Ascendas Real Estate Investment Trust Has Just Completed A Private Placement – Does It Make Sense For Its Unitholders?

Yesterday, Ascendas Real Estate Investment Trust (SGX: A17U) announced its proposed acquisition of One@Changi City for a total sum of S$438.9 million, which includes S$18.9 million in related fees and expenses.

Of the S$420 million to be paid for just the property alone, Ascendas REIT intends to pay half of that through the issue of new units of itself with the other half funded by cash.

To raise the capital needed for the acquisition, Ascendas REIT had also announced a private placement and preferential offering exercise yesterday. The two are expected to raise S$408 million in total proceeds for Ascendas REIT. The private placement, which would see Ascendas REIT issue 90 million new units of itself at S$2.223 apiece, has been completed just this morning.

The offer price of S$2.223 in the private placement is a 6.2% discount over the volume weighted average price (VWAP) of S$2.3706 per unit as at 8 December 2015.

As mentioned, there’s also a preferential offering taking place, but at a later date.  Ascendas REIT will be offering roughly 94 million new units to existing unitholders, on the basis of three new units for every 80 units held. The price for the preferential offering is set at S$2.218 per new unit, a discount of 6.4% over the aforementioned VWAP of S$2.3706 per unit.

According to the REIT’s announcement, the S$408 million raised will be used as such:

  1. 55% would go to fund the acquisition – and the related expenses – of One@Changi City from Ascendas Frasers Pte. Ltd., which is a joint-venture between Ascendas REIT and Frasers Centrepoint Limited (SGX: TQ5).
  2. 20.1% has been earmarked for the possible acquisition of a logistics property in Australia.
  3. 24.2% is penciled for the repayment of debt and future acquisitions.
  4. The remaining sliver (0.7%) would be used to pay the expenses of the fund raising exercise.

One@Changi City is a 9-storey multi-tenanted business park building, located beside the Expo Mass Rapid Transit station. The acquisition, according to Ascendas REIT’s number-crunching at least, should be positive for unitholders; the REIT has shown a pro-forma increase in distributions per unit (DPU) of 0.067 cents as a result of the acquisition. Moreover, One@Changi City can also help to diversify the property-mix of the REIT’s portfolio.

But, unitholders have to be aware that the number-crunching for the DPU is based on Ascendas REIT’s assumptions. How the acquisition, together with the issuance of new units, might actually impact unitholders can be different from what’s assumed.

The market does not seem too impressed with Ascendas REIT’s latest fund raising exercise. The REIT’s units are currently down by 6.3% in price to S$2.23, which is close to the offer price in the private placement.  At S$2.23,  Ascendas REIT has a distribution yield of about 6.6% thanks to its annual distribution of S$0.146 per unit in the fiscal year ended 31 March 2015.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Frasers Centrepoint Limited.