Ascott Residence Trust (Ascott Reit) on March 6 announced it is raising S$442.7 million (US$314 million) through a fully underwritten renounceable rights issue to partly fund its first acquisition of a property in Frankfurt and its second in Hamburg from The Ascott Limited for 65.4 million euro (US$69 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%. In addition, 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 the third quarter of this year.

Following the acquisition of Ascott Orchard Singapore and the rights issue, the distribution per unit of Ascott Reit in fiscal year 2016 amounting to 8.27 cents is expected to be 7.27 cents on a pro forma basis, and this will increase to 7.43 cents following the acquisitions in Germany.

The existing unitholders will be offered 481.7 million rights 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, representing a discount of 21.5% to the closing price of S$1.17 per unit as at March 6 and a discount of 17.5% to the theoretical ex-rights price.

Ascott, which owns 44.2% of Ascott Reit, has undertaken to fully subscribe its allotment of rights units, while the remainder will be underwritten by DBS and BNP Paribas.

Ascott Reit will use the proceeds to acquire an effective interest of 93% in Citadines City Centre Frankfurt for 35.7 million euro and Citadines Michel Hamburg for 29.7 million euro.

After the rights issue and the acquisitions in Germany and Singapore, Ascott Reit’s gearing will be reduced from 39.8% as at December 31 2016 to 37%, while 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.

Following the completion of acquisitions, Ascott Reit’s asset size will increase to S$5.3 billion, strengthening its position as the largest hospitality Reit in Singapore. The company’s market capitalization will also grow to S$2.4 billion, thus boosting its trading liquidity.

Ascott Residence Trust Management chairman Bob Tan says the acquisitions of these quality assets in prime locations will strengthen its portfolio and broaden its earnings base. He adds the company will remain 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 US.

Photo courtesy of Ascott Reit.