Ascott Residence Trust - Acquisition of prime Orchard asset funded by rights issue
- Cum-rights FV of S$1.16.
- Maintain HOLD against closing price.
- FV will drop to S$1.105 ex-rights.
Launches rights issue to raise S$442.7m
- Ascott Residence Trust (ART) has launched a fully underwritten renounceable rights issue to raise gross proceeds of S$442.7m. 481.7m new units will be offered at a rights ratio of 29 rights units for every 100 existing units at an issue price of S$0.919 each.
- The price is at a 21.5% discount to the last closing price before the announcement of S$1.17, and a 17.5% discount to the theoretical ex-rights price (TERP) of S$1.114 per unit.
- Post-rights issue and acquisitions, ART's FY16 NAV per unit would drop from S$1.33 to S$1.24 on a pro forma basis.
DPU dilutive transaction, but offers ART more financing options for future growth
- After the acquisition of Ascott Orchard Singapore and the rights issue, ART’s FY16 DPU of 8.27 S cents is expected to be 7.27 S cents on a pro forma basis, and this will further increase to 7.43 S cents after the proposed German acquisitions.
- This pro forma 7.43 S cents DPU translates to a 6.7% yield against the TERP of S$1.114. While the transaction is DPU dilutive, we note it gives ART greater debt headroom for future transactions.
Greater proportion of stable income post acquisitions
- Our FY17 DPU forecast (ex-rights) is currently 6.27 S cents while that for FY18 is 7.44 S cents.
- Our cost of equity is lowered from 7.7% to 7.5% given the lower gearing as well as the greater proportion of stable income post acquisitions.
- After factoring in the dilution from the enlarged unit base as well as the time gap between the rights issue and the contributions from the acquisitions, our cum-rights FV (which was derived from our ex-rights FV) drops from S$1.22 to S$1.16.
- The adjustment is a little less than the 10% decrease seen from actual FY16 DPU to pro forma DPU mainly due the decrease in cost of equity assumption.
- Do note that our S$1.16 FV is cum-rights while all the figures in this report are currently ex-rights. Our FV will drop to S$1.105 when the units go ex-rights.
- We maintain HOLD on ART with a fair value of S$1.16.