GCP Student Living plans GBP70m placing
GCP Student Living, the UK’s first REIT focussed on student residential assets, is aiming to raise gross proceeds of GBP70 million through a non pre-emptive placing of new ordinary shares.
The Placing Price will be at a price of 142 pence per Placing Share, which represents a 6.75 pence discount to the closing mid-price per ordinary share on 12 June 2017 of 148.75 pence. The Placing will be NAV accretive for existing Shareholders.
The Company has entered into an exclusivity arrangement in respect of the acquisition of its second forward-funded development. The property, Circus Street, is located in a city centre location in Brighton within short walking distance of its iconic pier, vibrant shopping district and transport links.
The property will primarily serve the University of Sussex, a UK top 20 university, and Brighton University with circa 36,000 students including circa 6,100 international students.
The Directors believe that Brighton demonstrates the strong supply-demand imbalance for student residential accommodation in the UK which is typical of the Group’s investments, with a shortage of modern, purpose-built accommodation driven by supply restrictions and strong demand driven by domestic and international students alike.
It is currently expected that construction of Circus Street will be completed ahead of the 2019/2020 academic year following which it will offer high specification student accommodation and circa 30,000 square feet of commercial office space. Licensing fees will provide a 5.5 per cent coupon through the construction phase which will support the Company’s objective of regular, sustainable dividends and modest capital appreciation over the longer term.
The student accommodation will provide circa 450 modern beds. It is currently expected the student accommodation will be contracted to a subsidiary owned and guaranteed by an established global, Higher Education Institution with a long term track record in the provision of educational services on a 21 year lease, with upward only annual uplifts of RPI plus 50bps capped and collared at 5 per cent and 2 per cent respectively.
It is currently envisaged that the commercial space will generate ancillary revenues through medium to long term leases.
The acquisition of Circus Street through a forward-funded arrangement would enable the Group to secure a city centre asset in Brighton, a growing cosmopolitan city and one of the largest commercial centres in the South East of England, at an attractive valuation relative to acquiring assets which are already operational. Further, such arrangement enables the Group to provide modern, purpose-built, accommodation in an attractive location where suitable existing assets are unavailable.
The final acquisition price for Circus Street, including agreed costs of construction, is expected to reflect a net initial yield consistent with the blended yield of the Group’s existing portfolio of standing assets of 5.1 per cent (the net initial yield average excludes Woburn Place, London, which is to be refurbished ahead of the 2018/19 academic year).
The Investment Manager, Gravis Capital Management Ltd, is in advanced negotiations with the vendor of Circus Street.
As set out in the Prospectus, the Company further benefits from a forward purchase agreement in respect of Podium, Egham a high specification, purpose-built, private student accommodation asset in the same locality as the Group’s ‘The Pad’ asset adjacent to Royal Holloway, University of London. Royal Holloway is a UK top 30 university with circa 9,800 students from more than 100 countries.
Podium remains on schedule to be completed for the 2017/18 academic year and will provide approximately 180 beds.
The Directors (as advised by the Investment Manager) currently anticipate that there will be a modest uplift to the valuation of Podium on acquisition arising from the attractive, pre-determined, pricing secured pursuant to the forward purchase agreement.
The Pad provides c.220 beds and has been fully occupied since acquisition.
The acquisition cost for both assets, in aggregate, is approximately GBP95 million and is expected to be funded by the net proceeds of the Placing, the Company’s existing resources and further borrowings, as required.