Ascott Residence Trust (ART) announced its proposal to acquire three serviced residences and four rental housing properties in Australia and Japan from its sponsor Ascott Limited for a total purchase consideration of S$246m. This translates into an EBITDA yield of 5.1%. On a pro forma basis, the acquisitions are expected to raise ART’s FY14 distribution income by S$3.9m and DPU by 2.9%. ART intends to fund the acquisitions with a combination of debt financing and the issuance of perpetual securities.

We are positive on the acquisitions as the transactions are expected to be DPU accretive and would enhance ART’s geographical diversification and penetration into growing markets. As these are interested person transactions, ART would need to obtain unitholders’ approval at an EGM. We thus maintain our BUY rating and S$1.44 fair value estimate for now.

Source: OCBC Research - 25 Jun 2015