CapitaLand Ascott Trust f.k.a. Ascott Trust Official (SGX:HMN)

vaxvms · Aug 25, 2010

contra

capitaland @3.96 due date 1/sep

Paul Lee · Aug 25, 2010

MikeL09 said:
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! :s12:

MikeL09 · Aug 25, 2010

Paul Lee said:
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.

________________________________________________________________________
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."
_________________________________________________________________________

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.

vaxvms · Aug 26, 2010

how high will she go?
hmmm.........loon till monday see how unless chiong likr rocket

Alphidius · Aug 26, 2010

Hi guys, what are your opinions on the following proposals?

1. Acquisition of interests in serviced residence properties in Singapore, Vietnam & Europe & divestment of interest in China

2. Issue of new units under equity fund raising

3. Placement of new units to Capitaland group as part of the equity fund raising

Aye/Nay? What say you?

Paul Lee · Aug 26, 2010

I already shared some of my views in the other thread. But generally I would say aye. Yes the issue of the shares would be dilutive and worse minority shareholders like us cannot participate like in a rights issue.

On the other hand, it does give you a choice to exit if the widening of its 'Pan-Asian focus' to include the European region gives you pause for concerns. Or if you are thinking this is yet another scandalous and shameless dumping of assets by Capland.

I am delighted that the shares is being viewed so negatively by the market and at the sell down following the news. As always, its an excellent opportunity to add on more. I like Ascott because its the only REIT on SGX focused on serviced apartments; so its very niche.

Alphidius · Aug 26, 2010

Paul Lee said:
I already shared some of my views in the other thread. But generally I would say aye. Yes the issue of the shares would be dilutive and worse minority shareholders like us cannot participate like in a rights issue.

On the other hand, it does give you a choice to exit if the widening of its 'Pan-Asian focus' to include the European region gives you pause for concerns. Or if you are thinking this is yet another scandalous and shameless dumping of assets by Capland.

I am delighted that the shares is being viewed so negatively by the market and at the sell down following the news. As always, its an excellent opportunity to add on more. I like Ascott because its the only REIT on SGX focused on serviced apartments; so its very niche.

It's Aye for me too.
Just wanted to know other shareholders' opinions.
Waiting for it to fall somemore, wanna load some later on.

A little OT. Have you taken a look Citadines website?
Their Euro Serviced Apartments look damn nice and well situated.
The one at the Louvre looks gorgeous. Too bad they don't give discount to shareholders... :s22:

MikeL09 · Aug 27, 2010

Paul Lee said:
I already shared some of my views in the other thread. But generally I would say aye. Yes the issue of the shares would be dilutive and worse minority shareholders like us cannot participate like in a rights issue.

I was actually a bit relieved that I don't need to cough up money for any rights issues, as I want to put my money into a different basket for greater diversification of my portfolio, which I realised is getting a bit Reits-centric.OMG!

So I am neutral on this, but do hope all their forward-looking statements don't turn out to be a pie in the sky. But if the price falls to 83 cts, I will definitely bet my money on it! :s13:

Paul Lee · Aug 27, 2010

MikeL09 said:
I was actually a bit relieved that I don't need to cough up money for any rights issues,

If the rights issue is rennouncable, you have the options of selling your rights away if you dun want to cough out more money. But if they do it through equity raising, you get nothing.

Alphidius · Aug 27, 2010

Paul Lee said:
If the rights issue is rennouncable, you have the options of selling your rights away if you dun want to cough out more money. But if they do it through equity raising, you get nothing.

Have they indicated if it will be rights offering?

notanakin · Aug 28, 2010

I received the fat document about this (so yes, I own some of this stock). I want to emphasise that I am no expert, and I found it difficult to understand what is happening regarding the capital raising. I am also typing this from memory as I don't have the document with me here in the coffee shop

.

From my reading, it seems that there WILL be a rights issue (indicative price $1.15) and that unfortunately the rights are NOT renounceable - so no selling of rights.

It doesn't seem to say how many shares you will be offered per share. But I think somewhere it says that there will be about 76% new units. I suppose this might mean that you will be offered 760 new shares per 1,000 owned.

It also seems like the effect on DPU is forecast to be slightly positive (about 2%), which I take to mean that the DPU yield on the new properties is a little higher than on the current properties, so that when combined, the DPU yield will be slightly higher. (Of course, this is only a forecast and not guaranteed to hold in the future.)

I'm in favour of the deal, although I can understand that some people who bought into this REIT might not like the broader international exposure.

The EGM or whatever the meeting will be called is going to be held on 9 September, IIRC.

Paul Lee · Aug 28, 2010

OK. Yes. There will be a Preferential Offerings as part of the Equity Fund Raising at the indicative price of $1.15 for existing Unitholders.

A Preferential Offering is non-rennouncable unlike a rights issue. So you wont not be able to sell it away. Basically its a 'take-it-or-leave-it' approach. You can apply for excess units under a NRPO (Non-Rennouncable Preferential Offering)

Alphidius · Aug 28, 2010

notanakin said:
I received the fat document about this (so yes, I own some of this stock). I want to emphasise that I am no expert, and I found it difficult to understand what is happening regarding the capital raising. I am also typing this from memory as I don't have the document with me here in the coffee shop .

From my reading, it seems that there WILL be a rights issue (indicative price $1.15) and that unfortunately the rights are NOT renounceable - so no selling of rights.

It doesn't seem to say how many shares you will be offered per share. But I think somewhere it says that there will be about 76% new units. I suppose this might mean that you will be offered 760 new shares per 1,000 owned.

It also seems like the effect on DPU is forecast to be slightly positive (about 2%), which I take to mean that the DPU yield on the new properties is a little higher than on the current properties, so that when combined, the DPU yield will be slightly higher. (Of course, this is only a forecast and not guaranteed to hold in the future.)

I'm in favour of the deal, although I can understand that some people who bought into this REIT might not like the broader international exposure.

The EGM or whatever the meeting will be called is going to be held on 9 September, IIRC.

I just got to page 73 and realized it is non-rennouncable preferential offering. The illustrative price is not the issue price, to be set by the Manager.

The exposures and risks are clearly defined on page 16, "Risk Factors".
Going to see how this plays out.

kenpachi82 · Aug 29, 2010

So will we be informed on the price(not 1.15?) and the amount of new shares we 'have' to buy after the EGM? This preferential offering just sounds like a rights issue to me.. So if we do not subscribe to it, we suffer a drop in our dividend payout due to the dilution right?

Alphidius · Aug 29, 2010

The preferential offering is a rights issue minus the transferable part.
You either sell your shares before the proposal is passed (if it is passed) or hold and must buy the preferential offering.

Explanation here

My 2.14 cents

notanakin · Sep 1, 2010

kenpachi82 said:
So will we be informed on the price(not 1.15?) and the amount of new shares we 'have' to buy after the EGM? This preferential offering just sounds like a rights issue to me.. So if we do not subscribe to it, we suffer a drop in our dividend payout due to the dilution right?

There's a difference between dilution of shareholding and drop in DPU. Of course if the total distributable income stays fixed and new units are added, then there is both dilution and a fall in DPU (same income divided by more units).

But in this case, assuming the projections are correct, the transaction is yield accretive. This is because the additional money being raised is used to buy properties that proportionately add (very slightly) MORE to the total distributable income than the existing portfolio.

An example: we currently have 1,000 units at $1 each and total distributable income is $100. So DPU is 10c. Now the REIT raises an additional $1,000 by offering 1,000 units at $1 each. This $1,000 is used to buy a property that generates distributable income of $110. After the transaction is done, total units = 2,000 and total distributable income is $210. DPU is now 10.5c.

If you had 100 units before, you owned 10% of the units. After the rights issue and assuming you didn't take up the rights, you still own 100 units, but now you are diluted to 5% of the units. BUT your DPU has gone up (in this example).

The fear of dilution is because of the fund-raising that REITS do from time to time where the funds are not immediately used to acquire assets. Using the above example, let's say the REIT only wants to raise capital (perhaps to reduce debt), and the additional $1,000 is not used to buy anything. So additional distributable income is 0. In this case, after the rights issue, total units = 2,000 and total distributable income is still $100. Then DPU goes down to 5c. In this case, you have both dilution AND reduction of DPU.

Alphidius said:
You either sell your shares before the proposal is passed (if it is passed) or hold and must buy the preferential offering.

But just to clarify (although I'm sure Alphidius knows this), you don't HAVE to buy the preferential offering if you hold on to the shares. You can just hold on to the shares and do nothing when you get the preferential offering. Someone else (though I'm not sure who) will take up the rights so that the total target amount is raised.

Alphidius · Sep 1, 2010

notanakin said:
But just to clarify (although I'm sure Alphidius knows this), you don't HAVE to buy the preferential offering if you hold on to the shares. You can just hold on to the shares and do nothing when you get the preferential offering. Someone else (though I'm not sure who) will take up the rights so that the total target amount is raised.

This is usually not advisable as after the rights issue there WILL be dilution.
Doing nothing will usually put you at a loss. So my 2.14 cents advise is to sell before the issue or go for the rights.

Again my 2.14 cents

Paul Lee · Sep 1, 2010

I say this before and I will say this again and again like a old broken radio.

For minority unitholders like us, dilution is over-stated, over-rated and not a concern for most of us with no aspiration to control the entity.

The issue is not dilution but DPU. Bro notanakin has given an excellent and detailed example of how it is possible for dilution to occur and yet the DPU rise.

I think its is perfectly acceptable not to accept the Preferential Offerings (PO) and just sit on your current holdings. There are a host of perfectly acceptable reasons to do this. Accepting the PO just to avoid dilution is not one of them.

For me, I will definitely be taking up the PO and will apply for excess (if allowed).

MikeL09 · Sep 1, 2010

notanakin said:
There's a difference between dilution of shareholding and drop in DPU. Of course if the total distributable income stays fixed and new units are added, then there is both dilution and a fall in DPU (same income divided by more units).

But in this case, assuming the projections are correct, the transaction is yield accretive. This is because the additional money being raised is used to buy properties that proportionately add (very slightly) MORE to the total distributable income than the existing portfolio.

An example: we currently have 1,000 units at $1 each and total distributable income is $100. So DPU is 10c. Now the REIT raises an additional $1,000 by offering 1,000 units at $1 each. This $1,000 is used to buy a property that generates distributable income of $110. After the transaction is done, total units = 2,000 and total distributable income is $210. DPU is now 10.5c.

If you had 100 units before, you owned 10% of the units. After the rights issue and assuming you didn't take up the rights, you still own 100 units, but now you are diluted to 5% of the units. BUT your DPU has gone up (in this example).

The fear of dilution is because of the fund-raising that REITS do from time to time where the funds are not immediately used to acquire assets. Using the above example, let's say the REIT only wants to raise capital (perhaps to reduce debt), and the additional $1,000 is not used to buy anything. So additional distributable income is 0. In this case, after the rights issue, total units = 2,000 and total distributable income is still $100. Then DPU goes down to 5c. In this case, you have both dilution AND reduction of DPU.

But just to clarify (although I'm sure Alphidius knows this), you don't HAVE to buy the preferential offering if you hold on to the shares. You can just hold on to the shares and do nothing when you get the preferential offering. Someone else (though I'm not sure who) will take up the rights so that the total target amount is raised.

Good illustrations!
How many units will be offered as rights issue to retail investors after private placement to CapitaLand?
Given today's price of 1.12, it doesn't make sense to take up the rights at 1.15. It could go down further for all you know.
I might as well buy from the open market. :s22:

Alphidius · Sep 1, 2010

Paul is right in saying it is perfectly fine to just ignore the PO but to me capital preservation is still important.
This is problematic and unique to me since I got in at a very bad price.
With dilution kicking in, even the PO price of 1.15 can bring my average price down.
So I'll definitely take up the issue.

Again, I still think doing nothing is disadvantageous.
But this is my personal stand as all my posts have always been.

My 2.14 cents

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