LGIM takes £210m CLV bond to finance ‘OPAL’ portfolio buy for Arlington consortium

Legal & General Investment Management (LGIM) has financed the  £244.9m joint venture acquisition of a former Opal UK student accommodation portfolio with a two-tranche £210m 50-year dated listed bond, CoStar News understands.

??????????????????????????????????????Arlington Investors, which includes Sir Frederick Barclay as a shareholder as well as major family offices from the Middle East, and student accommodation operator Campus Living Villages (CLV), acquired the eight UK-wide student accommodation blocks from PwC, after first going being selected as preferred bidder on 16 December.

The purchase price of £244.9m reflects a £535,000 discount to a 6 November valuation by Savills.

LGIM was the sole subscriber in the 50-year dated paper – which reflects a 85.7% LTV based on the purchase price – which is scheduled to fully amortise in 10 years.

The financing play which reflects a view on the property cycle-resilient student accommodation sector as well as confidence in CLV’s ability to manage the portfolio as well as sustain value and cash flows over the period.

The high leverage is also supported by strong cash flows, with the 2013/2014 academic year’s annual rent at £21.33m.

Historically, the year-on-year increases in the student accommodation rent has been either in line or above RPI – this income feature, coupled with the idiosyncratic supply and demand dynamic for the student accommodation sector, has supported LGIM’s comfort with the high LTV, CoStar News understands.

The £210m Campus Living Villages (Bond Issuer) UK PLC financing is split into two tranches: a £157.5m index-linked tranche, reflecting 75% of the issue, and a £52.5m 25% fixed-rate tranche. TradeRisks Limited was the arranger and dealer of Campus Living Villages (Bond Issuer) UK PLC.

The split into three-quarters index-linked and one-quarter fixed-rate has allowed Arlington Investors and CLV to optimise funding costs while maintaining their preferred risk profile.

In a statement issued by Arlington Investors, the investment company cite the growing appetite among global institutional investors in the UK student accommodation sector reporting a figure of in excess of £6bn worth capital seeking deployment in the sector, following more than £2bn in each of 2012 and 2013.

The eight-strong student accommodation portfolio – with blocks in London, Manchester, Liverpool, two in Leeds, Birmingham, Newport and Nottingham – carry an average occupancy level of 97% over the last three academic years.

George Shweiry, founder and chief executive of Arlington Advisors, said in the prepared statement: “The dynamics of the UK student housing sector present a compelling story, where we are seeing a shortage of good quality stock, falling development pipeline and a growing demand.

“Taken in the context of what is happening around the world in emerging markets, we expect to see a significant increase in international student mobility which is only going to drive up demand further.“

“Arlington Investors are a significant new force in UK property investment and with this transaction we are demonstrating the scale and scope of our ambition.”

Arlington and CLV’s advisors include international law firms Osborne Clarke, led by partner Chris Wade and McGuireWoods led by partner Hed Amitai; financial advisor DWPF, Grant Thornton, corporate finance company, Traderisks, Knight Frank and Savills.

The administrators of Opal and the Opal Subsidiaries were Ian David Green, Toby Scott Underwood and David James Kelly of PricewaterhouseCoopers LLP.

LGIM declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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