China Expands Investments in UK Infrastructure

on Sep 28, 2012

Gingko Tree Investment, the Chinese state-owned fund, is planning to buy a 40 percent stake in Britain’s largest developer of student housing – a move attesting to Beijing’s determination to expand its global infrastructure portfolio. According to the Financial Times, the London-registered fund will acquire Barclay’s stake in the University Partnership Programme for £550 million.

Investing in student housing is considered an excellent choice for long-term institutional investors such as sovereign and pension funds, which are looking for stable income streams and low risk. The combination of low vacancy rates, undersupplied market and attractive yields turned student housing into one of Britain’s most coveted property classes.

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!m[](/uploads/story/483/thumbs/pic1_inline.png)University Partnership Programme (UPP) used to be wholly owned by Barclays before the bank decided to sell 60 percent of its stake to PGGM, the Dutch pension fund, for the price of £1 billion. The head of infrastructure at PGGM Henk Huizing stated that his fund wished to gain exposure to UK’s student housing market. “Furthermore, the inflation-linked, stable cash flows are an excellent match with our clients’ liabilities,” said Mr Huizing as quoted by the FT. If the latest deal goes through, Barclays will have completely relinquished its stake in UPP.

According to 2010-2011 data from the Higher Education Statistics Agency, around 490,000 students were living in open market properties compared with 335,000 in 2007-2008. Due to the shortage in student accommodations, the private sector renters report occupancy rates during the school year of 96 to 99 percent.
UPP, which specialises in on-campus accommodations and is looking to capitalize on the growing number of higher education students, has an enterprise value of £1.4 billion and a portfolio of some 28,000 rooms with a rent roll of £89 million. In the 2010 financial year, the developer generated earnings before tax, depreciation, amortisation and interest of £46 million. Chief executive Sean O’Shea has expressed confidence in UPP’s future and underlined the benefits of providing residential accommodations in the higher education sector with stable tenancy rates. The developer has the ambition of investing a billion pounds over18 months in order to increase its rooms for rent to 38,000 by 2014 and push its annual rent roll to £140 million. The group seems to be truly long-term oriented in its approach to investing in student housing, considering last year’s £200 million deal with University of Reading for a 125-year concession.

The deal to be struck between Barclays and Gingko Tree Investment follows another large acquisition by a Chinese sovereign wealth fund. China Investment Corporation (CIC) purchased an 8.68 percent stake in the holding company that owns Thames Water, the water network serving London. The sovereign fund has expressed its desire to diversify its portfolio away from its main assets of low-yield government bonds and towards riskier investments around the globe. In November of 2011 Lou Jiwei, chairman of CIC wrote in the FT that he considers Britain as “one of the most open economies in the world” with a “sound legal system”. According to Mr Jiwei, Chinese funds can help update the country’s infrastructure while at the same time gaining solid long term returns.


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