Ascott REIT Buying Carlyle-Backed Illinois Student Housing Project for $83M

Ascott Residence Trust has agreed to acquire an apartment building near the main campus of the University of Illinois, marking the Singapore-listed REIT’s fourth investment in the US student accommodation market this year.

ART will pay $83.25 million for the 15-storey, 548-bed Seven07, which is located about a five-minute walk from the University of Illinois Urbana-Champaign, the trust’s managers said Monday in a release. The transaction, to be completed in mid-November, will be funded by debt and part of the proceeds from ART’s S$150 million ($111 million) private placement launched in September.

The trust sponsored by Ascott Ltd, a rental housing division of property giant CapitaLand, identified the seller as an unrelated third party. The 2019-vintage project was a joint venture of private equity giant Carlyle Group and Minnesota-based developer Opus Group, according to local media accounts and archived pages on Opus’s website.

“ART continues to ramp up our investments in the longer-stay segment to build stable income and the resilience of our portfolio,” said Beh Siew Kim, chief executive of the trust’s managers. “Seven07 is operational and will start contributing stable income immediately upon acquisition.”

Growing Enrolment

Located at 707 South 4th Street in Champaign, Seven07 has 218 units comprising studios and one- to four-bedroom apartments, each equipped with a kitchen, smart TV, and washer and dryer. The building’s amenities include an outdoor deck with pool, a fitness centre, an indoor basketball court, a spa, bike storage, and covered parking lots and garages.

The property, to be managed by an unrelated third-party operator, serves the University of Illinois Urbana-Champaign and its 56,000 undergraduate and graduate students. The student population rose consistently at a compound annual growth rate of 2 percent from 2010 to 2020, or twice the national average, according to ART.

During the past two decades, the flagship campus of the University of Illinois system has become a magnet for overseas students, with enrolment from mainland China rising from just 37 in 2000 to more than 5,500 before dipping amid growing US-China tensions starting in 2019.

Fully Occupied This Year

Despite lower student numbers from China, Seven07’s 202,162 square feet (18,781 square metres) of net rentable area is 100 percent occupied for the 2021 academic year, with lease terms of roughly one year, and about 50 percent pre-leased for the 2022 academic year.

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

The asset is expected to increase ART’s pro forma distribution per stapled security for fiscal 2020 by 1.2 percent. The entry EBITDA yield is an estimated 4.5 percent, rising to about 4.8 percent on strong rental growth for the 2022 academic year.

Four of a Kind

Once the Seven07 buy is completed, ART’s student accommodation portfolio in the US will comprise 2,756 beds at four properties acquired since the beginning of 2021.

In September, the trust acquired Wildwood Lubbock, a 1,005-bed property in the northwest corner of Texas, for $70 million. That transaction came after ART joined forces with Ascott Ltd to invest in and develop a Columbia, South Carolina student housing project for an expected $109.9 million, in a deal announced in June. In January, the trust revealed its first foray into the US student housing market with the purchase of a mid-rise Atlanta property for $95 million.

ART is the largest hospitality trust in Asia Pacific, with an asset value of S$7.3 billion at the end of June. As of September, ART’s international portfolio encompassed 89 properties with about 17,000 units in 39 cities across Asia Pacific, Europe and the US, mostly operated under the Ascott The Residence, Somerset, Quest and Citadines brands.