Ascendas Hospitality Trust will raise S$459.3 million ($364 million) from its initial public offering in Singapore after it dropped one hotel from its portfolio and fixed the price at the bottom of the range.
Ascendas Hospitality, which first started pre-marketing in May and finally launched the deal on July 9, was set to price last Friday. But the registration of the prospectus didn’t happen until yesterday when the company said in a statement that it had decided to proceed with the IPO without a South Korean hotel in its initial portfolio.
The company said it has “very recently” learned that injunctions have been made by creditors against the vendor of the Pullman Ambassador Changwon hotel in South Korea. These injunctions will affect Ascendas Hospitality’s ability to complete the acquisition of this property in time to include it as one of the assets in its initial portfolio at the time of listing. It added that it will not proceed with the acquisition of the asset at this time.
The process of dropping one asset and making sure the regulators and the investors are okay with the change takes time, and that is why the deal process took longer than expected, a source said.
Ascendas Hospitality’s initial portfolio now includes 10 hotels worth about S$1.06 billion, which are located across six cities in Australia, China and Japan. Prior to the removal of the South Korean hotel, the portfolio consisted of 11 hotels worth about S$1.2 billion. Because of the slightly lower acquisition value, the amount of money it needed to raise was reduced and, as a result, the deal size came down.
But at S$459.3 million it is still the biggest IPO in Singapore so far this year, followed by Bumitama Agri’s S$221.7 million offering, according to Bloomberg data. Formula One, which was planning a $2.5 billion to $3 billion IPO in Singapore in June, postponed the deal due to the poor market environment and after the controlling shareholder was able to reduce its stake through an additional pre-IPO placement.
Ascendas Hospitality will sell approximately 521.9 million stapled securities at S$0.88 each after marketing the deal at a price between S$0.88 and S$0.94. This includes the cornerstone tranche as well as the retail portion, which will be open for subscription from today until July 24. The company was initially offering 609.4 million stapled securities, which at the final price would have raised $425 million. The final offering size represents 65% of the trust.
The remaining 35% will be held by the sponsor, Ascendas Land International, which is subscribing to some units and receiving some as payment for its share in some of the hotels that will be acquired by the trust. These 281 million units were not part of the IPO, though. Ascendas Hospitality will have 802.99 million stapled securities outstanding after the IPO.
Ascendas Land’s stake will fall to 27.5% if the 14% overallotment option is exercised in full.
The price range translates into a distribution yield of 7.9% for the fiscal year to March 2013, and 8% for the year to March 2014. That equals a premium versus CDL Hospitality Trust, a cross-border hotel Reit listed in Singapore, which is trading at a yield of about 6.2% to 6.4% for 2013, and Ascott Residence Trust, a Singapore-listed Reit focusing on serviced apartments, which has a yield of about 7.5% for 2013.
The institutional offering was covered throughout the price range by private banking, real estate-focused funds and long-only investors, one source said. The strong recognition of the Ascendas name in Singapore helped convince investors to buy in size, another person said. The fact that Ascendas is the sponsor likely also made investors a bit more forgiving with regard to the last minute shambles surrounding the South Korean hotel, observers said.
The Ascendas Group services a global clientele of more than 2,300 in 33 cities across 10 countries. As of March 31, it managed a portfolio of property assets worth S$12.9 billion across the region.
Media reports noting that non-Australian investors who buy Ascendas Hospitality in the secondary market after the IPO will in theory be required to seek prior approval from Australia’s Foreign Investment Review Board (Firb) had no noticeable effect on the demand, according to a source. The reports, which were published during the bookbuilding, noted that failure to do so could result in a fine or even imprisonment. The issue arises because Ascendas Hospitality’s interests in Australian urban land will exceed 50% of its total assets. However, the source said that this rule is not targeting cases like this, and the bookrunners have received legal advice that this is unlikely to be an issue.
The buyers also included three cornerstone investors, which took up S$75 million of the deal. The cornerstones are: Accor Asia Pacific, a hotel management company that committed S$50 million; a unit of Singapore Press Holdings, which invested S$15 million; and Charlie Chan Capital Partners, which took up S$10 million, according to the sources.
As for the breakdown of the deal, the cornerstones took up approximately 84.6 million stapled securities, or 16.2% of the offer, while the institutional placement accounted for 355.1 million stapled securities, or 68%. The remaining 15.8% will be offered to Singapore retail investors (68.2 million units) and to directors, management, employees and associates of the Ascendas group (14 million units).
The trust plans to use the proceeds to acquire certain of the initial properties, for issue and debt-related costs, and for working capital.
The stapled securities consist of one unit in Ascendas Hospitality Real Estate Investment Trust and one unit in Ascendas Hospitality Business Trust. The units are stapled together and cannot be issued, transferred, traded or dealt with separately, according to the prospectus.
Nomura and Standard Chartered were joint global coordinators for the deal, while DBS and HSBC joined them as bookrunners. The listing is scheduled for July 27, a day later than the initial plan.
