Ascott Residence Trust announces 3.07% reset rate for perpetual not redeemed on first call

ASCOTT Residence Trust (ART) has announced the reset distribution rate of 3.07 per cent for the S$250 million perpetual issue that it has decided against redeeming on its first call date tomorrow.

This rate is lower than the 4.68 per cent when the issue was launched, but marginally higher than what analysts had earlier estimated.

Analysts had estimated the reset rate to be about 3 per cent when ART announced a month ago that it would not redeem the perpetual securities. The issue was launched on June 30, 2015 at 4.68 per cent, with its first call date tomorrow.

But the largest hospitality trust in Asia-Pacific, with an asset value of S$7.4 billion as of the end of last year, had decided in late May not to call the issue, setting a precedent for real estate investment trust (Reit) perpetuals. Then, the reset rate, which is dependent on the floating swap offer rate, was not determined.

On Monday, the eve of the first call date, ART announced in a regulatory filing that the reset distribution rate for June 30 to the eve of the next reset date on June 30, 2025 is 3.07 per cent per annum.

While it has not redeemed the issue on the first call date, ART has the option to call the perpetual every six months after June 30.

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ART's managers have said they took into account the longer-term interests of the trust and the current macroeconomic environment in deciding not to call the perpetual issue. The factors they considered included the expectation that ART's financial performance would be adversely impacted, as it has been blindsided by the novel coronavirus pandemic hitting its occupancies and room rates.

Drawing down on debt to redeem the perpetual would increase ART's leverage and reduce the debt headroom available for acquisition opportunities during a market recovery, the managers said. Its property valuations could come under pressure on the back of the softer operating performance as well, which would potentially push ART's leverage higher, they added.

ART is a stapled group comprising Ascott Reit and Ascott Business Trust; managers for both are wholly-owned subsidiaries of Singapore-listed CapitaLand.

The perpetual was trading at 95.113 (bid) when markets closed on Monday. ART units ended at S$0.99 or two Singapore cents lower, before this announcement was made.