The UNITE Group plc, the UK's leading developer and manager of student accommodation, announced that it has established a five year joint venture with Oasis Capital Bank, a closed joint stock company incorporated in the Kingdom of Bahrain, to develop three student accommodation properties in London with an estimated completion value of £194 million(approx. 226 mln.). OCB has bought a 75% stake in the joint venture, investing £39.0 million, with UNITE holding the remaining 25%.
UNITE and Oasis Capital Bank will develop three student accommodation properties in London.
UNITE's three properties under development, amounting to 1,119 beds and representing its entire 2010 pipeline, will be immediately sold to the joint venture for consideration of £88.2 million, reflecting an anticipated development yield on cost of approximately 8%. As part of the financing for the transaction, UNITE's existing banking facilities relating to each property will be reduced by an aggregate of £14 million and transferred into the joint venture. As a result, the joint venture will have access to total debt facilities of £109 million, of which £51 million is currently drawn with the remainder available to fund costs to complete.
The estimated value of the three properties on completion is expected to be £194 million, and the anticipated costs to complete them are £69 million. UNITE will record a loss on disposal of £0.4 million as a result of the transaction, equivalent to 0.2% of estimated final value.
The completion of the joint venture has a significant immediate positive impact on UNITE's balance sheet:
The Group's net debt is reduced by £75.2 million (being the £88.2 million cash proceeds received from the joint venture, less UNITE's £13 million reinvestment for a 25% stake); Committed net debt (taking into account costs to complete) reduces by £144.2 million; £21 million of cash is released to the Company (arising from the £39 million invested into the joint venture by OCB for a 75% stake, less the £14 million applied in deleveraging bank debt and £4 million of working capital, establishment and other costs), providing it with further flexibility in the management of its balance sheet and enabling it to take advantage of future opportunities, where appropriate.
The joint venture has appointed UNITE to undertake the development of the three properties, and to provide ongoing management on completion, leveraging the strong UNITE brand, its specialist development skills and operational platform. In addition, all three properties will benefit from UNITE's modular construction methodology. UNITE will be paid for its services as follows:
A development management fee equivalent to 5% of build cost, payable during development; An asset management fee, payable from completion of the projects, calculated as 70 bps of gross asset value per annum; Modules will be supplied by UNITE Modular Solutions Limited at market value.
Direct operating costs of the three properties will be borne by the joint venture.
This transaction builds on UNITE's strong track record of attracting co-investment. The C