Ravi Chandran
The student accommodation portfolio acquisition in the United Kingdom of 2,383 beds, brings SPH’s total portfolio to 7,726 beds across 18 cities in UK and Germany
Singapore Press Holdings Limited (SPH) on Dec 20 announced that its wholly-owned subsidiary, Straits Ten Pte. Ltd., has acquired a portfolio of high quality Purpose-Built Student Accommodation (PBSA) assets in the UK.
This latest student accommodation portfolio acquisition adds 2,383 beds, scaling SPH’s total portfolio to 7,726 beds across 18 cities in UK and Germany. With this Student Castle portfolio, SPH expands its footprint across seven new UK cities, namely Cambridge, Oxford, Bath, Brighton, Durham, Edinburgh and York. The assets in Oxford and Brighton (collectively, the Development Assets) are under development.
The deal involves an initial cash consideration of approximately £411 million (approximately S$740 million) for the portfolio. The estimated construction costs to complete the Development Assets, to be paid progressively till completion are approximately £37 million (approximately S$67 million). The Cushman & Wakefield valuation report puts the aggregate market value of the assets being acquired at £448 million as at 31 October 2019, on the assumption that the Development Assets have been completed and are operational.
The transaction will more than double the assets under management to a sizeable S$1.5 billion and underpin SPH’s position as a leading player in the UK PBSA market. About 84% of the beds are in close proximity to top-ranked and Russell Group universities including the world-renowned University of Oxford and University of Cambridge. The transaction increases SPH’s presence in cities where the supply of student housing is limited.
Within the student accommodation portfolio acquisition, the Development Assets are in the development stage and expected to be operational for the academic year 2020/21. Both assets carry a fixed monthly coupon payment during the development stage, followed by rental guarantee and income support arrangements during the first three years of operation. This will provide income stability during the development and stabilisation phase of the assets.
Excluding the Development Assets, the five operational assets have an average age of 2.6 years. The assets have consistently enjoyed close to full occupancy. All assets offer extensive amenities such as gyms, study pods, social spaces, cinemas, cafés and complimentary bicycle rental.
Mr. Ng Yat Chung, Chief Executive Officer of SPH, commenting on the student accommodation portfolio acquisition said: “We continue to expand the scale of our PBSA portfolio. The acquisition of the Student Castle platform and assets allows us to add a premium brand and portfolio that complements our existing PBSA portfolio. This is in line with our strategy to grow recurring income to deliver sustainable returns to shareholders.”
The fundamentals of the student accommodation sector in the UK remain well supported by positive secular trends in the domestic 18-year-old population, positive government policies to grow the number of foreign students, and a record number of international students from outside Europe.
Also included in the student accommodation portfolio acquisition is the Student Castle operating platform, comprising its brand, its proprietary booking system, and its employees.
Acquiring the platform will boost SPH’s operational capabilities and improve efficiency and synergies. Together with SPH’s Capitol Students brand, the Group has an enhanced portfolio with offerings that cater to both the mid and high-end markets for local and international students.Completion occurred simultaneously with the signing of the sale and purchase agreement.
A recent report by OCBC said that as its media business in FY19 was a drag on results, and with a weak macro backdrop likely to continue to weigh on its advertisement revenue moving forward, it is relying more on property for income diversification.
The report noted that SPH has made some strides in media business with its digital push and income diversification strategy, as shown by its latest acquisition of UK student accommodation assets, but its Singapore residential property exposure in Bidadari still remains a source of potential headwind.
In its investment summary OCBC said:
“Under expectations – SPH’s FY19 results came in below our expectations. The group’s operating revenue was down 2.4% YoY to S$959.3m, bolstered by revenue contribution from its Purpose-Built Student Accommodation (PBSA) portfolio, SPH REIT’s Figtree Grove and Rail Mall, which helped to offset declines in its media revenue.
The group’s newspaper ad revenue YoY decline has increased from 12.4% in FY18 to 13.9% in FY19, owing to notable weakness in the Classified segment. PATMI was down 23.4% YoY to S$213.2m, due largely to the lack of investment income, following the previous divestment of the group’s Treasury & Investment portfolio. Adjusting for exceptional and one-off items, core PATMI came in at S$155.2m, comprising 96.5% of our full-year forecast. The group has declared a final and special DPS of 5.5 S-cents and 1S-cents, bringing the full-year DPS to 12 S-cents.
Relying on property moving forward – SPH has also announced that it will be looking to streamline its media sales capabilities, with around 5% reduction in staff numbers across the Media Group. We expect modest net cost savings in FY20, given that the group will be incurring ~S$8m in retrenchment cost in 1QFY20. Moving forward, we believe the group will continue to be on the lookout for more PBSA assets, building on its portfolio AUM of more than S$600m though we note that cap rates for such assets in the UK have been compressing.
The group has also partnered a Japanese asset manager to set up a fund focusing on aged care and healthcare assets in Japan; SPH will be contributing up to S$50m in seed equity. Separately, we note that Woodleigh Residences is 20% sold as at 31 Aug, with an ASP of ~S$1.9k psf. In our view, the group’s media business outlook remains challenging, and we believe it is still too early to call the bottom on this segment. We roll forward our valuations and reduce our FV slightly from S$2.29 to S$2.28.”
