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CapitaLand makes $1.73-a-share offer for rest of Ascott

Move to privatise service residence arm a bid to strengthen unit’s market position

PROPERTY giant CapitaLand plans to privatise The Ascott Group, its listed service residence arm, in a bid to strengthen Ascott’s position in the market and streamline the group’s operations.

The move was announced in a statement to the Singapore Exchange late last night. It followed an earlier statement that fore-shadowed the plan.

Trading of both CapitaLand and Ascott shares were halted the whole of yesterday.

Trading in units of the Ascott Residence Trust (ART) was also halted to avoid confusion, although the trust is not involved in the offer.

CapitaLand will offer $1.73 cash for each share, valuing the entire Ascott group at a whopping $2.8 billion.

The offer price gave investors a healthy 43 per cent premium over the $1.21 closing price on Friday, the last trading day before yesterday’s halt.

The property group already owns 67 per cent of Ascott, which was listed on the mainboard in 2001.

Chief executive of CapitaLand Liew Mun Leong said: ‘CapitaLand has created significant value for its shareholders along the entire real estate value chain and by building a capital-efficient business model.’

For Ascott, ‘this approach can be accelerated further if Ascott is privatised’.

In making the offer, CapitaLand cited intensifying competition in the growing global service residence market.

‘As a listed entity, Ascott has to comply with listing and compliance requirements, and this may restrict Ascott from having full flexibility to leverage on the capital base, resources and opportunities of CapitaLand.’

For example, when CapitaLand partners Ascott in a development now, this counts as an ‘interested person transaction’, which lengthens the time to completion.

Secondly, if Ascott is fully owned by CapitaLand, the property giant feels that it will have more flexibility in managing its mix of developments. It will also be better able to respond to demand in different markets.

Cost savings is a third factor.

Yesterday’s preliminary statement that CapitaLand was looking to buy the Ascott shares it does not own caught the market by surprise.

Some baffled analysts were unable to suggest why the offer had been made.

‘It’s not as though Ascott is in trouble,’ said an investment analyst who asked not to be named. ‘Its gearing is not high – in fact, it’s low – and it’s in a sector that’s doing well.’

Ascott is the largest operator of service apartments in Europe and Asia, with a portfolio of more than 20,000 units in 23 countries. It has a market capitalisation of $1.94 billion.

In 2006, the group spun off some assets into ART, a real estate investment trust that now owns 18 properties.

CapitaLand’s move to take Ascott private ‘goes against the grain of an asset-light balance sheet’, a strategy it has stressed repeatedly, said the investment analyst.

But Kim Eng Research analyst Wilson Liew said CapitaLand might ‘think it’s a good time to buy back some Ascott Group shares’.

‘The consensus seems that it is rather undervalued,’ he said.

Since June, at least five research houses have put out an ‘overweight’ or ‘buy’ call on Ascott, with target prices ranging from $2.17 to $2.46.

It has traded mostly between $1.40 and $1.90 over the last year, hitting a high of $2.06 in May and dropping to a low of $1.12 just weeks ago.

The group’s net asset value per share was 70.6 cents as at Sept 30. Revenue for the three months ended Sept 30 rose 17 per cent to $116.5 million, although net profit dipped 41 per cent to $34.1 million.

 

Source: The Straits Times 8 Jan 08

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