INTERVIEW: Forget "Animal House" - Student Accommodation Makes Investment Sense

Tom Burroughes

12 April 2013

Student accommodation in a big city is a way to deliver steady inflation-matching investment returns, says the manager of a closed-end vehicle about to make its debut on the stock market. The image of student residences has come a long way from the good-natured chaos of the US classic “Animal House” film.

Tom Ward, who runs theGCP Student Living vehicle, enthused to this publication about the merits of its London asset, the brand new private student accommodation and teaching building operated under the Scape Student Living brand. The building, already 97 per cent occupied, is opposite Queen Mary University of London, in London’s Mile End area in the eastern part of the city.

There is a target fund-raise of £50 million ($77 million) for GCP Student Living plc. (GCP stand for Gravis Capital Partners.)

There are a number of reasons why this is an interesting asset class, Ward told this publication in a recent interview. It has been the best-performing property asset class in the UK and US over the course of 2012 when compared to broad market benchmarks such as those provided by Investment Property Databank.

Student accommodation is, to an extent, counter-cyclical, Ward said. “It is a very low-volatility asset class in good and bad times,” he said, pointing out that there is demand for such places both when an economy was strong and when in a recession.

“It is a physical asset class as well and one that people can relate to. We have, many of us, been students at one point in time,” Ward said.

What catches the eye from a wealth protection and growth point of view is that GCP Student Living is a real estate investment trust, or REIT; this vehicle, which will be placed on the stock market in an IPO in early May (the offer closes on 10 May), is targeting returns of 5.5 per cent a year in terms of income yield. Total returns, including capital growth, are 8 to 10 per cent a year. (REITS are obliged by law to distribute at least 90 per cent of cash returns as dividends.)

The characteristics of assets lend themselves to long-term investors such as family offices and high net worth investors seeking inflation-beating, steady gains, he said.

GCP already have experience in this field. The firm focuses on income-generating defensive sectors central to the UK's social and community infrastructure, including GCP Infrastructure Investments, which is a London-listed investment company with around a £300 million market capitalisation, as at 28 February 2013. GCP oversees around £700 million of client money in total.

Listed real estate

Even discounting the enthusiasm that any manager of such a REIT can be expected to exhibit ahead of an IPO, Ward has reason to be in chipper mood. Recent figures from the European Public Real Estate Association shows that demand for real estate securities has surged since the global financial crisis. Assets under management of real estate securities funds grew by 68 per cent to $250 billion from 2007 to 2012, according to research by consultancy company Consilia Capital and Property Funds Research for EPRA.

The research estimates that the number of real estate securities funds increased by 39 per cent to 677 in the same period. The most recent figures show that total assets under management for exchange-traded funds (ETFs) pegged to FTSE EPRA/NAREIT real estate indices jumped by 85 per cent to $8.7 billion in the 12 months through to February this year.

“Above-average dividend yields and secure long-term cash-flows generated by listed real estate companies have an immediate appeal to yield-hungry investors. The liquidity, efficient pricing and transparency offered by the listed property sector mean it is also attracting a broader range of investors from defined contribution pension plans to long/short hedge funds,” Philip Charls, chief executive of EPRA, said in a recent statement.