CDL Hospitality Trusts enters UK's build-to-rent sector with S$136m investment

CDL Hospitality Trusts (CDLHT) announced on Tuesday that it has entered into a land-purchase agreement and a development-funding agreement to invest in a build-to-rent (BTR) residential property in Manchester, United Kingdom, for a purchase consideration of £73.3 million (S$136 million).

This is in line with CDLHT's strategy to strengthen its rental income base and boost its portfolio diversification.

Vincent Yeo, chief executive officer of CDLHT's managers, said: "BTR markets in Manchester and across many cities globally are very resilient, backed by macro trends such as a persistent housing shortage and increases in the house price-to-income ratio, which result in affordability becoming an impediment to home ownership."

CDLHT is therefore expecting a growth in rental housing demand and is looking forward to achieving steady rental growth from this investment over time.

This transaction is a forward-funding arrangement, which enables CDLHT to invest in a residential BTR property at a fixed-cost, with cash flows managed over the duration of development.

The pro forma stabilised net property income yield of the new property is estimated to be 5.1 per cent, which translates to a 2.2 per cent accretion on the FY2020 dividend per share on a pro forma basis.

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Following the land-purchase agreement, CDLHT has also acquired land and buildings on the south east side of Longacre Street in Ancoats in Manchester, from BTR developer and operator Packaged Living for a consideration of £9.5 million.

In connection with the land acquisition and under a development-funding agreement, Packaged Living will redevelop the land into a residential BTR building to be known as The Castings.

This will cost £63.8 million, of which £58.2 million will be paid out periodically over the development period; the remaining £5.6 million will be paid shortly after project completion, expected in May 2024.

The Castings is expected to be leased out to a mix of individual residential tenants or families for periods of typically about a year or more.

Savills (UK) Limited, an independent valuer, has valued The Castings on a forward-funding basis at £76.1 million, which is higher than the purchase consideration of £73.3 million, said CDLHT.

The Castings will be ready to welcome residential tenants shortly after the building development and furnishing and fit-out are completed. Including the estimated furnishing and fit-out expenses of £3.1 million, to be funded by CDLHT, the total project cost is estimated to be £76.4 million. The total transaction cost, including all other transaction expenses and professional fees, is £78.9 million.

Said Mr Yeo: "The Castings marks our maiden foray into an adjacent lodging space. We are executing on our revised principal investment strategy, under which 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."

CDLHT's stapled securities closed at S$1.17 on Thursday, up S$0.01 or 0.9 per cent.