Ascott Residence Trust acquires three rental housing properties in Japan for JPY 6.78 billion

Singapore, 1 June 2021 – Ascott Residence Trust (ART) has entered into agreements to acquire three freehold rental housing properties in central Sapporo for a total of JPY 6.78 billion (S$85.2 million^[1]) to expand its rental housing portfolio in Japan. The three rental housing properties – City Court Kita 1 jo, Big Palace Minami 5 jo, and Alpha Square Kita 15 jo^[2] – are from unrelated third parties. The average EBITDA yield of the three acquisitions is approximately 4%. The transactions are expected to complete by end June 2021. The acquisition of the three rental housing properties will be funded by debt and part of the net proceeds from recent divestments.

On 27 May 2021, ART successfully completed the divestment of Somerset Xu Hui Shanghai to an unrelated third party for RMB 1.05 billion (S$216.6 million^[3]). The divestment price was 171% above the property’s book value and the exit yield was approximately 2%. Through the transaction, ART has received net proceeds of about RMB 953.9 million (approximately S$196.8 million^[3]) and realised a net divestment gain of about RMB 582.6 million^[4] (approximately S$120.2 million^[3]).

“Through ART’s active portfolio reconstitution, we are able to create value for Stapled Securityholders by reinvesting proceeds from our recent divestments at a lower capitalisation rate of about 2%^[5] into higher yielding and resilient rental housing properties in Japan at about 4% yield. ART’s acquisitions of these rental housing properties will increase our presence in the longer-stay accommodation segment and diversify from hospitality assets which are facing headwinds due to COVID-19, further enhancing income stability. ART’s acquisition of our first student accommodation asset Paloma West Midtown^[6] in Georgia, USA in February 2021 was also another step to increase our stable income. With the acquisitions, our student accommodation and rental housing portfolios will expand to about 8% of our total property value^[7]. We aim to grow it to about 15% - 20% in the medium term. We will continue to actively reconstitute ART’s portfolio and seek yield-accretive investment opportunities to deliver long-term value for our Stapled Securityholders.”

- Mr Bob Tan, Chairman of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART) 

“ART is further maximising returns to our Stapled Securityholders with the acquisitions of the three rental housing properties. On a FY 2020 pro forma basis, ART’s Distribution per Stapled Security is expected to increase by 2.6%. In 2020 amid COVID-19, ART’s 11 rental housing properties in Japan performed well at an average occupancy rate of 96%, especially those located close to key demand drivers such as the working population in the central business districts or students from universities. Rental housing leases, which are typically two years in length, also provide greater visibility and stability in future cashflows.”

- Ms Beh Siew Kim, Chief Executive Officer of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART)

Ms Beh added: “We are acquiring quality rental housing properties in Sapporo, one of the fastest-growing cities in Japan. Sapporo is the capital of Hokkaido and a key economic and logistics hub, well supported by a large and educated workforce. The city has also been recording positive net-migration^[8]. Rates of rental housing properties in Sapporo have remained stable and we expect strong demand for our rental housing properties given the limited new supply. The three rental housing properties are within walking distance from train stations, a wide range of retail and entertainment options, and are either within or near the central business district.”

Despite COVID-19, ART remains in a strong financial position with healthy liquidity. Following the acquisitions of the three rental housing properties and divestment of Somerset Xu Hui Shanghai, ART has access to about S$1.2 billion of total available funds comprising cash on hand, available credit facilities and net divestment proceeds. ART has a debt headroom of S$1.9 billion^[9] and gearing of 36.8% after the transactions^[10]. This gives ART the financial flexibility to further grow by investing the funds into higher yielding assets, to rejuvenate its portfolio or pare down debt.

The three rental housing properties with a total of 411 units will increase ART’s portfolio in Japan to over 4,500 units in 22 serviced residences, hotels and rental housing properties in nine cities. ART will have a total of 14 rental housing properties in Japan including four in Sapporo. The three rental housing properties will be managed by a local property manager, Kabushiki Kaisha Big Service, which is also the current property manager for ART’s rental housing property in Sapporo, Big Palace Kita 14 jo.

Please see Annex for more information on the three rental housing properties in Sapporo and Somerset Xu Hui Shanghai.

Notes:

[1] Based on exchange rate of JPY 1 to S$0.01256

[2] ART has signed the agreement to acquire Alpha Square Kita 15 jo on 26 March 2021

[3] Based on exchange rate of RMB 1 to S$0.2063

[4] Subject to final completion accounts adjustments

[5] Based on the properties’ EBITDA in the last financial year before they were divested

[6] Formerly Signature West Midtown

[7] Comprises valuation of ART’s investment properties as at 31 December 2020, total property development expenditure of properties under development, and total acquisition costs of Paloma West Midtown and the three rental housing properties in Japan

[8] Source: Statistics of Japan

[9] Refers to the amount of additional debt before reaching aggregate leverage of 50%

[10] Also takes into account the divestment of Citadines City Centre Grenoble and Citadines Didot Montparnasse Paris

Annex – About the rental housing properties and Somerset Xu Hui Shanghai