Units in Ascott Residence Trust (Ascott Reit) sank 3.4 per cent yesterday after the Reit unveiled plans to raise up to $442.7 million in a rights issue partly to acquire three properties from The Ascott.
Analysts said investors may be worried that the Reit’s large cash call could depress yield. The stock fell four cents to close at $1.13 on 11.6 million units traded.
The real estate investment trust said late Monday it would buy two properties in Germany - Citadines City Centre Frankfurt and Citadines Michel Hamburg - as well as Ascott Orchard Singapore (AOS).
The deal will mark Ascott Reit's first foray into Frankfurt while expanding its presence in both the Hamburg and Singapore markets.
The expected completion of the AOS acquisition by the third quarter of this year would be timely, said Mr Ronald Tay, chief executive of Ascott Residence Trust, in allowing the trust to capitalise on changes in the hospitality industry.
"We expect the hospitality sector to pick up in 2018 given the lack of new supply,'' he said.
The move also underscores Ascott Reit's aim to diversify its portfolio following acquisitions in the United States and Australia in the past two years. Once the new acquisitions are completed, the Reit will comprise more than 90 properties in 39 cities across 14 countries.
In order to raise the funds, Ascott Reit has launched a fully underwritten renounceable rights issue.
This means that current Ascott Reit unit holders will have the option of purchasing up to 481.7 million rights units at a ratio of 29 rights units for every 100 units they own.
The rights units will be issued at 91.9 cents - a 21.5 per cent discount to the closing price of $1.17 per unit on Monday. Any remaining rights units will be underwritten by DBS and BNP Paribas.
Up to about $380 million from the equity fund raising will be used to pay for the acquisition of AOS, with about $56 million partly funding the acquisitions in Germany.
For its German properties, Ascott Reit expects strong demand from corporate travellers in hubs such as Frankfurt and Hamburg, where many companies are located.
As for Singapore, Ascott Reit hopes to attract travellers on medium- to long-term stays, focusing on business travellers and medical tourists.
AOS' location on Orchard Road offers easy access to medical facilities, such as Mount Elizabeth Hospital and Paragon Medical Centre.
Ascott Reit expects yields of up to 4.5 per cent for the acquisition of AOS and 5.4 per cent for the German properties.
"When the acquisitions in Germany and Singapore are completed, Ascott Reit's asset size will expand to $5.3 billion, strengthening its position as the largest hospitality Reit in Singapore. Market capitalisation will also grow to $2.4 billion, increasing its trading liquidity. We remain focused on creating stable returns to unit holders and will continue to look for acquisitions in gateway cities," said Mr Tay.
Correction note: In our earlier story, we had said the figure $442.7 million was Reit’s largest cash call to date. Ascott Reit has since clarified that in 2010 there had been another round of funding marginally higher than the current one at $453 million.