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GIC buys stake in Australian student-hostel group

It partners Macquarie Capital in buying Iglu, which has A$150m property portfolio

[SINGAPORE] GIC, in the midst of a buying spree, has invested in a young Australian student-accommodation company through a joint venture with Macquarie Capital.

They are to acquire a majority interest in Iglu, in a deal that is said to be the largest of its kind in the Australian student-accommodation sector.

Neither GIC nor Macquarie gave details on the investment value of the deal. They would only say that three-year-old Iglu's property portfolio is valued at A$150 million (S$167 million), and that it comprises more than 900 beds across three properties - two in Sydney and one in Brisbane.

GIC and Macquarie Capital said that they expect further funding to be put into building additional high-quality Iglu-managed properties near educational institutions and public transport in cities with a shortage of suitable student accommodation.

Of Iglu's two properties in Sydney, the one located near Sydney's Central Station, called Iglu Central, has 98 beds and has been fully occupied since its completion last year.

Its other Sydney property is the 395-bedder Iglu Chatswood, which has just opened to meet demand for the 2014 academic year. It is the only off-campus, purpose-built student accommodation asset on Sydney's North Shore, the primarily residential area of northern metropolitan Sydney.

Iglu's Brisbane property, Iglu Brisbane, will open in the heart of Brisbane's Central Business District in 2016, kitted out with more than 400 beds.

Commenting on the acquisition through a joint statement issued with GIC, Macquarie Capital Real Estate's global head Chris Green said: "The student-accommodation sector has excellent investment fundamentals with a well-documented supply shortage.

"We believe Iglu is an outstanding developer and operator of off-campus student accommodation in Australia, and so it is the ideal business to work with us to build a portfolio of premium assets in the best locations across the country."

Jones Lang LaSalle provided valuation services to GIC and Macquarie for the acquisition. Conal Newland, its director of student-accommodation services, said: "Our analysis of this latest transaction in the market on an individual-asset basis indicates net initial yields in the range of 7 per cent to 7.5 per cent for stabilised student-accommodation income streams on good-quality, purpose-built residences.

"There is currently over A$1 billion of potential investment looking to enter the Australian student-accommodation market to capitalise on the strong fundamentals that currently exist, such as the gap in supply and the demand for existing good-quality accommodation, the high occupancy rates, the annual real rental increases and the attractive total returns offered, relative to core asset classes."

Traditionally, the sector is not one that attracts investment from institutional investors, but this has been changing, said Mr Newland.

"We are seeing a number of investors increasing their exposure to alternative asset classes and the Australian student-accommodation market is offering some exciting opportunities.

"These investors are primarily focused on prime assets and experienced operators, with a view to benefiting from yield compression as more liquidity enters the market," he said.

GIC, in its recent acquisition spree, has snapped up stakes in both real estate and firms.

This month, it confirmed that it is partnering the Abu Dhabi Investment Authority and US real estate firm Related Companies to buy 1.1 million square feet of office space in New York City's Time Warner Center for US$1.3 billion.

Last month, it bought a large stake in mega-office complex Broadgate in London's main financial district; in August, it snapped up a 47-storey Grade A office tower in the heart of Jakarta's Central Business District. GIC did not reveal the investment value of these two deals.