Equitix, PIC close £67.5m student homes deal

Financed by an Assured Guaranty-wrapped bond, the transaction is the latest in a market expected to hit £5.3bn this year.

UK-based fund manager Equitix has reached a £67.5 million ($86.9 million; €77.5 million) financial close on a new student homes complex at the University of Essex.

The 643-bed development will be built by Equitix subsidiary Uliving, in which the firm holds an 80 percent stake. French construction group Bouygues (10 percent) and affordable housing provider Derwent Living (10 percent) also form the consortium.

The project is being financed via a £61 million bond issuance by a Uliving special purpose vehicle, with the Pension Insurance Corporation among the bonds’ purchasers, following on from the PIC’s £86.8 million debt investment in a 511-bedroom student home development in London in January.

The bonds are wrapped by monoline insurer Assured Guaranty, the fourth time it has backed a UK university accommodation project in the last six months through deals totalling about £500 million. As a result, the bonds have been rated AA by Standard & Poor’s, despite the project’s underlying rating of BBB+. The 46-year inflation-linked bonds have been priced at a spread of 150 bps per annum.

“For a deal of this nature, this transaction achieved a very competitive spread because of the strong investor appetite for highly rated infrastructure bonds, driven partly by Solvency II considerations,” said Nick Proud, chief executive of Assured Guaranty Europe. “It’s become apparent in recent months that AGE-wrapped bonds should be considered when searching for the most cost-effective financing solution for an infrastructure project.”

A healthy pipeline of similar investments is expected to follow. Analysis by real estate firm Savills released last month predicts £5.3 billion worth of trading for 75,000 beds in the UK student homes market in 2017, a 17 percent rise on the 68,000 beds worth £4.5 billion traded last year. A spike in investment in the second half of last year following the Brexit referendum was detected, with inward investment driven by the pound’s fall after the vote.