CapitaLand’s wholly owned lodging business unit, The Ascott Limited (Ascott) and its hospitality trust, Ascott Residence Trust (ART), will jointly invest and develop a freehold student accommodation asset located in South Carolina, USA for an expected total amount of US$109.9 million (S$146.2 million). The 678-bed student accommodation will serve over 35,000 undergraduate and graduate students from the nearby University of South Carolina. Construction of the student accommodation asset is scheduled to start in 3Q 2021 and complete in 2Q 2023.
At the initial stage, Ascott and ART will jointly invest in the asset to own 45% stake each. A third-party partner, which is a joint venture between one of the largest student housing developers in the USA and a large national real estate developer and contractor based in the USA, will own the remaining 10% stake for alignment of interest. When the property’s performance stabilises, Ascott and ART will acquire the remaining share from the third-party partner. Ascott has separately formed a partnership with the student housing developer to invest and develop more student accommodation properties in the USA. These properties could become a potential pipeline for ART from its sponsor.
The accretive investment in this maiden asset in South Carolina, is expected to increase ART’s pro forma FY 2020 Distribution per Stapled Security (DPS) by about 2.1%. Upon stabilisation, the EBITDA yield is expected to be approximately 6.2%. ART will also have the priority to fully acquire the student accommodation asset from Ascott to generate greater stable returns for ART’s Stapled Securityholders.
Mr Kevin Goh, CapitaLand’s Chief Executive Officer for Lodging and Ascott’s Chief Executive Officer, said: “This transaction demonstrates Ascott’s ability to seek out and seize good investment opportunities to support our sponsored Ascott Residence Trust (ART) in creating sustainable value. Through our partnership with the leading local student housing developer, Ascott will gain immediate access to prime student accommodation assets in the USA. It allows us to combine our own global expertise in lodging and our partner’s expertise on the ground. Ascott will continue to work with reputable partners to enlarge our student accommodation and rental housing portfolios in our target markets.”
Ms Beh Siew Kim, Chief Executive Officer of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART), said: “The acquisition of our second student accommodation asset is in line with ART’s strategy to grow our longer-stay portfolio to further enhance income stability and create greater value for our Stapled Securityholders. Student accommodation have leases that typically last for a year and its countercyclical nature further strengthens the resilience of ART’s portfolio against any short-term volatility. This latest acquisition follows ART’s agreement to purchase three rental housing properties in Sapporo, Japan as well as our first student accommodation asset Paloma West Midtown in Georgia, USA. It will expand our student accommodation and rental housing portfolios to about 9% of our total property value. We aim to increase it to about 15-20% in the medium term. Partnering with our sponsor, Ascott allows ART to tap on their expertise and experience, while generating a higher yield when the property turns operational by participating in the development of the asset. With this investment, ART will remain within the 10% regulatory limit on property development for REITs.”