As investors of Ascott Reit, the news surrounding is whether you will subscribe or reject the offers for a 1-to-5 rights issue at $1.
The Management has stated its intention to use the gross proceeds of approximately S$253.7 Million from the Rights Issue in the following manner:
(i) approximately S$204.9 million (equivalent to approximately 80.8% of the gross proceeds) will be used to pay down Ascott REIT’s debt;
(ii) approximately S$45.0 million (equivalent to approximately 17.7% of the gross proceeds) will be used to fund capital expenditure and asset enhancement initiatives, and for general corporate and working capital purposes;
(iii) approximately S$3.1 million (equivalent to approximately 1.2% of the gross proceeds) will be used to pay for the underwriting commission ; and
(iv) approximately S$0.7 million (equivalent to approximately 0.3% of the gross proceeds) will be used to pay the estimated professional fees and expenses and other fees and expenses expected to be incurred in connection with the Rights Issue.
This means that upon dilution of the additional shares, the immediate yield will go down as the company will use the majority of the proceeds to lower down their debt gearing. So should you be interested? Well it depends on whether you are bullish about hospitality stock in the near term. If you are bullish about it, I would think this is a good opportunity to exercise your rights to accumulate. Even with the dilution, I would think the yield will stay above 6%, which is reasonable.
The thing is with 41% gearing, we would expect the company to raise equity sooner or later. For me, I’ll take it as the company is raising equity to make an acquisition in the near future. So yield goes down temporarily but will be back nearer term.
What about me??
Currently, I am vested with 9 lots of Ascott Reits in my portfolio. With a 1-to-5 rights, I would be allocated 1.8 lots of the rights at $1, which left me ended up in odd lots scenario.
Since I am bullish on the stock, my strategy is to purchase an additional 2 more lots from the market before it goes XR such that I will end up with 11 lots upon XR and be allocated 2.2 rights lots. As some of the experienced investors might have gone through other rights issue process, they would have told you that you are more likely to be granted excess rights if you are currently holding odd lots upon the XR and in case you are wondering 11 lots, it is because it is the best possible combination figure to ends up with odd lots scenario.
Hence, my plan is to apply for an excess rights of 800 shares so that I can have a total round up lots of 14.
If you would like to have more information about applying for rights issue shares, you may refer to the explanation by LaPapillion which gives a much more detailed sample.
Anyway, here is the timetable for your easy pleasure.
The date to exercise your rights will begin from the 19 November to 3 December. If you are not interested in subscribing, please take note to sell your nil-paid rights within the trading date above.