A fund controlled by the Chinese government is set to buy a 40 per cent stake in the UK’s largest developer of student housing.
Gingko Tree Investment Ltd, a London-registered Chinese state-owned fund, is understood to be closing in on a £550m deal to buy Barclays Bank European Infrastructure Fund’s remaining stake in UPP Group Holdings Ltd (“UPP Group”), which runs the University Partnerships Programme.
The news comes just two weeks after Dutch pension fund PGGM acquired 60% of UPP Group for an estimated £840m.
Student housing has become one of the most coveted property classes during the past two years, offering a combination of an undersupplied market, low vacancy rates and stable yields which have lured long-term investors, such as insurers and sovereign wealth funds.
University Partnerships Programme, which specialises in on-campus accommodation, has a portfolio of 28,000 rooms. UPP Group generated earnings before interest and tax of £33m for the financial year August 2011 on revenues of £76m. UPP Group’s Tangible Net Book Value at the time was £179m and its enterprise value (which also includes the debt) totaled £811m.
In 2011, UPP Group secured a £200m deal with the University of Reading to run a 125-year concession. It also set out a strategic ambition of investing £1bn over the following 18 months and planned to increase its portfolio of residential stock to 35,000 rooms by 2014, which would see its annual rent roll grow to £140m.
UPP Group’s enterprise value had reportedly increased to £1.4bn by the end of August 2012 and revenues had topped £100m, indicating a gross yield of 7.2%.
In 2010-11, there were 490,000 students living in open market rented property, compared with 335,000 in 2007-08, according to data from the Higher Education Statistics Agency. The shortage in purpose-built student accommodation means that private-sector student housing providers typically report term-time occupancy rates of 96 to 99 per cent.
Recent reforms designed to introduce more competition into the sector by allowing leading universities to expand by taking in more British students with grades at or above ABB at A-level (currently set at AAB but changing in 2013), will throw up winners and losers which may impact the student accommodation market. The challenge for investors in this space is to pick out those institutions which are able and willing to expand and avoid universities set to experience falling student populations.
Additionally, some investors are fretting that the revoking of London Metropolitan University’s Highly Trusted Status to sponsor non-EU students by the UK Border Agency could be repeated elsewhere and might effect the viability of student accommodation projects in towns with a single university and a high proportion of non-EU students. At the very least, universities will become more cautious about accepting non-EU students onto courses, only allowing in those with 100% bona-fida credentials to study in the UK.
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