AMP Capital Case Study

Taking a closer look at AMP Capital’s investment into purpose-built student housing (PBSH) gives a good insight into this compelling asset class. Please note that this does not constitute as advice and independent research must be carried out before any investment is made. All data has been released by AMP Capital directly and can be found here.

Student accommodation needs to meet certain criteria around size, occupancy, partnership arrangements with universities and capital outlay.

AMP Capital’s cornerstone student accommodation is Sydney University Village on campus at one of Australia’s top-ranked universities. The 650-bed facility offers accommodation ranging from 1 bed studios to 5 bed apartments with 2 bathrooms.

The University of Sydney owns the land and the investment – 88% owned by AMP Capital clients, is via a 40-year concession in an arrangement similar to that of a Public to Private Partnership.

“The village has been full for the 14 years it’s been open and has been one of AMP Capital Infrastructure Equity’s best-performing businesses that is managed on behalf of a large number of Australian superannuation funds.”

Good Capital

In a snapshot, the initial investment was close to $50 million and took 3 years to build. It houses 650 students per year, who pay between $318 per week for a bedroom in a shared apartment and $435 per week for a studio apartment with a kitchenette. The village includes a conferencing business, a launderette and cafe. Residents live on-campus in fully-furnished rooms only 2 streets away form the heart of Newtown in Sydney’s inner west.

Long-term planning and the provisioning of maintenance is essential in maintaining the village to a high standard so that students have appropriate IT, common areas and greenspace. Peroidic large capital upgrades can detract from short-term returns but are essential in keeping the facility contemporary and continuing to be attractive to students for the long-term.

Over the last few years, AMP Capital has spent $2.5 million in installing kitchenettes, upgrading WiFi, providing a new fit-out to the communal social areas, and adding an undercover barbeque to ensure the village is a “place where students want to live.” The asset’s yield is in a range of 4% to 6%.

Having a good operator and working closely and transparently with your partners is key in finding a fair way through the day-to-day activities that are unique to university accommodation.

As part of their investment criteria, AMP Capital performs significant diligence to ensure there is a sufficient demand for new beds, and even then, to make a project viable it looks for projects of at least 500 beds, which equates to roughly a $50 million spend.

University Partners

The partnership with a university is essential.

The university want to trust that the investor will continue to be the right investor for a long time. The delivery of education and lifestyle factors are certain to evolve over the years, such as the introduction of WiFi, and that relationship needs to be able to transcend rigid contracts to be able to adapt to change.

Understanding exactly what to build is critical! The AMP Capital experience has been that domestic regional students have a preference for economical smaller bedrooms with shared bathrooms and larger living spaces. International students have a preference for independent studio living but appreciate facilitated social activities. Postgraduate students prefer quiet study spaces and value the ability to share accommodation with partners and families.

Most importantly, all want to be close to the university and want it as cheap as possible.

Return Vs risk

The industry is not without risks though. The increasing supply of university accommodation also requires a belief that demand will continue to grow and that the Australian Government will continue to regulate fees while numbers of university places remain uncapped. Various attempts at deregulation have been proposed and voted against over recent years.

Australia is one of the most popular education destinations after the US and the UK, with 1 in 5 students coming from abroad to study in Australia, according to the Australian Bureau of Statistics.

The biggest increase in international demand for Australian university places has come form an increasingly financial, large and mobile Asian population demand base, who are more able than ever to choose where in the world they want to study. Australian universities are not only high on world ranking lists but favourable visa conditions combined with a safe and attractive lifestyle is driving significant demand from international students.

AMP Capital’s investments in student accommodation have fallen squarely on the infrastructure equity side of the ledger with a focus on fixed term cash flows and strong partnerships with universities rather than exposure to freehold land and residual property values.

Either structure of investment can have its merits. Understanding what is driving returns and where the risks are, like any investment, is fundamental to having success in this sector and complementing other assets in a well-diversified infrastructure portfolio.

The demand growth story combined with a shortfall in supply creates a compelling investment thesis for investors. 

 

 

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