Ascott Residence Trust (ART) is acquiring three freehold rental housing properties in central Sapporo for JPY6.78 billion ($85.2 million).
The properties comprise a total of 411 units and will increase ART’s portfolio in Japan to over 4,500 units in 22 serviced residences, hotels and rental housing properties across nine cities. Post-completion, ART will have 14 rental housing properties in Japan, including four in Sapporo.
The three rental housing properties – City Court Kita 1 jo, Big Palace Minami 5 jo, and Alpha Square Kita 15 jo – are from unrelated third parties. The average EBITDA yield of the three acquisitions is approximately 4%.
The acquisition follows the recent completion of ART’s divestment of Somerset Xu Hu Shanghai for RMB1.05 billion ($216.6 million) on May 27. ART has received net proceeds of about RMB953.9 million and realised a net divestment gain of about RMB582.6 million, or some $120.2 million.
The acquisition of the Sapporo properties will be funded by debt and part of the net proceeds from Somerset Xu Hu Shanghai.
The three rental housing properties will be managed by a local property manager, Kabushiki Kaisha Big Service, which is also the current property manager for ART’s rental housing property in Sapporo, Big Palace Kita 14 jo.
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“Through ART’s active portfolio reconstitution, we are able to create value for stapled security holders by reinvesting proceeds from our recent divestments at a lower capitalisation rate of about 2% into higher yielding and resilient rental housing properties in Japan at about 4% yield,” says Bob Tan, chairman of ART’s managers.
Tan also highlights that the REIT aims to grow its student accommodation and rental housing portfolios to 15%-20% in the medium term, up from the current 8% which includes the Sapporo properties and the acquisition of its first student accommodation asset Paloma West Midtown in February.
Beh Siew Kim, CEO of the managers, points out that the acquisition is distribution per stapled security (DPS) accretive. On a FY2020 proforma basis, ART’s DPS is expected to increase by 2.6%,
“In 2020 amid COVID-19, ART’s 11 rental housing properties in Japan performed well at an average occupancy rate of 96%, especially those located close to key demand drivers such as the working population in the central business districts or students from universities. Rental housing leases, which are typically two years in length, also provide greater visibility and stability in future cashflows,” Beh says.
Units in ART closed flat at 99.5 cents on May 31.
