Following the acquisition of a purpose-built student accommodation (PBSA) asset in Liverpool for GBP37.3 million ($63.9 million) by CDL Hospitality Trusts J85 (CDLHT), the team of analysts at DBS Group Research have highlighted the move as a positive one, keeping their &ldquo buy&rdquo call at a target price (TP) of $1.20.

 

The property provides amenities spanning over 1,092 square metres (11,754 sq ft), supporting the living preferences for modern students. 

 

They add that the deal price of GBP40.6 million translates to a price per bed of GBP92,000, which is below both the asset&rsquo s last valuation by about 5.4% and replacement cost of around 18%.

 

Additionally, the acquisition price includes a small fee of GBP1 million for land rights to an adjacent land site next to the property, which the team at DBS notes could serve as an extension to the original building to yield another 144-keys if deployed.

 

&ldquo The added option for further development will also allow CDLHT to increase longer-stay bed exposure in the future and translate to higher valuations and yields.&rdquo

 

Overall, the team sees that CLDHT has been selective in acquiring properties that offer both strong accretion and entry below replacement cost. While the Initial acquisition price translates to a yield of 5.6%, they note that it should see stabilisation past the 6% mark.  

 

With the property serving a community of some 55,000 students in Liverpool, occupancy is expected at around 95% thanks to its prime location, with further upside in rents expected from the current GBP184 fee per week in this leasing cycle.

 

The team writes: &ldquo The acquisition is expected to be distribution per unit (DPU) accretive at 1.3%, which is strong in consideration to asset&rsquo s size within the overall portfolio, which we believe should stand out to investors.&rdquo

 

&ldquo We continue to like CDLHT&rsquo s strategy to expand its longer-stay lodging exposure, which provides both stability and income visibility to its hotel-heavy portfolio.&rdquo

The purchase also includes vacant land that is adjacent to the student accommodation asset

 

CDL Hospitality Trusts is venturing into the student accommodation business for the first time, with the purchase of a purpose-built student accommodation (PBSA) in Liverpool, United Kingdom.

 

The PBSA is part of CDL Hospitality Trusts : J85 0%&rsquo (CDLHT) wider acquisition of freehold land, which also comprises a piece of vacant land adjacent to the student accommodation asset, said the trusts&rsquo managers in a bourse filing on Thursday (Dec 19).

 

The whole site &ndash the PBSA and adjacent vacant land &ndash was acquired for £ 37.3 million (S$63.9 million).

 

The total cost of the acquisition is about £ 40.6 million, which includes an estimated £ 3.3 million in transaction costs.

 

The deal will be funded through debt financing, with CDLHT&rsquo s pro forma gearing ratio to increase to 40.2 per cent, from 38.8 per cent pre-acquisition.

 

The PBSA, Benson Yard, was opened in February 2023. It will continue to be managed by the existing operator, Fresh Property, after the transaction is completed.

 

The vacant freehold land has planning consent for a 144-key hotel to be built. However, CDLHT said that feasibility studies will still need to be conducted to determine the best use of the land.

 

Other options include building another PBSA block, instead of a hotel, as it could complement the existing Benson Yard.

 

CDLHT said this acquisition follows its revised principal investment strategy made in 2021 to diversify into adjacent living assets.

 

It added that Benson Yard will contribute to a more diversified and balanced income profile, aligning with CDLHT&rsquo s broader strategic objectives for stable long-term growth and income resilience. This is because PBSAs operate on different demand drivers compared to traditional hospitality assets.

 

The asset&rsquo s attractive location will support its occupancy and profile as a defensive asset, the trusts&rsquo managers said. As at Dec 10, Benson Yard has an occupancy of 95 per cent for the academic year running from Sep 1, 2024 to Aug 31, 2025.

 

Based on rents for the leases signed in the academic year, the pro forma net property-income yield is about 5.6 per cent. This does not include any additional leases to be signed, as well as summer income during the rest of this academic year. 

 

The deal is expected, on a pro forma basis, to achieve a 1.3 per cent growth in CDLHT&rsquo s distribution per stapled security.

 

CDLHT also said that there is upside potential in future academic years as Benson Yard solidifies its reputation and garners more brand awareness, given that the PBSA has not fully stabilised. 

 

Vincent Yeo, chief executive officer of the managers, said: &ldquo Importantly, we were able to secure this acquisition from administrators at a meaningful discount relative to current replacement cost and independent valuation, positioning the asset for capital appreciation in the future, amid elevated institutional investment interest.&rdquo

 

CDLHT is a stapled group comprising CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust, and the securities of each entity are listed and traded as one unit, known as stapled securities.