Ascott Residence Trust (ART) will acquire a freehold student accommodation asset in Champaign, Illinois, US for US$83.25 million ($112.4 million).
The 548-bed asset, named Seven07, is located near the University of Illinois Urbana-Campaign (UIUC), which is home to a population of some 56,000 students.
According to ART, the yield-accretive acquisition is set to increase ART’s pro forma FY2020 ended December distribution per stapled security by approximately 1.2%.
The entry EBITDA yield is expected to be about 4.5% and is expected to rise to about 4.8% on strong rental growth for the 2022 academic year.
The transaction is expected to be completed in mid-November, and will be funded by debt and part of the proceeds from ART’s private placement launched in September.
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The acquisition of Seven07 follows ART’s recent acquisition of Wildwood Lubbock in Texas and is ART’s fourth student accommodation investment within 10 months this year. With the addition of Seven07, ART’s four student accommodation assets in the USA will offer a total of 2,756 beds.
According to Beh Siew Kim, CEO of ART’s manager, Seven07 is operational and will start contributing stable income immediately upon acquisition. The student accommodation asset is 100% occupied for the 2021 academic year, with lease terms of about one year. For the 2022 academic year, 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 $501 million in FY 2020 and 2021 to date, at an average exit yield of around 2%. We have invested a total of about $491 million in four student accommodation assets and three rental housing properties at an average EBITDA yield of about 5%,” Beh remarks.
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“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, ART’s gearing will be at 35.8%,” she adds.
Units in ART closed up 1 cent or 0.98% higher at $1.03 on Oct 29.
Photo: Ascott Residence Trust
