Ascott Residence Trust enters deal to acquire US student accommodation asset for US$83.25M

In November 2021, Ascott Residence Trust (ART) announced it would acquire a freehold 548-bed student accommodation asset, named Seven07 in Champaign, Illinois, U.S. Credit: Ascott Residence TrustIn November 2021, Ascott Residence Trust (ART) announced it would acquire a freehold 548-bed student accommodation asset, named Seven07 in Champaign, Illinois, U.S. Credit: Ascott Residence Trust

Ascott Residence Trust (ART) plans to acquire a freehold 548-bed student accommodation asset, named Seven07, located in Champaign, Illinois, in the U.S. for US$83.25 million, the hospitality trust said in a filing to SGX Monday.

The trust has previously said it is shifting strategy to acquire assets with longer lengths of stay, diversifying its portfolio from traditional hospitality properties. Longer-stay accommodation properties have performed better during the pandemic than traditional hospitality, which is more dependent on travelers and tourism.

The deal follows Ascott Residence Trust’s recent acquisition of a student accommodation asset in Texas, U.S., and is the fourth sector investment within the past 10 months, the filing said.

ART has invested around S$491 million in four student accommodation assets and three rental housing properties, at an average earnings before interest, taxes, depreciation and amortisation (ebitda) rental yield of around 5 percent, the trust said.

Beh Siew Kim, CEO of the trust’s managers, said ART planned to continue ramping up investments in the longer-stay segment to build stable income and resilience in the portfolio.

The longer-stay assets will rise to around 12 percent of the total portfolio after the latest acquisition is completed, with a target of the segment reaching around 15-20 percent medium term, she said.

“Seven07 is operational and will start contributing stable income immediately upon acquisition. The student accommodation asset is 100 percent occupied for Academic Year (AY) 2021, with lease terms of about one year. For the AY 2022, Seven07 is about 50 percent pre-leased with strong rental growth of about 8 percent over AY 2021,” she said in the statement.

The acquisition is expected to be yield-accretive, increasing ART’s pro forma distribution per stapled security (DPS) by around 1.2 percent, with an entry ebitda yield of around 4.5 percent, which could rise to around 4.8 percent on strong rental growth for academic year 2022, the trust estimated.

The deal will be funded by debt and part of the proceeds of the trust’s private placement in September, ART said.

The property, Seven07, has a market of around 56,000 undergraduate and graduate students from nearby University of Illinois Urbana-Champaign (UIUC), ART said.

The 15-storey Seven07, located around five to ten minutes walk from UIUC, has 548 beds across 218 units, with unit sizes ranging from studios to one-to-four bedroom units.

An independent valuation of the property, dated 24 October, by Colliers International Valuation and Advisory Services, valued the property at US$86.4 million, the filing said.

The deal is expected to be completed in mid-November, the trust said.