Joint Venture

RNS Number : 2850X

Unite Group PLC

12 August 2009

 



12 August 2009

The UNITE Group plc 

('UNITE' / 'Company' / 'Group')

UNITE establishes £194 million London development joint venture with Oasis Capital Bank 

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today announces that it has established a five year joint venture with Oasis Capital Bank B.S.C (c) ('OCB'), a closed joint stock company incorporated in the Kingdom of Bahrain, to develop three student  accommodation properties in London 

with an estimated completion value of £194 million.  OCB has bought a 75% stake in the joint

venture, investing £39.0 million, with UNITE holding the remaining 25%. 

UNITE's three properties under development, amounting to 1,119 beds and representing its entire 2010 pipeline, will be immediately sold to the joint venture for consideration of £88.2 million, reflecting an anticipated development yield on cost of approximately 8%.  As part of the financing for the transaction, UNITE's existing banking facilities relating to each property will be reduced by an aggregate of £14 million and transferred into the joint venture.  As a result, the joint venture will have access to total debt facilities of £109 million, of which £51 million is currently drawn with the remainder available to fund costs to complete.

The estimated value of the three properties on completion is expected to be £194 million, and the anticipated costs to complete them are £69 million.  UNITE will record a loss on disposal of £0.4 million as a result of the transaction, equivalent to 0.2% of estimated final value.

The completion of the joint venture has a significant immediate positive impact on UNITE's balance sheet:

• The Group's net debt is reduced by £75.2 million (being the £88.2 million cash proceeds received from the joint venture, less UNITE's £13 million reinvestment for a 25% stake);

• Committed net debt (taking into account costs to complete) reduces by £144.2 million;

• £21 million of cash is released to the Company (arising from the £39 million invested into the joint venture by OCB for a 75% stake, less the £14 million applied in deleveraging bank debt and £4 million of working capital, establishment and other costs), providing it with further flexibility in the management of its balance sheet and enabling it to take advantage of future opportunities, where appropriate.

The joint venture has appointed UNITE to undertake the development of the three properties,

and to provide ongoing management on completion, leveraging the strong UNITE brand, its specialist development skills and operational platform.  In addition, all three properties will benefit from UNITE's modular construction methodology. UNITE will be paid for its services as follows:

• A development management fee equivalent to 5% of build cost, payable during development;

• An asset management fee, payable from completion of the projects, calculated as 70 bps of gross asset value per annum;

• Modules will be supplied by UNITE Modular Solutions Limited at market value.

Direct operating costs of the three properties will be borne by the joint venture.

This transaction builds on UNITE's strong track record of attracting co-investment. The Company currently manages and co-invests in three other vehicles; The UNITE UK Student Accommodation Fund, its UNITE Capital Cities joint venture and the UNITE Student Village joint venture. In total, the Group has raised over £500 million of third party equity for its co-investment vehicles since 2005.

Commenting, Mark Allan, UNITE's Chief Executive, said, 

'The creation of joint ventures is a very effective way for the Company to maximise returns for shareholders whilst managing the Company's development exposure. Building on our strong track record in the creation and management of co-investment vehicles, our joint venture with OCB demonstrates both our ability to raise strategic capital and the ongoing attractiveness of student accommodation as an asset class to institutional investors.  London is a particularly attractive market because of its acute demand/supply

imbalance; over 250,000 full time students, but only 46,000 purpose-built bed spaces.

'The sale of three properties to the joint venture, at robust valuations, reduces our net debt position by £75 million and releases a significant amount of cash to the Group. This will provide us with greater flexibility to manage our balance sheet and explore new opportunities as they arise. '

The three properties which will be transferred to the joint venture, all of which have debt funding for development in place, are:

Lavington Street: a 230 bed development situated on the South Bank near the Tate Modern and in close proximity to Southwark underground station. Planning consent was granted in July 2008 and practical completion is scheduled for August 2010.

James Leicester Hall: a 573 bed development situated in an established student area adjacent to Caledonian Road underground station. The site was acquired in November 2008 with a detailed planning consent in place. Practical completion is scheduled for August 2010.

301 Holloway Road: a 316 bed development situated in Islington, adjacent to Holloway Road underground station and 200m from London Metropolitan University, North Campus. Planning consent was granted in August 2008, and practical completion is scheduled for August 2010

ENDS

For further details, please contact:

The UNITE Group plc Mark Allan	Tel: [phone]
Financial Dynamics Stephanie Highett / Dido Laurimore /  Rachel Drysdale / Laurence Jones	Tel: [phone]

About UNITE Group

UNITE Group is the UK's leading developer and manager of student accommodation, with a business model that focuses on three core areas; 

1.    Development: UNITE undertakes the acquisition, planning and development of purpose-built student accommodation in the UK. 

2.    Professional property management: UNITE will be home to some 39,000 students during the 2009/10 academic year and has consistently proven high occupancy levels across its portfolio. 

3.    Co-investing asset management: Working on behalf of its partners, UNITE acts as Fund Manager for the UNITE UK Student Accommodation Fund in addition to being 18.6% stakeholders. UNITE also manages a number of Joint Venture partnerships.

UNITE works closely with the universities and colleges, in order to deliver high quality, well-located student accommodation at affordable prices in strong higher education markets.

Founded in 1991, UNITE Group is listed on the London Stock Exchange (UTG).

www.unite-group.co.uk   www.unite-students.com 

 

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