Nido House View Q2 2021

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House View

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q2 2021

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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House View Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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House View

Executive Summary Q2 2021 Investment w The UK saw the highest ever investment in PBSA in 2020, beating 2015 which held the previous record for the volume of activity

w PBSA remains largely perceived as ‘less risky’ and able to offer

greater return on investment (ROI) compared to distressed assets, particularly within the retail and leisure sectors, following the outbreak of the Covid-19 pandemic

Demand w The number of applicants for 2021/22 entry has risen by 8.5%, far above the 1.2% increase seen for the 2020/2021 academic year. This one-year increase is over 100% higher than the increase in applicants between 2012 and 2020, and is also higher than the 5.6% growth in applicants seen during the aftermath of global financial crisis, according to UCAS

PBSA Investment Market Outlook, w Nido’s own research has shown that 85% of students still want to be based in the location of their studies despite Covid-19 and UK & Europe, February 2021 total investment volume market share across the UK in 2020,

w Student accommodation transactions represented 11.6% of ahead of multifamily (9.6%) and hospitality (3.0%)

w According to Savills, investors spent £5.77 billion in the sector

lockdowns, and almost two thirds of students would still consider moving even if their university of choice isn’t offering full-time faceto-face learning

last year, a 5.7% increase from 2019. Investment was also 0.8% higher than in 2015, which had previously held the record for most UK PBSA investment annually

w Nido has seen sales for 2021/2022 ahead of those in 2019/2020

w Given the current positive application statistics to higher

w Nido has seen a surge in enquiries for accommodation reflecting the

education, further capital allocation into the UK PBSA market should be anticipated

w Covid-19-restrictions largely prevented students from having

which makes a strong case for UK PBSA accommodation lettings figures for the next academic year

‘flight to quality’ post Covid-19 and the increasing role of parents in the decision-making process, alongside confidence in a return to normality and the success of the vaccination programme

part-time leisure and hospitality jobs, reducing their disposable income available to spend on accommodation, lending to sensitivities around rental increases

w The importance of securing high quality, safe and secure

w Current restrictions on lending capacity and flexibility on loan

w UCAS has witnessed record numbers of applicants to higher

terms from banks is reducing some liquidity within the sector however debt finance markets are beginning to normalise

accommodation when making the decision to relocate for higher education studies has been exacerbated by the Covid-19 pandemic

education courses for October 2021, with 76,940 total applicants, perhaps partly to do with the UK Government’s U-turn on A level results

w The latest Higher Education Statistics Agency (HESA) data available

(2019/20) records a total of 2.02 million full-time students studying in the UK, of which 1.18 million students (61%) are studying outside of their home region

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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Executive Summary Q2 2021 Outlook post-Covid-19 w Prevailing uncertainty around Covid-19 pandemic restrictions

and new variant case numbers has resulted in universities yet to confirm how courses will be offered, either in-person or via online teaching - a huge consideration for international students. However, in the UK, Nido’s research shows that 2/3 of students would still want to live away from home even if their university only offered online courses PBSA Investment

w

w Potentially lower affordability levels post-pandemic with the amount

of spend allocation within families is likely to be constricted with many students flagging their concerns over their parents’ ability to afford university - with accommodation representing a significant proportion of overall cost

w In the first two quarters of 2021, a number of traditional PBSA

Market Outlook, operators announced they were expanding into the burgeoning BTR Students are demanding more smart technology from UKoperators & Europe, February 2021sector in the UK. It will be interesting to see how these perform and landlords: 80% of Nido students wanted ‘smart control’ technology in their accommodation to help control heating, lighting and utilities; while 98% of students used their mobile phone as their room key in Nido operated properties

w Nido predict that there will be moderate disruption to

w The supply and demand imbalance exacerbated by the recordbreaking increases in higher education applicants may result in the need to convert distressed assets, or retrofitting or repurposing existing PBSA stock, to deliver beds more quickly.

performance throughout 2021, taking into account the impact of potential construction delays, compensation and further capital investment as a result of the outbreak of Covid-19 and the emergence of new variants

w Students value being on campus and have greatly missed that

‘university life’ experience many had been longing for due to the Covid-19 pandemic. Therefore, the experiences, wellbeing support and sense of community that students gain from living in residences have never been more important. Nido’s most recent research revealed that 84 percent of students rated Nido’s handling of the pandemic as either “good” or “very good”

w An increasing number of students are putting pressure on

landlords to think about climate change. Nido’s recent research revealed that 82% of residents said they would use less water and energy if they could measure what they were using in real time - signifying that investment in smart technology is key to operational efficiency and tenant engagement, as landlords seek to evolve their ESG strategies post-Covid. The Round Hill Capital Group ESG Strategy and ESG Policy can be downloaded here

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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Executive Summary Q2 2021 International markets w Nido has seen an increase in developers and operators pivoting towards a blended approach to living, with unsold or vacant rooms often being increasingly marketed to young professionals and as co-living space – particularly evident in Europe

w In Germany, Covid-19 had a largely limited effect on core leasing

Darren Gardner, Nido COO The outbreak of the Covid-19 pandemic has shone a spotlight on many asset classes, including PBSA, forcing investors to assess their portfolios and consider more granular aspects of their investments than ever before. Within PBSA it is more important than ever to understand the importance of developing the right value proposition to develop long-term returns, rather than Outlook, focussing on short-term income generation.

figures, although there were varying degrees of dislocation in PBSA Market core cities of Berlin, Frankfurt and Stuttgart due to both Investment national and jurisdiction-based restrictions. 53% of students UK in& Nido Europe, February Germany assets are still ‘international’ reflecting the greater ease of travel despite the pandemic when compared to the UK

w In Ireland, Government policy measures will likely result in many

domestic students remaining and studying online at home for semester one of the 2021/2022 academic year. However, the second semester is expected to see more uptake, depending on further Covid-19 variant impacts and case numbers, as well as the Covid-19 vaccination rollout progression. New development and investor appetite for PBSA in Ireland continues to be strong, particularly in core cities

w In both Spain and Portugal, demand massively outstrips supply

in a number of Spanish cities, with provision in Barcelona just under 5% and Madrid is 5.7%, while in Porto only 3.5% of the total student population has dedicated bed spaces. As a result, investors are circling both locations, attracted by the demand/ supply imbalance with development activity in Iberia expected to be strong over the next 12 months.

2021 At Nido, we pride ourselves on maintaining an open dialogue

and seeking regular feedback from our residents, to ensure their preferences are reflected throughout our residences. Feeding in residents’ changing lifestyle preferences gives us a real edge in securing lettings and re-bookings - fundamentally benefiting investors. PBSA still provides a means to fill the digital and design gaps that exist in traditional university halls of residence, due to key players in the sector able to home in on the expectations and requirements of residents and adapt offerings to suit their evolving needs and lifestyle preferences. Nido became the first UK PBSA provider to produce a comprehensive virtual events programme in response to Covid-19, and we predict a continued focus on providing community and connective experiences for students via digital formats. This looks likely to continue given the incredibly positive feedback received and large attendance figures, with Nido’s online events programme generating more than 18,000 total views. We predict that the influence of families and parents will become even more important post-Covid-19, as choosing high-quality, safe and secure accommodation will be high on the priority list of prospective students, particularly international students who are choosing to study far away from home. By ensuring that PBSA buildings reflect the aspirations and values of our students, the PBSA sector can contribute towards a more healthy, green and sustainable built environment. Young people are the main driving force behind the conversations around climate change and they want to be part of that solution, something which will be crucial for investors and operators within PBSA to acknowledge going forward.”

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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Executive Summary Q2 2021 Brian Welsh, Head of Student at Round Hill Capital: There remains significant investment opportunity within the PBSA sector, both within the UK and across Europe, reflected in the large amount of capital being allocated to the sector both from established players and new entrants. Latent demand for investment stock and established operating platforms are increasing allocations into the PBSA sector from investors looking to restructure their portfolios away from ‘traditional’ real estate sectors following the Covid-19 pandemic. Under-provision of high-quality amenities within PBSA buildings, coupled with the current supply-demand imbalance in major European cities presents a significant opportunity for established investors, such as Round Hill Capital, to bring their international expertise and award winning operational partner into these markets. Current market sentiment is that there will be an increased focus on mixed-use schemes and ‘blended living’ in the longterm, translating into a pivot towards proactive marketing aimed at young professionals seeking high-quality serviced accommodation from PBSA investors and operators. This is already underway in cities such as Stuttgart and Bonn in Germany, due to increased market demand. The Iberian Peninsular in particular is also scaling up marketing efforts towards mixed-use and blended living schemes to reflect the high rental demand following the Covid-19 pandemic. We therefore expect to see an increase in both development applications and investment allocation for blended living schemes in Q3 and Q4 2021. While there is certainly headway to be made within the PBSA sector regarding environmental, social and governance integration, investors and operators are increasingly scrutinising assets during both acquisition and development to ensure buildings reflect the aspirations and values of all stakeholders.

For further discussions on PBSA please contact Darren Gardner /COO of Nido, OR Brian Welsh / Head of Student at Round Hill Capital. Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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About Nido student Nido has been managing and operating student accommodation across the UK for over a decade and is currently expanding within Europe - becoming the operator of choice for both investors and residents alike. With more than 7,000 operational beds and students from over 100 countries booked into our accommodation across the UK, Germany and Ireland and more developments in the pipeline within continental Europe, Nido has a truly global perspective when it comes to student accommodation. As a specialist PBSA operator, backed by Round Hill Capital, which itself has a strong residential portfolio and a global presence, our experts on the ground are able to provide trends and forecasts in this long-term structurally supported sector. We know that success and income is driven by the consumer experience and it is important for us to understand what students want, how it differs from country to country and how we embed this into our design and operations to be the best in class, fully occupied and recognised for delivering excellent service and student wellbeing.

disclaimer This House View is being provided solely for informational purposes to the Recipient and its client(s) and is strictly confidential. This House View does not constitute investment advice and should not be relied upon as such. This House View must not be copied, reproduced, distributed or passed, in whole or in part, to any other person. This House View is not intended for distribution to, or use by any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation. This House View should not be used for any other purpose or shown to any other parties apart from the Recipient and its client(s). No representation or warranty, expressed or implied, is or will be made and no responsibility or liability is or will be accepted by Nido Student, Round Hill Capital or any of its respective officers, servants or agents or affiliates as to, or in relation to, the fairness, accuracy or completeness of this House View or the information forming the basis of this disclaimer.

about Round Hill Capital Round Hill Capital is a globally renowned fully integrated real estate investment manager, specialising in innovative accommodation solutions across Europe and the USA. Since inception in 2002, Round Hill Capital has invested over $10.5 billion on behalf of institutional and private investors across 135,000 residential units and student housing beds. Round Hill Capital generates value through active and efficient operational management, from development through to tenant engagement informed by an expert understanding of the needs of the modern resident. Round Hill Capital is a responsible landlord in multifamily living, student housing, senior living and serviced real estate, serving exceptional institutional and private investors with market leading opportunities that deliver value through insight, technological innovation and quality of delivery at every stage.

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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House View

House view

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q2 2021

Nido Houseview: PBSA Investment Market Outlook, UK and Europe - Q2 2021

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