Barclays seeks £800m from split and partial sale of UPP

The UK’s biggest university campus developer, UPP, is set to be split into different vehicles by owner Barclays and partially sold in a process that could raise up to £800m for forthcoming projects. The division could attract institutional investors and property developers for the different parts of UPP’s business.

Barclays Capital has concluded a review on how to better monetise its University Partnerships Programme (UPP) vehicle, the UK’s leading provider of university accommodation, which may see UPP split and partially sold in a bid to raise £800 million (€933 million,$1.2 billion) for future investments, according to a market source.

UPP is owned by several of Barclays’ infrastructure funds and manages over 20,000 student rooms across 11 UK universities. It has already invested £1 billion in student accommodation since it was founded in 1997 and aims to spend another £1 billion to increase its portfolio to 35,000 rooms by 2012.

After conducting its strategic review of UPP, Barclays, advised by Swiss bank UBS, concluded that the best way to raise money for future developments would be to split the different parts of UPP’s business into two vehicles and invite outside investors.

The plan is to better monetise the different parts of UPP’s business and attract investors to a sector which is expected to continue growing but should have difficulties funding its growth now that the government has hinted that it will cut funding for higher education.

As such, Barclays intends to place UPP’s assets and asset management business in one vehicle and its development arm in another. The former, which includes the assets held by UPP’s different special purpose vehicles and its FM (facilities management) business, should attract the attention of institutional investors looking for steady cash flows.

The assets held by UPP have long-term contracts in place with the universities and generate predictable, low-risk cash-flows. The average concession length for the assets is 40 years and, since the universities guarantee accommodation occupation, UPP recorded 100 percent occupancy across its portfolio at the beginning of 2009-2010, UPP said in a statement. It expects to net around £75 million in rent toll for 2009-2010 but aims to almost double that figure over the next two years.

The development side of UPP’s business – which bids for and structures new transactions – will be put in a separate vehicle and could attract the attention of a different class of investors, such as property developers.

Alongside this restructuring, UPP is also considering tapping the capital markets to refinance existing debt. Combining whatever debt it raises in the bond market with the equity injected by new investors in its split vehicles, UPP is aiming to raise up to £800 million to help fund future deals.

UPP recorded a turnover of close to £68 million and earnings before interest, tax, depreciation and amortisation of nearly £32 million last year.