DBS maintains ‘Buy’ rating on Ascott REIT after news on Chinese properties disposal

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DBS Investment Research has maintained a ‘Buy’ rating on Ascott REIT after the latter announced on 3 July that it was divesting two of its properties in China.

The properties, Citadines Biyun Shanghai, and Citadines Gaoxin Xi’an, are being disposed for a total consideration of RMB980 million (USD144 million), which is about 69% above the 2016 valuation of the properties.

“To maintain the performance and competitiveness of the properties, it is expected that additional capital expenditure will be required in the near future”, said Ascott REIT in its statement on the divestment.

“In view of the above, and at the same time given that growth prospects of both properties are limited due to changes in the operating environment, the sale would be at an opportune time to unlock the underlying value of the properties and redeploy the proceeds in other higher yielding assets to enhance the returns of Ascott REIT’s portfolio”, it added.

The REIT however indicated that net proceeds from the divestment may also be used to pare down debts, or general corporate purposes.

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Ridzwan Rahmat has been analysing Singapore-listed REITs and business trusts, since 2008. For disclosure purposes, Ridzwan is currently vested in Mapletree Greater China Commercial Trust, Mapletree Industrial REIT and Mapletree Logistics Trust.

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