European Business Plan Review for Education Service Provider

Ask 4
European Business Plan Review
19th January 2018

EY-Parthenon | Page 2
Agenda
►Executive Summary
►Germany
►Spain
►Appendix

EY-Parthenon | Page 3
Project Overview
Parthenon-EY has conducted 23 expert interviews across Germany and Spain
Parthenon-EY Primary Research Expert Interviews
Germany (n=10)
CPBSA
►Chief Real Estate Officer, DREF
►Director of Sales & Service, IC Campus
►Head of Asset Management, DREF
►Residence Manager, The Flag
►Residence Manager, Uninest
UPBSA
►- President, Deutsches Studentenwerk
Other
►Press Officer, Deutscher Hochschulverband
►Research Manager, Savills
►Research Manager, JLL
►Student housing platform
►International Expansion Manager, Uniplaces
Secondary Research Sources
Germany
►Allensbach Institute for Public Opinion Research
►Destatis
►Deutsche Real Estate Funds (DREF)
►German Federal Institute for Education and
Research
►Institute of the German Economy
►Immobilienscout24
►JLL
►Municipality statistics
►Savills
►QS World University Ranking
►Spiegel.de
►Zeit Campus
Spain (n=13)
CPBSA
►Assistant Director, Nexo
►Assistant Director, Nexo
►Commercial Director, RESA
►Director of Residence, RESA
►Secretaria Dirección, RESA
►European Operations Manager, Liberty Living
►Head of European Acquisitions, Threesixty
►COO, Threesixty
►Sales & Marketing Director, GSA
►Managing Director, The Student Hotel
►Head of Sales,
Other
►Governor, Autonomous University of Madrid
►Head of Research & Intelligence, GSA
Spain
►CRUE Universidades Españolas; La Universidad
Espanola en Cifras 2015/16
►Ministerio de Educatión, Cultura y Deporte
►Gradomania
►QS World University Ranking
►Savills
►DBK
►JLL
►Lucas Fox International Property
►ICEF Monitor
►World Bank
►Unesco
►News media
11
6
2
4
N=13
SpainGermany
N=10
Additional cold calls of CPBSAs and
UPBSAs

EY-Parthenon | Page 4
Germany –Executive Summary
Summary of Key Findings
HE growth
trends
►There are currently ~2.8M students studying in Germany (2017) and enrolment growth has been increasing at ~3 p.a. since 2005
►We expect student numbers to remain stable: international students will continue to demonstrate strong growth from ~350K in 2017 to ~400K in 2020 while
domestic students will likely decline due to demographics
►International students are being encouraged into Germany by favourable regulation, relatively lower tuition fees and expansion of English programmes at
universities
►Domestic students account for the largest share of PBSA beds (~85%). Interview feedback supports continued strong demand for CPBSA, driven by student
preferences for modern and convenient accommodation options
Student
Accommodation
Supply
►Students choose to live at home (~22%), or privately rent (~65%) or live in PBSA (~12%). The majority of PBSA is owned by universities and commercial PBSA
(CPBSA) only represents a small portion of the total
►CPBSA is growing rapidly as operators target the high rental costs in the upper price segment as a method of differentiating vs. UPBSA which is low-cost and
typically very basic. CPBSA provision is also poised to benefit from the continued demand/supply mismatch which is increasing private rental rates
►UPBSA represents currently ~80% of the PBSA market. UPBSA are primarily served through non-profit organisations which have restrictions on working with a
private provider. We estimate the majority of beds ~234K are ‘Studentenwerke’ and ~40k by church institutions or non-profit associations. Growth is expected to
be reasonably small with only ~15K beds added over the next few years due to capital and estate constraints
►The opportunity to address the UPBSA market as operators have done in the UK via nominations does not appear possible in the short/medium term.
►CPSBA represents ~20% of the PBSA market. Operators are more fragmented than the UK with the largest eight players only account for 23% of the total market.
Business Plan
Assessment
►The VDD business plan indicates Ask4 will achieve a total of 18.5K beds in Germany by 2022, from a base of 2,990 in 2018
►In line with our findings, the VDD defines the addressable market as commercial PBSA providers and excludes beds in the UPBSA sector which are run
by “Studentenwerke”
►The VDD estimates that ~17.5K new PBSA beds will be added annually between now and 2022
►An average win rate of 19% across the business plan period is required to meet the targeted number of beds
►We believe the estimated volume of CPBSA beds entering the market is likely to be more conservative than reported in the VDD, with 8-11K beds added annually
►Based on our analysis of available pipeline, we estimate a minimum of ~8K new beds per year
►Between 2014 and 2016, approximately 11K private student beds were added per year (~7K pa in Top 30 cities) and market participants believe strong
growth is likely to continue over the forecast period
►Assuming 9.5K new beds per year with an average win rate of 19% would result in a total of 11K beds in 2022 and a ~£0.8M revenue delta to plan
►The assumptions for an average win rate of ~19% appear to be feasible and represent a potential upside, offsetting lower number of new beds in the market, due
to:
►No dominant, established internet service provider to the CPBSA market with only 3 of the top 8 operators currently using professional high-speed
internet providers
►ASK4’s existing relationships with international players such as GSA/ Uninest that are expected to expand presence in the German market
►Potential to win beds from the existing stock of CPBSA beds (~70K in 2017)
►Achieving target of ~18.5K beds will be dependent on binary decisions at a small number of PBSA providers with scale
►Ask 4 would need to win contracts with 3 large scale players (in addition to existing 2 contracts with Staytoo and GSA/Uninest) and we believe this may
have some downside risk
51174-180118(16)-DRE Student Acco GER

EY-Parthenon | Page 5
Spain –Executive Summary
Summary of Key Findings
HE growth
trends
►There are ~1.5M students enrolled in the Spanish Higher Education system in 2015/16, across 84 universities
►Overall enrolments have declined by 2% year on year since 2011/12, driven by demographic changes and a return to lower enrolment levels following growth in enrolments in the
period following the financial crisis
►Despite this lack of growth in top line enrolment, there has been significant growth in the private sector, growing from 11% of enrolments in 2008/09 to 14% of enrolments
in 2015/16
►International student enrolment has also grown, increasing by 8.5% year on year from 2009/10 to represent 79K students by 2015/16. Going forward, it is expected that
international student numbers will continue to grow, partly driven by private sector universities specifically targeting this segment growth by offering English language
courses
►While domestic enrolments have remained steady, some interviewees have suggested that young people in Spain are increasing mobile, as students place a greater
premium on university brand and ranking
►International students and internally mobile students are concentrated in major cities, in particular in Barcelona and Madrid
►Interview feedback supports continued strong demand for CPBSA, driven by student preferences for modern and convenient accommodation options
►Domestic students account for the largest share of PBSA beds (~85%)
Student
Accommodation
Supply
►There are two types of accommodation available to Spanish students living away from home; private rental and flatshares (~1.2M beds) and PBSA (~91K beds –spilt between
student residences and residential colleges/ Collegio Mayores)
►Market participants and experts all note significant growth in privately run Purpose Built Student Accommodation (PBSA)
►This is partly attributed to a decline in popularity of Colegio Mayores as students demand more modern accommodation –interviewees noted that some smaller Colegio
Mayores have been forced to close
►In addition, private rental prices have increased significantly, particularly in Barcelona and Madrid, where they rose ~20% since 2014
►The largest player in the PBSA market is RESA (~9K beds), followed by Nexo/Three Sixty (~2K). It is estimated that the top 3 players hold ~20% of the market. Market experts
expect larger players to build their portfolio through a combination of new build and acquisition, with consolidation expected among existing players
►RESA plans to double its double its portfolio to ~18K beds by 2022
►Nexo’s plans to add ~10K beds by 2022, taking its total to ~12K by 2022
►While CPBSA can expand through winning university commissions and may be able to access some other existing stock, roll up of the fragmented Colegio Mayor sector is
challenging: the land is often owned by religious bodies and sales, when they occur, are through personal connections and rarely a transparent process
Business Plan
Assessment
►Ask4 is targeting a total of 13.6K beds in Spain by 2022, from a base of 1,687 in 2018
►The VDD estimates that 5-10K new CPBSA beds will be added annually between now and 2022
►An average win rate of 34% across the business plan period is required to meet the targeted number of beds
►We believe the estimated volume of CPBSA beds entering the market is likely to be more conservative than reported in the VDD, with 3-5K beds added annually
►While it is believed that demand could absorb 5-10K new beds per year, market participants note that challenges in obtaining land for development, planning regulations
(particularly in Barcelona) and a modest number of potential acquisition targets (e.g. in current UPBSA sector) means that a realistic overall pipeline is closer to 3-5K
►Market participants estimate 3K to 5K new CPBSA beds to be added each year between 2017 and 2022
►Assuming 4K new beds per year, with an average win rate of 34%, would result in a total of 7.6K beds in 2022 and a £660K revenue delta to plan
►With few sizeable incumbents in the market and a relationship established with one of the market leaders, management’s win rate assumptions appear to be feasible and represents
a potential upside to the plan
►Maintaining/winning an 80% share of Nexo’s growing portfolio, Ask4 will achieve 72% of its volume and revenue targets ~ by 2022
►Nexo reports that it brought Ask4 into the Spanish market with them, having failed to find an existing equivalent operator and offer in Spain
►With most CPBSAs using a range of local providers or non-specialist telecoms firms, Ask4’s offer is likely to be well placed to win as large providers consolidate their
portfolio
►Our analysis suggests that Ask4 needs to win ~2 additional large contracts to achieve target of ~13.6K beds in 2022
►We believe the plan is broadly achievable (with some execution risk) given the underlying demand and supply dynamics in the market and expected consolidation among large
operators over the forecast period