London Cornwall Property Partners to spin off UK student housing

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London Cornwall Property Partners is to spin off its £40m student accommodation portfolio with a £110m initial public offering, in a sign that some student housing operators’ financial troubles have not dented investor appetite.

LCPP’s new real estate investment trust, Empiric Properties, will target wealthy postgraduates, international students and those in their second and third years of university in major towns.

Tim Attlee, Empiric executive director, said that many parts of the country had a gap in the market for high-quality, purpose-built student housing, despite fears raised last year that there was a potential oversupply of new developments.

Investors were spooked by fears of oversupply in the market when Opal Property Group’s student housing subsidiaries slid into administration last year.

Investors in two open-ended student accommodation funds, Brandeaux and Mansion, have still not recovered their cash after the funds were suspended last year, being unable to meet redemption requests.

Mark Allan, chief executive of market leader Unite Group, conceded there was “some risk of oversupply” in local markets that did not have at least two strong universities, strong local economies and constraints on local housing supply. Markets with these characteristics, however, would fare well, he argued.

“There has been some bad news about [some] funds but the underlying sector is very strong and we are seeing new market entrants attracted by those fundamentals,” he said. “There is still a lot of capital looking to get into the sector.”

Empiric cited the UK government’s move to lift the cap on university student numbers late last year as a major boost to the sector’s prospects that will draw more foreign students into the UK’s higher education system. Foreign students are more likely to pay higher prices for purpose-built accommodation than their domestic counterparts, particularly after their first year of university.

The Department for Business, Innovation and Skills estimates that the number of foreign students in the UK could increase 15 to 20 per cent in the next five years.

Empiric intends to focus on the UK’s top 27 university cities, including London, offering 50-200-bed properties with in-house cinemas and gyms, and rents set at the upper end of the market.

Mr Attlee said that most student housing companies focused on first-year students, who make up just a quarter of the market. Of the remaining three-quarters in the 27 cities Empiric is targeting, just 4 per cent are housed in purpose-built accommodation.

LCPP houses 350 students, up to 90 per cent of whom are international and half are postgraduates. It aims to build its portfolio up to around 2,200 bed spaces, using 35 per cent leverage to acquire or build up to 25 properties. Some 20 per cent of its capital will be spent on new development.

“Our tenants are sophisticated consumers,” Mr Attlee said. “The universities need this kind of high-quality accommodation as part of their offer to the discerning international students they are trying to attract.”

Unite recently launched a £40m investment programme to upgrade its existing stock in an attempt to stay competitive in the face of new market entrants. Mr Allan said that the market’s outlook was the best in over a decade, as a result of the expansion in student numbers and strong demand from investors.

In particular he cited private equity and institutional investors as being keen.

Empiric aims to generate 13 per cent annual shareholder returns, more than half of which will come from capital growth.

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