Ascott Residence Trust (ART) announced that it has entered into a conditional sale and purchase agreement to acquire a hotel known as Sheraton Tribeca New York Hotel located in Downtown Manhattan, US. The purchase consideration is US$158m (~S$218m), which represents a 4.8% discount to the independent valuation of US$166m.

Separately, ART also announced that it has launched a private placement to raise gross proceeds of ~S$100m. 94.8m new units will be placed out at an issue price of S$1.055, which is a discount of 6.6% to its closing price prior to the announcement. ART intends to use ~S$98.5m of the proceeds to fund the proposed hotel acquisition. The remaining acquisition amount will be financed with onshore USD debt.

On a pro forma basis, the asset will be acquired at an EBITDA yield of 6.8%, and is estimated to increase ART’s DPU by 1.5%. The hotel comprises 369 guest rooms, with a current occupancy rate of more than 90%, and delivered 7% YoY growth in its RevPAU in 2015.

It is strategically located close to the financial district and other unique neighbourhoods such as SoHo and Chinatown, and is also within a two minute walk from the subway station. Post-acquisition, ART’s gearing would increase from 39.3% (as at 31 Dec 2015) to 40.2%. We maintain our BUY rating and S$1.28 fair value on the stock.

Source: OCBC Research - 15 Mar 2016