Ascendas Real Estate Investment Trust (SGX: A17U), the largest industrial real estate investment trust (REIT) in Singapore, has been making headlines in recent weeks.
On 16 August, it completed the acquisition of a 12-property portfolio in the United Kingdom (UK), marking its maiden entry in the country. The purchase was debt-funded and based on a pro forma basis, would increase the distribution per unit by 1.2%.
That was merely three weeks ago. And more recently, Ascendas REIT made another announcement that it has launched (and completed) a private placement to raise S$452 million to fund a second portfolio of 12 UK properties to bring its UK portfolio up to 24. Here are the important things to know about the private placement.
Details of the private placement
The placement was for a total of 178 million new units at a fixed price of S$2.54 per new unit. It was 2.2 times oversubscribed and the issue price represented a 3.5% discount to the adjusted weighted average price. At the time of writing, Ascendas REIT’s units trade at S$2.62 each.
However, it is worth noting that the new unit price is still a 25.1% premium to the REIT’s adjusted net asset value per unit as of 30 June 2018.
Use of proceeds
Ascendas REIT said that it will be using the funds raised for four main purposes:
(1) Around S$250 million (equivalent to 55.3% of the proceeds) to partially fund the acquisition of a second UK logistics portfolio.
(2) S$109 million (24.1% of proceeds) will be used to fund the development of a build-to-suit facility located in Singapore.
(3) S$88.9 million (19.7%) will be used to pare down debt and for future acquisitions.
(4) S$4.2 million (0.9%) will be used for associated fees and expenses related to the private placement.
How it will affect retail unitholders
Unfortunately, very little information about the details of the second portfolio of UK properties have been provided. However, the REIT did provide a table on how the private placement and acquisition will affect gearing and asset value.
Source: Ascendas REIT announcement on private placement
From the table above, we can estimate that the trust will use S$205 million of debt to partially fund the acquisition of the second UK portfolio, which has a total asset value of approximately S$639 million. After the acquisition, it will have a gearing ratio of 37.7%. That said, it is not known whether the acquisition will be yield-accretive to unitholders.
The manager was also quite vague in its assessment of the new proposed Singapore development. It only said that the new development is “in line with the Manager’s aims to deliver predictable distributions and to enhance the value of Ascendas REIT’s property portfolio over time…”
The Foolish bottom line
It is still hard to gauge if the private placement and acquisition of the second UK portfolio will benefit unitholders over the long run. It largely depends on the yield spread of the new portfolio against Ascendas REIT’s current portfolio yield. We will perhaps only get a better picture when more details of the target portfolio are released.
Another thing that might irk retail unitholders is that the trust used a private placement to raise funds rather than a preferential offering. As the REIT now has a comparatively high gearing ratio, it will need to use equity funding to fund further acquisitions. Hopefully for investors, the REIT will be fair to minority unitholders in the future by using preferential offerings to raise funds instead of private placements, which dilute unitholders interest without offering them the chance to participate in the offering.
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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 Jeremy Chia doesn’t own shares in any companies mentioned.