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Brandeaux's student accommodation provider Liberty Living announces major refinancing

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Private student accommodation provider Liberty Living has today announced a comprehensive financing package of £300 million, provided jointly by HSBC & Royal Bank of Scotland (RBS), consisting of a five-year term loan of £100 million, a five year revolving credit facility (RCF) of £100 million and a US private placement (“USPP”) of £100 million (US$155 million). The new financing package has been used to refinance existing debt of £200 million, and provide £100 million for new acquisitions.

Liberty Living is the exclusive brand of the Brandeaux Student Accommodation Fund which owns and manages 15,000 beds for university students across 40 residences in 17 UK cities and is the fourth-largest private provider of UK student accommodation. The company generated revenues of £71.5 million in 2011, producing operating profits of £39.6 million.

With Liberty Living’s previous bank debt facility maturing in March 2012, the debt capital markets and real estate finance teams of HSBC and RBS worked in parallel to produce a combined capital markets and bank lending solution. This transaction represents the first use of the wider traditional US private placement investor base to fund UK student accommodation.

The HSBC Debt Capital Markets Advisory and RBS Private Placement teams were jointly mandated as lead arrangers on Liberty Living’s inaugural US$155 million USPP through two equal tranches of senior notes over 10 and 12 years, priced at 4.6% and 4.7% respectively.

Liberty Living initially went to market for US$100 million, but the deal was upsized due to strong demand from investors, with the placement ultimately 5.5 times oversubscribed. RBS and HSBC leveraged their knowledge of the student accommodation market in discussions with US- and UK-based investors and co-ordinated a road show with Liberty Living in London and across seven US cities.

The HSBC deal team, led by Louise Archer and Shripal Shah, and the RBS deal team, led by Steve Harrison, Rob Fardon and Nigel Slavik, jointly funded the balance of the required finance by way of a £200 million five-year facility split equally between a term loan and a RCF.

Roger Boyland, Brandeaux’s Chief Executive, said: “The strong demand for the US private placement demonstrates investors’ belief in our business and the market in which we operate. Liberty Living’s emphasis is to provide an accommodation service which is good value for money for both students and universities. Our students don’t just book in with us, they come to live with us during their university years and we aim to be an integral part of their university experience. This ethos combined with our focus on long term university relationships, drives sustainable investment returns. Our business model, which delivers returns through operational excellence without development risk and only a modest level of debt, has been validated by the enthusiastic response from our banking and debt provider relationships.

We believe there are excellent growth opportunities on which Liberty Living, as the provider of choice to many universities, can capitalise. The appeal for a UK university degree both from domestic and overseas students remains robust. The demand from university students for purpose-built accommodation looks set to significantly out-strip supply for the foreseeable future and we expect to maintain our very high levels of occupancy and steady annual rental increases well into the future.”

Hugh Taylor, HSBC’s Regional Head of Real Estate, added: “Student accommodation is now an established asset class in its own right. Liberty Living is a quality business, benefitting from an experienced management team, low gearing, modern residences in attractive locations and strong levels of demand for its product. We are pleased to have introduced this asset class to US investors where good pricing has been achieved with debt maturity profiles currently not available in the banking market.”

Stuart Hitchcock, Director in RBS’ Private Placement team, said: “The team at RBS was delighted to introduce Liberty Living’s unique business to the private placement investor base. The private placement market has been a strong source of funding for the property sector over the past number of years and Liberty Living's debut financing marks an important movement into student accommodation for the investors, particularly those in the US. For the right issuer, the continuing level of demand for high quality PP assets is resulting in financing at historically low all-in rates but over longer maturity than available in a number of other markets.”

Liberty Living has student accommodation in the following university cities and towns – Aberdeen, Bedford, Birmingham, Cardiff, Coventry, Glasgow, Leeds, Leicester, Liverpool, London, Manchester, Medway, Newcastle, Preston, Sheffield, Southampton and Stoke-on-Trent.