UK student digs operator Unite Student Accommodation Fund (USAF) has exchanged contracts to acquire a 2,100-bed student accommodation portfolio from Bahrain's Ahli United Bank for £271 mln (€374 mln).
UK student digs operator Unite Student Accommodation Fund (USAF) has exchanged contracts to acquire a 2,100-bed student accommodation portfolio from Bahrain's Ahli United Bank for £271 mln (€374 mln).
USAF, which is 22% owned by Unite, will fund the acquisition from the proceeds of its recent equity raise, announced last month. The deal will complete by 30 June 2015.
The portfolio, which represents Ahli United's entire UK student residence holdings, comprises eight high-quality properties. 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 acquisition increases USAF's property portfolio value by 16% from £1.64 bn to £1.91 bn, comprising 26,920 beds across 25 UK towns and cities.
The purchase price represents a net initial yield of 5%, 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,' Unite said in a statement.
These yields are in line with recent transactions in the student accommodation sector and are about 50 basis points lower than yields in the existing USAF portfolio as at 31 December 2014, the company added.
The acquisition will be immediately accretive to USAF's earnings per unit and accretive to its NAV per unit within one year. Following the transaction, USAF's loan to value ratio is 33%, still within its objective to maintain leverage below 40%.
See also, Knight Frank brings €550m UK student bed portfolio to market
