CDL Hospitality Trusts to invest S$136M in Manchester build-to-rent development project

An artist's concept of CDL Hospitality Trusts' planned build-to-rent property, to be called The Castings, in Manchester, U.K. Credit: CDL Hospitality TrustsAn artist's concept of CDL Hospitality Trusts' planned build-to-rent property, to be called The Castings, in Manchester, U.K. Credit: CDL Hospitality Trusts

CDL Hospitality Trusts has entered a land-purchase and development-funding deal to invest in a residential build-to-rent project in Manchester, U.K., for 73.3 million British pounds, or around S$136 million, marking its first foray into an adjacent lodging segment.

The investment is the first under the trust’s strategy change to include alternative-accommodation real estate, such as rental housing, co-living, student accommodation and senior housing, to seek increased diversification and income stability.

“We are executing on our revised principal investment strategy whereby 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,” Vincent Yeo, CEO of CDLHT’s managers, said in the statement.

The deal is a forward-funding agreement, with the project completion expected in 2024, CDL Hospitality Trusts (CDLHT) said in a filing to SGX Tuesday.

CDLHT said it has acquired land and buildings on the southeast side of Longacre Street, Ancoats, Manchester, from Packaged Living (FREOF V Heyrod) LLP for 9.5 million pounds, or around S$17.6 million.

Under the deal, the seller will redevelop the land into a residential build-to-rent building to be called The Castings for 63.58 million pounds, or around S$118.4 million, the filing said. CDLHT will pay out 58.2 million pounds of the development price over the development period, with the remaining 5.6 million pounds to be paid after practical completion, the filing said.

The Castings will have 352 units, with a mix of studios, one-, two- and three-bedroom units, and common amenities which may include a gym, cinema, lounge areas, a roof terrace and ground floor retail spaces, the filing said. The location is in Piccadilly East neighbourhood, near the Manchester Piccadilly Station and tram stop.

“On completion of the development, The Castings is expected to be leased out to a mix of individual residential tenants or families for periods of typically about one year or more. Tenant concentration risk is reduced with multiple tenants leasing the apartments. The
new property is expected to provide stable and resilient income following gestation with longer underlying average length of stay, high rent collection and lease renewal rates that are typical of BTR assets,” CDLHT said in the statement.

“Furthermore, BTR assets rely on different demand drivers to hospitality and may respond differently to macro risk events. The new property will hence strengthen CDLHT’s rental income base and provide meaningful portfolio diversification,” CDLHT added.

Savills (UK) valued the property at 76.1 million pounds on a forward-funding basis, compared with the purchase consideration at 73.3 million pounds, the filing said.

CDLHT estimated the pro forma stabilised net property income yield of the property would be 5.1 percent, translating to a 2.2 percent accretion to 2020 distribution per unit (DPU) on a pro forma basis.

The seller of the property, Packaged Living (FREOF V Heyrod) LLP, is a joint venture between FREOF V (General Partner) LLP and Packaged Living (FREOF V Heyrod PM) LLP, ultimately owned by Fiera Capital Corp. and Packaged Living Ltd., respectively, the filing said.

Packaged Living, which invests in and develops build-to-rent assets in the U.K. with a pipeline of more than 4,000 units, is backed by Fiera Real Estate UK, which manages more than US$5.3 billion in commercial real estate and which is wholly owned by Fiera Capital, the filing said..