Ascott Residence Trust doubles student accommodation assets with $290m purchase

SINGAPORE (THE BUSINESS TIMES) - Ascott Residence Trust (ART) will acquire four student accommodation assets with a total of 1,651 beds in the United States for US$213 million (S$289.5 million), managers of the stapled group announced on Monday (Dec 27).

Ascott Residence Trust Management and Ascott Business Trust Management pointed out that the yield-accretive acquisition, which will double ART's student accommodation assets, is set to increase the hospitality trust's pro forma financial year 2020 distribution per stapled security by about 3 per cent.

The earnings before interest, tax, depreciation and amortisation (Ebitda) yield is expected to be about 4.9 per cent, they added.

The four mostly freehold assets are Link University City in Pennsylvania, Latitude on Hillsborough and Uncommon Wilmington in North Carolina and Latitude at Kent in Ohio. They serve more than 100,000 students across five universities in three US states.

The acquisition will be 92 per cent funded by debt and 8 per cent funded by the remaining proceeds from ART's private placement launched in September.

When completed, the managers said ART would have built a "diversified and quality portfolio" of eight student accommodation assets with about 4,400 beds in under a year.

Of the eight - which are predominantly in US' Sunbelt states, Ivy League and "Power 5" athletics conference markets - seven are operating assets that are contributing stable income and new with an average age of two years, while one is under development.

The managers added that portfolio concentration risk would be reduced now that the assets are spread across seven states, with each state accounting for less than 23 per cent of total beds.

Ms Beh Siew Kim, chief executive of the trust's managers, said ART had invested more into the sector given the favourable conditions of the overall student accommodation market in the US.

She added that ART's student accommodation assets in the US have proven to be resilient throughout the Covid-19 pandemic.

Ms Beh then gave an update of ART's overall portfolio, pointing out that student accommodation assets and rental housing properties now make up about 16 per cent of ART's total portfolio value, surpassing its initial target of 15 per cent.

"We remain on track to grow this longer-stay portfolio to 20 per cent in the medium term, building a sizeable stable income base," she said.

ART had divested five assets for about $501 million at an average exit yield of around 2 per cent in FY2020 and FY2021 to date, she added.

Mr Beh also pointed out that this year, ART invested a total of about $780 million in eight student accommodation assets and three rental housing properties at an average Ebitda yield of about 5 per cent, replacing the distributable income from ART's divested assets at higher yields.

Upon completion of the latest acquisition, ART's gearing will be at 37.8 per cent, if figures from the unaudited financial statements of the trust as at Sept 30, 2021, were used, she added.

With this, she said: "ART remains in a strong financial position to seek further yield-accretive investments and generate long-term value for our stapled securityholders."

Ascott Residence Trust Management and Ascott Business Trust Management are wholly owned subsidiaries of CapitaLand Investment.

Units of ART closed down 1 per cent, or one cent, at $1 last Friday, while shares of Capitaland Investment closed flat at $3.37.