CDL Hospitality Trusts (CDLHT) has entered into a land purchase agreement and a development funding agreement to invest into a residential build-to-rent (BTR) forward-funding scheme in Manchester, UK, for a purchase consideration of £73.3 million (S$136.0 million).
Pursuant to the land purchase agreement, CDLHT has acquired certain land and buildings located on the southeast side of Longacre Street, Ancoats in Manchester from Packaged Living (FREOF V Heyrod) LLP (the “Vendor”), for a consideration of £9.5 million (S$17.6 million). In connection with the land acquisition and under a development funding agreement, the Vendor will redevelop the land into a residential BTR building to be known as The Castings, for a price of £63.8 million (S$118.4 million), of which £58.2 million (S$108.1 million) will be paid out periodically over the development period and the remaining £5.6 million (S$10.4 million) will be paid shortly after practical completion of the New Property.
This transaction in the BTR space marks CDLHT’s first investment in the adjacent accommodation/lodging space under the revised principal investment strategy. The new property is expected to provide stable and resilient income following gestation with longer underlying average length of stay, high rent collection and lease renewal rates that are typical of BTR assets. As BTR assets also rely on different demand drivers to hospitality and may respond differently to macro risk events, the new property will hence strengthen CDLHT’s rental income base and provide meaningful portfolio diversification.
Savills (UK) Limited, an independent valuer, has valued The Castings on a forward-funding basis at £76.1 million (S$141.3 million), higher than the purchase consideration indicated above.
CDLHT Chief Executive Officer Mr Vincent Yeo commented, “The Castings marks our maiden foray into an adjacent lodging space. We are executing on our revised principal investment strategy whereby we are pivoting to amplify our growth by increasing our addressable market. We aim to both achieve enhanced income stability and asset class diversification, which takes us beyond geographical diversification of hospitality assets.”
Practical completion is expected to be around May 2024, subject to extensions permitted under the development funding agreement. The pro forma stabilised net property income yield of The Castings is estimated to be 5.1%, which translates to a 2.2% accretion on the FY2020 DPS dividend per share on a pro forma basis.
The Castings is located in Piccadilly East, a developing mixed-use neighbourhood situated close to the Manchester Piccadilly Station and the tram stop. The freehold 352-unit BTR block will comprise a mix of studios, one-, two- and three-bedroom units, with a total residential floor area of approximately 219,600 square feet (sq ft). The property will also comprise common amenity spaces, which may include a gym, cinema, resident lounge areas, a roof terrace and ground floor retail spaces, spanning approximately 17,300 sq ft. In addition, there will also be 20 car parking spaces and approximately 350 bicycle storage spaces.
Mr Yeo added, “Build-to-rent markets in Manchester and across many cities globally are very resilient, backed by macro trends such as persistent housing shortage and increases in the house price-to-income ratio, which result in affordability becoming an impediment to home ownership. Growth in rental housing demand is a trend that we see continuing and especially for build-to-rent offerings, which are purpose-built with tenants in mind to promote a sense of community and with better amenities.
“We see a positive growth trajectory for this promising sector in the UK and believe that build-to-rent assets will gain market share from traditional landlords. Supported by strong demand and supply dynamics and the asset’s superior location, we expect The Castings to achieve steady rental growth over time. Our attractive entry price will also position the asset for capital appreciation in the future, amidst voracious institutional investment demand.”
