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Dark side of Ascott REIT

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As a hospitality S-Reit heavyweight, Ascott REIT offers a form of passive income stream and exposure to a geographically diversified portfolio. Henceforth, for a period of time, I was very tempted to invest in this REIT supremo as revenue for Ascott REIT surged from $357 million in FY2014 to $496 million. Net income powered from $122 million to $214 million in the same period.

Indeed, it appears to me that investing Ascott REIT is an absolute safe bet. But certain aspect of its business strategies made me changed my mind. In this article, I will share my insights on Ascott REIT.

Profile of Ascott REIT

Since its establishment in 2006, Ascott REIT has grown into a top S-Reit with market capitalization of $2.33 billion and total assets worth a cool $5.3 billion. As a leading serviced residence player, its investment moat lies in having 11,430 apartment units across 37 cities.

Part of the reason for the success story of Ascott REIT is its unique business model of maintaining a balanced “stable income” and “growth income” management contracts for its property portfolio. I also love its growth strategies of acquisitions from its Sponsor (20 pipeline properties via ROFR) and the continuous asset enhancement initiatives to increase the market value of its properties.

On the surface, the financial performance of Ascott REIT would surely made a compelling investment case. However, the showstopper for this counter has to be the relentless rights issues and private placements. The thirst for capital resulted in depressed yield, Return on Equity (ROE) and slump in unit price.

Ascott REIT

On 20 September 2018, Ascott REIT announced its first development project with acquisition of a Singapore prime site, Nepal Hill, for $62.4 million. While this is not really a colossus sum of money, investors may be left wondering if it could trigger more acquisitions and leads to further rights issues. Should investors run for their lives before Ascott REIT raise another equity funding?

Sheer madness

Investors would look back and note that Ascott REIT unit price had a major correction since 2013, falling from a high of $1.46 in May to the current $1.08. The counter was actually quite [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: September 27, 2018 — 2:19 am

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