15th Jun 2015 06:27
LONDON (Alliance News) - Unite Group PLC Monday said that the Unite UK Student Accommodation Fund, in which it has a 22% stake, has exchanged contracts to acquire a 2,100 bed student accommodation portfolio for GBP271 million.
The student accomodation developer and manager said the fund will pay for the deal using the proceeds of last month's equity raise. It has bought the portfolio from Ahli United Bank.
The portfolio comprises eight modern assets located across seven prime student accommodation markets. The acquisition increases USAF's property portfolio value by 16% to GBP1.91 billion from GBP1.64 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," Unite said.
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 25 basis points keener than the yield on comparable USAF assets as at the 31 March 2015 valuation and approximately 50 basis points keener than those as at 31 December 2014," Unite said.
The company added that the acquisition will be immediately accretive to the fund's earnings per unit and to its net asset value per unit within one year. Following the transaction, USAF's loan to value ratio is 33%, well within its objective to maintain leverage below 40%.
Unite's share of incremental earnings, together with additional management and acquisition fees, is expected to add approximately GBP2 million or 0.9 pence a share to the its EPRA earnings over the remainder of 2015 and approximately GBP3 million or 1.4 pence a share per year on a subsequent, recurring basis, it said.
By Steve McGrath; [email protected]; @stevemcgrath1
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