Ascott Residence Trust doubles its student accommodation assets with US$213m. acquisition of four properties in USA
Ascott Residence Trust (ART) will acquire four student accommodation assets in the USA for US$213.0 million (S$291.2 million). 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% and the EBITDA 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. 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 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 in eight student accommodation assets and three rental housing properties at an average EBITDA yield of about 5%, 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%. 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. 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.