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14 September 2012 | Education | Unite Group plc

Unite Group places a big bet on the London student accommodation market

The Unite Group plc, the UK's largest developer and manager of student accommodation, and GIC Real Estate ("GIC RE"), the real estate arm of the Government of Singapore Investment Corporation, have announced the extension of their existing joint venture (Unite Capital Cities, "UCC") and the creation of a new partnership through which Unite will undertake its next phase of London development activity (the London Student Accommodation Joint Venture, "LSAV").

​The transaction, which is expected to be earnings enhancing and boost net asset value aims to reduce the Group's leverage. The deal includes the following components:-

  • An extension in the life of UCC until September 2022 and the disposal of around 25% of its portfolio for £100m leaving the company focussed on its highest quality London locations;
  • The establishment of a separate 50:50 joint venture, LSAV, which will invest £330 million in development activity in London over the coming years, equivalent to between 3,500 and 4,000 new bed space. Unite is expected to invest £58m in LSAV in the form of equity and the balance will be funded through debt;
  • LSAV is to acquire two of Unite’s London developments projects for an initial cash consideration of £129m and will realise £39 million of development profit. The properties to be sold are North Lodge, Tottenham Hale, a recently completed 528 bed property scheduled for occupation later in September and Stratford City, a 951 bed development scheduled for completion in 2014;
  • A mechanism which gives Unite the ability to increase its stake in UCC from 30% to 50% by 31 December 2016, at which point UCC and LSAV can be merged into a single entity.

From a strategic perspective the transaction allows Unite to accelerate its investment in London development activity at a time when it believes potential returns are particularly compelling and the scale of opportunity is greater than Unite could fund alone. Furthermore, the forward commitment sale of two properties to LSAV will allow the Group to realise meaningful development profit and reinvest capital into development activity without diluting earnings.

Unite and GIC can agree to extend the development programme by a further £200 million once the existing capital has been committed.

Mark Allan, Chief Executive of Unite, said, "This transaction is a further important step for Unite and is consistent with our objectives of growing recurring earnings, undertaking accretive development activity without stretching the Group's balance sheet and reducing leverage over time. It also gives us increased firepower in the London market at a compelling time, allowing us to increase our presence and investment in London, our key target market, where we now expect to have over 13,000 bedrooms within five years”.

“Successfully extending and expanding our joint venture relationship with such a high calibre partner as GIC is testament to the track record that Unite has built and further demonstrates the continued appeal of the UK student accommodation sector to investors around the world."

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