Ask 4 European Business Plan Review 19th January 2018 Agenda ► ► ► ► Executive Summary Germany Spain Appendix EY-Parthenon | Page 2 Project Overview Parthenon-EY has conducted 23 expert interviews across Germany and Spain Expert Interviews Parthenon-EY Primary Research N=13 2 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 N=10 4 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 11 Secondary Research Sources 6 Germany Spain Additional cold calls of CPBSAs and UPBSAs 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 ► 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 EY-Parthenon | Page 3 Germany – Executive Summary Summary of Key Findings ► HE growth trends ► ► ► Student Accommodation Supply ► ► ► ► Business Plan Assessment ► ► 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 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. 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 EY-Parthenon | Page 4 51174-180118(16)-DRE Student Acco GER ► Spain – Executive Summary Summary of Key Findings ► ► HE growth trends ► ► ► ► Student Accommodation Supply ► ► ► ► Business Plan Assessment ► ► 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%) 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 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 EY-Parthenon | Page 5 Agenda ► ► Executive Summary Germany ► ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Spain Appendix EY-Parthenon | Page 6 Germany: HE Growth Trends There are ~415 higher education institutions in Germany, located across the country and more than 10 rank among the top 200 worldwide German Universities by Region, Universities vs. ‘Fachhochschulen’ ► ~415 academic institutions in GER Universities # of institutions: – 115 universities – ~300 “Fachhochschulen” (universities of applied sciences for i.e. technology, arts, music) Ownership – the institutions have different responsible bodies: – 60% public – 30% private – 10% church ► Rankings: 11 universities were among the leading 200 academic institutions of the world in 2018 ► Top Universities: Technical University of Munich and LMU Munich claim the top spots ‘Fachhochschulen’ EY-Parthenon | Page 7 Source: Zeit Campus, QS World University Ranking 51174-180118(16)-DRE Student Acco GER ► Germany: HE Growth Trends Students numbers in Germany have increased by ~850k over the past ten years with significant growth in international student numbers since 2010… 51174-180118(16)-DRE Student Acco GER Growth of domestic and international students, 2005-17* Note: *Academic year (i.e. 2017 is the academic year 2016/17), **Students who received their university entry qualification within GER, ***Students who received their university entry qualification outside of GER Source: Destatis EY-Parthenon | Page 8 Germany: HE Growth Trends …which has been supported by increasing public spending ► Total funding 2007-2023: €20bn by government & €18bn by federal states ► Agreement between federal and state governments to manage growth in student numbers due to reduction in schooling years* ► Duration in three phases: – Phase 1. 2007-2010: ~100k additional study entrants – Phase 2. 2011-2015: ~625k additional study entrants – Phase 3. 2016-2020: Create additional study places; 10% of allocated resources to reduce the share of college dropouts ► Total funding 2005-2017: ~€5bn ► Three support lines: Future Concept (development university overall), Excellence Cluster (support of one research topic) and Postgraduate School (support of PhD candidates) ► Outlook: Starting 2019, the program will continue as Excellence Strategy, only including the support lines Excellence Cluster & Excellence University 30 29 +4% 27 Start of Excellence Initiative Start of Hochschulpakt +1% 18 19 24 22 18 Hochschulpakt (university pact) 2020 ~€38bn 19 16 Excellence Initiative / Strategy ~€5bn 1995 2001 2003 2005 2007 2009 2011 2013 2015 2017 Federal gov. State Note: *Reduction of school time until Abitur from 13 to 12 years in a number of federal states between 2010-2015 (by now voluntary in many states / schools) Source: Desk research, GWK Bonn, EY-Parthenon analysis, German Federal Institute for Education and Research EY-Parthenon | Page 9 51174-180118(16)-DRE Student Acco GER Public spending on higher education institutions in Germany (€bn) Germany: HE Growth Trends Domestic student enrolments are forecast to decline by ~1% per annum, driven by low birth rates and an ageing population Annual Domestic student enrolment, 2010-25 Demographic change is the key driver for decline in domestic student enrolments ► Declining birth rates contributed to a 13% decrease of number of school enrolments between 2004 and 2014 ► Partially offset by an increasing share of school students enrolling in university 51174-180118(16)-DRE Student Acco GER Spike in 2011 is due to the abolition of military service and the switch to a two year Abitur in some federal states in 2011/12 Commentary EY-Parthenon | Page 10 Source: Destatis, Desk research, Expert interviews Germany: HE Growth Trends Growth rates for international students are forecast to remain high, driven by favorable government policies, affordable cost of living and increase in English language courses Annual International student enrolment*, 2010-25 Commentary ► Government policies to encourage investment in the higher education system and infrastructure around the campus through ‘Excellence Initiative’ and the ‘University Pact’ initiatives ► No expected changes in visa regulations for overseas students and continued ease of moving across European boarders ► Studying in Germany remains inexpensive by international standards (Ø tuition fee of ~€550 compared to ~€12,500 in UK and €2,000 in the Netherlands) ► Number of English-speaking courses increased from ~390 in 2005 to ~1,350 in 2018, and are expected to continue to grow Note: *Numbers from 2016 onwards based on growth rate of the period 2011-16, **Students who received their university entry qualification within GER, ***Students who received their university entry qualification outside of GER Source: Destatis, Desk research, Expert interviews EY-Parthenon | Page 11 51174-180118(16)-DRE Student Acco GER Drivers of growth include: Germany: HE Growth Trends Interview feedback supports continued strong demand for CPBSA, driven by student preferences for modern and convenient accommodation options Domestic students (~85-88% of occupants) International students (~12-15% of occupants) ► Ease & speed of online booking “This is important because domestic students often get their study confirmation only weeks before the semester starts and have no time to go apartment-hunting. As for international students, they find it difficult to fly over for viewing appointments.” – Research Manager, JLL ► Availability of short-term renting options “Both international and domestic students like short-term rents. International students usually only stay for 6 months and do not want a long-term rental contract. German students often like to get to know the city for one semester before looking for a longerterm apartment to share with friends.” – Residence Manager, CPBSA Operator ► Provision of high-speed internet is increasingly viewed as a necessity “Nowadays internet is more important than electricity or water.” – Chief Real Estate Officer, DREF ► Security of fixed rental prices covering all utilities ► Access to large (international) student community “In the beginning all students want to make some friends and that’s easy here with all the common areas to hang out at.” – Residence Manager, CPBSA Operator ► Convenient location with good access to campus, shopping, bars “It is almost impossible to get such good locations at affordable prices in the private rental market.” – Residence Manager, CPBSA Operator ► Modern and comfortable facilities (gym, community areas, working spaces ....) ► Safety considerations for parents Source: EY-Parthenon analysis, Expert interviews EY-Parthenon | Page 12 51174-180118(16)-DRE Student Acco GER Motives to stay at CPBSA Germany: HE Growth Trends Rent has marginally increased in Germany reflecting the rise of accommodation costs and hence making PBSA options more attractive 742€ 777€ 819€ 1.4% Other 466€ 483€ 496€ 0.9% Accommodation 276€ (37%) 294€ (38%) 323€ (39%) 2.3% 2009 2012 2016 Note: *Domestic students and Bildungsinlaender Source: German Federal Institution for Education and Research 51174-180118(16)-DRE Student Acco GER CAGR 2009-16 Development of monthly student* expenses, 2009-16 EY-Parthenon | Page 13 Germany: HE Growth Trends The German education system is geographically fragmented with the top thirty cities only accounting for ~60% of total enrolments Berlin Munich Hamburg Cologne Muenster Frankfurt Bochum Stuttgart Düsseldorf Bonn Dortmund Aachen Dresden Karlsruhe Darmstadt Hannover Heidelberg Leipzig Gießen Bremen Wuerzburg Bielefeld Mainz Kiel Freiburg Tübingen Goettingen Erlangen Kassel Regensburg Student share of city population, 2016/17 187K 118K 101K 97K 61K 60K 57K 56K 53K 52K 52K 45K 45K 43K 42K 40K 39K 38K 37K 36K 35K 33K 33K 32K 30K 28K 28K 27K 23K 21K Commentary 5% 8% 6% 9% 20% ► German higher education market is not concentrated in major cities, and is dispersed across multiple regions ► Absolute number of students is highest in large cities but smaller cities, such as Wuerzburg and Goettingen, have a higher student share of city population ► “The expansion [of PBSA] will not focus only on larger cities but also on the true ꞌstudy citiesꞌ with a significant share of students, such as Muenster, Trier, Dortmund etc.” – Residence Manager, PBSA Operator 8% 15% 9% 9% 16% 9% 18% 8% 14% 26% 8% 27% 6% 44% 51174-180118(16)-DRE Student Acco GER Number of students*, top 30 university cities 2016/17 7% 28% 10% = 1.6m (~60% of students in Germany) Note: *Numbers may differ depending on whether universities only are included or also so called “Fachhochschulen” Source: Expert interviews, Statistics of respective municipalities 16% 13% 13% 32% 20% 25% 11% 15% EY-Parthenon | Page 14 Germany: HE Growth Trends There have been minimal changes in source countries studying in Germany, and demand patterns for PBSA will remain consistent Share of international students* by country of origin**, 2014/15 vs. 2016/17 Commentary in % 2014/15-2016/17 322K 359K 100% International Students have different preferences… ► Due to religious concerns, Turkish students prefer segregated accommodation ► Chinese students value communal study space study and prefer double over single bedrooms 63% 63% >0.5 Austria 4% 4% -0.2 Italy 4% 4% 0.1 Russia 5% 4% -0.5 India 4% 4% 0.6 China 10% 10% 0.4 Turkey 11% 11% -0.1 2014/15 2016/17 -0.5 to +0.5 …but they do not impact current or planned PBSA ► “Student accommodations are relatively standardized. Preferences of students from different countries are not – and do not have to be – taken into account.”– Head of Asset Management, CPBSA Operator ► “Importance of international students for CPBSA varies significantly between cities – in Berlin they account for ~40% of occupants – but other cities are closer to 510%. Yet, even in Berlin the CPBSA do not need to adapt to country specific needs to be successful. ” – Former Director of Sales and Service, CPBSA Operator <-0.5 Note: *Students who received their university entry qualification within or outside of GER, **countries of origin which account for >3% Source: Statista, Destatis EY-Parthenon | Page 15 51174-180118(16)-DRE Student Acco GER -0.4 Others Agenda ► ► Executive Summary Germany ► ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Spain Appendix EY-Parthenon | Page 16 Germany: Student Accommodation Supply There is an underlying lack of supply in the market to meet demand of students, which has driven increasing private rental prices in major university cities Only 12% of students live in PBSA However, the low share is a result of lacking availability rather than demand Student survey on availability of student housing ► ► ► The CPBSA sector emerged during the last 10 years in Germany and is at an early stage of development compared to other European countries The share of students living in private student accommodation is significantly lower than in other European countries such as Italy or the UK The share of students living at home is lower in GER compared to other EU countries, reflecting the willingness of moving away to study Note: *No significant changes since 2014 due to low expansion of UPBSA (~5k per year) Source: JLL, Deutsche Real Estate Funds (DREF), Allensbach Institute for Public Opinion Research, Expert interviews ► Demand exceeds supply; most students do not have the option of moving into PBSA ► Demand for student accommodation continues to be driven by rising rents – Examples of rental price development since 2010: Berlin (+28%), Bonn (+11%), Cologne (+12%), Stuttgart (18%), Hamburg (12%) 51174-180118(16)-DRE Student Acco GER Living situation of German students EY-Parthenon | Page 17 Germany: Student Accommodation Supply The CPSBA market focuses on the mid-high price segment and is the only PSBA segment that has the ability to grow to meet ongoing demand needs Student accommodation by operator type Overview Example operators Student accommodation run by private operators ► Targets mid-high price segment ► ~70K* ~40K** Non-profit student accommodation are provided by church institutions or nonprofit associations ► Establishments are highly comparable to UPBSA (e.g. in terms of pricing or furnishings) ► Addressable market for Target Generally not addressable*** for Target since ► …operators have limited budgets due to their non-profit nature ► …strict ► ~234K** University owned student accommodations are run by one of the 58 German ‘Studentenwerke‘,state-run non-profit organisations ► Studentenwerke are organised by region and can cover multiple universities Note: *2017, based on extrapolation of # of beds in Top 30 student cities and historic growth, ** from 2014 due to limited expansion, ***for additional information refer to appendix Source: Savills, JLL, Expert interviews, EY-Parthenon analysis restrictions apply to cooperation with for-profit companies ► …network is often provided by universities EY-Parthenon | Page 18 51174-180118(16)-DRE Student Acco GER # of beds Germany: Student Accommodation Supply There is a reasonably high level of operator fragmentation, with the larger operators accounting for ~23% of the market # of CPBSA beds and market share by operator 70K # Sites # Beds Market Share Corestate Capital 13 ~ 3.9K ~ 6% 2013 DREF 19 ~ 3.5K ~ 5% 2012 GBI 14 ~ 2.1K ~ 3% 2014 International Campus AG 7 ~ 1.8K ~ 3% 2014 GSA 6 ~ 1.7K ~ 2% 2002 Family owned 9 ~ 1.2K ~ 2% 2014 MPC Capital 5 ~ 1.1K ~ 2% 2010 RMCB Group 4 ~ 1.0K ~ 1% 77 ~ 16.3K ~ 23% Founded Owned by 2009 Origin Others Customer of Target Mywire n.a. 77% 6% TwentyFirst 5% Smartments 3% The Fizz 3% Uninest 23% 2% n.a. Local prov. Unitymedia Uniapart Staytoo The Flag 2% Total 2% 1% 2017 There has been growing interest in the PBSA market by international investors ► International investors accounted for ~60% of the transaction volume in 2016 ► The most active foreign purchasers include GSA, Catella Capital and AXA Investment Managers EY-Parthenon | Page 19 Source: Savills, Expert interviews, EY-Parthenon analysis 51174-180118(16)-DRE Student Acco GER Youniq n.a. Germany: Student Accommodation Supply CPSBA is most comparable in cost to private rental which is mostly higher income students; aggregate PBSA rental rates are lower due to basic UPBSA offerings Share of monthly student* budget quartiles by type of housing, 2016 Sublease Shared flats Privat apt. >€700-860 >€860-1,074 >€1,074 41% 26% 19% 15% 34% 22% 28% 18% Note: *Domestic students and Bildungsinlaender Source: German Federal Institution for Education and Research 20% 24% 19% PBSA skewed to lower budgets due to low-cost UPBSA offer ► Wealthier students typically live in privately rented single apartments or shared-flat communities 24% 26% 27% ► 22% 51174-180118(16)-DRE Student Acco GER PBSA <€700 Commentary 36% EY-Parthenon | Page 20 Germany: Student Accommodation Supply There is a further opportunity to expand to the mid-priced segment where there is significant student demand Share of PBSA beds by price segment vs. share of students* by monthly rental expenses**, 2016 PBSA beds 26% 25 23% 24% 9% 17% 15% 15 10 8% 20% 20 12% 9% 8% 11% 6% 7% 8% 6% 5 0 €200 €201-250 €251-300 €301-350 €351-400 €401-450 Lower price segment ► ► Students 49% of students pay less than €300 for rental expenses Segment dominated by non-profit PBSA (student associations, churches, foundations) Note: *Domestic students and Bildungsinlaender, **Rental expenses include ancillary costs Source: Savills, German Federal Institution for Education and Research, Expert interviews 4% 4% €451-500 >€500 Upper price segment Possibility for CPBSA to expand in the intermediate price segment ► ► ► The upper price segment is catered to by CPBSA Only 16% of students pay more than €400 per month for rental expenses Opportunity to rent one-bedroom to young professionals, commuters, retirees or expatriates who can afford higher rents EY-Parthenon | Page 21 51174-180118(16)-DRE Student Acco GER 30% Agenda ► ► Executive Summary Germany ► ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Spain Appendix EY-Parthenon | Page 22 Germany: Business Plan Assessment Ask4 is targeting £1.9m revenue and 18.5k beds by FY22, based on 57% year-on-year revenue growth Target’s planned revenue development, Germany,’17F-22P (€m) 1.9 1.3 +57% 0.8 0.5 0.3 FY17F FY18P FY19P FY20P FY21P FY22P Total beds per year 1.8K 3.0K 4.2K 7.5K 12.8K 18.5K Addtl. beds per year - 1.2K 1.2K 3.3K 5.3K 5.7K 51174-180118(16)-DRE Student Acco GER 0.2 EY-Parthenon | Page 23 Source: CDD PwC Germany: Business Plan Assessment We believe the growth of CPBSA beds in the plan is high and would revise downwards, however win rate appears feasible and might represent a potential upside FY18 FY19 FY20 FY21 FY22 VDD assumptions ► 1 New CPBSA beds / year 17.5K 17.5K 17.5K 17.5K 17.5K 17.5K ► ► 2 Win rate 7% 7% 19% 30% 32% ► Ø 19% pa EY-Parthenon assessment 3 Implied price / bed* £117 £113 £108 £103 £102 £101 Revenue per bed shows a decline of ~2% year-over-year from FY19 to FY22 ► Rental prices are expected to rise across Germany Wifi represents a small proportion of rental costs, therefore not a priority focus for savings Key: Note: * Based on values shown in graph (actual values might differ slightly) Source: EY-Parthenon analysis, CDD PwC, Expert interviews Potential impact on BP The VDD assumes ► EY-P research suggests a more conservative growth of 15-20k new estimate of 8-11k beds annually CPBSA beds each ► Assuming 9.5K new beds per year with an year, taking the mid average win rate of 19% would result in a total point of 17.5k for its of 11K beds in 2022 and a ~£0.8M revenue calculations delta to plan This grows from the ► Reaching the targeted number of 18.5k beds Target’s base of 1.8k by 2022 (assuming 9.5k new beds per year) beds in 2017 to 18.5k would require a win rate of ~35% in 2022 In order to reach the The assumptions for an Ø win rate of ~19% targeted number of appear to be feasible and represent a potential beds, VDD quotes an upside, offsetting lower number of new beds: Ø win rate of 19% ► No dominant, established internet service provider to the CPBSA market The implied annual ► ASK4’s existing relationships with win rate, assuming international players that are expected to an annual increase of expand presence in the German market 17.5k beds, in fact ► Potential to win beds from the existing stock varies from 7% in of CPBSA beds (~70K in 2017) FY18 to 32% in FY22 ► ► Achievability 51174-180118(16)-DRE Student Acco GER FY17 = Very high = High = Medium = Low EY-Parthenon | Page 24 Germany: Business Plan Assessment Based on historic and forecast developments of CPBSA within the top 30 student cities, we estimate a growth rate of ~8-11k beds p.a. for the German market 1 New PBSA beds per year (1/2) Historical and forecasted development of CPBSA* Top 30 student cities in 2016, by number of PBSA beds 4.8K 3.0K 2.3K 2.2K 2.2K 2.0K 1.9K 1.8K 1.8K 1.7K 1.6K 1.3K 1.3K 1.3K 1.2K 1.0K 0.9K 0.9K 0.8K 0.8K 0.8K 0.8K 0.7K 0.4K 0.4K 0.3K = 38,500 0.2K (63% of CPBSA) 0.1K 0.1K 0.1K ► Between 2014 and 2016, approximately 11k private student beds were added per year (~7k p.a. in top 30 cities) ► Projects that are already under construction or in planning will add at least 39k beds to the market by 2021 ► Assuming there are more projects to come and that a similar growth in the number of beds as seen between 2014 and 2016 seems feasible, the private student housing market will grow at approx. 10-13% p.a. Note: *Past development until 2016 based on Savills report for the top 30 student cities, assumption of a constant share of 63% for all available private beds in the top 30 student cities Source: Savills, Deutsche Real Estate Funds (DREF), Expert interviews EY-Parthenon | Page 25 51174-180118(16)-DRE Student Acco GER Munich Berlin Hamburg Frankfurt Regensburg Heidelberg Mainz Dresden Darmstadt Stuttgart Bonn Aachen Bremen Karlsruhe Muenster Bielefeld Cologne Freiburg Goettingen Kiel Bochum Erlangen Leipzig Hannover Gießen Kassel Tuebingen Dusseldorf Dortmund Wuerzburg Germany: Business Plan Assessment Interview feedback supports strong growth in CPBSA driven by robust demand, investment by private operators and continued housing shortage 1 New PBSA beds per year (2/2) Interview quotes Market is at early stage of development and growing rapidly due to high demand “The number of students has grown significantly in the past. And more and more of those students want to live in student accommodations. Every student town in Germany is growing, and so are we.” – Residence Manager, CPBSA Operator “At the moment, there is huge pressure on the housing market. Students sleep in emergency accommodations and private Airbnbs at the beginning of each semester just because there is no student housing available.” – Chief Real Estate Officer, DREF “Particularly in large cities such as Berlin, Frankfurt am Main the housing shortage is becoming worse and the prospects for CPBSA all the more positive and promising.” – Research Manager, Savills – Research Manager, JLL New CPBSA beds of ~10k p.a. appears achievable in the short run “Based on the growth, and the boom of the last couple of years, 10k new CPBSA p.a. appear realistic for the next five years. After that, the growth curve will become flatter.” – Chief Real Estate Officer, DREF “The market is and has been very attractive for many investors, particularly international ones. But 10k is highly ambitious. In that case, it must include all the little CPBSAs with only 40-70 beds.” – Director of Sales, CPBSA Operator EY-Parthenon | Page 26 Source: Expert interviews 51174-180118(16)-DRE Student Acco GER CPBSA growing more rapidly than UPBSA “The future of the CPBSA? Absolute growth. The growth will focus on the larger cities. Increasingly international investors are seeing the potential of the German market and investing in student accommodation. The state is investing as well but that will not limit the CPBSA in any way. ” Germany: Business Plan Assessment There is limited competition in WIFI provision to this sector but win rates would have to be substantially higher to meet plan 2 Win rate in Germany ► ► ► ► No large incumbent internet service provider to the CBSA market …but BP target of 18.5k beds in 2022 requires contracts with 5 of the top 8 operators and an implied win rate of ~35% # of CPBSA beds of Top 8 operators, 2017-22F Internet services for CPBSAs are mainly provided by small, local service providers – only three of the top 8 operators (Youniq, staytoo and Uninest) use professional service providers 13.8 16.3 ~18-19K beds 2017 ► ► Note: *Assumption based on total CPBSA market growth of 10-13% Source: CDD PwC; EY-P analysis 30.1 Youniq unlikely to win as already covered by mywire Market of operators still highly fragmented with top 8 players only accounting for 23% of the market “This really fits the whole CPBSA market – everything is still in an early stage – so are the internet providers. As of now everyone uses local providers but in the future it will make a lot of sense to have the operating business centralized.” – Chief Real Estate Officer, PSBA Operator CAGR +13%* 2022 Given a growth estimate of 13% pa (based on total expected market growth of 10-13%) the number of beds of top 8 operators results in 30K beds in 2022 (23K excluding Youniq which has an existing contract with mywire) – In addition to existing two contracts with staytoo and Uninest (GSA), Target would have to win three additional players to reach expected target of 18.5K – 18.5K beds by 2022 (assuming mid-point of the 8-11K new beds annually) results in an implied win rate of ~35% Targeting smaller and more fragmented players in the market is possible but less attractive due to limited scale benefits EY-Parthenon | Page 27 51174-180118(16)-DRE Student Acco GER Win rate of 19% appears feasible… Germany: Business Plan Assessment Our work has identified some additional risks to the plan, but we believe these risks are less likely to impact business plan due to mitigating factors Limited availability of construction areas Fees for international students ► Interview feedback suggests low availability of prime location sites as a key barrier to growth ► Students have strong preferences in terms of location (i.e. close to university and public transportation) which limits development options ► Fees for non-EU students currently introduced in one federal state and in discussion for additional states ► Introduction of fees could have negative impact on international student enrolment Impact Risk Mitigating factors ► Regionally dispersed and numerous attractive university cities in Germany provides a large pool of potential attractive cities to build in ► Share of international students in CPBSA is relatively low compared to domestic students ► Fee for international students is highly unpopular and controversial – countrywide introduction therefore unlikely Key: = Very high = High = Medium = Low EY-Parthenon | Page 28 51174-180118(16)-DRE Student Acco GER Description Germany: Business Plan Assessment We believe new beds will grow by 9.5K annually which requires a win rate in excess of 30% to meet BP Delta to Business Plan FY22 Revenue, by Win Rate and Volume of New Beds, FY22 Volume of New Beds p.a 19% 30% 35% 42% ► ► ► ► ► ► ► ► -9K -£0.9M 9.5K Central Parthenon Cases ► ► -4.5K -£0.5M ► -2.6K -£0.3M ► 0K 0M ► FY22 target revenue = £1.9M ► ► ► 11K -7.6K -£0.8M ► -2.3K -£0.2M ► 0K 0M ► 3.1K £0.3M ► ► ► ► ► Meeting the business plan target of £1.9M revenue by 2022 is predicated on achieving an average of a 19% win rate on an additional 17,500 beds per year 17.5K -6.2K -£0.6M ► 0K 0M ► 2.6K £0.3M ► 6.3K £0.6M ► ► ► ► ► ► To meet business plan at a lower estimated volume of new beds/year, Ask4 will need to attain win rates of 30%+ ► Higher win rate considered to be achievable based on possibility to win some of the current CPBSA bed stock (70K) through new customer acquisition 0K 0M 9.9K £1M 14K £1.4M 51174-180118(16)-DRE Student Acco GER Win Rate (average FY18-22) 8K Commentary 19.8K £2M Deficit vs. business plan target Surplus vs. business plan target EY-Parthenon | Page 29 Source: CDD PwC, EY-Parthenon analysis Agenda ► ► ► Executive Summary Germany Spain ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Appendix EY-Parthenon | Page 30 Spain: HE Growth Trends There are 84 universities across Spain’s 17 regions, encompassing both private and public institutions Spanish Universities by Region, Private vs. Public ► Cantabria Public: 1 Asturias Private: 1 Public: 1 Basque Country Public: 1 Private: 2 Galicia Public: 3 Castille and Leon Public: 4 Private: 5 ► Navarre Public: 1 Private: 1 La Rioja Public: 1 Private: 1 Aragon Public: 1 Private: 1 ► ► Madrid Public: 6 Private: 9 Extremadura Public: 1 Castilla La Mancha Public: 1 ~84 Universities in Spain Valencia Public: 5 Private: 4 Balearic Islands Public: 1 Andalusia Public: 10 Private: 1 Murcia Public: 2 Private: 3 Canary Islands Public: 2 Private: 3 Source: Secondary, World Bank, Spanish Ministry of Education ► Catalonia Public: 7 Private: 5 # of students: ~1.5M # of institutions: ► 84 universities Ownership – 60% public – 40% private Rankings: 14 universities were among the leading 500 academic institutions of the world in 2017 Top ten institutions: University Ranking University of Barcelona Autonomous University of Barcelona Complutense Univesrity of Madrid University of Valencia Autonomous University of Madrid University of Navarra Pompeu Fabra Granada University University of Santiago de Compostela University of Seville 1 2 3 4 5 6 7 8 9 10 Parthenon-EY | Page 31 Spain: HE Growth Trends There are ~1.5M students enrolled in Spanish Universities; total enrolment has declined by 2% y-on-y from 2012/13, although share of private enrolments has grown Total Students enrolled in Spanish Higher Education, 2008/09 – 2015/16 Commentary Private universities now represent 14% of all enrolments, across 34 institutions – 14 of which are located in Madrid and Barcelona Spain’s private universities have had rising enrolments and tend to be more commercially savvy ► “Private universities have been flourishing in certain cities across Spain over the last twenty years - mostly by being savvy to growth opportunities” – Commercial and Marketing Director, RESA In particular, they have succeeded in increasing enrolments through targeting the international segment ► “However, the most important change has been in private universities – they have many courses in English…[At the PBSA provider I work for] Most of these students were from private universities and many were international students studying in English” – Assistant Director, Nexo Private university students are typically more affluent and so more willing to pay a premium for private PBSA ► Note: *Proportion of private enrolments is published for undergraduate students only; undergraduates represent ~90% of total enrolments Source: Spanish Ministry of Education “The public universities cost €1500 per year, the private universities are about €2000 per month – they have different socioeconomic backgrounds and so a higher willingness to pay for expensive PBSA” – Assistant Director, Nexo Parthenon-EY | Page 32 Spain: HE Growth Trends While domestic enrolments have remained steady, there is growing demand for PBSA due to increasing internal mobility Total Domestic Enrolments 2008/09 – 2014/15* “In the first years of the economic crisis, from 2009 to 2011, there was growth in the number of students, probably caused by the poor prospects of the labour market” – Ministry of Education, Spain Commentary Domestic enrolments have been stable and are expected to remain so, with some small decline from demographic change ► “The number of domestic students has been stable for ten years and no great increments are expected” – Commercial and Marketing Director, RESA However, domestic students will continue to make up the majority of the PBSA market, with growth driven by increasing internal mobility for university study… ► “We’ll see a lot more travelling students in that process. Spanish students are about 90% of the market here. The assets will have mostly those students – so the greater the movement around the country the better” – COO, Threesixty Developments …this is underpinned by greater specialisation of institutions, as well as by labour market competition which places higher value on university brand Note: 2015/16 data is not yet published Source: Spanish Ministry of Education ► “There was no real need to leave home historically – the universities did not specialise – but that is changing. Two years ago, a government directive encouraged universities to specialise and this has encouraged the internal mobility of students in search of specific courses…” – Head of Research, GSA ► “In addition, the Bologna Process has enabled more mobility, as students may now study their undergraduate degree in one place and switch to somewhere else for a Masters” – Head of Research, GSA ► “More people are going to university for professional purposes and parents make the best effort to give their child that. We have high unemployment and a degree from prestigious university is a differentiator” – Assistant Director, Nexo Parthenon-EY | Page 33 Spain: HE Growth Trends International enrolments have increased by 8.5% annually in the past six years, albeit from a small base Total International Enrolments 2008/09 – 2014/15* Commentary Universities are increasingly adopting a strategy focused on international student recruitment; in 2014 the Spanish language entrance exam required for foreign students was removed by royal decree ► “Spanish universities are becoming increasingly international so we will see these enrolments increase. We get students from North America, China, UK etc. and we need to see this grow – the removal of the Selectividad has helped facilitate this” – Assistant Director, Nexo ► “Some public universities are starting to extend their English course offering which drives international students. In ten years’ time the domestic demographics we will face will require this [more active international recruitment]” – Commercial and Marketing Director, RESA Within the international segment, there is a growing proportion of international students coming to Spanish universities from Latin America ► “Quite a few people from Latin America [to Spanish universities] because of the situation in terms of HE offering and politics in places like Venezuela and Colombia” – Property Development and Acquisitions, Threesixty Developments ► “There has been a growth in those coming from Latin America. They choose a good university and they stay for 4 years” – Commercial and Marketing Director, RESA Note: *International student numbers exclude PhD students – data was not available across the time series, so these are shown here under ‘domestic’. In 2014/15, international PhD students made up 8% of all international students, or 0.5% of all enrolments. 2015/16 data is not yet published. Source: Spanish Ministry of Education, Institute of International Education Parthenon-EY | Page 34 Spain: HE Growth Trends Both international students and intra-regionally mobile domestic students are concentrated in universities in Madrid and Barcelona Proportion of Student Enrolments from Outside the University’s Autonomous Region, Domestic Students 2017 Source: JLL Proportion of Student Enrolments from Outside the University’s Autonomous Region, International Students 2017 Barcelona Barcelona Madrid Madrid Parthenon-EY | Page 35 Spain: HE Growth Trends CPBSA offer is appealing to both domestic and international students % of all students % of CPBSA residents Domestic International 95% 5% 85 to 90% 10 to 15% Spanish students generally prefer full board and extra services included in their accommodation, which are not available in private rentals – this is particularly the case for first year undergraduates ► ► “They’ve been around since 1950 – a lot of people go because cousins or parents have gone before. There are a bunch of them with a very medieval reputation – many have curfews” – COO, Threesixty Developments PBSA are seen as a balance for students and their families’ preferences ► ► “For international students it is even more valuable – they get to avoid the risk in group rent in private rental, negotiating a contract in Spanish and can book online from their home country” – COO, Threesixty Developments ► “They try to find something convenient, they don’t want to share with strangers in a flat. They feel secure with a company with a website – an international brand” – Assistant Director, RESA “[For Spaniards] it is most important to have safety and full board” – Director of Residence, RESA Colegio Mayores/UPBSA residences are generally in need of refurbishment, and the traditional model is increasingly seen as restrictive Commentary International and commercial PBSA companies have trusted brands and easy online booking for students coming to a country for the first time PBSA providers organise a lot of social activities and aim to help integrate their international students ► “We cover activity programs to bring students together – both domestic and international” – Director of Resdence, RESA PBSA offers is a good mixture between student and parent preferences. Parents want Colegio and kids want a private house for freedom – they get the best of both with PBSA” – Commercial and Marketing Director, RESA Source: Secondary, Parthenon-EY Telephone Interviews Parthenon-EY | Page 36 Agenda ► ► ► Executive Summary Germany Spain ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Appendix Parthenon-EY | Page 37 Spain: Student Accommodation Supply There are ~91K PBSA beds in Spain, of which ~60% are in the private sector; ~17% of beds are held by the top three players Spanish Student Accommodation Market UPBSA ► Not-for-profit university residences run predominantly by religious groups and universities ► Includes Colegios Mayores: typically small halls of residence affiliated with a religious order and sometimes a particular university, most assets were built 30-40 years ago ► This section of the market is fragmented, with a large number of small residences and single buildings run by religious institutions and other charitable organisations CPBSA ► Modern student accommodation blocks run by private companies, either on freehold developments or through concession agreements ► Commercial PBSA is relatively immature in Spain and centred mostly in Madrid and Barcelona ► Dominated by 4-5 key players – the largest of which, RESA, is Spanish-based and has ~9k beds, ~80% of which are run on a concession model Note: *UPBSA includes Colegio Mayores and other residencies run by non-profits and the universities themselves; residencies run on concession agreements with universities by for-profit providers are included in CPBSA Source: Secondary, EY-Parthenon Interviews Parthenon-EY | Page 38 Spain: Student Accommodation Supply Resa is the largest player, with ~8x more beds than the next biggest providers; a number of internationally backed players have entered in recent years Key Players in Spanish PBSA Market Name RESA Residencia Campus Nexo The Student Hotel Liberty Living Collegiate AC Ownership Greystar (9/17) Acciona GSA (acquired 6/17) Private founder CPPIB Partnered in Europe with Shuman Capital Founded 2009 N/A 2010 2006 2000 2011 Locations Nationwide (34 assets) Albacete, Cadiz, Castellon, Lleida, Murcia Madrid (3 assets), Alcala Barcelona (2 assets) Valencia Barcelona, Valencia, Madrid # Beds 9K 1.2K 1.3K 700 660 563 Description ► Market Leader Stated pipeline target 2022 ► 18K beds Internet Provider Vodafone, Movistar, Yoigo, Orange, Jazztel, Ono ► 6 assets in Spain ► N/A N/A ► Threesixty Developments Spanish portfolio ‘Nexo’ was purchased in 2017 by GSA ► 12K beds Ask4 ► Cuesta de San Vicente (Madrid) – refurbishment of a listed property with 400 beds to open in 2019 ► Entered Spain: 2016 through acquisition by the Union State Portfolio from Blackstone for ~£460M ► Entered the Spanish market in 2017 after agreeing a €300m partnership with Shuman Capital ► 2.6K beds ► N/A ► N/A WifiFirst and Adamo Telecom Source: Secondary Research, Parthenon-EY Interviews, JLL The Spanish Student Housing Market 2017, Savills Spotlight Student Housing in Spain 2016 Mostly Vodafone & Telefonica Ask4 and Cablecom Parthenon-EY | Page 39 Spain: Student Accommodation Supply Rental prices in university towns have risen and are on average 40% higher than the national average Average Monthly Rent, By City 2017 Commentary Demand for property has risen dramatically across Spain, particularly in its major cities ► There has been about a 60% increase in demand for rooms in Spain in general in 2017. In cities like Madrid, this can reach 73%” – Founder, Uniplaces This increased demand has forced average rental prices upwards ► “To rent a room in a shared apartment was 17.7% more expensive in August of this year 2017 than in the same month a year ago” – Researcher, Fotocasa Property Company The increased prices have changed the profile of typical customers interested in flat shares resulting in students being priced out Source: Secondary, El Mundo ► “The sharp rebound in rental prices is bound to make people choose to share…the profile of the person sharing the apartment is changing, it has usually been associated with a university student, but more and more professionals are betting on this” – Managing Director, Fotocasa ► “It has usually been associated with a university student, but more professionals in qualified positions will opt for this formula” – Founder, Uniplaces Parthenon-EY | Page 40 Spain: Student Accommodation Supply In Barcelona and Madrid, rental prices have risen at nearly 20% per year since 2014; continued low supply means that students face increasing competition for properties Barcelona Average Rental Prices (€/m2) Q1 2011 - Q4 2016 Madrid Average Rental Prices (€/m2) Q1 2011 - Q4 2016 Barcelona and Madrid’s monthly rental prices spiked 20% and 13% from Q4 2014-15 and Q4 2015-16 respectively Source: Lucas Fox International Properties Parthenon-EY | Page 41 Agenda ► ► ► Executive Summary Germany Spain ► ► ► ► HE Growth Trends Student Accommodation Supply Business Plan Assessment Appendix Parthenon-EY | Page 42 Spain: Business Plan Assessment Ask4 is targeting £1.5M revenue and 13.6K beds by FY22, based on 72% year-on-year revenue growth 77% Note: Source: Secondary Parthenon-EY | Page 43 EY-P Template 2018 Revenue and Volume Growth Plan, Spain, FY17F – FY22P FY22 FY21 FY20 FY19 Assumption FY18 Spain: Business Plan Assessment While the estimate in growth of new CPBSA beds is more optimistic than market feedback suggests, the implied win rate and price assumptions appear feasible VDD assumptions ► 1 ► New CPBSA beds 7.5K 7.5K 7.5K 7.5K The VDD assumes growth of 5 to 10K beds each year, taking the mid point of 7.5K for its calculations This grows from a base of 23.4K beds in 2017 EY-Parthenon assessment ► ► 7.5K Volume ► Price 2 ► Ask4 targeted beds 1.7K Implied win rate of new beds 12% 4.0K 6.9K 10.1K 13.6K ► 31% 39% 43% In order to reach the targeted number of beds, the VDD quotes an average win rate of 34% The implied annual win rate, assuming an annual increase of 7.5K beds, in fact varies from 12% in FY18 to 47% in FY22 ► Revenue per bed shows decline of ~4% year on year from FY19 to FY22, following initial spike FY18-19 Early volatility reflects low number of contracts in these years ► ► Achieveability Importance for BP EY-P research suggests a more conservative estimate of 3 – 5K beds annually This lower figure is due to challenges in execution – time required and difficulty/delay of obtaining prime development land and planning permits, and limited number of targets for acquisition Market participants note that 5-10K is in line with demand and could be absorbed by the market – but is likely not achievable within the typical market constraints Ask4 already have a relationship with Nexo, which is planning to add ~10K beds by 2022 Maintaining/winning an 80% share of Nexo’s growing portfolio, Ask4 will achieve 72% of its volume and revenue targets ~ by 2022 47% 3 ► Implied price / bed* ► £119 £125 £116 £109 £110 ► ► Operators report no expectation of downward pressure on PBSA rents While operational costs are higher in full board models, the bundled pricing is often favourable, reducing pressure to reduce costs Quality wifi is an essential service and, as a small proportion of budget, not a priority focus for savings Note: *Prices shown are implied price (revenue/volume); these differ slightly to price/bed shown in VDD, but show a similar trajectory (initial volatility followed by slight decline) Source: Secondary, VDD, EY-Parthenon Interviews Parthenon-EY | Page 44 Spain: Business Plan Assessment 1 An estimated 3K to 5K new CPBSA beds are expected to be added each year between 2017 and 2022 Expert view Implied growth ► “I would say that 5 to 10K would be achievable if there were no restrictions on building or constraints in development – that’s a figure that could be absorbed by market demand – but realistically you are probably looking at a more conservative number ,maybe 2 to 5K” – Head of Research, Developer ► 2,000 to 5,000 per year ► “In Spain, my view is that between now and 2021, we’ll see maybe another 15 to 20 thousand new CPBSA beds” – Head of European Acquisitions, Developer ► 5,000 per year to 2021 ► “I would estimate that in Madrid we could see 1,000 additional beds a year, with maybe 700 in Barcelona, 500 in Valencia and a little less than that in Bilbao, Granada and other university towns” – Head of Research, Developer ► Minimum of 3,000 per year (largest university towns) Note: *Where estimates were given to 2021, constant growth rate (# beds) is assumed for 2021-22 Source: EY-Parthenon interviews, secondary research Estimated CPBSA beds, upper vs. lower estimates and total volume, 2018-2022 Parthenon-EY | Page 45 Spain: Business Plan Assessment 1 Growth is supported by ongoing demand drivers, but constrained by execution challenges Underlying HE Market Dynamics Market shift towards CPBSA Demand for CPBSA is underpinned by a shift in the HE market towards international students and the private sector, and by the growing specialisation and prestige of Spanish institutions In addition, within the PBSA market, there is a shift away from the traditional Colegio Mayor and UPBSA models, in favour of commercial providers However, CPBSA providers in the Spanish market face a number of obstacles which currently constrain growth below the level of demand ► Colegios Mayores, and other non-profit and university-run residences are suffering from an ongoing lack of investment – stock and facilities are old and need refurbishment ► Prime land for student accommodation is largely owned either by universities or by the Church and other religious bodies and is difficult for CPBSA providers to access unless through concessions ► There is some cultural shift towards more northern European models of independent student living ► The UPBSA market is fragmented with many smaller, single residences of 50-100 beds, making a roll-up and portfolio acquisition strategy difficult ► In some areas, developers face political resistance; planning applications may also be onerous ► Private universities, typically with more affluent students and in key university towns, represent a growing percentage of HE enrolments ► International student enrolment is also growing, with public universities likely to increasingly focus on this segment ► In addition, government policy supporting institutions to develop specialisms has increased domestic student mobility ► Growing labour market competition leads to students placing greater value on university brand and specialisms, also increasing their proclivity to move away from home to study Source: EY-Parthenon interviews, secondary research Execution constraints Parthenon-EY | Page 46 Spain: Business Plan Assessment 2 Maintaining Ask4’s existing relationship with Nexo could enable it to meet up to 72% of its FY22 target Growth and potential business plan contribution – Nexo* Commentary Ask4 already has a relationship with Nexo, which currently has ~1K beds across four sites in Spain; winning an 80% share of Nexo’s estimated new beds would allow Ask4 to achieve 72% of its target volume and revenue by 2022 ► ► ► GSA brought Ask4 in as a provider across the Nexo portfolio, based on the strength of their UK provision An 80% share of Nexo’s portfolio is in line with Ask4’s share of beds for its UK customers Even if Nexo falls short of its growth target (an additional 10K beds by 2022), maintaining them as a customer should enable Ask4 to achieve a significant portion of the business plan through this relationship alone “There is a market leader who provides internet access at our properties – they’re called Ask4 – and they have been very quick to rollout in the UK and Europe. We only use Ask4 for our properties across Europe… these guys know exactly what they’re doing... They have all the back office capabilities, which outside of the UK is not really possible with local operators” – Head of European Acquisitions, Nexo “I don’t have knowledge of anyone out there that are offering the same services as Ask4 at a European level – they are very much the first mover in that space” – Head of European Acquisitions, Nexo Note: *Annual wins are back calculated from Nexo targets for total beds by 2022, assuming constant growth rate in years where pipeline/specific target is unknown Source: EY-Parthenon interviews, secondary research Parthenon-EY | Page 47 Spain: Business Plan Assessment 2 Winning one additional large contract would enable Ask4 to meet plan; meeting targets piecemeal through small operators would be more challenging Wifi providers of major CPBSA operators Current Wifi Provider(s) RESA Vodafone, Movistar, Yoigo, Orange, Jazztel, Ono Nexo Ask4 Commentary ► ► ► Residencias [Unknown] Campus The Student Hotel Wififirst and Adamo Telecom Liberty Living Vodafone, Telefonica Local providers Collegiate [Unknown] ► ► ► ► ► RESA currently uses a range of different providers which are chosen at the local/regional level Ask4’s offer should be attractive to Spain’s largest provider, although contracts may need to be won piecemeal across the portfolio Nexo is a current Ask4 customer in Spain It is targeting 12K beds by 2022; an 80% share of volume would give Ask4 72% of its FY22 target Winning a ‘full contract’ of 80% share of beds would equate to Currently using a small local firm but have preference for a single provider Currently a customer of Ask4 in the UK, recent entrant to Spain market Currently a customer of Ask4 in the UK, recent entrant to Spain market Share of 2022 target achieved through largest providers; illustrative scenarios Est. # Illustrative % of Beds, 2022 2022 2022* Share (%) target ~18K 20% 26% ~12K 80% 72% ~1500 80% 9% ~2600 80% 15% ~800* 80% 5% ~700* 80% 4% There appears to be no equivalent specialist player in the Spanish market, with current CPBSA providers served by a mixture of large, standard telcos and small local providers Maintaining an 80% share of Nexo’s estimated 2022 portfolio and winning 20% of RESA’s volume would enable Ask4 to meet the 2022 business plan Note: *Where projections or targets for future growth were not available, current bed numbers have been grown forward at predicted overall market growth rates ~5% Source: EY-Parthenon interviews, secondary research Without RESA, Ask4 would need to win 2 to 3 contracts at 80% share of beds from the other larger players in the market Parthenon-EY | Page 48 Spain: Business Plan Assessment We have some additional risks, but these are believed to have limited impact on business plan achievability Description ► Political turbulence in Catalan ► ► Reduction in price of private rental Impact Mitigating Factors ► ► ► Extended planning restrictions in Barcelona Ongoing political discord and unrest following independence referendum may be a deterrent to international students considering studying in Barcelona or Spain overall Likelihood Barcelona’s city government has been obstructive to developers, introducing a hotel moratorium in January 2017, which impacted PBSA developers The current administration has two more years in office ► A reduction in private rental prices could pose a substitution risk for CPBSA, particularly where the delta is significant ► ► ► ► Supporting commentary While short-stay Erasmus and summer school students may be affected, these are not a key market segment for PBSA operators The problem is localised and is more likely to result in some international students switching to Madrid or other Spanish cities ► There are a number of other university towns with high demand and currently limited supply for CPBSA providers to go after, including the largest market in Madrid Moratorium has legal limit in length ► Increasing quality of CPBSA allin-one offer makes private rental less attractive Cultural bias, particularly for 1st year undergrads, is for supervised accommodation There are currently no indications of imminent rent drops in Madrid or Barcelona ► ► ► ► “However much dancing around the government does I can’t see there being any serious damage to Barcelona’s higher education sector” – COO, Threesixty Development “My belief is that for domestic students there will be no hesitation. In Barcelona the demand is so huge I can’t see this being an issue” - Commercial and Marketing Director, RESA “This mayor has been obstructive but she will only stay two more years and then there will be another election” – Director of Residence, RESA “Madrid, Valencia and Basque are nice cities with private universities teaching in English so there is expansion opportunity there” – Director of Residence, RESA “Renting privately depends on the rental market in each city. In Madrid and Barcelona there is little offer and it is expensive which makes our properties more appealing” - Commercial and Marketing Director, RESA “Private rentals do not generally provide Wi-Fi, laundry and all the services important to students” – Director of Residence, RESA Parthenon-EY | Page 49 Spain: Business Plan Assessment Ask4 would have to achieve a win rate of >50% to meet target in a slower growth market of 4K new bed p.a.; revenue would be ~£0.6M down on 2022 plan at win rate of 34% Commentary Delta to Business Plan FY22 Revenue, by Win Rate and Volume of New Beds, FY22 Meeting the business plan target of £1.5M revenue by 2022 is predicated on achieving an average of a 34% win rate on an additional 7,500 beds per year Volume of New Beds 3K 4K 5K 7.5K (VDD) ► Win Rate (average FY18-22) ► 34% -£849K -£660K -£472K £0 51% -£566K -£283K £0 £70K7 However, in addition to new beds, Ask4 should be able to target some share of existing portfolios ► 64% -£354K £0 £354 £1,238K 86% £0 £472K £943K £2,122K FY22 target revenue = £1.5M EY-Parthenon research and analysis suggests that the likely number of new beds/year is more conservative, at 3 to 5K To meet the business plan at these lower estimated volumes, Ask4 will need to attain win rates of 50% or above – and as high as 86% at the lowest volume estimate of 3K/year The largest CPBSA provider, RESA, currently uses a range of providers across its ~9K, 34 centre portfolio ► Winning a 20% share of RESA’s total beds (~8 residences) would meet 26% of business plan, exclusive of growth from new beds (RESA or other operators) Deficit vs. business plan target Surplus vs. business plan target Source: EY-Parthenon Model, EY-Parthenon Survey, Oaktree Financial Plan (Outputs) Parthenon-EY | Page 50 51174-180118(16)-DRE Student Acco GER Appendix Parthenon-EY | Page 51 Appendix Quality wifi is an essential service and, as a small proportion of budget, not a priority focus for cost savings Interview quotes Internet is essential for students living in CPBSA – Former President, Deutsches Studentenwerk “If the internet goes down, I hear about it within 5 minutes – if it’s the electricity or the water then the students are less concerned!” – Assistant Director, Student Residence, Spain Internet cost is not a focus for CPBSA providers when seeking to reduce operational costs “Nowadays internet is more important than electricity or water.” – Chief Real Estate Officer, DREF, Germany “Internet is the most important service for CPBSA. Students expect fast internet and they are willing to pay for it.” – Head of Asset Management, CPBSA Operator, Germany “Where we have to look at operational costs, the key thing is staff – we are looking at how technology can help – e.g. have one resident manager 9 to 5 and then CCTV in the evening” “It all depends on the service level – what we will not compromise on are the key parts of our offer to students” – Head of Sales, CPBSA Operator, UK – Head of Sales, – Head of Sales & Marketing, CPBSA Operator, UK CPBSA Operator, UK “We haven’t really looked to reduce our operational costs too much… for internet, relatively it’s not expensive, it’s not one of our biggest costs – we do try to negotiate when those deals come up but obviously we know how important it is, and what we try to do is get more out of our providers for the same cost – we don’t really see savings but we give the student more for the same money” Parthenon-EY | Page 52 51174-180118(16)-DRE Student Acco GER “Internet access is expected by students. This is true for UPBSA as well as CPBSA. It is absolutely essential.” Appendix Rental costs vary significantly between federal states and cities Average rental costs* per federal state, 2016 Average rental costs* per city, 2016 373 Hamburg 362 Bremen Hessen 338 333 NRW Bavaria 331 327 B.W. 387 Munich Cologne 375 Frankfurt/Main 375 Hamburg 373 362 Berlin 353 Duesseldorf R.P. 325 Essen 347 Bremen 324 Freiburg 347 Average 323 Bonn 346 Stuttgart 340 Lower Saxony 305 Mannheim Saarland 304 Nuernberg 332 Heidelberg 331 Aachen 330 M.P. 302 299 Brandenburg 283 Saxony-Anhalt Thuringia Saxony 263 259 Note: *Rental expenses include ancillary costs Source: German Federal Institution for Education and Research -31% 336 Jena 265 Dresden 264 Leipzig 264 51174-180118(16)-DRE Student Acco GER 312 S.H -32% Parthenon-EY | Page 53 Appendix Internet cost as a share of rental income is forecast to decline Student accommodation rental price trend, 2010-15* Commentary CAGR ‘10-15 Berlin 28 5 Stuttgart 18 3 Munich 17 3 Cologne 12 2 Hamburg 12 2 Frankfurt 2 130% 125 120 115 110 11 Student accommodation has risen across all major German cities since 2010 Going forward, rental prices are unlikely to drop considerably due to on ongoing high demand and housing shortage Internet and fixed-line networks costs have decreased by 1.3% pa in Germany since 2010 “Rents are extremely high at the moment – mainly because there is a lot of demand and no competition among student housing providers. Even with significant expansion efforts this will not change over the next 10 years.” – Asset Manager, CPBSA Operator “The rental prices for student accommodation have increased significantly in the past – and we do not expect prices to go down in the future.” – Former President, Deutsches Studentenwerk 105 100 95 2010 2011 2012 2013 2014 Note: *Total market for student accommodation, incl. privately rented apartments Source: Institute of the German Economy, Immobilienscout24, Statista, Expert interviews 2015 Parthenon-EY | Page 54 51174-180118(16)-DRE Student Acco GER in % ‘10-15 Appendix Potential for private internet providers in UPBSAs is limited as they typically provide internet services through the campus network or local internet providers ► Berlin Self-supply Munich University network** Hamburg Local service provider (“Willytel“) Cologne Local service provider (“NetCologne”) Muenster Local service provider (“Unitymedia”) Frankfurt University network Bochum University network Stuttgart University network (student association “Selfnet”) Dusseldorf Local service provider (“P3”) Bonn Local service provider (“Unitymedia”) Commentary University network 1 ► Student residents can access the campus network and internet connection from their student accommodations ► Internet services at UPBSAs are provided by university networks, local operators and through self-supply offering limited potential for private providers ► “The largest share of UPBSA has access to the internet networks provided by universities. The rest typically has to organize their own access via Telekom, Unitymedia or Debitel.” – Former President, Deutsches Studentenwerk ► Especially in smaller university towns, the campus network is easily accessible and hence is the predominate internet provider, whereas in big cities such as Berlin the UPBSAs are highly scattered around the city ► “90% of UPBSA are connected to the campus networks, especially in the small towns.” – Director of Sales, PBSA operator Non-profit organization such as student associations providing internet services Local internet providers 2 ► Internet is included in the rent ► Student accommodations contract internet services out to smaller and local providers ► Student residents frequently report shortcomings in network connection Self-supply ► Student residents contract and pay the internet service provider themselves 3 Note: *By number of students 2016/17, **Dedicated city-specific data centre (LRZ) provides access to university networks Source: Expert interviews, Studierendenwerke Parthenon-EY | Page 55 51174-180118(16)-DRE Student Acco GER Dominant internet service providers at UPBSA of top 10 university cities* Appendix Access to attractive building sites is a potential limiting factor for growth but availability of multiple attractive and dispersed university cities reduces risk Regional distribution of the Top 20 German universities* Berlin Muenster Goettingen Dresden Cologne Aachen Bonn Frankfurt a.M. Darmstadt Heidelberg Karlsruhe Erlangen/ Nuremberg Stuttgart Tuebingen Munich Freiburg Key: Rank University 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Technical University of Munich LMU Munich Heidelberg University Karlsruhe Institute of Technology Humboldt University of Berlin Free University of Berlin RWTH Aachen University Technical University of Berlin University of Tuebingen University of Freiburg University of Goettingen University of Hamburg University of Bonn Free University of Frankfurt a.M. University of Stuttgart Technical University of Darmstadt Technical University of Dresden University of Erlangen-Nuremberg University of Muenster University of Cologne = Top 20 university cities (all CPBSA sites**) “Attractiveness of cities is not only measured by the total size of the student population. Availability of alternative housing options as well as proximity to other large cities are one of many criteria. Small cities can therefore be highly attractive.” – Head of Asset Management, CPBSA Operator “Operators often focus on large cities but decision making process is influenced by many factors. Key criterion is availability of attractive locations – and we search all over Germany for those.” – Former Director of Sales and Service, CPBSA Operator “Small and large cities alike have a shortage of student accommodation. In my opinion all cities with large universities are potentially interesting for additional private student accommodations.” – Former President, Deutsches Studentenwerk = Additional CPBSA sites** Note; *Excluding private universities, **Only including sites of top 8 operators (Twenty First, Youniq, The Fizz, Smartments, Uninest, Uniapart, Staytoo, The Flag) Source: Expert interviews, QS World University Ranking, Desk research Parthenon-EY | Page 56 51174-180118(16)-DRE Student Acco GER Hamburg Supporting expert verbatim Appendix Baden-Wuerttemberg as the only federal state to have introduced tuition fees for nonEU students; significant impact not expected due to low share of international students ► Federal State of Baden-Wuerttemberg has introduced tuition fees of EUR 1,500 per semester for non-EU citizens for (Bachelor's, Master's, Diplom and state examination) degree programs in winter semester 2017/18 onwards ► The preliminary results show a decline in enrolments of non-EU students by 26% as compared to previous year ► Based on the initial data, additional revenues of EUR 14m pa have been estimated and will be used for promotion of science and research ► Whether other federal states in Germany will follow suit is not clear to this date ► Until now, North Rhine-Westphalia is the only other federal state considering the launch and is currently waiting for final results of enrolments in Baden-Wuerttemberg to decide upon ► Major risks aside from the drop in enrolments include reduced attractiveness of smaller university cities and great student turmoil ► Currently, international students only account for 12-13% of overall CPBSA beds and therefore potential enrolment declines are not expected to have a significant impact on overall demand ► „The total share of international students at CPBSA currently is around 12-13%.“ – Chief Real Estate Officer, DREF ► However, drop in domestic enrolments might lead to lower CPBSA bed occupancy and will need to offset with alternative housing models, eg targeting also young professionals (less feasible in small university towns) Parthenon-EY | Page 57 Source: Spiegel, Statista, WDR 51174-180118(16)-DRE Student Acco GER Tuition Fees for International Students in 1 out of 16 Federal States
