£405m refinancing boost for UK’s largest student accommodation fund

June 11, 2013

USAF, the specialist student accommodation fund in which Bristol-based Unite is the largest investor, has secured a £405m refinancing package which is likely to benefit Unite’s finances and its ability to borrow at lower rates.

USAF is the largest fund of its type in the UK with a portfolio of 63 properties valued at more than £1.3b in 20 towns and cities across the UK. The properties can accommodate more than 21,000 students.

The refinancing deal, struck with HSBC and Lloyds Commercial Banking, includes bonds worth £380m with a 10-year maturity and a fixed coupon of 3.4% and a £25m, five-year revolving credit facility, corresponding to an overall loan to value of around 50%.

Its existing bonds are redeemed and will be repaid on the next payment date later this month. The new bonds are expected to be rated A by both Standard & Poor’s and Fitch. 

The funding extends the maturity on about two-thirds of USAF’s existing debt facilities, increasing its weighted average debt maturity from two to seven years while reducing its total cost of interest from 4.9% to 3.9%.

As part of the transaction, USAF will incur costs of around £11m linked to breaking interest rate swaps of which £2m will fall on Unite. This will form part of the firm’s anticipated total break costs of £6-8m for the whole of 2013.

The impact of the refinancing on Unite, the largest investor in USAF with a holding of 16%, will be to reduce its debt from 5.5% to 5.35%, increase its weighted average loan maturity from five to six years and increase its proportion of non-bank finance increase from 43% to 46%. 

Unite chief financial officer Joe Lister said: “The launch and pricing of the new bond to support USAF’s refinancing will have a material impact on the group’s total cost of financing, bringing significant savings and contributing towards our target of a 4.5% earnings yield by 2015.

“Achieving a strong investment grade rating provides key benefits in giving access to longer term finance, at competitive rates, and diversifying USAF’s sources of capital beyond the banking market.”

HSBC regional head of real estate Hugh Taylor added: “Student accommodation is now an established asset class in its own right and generally demand continues to outweigh supply for university spaces.

“This bond issue was attributed a strong credit rating and, as a result, good pricing has been achieved with debt maturity profiles currently not available in the banking market. UNITE is a quality business, benefitting from an experienced management team, low gearing, modern residences in attractive locations and strong levels of demand for its product.”

John Feeney, global head of corporate real estate at Lloyds Bank Commercial Banking, said: “We are delighted to complete this deal on behalf of an outstanding client with strong expertise in the student accommodation market. Unite and USAF’s assets are among the highest quality in the sector, which itself has experienced significant growth and investment throughout the cycle. This deal typifies the role that Lloyds Bank looks to play, as we assist our clients in accessing diverse forms of capital, combined with support from our own balance sheet.”



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