GIC/Greystar: Student Roost gives values a boost

Student accommodation in Britain has come a long way from the grotty house share of 80s comedy The Young Ones. One of the largest UK property deals since the pandemic reflects that change. Singapore wealth fund GIC and US developer Greystar plan to pay more than £3.3bn for the 23,000-bed portfolio of Student Roost on Monday. The duo outbid UK-listed peer Unite to clinch the purchase. The price provides a positive read-across for the sector.

Rising inflation has weakened investors’ enthusiasm for property exposure. When interest rates move up, rental yields typically feel the pressure. However, student property has defensive properties because demand for higher education is relatively inelastic in the UK. And it is easier for landlords to increase rents in line with inflation when lets are short and the tenant group is constantly changing.

The price GIC and Greystar are paying translates into £127,000 per bed, including about 3,000 rooms Student Roost has in development. That is a sizeable premium to Unite’s £110,000-per-bed valuation.

Portfolios this big are scarce. Greystar should be able to make savings by integrating Student Roost with its existing Chapter business.

Underbidder Unite deserves a valuation upgrade, even so. It is more focused on London than Student Roost, which means its properties should be worth more. Unite’s most recent results showed occupancy on track to hit 97 per cent and reservations for the next academic year at 77 per cent. Indeed, UCAS expects the number of international undergraduates to increase by almost 50 per cent by 2026.

Yields are compressing in the sector, with Unite reporting an average of 4.9 per cent at the end of last year. The yield on the Student Roost deal was not disclosed. It may well have pushed below the 4 per cent level. Unite shares are trading at 23 per cent above their spot NAV, thinks Max Nimmo at Numis. Expect that premium to persist as defensive qualities assert themselves. Students are not good-for-nothings like The Young Ones if you are an investor.

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