Ascott Residence Trust (ART) is proposing to acquire nine quality serviced residences, rental housing and student accommodation properties across five countries from its sponsor, The Ascott Limited. At an estimated total capitalised cost of S$318.3 million[1], the yield-accretive acquisition is set to increase ART’s distribution by S$9.2 million and its pro forma FY 2021 Distribution per Stapled Security by 2.8%[2].
The acquisition is expected to strengthen ART’s presence in its existing markets. The assets are predominantly located in Asia-Pacific with seven of the assets in Australia, Japan and Vietnam, and two in France and the USA. The acquisition of the nine properties with a total of 1,018 units will grow ART’s total assets to S$8.3 billion[3] as of 31 December 2021 on a pro forma basis, further consolidating ART’s position as Asia-Pacific’s largest hospitality trust. Post-acquisition, ART’s portfolio will exceed 100 properties, with over 18,000 units across 47 cities and 15 countries.
The acquisition will enhance ART’s income resilience as 92% of the nine assets’ gross profit are from stable income[4] sources. It will further increase ART’s total proportion of stable income from 69% to 71% of its gross profit[5]. ART is acquiring three serviced residences - Quest Cannon Hill in Brisbane, Australia and La Clef Tour Eiffel Paris in France that are on master leases; and Somerset Central TD Hai Phong City in Hai Phong, Vietnam which caters mainly to corporate guests and has an average length of stay of about 11 months. The five rental housing properties in Japan have typical lease tenures of about two years. They are in Kyoto, Osaka, Hyogo and Nagoya. The acquisition will expand ART’s footprint to Hai Phong, Hyogo and Nagoya, further diversifying its portfolio.
In South Carolina, USA, ART is doubling its stake in Standard at Columbia, acquiring an additional 45% stake in the student accommodation property. Student accommodation properties typically have an average length of stay of about one year. Standard at Columbia is expected to perform well given its prime location and growing student population. ART’s portfolio of operating student accommodation properties in the USA have achieved a strong occupancy rate of over 95%. Currently under development, Standard at Columbia is slated for completion in 2Q 2023.
Ms Serena Teo, Chief Executive Officer of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART) said: “We are proposing to acquire nine quality assets that will increase ART’s stable income and further strengthen the resilience of our portfolio, demonstrating our focus to deliver long-term value for our Stapled Securityholders. The acquisition will enhance our geographically diverse portfolio while deepening our presence in our key markets of Australia, France, Japan, USA and Vietnam. The addition of the five rental housing properties in Japan and a student accommodation property in the USA will increase the proportion of our longer-stay[6] portfolio from 17%[7] to 19% of ART’s total portfolio value. This will bring us closer to our target of 25% - 30% for longer-stay assets in the medium term. The acquisition is also set to boost ART’s proportion of green-certified properties, reinforcing our focus on sustainability. ART continues to seek yield-accretive investments while remaining committed to sustainability and taking a disciplined approach in managing our capital and costs.”
The three serviced residences to be acquired are located in key gateway cities and growth markets. The luxurious La Clef Tour Eiffel Paris has an average daily rate that is more than 30%[8] higher compared to pre-COVID-19 level. The serviced residence has an occupancy rate of about 80%[8], which is above pre-COVID-19 occupancy. Its performance is expected to pick-up as Paris’ tourism market fully recovers by 2023[9] and as the city hosts the 2024 Summer Olympic Games.
Quest Cannon Hill’s occupancy rate is about 95%[8], exceeding its pre-COVID-19 performance. Its occupancy is expected to remain robust as Brisbane continues to develop and upgrade its infrastructure to attract more domestic and international arrivals. Similarly, Somerset Central TD Hai Phong City is well-positioned for further growth as Hai Phong, Vietnam’s third largest city, continues its trajectory of economic development as an industrial hub. In 2021, Hai Phong surpassed Ho Chi Minh City and Hanoi as the top foreign direct investment destination in Vietnam with a registered capital of more than US$5.26 billion, nearly 3.5 times compared to 2020[9]. Somerset Central TD Hai Phong City has an occupancy rate of over 90%8, which is in line with its pre-COVID-19 level. The serviced residence’s historical EBITDA[10] yield pre-COVID-19 is about 9.7%.
The acquired properties will increase the proportion of ART’s green-certified properties from approximately 35%[11] to 38% of its global portfolio by square metre. Quest Cannon Hill, La Clef Tour Eiffel Paris, Somerset Central TD Hai Phong City and Standard at Columbia are expected to be green-certified before the end of 2023. They will contribute to ART’s sustainability targets of greening 50% of its global portfolio by 2025 and 100% of its global portfolio by 2030.
[1] Excluding the outstanding development cost and interest expense to be incurred for Standard at Columbia.
[2] Assuming 54% of the acquisition cost is funded by debt and the remainder funded by private placement.
[3] Including acquisitions announced and/or completed up to 31 March 2022. In 1Q 2022, ART completed the acquisition of Paloma Kent and announced the turnkey acquisition of four rental housing properties and one student accommodation property in Japan, increasing ART’s assets under management by S$0.2 billion.
[4] Stable income sources include master leases, management contracts with minimum guaranteed income, management contracts of rental housing and student accommodation; growth income sources include management contracts of serviced residences and hotels.
[5] Including acquisitions announced and/or completed up to 31 March 2022. Following the acquisitions of the nine assets and ART’s other acquisitions announced and/or completed up to 31 March 2022, ART will have 33 master leases, 4 management contracts with minimum guaranteed income and 68 management contracts.
[6] Longer-stay assets refer to rental housing and student accommodation properties.
[7] Based on property valuations as at 31 December 2021, value of acquisitions announced and/or completed up to 31 March 2022 and properties under development.
[8] As at July 2022.
[9] CBRE, 25 July 2022 – Market summary of the hospitality and serviced apartment markets of Australia, Japan, Vietnam, France and the USA.
[10] Earnings before net interest expense, tax, depreciation and amortisation.
[11] As at May 2022.