GCP Student Living has announces that it is in advanced negotiations to acquire and fund the construction of Scape Brighton. If acquired, this would be the Company’s second asset in Brighton.
About Scape Brighton
Scape Brighton is a large scale, purpose-built private student development located on the primary campus of the University of Brighton. Scape Brighton is to provide approximately 550 beds and extensive communal areas with around 1,500 square feet of retail space. Subject to the acquisition proceeding, the property will be constructed and designed to the specifications set by the Company and Scape Student Living, who will oversee the development and be appointed as the asset and facilities manager upon completion of construction. The property will primarily serve students from Brighton University and the University of Sussex, which together have around 36,000 students including about 7,500 international students. GCP Student Living says that it is currently expected that Scape Brighton will be operational in September 2020.
Brighton supply demand balance
GCP Student Living’s board believes that Brighton demonstrates the strong supply-demand imbalance for student residential accommodation in the UK, which it says is typical of the localities of the Group’s investments. The board says that there is a shortage of modern, purpose-built accommodation driven by supply restrictions (including high barriers to entry and strong demand arising from both domestic and international students), while Brighton has a structural shortfall of private direct let purpose-built student accommodation.
Scape Brighton to be forward funded
The company’s announcement says that it is intended that Scape Brighton will be acquired and its construction financed through a forward-funding arrangement. It says that the purchase of assets under development enables it to secure properties located in areas which benefit from favourable supply and demand characteristics, where appropriate operational assets may not be available. Furthermore, it also says that the acquisition of Scape Brighton should enable the Company to secure a new asset at a yield which is expected to be more attractive than yields on acquiring comparable operational assets and should provide rental and earnings growth for the Company over the long term, in addition to NAV growth prospects. In the event Scape Brighton is acquired, the Company expects to benefit from licensing fees which will provide a circa 5.5% coupon through its construction phase.
Potential equity issue
The Board and Investment Manager say that they are considering the optimum way to finance the acquisition of Scape Brighton. This includes consulting with shareholders in regards to the potential of issuing new equity in June/early July 2018, as well as exploring potential sources of debt finance.
Fully covered dividend when the entire portfolio is operational
The company says that it dividends are expected to be fully covered by earnings when its entire portfolio is fully operational. It says that the Directors (as advised by the Investment Manager) believe that the Company is well placed to continue to provide rental, earnings and net asset growth over the short to medium term. This is primarily driven by operational efficiencies, the current positive outlook for rental growth for the portfolio and the forecast contribution to returns of those properties which are under construction (Circus Street and, if acquired, Scape Brighton) or refurbishment (Scape Bloomsbury).
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 invests in modern purpose built private student accommodation and teaching facilities which it says are 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.
GCP Student Living may forward fund Scape Brighton : DIGS