Ascott Residence Trust to acquire student housing asset in US for US$83.3m

ASCOTT Residence Trust (ART) HMN : HMN 0% will acquire a freehold 548-bed student accommodation asset in Champaign, Illinois for US$83.3 million, its managers said in a bourse filing on Monday (Nov 1).

The managers expect the US acquisition will increase ART's pro forma FY2020 distribution per stapled security by around 1.2 per cent.

It also expects the property's earnings before interest, tax, depreciation and amortisation yield to rise to 4.8 per cent from 4.5 per cent on strong rental growth for the academic year (AY) 2022.

The acquisition - which will likely be completed in mid-November 2021 - will be funded by debt and part of proceeds from ART's private placement in September.

Named Seven07, the student accommodation is ART's fourth student accommodation investment within 10 months this year.

It had in February acquired the 525-bed Paloma West Midtown in Atlanta, Georgia for US$95 million and in September the 1,005-bed Wildwood Lubbock in Texas for US$70 million. In June, ART and its sponsor also announced they would jointly invest and develop a freehold student accommodation in South Carolina, with the former investing US$55.2 million.

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Beh Siew Kim, chief executive officer of ART's managers, noted that Seven07 is 100 per cent occupied for AY2021 and is 50 per cent pre-leased for AY2022, with strong rental growth of about 8 per cent over AY2021.

"With Seven07, ART will increase our student accommodation and rental housing properties to about 12 per cent of our total portfolio value, keeping us on target to grow longer-stay lodging assets to about 15 to 20 per cent in the medium term," she said.

"ART continues to ramp up our investments in the longer-stay segment to build stable income and the resilience of our portfolio," Beh added.

The acquisition will put ART's gearing at 35.8 per cent.

The managers noted that there is minimal new private student accommodation supply in the vicinity of Seven07 in the medium term.

Seven07, opened in 2019, serves about 56,000 undergraduate and graduate students from the nearby University of Illinois Urbana-Champaign (UIUC), a flagship university of Illinois that is ranked as one of the top schools in the US for its accounting, computer science and undergraduate engineering programmes, ART's managers said.

UIUC's student population has grown consistently at a compound annual growth rate of 2 per cent from 2010 to 2020, twice the national average. Enrolment at UIUC also grew 2 per cent in 2020 despite Covid-19.

Stapled securities of ART closed at S$1.03 on Friday (Oct 29), up S$0.01 or 1 per cent.

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