CDL Hospitality Trusts (CDLHT) has launched a private placement of new stapled securities to raise some $150 million in gross proceeds to strengthen its balance sheet and position itself for future acquisitions.

The new stapled securities are priced at between $1.71 and $1.77 a unit. The unit was last traded at $1.89.

The placement will see CDLHT - a stapled group consisting of real estate investment trust CDL Hospitality Real Estate Investment Trust (H-Reit) and business trust CDL Hospitality Business Trust (HBT) - issuing between 84,750,000 and 87,720,000 stapled securities. This is subject to an upsize option to raise an additional $50 million of gross proceeds - which will increase the number of units to be issued by between 28,250,000 and 29,240,000.

Each stapled security comprises one unit in H-Reit and one unit in HBT.

The manager of H-Reit, M&C Reit Management Limited, intends to use about $116.3 million of the proceeds to repay the Singapore dollar portion of a one-year bridging facility that was used to finance its recent acquisition of properties - Novotel Brisbane, Mercure Brisbane, Ibis Brisbane, Mercure Perth and Ibis Perth - in Australia.

In addition, $30.9 million, or up to $80.1 million if the upsize option was exercised, will go to repaying part of a DBS loan facility comprising a term loan facility and a revolving credit facility.

The balance of the proceeds will be used for the expenses incurred in connection with the private placement, and for general corporate or working capital purposes.

'This private placement allows us to significantly strengthen our balance sheet, boosting our debt headroom and putting us into a better position to move quickly as and when acquisition opportunities may arise,' said Vincent Yeo, chief executive officer of the manager of H-Reit. 'With the recovery of the hospitality sector, we believe there will be opportunities to make strategic value-accretive asset acquisitions that can further propel our growth.'

Assuming minimum gross proceeds, the move will improve H-Reit's capital structure by reducing borrowings from $546.3 million before the private placement to $399.1 million immediately after the placement. This being so, its gearing level will correspondingly decrease from 30.9 per cent to 22.6 per cent.

'With a strengthened balance sheet, it also enhances CDLHT's ability to secure more attractive terms as we seek to refinance our existing borrowings,' said Mr Yeo.

The H-Reit manager and the HBT trustee-manager (M&C Business Trust Management Ltd) have appointed DBS Bank and Standard Chartered Securities (Singapore) as the joint lead managers and underwriters of the private placement.

As such, DBS and Standard Chartered Securities will be in charge of procuring subscribers for the new stapled securities at the issue price.

This issue price will be determined after a book-building process.

Source : The Business Times © Singapore Press Holdings Ltd. Reprinted with permission.