Ascott REIT Sells Shanghai Somerset for $160M, Buys 3 Japan Properties

Singapore-listed Ascott Residence Trust (ART) has completed the divestment of a Shanghai serviced apartment building and will use some of the proceeds to acquire three higher-yielding residential properties in Japan’s fifth-largest city, Sapporo.

The REIT sponsored by property giant CapitaLand announced Tuesday that it had closed the sale of the Somerset Xu Hui Shanghai for RMB 1.05 billion ($160 million) on 27 May. Market sources identified the buyer of the serviced residence complex as Shanghai-based fund manager Jiecheng Capital (杰成资本).

In turn, the SGX-listed trust has agreed to buy the three rental housing properties in Sapporo from unrelated third parties for a total of JPY 6.78 billion ($62 million). In a press release, ART said the assets on the northern island of Hokkaido would generate yields of about 4 percent, compared with the 2 percent cap rate of the Shanghai property.

“ART’s acquisitions of these rental housing properties will increase our presence in the longer-stay accommodation segment and diversify from hospitality assets which are facing headwinds due to COVID-19, further enhancing income stability,” said Bob Tan, the chairman of the REIT’s managers.

Selling on Shaanxi Road

ART, which owned 86 properties at the end of 2020, primarily holds serviced residences operated under CapitaLand’s residential division, The Ascott Limited, which owns the Ascott, Somerset, Citadines and Lyf brands.

The Somerset Xu Hui belongs to Ascott’s mid-range Somerset brand and consists of 168 units in a 1999-vintage tower. The 32-storey building on South Shaanxi Road near Zhaojiabang Road in the former French Concession is a 15-minute walk from the main business area of Huai Hai Zhong Road and the South Shaanxi Road metro station.

“Prime-location residential assets in Shanghai are highly sought after by investors because both sale and rental pricing are going up,” said Danny Zheng, director of capital markets for Shanghai at Knight Frank. “Many investors believe Tier 1 city prime residential properties provide a safety net amid the post-COVID high-inflation economic environment.”

Sources in the market indicate that Jiecheng Capital plans to convert the Xuhui district property for sale on a strata title basis in search of the returns available from marketing the apartments as individual homes. The leasehold asset has another 65 years remaining on its property tenure.

ART’s disposal of the Shanghai property follows the REIT’s divestments of the Somerset Azabu East Tokyo, a serviced apartment building with 79 studio and one-bedroom units, earlier this year and the Ascott Guangzhou and the Citadines Didot Montparnasse Paris serviced apartments last July. Following the disposal, the trust will have five mainland China properties in its portfolio, including assets in Suzhou, Wuhan, Dalian, Shenyang and Tianjin.

Japanese Yields in Vogue

The three rental housing properties in Sapporo, with 411 units total, will increase ART’s portfolio in Japan to over 4,500 units in 22 serviced residences, hotels and rental housing properties in nine cities. The REIT will have 14 rental housing properties in Japan, including four in Sapporo.

Beh Siew Kim, chief executive of the REIT’s managers, described Hokkaido’s capital as a fast-growing city with positive net migration.

“Rates of rental housing properties in Sapporo have remained stable and we expect strong demand for our rental housing properties given the limited new supply,” she said. “The three rental housing properties are within walking distance from train stations, a wide range of retail and entertainment options, and are either within or near the central business district.”

The portfolio’s latest rejig comes after ART in January made its first foray into the US student housing market with the purchase of a mid-rise Atlanta property near the Georgia Institute of Technology. The REIT acquired the 183-unit building, now rebranded Paloma West Midtown, for $95 million from a joint venture of student housing owner-operator Preiss and global asset manager Investcorp.

“With the acquisitions, our student accommodation and rental housing portfolios will expand to about 8 percent of our total property value,” Tan said. “We aim to grow it to about 15-20 percent in the medium term.”