Ascott REIT launches S$442.7 million rights issue to acquire its first Frankfurt property and expand in Hamburg and Singapore
Singapore, 6 March 2017 – Ascott Residence Trust (Ascott Reit) has launched a fully underwritten renounceable rights issue to raise S$442.7 million. The 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 (S$97.2 million)1 . 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 3Q 2017. After the acquisition of Ascott Orchard Singapore and 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 following the acquisitions in Germany.
Mr 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 the opportunity to subscribe for the rights units at an attractive price while benefitting from Ascott Reit’s future growth.”
“Ascott Reit’s acquisitions of these quality assets in prime locations will strengthen its portfolio and broaden its earnings base. It will increase our presence in the stable market of Germany, Europe’s largest economy, where we currently own three properties in Berlin, Hamburg and Munich. 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.”
Mr Tan added: “When the acquisitions in Germany and Singapore are completed, Ascott Reit’s asset size will expand to S$5.3 billion, strengthening its position as the largest hospitality REIT in Singapore. Ascott Reit’s market capitalisation will also grow to S$2.4 billion, increasing its trading liquidity. We 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 U.S.”
Elaborating on the German market, Mr 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 investment2 , after Berlin. 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.”
Mr Tay added: “Singapore is among the top 10 destinations for foreign direct investment globally3 and its visitor arrivals and tourism receipts hit historic high in 2016. We expect the hospitality sector to pick up given the lack of new supply in 2018. Ascott Orchard Singapore is strategically located in the city’s premier shopping destination, with close proximity to premium medical facilities and easy access to the business district. We believe Ascott Orchard Singapore will draw business and leisure travellers as the city continues to reinvent itself to remain an attractive investment and tourism hub.”
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% to the closing price of S$1.17 per unit as at 6 March 2017 and a discount of 17.5% to the theoretical ex-rights price4. Ascott, which owns 44.2% of Ascott Reit, has undertaken to fully subscribe its allotment of rights units. The remaining rights units are underwritten by DBS and BNP Paribas.
Ascott Reit will use the proceeds to acquire an effective interest of 93%5 in Citadines City Centre Frankfurt and Citadines Michel Hamburg for €35.7 million (S$53.1 million) and €29.7 million (S$44.1 million) respectively. After the rights issue and acquisitions in Germany and Singapore, Ascott Reit’s gearing will reduce from 39.8% as at 31 December 2016 to 37.0% 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.
Ascott Reit will seek Unitholders’ approval for the acquisitions in Germany at an Extraordinary General Meeting to be convened. Unitholders granted Ascott Reit approval for the acquisition of Ascott Orchard Singapore from Ascott in 2012.
1 Based on exchange rate of €1 = S$1.4861.
2 PricewaterhouseCoopers’ ‘2016 Emerging Trends in Real Estate Report’. 3 United Nations Conference on Trade & Development’s ‘Global Investment Trends Monitor, February 2017’.
3 United Nations Conference on Trade & Development’s ‘Global Investment Trends Monitor, February 2017’.
4 Theoretical ex-rights price = (Market capitalisation of Ascott Reit based on the closing price + gross proceeds from the rights issue) / units outstanding after the rights issue
5 The remaining stakes are held by an indirect wholly owned subsidiary of Ascott and an unrelated third party.