Morrison & Co halts PIP Fund I sale as covid-19 hits student accommodation

University of Wollongong exercises right to buy back accommodation units early, resulting in its withdrawal from the process and prompting asset manager to reconsider the portfolio sale.

Morrison & Co has halted a sale process for the assets held in its Public Infrastructure Partners Fund I (PIP I).

The decision was taken after delays related to covid-19 and the withdrawal of the University of Wollongong’s student accommodation units from the sale, according to an update from the New Zealand Social Infrastructure Fund, a listed retail feeder fund established by Morrison & Co and Craigs Investment Partners.

Morrison & Co confirmed that it was no longer proceeding with the sale and said it remained committed to PIP I’s portfolio of investments, which includes equity stakes in a variety of PPP assets.

These include the Melbourne Convention Centre, Bendigo Hospital key health-worker accommodation, the NZ Schools I and II PPPs and the Auckland Prison PPP projects in New Zealand. It also includes the Hobsonville Schools PPP, which closed in 2012 and was New Zealand’s first PPP deal.

The UoW accommodation units were withdrawn from the sale process after the university opted to exercise its contractual right to buy back the units early, due to the impact of covid-19 on the student accommodation market. NZSIF said this would represent an “effective sale” of the assets in early 2021 to UoW.

“Pre-emption rights form part of all PPP contracts and the unexpected impact of covid-19 on student accommodation usage prompted the university to take advantage of this flexibility,” a Morrison & Co spokeswoman said.

Under the PPP the University of Wollongong underwrote the occupancy of the student accommodation units to 85 percent and occupancy is currently well below that.

Morrison & Co began preparations to sell the assets held in PIP I in mid-2019 and appointed a preferred bidder earlier this year.

Infrastructure Investor understands that a consortium of Korean investors comprising NH Investment & Securities and KDB Infrastructure Investments Asset Management was named preferred bidder. Morrison & Co declined to comment on bidders, although NZSIF said in its update that an unnamed preferred bidder had been appointed.

As well as the change in status of the UoW assets, New Zealand’s Ministry of Education had requested the PIP Fund provide project finance for the expansion of three schools as part of the NZ Schools I and II PPPs.

Morrison & Co has offered existing investors in PIP I, including NZSIF, the opportunity to make a follow-on investment in the fund to fulfil the NZ Schools requirement, with any shortfall created by a non-participating LP to be taken up by PIP III, a successor fund to PIP I.

NZSIF said it will invest an extra NZ$7.5 million ($5.1 million; €4.3 million), funded by a bank facility that will be repaid with its share of the proceeds of the UoW student accommodation sale.

NZSIF said this ‘value-add’ opportunity was another reason that Morrison & Co decided to halt the sale process, adding that “deferring the sale process for a time will result in a more positive outcome”.