Blue Sky student venture Atira: industry support but anecdotes of tight times & little detail for investors

UNDER-fire fund manager Blue Sky has big hopes for student accommodation, but not many lights are on at their newest building.

How many at home? Blue Sky’s Toowong Atira site during a weeknight in the university term.

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IT’S 8.33pm on a Wednesday during the university term, and many windows are dark at Blue Sky Alternative Investments’ new 546-bed student accommodation venture.

A few youngsters hang out in a ground-floor communal area, where there’s a pool table, but the atmosphere is hardly pumping. The view is repeated four times from early March when The Courier-Mail visited the site in Brisbane’s Toowong, near the University of Queensland.

The accommodation venture is called Atira, a project between fund-manager Blue Sky and Goldman Sachs. It’s backed by one of nine funds that Blue Sky created for building and operating in the student accommodation sector — in which the under-fire fund manager has staked faith and tens of millions in investor dollars.

Blue Sky says the sector is already kicking goals. Its last accounts stated improvements in student-accommodation investments had helped generate $10.2 million in investment income.

But people backing Blue Sky’s stockmarket-listed company or stockmarket-listed fund have little visibility on how well any of Atira’s four active sites are performing. Occupancies remain confidential, Blue Sky said. There’s also no alluding to the fact Atira in February was offering students six-weeks’ free rent to boost attendance.

It goes to one issue of disclosure that has dogged Blue Sky in recent weeks.

Blue Sky oversees assets from burrito chains to childcare, and had enjoyed a massive stockmarket lift since listing in 2012. But in late March, California-based short-seller Glaucus released research claiming Blue Sky was overstating assets and hiding behind confected confidentiality provisions to stop releasing detailed data.

Blue Sky denied the claims and management met investors to discuss concerns, but shares still dived from $11.43, and closed down on Friday 13c to $5.24.

On Friday, its stockmarket-listed fund said independent reviews would be accelerated and detailed generally how some investments had been valued. Privately, Blue Sky was saying accommodation has been fairly full.

GLUTS IN SOME AREAS?

The Toowong site may not be pumping but it’s also brand new and running ahead of schedule; investor notes indicated a planned 2019 opening. Dark windows also might have many explanations, although Blue Sky declined to offer any.

Yet industry is fretting about gluts in some areas. One focal point is South Brisbane — where Atira has a 733-bed building. Within 350 metres are three other ventures with more than 750 beds each, plans for another 471 beds, and more competitors in the wider area.

Atira’s South Brisbane and Woollongabba sites seemed busier than Toowong, when The Courier-Mail visited during term and holidays from February. Still, some clusters of rooms at South Brisbane appeared vacant or darkened.

One student accommodation figure in the area said the amount of buildings had triggered “a digestion problem”.

Operators in good times would enjoy between 85 per cent and 90 per cent occupancy, but they were now north of 70 per cent. They regarded that as a good result in the environment, and remained optimistic about long-term demand.

POSITIVE REVIEWS, BUT THE PRICE ...

One positive for Atira is a good customer reputation. At South Brisbane, Nikki Chu, a Thai student at the nearby QUT, liked its cleanliness and one-price convenience — rent includes internet and power. “It’s easy when I move,” Ms Chu said.

Joanna Su, a student with a single room at Toowong, enjoyed Atira’s closeness to university and the local shopping centre. “Very nice,” Ms Su said overall. “Except for the price.”

Student accommodation is expensive industrywide. A one-bedroom studio apartment at Atira can cost $370 per week, while a twin bunk-room can cost $195 for one bunk.

Screenshots taken by The Courier-Mail show prices at Toowong for top units started at $395 in December but were advertised from $349 in February. Prices went from $295 to $261 for one room in a six-bedroom apartment.

For South Brisbane, starting prices rose for cheaper units, such as one bunk in a twin bunk rising from $195 to $215, and some room types were flagged sold out. Still, premium apartment rents there went down.

Atira student accommodation at Toowong. Picture: Liam Kidston

LONG-TERM INDUSTRY BOOSTERS

Atira has another site running in Adelaide, five more are planned nationally, and Blue Sky remains upbeat.

The market was “driven by the growth in international student numbers, up by over 70,000 from 2016”, a Blue Sky spokeswoman said.

Australia also had a far lower supply of student accommodation compared to overseas, while Atira’s sales and marketing efforts were improving, she said.

“Occupancy at Atira’s properties is encouraging, despite the competitive market and increase in supply,” she said.

IBISWorld research also paints a bright long-term picture on the income line for the management market, estimating a 5 per cent annual rise in revenues to $372 million by 2023.

But the final proof will come when Blue Sky’s accommodation funds are finished, potentially by 2022, with a trade sale or stockmarket float among options. Investors are relying on somewhat aggressive returns; one document for the $21 million Adelaide project targets handing back 2.2 to 2.5 times investors’ equity.

Valuers have meanwhile boosted accommodation values. In June last year, five funds recorded valuation uplifts between 3.4 per cent and 25.7 per cent “as the developments continue to progress and as third party transactions for student accommodation assets in Australia demonstrate a tightening in (capitalisation) rates”, Blue Sky’s stockmarket-listed fund said.

Its note on Friday said that four accommodation funds had been valued at more than 1.4 times what people had invested.

Competition, meanwhile, might also increase. About 400 metres up the road from Atira’s Toowong site, a rival is considering another 743-bed building.