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Ascott Residence Trust (Ascott REIT),CapitaLand’s wholly-owned serviced residence arm, has acquired its second hotel in New York for US$158 million (S$218 million).
The 99-year leasehold property, Sheraton Tribeca New York Hotel, is located in downtown Manhattan and comes with 369 rooms.
According to Credit Suisse, it will continue to be operated under Starwood’s Sheraton brand as Ascott has yet to establish a foothold in the United States.
The Swiss financial institution noted that the hotel posted an occupancy rate of more than 90 percent in 2015, while revenue per available room (RevPAR) increased by 7 percent during the period. Its average daily room rate (ADR) stands at around US$250 (S$ 344.38), but this could potentially increase further given the limited new supply within the vicinity of about 700 to 800 hotel rooms.
Ascott’s latest acquisition will be funded by a combination of debt and equity. The USD loan is expected to have an interest rate of around 3 percent and a tenure of 5 years, while Ascott REIT plans to issue up to S$100 million in shares at a discount of 4.0 percent to 6.6 percent from its closing price on Monday (14 March).
Assuming it takes out a S$100 million loan with a fixed rate of 3.4 percent, while the issuance comes at a 5 percent discount from its last closing price, the blended cost of capital is estimated to be approximately 5.3 percent, whilst the asset offers a yield of 6.8 percent based on its earnings before interest, tax, depreciation and amortization (EBITDA).
As such, management expects an accretion of 1.5 to 1.6 percent, but Ascott’s gearing ratio is projected to creep up by 0.9 percentage points to 40.2 percent upon completion of the deal.
Looking ahead, Ascott REIT still has another S$1 billion before it reaches its target of growing its asset base to S$6 billion by end-2017, and the management still wants to expand its presence in the US to 20 percent, added Credit Suisse.
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