Shares of CapitaLand took a hit on Tuesday – giving up 5 percent following news it was making a move to gain total control of the Ascott Group.
The developer is offering S$1.73 a share for all the remaining shares of the serviced residence operator that it did not already own. That is 43 percent higher than Ascott's last closing price, leading some analysts to suggest that the offer might have been overpriced.
As it is, CapitaLand already holds a 66.5 percent stake in the Ascott Group. Taking it under total control will allow Ascott to leverage fully on its capital base, resources and opportunities.
Some analysts said CapitaLand may be on to something.
Khoo Chen Hsung, Vice-President of Research, CIMB-GK Research, said: "Ascott clearly has a lot of value within that company, which clearly financial markets may not fully realise, especially with the strategy of it recycling assets into Ascott REIT. This is an interesting way for CapitaLand to extract the value, bring it in and do the necessary.
"Bringing it in suggests that CapitaLand probably has lots of other assets it wants to inject into Ascott REIT, without having to go through the hassle of getting approval."
The offer works out to about S$990 million.
CapitaLand said it is a good opportunity for Ascott shareholders to realise their investment, and some market-watchers agree.
"The valuation they got is in the mid range of five-year average valuation band for Ascott. So it's a fair deal, especially in this current market environment. Most stocks won't be expected to perform too well this year. This has definitely given them a windfall return, especially for shorter term investors," said Mr Khoo.
Ascott Group is the largest serviced residence operator in Europe and Asia, with about 600 units for rent in Singapore. Its shares jumped 41 percent in Tuesday's trade, closing at S$1.71.
Going forward, analysts are not ruling out the possibility of a re-listing.
Mr Khoo said: "I see the potential for CapitaLand to re-list Ascott Group again in the future but probably as an asset light player that will operate more through management contracts. It's the kind of model that most luxury hotel operators in the US pursue, like the Mariott Group." - CNA/so
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