Student hostel cluster selling for $55m
Three Wellington student hostel buildings in Willis St, worth around $55 million, are being sold by the Australian-owned Ingenia Communities Group.
The hostels in the converted McKenzies, Cumberland House and Education House office buildings are leased by Victoria University and the Wellington Institute of Technology.
Auckland-based Ray White Commercial director Bruce Whillans said the 15-year leases guaranteed rental growth.
Ingenia, formerly the ING Real Estate Community Living Fund, bought the properties in 2006 and has spent about $25 million refurbishing, renovating and doing seismic strengthening work on the three sites. The properties are being sold separately or as a portfolio with tenders closing on April 3.
Whillans said the hostels were a well-located student housing hub less than 15 minutes walk from Victoria University's main campus and Weltec's new School of Hospitality campus in Cuba St. They were also a short walk from Cuba St and Courtenay Pl.
They were currently returning a total net annual income of $4,322,097 and are forecast to deliver $4,330,986 over the year to January through a series of market and CPI-based rent reviews.
A buyer paying $55m for the properties would get a passing yield of around 7.8 per cent. The rents are based on a combination of commercial tenancies and 618 student beds.
"This already robust cash flow portfolio can be further boosted by re-negotiating and re-leasing several of the commercial tenancies, as well as taking advantage of further short-term accommodation revenue from Cumberland House during the summer holiday period," said Whillans.
An extra 464 student beds could also be added with future development.
Cumberland House at 237-253 Willis St has 187 rooms with 104 self-contained bedroom apartments and 123 communal beds, providing a total of 227 beds over 11 levels. Work has just been completed on a $5m refurbishment and strengthening project.
The ground floor lobby has a dining hall and kitchen and the first floor student community centre includes a cinema, laundry, kitchen, gym, study rooms and a lounge area. Work and Income leases part of the ground floor and a separate three level building on site is leased to commercial tenants and as car parking space.
The McKenzies Apartments, which opened this year after a $15m conversion and strengthening project, have 168 bedrooms.
Education House, which has recently had a $2m refurbishment, has 108 self-contained single studio rooms, catering mainly for seniors and overseas students.
There was also potential to add a further six floors with the district plan providing for a height limit of 43.8m.
Ingenia chief executive and managing director Simon Owen said it had received considerable interest in the portfolio over the past year but was committed to completing the work first.
The hostels had been used over the years to provide summer accommodation for students and budget travellers. This business was underpinned by key Wellington events including the rugby sevens, cultural festivals and concerts.
Owens said Ingenia was selling its offshore portfolios and increasing its focus on the Australian seniors housing market after a 2010 strategic review. Whillans said tertiary student halls of residence offered stable counter- cyclical incomes: "They're internationally recognised as a sought- after and growing asset class. And this portfolio is not dissimilar to a government bond, with over 90 per cent of the portfolio's income anchored by Crown-funded tenants," he said.
The Dominion Post