Here’s the downside of OUE Hospitality Trust’s massive rights issue

It’s going to take a toll on DPU.

OUE Hospitality Trust’s (OUEHT) acquisition of Crowne Plaza Extension (CPEX) is DPU-dilutive, due largely to its reliance on a steeply discounted rights issue.

According to a report by OCBC, OUEHT recently announced a rights issue to raise gross proceeds of about $238.6m at an issue price of$0.540.

This is a 28% discount to yesterday’s closing price of $0.75, and a 23% discount to the theoretical ex-rights price of $0.698. The rights ratios is 33 Rights Stapled Securities for each 100 existing shares.

“In our previous forecast, we assumed 50% debt financing for the CPEX acquisition,” notes OCBC.

“We do note that the reliance on equity financing for the CPEX acquisition will reduce OUEHT’s gearing from 42.0% to 37.8%; leaving the manager with greater financial flexibility going forward,” OCBC adds.