Wednesday, November 6, 2013

Ascott Reit - Subscribing to Rights Issue?

As investors of Ascott Reit, the news surrounding is whether you will subscribe or reject the offers for a 1-to-5 rights issue at $1.

The Management has stated its intention to use the gross proceeds of approximately S$253.7 Million from the Rights Issue in the following manner:

(i) approximately S$204.9 million (equivalent to approximately 80.8% of the gross proceeds) will be used to pay down Ascott REIT’s debt;

(ii) approximately S$45.0 million (equivalent to approximately 17.7% of the gross proceeds) will be used to fund capital expenditure and asset enhancement initiatives, and for general corporate and working capital purposes;

(iii) approximately S$3.1 million (equivalent to approximately 1.2% of the gross proceeds) will be used to pay for the underwriting commission ; and

(iv) approximately S$0.7 million (equivalent to approximately 0.3% of the gross proceeds) will be used to pay the estimated professional fees and expenses and other fees and expenses expected to be incurred in connection with the Rights Issue.

This means that upon dilution of the additional shares, the immediate yield will go down as the company will use the majority of the proceeds to lower down their debt gearing. So should you be interested? Well it depends on whether you are bullish about hospitality stock in the near term. If you are bullish about it, I would think this is a good opportunity to exercise your rights to accumulate. Even with the dilution, I would think the yield will stay above 6%, which is reasonable.

The thing is with 41% gearing, we would expect the company to raise equity sooner or later. For me, I'll take it as the company is raising equity to make an acquisition in the near future. So yield goes down temporarily but will be back nearer term.

What about me??

Currently, I am vested with 9 lots of Ascott Reits in my portfolio. With a 1-to-5 rights, I would be allocated 1.8 lots of the rights at $1, which left me ended up in odd lots scenario.

Since I am bullish on the stock, my strategy is to purchase an additional 2 more lots from the market before it goes XR such that I will end up with 11 lots upon XR and be allocated 2.2 rights lots. As some of the experienced investors might have gone through other rights issue process, they would have told you that you are more likely to be granted excess rights if you are currently holding odd lots upon the XR and in case you are wondering 11 lots, it is because it is the best possible combination figure to ends up with odd lots scenario.

Hence, my plan is to apply for an excess rights of 800 shares so that I can have a total round up lots of 14.

If you would like to have more information about applying for rights issue shares, you may refer to the explanation by LaPapillion which gives a much more detailed sample.

http://bullythebear.blogspot.sg/2011/01/how-to-get-most-out-of-rights-exercise.html

Anyway, here is the timetable for your easy pleasure.


The date to exercise your rights will begin from the 19 November to 3 December. If you are not interested in subscribing, please take note to sell your nil-paid rights within the trading date above.



12 comments:

  1. So the majority of the rights proceeds will be used to pay down debt, while only about 17% is to be used for M&A and AEI. Are you as a shareholder happy with this? What are your thoughts on how it can grow DPU and yield - does Ascott REIT have any concrete plans for this?

    Also, how would your effective cost be adjusted by this rights issue, and what would be your new adjusted yield based on your new cost?

    ReplyDelete
  2. Hi MW

    The way I see this is with the majority of the proceeds used to repay debts the immediate yields will go down, but this is based on the prediction that they will inject some hotels into their portfolio in the near term, thereby boosting their yield again.

    If I remember correctly, I think the management did say that it has a few plans to boost their net assets to record high by 2015 so the plans are there and in order to do this, the only thing they've got to do is to raise equity when their gearing is as high as 41% already.

    $1 may seem like a big discount, but if we calculate a 1 to 5, then its not actually that much discount per average. Its still probably at the $1.20 range based on current price.

    ReplyDelete
  3. Paying down debt may also be good if the future re-financing of such debt will be at a higher interest rate that will eat into future DPU. Depending on the assumption of future interest rate rise, it may even out the dilution of the shares.

    ReplyDelete
  4. How do existing shareholders subscribe to the rights issue?

    ReplyDelete
    Replies
    1. Hi Anonymous

      You can wait for the OIS to see how many rights you are allocated to and start exercising your rights from the 19 Nov through the ATM.

      Delete
    2. Hi B,
      Thank you. I also have 11 lots like you :)
      i guess OIS means Offer Information Statement.
      So i'll wait for their letter. and apply through ATM. Thanks for helping out a newbie.

      Delete
  5. Hi B,

    Many thanks for sharing your views on Ascott Reits.
    Same as you,I am having high regard for this REITS for its stable performance and DPU through these years.
    I myself is holding this REITS and definitely will be subscribing to its right. :)

    spectraoflife.com

    ReplyDelete
    Replies
    1. Hi Spectraoflife

      Will you be applying excess rights for Ascott? If so how many excess are you applying?

      Delete
    2. I cannot confirm now. Have to depend on my budget though~

      Delete
  6. Ascott REIT last trading at 1.22, is the market pricing in the effect of Rights issue already? 1-to-5 rights issue brings average down to 1.21 for me. sigh*
    Anyway OCBC rating today, values this at $1.35
    Agree with Spectraoflife, I think its well worth keeping this for the long term.

    ReplyDelete
    Replies
    1. Hi HM Shak

      The way the rights are structured is such that I think many investors would subscribe to the rights as they are listed at a discount. Are you subscribing to the excess rights and if so how many are you applying for?

      Delete
  7. Btw have you received the OIS letter yet?

    ReplyDelete

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