Ascott Residence Trust's asset size to balloon to S$3.1bn

After acquiring China, Japan assets.

According to DBS, ART has announced the acquisition of 3 serviced residences in China and 11 rental housing properties in Japan for S$287m (at a blended EBITDA yield of 5.4%), which will be funded by a near-even debt-equity split. 

DBS noted that post-acquisition, its asset size will rise to S$3.1bn from S$2.8bn and its Asian share of asset value to 63% from 59%, with its asset leverage increasing to ~41.2% from 40.1% as at end-FY12. The deal is subject to approval at an EGM on 30 May.

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Coming in shortly after ART’s private placement in Feb, the acquisitions did not surprise at all. The quantum is also close to our previous assumption of S$300m.

The blended EBITDA yield of the acquisitions is 5.4% (~5% and ~6% for China and Japan properties respectively), comparing well to the blended yield of 4.8% for ART’s existing Chinese and Japanese assets. Management expects the purchases to enhance its FY12 pro forma DPU by 3%.

We expect the Japanese assets to boost the resilience of its portfolio (>95% occupancy in Japan, with five out of 11 being master leased) and Chinese assets to drive future growth (being strategically located and offerroom for occupancy to rise from the current 75%).

Management remains on the lookout to expand its presence in key gateway cities in Asia, as well as London, Paris and German cities.

The higher asset leverage of 41.2% post-acquisition implies the need for equity-raising for future acquisitions.