Following the acquisition of a purpose-built student accommodation (PBSA) asset in Liverpool for GBP37.3 million ($63.9 million) by CDL Hospitality Trusts (CDLHT), the team of analysts at DBS Group Research have highlighted the move as a positive one, keeping their “buy” 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’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.
“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.”
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.
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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: “The acquisition is expected to be distribution per unit (DPU) accretive at 1.3%, which is strong in consideration to asset’s size within the overall portfolio, which we believe should stand out to investors.”
“We continue to like CDLHT’s strategy to expand its longer-stay lodging exposure, which provides both stability and income visibility to its hotel-heavy portfolio.”
As at 2.51 pm, units in CDLHT are trading 1 cent higher or 1.19% up at 85 cents.
