Ascott Residence Trust (ART) has entered into conditional sale and purchase agreements to divest its interests in two serviced residence properties in China –Citadines Biyun Shanghai and Citadines Gaoxin Xi’an – for RMB 980m (approx. S$198m) or 69% above the 2016 valuation of the assets. Completion of the divestment is expected to take place in 2H17.

On a pro forma basis, FY16 DPU would drop 0.5% from 8.27 S cents to 8.23 S cents while FY16 NAV per unit would increase from S$1.33 to S$1.36. We view the divestment as a positive step within ART's strategy of capital recycling, considering the limited growth prospects for the assets as well as their capex needs going forward. ART is currently trading at a FY17F yield of 5.3%.

Maintain HOLD on ART with a fair value of S$1.095.

Source: OCBC Research - 4 Jul 2017