Ascott Residence Trust (Ascott Reit) has launched a fully underwritten renounceable rights issue to raise S$442.7 million ($313.59 million).
Proceeds will be used to partly fund Ascott Reit’s acquisition of its first property in Frankfurt and its second in Hamburg from The Ascott Limited (Ascott) for €65.4 million ($69.2 million).
The acquisitions of the two operating serviced residences, Citadines City Centre Frankfurt and Citadines Michel Hamburg, are accretive at an EBITDA yield of 5.4 per cent.
Additionally, S$381.6 million will be used to pay for Ascott Reit’s acquisition of Ascott Orchard Singapore, which is expected to be completed by Q3 2017. Following the acquisition of Ascott Orchard Singapore and the current rights issue, Ascott Reit’s FY 2016 distribution per unit of 8.27 cents is expected to be 7.27 cents on a pro forma basis, and this will further increase to 7.43 cents after the acquisitions in Germany.
Existing Unitholders will be offered 481.7 million rights units at a ratio of 29 units for every 100 units already held as at the book closure date. The rights units will be issued at S$0.919 each. This is at a discount of 21.5 per cent to the closing price of S$1.17 per unit as at 6 March 2017 and a discount of 17.5 per cent to the theoretical ex-rights price.
Ascott Reit will use the proceeds to acquire an effective interest of 93 per cent in Citadines City Centre Frankfurt and Citadines Michel Hamburg for €35.7 million ($37.7 million) and €29.7 million ($31.4 million).
After the rights issue and acquisitions in Germany and Singapore, Ascott Reit’s gearing will cut from 39.8 percent as at 31 December 2016 to 37 per cent and its debt headroom will increase from S$442.6 million to S$754.4 million.
Ascott Reit will receive fixed rent through master leases for the two properties in Germany, which will continue to be managed by Ascott. Ascott Reit will own 100% of Ascott Orchard Singapore, which will be operated under a master lease to Ascott with fixed and variable rent components
Bob Tan, Ascott Residence Trust Management Limited’s (ARTML) Chairman, said: “ The equity fund raising will strengthen Ascott REIT’s balance sheet and give us greater financial flexibility to seize growth opportunities. The rights issue will provide unitholders with opportunity to subscribe for the rights units at an attractive price while benefiting from Ascott REITs future growth.”
According to a media release, the Ascott Reits acquisitions of these quality assets in prime locations will strengthen its portfolio and broaden its earnings base.These asset acquisitions will serve to increase its presence in Germany, Europe’s largest economy. Currently, they own three properties in Berlin, Hamburg and Munich. The latest acquisition is subject to shareholder approval.
Tan explains. “Ascott Reit will benefit from greater economies of scale by adding a second property in Hamburg which has an established and steadily growing hospitality market. Extending our footprint to Frankfurt will allow us to further diversify Ascott Reit’s portfolio and the master leases for these properties will enhance income stability.”
When the acquisitions in Germany and Singapore are completed, Ascott Reit’s asset size will expand to S$5.3 billion, which will strengthen its poison to S$5.3 billion and growing its market capitalisation will grow to S$2.4 billion, increasing its trading liquidity.
The REIT remains focused on creating stable returns to Unitholders and will continue to look for acquisitions in gateway cities in markets such as Australia, Japan, Europe and the U.S.
Elaborating on the German market, Ronald Tay, ARTML’s Chief Executive Officer, said: “There is strong demand for accommodation by corporate travellers in Frankfurt and Hamburg. Frankfurt is Germany’s financial and transportation hub where many global companies are located. Hamburg is Germany’s second largest city and ranked the second best city in Europe for investment after Berlin.
Tay adds, “Hamburg is also home to Europe’s third largest container port, making the city a key international trade centre in the region. Both Frankfurt and Hamburg host many international and regional trade fairs, attracting millions of visitors each year.”