Ascott REIT

Ascott REIT: Has launched an underwritten renounceable rights issue to raise ~$253.7m. Existing unitholders will be offered 253.7m rights units at a ratio of one unit for every five units held, at an issue price of $1.00 per share. This is at a discount of ~22.5% to the closing price of $1.29 per unit as at 4th Nov13. UOB Kay Hian note that the Rights issue is not a surprise but the 23% discount is. While house had expected ART to raise funds via a placement or a rights issue due to its relatively high gearing of 41%, the steep 23% discount to closing price comes in as a surprise. During the previous two rounds of fund raising, the new shares were placed out at relatively low 5-10% discounts. Management mentioned that the units were priced attractively to benefit unit holders. Ascott did not announce any concrete acquisition along with the rights but stressed that it is in advanced stages (expected timeline: three months) to acquire assets in China, Japan, Malaysia and Australia. Assuming 81% of the rights proceeds are used to repay debt, ART’s gearing will fall from the current 41% to 35%. A comfortable gearing level of 40-45% presents potential headroom of S$300m-500m. About $45m (18%) of the proceeds will be used for asset enhancement Initiatives and capex requirements, and the remaining for underwriting and professional expenses. Overall, the house maintains HOLD with a lower ex-rights TP of $1.31 (previously $1.48) as house factor in the DPU dilution.