CapitaLand Shares Fall After News Of Offer For Ascott

Source : The Strait Times, Jan 9, 2008

IT WAS a tale of two share prices yesterday, after Monday night's surprise announcement that CapitaLand wanted to take The Ascott Group private.

The property giant's stock dropped by 5.3 per cent to $5.92, while Ascott shares rocketed 41.3 per cent to $1.71.

That price almost matched CapitaLand's offer of $1.73 a share for the 33.5 per cent of Ascott it does not already own. When the offer was announced, the price was 43 per cent ahead of Ascott's closing level on Monday of $1.21.

The move comes as property stocks in Singapore are being hit by fears of a possible United States recession. Mr Vikrant Pandey, an investment analyst at UOB Kay Hian Research, believes those jitters were the main reason behind yesterday's selldown on CapitaLand.

Bears were in the market on Monday but they did not have a chance to trade CapitaLand shares due to a trading halt, he said.

Other analysts, though, maintain the Ascott acquisition is partly to blame for CapitaLand's fall.

OCBC Investment Research analyst Winston Liew said the market 'could be looking for a more conservative growth strategy'.

'Some players think CapitaLand is overpaying but Ascott is in a sector that will continue to grow,' another analyst added.

A UBS report said Ascott shareholders were likely to accept the offer.

JPMorgan said the benefit to CapitaLand of the Ascott move lies in a tidying-up of its group structure.

CapitaLand will be acquiring a subsidiary that pursues a similar asset-light, real estate funds model and strategy at a time when the market is undervaluing the stock, JPMorgan said.

In a note yesterday, Mr Liew said CapitaLand's acquisition price was not cheap, as it represented a 145 per cent premium over Ascott's book value of 70.6 cents and about 17 times Ascott's earnings in the 2007 financial year. He asked: The key question is why?

One possibility is that it allows CapitaLand to use Ascott as a vehicle to park all its residential assets, including recent ones in China.

Mr Liew said Ascott would then eventually divest itself of its developments to Ascott Residence Trust, an investment trust holding service apartments and other real estate across Asia.

As for Ascott itself, the general offer is expected to strengthen further its market leadership in the service apartment business, said a Macquarie Securities report.