The institutional offer, which was launched and priced yesterday following a 10-day roadshow, accounted for 47.3 million new units or approximately 45% of the total sale. Parent company Ascott Group bought 15.3 million of those units to maintain its stake, while the remainder was 15 times subscribed, according to a source close to the deal. This allowed the price to be fixed at S$1.90, which marked the top end of an indicated range that started at S$1.85.
It will be followed by a retail offering of eight million units at the same price today and a one-for-10 preferential offering of 49.9 million units to existing shareholders, which will be priced at S$1.88 per unit and will run from March 14 to 20.
The S$1.90 price represented an 8.7% discount to FridayÆs closing price of S$2.08, but a 0.5% premium to the volume weighted average price for the five trading days prior to the deal as the stock was very volatile last week. It was suspended from trading Monday to complete this transaction, which was jointly bookrun by DBS and JPMorgan. The latter also acted as sole global coordinator and joint financial adviser with CapitaLand Securities.
Ascott, a real estate investment trust that invests in serviced apartments across Asia, has seen strong growth since it was listed in March 2006, but since it didnÆt sell any new units at the time of listing this was the first real opportunity for investors to buy the Reit in bulk. It did raise S$48 million ($31 million) in September last year, although that was seen as too small to attract major buyers.
This time, about 80 institutional investors bought into the deal, with chunky orders from Asia as well as Europe and Australia. The freefloat will increase to close to 37% following this deal from 29.6% beforehand.
ôIt now has a market cap of more than $1 billion, which means it is on the radar screen of most Reit investors,ö says one observer.
Being backed by Singapore property developer CapitaLand (through a 42.8% direct holding prior to this deal and its 66.8% ownership of Ascott Group, which controls 27.7% of the trust) has also helped attract attention to Ascott. But perhaps the most important buying argument was the fact that the current acquisition will be highly accretive in terms of dividends per unit.
For 2007, the annualised divided payout will increase by 11.3% to S$0.0727 as the new properties come on board, which at the final price is equal to a yield of 3.8%. The actual annualised forecast net yield for the five properties is 6.2%, which compares with an implied property yield on the existing properties of approximately 4.4%. However, the more capital growth the trust provides, the lower the dividend yield investors are willing to accept, which explains why Ascott is currently trading at a yield well below there.
The value of the portfolio will increase to S$1.18 billion ($773 million) from S$961.4 million and will be split on 2,904 apartment units in 18 buildings across seven countries.
The average occupancy rate is expected to remain steady at 85% even after the acquisition, but the average revenue per unit is projected to increase to S$124 from S$121 and the average daily rate will rise to S$146 from S$142, according to the offering document.
The new properties, which will cost a combined S$218.6 million ($143 million), comprise two properties in Tokyo and one each in Melbourne, the Philippines and Vietnam.
The Melbourne property is the first for the trust in Australia and is expected to benefit from growth in international arrivals as the city has successfully positioned itself as the countryÆs events capital. The properties in Manila and Ho Chi Minh City will increase its exposure in these emerging markets which are seeing strong economic growth, limited supply to this type of temporary housing, positive tourism prospects (the Philippines) and an anticipated improvement in the business operating environment and continued inflow of foreign investments (Vietnam).
The growth of Ascott, which is the only Reit in Asia to focus on serviced residences, has been reflected in a more than tripling of its unit price since it listed at S$0.68. It has risen 30% this year alone, while the Singapore Straits Times Index is up a modest 5.3%. According to the source, the current share price of S$2.08 marks a 50% premium to the estimated net asset value following the latest transactions.
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