SPH buying UK student housing portfolio for £180.5m

Singapore

SINGAPORE Press Holdings (SPH) has acquired a portfolio of 14 purpose-built student accommodation buildings across six towns and cities in the United Kingdom for about £180.5 million (S$321 million) cash, it announced early on Monday morning.

The buildings, acquired from the Unite Group, have a total capacity of 3,436 beds. They include 10 freehold assets and four leasehold assets, and are located in established university towns and cities with large full-time student populations, namely London, Birmingham, Bristol, Huddersfield, Plymouth and Sheffield.

SPH, which owns The Business Times, said that student accommodation in the UK has growth potential, with demand expected from both domestic and international students, driven by a rise in enrolment of first year, international and postgraduate students.

SPH chief executive officer Ng Yat Chung said: "This cash-yielding acquisition will generate recurring cash flow, and is part of our ongoing strategy to diversify our business to new growth areas.

"It will boost our real estate asset management portfolio, establish us as an overseas owner of PBSA (purpose-built student accommodation) in the UK, and allow us to pursue other growth opportunities in this sector."

SPH's wholly-owned units, through which it is making the acquisition, will enter into an operating management agreement with Victoria Hall Management (UK), a professional operator of student accommodation in the UK, to manage the properties.

The transaction is expected to complete on or around Sept 13, 2018, with the consideration funded by internal as well as external resources.

The consideration may be lowered by up to £13.7 million if actual income on certain assets is below 95 per cent of estimates, and Unite Group has provided a guarantee of up to £2.5 million to cover shortfalls between the estimated income and actual income of the assets as at Nov 30, 2018.

SPH declined to disclose the estimated income. Net profit attributable to the assets being acquired was S$12.1 million in 2017.

OCBC analyst Joseph Ng said the announcement did not come as a surprise, with the bank's analysts previously highlighting the possibility of SPH looking for yield assets in the UK. OCBC maintains a "hold" rating on the stock but has placed its fair value of S$2.52 under review.

DBS analysts noted a Sept 5 Cushman & Wakefield report which valued the assets at £180 million. Maintaining their "hold" rating and their S$2.58 target price, they were similarly unsurprised at the move, seeing it as part of SPH's diversification strategy as the company leverages its strong balance sheet to enter "businesses which offer resilient and visible cashflows".

Regarding SPH's estimate that the assets would have added about S$12 million to FY 2017 earnings on a pro forma basis, the DBS analysts noted that this translates to a 3.7 per cent earnings yield.

"Assuming the proforma figures include financing costs, the yield looks fair," they said, adding that they were in the process of clarifying if this was post- or pre-financing.

In a media statement on Monday, Unite Group said the purchase price "reflects a net initial yield of 6.3 per cent and is marginally below book value".

It added that the deal is "in line with Unite's strategy to recycle capital through the disposal of assets... and reinvest into developments increasingly focusing on high and mid-ranked universities".

SPH shares closed up six Singapore cents or 2.2 per cent at S$2.79 on Monday.