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DJ MARKET TALK:Morgan Stanley Raises Ascott REIT Target To S$1.30
Dow Jones Newswires | 23 Aug 2010 4:12pm

0813 GMT [Dow Jones] STOCK CALL: Morgan Stanley lifts Ascott Residence Trust (A68U.SG) target price to S$1.30 from S$1.18, based on discounted cashflow valuation, to factor in value accretion stemming from S$969.6 million purchase of 28 serviced residence properties from parent CapitaLand (C31.SG). "We see improved earnings stability from diversification into Europe and from greater earnings contribution from master leases and guaranteed income contracts."
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Paul's and Morgan Stanley's optimism notwithstanding, my concern is that after the placement, the final outstanding shares tally is not far from doubled! That is definitive. What is not is the increase in dividend payment. That's just one of their so-called 'forward-looking statements'. How much dividend will improve from the new Europe portfolio would depend on how well the 26 properties do in terms of bottom line. And that would depend on the geographic location of the properties, their marketing strategy and links with tour agents, and of course the state of not only the Eurozone but the global economy as well.

**Paul Lee** · 25-08-2010, 11:45 AM

MikeL09 wrote:

What do you guys make of the above development?

Around 458 million shares would be placed to CapitaLand at discounted of 1.15 as part of fund raising to fund Europe acquisition of 26 properties.
Is it a case of CapitaLand dumping on Ascott? Or Ascott leveraging on CapitaLand?

Judging from the sell down in recent days, investors may be a bit uneasy with the huge exposure to Europe where things are still precarious.
Any upside from the supposedly dividend accretive move would likely be stymied by the sinking feeling from the dilution factor.

Any comments?

Its a little bit of both and it really depends on your prospective. Its a given that for any sponsored REITs, the perception of dumping will always be prevalent. And some REITs does a far worse job than I see what the Capland-sponsored REITs have done.

I dun see any problem with exposure to European. The post-acquisition mix still looks ok to me. Its seems to me though that Ascott REITs is changing their focus from being a 'Pan Asian hospitality REIT' to one that encompassed the wider European region. Perhaps it is precisely because things are precarious in Europe that makes the acquisition attractive.

While I will want to go through the giant circular in greater detail (looks to be nearly as thick as the yellow pages!), I do judge the proposed acquisitions positively despite the dilution factor.

Sell down is always an opportunity to buy more!