GCP Student Living (DIGS) is seeking to raise £70m through a placing of new ordinary shares under its 2017 Placing Programme. The company says that the placing price will be 142 pence per share, which represents a 6.75 pence discount to the closing mid-price per ordinary share on 12 June 2017 of 148.75 pence. It says that the placing will be NAV accretive for existing Shareholders. GCP Student Living expects to use the proceeds of the fundraising to purchase two forward funded assets – Circus Street in Brighton, and Podium, Egham. The acquisition cost for both assets, in aggregate, is approximately £95 million and is expected to be funded by the net proceeds of the Placing, the Company’s existing resources and further borrowings, as required.
Exclusivity on Circus Street property in Brighton
The Company says that it has entered into an exclusivity arrangement in respect of the acquisition of its second forward-funded development, Circus Street, Brighton. It says that the property will primarily serve the University of Sussex, and Brighton University with c.36,000 students including c.6,100 international students.
GCP Student Living says that 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 c.30,000 square feet of commercial office space. It says that licensing fees will provide a 5.5% 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 component of Circus Street, will provide circa 450 modern beds according to GCP Student Living. It currently expects 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% and 2% respectively. The company also says that it is currently envisaged that the commercial space will generate ancillary revenues through medium to long term leases.
Net initial yield of Circus Street is expected to be consistent with the existing portfolio
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% (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, says that it is in advanced negotiations with the vendor of Circus Street.
GCP Student Living has also entered into a forward purchase agreement in respect of Podium, Egham. The company says that this is 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. It says that the Royal Holloway is a UK top 30 university with c.9,800 students from more than 100 countries. GCP Student Living says that the 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.
Benefits of the placing
The Board says that it believes the Placing will have the following benefits to Shareholders and the Company:-
- the acquisition of additional assets with attractive rental characteristics will further diversify the Company’s investment portfolio and reduce portfolio concentration risk;
- growing the equity base over which the fixed costs of the Company are spread will reduce its on-going costs per ordinary share;
- an increase in the market capitalisation of the Company should make the Company more attractive to a wider investor base; and
- the introduction of any new shareholders pursuant to the Placing will further diversify the Company’s Shareholder register and potentially enhance liquidity in the ordinary shares.
About GCP Student Living
GCP Student Living is the first student accommodation REIT in the UK. The Company targets a 5.5% annualised income yield growing in line with inflation, alongside a total return of between 8% and 10%. The company says that the target will be achieved by investing in modern purpose built private student accommodation and teaching facilities which is contracted to a diversified portfolio of direct let tenants and Higher Education Institutions. GCP Student Living invests in properties located primarily in and around London where the Investment Manager believes the Company is likely to benefit from supply and demand imbalances and a growing number of international students.
DIGS : GCP Student living targeting £70m fund raise