Ascott Residence Trust Buying Atlanta Student Housing Block for $95M

Shaking off some downbeat financial results, Singapore-listed Ascott Residence Trust on Wednesday announced its maiden foray into the US student housing market with the acquisition of a mid-rise Atlanta property for $95 million.

The transaction, expected to be completed this quarter, will make ART the owner of Signature West Midtown with 215,895 square feet (20,057 square metres) of net rentable area. The purpose-built student accommodation, a stone’s throw from the Georgia Institute of Technology in the state capital, was completed in 2019 and has 525 beds across 183 units.

The seller is a joint venture of student housing owner-operator Preiss and global asset manager Investcorp. The two partners had purchased the property only last February from Atlanta’s Cartel Properties, which had completed the project in 2019.

“Student accommodation is one of the most resilient real estate asset classes and has maintained high occupancy during the COVID-19 situation in the USA,” said Bob Tan, chairman of Ascott Residence Trust Management Ltd and Ascott Business Trust Management, the managers of the trust. “ART will continue to seek opportunities for quality student accommodation assets in key markets with strong student population growth.”

Strategic Shift

The acquisition of Signature West Midtown marks a change in strategy for ART, which is managed by subsidiaries of Singapore real estate giant CapitaLand.

In a presentation explaining the new acquisition, the REIT’s managers added student accommodation to the trust’s investment target set of income producing properties, noting the sector’s resilience in the face of the COVID-19 pandemic.

Prior to taking on this latest investment, the SGX-listed trust, which includes properties managed under the Ascott groups serviced apartment brands including The Ascott, Somerset, Citadines and the recently launched Lyf co-living entry, had focused on acquiring and operating serviced residences, rental housing properties, and other hospitality assets.

The strategic shift comes after ART’s hospitality-heavy portfolio took a battering from the COVID-19 pandemic in the second half of 2020.

ART on Wednesday reported a distributable income of S$61.7 million ($46.5 million) in the half, down 32 percent year-on-year, and S$94.2 million for all of 2020.

Distribution per stapled security (DPS) for the second half was 1.99 Singapore cents, a 52 percent decrease from 4.18 Singapore cents in the year-earlier half. DPS for the full year was 3.03 Singapore cents, a 60 percent decline from 7.61 Singapore cents in 2019.

Revenue for the second half of 2020 fell by 39 percent year-on-year to S$161.4 million, due to lower revenue from the existing portfolio and a decrease in contributions from the trust’s divestment of Somerset Liang Court Singapore and Somerset West Lake Hanoi in Vietnam.

Long-Stay Safety Net

Despite the slide in revenues and distributions, the trust’s management pointed out that the nature of its client base, as well as the structure of its leasing arrangements had shielded it from the worst impacts of the pandemic.

“ART’s properties that cater predominantly to the long-stay customer segment, our geographically diversified presence, and mix of stable and growth income streams have helped to cushion the impact of COVID-19 on ART’s financial performance,” Tan said. “About two-thirds of ART’s gross profit was from master leases and management contracts with minimum guaranteed income which provide us with more stability.”

And while the resurgence of the coronavirus has ensured that the global economic recovery remains fragile, ART is well-capitalised and continues to build on its financial strength, he said.

Japan Property Sold as Apartments Boom

Divestment proceeds from the sale of the trust’s Vietnam and Singapore assets are expected to be redeployed into the acquisition of Signature West Midtown, which is expected to add about 4.4 percent to ART’s distributions per share for fiscal year 2020 on a pro forma basis, said Beh Siew Kim, chief executive of the trust’s managers.

Further to that plan, property consultancy JLL on Wednesday announced that it had advised ART on the sale of Somerset Azabu East Tokyo, a serviced apartment building with 79 studio and one-bedroom units.

The asset was acquired by a domestic investor consortium with the intent to reposition the property for multi-family residential use. The price represented a premium of 63 percent to current book value, reinforcing continued strong demand for Tokyo real estate, JLL said.

That divestment followed ART’s announcement last July that it had agreed to sell the Ascott Guangzhou and the Citadines Didot Montparnasse Paris serviced apartments for a combined S$191.4 million.