• Portfolio of 14 assets
• Platform for future acquisitions
• FV maintained at S$2.52

Foray Into UK Student Accommodation

SPH announced that it has entered into a SPA with Unite Students to acquire a portfolio of purpose-built student accommodation in the United Kingdom (UK) for a cash consideration of ~GBP 180.5m, subject to adjustments. The portfolio will comprise of 10 freehold assets and 4 leasehold assets, with a total capacity of 3,436 beds for student accommodation. These assets will be located in established university towns and cities with large student populations, such as London and Birmingham.

In terms of capacity, the portfolio will have the largest exposure to the cities of Plymouth, Huddersfield and Sheffield. We note that the group has obtained a rent guarantee capped at GBP 2.5m to cover the shortfall between the estimated income and actual income of the assets as at 30 Nov 2018.

On a pro forma basis, this transaction is earnings accretive, as FY17 PATMI would have risen 3.6% to S$362.2m. According to Unite Students, this transaction would result in a net initial yield of 6.3%.

Capturing Growing Demand, But Not Without Near-term Concerns

As highlighted in our previous report, we have been expecting SPH to explore the real estate asset management market in the UK, specifically in assets within the education space to diversify its income streams. In our opinion, local demand for student accommodation in the UK should generally be robust.

Last month, the Universities and Colleges Admissions Service (UCAS) announced that a record 27.9% of the 18 year old population in England have been accepted for higher education through UCAS.

In a separate report, the Higher Education Policy Institute (HEPI) noted that the key determinant of demand for higher education places is the size of the young population, and highlighted that the population of 18-year-olds, while declining steadily for a number of years, should stabilize by 2019, and from 2020 increase again, rising by ~23% by 2030.

Notwithstanding the projected demand, we think that there might be some short-term issues that the group might need to contend with. For instance, in a 2017 report, Savills reported that while Plymouth has a high student to bed ratio of 3.7, the planning pipeline has almost 3,300 units committed, which amounts to 56% growth relative to existing supply.

Also, as highlighted by the HEPI, Brexit could have a disruptive effect on demand from EU students, unless special arrangements are negotiated. We maintain our estimates and fair value of S$2.52 for now.

Source: OCBC Research - 11 Sept 2018