How we select PBSA properties

Purpose-built student accommodation has become a mainstream asset class among institutional investors, delivering a market leading rental income yield and out-performing the broader commercial and residential property market over the past 5 years. Read more about PBSA as an asset class here.

We believe the world-renowned strength of UK higher education and a structural undersupply of quality, modern accommodation, mean the sector is well placed to achieve a strong and steady total return.

Location selection

Our core Acquisition Strategy is focused on locations with high ranking universities, coupled with favourable demand/supply dynamics for purpose-built bed spaces. We believe the strongest institutions will continue to grow in size, educational prestige and appeal to students. This is an established trend, demonstrated by significant excess demand for places at top quartile ranked universities and the impressive programmes of investment they have in place.

We strategically target “prime under-supplied cities” where we have established significant untapped demand for PBSA, through detailed analysis of data from leading property research houses, coupled with our own intelligence.

Prime under-supplied cities – Target dividend yield 5%+

• Large cities and historic university locations
• One top 30 ranked university, usually also containing a second-tier institution
• Structurally undersupplied market for PBSA i.e. full-time student population outnumbers available bed spaces, including university accommodation, by a margin which won’t be filled in the foreseeable future
• Track record of high occupancy and steady rental growth in the market
• Recent/planned investment into university facilities

Outside of core targets, other markets exist with attractive investment potential despite having a smaller student population. We will consider properties in strategically chosen secondary markets, and, stand out opportunities in emerging university towns, if a desirable asset and micro-location are coupled with significant untapped demand for purpose-built accommodation.

Please note: past performance is not a reliable indicator of future performance.

Strategic secondary – Target dividend yield 5.5%+

• Large towns and smaller cities with relatively young universities enjoying fast improvement and growth
• University ranked between 31-80
• Significant undersupply of PBSA relative to full time population
• Track record of high occupancy and steady rental growth in the market
• Recent/planned investment into university facilities

Opportunistic – Target dividend yield 6%+

• High yielding opportunities with a compelling investment case linked to a specific location
• Likely to be university towns with smaller student populations, newer growing institutions, or historic Cathedral cities, prosperous and popular with students and visitors
• Limited availability of PBSA due to absence of larger players, making rare examples of quality modern accommodation attractive to students

Property selection

Within a chosen location, we seek high quality properties where both the local area and the specification of the building, hold strong appeal for students. We aim to achieve this while delivering a very strong rental income return (dividend yield), backed by good prospects for rental and capital growth in the medium to long-term. Potential opportunities in our target locations must satisfy a number of quantitative and qualitative criteria to be considered for acquisition:

We don’t currently plan to invest in London, with land values and demand from foreign investors pushing prices to a level where the income yield has become low relative to the asset-class. However, with London holding unique appeal, being home to the largest number of students of any UK city, as well as several top-ranking universities, we will continue to monitor the market in case attractive opportunities to enter materialise.

Mortgage debt

Mortgage debt amplifies the impact of property price movements, meaning that if a property increases in value by 10% for instance, investors' capital gains will be a higher % of their equity investment (20% in the illustrative example above). Equally, if a property falls in value by 10%, investors' capital losses will be a higher % of their equity investment.

The amplification effect is similar in the context of rental yields and thus dividend. If the ungeared net yield of a property is higher than the cost of debt (after tax), the mortgage will increase the income yield of the property and if the ungeared net yield of a property is lower than the cost of debt (after tax), the mortgage will decrease the income yield of the property. 

Investors are exposed to the risk of interest rate rises. Mortgage interest has priority over dividend payments to investors. Significant increases in the costs of borrowing could make refinancing or existing interest uneconomical, potentially leading to a forced sale and a risk to the money you have invested.

PBSA property criteria

• Blocks of studio flats and ensuite cluster flats
• Value range between £1m and £8m
• Completed and operational
• Under 10-years old

Comprehensive appraisal and due diligence of property investments

We use our expert knowledge, gained through decades of property investment experience, to rigorously appraise properties, avoiding the pitfalls to which untrained buyers can fall victim, minimising risk. Every property we acquire is visited by a member of our property team, who carries out a full assessment of the physical attributes and potential appeal to renters. Our in-house property legal team conduct searches to ensure there are no hidden complications concerning leases, covenants or charges held against the property.

Put simply, buying property is our day job and we believe we add significant value for investors through our comprehensive process of appraisal and due diligence. 

Final approval to purchase is given by the investment committee, which includes the investment director and the CEO. The panel determines whether our required levels of quality and the minimum performance criteria are met. From the point of receiving the green light from the investment committee, a property can be launched on platform within a week.