SINGAPORE (July 4): DBS Group Research says Ascott Residence Trust’s (ART) divestment of two serviced residence properties in China – Citadines Biyun Shanghai and Citadines Gaoxin Xi’an – are consistent with its growth strategy.
Ascott REIT on Monday announced it is selling the two properties for an aggregate consideration of RMB 980 million ($198.0 million).
(See: Ascott REIT to divest 2 China properties for $198 mil)
While this is 69% above the valuation of the two properties as at Dec 31, 2016, DBS says the exit yield is “substantially” below the initial acquisition yield of between 4.5% and 5.0%.
“We are supportive of ART’s plans to sell its lower yielding properties and recycling the proceeds into higher yielding assets such as the DoubleTree property in New York at a pro forma net property income (NPI) yield of 6%,” says DBS lead analyst Mervin Song in a flash note on Tuesday.
Ascott REIT in May announced it is acquiring DoubleTree by Hilton Hotel New York – Times Square South for US$106 million ($148.4 million).
The 224-unit freehold property, located on 36th Street in Midtown Manhattan, is Ascott REIT’s third in the Big Apple.
(See: Ascott Residence Trust acquires Doubletree by Hilton hotel in Manhattan for $148 mil)
According to Song, ART’s gearing should settle at around 35-36%, subject to the final funding structure for the acquisition of DoubleTree by Hilton and Hotel New York Times Square South.
DBS is keeping its “buy” call on ART with an unchanged target price of $1.16, pending the REIT’s upcoming 2Q17 results.
As at 11.08am, units of Ascott REIT are trading flat at $1.16.
