Internos Education Programme

The internos education programme (‘the programme’) is a core real estate programme offering secure, stable, long-term income returns through educational based real estate assets.

Taking advantage of being a market ‘First Mover,’ investors will be able to capitalize on an under-developed market showing similar signs to that of the Healthcare and Care Home sectors in the 90’s.

Targeted areas will be Higher and Further Education including public or private Universities, Child Care/Nurseries, Independent Schools and Colleges and Special Education Needs taking advantage of government initiatives and institutional requirements.

The Programme plans to invest in Core/Manage-to-Core™ properties across the UK, with the potential to expand into Western Europe in the future.

Target Geographies

This Programme represents an opportunity for investors to invest as a ‘First Mover’ in an under-served asset class providing stable, long term income returns similar to those experienced by hotel, care homes and student accommodation assets. Investors will be supported from secure and strong covenants from institutional grade tenants with either Core or Manage-to-Core™ real estate acquired primarily through sale and leaseback.

INTERNOS, together with education specialist and strategic advisor Regent Group, will target opportunities within the following sectors:

• Higher Education: Government’s White Paper (May 2016) provides an opportunity for private operators to enter the Higher Education and University sector.
• Further Education: Government’s introduction of the Apprenticeship Levy to encourage private investors and companies into the sector.
• Child Care/Nurseries: This is a growing area, especially in city areas, due to the government’s efforts to encourage women back into work.
• Special Education Needs: Private organisations are in greater demand. This has the added advantage of overlapping with the care related real estate sector.
• Independent Schools & Colleges: Much like the university sector independent schools and colleges have a funding gap for essential capital expenditure.

Market Dynamics

The education sector is undergoing a transformation similar to that of the care sector in the UK in the early 1990s.

At this time, institutional investors, private equity and family offices started to invest in Care Home and Healthcare sector companies. Following the initial investment in the operating businesses, capital was then focused on investing in the real estate tied to these businesses.

Today the Healthcare sector is dominated by various specialised property funds and we anticipate that from 2025 onwards the same will be said of the educational asset sector.

In the last five years, various investment funds have been launched to invest in educational businesses, but as yet, the majority of investments are in respect of the Operating Company and not in respect of the underlying real estate.

The limited availability of government grants is leaving institutions with a dearth of capital to spend on a backlog of projects. The lack of capital and inability to source inexpensive debt is a sector-wide issue meaning alternative capital options need to be explored. Universities alone have capital expenditure requirements of around £2.75bn per annum.

INTERNOS will take advantage of this early entry to the market and the current capital expenditure needs to become a market leader in educational real estate.

Strategy

The strategy of the Programme is to establish itself as an innovator in the Educational sector. Initial investment will be focused on the UK market, however, continental Europe will be considered moving forward given the Europe-wide presence of INTERNOS.

The primary role of the Programme will be to acquire real estate within the Higher Education, Further Education, Independent Schools, Child Care/Nurseries and Special Education sectors, acquired primarily through sale and leasebacks with the institutions on long term index-linked, FRI leases, typically 25+ year terms.

Opportunities may also be sought where there is the possibility of lease restructuring to further enhance the return profile. Additionally, assets including an accommodation element will also be considered given INTERNOS extensive ‘Heads on Beds’ knowledge.

Occupier focus will be on strong tenants with turnover of greater than £10m per annum which will align with the Programme’s target lot size of £15m.

INTERNOS, together with education specialist Selva Pankaj of Regent Group, has a detailed knowledge of the education market and expects assets to deliver a forecast IRR of 8-10%. The primary driver will be to deliver long-term sustainable income to ensure a steady distribution of 5% to investors.

As the asset class becomes more mainstream in the future, more investors will join the market providing greater liquidity.