Ascott Residence Trust announced that it is undertaking a renounceable rights issue to raise a gross proceeds of $442.7 million to make an acquisition of 3 properties.
The rights was issued at 29 units for every 100 existing shares at a price of $0.919, which is a 21.5% discount from the last traded price of $1.17. The theoretical ex-rights price would be $1.11.
This came a bit too fast and surprising considering they had not long ago refinance through the financing options of MTN. You might also recall that it was only last year they had done placement exercise in the acquisition of property in NewYork for USD 158 million.
Perhaps the amount of consideration this time on the 3 properties is big enough to warrant calling a rights issue.
I've blogged a couple of articles in the past regarding the company and I mentioned that I was not overly impressed by their aggressive expansion plan to increase their AUM by 2020. It seems that while they are diversifying the asset base, it does not trickle down to benefit shareholders directly.
All things equal, investors would rather the company grow their portfolio organically than through acquisitions via cash calls. While there are cash calls which resulted in yield accretive acquisitions, they are usually less popular to investors since they are being forced to fork out more money in order not to be diluted.
The acquisitions of the Germany properties - Citadines Michel Hamburg and Citadines City Frakfurt are done at an EBITDA yield of 5.4%, which are expected to be accretive since they are financed part rights and part debt. Ascott Reit will also receive fixed rent through master leases for the two properties, which helped to increase their "stable" income portion.
The acquisition of the Ascott Orchard on the other hand was rather hasty in my opinion. The property was only completed in Dec 2016 and it only fetched an EBITDA yield of 4.5%. Unless the financing is done via debt, it's hardly going to be near accretive at all. I thought the parent (Capitaland) could have stabilized the property first at least.
The management gave a guidance of what the pro-forma dpu would look like post-acquisitions.
DPU would fall from 8.27 cents to 7.43 cents while NAV would drop from $1.33 to $1.24. If we were to take a quick guestimate of what DPU for FY2017 might look like, it'll be around 7.43 cents at best once the 3 properties contribute in full.
I don't know if this is the norm with hospitality reits.
Hospitality reits are more volatile in nature due to the business they are in and occupancy is harder to predict. Further, you don't get to fetch a good NPI yield when you purchase them especially in a bad market like today and this is probably the reason why CDLHT and FEHT have not made much move yet at the moment.
Ascott profile remains the best in class due to the service residence portfolio and it abstain extreme volatility by also being diversified. Though, their aggressive expansion plan means shareholders may always be on the toes for the next right calls and often more than not, it may not benefit them directly.