Legal & General and Royal Bank of Scotland have refinanced the Unite Capital Cities joint venture (UCC) portfolio of 14 student accommodation properties with £226m in separate tranches and durations.
UCC, the 70-30 joint venture between Singapore’s GIC Real Estate and Unite respectively, has secured a new funding package to replace the £227m facility by HSH Nordbank which was scheduled to mature in September this year.
The UCC joint venture, established in March 2005, has secured a £149m nine-year fixed rated loan from Legal & General, reflecting 55% LTV and an all-in cost of debt of 4.3%.
This is the second loan L&G has extended to Unite after the insurance lender’s maiden senior loan in May 2012, a 10-year £121m facility.
L&G, which is also facility agent, has direct investments to the student accommodation sector amounting to around £1bn.
RBS has provided a smaller loan, in size and duration, at £77m and five years, at an initial 68% LTV, implying a much wider margin, albeit the initial all-in cost of debt is still low, at 3.3%.
The funding was completed on 19 December 2013.
GIC Real Estate and Unite crystalised swap breakage costs of £7.1m, split £5.0m and £2.1m respectively, as a result of the refinancing nine-months earlier and the term of the legacy swap.
However, Unite said in a statement this morning that this was offset by an overall reduction in cost of finance by 150 basis points to 4.0%, which generated annual savings of approximately £3.5m.
UCC had an original maturity date of March 2013, prior to which this was extended to September 2022. As part of the fund life extension agreement, UCC plans to sell around £100m of existing UCC assets, or just under 25% of its portfolio, over the next four years.
The disposals will be targeted so as to focus UCC’s remaining holdings on its highest quality London locations and the majority of proceeds will then be applied to de-leveraging in the joint venture.
The completion of this transaction will result in the net receivable pperformance-related fee from UCC to UNITE of £7m, excluding the group’s share of the swap break cost.
The fee will be used to increase UNITE’s stake in UCC in 2014 up to 34%.
In a statement published this morning, Joe Lister, chief financial officer of the UNITE Group, said: “The completion of these new £226m facilities concludes a year in which we have made real progress extending debt maturities, reducing the cost of financing and securing high quality long-term funding partners.”
Steve Boyle, real estate lending manager at Legal & General, said: “Representing a further sizeable loan to the student accommodation market and allowing UNITE and ourselves to build on our already strong relationship, we believe that our familiarity with the sector enabled us to provide keenly priced finance within a tight timeline.
“Forming part of our annuity portfolio, this investment provides long-term liability matching qualities and will be used to pay customers’ pension annuities.”
Andy Lancaster, regional managing director for Real Estate Finance, Royal Bank of Scotland, said: “While both UNITE and GIC are existing clients of RBS, this is our first transaction with UCC which combines the two entities. The transaction demonstrates our continued appetite for the corporate real estate sector generally, and the purpose-built student accommodation sub-sector in particular.”