Wednesday 30 January 2013

Ascott Residence Trust

OCBC on 29 Jan 2013

Ascott Residence Trust (ART) has raised gross proceeds of S$150m through a placement of 114.9m new units at an issue price of S$1.305 per new unit. At the FY12 results briefing a few days ago, management stated that it is comfortable with gearing between 40-45%, hence even if the proceeds are used to pay off the debt that is maturing, we think the additional financial flexibility from the placement will likely be utilised over the longer run for yield-accretive acquisitions. That said, we will incorporate future acquisitions into our model if and when they are announced. As a result, we maintain our HOLD rating but reduce our FV from S$1.37 to S$1.36 due to the dilutive effect of this placement.

Private placement
Ascott Residence Trust has raised gross proceeds of S$150m through a placement of 114.9m new units at an issue price of S$1.305 per new unit, representing a discount of ~4.6% on the adjusted VWAP of S$1.3685 per unit for trades done on the SGX-ST on 28 Jan. The placement will increase ART’s free float from 51% to 55%. ART received participation from existing and new institutional investors from Asia, the United States and Europe. 

Use of proceeds
The proceeds will be used to fund potential future acquisitions, finance AEIs, repay existing debt and for general working capital. Assuming that the net proceeds of S$147.9m are used to repay existing debts, the private placement is expected to reduce ART’s aggregate leverage from 40.1% to 34.9%. As of 31 Dec 2012, S$167.8m of debt was due to mature in 2013 for ART. At the FY12 results briefing a few days ago, management stated that it is comfortable with gearing between 40-45%, hence even if the proceeds are used to pay off the debt that is maturing, we think the additional financial flexibility from the placement will likely be utilised over the longer run for yield-accretive acquisitions. That said, we will incorporate future acquisitions into our model if and when they are announced.

Advanced distribution
There will be an advanced distribution of between 0.59 cents and 0.63 cents per unit to existing unit-holders. The advanced distribution is taken from ART’s distributable income from 1 Jan 2013 to 5 Feb 2013, which is the day before the date on which new units will be issued. The next distribution will be for 6 Feb to 30 June 2013 and semi-annual distributions will resume thereafter.

Reduce FV to S$1.36
We maintain our HOLD rating but reduce our FV from S$1.37 to S$1.36 due to the dilutive effect of this placement.

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