Ascott Residence Trust Clinches Fourth Student Accommodation Asset With Acquisition in USA For US$83.25 Million

Ascott Residence Trust (ART) will acquire a freehold 548-bed student accommodation asset, named Seven07 in Champaign, Illinois, USA for US$83.25 million[1] (S$112.4 million[2]). Seven07 serves about 56,000 undergraduate and graduate students from the nearby University of Illinois Urbana-Champaign (UIUC). The yield-accretive acquisition is set to increase ARTs pro forma FY 2020 Distribution per Stapled Security by approximately 1.2%[3]. The entry EBITDA[4] yield is expected to be about 4.5% and is expected to rise to about 4.8% on strong rental growth for Academic Year (AY) 2022. The transaction, which is expected to be completed in mid-November 2021, will be funded by debt and part of the proceeds from ARTs private placement launched in September 2021[5]. The acquisition of Seven07 follows ARTs recent acquisition of Wildwood Lubbock in Texas and is ARTs fourth student accommodation investment within 10 months this year.

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: ART continues to ramp up our investments in the longer-stay segment to build stable income and the resilience of our portfolio. Seven07 is operational and will start contributing stable income immediately upon acquisition. The student accommodation asset is 100% occupied for AY 2021, with lease terms of about one year. For the AY 2022, Seven07 is about 50% pre-leased with strong rental growth of about 8% over AY 2021.

ART has successfully replaced distributable income of divested assets at higher yields. We have divested five properties for about S$501 million[6] in FY 2020 and 2021 to date, at an average exit yield of around 2%. We have invested a total of about S$491 million in four student accommodation assets and three rental housing properties at an average EBITDA yield of about 5%[7]. With Seven07, ART will increase our student accommodation and rental housing properties to about 12% of our total portfolio value, keeping us on target to grow longer-stay lodging assets to about 15-20% in the medium term. Following this acquisition, ARTs gearing will be at 35.8%[8]. ART remains in a strong financial position to seek accretive investments in more longer-stay assets to diversify our portfolio, enhancing our resilience and creating more value for our Stapled Securityholders, added Ms Beh.

Seven07 serves UIUC which is commonly known as a Public Ivy[9] school. The prestigious UIUC is a flagship university of Illinois and is consistently ranked as one of the top schools in USA for its accounting, computer science and undergraduate engineering programmes[10]. UIUCs student population has grown consistently at a compound annual growth rate of 2% from 2010 to 2020, twice the national average. Enrolment at UIUC also grew 2% in 2020 despite COVID-19. 87% of its student population are from USA[11]. UIUCs athletics programme also competes in the Big Ten Conference, one of the Power 5 athletics conferences in the National Collegiate Athletic Association. There is minimal new private student accommodation supply in the vicinity of Seven07 in the medium term.

Seven07 is located less than 200 metres from UIUC. From Seven07, students can walk to UIUC in five minutes and its main quad in about 10 minutes, offering students a well-designed and comfortable lodging option while maintaining an active student life on campus. The student accommodation asset is also near to several restaurants, cafs and other lifestyle options.

Opened in 2019, the 15-storey Seven07 has 548 beds across 218 units, comprising studio, one- to four-bedroom apartments. Each apartment has a fully equipped kitchen, smart TV, and washer and dryer. Most bedrooms within the apartments also have a private bathroom. The student accommodation asset has a range of facilities including an outdoor amenities deck with pool, state-of-the-art fitness centre, outdoor lounge with grill stations, indoor basketball court, spa with tanning services and sauna, study rooms, club room, bike storage, lounge caf and covered parking lots and garages. Seven07 will be managed by an unrelated third-party operator. For more information on the student accommodation, please see the Annex.

Expanding ARTs student accommodation portfolio to build income resilience

With the addition of Seven07, ARTs four student accommodation assets in the USA will offer a total of 2,756 beds. In September 2021, ART acquired Wildwood Lubbock, a freehold 1,005-bed student accommodation asset for US$70.0 million (S$93.8 million). It has an expected EBITDA yield of about 5.1%. Wildwood Lubbock serves over 40,000 undergraduate and graduate students at Texas Tech University.

In June 2021, ART and its sponsor, The Ascott Limited, announced that they will jointly invest and develop a freehold student accommodation in South Carolina, USA. ART will invest US$55.2 million[12] (S$73.4 million) in the 678-bed student accommodation which will serve over 35,000 students from the nearby University of South Carolina. Construction of the student accommodation started in 3Q 2021 and is expected to complete in 2Q 2023. Upon stabilisation, the EBITDA yield is expected to be approximately 6.2%[13].

In February 2021, ART acquired the freehold 525-bed Paloma West Midtown in Atlanta, Georgia for US$95 million (S$126.3 million) with an expected EBITDA yield of about 5%. Paloma West Midtown serves close to 40,000 students at Georgia Institute of Technology.

Notes:

[1] The purchase consideration, arrived at on a willing-buyer and willing-seller basis, is based on the agreed value of the property and the independent valuation dated 29 October 2021 by Colliers International Valuation and Advisory Services LLC of US$86.4 million (equivalent to approximately S$116.6 million)
[2] Based on the exchange rate of US$1 to S$1.35
[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 property through to 31 December 2020 and (2) the acquisition will be funded approximately 45% by debt and 55% by equity
[4] Earnings before interest, tax, depreciation and amortisation
[5] ART will use about 43% of the S$150 million raised through its private placement to fund the acquisition of Seven07. About 38% was used to acquire Wildwood Lubbock in September 2021
[6] Excludes the divestment of partial gross floor area of Somerset Liang Court Singapore; the property is currently undergoing redevelopment. 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] For the student accommodation development in South Carolina, USA, the EBITDA yield is a target yield on a stabilised basis
[8] Based on the unaudited financial statements of ART as at 30 September 2021 and assuming that the acquisition was completed on 30 September 2021
[9] Public Ivy refers to public schools with a reputation for academic excellence which provide a college experience similar to an Ivy League school
[10] 2021 U.S. News World Report
[11] Data based on AY 2020
[12] Comprises ARTs 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
[13] Based on ARTs total investment