Institutional investors keep their chips on student housing despite pandemic hit

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The COVID-19 pandemic has upended all assumptions about student housing assets being “recession-proof” as colleges continue to remain shut and international students stay home.

Yet, faith in the sector’s revival has prompted institutional investors to stick to their student accommodation plays, even as their portfolios have taken a beating amid the crisis.

“It [student accommodation] used to be recession-proof, but it’s not pandemic proof,” Kong Chee Min, CEO of Centurion Corp, told DealStreetAsia in an interview. Singapore- and Hong Kong-listed Centurion owns student accommodation assets across the US, UK, Australia, Singapore, and South Korea.

In its third-quarter results, Centurion reported that its student accommodation revenue tumbled 39 per cent year-on-year to S$6.16 million, amid lower occupancy. Centurion said its student accommodation assets, excluding those in the US, had around 67 per cent occupancy in the first nine months of 2020, down from around 85 per cent in the year-ago period.

The release cited Australia’s Melbourne and UK’s Manchester as seeing the biggest occupancy hits amid travel restrictions and university campus closures.

In November, Australia decided to continue to block foreign students from returning to the country, a measure initially undertaken in March. The country cited a shortage of quarantine facilities and plans to give priority to its own citizens trying to return home.

Joe Persechino, head of residential and student accommodation at Axa Investment Managers, said his firm’s Australian properties, which typically have around 85 per cent international students, initially fared well, with many international students remaining in Australia during the first lockdown period. But during the second semester, occupancy has ranged from 50-70 per cent.

Axa has mitigated vacancies at its Queensland properties by leasing one asset to the government for COVID-19 outpatients.

In the UK, applications to universities have increased, but that hasn’t translated to increased occupancy in student housing.

By June 30, the number of UK-based applicants to the country’s universities climbed to around 514,000, up 1.6 per cent year-on-year, while the number of applicants from outside the EU rose 10 per cent to around 89,000, according to data published by the non-profit Universities and Colleges Admissions Service in July.

But Centurion’s Kong noted that many of those students were studying online, and not on campus.

Long-term outlook intact

Institutional investors, however, are convinced that this is just a passing phase. “I think the only major event that could affect the sector’s performance is something like what we’re going through right now,” said Axa’s Persechino.

Student accommodation is a long-term play on the rise of the middle class and urbanisation, added Rushabh Desai, CEO for Asia Pacific at Allianz Real Estate. “As the middle class becomes more affluent with better standards of living, education starts taking a front seat for families, and a lot of students travel abroad for better education,” spurring an accommodation demand, Desai said.

Centurion’s Kong pointed to something akin to the TINA principle (There Is No Alternative) in real estate assets: “What other asset class will give the kind of yield and also stability, post-COVID,” he asked, noting it isn’t clear office properties would fully recover from work-from-home effects and that hotels may need years to rebound.

Kong pegged yields for London properties at 3-4 per cent, to sometimes as high as 4.5 percent, while other primary cities ranged from 5-5.5 per cent; Australia properties tend to yield around 5-6 per cent, although Sydney yields are lower, he said.

“Student accommodation doesn’t depend on overseas students alone, there are domestic students as well. If you look at all that, in terms of occupancy it can’t be that bad. Students have to go to study anyway,” Kong said.

Take the case of Axa’s Spanish and French assets, which usually have only a minimal 15 per cent international students. Here, it’s been easier to “fill the gap” on occupancy. Even during lockdown periods, occupancy remained around 20 per cent because some students were unable to return home, or felt it would be unsafe, Persechino said.

Student accommodation offered stability and resilient cash flow, according to Chua Tiow Chye, deputy group CEO at Mapletree Investments, the real estate arm of Singapore state-owned investment company Temasek. “That gives us something that, as a group, we particularly like — stable, recurrent, and resilient earnings,” Chua told DealStreetAsia. “In the interim, we obviously face a bit of softness in terms of demand.”

Mapletree has around 22,000 student-housing beds across assets in the UK and US, with around $1.5 billion worth in its unlisted Mapletree Global Student Accommodation Private Trust and around $1.1 billion on its balance sheet.

Speaking before the announcements of potential vaccine releases, Chua was already optimistic that students would return to take up beds, pointing to a preference for “student life” and the campus structure. He noted his own son has insisted on returning to the US for school.

In the same vein, Singapore’s sovereign wealth fund GIC, which is reportedly one of the sector’s largest institutional investors with as much as S$6.2 billion in invested assets, said that despite “unprecedented challenges,” it remained confident about the long term.

“Online classes are likely to complement rather than replace on-campus classes, and the continued need for quality education, continued enrolment growth and shortage of high-quality, purpose-built student accommodation will support steady growth in the sector over the long run,” Lee Kok Sun, chief investment officer for real estate at GIC, told DealStreetAsia via email. However, GIC expects a “wider dispersion of outcomes” due to the current uncertainty, Lee added.

Deals continue

In November, Greystar Real Estate Partners, Axa Investment Managers–Real Assets, and CBRE Global Investors acquired four student accommodation assets, with 1,100 beds, across three Spanish cities.

Allianz’s Desai told DealStreetAsia his company would proceed with plans to acquire two student-housing assets in Melbourne with around 1,400 beds. That was despite concerns over Australia’s travel restrictions.

GIC’s Lee said the fund’s teams were still proactively seeking new investments.

In mid-October, Singapore-listed Singapore Press Holdings (SPH) said in its results that the deal, announced in December, to acquire Student Castle Investments Holdco brought its student-accommodation beds up to 7,723 across 28 assets in the UK and Germany.

Student Castle owns seven student-housing assets in the UK, five of which were stabilised at the time of the December acquisition, while two were still under development, with one since completed. The deal price was 411.05 million pounds. SPH said its student housing segment’s net operating income for the 2019-20 academic year had risen 29 per cent on-year, despite 4.6 million pounds in COVID-19 related refunds to students.

Expand Table

DatePropertyLocationAmountBuyerSeller
November 2020Four propertiesSpainnot providedGreystar Real Estate Partners, AXA Investment Managers - Real Assets, CBRE Global InvestorsUrbania-Invesco Real Estate JV
November 2020Sydney landAustralia$33.58mWee Hur HoldingsBP Australia
February 2020iQ (a company)UK$6bBlackstoneGoldman Sachs and Wellcome Trust (charity)
December 2019UK portfolio - 2,383 bedsUK$546mSPHStudent Castle Investment Holdco
December 2019Urbanest - 6805 beds, 14 assetsAustraliaundisclosedAxa-Allianz-Scape AustraliaUrbanest
December 2019Archer House 177 bedsUK$19.8mCenturion Corp
November 2019Bremen propertyGermany15.56m euroSPHLiberty Living (Galileo Residenz)
November 2019Two propertiesUK66.5m poundsFar East OrchardEF IV Student Portfolio Housing
October 2019Two Coventry properties 1127 bedsUK$119mMapletree InvestmentsUnite Students
September 2019Hostel AssetsIndia$200mOyo HotelsLovely Professional University
July 2019Liberty Living GroupUK$1.76bUnite, Canada Pension Plan Investment BoardLiberty Living Group
April 2019UK 1243 bedsUK$174.3mSPHHabitus Holdings, Privilege Holdings, Privilege Southampton Holdings and AIGGRE Europe Real Estate Fund I GP
March 2019Paul Street EastUK160m poundsAllianz, Canada Public Sector Pension Investment Board, Greystar Real Estate Partners
March 2019Three UK properties -622 bedsUK$73mFar East Orchard
November 2018Adelaide office propertyAustralia6.76mWee Hur Holdings
September 201814 asset portfolioUK180.5m poundsSPHUnite Group
June 2018Sydney residential blockAustraliaA$52mWee Hur HoldingsRedfern Railway Station
January 201824 asset portfolioUS$1.1bCPPIB, GIC, Scion Group JVHarrison Street Real Estate
November 2017Melbourne propertyAustraliaA$35mWee Hur HoldingsAustralia Xing Seven
June 2017eight assetsUS and CanadaMapletree InvestmentsKayne Anderson Real Estate Advisors
April 2017Two propertiesAustralia$302.3mGICFrasers Property Australia, Sekisui House Australia
March 201729 asset portfollioUS$1.6bCPPIB, GIC, Scion Group JV
January 2016University Housing Communities GroupUS$1.4bCPPIB, GIC, Scion Group JVInvenTrust Properties Corp.

Funds dedicated to the sector, too, are seeing traction.

In September, Singapore-based private equity player Q Investment Partners (QIP) said it was launching a 30 million pound fund to acquire five student housing assets in the UK; QIP said the fund would have a four-year term and expected to return 13-15 per cent a year.

Expand Table

DateFund nameAmountInvestors
September 2020Q Investment Partners30m poundsQIP
August 2020Fraxtor PlatformUndisclosedQIP, Fraxtor
June 2020CUIB$125mOxfordcaps, Cerestra Advisors
September 2019Scape JV$1bAllianz, Axa, Scape Australia
January 2019Centurion Student Accomodation Fund$22.2m + $51.1mCenturion

Few assets, no bargains

Unlike during the 2008 Global Financial Crisis, real estate assets, in general, aren’t facing a lot of forced sales, multiple institutional investors in student accommodation told DealStreetAsia. That has meant student housing assets aren’t becoming bargains.

The investors also said finding good-quality, institutional-sized assets have always been difficult. Centurion’s Kong said that even during pre-COVID, finding new assets at the right unit price was difficult, but the pandemic has created additional difficulties.

“The price is not really cheap at the moment, and then there is also this occupancy difficulty right now, and we are buying at a price assuming that it will be fully occupied,” Kong said. He noted many investors, including Centurion, are assuming that post-COVID, occupancy will go back to previous levels.

Axa’s Persechino largely agreed, saying the search for assets is “very competitive,” noting an under-supply of beds for students in many markets. Persechino said the UK had the most mature student accommodation market in Europe, but penetration was still only around 30-35 per cent, while France, Spain, and Italy were “under double-digits” on penetration.

“In those non-mature markets, there aren’t assets to buy or any assets of scale to buy. We find smaller 20-40-50 bed assets, but assets that institutional investors are looking for are bigger scale,” Persechino said. “Therefore, you have to develop.”

Mapletree’s Chua said the market for assets has tightened since his company began looking five years ago in the UK, when student housing wasn’t really considered an institutional asset class. The capitalisation rate, or the potential rate of return, on London properties was around 6 percent around five years ago, but now finding 4 per cent is “lucky,” Chua said.

Allianz’s Desai also pointed to few available assets in the market. “If you are a well-capitalised owner, you’re not looking to sell these assets at this point in time,” Desai said.

“I think there are very few sellers in the market of student housing assets currently. Everybody wants to wait until we’re sort of past one more semester and then maybe early next year, there may be more assets which are coming to the market,” he added.

While Allianz was currently investing in assets in the US, UK, Europe, and Australia, it was considering entering Japan, India, and China, Desai said, but added those markets’ assets weren’t yet institutionalised.

Chua said Mapletree was exploring an IPO for its student-accommodation assets as a REIT, but added that was likely a year or two away; Mapletree is also doing development projects for more assets.

There are few publicly-listed student accommodation assets. US-listed American Campus Communities is likely the only listed student-housing REIT in the US. Its stock price tumbled from around $49 a share early this year to $20.13 at the market nadir in March, before recovering to $40-41 apiece.

UNITE Group, listed in the UK, has around 76,000 beds there in 27 cities.

Earlier this year, Singapore-listed SPH tapped banks to explore listing its student-accommodation assets as a REIT, but the deal has since gone quiet.

Rental growth a question mark

Centurion’s Kong said rental growth currently is difficult due to the economic hit faced by students and parents. That’s also come with increased operational costs for the properties, such as increased cleaning regimes and additional services, such as providing meals to quarantining students. Axa said it has hired nurses to remain on-site to track students’ health.

Axa’s Persechino, however, said he was encouraged because there hasn’t been a “race to the bottom” on rental pricing, although predicting increases would be a “different story.”

Persechino said he expected the universities reliant on income from international students, who typically pay as much as five times the domestic rate for tuition, would take a hit, rather than the housing operators.

Centurion’s first fund for student housing was closed-ended, and acquired a portfolio of US assets; its second fund had its first close in 2018 at $70 million and remains open for investors for a target total of $100 million.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

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  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.