ASCOTT Reit has bought a hotel in downtown New York City for US$158 million. It said in an announcement on Monday that this would enlarge the US portfolio to a tenth of Ascott Reit's total asset size.
At least S$100 million of the total sum needed for the acquisition will be funded by proceeds from a private placement, which was also launched on Monday. The rest will be funded by debt.
The 21-storey, 369-unit Sheraton Tribeca New York Hotel is located in Tribeca and adjacent to SoHo, and is Ascott Reit's second acquisition in the Big Apple in less than a year.
Franchised under the Sheraton brand owned by Starwood, it achieved over 90 per cent occupancy and an approximately 7 per cent year-on-year growth in revenue per room in 2015, said Ascott Reit. It was valued at US$166 million.
Ascott Reit expects the acquisition to report an Ebitda of 6.8 per cent, and to increase its distribution income in FY15 by US$6.6 million.
This translates to a rise in distribution per unit on a pro forma basis from 7.99 Singapore cents to about 8.11 cents.
Through the private placement, Ascott Reit will issue 94,787,000 new units to institutional and other investors at an estimated price of between S$1.055 and S$1.085 per unit.
Morgan Stanley is the placement agent and underwriter for the private placement, but it is not advising Ascott Reit or the manager on the acquisition.
Ascott Reit bought its first property in New York in the fourth quarter of 2015. The boutique hotel - called Element New York Times Square West and located between the 8th and 9th Avenues - was the Reit's biggest contributor to revenue growth, it said. It had acquired it for US$165 million.
Ascott Reit's second purchase in New York comes as the city sees its hospitality sector maintaining resilience amid a moribund growth outlook.
Visitor arrivals to the city reached a record high of 58.3 million, according to the US government.
In particular, downtown Manhattan welcomed 14.2 million visitors in 2015, up 14 per cent from 2014.
Revenue per available room for the city posted modest gains in recent years to reach US$254 in 2014. This dipped to US$249 last year, according to STR, a company that compiles data for the hotel and travel industry.
With the acquisition, the US will represent 10 per cent of Ascott Reit's asset portfolio. The Asia-Pacific still forms the bulk of the portfolio at 63.2 per cent, with Europe at 26.8 per cent.
Sheraton Tribeca New York Hotel is a stepping stone for the Reit's bigger ambitions in the US as well as its aim to diversify its portfolio.
"We target to increase our presence in the United States of America to constitute up to 20 per cent of our asset size by 2017," said Ronald Tay, chief executive officer of Ascott Reit.
"Our long-term strategy in the United States of America is to acquire a scalable portfolio of stable, operating assets, with an initial target of key gateway cities along the Eastern Seaboard so as to attain a more significant presence in the country," he added.
This article was first published on March 15, 2016.
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