Ascott Residence Trust Doubles Its Student Accommodation Assets With US$213 Million Acquisition Of Four Properties in USA
Grows longer-stay lodging assets to 16% of total portfolio to further enhance income resilience
Singapore, 27 December 2021 – Ascott Residence Trust (ART) will acquire four student accommodation assets in the USA for US$213.0 million[1] (S$291.2 million[2]). The four assets have a total of 1,651 beds, serving more than 100,000 students across five universities in three states. The Link University City is located in Pennsylvania, while Latitude on Hillsborough and Uncommon Wilmington are in North Carolina, and Latitude at Kent is in Ohio.
The yield-accretive acquisition is set to increase ART’s pro forma FY 2020 Distribution per Stapled Security by approximately 3.0%[3] and the EBITDA[4] yield is expected to be about 4.9%. The acquisition is expected to be completed in phases from end-December 2021. The acquisition will be 92% funded by debt and 8% funded by the remaining proceeds from ART’s private placement launched in September 2021.
With the new acquisition, ART has built a diversified and quality portfolio of eight student accommodation assets with about 4,400 beds in under a year. Seven of the student accommodation assets are operating assets that are contributing stable income while one is under development. ART’s student accommodation assets are located across seven states, with each state accounting for less than 23% of total beds, reducing portfolio concentration risk through its diversified geographical presence. They are strategically located predominantly in USA’s Sunbelt states, Ivy League and ‘Power 5’ athletics conference markets[5]. Situated near their respective key educational institutions, the eight student accommodation assets will serve over 250,000 students from reputable universities with large student populations, steady enrolment growth and a strong athletics programme. The seven operating assets are new with an average age of two years, offering students well-designed apartments equipped with best-in-class facilities.
Ms Beh Siew Kim, Chief Executive Officer of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART) said: “With the new acquisition, ART has doubled the number of student accommodation assets in our portfolio. Our student accommodation assets and rental housing properties now make up about 16% of our total portfolio value, surpassing our initial target of 15%. We remain on track to grow this longer-stay portfolio to 20% in the medium term, building a sizeable stable income base. In FY 2020 and 2021 to date, ART divested five assets[6] for about S$501 million at an average exit yield of around 2%. In 2021, ART has invested a total of about S$780 million[7] in eight student accommodation assets and three rental housing properties at an average EBITDA yield of about 5%[8], replacing the distributable income from our divested assets at higher yields. We would successfully deploy our funds from the private placement upon completion of the acquisition of the four new student accommodation assets and ART’s gearing will be at 37.8%[9]. ART remains in a strong financial position to seek further yield-accretive investments and generate long-term value for our Stapled Securityholders.”
“ART’s student accommodation assets in the USA have proven to be resilient throughout COVID-19. We are investing more into the sector given the favourable conditions of the overall student accommodation market in the USA. Occupancy rates have recovered to pre-COVID-19 levels and the 2.3% year-on-year increase in rents for Academic Year (AY) 2021 is the strongest rental growth rate across the country since Fall 2016[10]. The latest four student accommodation assets we are acquiring were newly completed between 2019 and 2020. They have a weighted average occupancy rate of about 94% for the AY 2021. With longer lease terms of about a year and continued rental growth given the positive demand-supply dynamics, this yield-accretive acquisition will not only increase our stable income, but also enhance the resilience of ART’s portfolio,” added Ms Beh.
Four new quality assets that augment ART’s student accommodation portfolio
The four new student accommodation assets are predominantly freehold. They serve five reputable universities with strong athletics programmes. The universities also have large student populations with a collective student population of more than 100,000 students. The assets are also well-located within walking distance to campus or close to amenities. The four new student accommodation assets will be managed by unrelated third-party operators.
For more information on the four new student accommodation assets, please see Annex A. For information on ART’s first four student accommodation assets, please see Annex B.
[1] The purchase consideration arrived at on a willing-buyer and willing-seller basis, is based on the agreed value of the properties and the independent valuation of the properties dated 10 December 2021 by Newmark Knight Frank Valuation & Advisory, LLC of US$222.6 million (equivalent to approximately S$304.3 million)
[2] Based on the exchange rate of US$1 to S$1.367
[3] Based on FY 2020 pro forma Distribution per Stapled Security. The pro forma is based on the audited financial statements of ART for the financial year ended 31 December 2020, assuming that (1) the acquisition was completed on 1 January 2020 and ART held and operated the properties through to 31 December 2020 and (2) the acquisition will be funded approximately 92% by debt and 8% by funds raised from private placement in September 2021
[4] Earnings before interest, tax, depreciation and amortisation
[5] Membership in such athletics conferences helps to boost the universities’ brand recognition and provides them with a profitable revenue source
[6] The five divested assets are Ascott Guangzhou, Somerset Azabu East Tokyo, Citadines Didot Montparnasse Paris, Citadines City Centre Grenoble and Somerset Xu Hui Shanghai
[7] Refers to the total purchase consideration for the student accommodation and rental housing properties, as well as ART’s investment in Standard at Columbia, which is under development (comprising ART’s investment in the initial 45% stake, estimated cost of the additional 5% stake which ART will acquire at fair market valuation, and other deal related expenses)
[8] For Standard at Columbia, which is under development, the EBITDA yield is a target yield on a stabilised basis
[9] Based on the unaudited financial statements of ART as at 30 September 2021 and assuming that the acquisition was completed on 30 September 2021
[10] RealPage, Student Housing Sees Highest Rent Growth in Years, September 2021