Despite the bruising trade war with the US, China’s growth story is far from complete. The International Monetary Fund (IMF) forecasts China’s GDP to grow by 6.2% in 2019 and 6% in 2020.
As such, it may be wise to still have some exposure to the fast-growing nation. With that in mind, here are two China-focused real estate investment trusts (REITs) that I am putting my money on.
Riding a sunrise industry
As the only China-outlet-mall-REIT listed in Singapore, Sasseur Real Estate Investment Trust (SGX: CRPU) is in a unique position to ride the growing consumerism in China. All the signs point to the REIT’s ability to grow its DPU in the next few years.
First, tenant sales at its four outlet malls have grown at pace in recent years. In the first half of 2019 alone, total tenant sales increased by a staggering 19.9%, with no signs of slowing down.
VIP members, who contribute more than 50% of total sales in the malls increased by 39.7% in total.
On top of organic growth in its existing malls, Sasseur REIT is well-positioned to grow through acquisitions. As of 30 June 2019, it had a gearing ratio of just 29.7%, one of the lowest among Singapore-listed REITs – giving it the platform to make acquisitions that can meaningfully increase its DPU.
What’s more, Sasseur REIT trades at an undemanding valuation. At its current price, it has a meaty trailing yield of 8.5% and trades around 10% below its book value.
A high and sustainable yield
With an annualised yield of 8.4%, EC World Real Estate Investment Trust (SGX: BWCU) is one of the highest-yield REITs in the market.But more importantly, the REIT looks likely to be able to sustain it going forward.
It has a long weighted average lease expiry of 4.6 years by gross rental income. Its sponsor has also shown its commitment to the REIT by extending two of its master leases way in advance.
In addition, most of its master leases have annual rent escalations, providing the REIT with visible organic growth.
On top of that, EC World recently announced an acquisition that will increase its yield further. Although I have to acknowledge that EC World is dependent on two key tenants, which contribute north of 60% of its total rent, the risk is mitigated as one of them is the REIT’s sponsor which, as mentioned earlier, has shown its commitment to continue supporting the REIT.
All things considered, EC World, with its high yield, favourable leases, and recent acquisition, looks like a good way to gain exposure to the China real estate market and its long-term growth.
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 owns shares in Sasseur Real Estate Investment Trust and EC World Real Estate Investment Trust.