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, 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%.
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 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 sources. It will further increase ART’s total proportion of stable income from 69% to 71% of its gross profit.
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 portfolio from 17% 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 transaction is expected to be completed by November 2022, subject to Stapled Securityholders’ approval at an Extraordinary General Meeting to be held on 9 September 2022. The acquisition is to be funded by debt and/or proceeds from a private placement. Post-acquisition, ART will have a gearing of 38.5% which is well below the 45% gearing threshold set by the Monetary Authority of Singapore. ART remains in a strong financial position to continue to make yield-accretive acquisitions. With ART’s longer-stay portfolio comprising 19% of its total portfolio value and the strength of its balance sheet, ART is also resilient against any potential economic volatility.
Well-positioned to benefit from recovery in global travel
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% higher compared to pre-COVID-19 level. The serviced residence has an occupancy rate of about 80%, which is above pre-COVID-19 occupancy. Its performance is expected to pick-up as Paris’ tourism market fully recovers by 20239 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. Somerset Central TD Hai Phong City has an occupancy rate of over 90%, which is in line with its pre-COVID-19 level. The serviced residence’s historical EBITDA10 yield pre-COVID-19 is about 9.7%.
Greening ART’s portfolio
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.