The Unite Group has completed new debt facilities totalling GBP226m for the UNITE Capital Cities joint venture (UCC).
UCC is a joint venture between Unite and the GIC that currently holds a portfolio of 14 properties valued at GBP385m, located in London and Edinburgh; Unite currently has a 30 per cent stake in UCC.
The funding was completed on 19 December 2013 and is provided, in two separate facilities, by Legal & General and the Royal Bank of Scotland, Legal & General has provided a GBP149m, nine year loan which is at 55 per cent loan to value and is fixed at 4.3 per cent per annum for its duration. The RBS facility for GBP77m is five years in duration at an initial loan to value of 68 per cent and average cost of 3.3 per cent per annum.
The transaction reduces UCC’s cost of finance from 5.5 per cent to 4.0 per cent generating annual savings of approximately GBP3.5m. These savings will offset swap break costs of GBP7.1m, of which GBP2.1m is Unite’s share.
Following the transaction the Unite Group’s see through cost of debt falls by 13 basis points to 4.7 per cent and the group has a weighted average loan maturity of six years with two thirds of the debt provided by non-bank sources.
The completion of this transaction will result in the payment of a performance related fee from UCC to Unite of around GBP7m. The GBP7m fee represents the net receivable by Unite that will be recognised as a one-off item in adjusted earnings in the group’s 2013 results and excludes the group’s share of the swap break cost. The fee will be used to increase Unite’s stake in UCC in 2014 as part of the strategy to consolidate the group’s two joint ventures with GIC. As a result of the planned re-investment of the performance fee, Unite's stake in UCC is expected to increase to 34 per cent.
L&G’s loan has been arranged by L&G Commercial Lending Ltd, which also acts as facility agent. As a long-term provider of investment capital, L&G has invested over GBP3bn in UK infrastructure projects to date and is one of the six UK insurers committed to investing GBP25bn in the UK over the next five years. As part of this, the deal signifies the latest addition to L&G’s direct investments to the student sector which now amount to around GBP1bn.
Joe Lister, chief financial officer of the Unite Group, says: “The completion of these new GBP226m 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. We are delighted to extend our relationship with Legal & General and RBS, and to have secured the long term financing for UCC.”
Steve Boyle, real estate lending manager at Legal & General, says: “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. It is further evidence of L&G’s desire to make a difference in the wider world of accommodation and is merely one of a number of residence based projects across different sectors that we have under consideration.”
Andy Lancaster, regional managing director for real estate finance, Royal Bank of Scotland, says: “We are delighted to have been involved in this transaction and to be supporting this high quality management team with their continued growth of the business. 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.”