Growing US Student Accommodation AUM, BUY

• Ascott Residence Trust (SGX:HMN) has quickly scaled up its US student accommodation portfolio with a fourth acquisition since Feb 2021. While the property’s 4.5% entry EBITDA yield is lower than earlier deals (~5%), the asset is well-placed, with yield set to rise to 4.8% for academic year 2022 (AY2022).
• RevPAU has risen further in 3Q21, underpinned by higher stable income, with the outlook improving and set to gain traction in FY22.
• We have kept our forecasts and DDM-based target price for Ascott Residence Trust unchanged (COE 5.9%, LTG 2.0%).
• We continue to like Ascott Residence Trust’s diversified portfolio, concentrated long-stay assets, strong balance sheet, acquisition momentum, and ~S$330m in residual divestment gains to support capital distributions amid slower DPU growth.

Asset Well-placed, Supports Yield Expansion

• The US$83.3m (S$112.4m) freehold 218-unit/548-bed property named as Seven07, serves the University of Illinois Urbana-Champaign (UIUC), a top US public school, backed by an 87% domestic, 56k total enrolment base that has grown at a 2% CAGR from 2010-2020, above the 1% national average. It opened in 2019, is fully occupied for AY 2021 on lease terms averaging one year and is ~50% pre-leased with ~8% y-o-y rental growth for AY2022.
• The deal, funded by debt (45%) and proceeds from its recent placement (55%), is expected to deliver 1.2% DPU accretion.

Fundamentals Improving, Stable Income on a Rise

• Portfolio RevPAU rose Ascott Residence Trust's RevPAU recovery, on track but uneven, should strengthen with the reopening of international travel.

Strong Balance Sheet, Further Deal Upside

• Ascott Residence Trust's gearing remains accommodation and rental housing segments, as it aims to expand this from 12% (versus 5% at end 2020), to 15-20% of AUM.

Source: Maybank Kim Eng Research - 1 Nov 2021