Ascott Residence Trust acquires Seven07 – its fourth US PBSA asset

Ascott Residence Trust acquires Seven07, its fourth purpose-built student accommodation (PBSA) asset in the USA for US$83.25m.

ClubRoom at the Seven07 student development in Champaign, Illinois, USA - Ascott Residence Trust | PBSA News
ClubRoom at the Seven07 student development in Champaign, Illinois, USA.

Ascott Residence Trust (ART) will acquire a freehold purpose-built student accommodation (PBSA) asset – named Seven07 – in Champaign, Illinois, USA for US$83.25m. Seven07 houses around 56,000 undergraduate and graduate students from the nearby University of Illinois Urbana-Champaign (UIUC). Seven07 will be managed by an unrelated third-party operator.

Seven07 opened in 2019. The 15-storey PBSA scheme has 548 beds across 218 units – and includes a mix of studio and one- to four-bedroom apartments. Each apartment has a fully equipped kitchen, smart TV and washer and dryer. Most bedrooms within the apartments also have a private bathroom. The student accommodation asset has a range of facilities including an outdoor amenities deck with pool, state-of-the-art fitness centre, outdoor lounge with grill stations, indoor basketball court, spa with tanning services and sauna, study rooms, club room, bike storage, lounge café and covered parking lots and garages.

Seven07 student development - Ascott Residence Trust | PBSA News
Seven07 student development.

The yield-accretive acquisition is set to increase ART’s pro forma FY 2020 Distribution per Stapled Security by approximately 1.2%. The entry EBITDA (earnings before interest, tax, depreciation and amortisation) yield is expected to be about 4.5% – and is expected to rise to about 4.8% on strong rental growth for the 2022 academic year.

The transaction, which is expected to be completed in mid-November 2021, will be funded by debt as well as 43% of the S$150m raised from ART’s private placement launched in September 2021. The acquisition of Seven07 follows ART’s recent acquisition of Wildwood Lubbock in Texas and is ART’s fourth student accommodation investment within 10 months this year.

“ART continues to ramp up our investments in the longer-stay segment to build stable income and the resilience of our portfolio. Seven07 is operational and will start contributing stable income immediately upon acquisition. The student accommodation asset is 100% occupied for AY [annual year] 2021, with lease terms of about one year. For the AY 2022, Seven07 is about 50% pre-leased with strong rental growth of about 8% over AY 2021.

“ART has successfully replaced distributable income of divested assets at higher yields. We have divested five properties for about S$501 million in FY 2020 and 2021 to date, at an average exit yield of around 2%. We have invested a total of about S$491m in four student accommodation assets and three rental housing properties at an average EBITDA yield of about 5%.

“With Seven07, ART will increase our student accommodation and rental housing properties to about 12% of our total portfolio value, keeping us on target to grow longer-stay lodging assets to about 15-20% in the medium term. Following this acquisition, ART’s gearing will be at 35.8%. ART remains in a strong financial position to seek accretive investments in more longer-stay assets to diversify our portfolio, enhancing our resilience and creating more value for our Stapled Security holders.”

Ms Beh Siew Kim, Chief Executive Officer, Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the Managers of ART)
Bedroom at Seven07 student development - Ascott Residence Trust | PBSA News
Bedroom at Seven07 student development.

The Seven07 development is located less than 200 metres from UIUC. Students can walk to UIUC in five minutes and its main quad in about 10 minutes, offering students a well-designed and comfortable lodging option while maintaining an active student life on campus. The student accommodation asset is also near several restaurants, cafés and other lifestyle options.

Seven07 serves UIUC which is commonly known as a ‘Public Ivy school. The prestigious UIUC is a flagship university of Illinois and is consistently ranked as one of the top schools in the USA for its accounting, computer science and undergraduate engineering programmes. UIUC’s athletics programme also competes in the Big Ten Conference – one of the ‘Power 5’ athletics conferences in the National Collegiate Athletic Association.

With the addition of Seven07, ART’s four student accommodation assets in the USA will offer a total of 2,756 beds.