USAF Acquires 2,100 Bed Student Portfolio For £271 Million
Unite Students, the UK's leading developer and manager of student accommodation, announces that the Unite UK Student Accommodation Fund ("USAF"), in which the Group has a 22% stake, has exchanged contracts to acquire a 2,100 bed student accommodation portfolio for £271 million. The acquisition will be funded in cash from the proceeds of USAF's recent equity raise, announced on 19 May 2015. The acquisition will complete by 30 June 2015.
The portfolio, acquired from Ahli United Bank ("AUB"), represents the entire AUB UK Student Accommodation Fund and comprises eight modern, high quality assets located across seven prime student accommodation markets that complement USAF's existing portfolio. The acquisition increases USAF's property portfolio value by 16% from £1.64 billion to £1.91 billion, comprising 26,920 beds in 76 properties across 25 UK towns and cities.
Five of the assets are located in existing USAF markets (London, Glasgow, Leeds and Birmingham), with London representing 36% of the total portfolio. The other three assets are located in new markets, Oxford, Durham and York, that all offer growth potential. The portfolio benefits from robust direct let demand for 70% of income while 30% is underwritten by University agreements with the London School of Economics and Oxford Brookes University.
The purchase price represents a net initial yield of 5.0%, comprising 5.6% for the prime regional direct let assets, 5.1% for the prime London direct let asset and 4.1% for the leased assets. The portfolio offers significant reversionary potential that we expect to unlock over the next two to three years increasing the portfolio net initial yield to 5.6% on a pro forma basis, i.e. before accounting for further market rental growth. These yields are in line with recent transactions in the student accommodation sector and are approximately 25bps keener than the yield on comparable USAF assets as at the 31 March 2015 valuation and approximately 50bps keener than those as at 31 December 2014.
The acquisition will be immediately accretive to USAF's earnings per unit and accretive to its NAV per unit within one year. Unite's share of incremental earnings, together with additional management and acquisition fees, is expected to add approximately £2 million (0.9 pence per share) to the Group's EPRA Earnings over the remainder of 2015 and approximately £3 million (1.4 pence per share) per annum on a subsequent, recurring basis. Following the transaction, USAF's loan to value ratio is 33%, well within its objective to maintain leverage below 40%.
USAF continues to achieve good rental growth and high occupancy levels across its portfolio.
Commenting on the acquisition, Mark Allan, CEO of Unite Students said: "Following its recent capital raising, we are delighted that USAF has been able to complete the acquisition of one of the highest quality portfolios in the market. The portfolio is highly complementary to USAF's existing portfolio and we see real opportunities to drive additional value through the introduction of our brand and operating platform as well as specific asset management opportunities."