PBSA acquisition strategy

Q3 2018 update

Our PBSA Acquisition Strategy explained:

Purpose-built student accommodation has become a mainstream asset class among institutional investors, delivering a market leading rental income yield and out-performing the broader commercial and residential property market over the past 5 years. Read more about PBSA as an asset class here.

We believe the world-renowned strength of UK higher education and a structural undersupply of quality, modern accommodation, mean the sector is well placed to achieve a strong and steady total return.

We aim to list one new PBSA block per month, with a view to delivering a high rental income return.

Our research-led Acquisition Strategy and comprehensive property assessment and diligence serve to mitigate risk at the asset level and provide a firm foundation for long-term income and capital growth.

Location selection
Our core Acquisition Strategy is focused on locations with high ranking universities, coupled with favourable demand/supply dynamics for purpose-built bed spaces. We believe the strongest institutions will continue to grow in size, educational prestige and appeal to students. This is an established trend, demonstrated by significant excess demand for places at top quartile ranked universities and the impressive programmes of investment they have in place.

We strategically target “prime under-supplied cities” where we have established significant untapped demand for PBSA, through detailed analysis of data from leading property research houses, coupled with our own intelligence.

Prime under-supplied cities – Target dividend yield 5%+
• Large cities and historic university locations
• One top 30 ranked university, usually also containing a second-tier institution
• Structurally undersupplied market for PBSA i.e. full-time student population outnumbers available bed spaces, including university accommodation, by a margin which won’t be filled in the foreseeable future
• Track record of high occupancy and steady rental growth in the market
• Recent/planned investment into university facilities

Outside of core targets, other markets exist with attractive investment potential despite having a smaller student population. We will consider properties in strategically chosen secondary markets, and, stand out opportunities in emerging university towns, if a desirable asset and micro-location are coupled with significant untapped demand for purpose-built accommodation.

Please note: past performance is not a reliable indicator of future performance.

Strategic secondary – Target dividend yield 5.5%+
• Large towns and smaller cities with relatively young universities enjoying fast improvement and growth
• University ranked between 31-80
• Significant undersupply of PBSA relative to full time population
• Track record of high occupancy and steady rental growth in the market
• Recent/planned investment into university facilities

Opportunistic – Target dividend yield 6%+
• High yielding opportunities with a compelling investment case linked to a specific location
• Likely to be university towns with smaller student populations, newer growing institutions, or historic Cathedral cities, prosperous and popular with students and visitors
• Limited availability of PBSA due to absence of larger players, making rare examples of quality modern accommodation attractive to students

Property selection
Within a chosen location, we seek high quality properties where both the local area and the specification of the building, hold strong appeal for students. We aim to achieve this while delivering a very strong rental income return (dividend yield), backed by good prospects for rental and capital growth in the medium to long-term. Potential opportunities in our target locations must satisfy a number of quantitative and qualitative criteria to be considered for acquisition:
 
PBSA Strategy
 
We don’t currently plan to invest in London, with land values and demand from foreign investors pushing prices to a level where the income yield has become low relative to the asset-class. However, with London holding unique appeal, being home to the largest number of students of any UK city, as well as several top-ranking universities, we will continue to monitor the market in case attractive opportunities to enter materialise.

Gearing
We choose to part finance acquisitions with a mortgage, typically at 50% LTV, increasing investors’ exposure to growth, and, enancing the dividend yield. We seek the best available terms from our panel of well know lenders and usually choose to fix the interest rate for 2-5 years to provide a degree of certainty over income performance. Ultimately, our decision to use “gearing” and the mortgage terms selected depend on a considered assessment of the potential benefits, relative to pricing and market conditions, at the time of a property’s launch.

PBSA property criteria
• Blocks of studio flats and ensuite cluster flats
• Value range between £1m and £8m
• Completed and operational or close to practical completion
• Under 10-years old

Comprehensive appraisal and due diligence of property investments
We use our expert knowledge, gained through decades of property investment experience, to rigorously appraise properties, avoiding the pitfalls to which untrained buyers can fall victim, minimising risk. Every property we acquire is visited by a member of our property team, who carries out a full assessment of the physical attributes and potential appeal to renters. Our in-house property legal team conduct searches to ensure there are no hidden complications concerning leases, covenants or charges held against the property.

Put simply, buying property is our day job and we believe we add significant value for investors through our comprehensive process of appraisal and due diligence. You can read more about our highly experienced property investment and management team here.

Final approval to purchase is given by the investment committee, which includes the investment director, the CEO and the CFO. The panel determine whether our required levels of quality and the minimum performance criteria are met. From the point of receiving the green light from the investment committee, a property can be launched on platform within a week.

 

 




 
Important notice: Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested. Forecasts are not a reliable indicator of future performance. Gross rent, dividends and capital growth may be lower than estimated. 5 yearly exit protection or exit on platform subject to price & demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Before investing please read Key Risks. Past performance is not a reliable indicator of future performance.
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