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2 REITs in the Spotlight This Week

Earnings season is upon us. This week, a host of REITs will be releasing earnings results for the quarter ended 30 June 2019. I will be keeping an eye on two REITs in particular – CapitaLand Retail China Trust (SGX: AU8U) and Ascott Residence Trust (SGX: A68U).

Riding on macro tailwinds

CapitaLand Retail China Trust is set to release its earnings results on Wednesday, 31 July. The China retail-focused trust delivered a stellar set of results in the previous quarter with all headline numbers up from a year ago. Most importantly, distribution per unit (DPU) before capital distribution was up 2% from a year ago.

The trust has been riding on strong Chinese retail trends as comparable shopper traffic and tenant sales increased by 5.7% and 2.5% respectively. On top of that, rental reversions in the first quarter were positive 9.5%, which should provide a significant lift to rental income in the future.

While the ongoing trade war has clearly had an impact on China’s growth prospects, Beijing has set its 2019 growth target at between 6-6.5%. Urban disposable income per capita also grew 7.8%, which should provide shoppers with greater spending power down the road.

Combining with Ascendas Hospitality Trust

Ascott Residence Trust will be releasing its first results since the announcement to combine with Ascendas Hospitality Trust (SGX: Q1P). The combined trust will consolidate its position as the largest hospitality trust in the Asia Pacific with assets worth around S$7.6 billion.

The proposed scheme is for a 5% cash consideration and 95% consideration in units issued at S$1.30. This translates to S$1.0868 per Ascendas Hospitality Stapled unit for a total of S$1.2 billion. The combination is expected to be DPU-accretive and will enhance the trust’s trading liquidity.

In the quarter ended 31 March, Ascott Residence Trust’s adjusted distribution per unit increased 4% on the back of better operating performance and lower financing costs. There was also good news in terms of capital recycling as Ascott Residence Trust divested Ascott Raffles Place Singapore at 64.3% above book value and with an exit yield of 2%. This will give it the capital to make more yield-accretive acquisitions, considering that the exit yield was quite low.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended the shares of Capitaland Retail China Trust.