $5 million.
"The comparables transacted on a lodging platform level is 10-20x Ebitda multiple, and depends on size and the fees that the portfolio can generate," Goh says.
Andrew Lim, group CFO of CLI says that the top range platforms have Ebitda margins of 40-50%, and The Ascott's would attain those levels with 160,000 operational and stabilised units.
Assuming margins of around 20% for Oakwood, and that Ascott may have paid 10x-15x Ebitda, the transaction amount could range from $40 million to $50 million. Hence, although this is an interested party transaction, it is way below the 5% of NTA threshold where an EGM would be needed.
In FY2020, CapitaLand made a net impairment amounting to $876.5 million for its investment in Lai Fung Holdings, a mixed-use site in Xinpaifang CBD in Chongqing and goodwill on Quest. The bulk of the impairment was for Lai Fung, Lim had said at the time. Quest is Ascott's Australian-New Zealand lodging platform with around 30,000 units.
"The performance of Quest has recovered to 2019 but we won’t revalue. The accounting rules are such that if there is impairment for the year you take it but if performance improves you don’t reval upwards. The numbers are much better than 2019's" Goh says.
