Higher Education SORP: Accounting for Student Accommodation Transactions 

With the implementation of the new HE SORP from January 2026, there are some changes to the accounting treatment of student accommodation projects. We have considered the potential implications and key areas of focus for universities as they navigate the changes to the standard.   

Context 

 The implementation of the new FEHE SORP from January 2026 brings important changes to the accounting treatment of student accommodation — including nomination agreements, DBFO transactions, and joint venture structures. This note sets out the key changes and what universities should be considering now. 

Who does this affect, and when? 

The FEHE SORP 2026 was published on 3 November 2025 and is effective for accounting periods beginning on or after 1 January 2026 (SORP 2026, para. 1.3). For universities with a 31 July year end, the first affected accounts will be for the year ending 31 July 2027 — but preparation should be underway now. The new SORP aligns with the March 2024 amendments to FRS 102 and replaces the 2021 edition. The primary change for student accommodation is the removal of the distinction between operating and finance leases under the revised Section 20 of FRS 102, with almost all leases now required to be recognised on balance sheet. 

What has changed? 

Previously, depending on the length of the agreement, it was possible to recognise a nomination agreement as an operating lease which meant that there was no balance sheet liability and only an annual lease expense through the statement of income and expenditure (“I&E”). Under the revised Section 20 of FRS 102 (as adopted by Section 14 in the SORP), the majority of leases must now be recognised on balance sheet. The limited exceptions – leases of less than 12 months, or where the underlying asset is of genuinely low value – are practically unlikely to apply to student accommodation.   

There are also changes to how leases are reported through the I&E with depreciation on the right of use asset and interest on the lease liability replacing the single lease expense under the previous SORP.

Recognition of Student Accommodation Agreements 

As with prior versions, the SORP contains helpful guidance on how to determine whether your accommodation agreement is a Service Concession Arrangement (“SCA”) or a lease. A series of tests must be satisfied to be recognised as a SCA and, depending on the specific nature of the contract, there may be a requirement to recognise all, or part, of the contract value. 

The following tests must be met to determine if an arrangement meets the definition of a SCA.   

Should all of the above tests be answered “yes”, the project is therefore a SCA and the University must then consider whether or not there is any liability (and matching asset) to be recognised on balance sheet. 

DBFO accommodation transactions will usually meet the definition of a SCA. Where there is no explicit guarantee of senior debt, the arrangement will typically remain off balance sheet, due to the nature of the annual nominations (which confer the university the right but not the obligation).  Once one year’s nominations has been made, then the university will be required to recognise the value of this charge as both an asset and liability on balance sheet. 

Lease Recognition 

Where an accommodation arrangement does not meet the SCA criteria, it may be the case that this is accounted for as a lease. Under this scenario, the University should recognise the present value of future lease payments as a liability (and matching asset) and this is then unwound over the life of the nomination agreement.  

In terms of I&E treatment, the University would depreciate the asset in line with its existing policies and also recognise the interest charge associated with the arrangement. 

Universities must consider how the new treatment of leases will interact with any financial covenants under existing borrowing arrangements. Gearing levels may be negatively impacted by the inclusion of  a new lease liability on balance sheet while EBITDA tests could be positively affected by the shift of lease costs from operating expenditure to interest and depreciation. A clear and robust analysis of any potential impact should be undertaken before entering into any new arrangements. 

Existing leases that were previously recognised as operating leases will now be required to be brought on balance sheet (subject to the criteria noted above). However, the assessment of the liability will be based on the present value of future payments and there is no need to restate prior year financial statements. 

Joint Venture Arrangements 

Joint ventures (“JVs”) are another potential structure which can be used to deliver student accommodation and there are recent examples of agreements being reached by universities and private sector partners. 

There are no material changes to the accounting treatment with the new SORP and these will generally continue to be recognised under the equity accounting method. Any nomination agreement should be assessed under the new lease and SCA regulations and any balance sheet impacts accounted for accordingly.  

Three Takeaways to Consider  

When considering student accommodation transactions, it is important that the following areas are considered: 

• Balance Sheet Impact: Determine whether your arrangement is an SCA or a lease — and, if a lease, quantify the liability now required on balance sheet, including for arrangements previously treated as operating leases. 

• I&E Volatility: Potential for increased variability with lease interest charge and depreciation adversely impacting underlying surplus, while EBITDA may improve. Both effects require proactive communication among governors and other stakeholders. 

• Interaction with existing borrowing: Awareness of potential impacts on any current financial covenants and implications for institutional headroom against current tests and the need for lender engagement.

How can QMPF Assist? 

QMPF is one of the leading advisors to the education sector, supporting on student accommodation developments as well as debt raising and restructuring of existing debt facilities. We can provide support to universities in navigating this environment, evaluating any accommodation proposals and considering the potential impacts on your overall finances. Our experience supporting the sector is longstanding and we have significant experience of delivering student accommodation projects and strong relationships with the primary lenders to the sector.  

Ultimately, the accounting treatment of any accommodation project will be subject to your auditor’s sign off. QMPF can support you not only in developing projects but also through engagement with them. Our support includes:  

• Financial Modelling & Forecasting: We build robust, transparent project models that integrate with wider institutional forecasts. We also provide “critical friend” reviews of existing models to ensure they are funder ready. 

• Market & Partner Insight: With over 20 years’ sector experience, we leverage deep relationships across the funding and student accommodation markets to facilitate candid negotiations and drive optimal client outcomes. 

• New Accommodation Projects: As leading advisors on off-balance sheet projects, we specialise in innovative structures, including disaggregated procurements and incremental partnerships, tailored to specific university needs. 

• Covenant Management: Since early 2024, we have supported over £300m in new borrowing. We assist with covenant negotiations and use live market intelligence to assess impacts and support funder engagement. 

• Governance & Audit Support: We provide commercial input for internal governance reporting and external auditor discussions, specifically regarding balance sheet treatment and the long-term consequences of accommodation arrangements. 

Further information on the SORP can be found here: 

Universities UK – HE SORP 

BUFDG – SORP Knowledge Hub 

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QMPF considers how recent changes to the CfD framework within wider shifting market policy might impact project finance solutions for onshore wind and solar developments.

The UK’s Contracts for Difference (“CfD”) Allocation Round 7 is the latest competitive auction to support new renewable energy projects. The auction is split between an AR7 round for offshore wind technologies and an AR7a round for all other technologies. The AR7a round will be key to reaching the UK’s Clean Power 2030 targets; installed onshore wind capacity needs to be doubled, and solar tripled, in the next 5 years vs. end of 2024 levels to meet these targets.

With the bid process being widely commented upon, QMPF has explored how the new contract terms and features of AR7a may influence lenders’ appetite for lending to projects once the CfD auction is complete and the winners, and losers, are announced. We have included a brief explainer to project finance as an appendix for those unfamiliar with the terminology and structure.

Contracts for Difference, key terms and new features for AR7a

Broadly, AR7a offers more flexibility and longer term certainty for bidders but also introduces more competition between technologies. These changes aim to award CfDs to projects that offer best value for money and provide bidders with some additional certainty in their project. However, as we discuss below, there are material risks for projects which will remain.

Impact on project finance

Those successful in the AR7a auction will own projects with a longer contract (20 years) than previous auction rounds (15 years). Developers may bid a lower CfD strike price in AR7a given the longer CfD term on offer. However, the extended contract length provides more certainty on the future revenue pricing between years 15 and 20.

Consequently, funders are likely to offer debt which considers repayment over a longer period. Previously, banks considered cash flows to the end of the CfD plus a small tail when assessing the project’s ability to repay (e.g. 17-18 years). That period will likely extend to 20 years, which, all else being equal, may allow projects to borrow more from lenders (subject to gearing limits). Higher gearing would ultimately reduce the developer’s equity investment requirement, should lower the overall weighted average cost of capital for projects and could increase equity return (or will have allowed developers to bid for a lower strike price to achieve the same IRR).

While lenders may consider a longer period of cash flows in assessing how much debt a project can support, they are still likely to be constrained to offering a loan tenor of c. 5-7 years. The project would be expected to refinance the loan once matures (in effect there would be a large amount of debt outstanding at the end of the initial 5-7 year tenor of the loan).

However, there are still unaddressed risks for projects

Developers are facing a number of risks and uncertainties which may materially impact project capital costs, ability to capture revenue and the variability of operating costs. Some of these will either crystalise or fall away as a project reaches final investment decision and financial close, others will change on an ongoing basis. All risks will need to be considered when assessing project viability and funding options. Some of the key risks and their impact on projects’ ability to support debt are included below.

TNUoS charge increase

Transmission Network Use of System (TNUoS) charges are expected to significantly increase for projects located further away from demand (such as those located in the North of Scotland) but may reduce for those located nearer demand (e.g. in the South of England), or become more of a benefit where demand outstrips supply. The National Energy System Operator’s latest forecast published in September suggested charges in Scotland, where TNUoS could account for over 40% of a project’s operating costs, could more than double by 2030. Recent consultations aimed at providing more certainty and / or parity on costs across geographies (cap and floor model or removing the locational factor) have both been rejected by Ofgem this year.

The AR7a CfD mechanism does not allow for adjustments to reflect changes in TNUoS, and as such it will remain a risk for developers post CfD award. Bidders should have considered potential TNUoS costs in their auction bid price, so there should be an allowance for the cost within any CfD price awarded. However, there remains a material risk due to the uncertainty around the extent of the future changes impacting a substantial operating cost (or benefit).

Lenders will be keen to understand a project’s exposure to TNUoS going forward and its ability to service debt in scenarios where TNUoS charges are higher, or payments received are lower, than those forecast in the model. This is an area where policy is likely to change over the coming months / years and will be monitored closely by developers and lenders alike.

Negative pricing

Under AR7a, and other recent CfD rounds, CfD top up payments are not paid when the reference day ahead electricity market price is negative. This is to avoid incentivising generators to produce electricity and export to the grid when there is a clear market price signal that there is insufficient demand. The occurrence of negative price periods has been increasing in recent years which reduces project revenue for CfD projects. The impact of negative pricing is potentially less material than TNUoS given the proportion of time throughout the year that there have been negative day ahead prices. This has been less than 2% over the last five years (although historic performance should not be relied on for forecasts).

Negative pricing is likely to continue in the near term. Over the long term, there is an argument that the occurrence of negative price periods should reduce. This could occur as support for older assets, which may have support tariffs which incentivise bids at negative prices, ends. Additionally,  more recent and new generating assets should be incentivised to bid at zero or above so they do not lose their CfD top-up.

Lenders will be keen to see downside scenarios modelled which illustrate project cash flows where negative prices become more prevalent. They will also wish to understand project specific mitigations, such as including a contingency within forecasts assumptions, intraday PPA management and co-locating assets (e.g. storage).

Capital expenditure inflation and FX risk

Capital expenditure renewable energy assets has increased over the past few years at a higher rate than general inflation due to supply chain pressures and grid infrastructure upgrades. Developers also face exchange rate risk for a significant proportion of their capital expenditure. Turbines or solar panels are typically sourced from companies abroad who seek to pass through some, or all, exchange rate risk to developers. Market or commodity price inflation may also be passed through under some supply contracts.

Developers should have considered this within their CfD bid strategy. However, the risk remains that there is a mismatch between CfD inflation, at CPI, and the true cost changes on capital expenditure (inflation and FX movements) between CfD award and financial close, and thereafter if the exposure remains unhedged. This divergence was one of the contributing factors to a number of AR4 CfD contracts  being cancelled as the projects were no longer financially viable.

Lenders will look for capital costs to be contracted on a fixed price basis and, where there is any remaining inflation or FX exposure, for this to be managed e.g. through contingencies and / or via hedging instruments.

Reformed National Pricing

Following an initial phase of the Review of Electricity Market Arrangements (REMA) assessment, the UK Government indicated in July 2025 that it intends to reform the energy system under a national rather than locational or zonal pricing basis. While this may protect the market price for generators located in remote areas, while limiting this price for generators in high consumption area, the exact reforms which will be implemented are unknown. Any impact on existing CfD arrangements will need to be monitored, although the market is hopeful, and is assuming, that existing CfD contracts, including AR7a, should be protected to help maintain investor confidence in delivering new renewable projects. This will also assist in meeting the Government’s Clean Power targets.

How can QMPF help?

QMPF’s energy team has extensive experience advising on project financing and related activity (CfD auction, hedging, M&A) across onshore wind, solar, storage, bioenergy and heat. Our team develops investment grade financial models to forecast project performance under various scenarios to support project finance transactions. We can provide early stage support to allow developers to consider appropriate financing strategies and conduct competitive funding processes on behalf of developers, managing the process through to financial close.

Appendix: What do we mean by project finance?

Project finance is debt which is provided to a project vehicle and its future cash flows. It is underpinned by a structured, long term approach that isolates the project’s assets, contracts and cash flows from its sponsors. It is non-recourse to those sponsors; if the project fails, an investor can only lose whatever money it has invested into the project and has no further liability to the lender.

Robust, well-structured and predictable cash flows are critical to supporting project finance debt. This is an area where a CfD can add significant value to a project by derisking a large proportion of its future income stream. A CfD provides a stable, inflation linked revenue stream over the long term and is backed by a creditworthy entity in the Low Carbon Contracts Company which manages the CfD scheme on behalf of the UK government and is often considered to have similar credit quality. Lenders may also require projects to be de-risked via other methods typical of a project finance structure. These could include:

• wrapped construction contracts on a fixed price basis;
• operating contracts with availability guarantees;
• long term warranty and maintenance contracts; and
• extensive insurances packages.

Loans are also typically offered on a variable interest rate basis, with a requirement to utilise an interest rate swap to fix the interest rate for the debt to reduce risk within the project.

The amount of debt a project can support is calculated by forecasting the future cash flows of the project in an investment grade financial model. The model will be used to calculate the available cash flow that is forecast to be available to pay interest and capital repayments on the debt. Put simply, it is revenues less operating cost and tax. The available cash is used to backsolve the amount of debt the project can support. Debt sizing is often based on conservative forecast scenarios e.g. low energy yield forecasts and prudent macroeconomic inputs, with repayment profiles aligned to expected cash flows via debt service cover ratios (DSCR). Higher DSCRs, which are more prudent and support less debt, are attributed to more volatile, or harder to predict, “variable” revenues. For example, higher DSCRs would be applied to revenues which are subject to wholesale market price fluctuations. Lower DSCRs are applied to more predictable revenue streams, such as CfD income.

Ultimately, successfully raising project finance for wind farms hinges on clear revenue streams, disciplined financial structuring, and diligent risk management. Project developers should seek specialist advice before making any investment decisions which involve project finance.

Our experienced team would be delighted to discuss CfD, project finance or related opportunities with you:

More News…

The Haweswater Aqueduct Resilience Programme (“HARP”) project achieving initial financial close and moving to the ‘build’ phase, along with the re-publication in May of Ofwat’s Final Determinations for the 2024 Price Review, has focused attention in the infrastructure community on the market opportunity offered by the ‘Direct Procurement for Customers’ (“DPC”) model.  

QMPF has explored the nature and scale of the market and the commercial and financial aspects that participants will need to continue to monitor as opportunities emerge. 

DPC Procurement: the basic structure 

DPC is a procurement process in which a Competitively Appointed Provider (“CAP”) is selected to design, build, finance, maintain, and operate water sector assets. The CAP is appointed by a regulated water company (the “Appointee”) but finances the asset independently and operates outside the Appointee’s regulatory ringfence. This structure is intended to bring new expertise and capital into the sector, while keeping the regulated company focused on its core operations. Ofwat has provided a diagram to illustrate this structure: 

Where is DPC procurement expected to be used? 

DPC is expected to be used for capital projects that meet two main criteria: a size threshold, where total lifetime expenditure (“totex”) exceeds £200 million, and a discrete project test, which requires the project to be distinct and separable from the company’s existing network and operations. Ofwat encourages companies to consider combining smaller projects to meet the size threshold. While the previous requirement to compare DPC with in-house delivery has been dropped, companies must still demonstrate value for money throughout the procurement process.  

Where does SIPR fit in? 

The Specified Infrastructure Project Regulations (SIPR) remain an alternative procurement route, particularly for larger or more complex projects. The delivery of Thames Tideway Tunnel demonstrated the potential of the SIPR delivery route and three PR24 projects have been identified as more appropriate for the SIPR model. The key distinction is that under SIPR, the Infrastructure Provider (“IP”) is directly regulated by Ofwat and holds a distinct license. However, SIPR involves higher setup and regulatory costs, so Ofwat expects most projects to be delivered via DPC, reserving SIPR for cases where direct regulation offers clear advantages. In-house delivery remains possible for a limited number of projects, subject to Ofwat approval.  

What can we expect to come to market? 

With Ofwat’s updated guidance, a significant number of projects are expected to come to market under the DPC model. HARP serves as an early example, and Ofwat has identified 23 projects in its PR24 Final Determinations that are likely to be procured through DPC. This pipeline represents a substantial opportunity for investors and service providers in the sector: 

The pipeline is analysed below: 

Source: QMPF analysis, Ofwat PR24 Final Determinations 

What tender models are being considered? 

Ofwat recognises that different projects may require different approaches to selecting a CAP, referred to as the ‘tender model’. In some cases, the CAP may be appointed early, taking on responsibility for design, surveys, planning, procurement, build, and operation. More commonly, however, the CAP is chosen later, after the Appointee has completed initial design and planning. Ofwat also allows for a ‘split’ model, where separate CAPs are appointed for initial design and for delivery and operation. To date, DPC projects have tended towards later appointment of the CAP, with the Appointee retaining responsibility for initial design, planning, surveys and in some cases both detailed design and initial elements of procurement, with the CAP brought in later. The choice of model has important implications for risk transfer and project delivery and will be shaped by the specific needs and risks of each project. 

Financial structure and risk 

Ofwat’s guidance on DPC leaves room for negotiation regarding financing risk. It acknowledges that, given the long-term nature of water sector projects and current economic conditions, not all funding and cost risks can be transferred to the CAP. The threshold outturn cost approach is used to manage funding requirement risk, allowing the CAP to benefit from cost savings while providing protection against significant overruns, with some risk ultimately passed to customers. Mechanisms for adjusting payments based on the market cost of debt and sharing refinancing gains are also discussed, drawing on lessons from the Thames Tideway project.  

This could result in the CAP retaining the financial benefit where it can deliver the project within the threshold outturn, but has protection, through amendment to the CAP charge payment (and so passing of the risk to customers) where there are significant cost overruns.  It is clear this will remain a critical aspect for the market to understand through the procurement process and to document in concluding the CAP Agreement and will be subject to significant due diligence through the fund raising process and funder engagement processes. 

Similarly, the mechanisms for ‘market cost of debt’ adjustment will require to be negotiated. Again, Thames Tideway may provide guidance; its financing cost adjustment worked on the basis of protecting the IP for movements in the underlying real cost of debt outside of a cap and collar and with a presumption in relation to the proportion of debt and equity in the project. For Thames Tideway the movement was with reference to a benchmark index. The agreement of the relevant index used, the extent of the cap and collar and establishing the timing of benchmarking will be critical for market participants. 

Refinancing risk may be more straight forward. There is an increasingly standardised approach to refinancing gain share that Ofwat anticipates seeing from DPC project: 90% of gains from margin enhancement and 50% of other relevant refinancings, flowing back to customers through a CAP charge reduction. 

Other financial considerations include inflation, requirements of debt funders and payment mechanisms reflecting the nature of the asset and provision (e.g. availability only, or with demand components and reflecting the extent of ongoing maintenance/operations relative to capex and how that manifests in both debt structure and CAP payment indexation). The significant asset life anticipated will require consideration of residual value and handback requirements. As DPC projects emerge we also anticipate further attention on what might be the optimal project duration, both reflecting the asset and financing options, to deliver best value. 

Other risk allocations 

The specific risk allocation is expected to vary by project and will be subject to the negotiated CAP Agreement in order that Appointees have flexibility to achieve best value for customers. However, Ofwat’s guidance to Appointees offers insight into the initial risk allocation that can be anticipated: 

What have we learnt from HARP? 

HARP, and the work undertaken by United Utilities, Cascade Infrastructure (Strabag-Equitix Consortium) and their advisers, demonstrates the potential for the DPC structure to deliver projects to start of construction, in relatively short timescales.  

The commercial positions accepted by each party will likely emerge as the project progresses, but we expect there has been an element of pragmatism to reach this stage and deliver a positive outcome. Should the commercial positions hold water (no pun intended) they may provide a framework for future projects. This is particularly true where those projects may be less complex from a delivery perspective, have lower funding requirements and shorter construction phases. 

However, the HARP project is not without uncertainties. The extent to which funding for the full construction programme is secured remains to be confirmed and the financing cost for all stages is expected to only be known as the project moves forwards. How the changes in market funding costs and construction cost changes are shared, and the extent to which they are passed on to water customers, will only be known with time.  

The reaction to this outside of the infrastructure sector will matter. It will be of importance to all in the sector, including both CAP partners and the water companies, to provide third parties with clarity on the risk transfer achieved and the value for money the DPC approach offers. This will set the platform for further delivery of critical and much needed infrastructure. 

The ability of the DPC structure to move to financial close on complex projects, to share risk appropriately and to recognise that the risks in relation to holding funding costs and construction costs could be shared in a different way, but offer better overall value for money, provides potential lessons across the wider infrastructure sector. 

How can QMPF help? 

QMPF has over 20 years practical experience supporting private sector and public sector clients delivering infrastructure development under a range of financing structures, from PPP/PFI through LIFT, NPD and hub. We understand the commercial complexities to be negotiated, routes to delivering a robust funding club and the financial modelling that underpins equity, debt and procurer analysis. Our experienced team would be delighted to discuss DPC and wider infrastructure opportunities with you.

Glossary: 

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QMPF is being asked to support a number of its clients through restructuring and renegotiation of their existing borrowing. It can seem a daunting process to undertake…but this doesn’t have to be the case.

Context

There are numerous financial challenges being faced by the higher education (“HE”) sector including higher interest rates, a rising cost base and the steady erosion of the value of tuition fees in real terms. Universities must also compete within a dynamic external environment, with changes to visa regulations, and global factors increasing the volatility of international student recruitment.

The Office for Students (“OfS”) published its annual review on the financial sustainability of the English HE sector in May 2025. It highlighted the third consecutive year of declining surpluses, net operating cash flow and net liquidity. A significant number of  institutions are anticipating accounting deficits for three consecutive years. However, recent trends of declining net operating cash flow as a proportion of income are forecast to reverse from 2024/25 onwards; albeit the increase in cash generation through 2027/28 is slower than previously estimated (link to OFS report).

In September 2025, the Scottish Funding Council (“SFC”) followed suit with its report on financial sustainability of Scottish universities covering the period 2022/23 – 2026/27 (excl. the University of Dundee). This highlighted the declining operating surplus across the sector – £17.2m in 2023/24 compared to £210.8m in 2022/23 – although this is forecast to improve to £51.5m for 2024/25. However, the SFC notes that this overall position is distorted by the two largest universities (Edinburgh and Glasgow) with nine (53%) reporting an underlying operating deficit in 2023/24, ten (59%) in 2024/25 and eleven (65%) in 2025/26.

Aggregate cash balances at Scottish universities are projected to decline from approximately £1.7bn in July 2024 to £1.5bn in July 2027, with ‘liquidity days’ falling from around 183 in 2022/23 to 115 in 2026/27. The SFC emphasises that no Scottish university is forecasting a cash deficit over the forecast period but acknowledges that many are taking mitigating steps to maintain positive cash balances. (link to SFC report).

In addition, there are currently more than 100 universities across the UK which have undertaken or are in the process of some form of redundancy or staff restructuring scheme, demonstrating that this is not an issue restricted to a small subset of institutions. (Source: UCU website).

International student recruitment has become more important for financial sustainability, while also becoming less predictable year-on-year. Some universities are exposed to an overreliance on specific countries or regions, which in turn can be affected by global macroeconomic conditions impacting the willingness or ability of international students to apply to study in the UK. The recent announcement regarding a potential levy on international student fees, has added to the potential pressures being faced by the sector and risks choking off this valuable income stream which often cross-subsidises research and domestic tuition.

These headwinds are increasing pressure on financial covenant compliance and universities are also experiencing a greater level of scrutiny from auditors regarding going concern, with assessments often looking forward more than one year at the point of financial statement sign off. The assessment will consider expected or potential covenant breaches, liquidity under downside scenarios, refinancing risk and relationships with existing lenders. It is therefore important to act promptly to resolve any potential issues, giving you greater breathing space to manage your financial performance.

Five Steps to Managing the Challenges

Forecasting: It is critical that the forecasting and budgeting process presents a realistic position for consideration: not too optimistic but also not overly pessimistic. Scenarios can be used to plan for positive performance but demonstrating resilience under realistic downside assumptions. Performance against financial covenants will be one of the key outputs and areas of assessment.  You may find that a temporary rebasing of covenants or potentially a partial waiver is required.

Funders will want to review forecasts in detail and understand the underlying assumptions being made regarding student recruitment and operating costs. They will also want to review “upside” or “downside” cases and understand their rationale, underlying assumptions and potential mitigating responses in adverse scenarios. The selection of the “base case” forecast will be important for proposing an acceptable outcome for both the university and funders. A monthly cash flow forecast can be a useful tool to demonstrate how you will manage intra-year fluctuations in liquidity.

Understand your options: Where actions are required, there should be a thorough and transparent review of the current operating position to consider how turnaround can be achieved, within the context of your strategic plan. Points to consider include:

• Capital expenditure: can some of this be paused or the spend profile extended, reducing outlays in the next few years? Could some projects be funded by third-party investment?
• Existing assets / rationalisation: is it possible to dispose of any existing assets to generate cash? Can utilisation of the existing estate be improved, reducing the need for development of additional facilities?
• Staff Redundancy schemes: although understandably these are not popular, they are unfortunately required in some cases to lower the cost base.

The sector has historically been (and remains!) an attractive proposition to funders via traditional bank lending and institutional investors offering private placements (“PP”) or income strips (indexed leases). As the availability of longer tenor bank facilities reduced, universities accessed capital markets to obtain longer term debt through private placements from institutional investors. There is a range of existing lenders to the sector (also including legacy European Investment Bank loans) and universities will often have to agree covenant amendments with multiple lenders and investors. In our experience, funders are keen to highlight their ongoing support for the sector and willingness to assist with any potential amendments required.

Covenant Amendment or Renegotiation: With these mitigating actions layered into your forecasts, you can then forecast financial covenant performance and consider whether funder engagement is required. We generally recommend to our clients that, rather than look to the funder to provide its preferred amendments, they should pro-actively propose a solution which includes:

• the reasons for changes in forecast performance;
• mitigating actions being taken;
• proposed amendments to financial covenants (if required); and
• revised financial forecasts.

This will not necessarily be the final, agreed position but provides a strong starting point and gives the funder confidence that sufficient review has been undertaken. The publication of the Gillies report in June 2025 has further reinforced the importance of having robust governance processes in place as well as the timely provision of key information to stakeholders (link to report).

In some cases, there may be a cost associated with the covenant amendment solution. Funders can expect a quid pro quo for their cooperation, which could manifest as a one off fee, an increase in the credit margin or reduction in loan maturity or size. Legal costs (your own and those of the funder) may also be payable depending on the extent of documentation amendments.

Funder Engagement: Generally, we believe in proactive, regular communication with funders to build goodwill and provide for better outcomes. PP investors can take a more passive approach to borrower engagement than relationship banks. Some PP investors will depend upon external legal counsel to advise them during a negotiation (fees paid by the borrower), as they may not have this type of internal expertise. Banks, on the other hand, prefer more frequent engagement and management information, and have their “in house” views and credit specialists with particular preferences (such as standardised approaches to covenant definitions).

We believe that funders are best approached with a clear description of the issue and a realistic solution, including proposed changes to legal drafting or covenant definitions. This allows the funders to more easily navigate their credit process and initially “anchors” the negotiation in the borrower’s favour.

A clear timeline and rationale for the amendment should be provided, allowing all funders to work to the same date.

Debt Restructuring – Repayment or Refinancing: Depending on the structure of your existing debt and hedging arrangements, there may be financial or commercial benefit in early repayment. It could be replaced with a new facility or simply repaid from cash reserves if these are sufficient.

There are still institutions with long term bank loan facilities dating back to the mid-2000s (pre financial crisis) with fixed rate interest rate arrangements. While prevailing interest rates were low, there would normally be a hedge breakage cost associated with early repayment. However, as prevailing interest rates have risen since 2022, many fixed rate facilities are now in a position where a breakage gain could be payable to the borrower. This is a payment to the university which nets off against any capital repayment. A review of your specific loan agreements and swap documentation will be required but generally, if current market rates are higher than the underlying fixed rate of your loan, a breakage gain would be payable by the funder and vice versa if they are lower.

The sector as a whole has taken a measured response to the higher interest rate environment and financial sustainability challenges, with  gearing levels, measured by ratio of borrowing to income, reducing from an average of 33% in 2021/22 to 28% in 2023/24. This is forecast to reduce further to c. 25% by 2027/28 (England only).

Repaying existing debt will deliver cash flow benefits as you no longer have ongoing debt service obligations however, if not replacing with new debt, reserves will have been diminished and this may impact liquidity and longer-term expenditure plans.

How can QMPF Assist?

We can provide support to universities in navigating this environment, evaluating any debt restructuring options and assisting in delivering solutions. Our experience supporting the sector is longstanding and we have good relationships with its primary funders. We can support you through:

• Forecasting: preparation of financial forecasts / models is at the core of our work and it is critical that any forecasting which is developed is robust and transparent. QMPF can assist in development of your forecasts or undertake a review of existing forecasts, acting as a “critical friend”, prior to circulation to funders.
• Understanding the market and lender engagement: The core of QMPF’s activity lies in Higher Education having worked with numerous HEIs and supported the sector for over 20 years.

We have strong relationships with across the funding market and are in regular contact as part of our wider market engagement. These relationships allow us to have candid discussions with key funder contacts during the process and we find that this approach deliver the best outcome for our clients.

We believe that a skilled intermediary can help find solutions and reduce the workload of internal finance teams during periods of potentially difficult circumstances.

• Refinancing and Arrangement of New Facilities: Since the start of 2024, we have supported clients with over £300m of new borrowing (primarily delivering liquidity through Revolving Credit Facilities) and we are currently active with a number of clients, supporting them with a review of debt options, covenant negotiations, repayment of existing borrowing (incl. benchmarking of any early termination gain / cost using Bloomberg to access live market data) and procurement of new facilities. Our market coverage means that we can provide you with visibility of the full range of refinancing options.

We have also worked on private placement covenant renegotiations, restructurings and consent solicitations for a range of universities – on certain engagements, these have often taken place in parallel with new debt raises or restructuring of existing facilities.

• Liquidity and Treasury Management: As part of this process, you may choose to refresh your wider treasury management policy or benchmark your approach to liquidity. We are retained by several clients to provide ongoing strategic and treasury management advice leveraging innovation and technology where possible to allow HEIs to make better, more informed strategic decisions.

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Financial Sustainability in Larger Higher Education Providers: Reflections from the BUFDG Annual Meeting 2025

The UK Higher Education (“HE”) sector continues to face financial headwinds driven, in part, by limited increases in domestic tuition fees, volatility international recruitment and inflationary pressures. The May 2025 Office for Students (”OfS”) financial sustainability report highlighted that 45% of providers are expecting an operating deficit in FY24/25, with many universities announcing redundancy and restructuring programmes to improve their financial position.

QMPF recently held a practical workshop at the British Universities Finance Directors Group (“BUFDG”) annual meeting, which was attended by around 40 finance leaders from the UK’s larger Higher Education Providers (“HEPs”) to explore the pressing challenge of financial sustainability. Facilitated by QMPF, the session was designed as a practical, interactive forum to share experiences, test radical ideas, and identify actionable strategies to improve cost efficiency and revenue generation. The discussions were candid, energetic, and grounded in the realities of a sector navigating financial challenges.

Risk and Execution Matrix

The session was framed around a ‘risk and execution matrix’ allowing participants to consider options available against the difficulty of implementation, time to deliver and the scale of their potential impact.

A sector beyond quick fixes

A clear consensus emerged early in the session: the era of “quick wins” is over. Most institutions have already implemented basic cost-saving measures, cutting discretionary spend, reducing travel, and tightening procurement. What remains are the more complex, systemic levers that require time and strategic consideration to pull.

Participants highlighted estates, workforce, and academic portfolios as the most significant areas for potential savings, but also the most difficult to change. Estates, in particular, were seen as underutilised, with a call to reimagine campus footprints in light of evolving hybrid teaching models. Yet, decisions around estate optimisation are difficult, shaped by different ownership structures, locations, and the long-term vision of each institution.

Workforce rationalisation was another recurring theme. Legacy contracts, pension obligations, and sector-wide pay agreements continue to be challenging. While some institutions are exploring outsourcing or contractual changes, these approaches remain nascent and fraught with reputational and operational risks.

Radical Thinking: The “Department of University Efficiency”

To provoke fresh thinking, participants engaged in a thought experiment: what if Elon Musk were appointed COO of a university with a mandate to increase net operating cashflow? The resulting “Department of University Efficiency” (DOUE) surfaced a provocative set of ideas, some tongue-in-cheek, others plausible.

While many of these ideas would be politically challenging, the exercise underscored a key insight: the sector’s current constraints—governance, regulation, stakeholder expectations—limit the range of viable financial strategies. When finance leaders are able to explore ideas without the current sector’s constraints, the option set expands dramatically.

Revenue & Cash Generation: Opportunities and Limits

On the revenue and growth side, the conversation was more cautious, reflecting the competitive recruitment landscape for domestic and international students. While international partnerships, transnational education, and asset monetisation (e.g., sale and leaseback of assets) were seen as promising, participants acknowledged the complexity, management effort and long lead times involved. Philanthropy was cited as a successful strategy for some institutions, but not universally replicable.

Importantly, there was a shared recognition that not all commercial ventures are worth pursuing. In some markets, activities like summer lettings or conferencing may yield limited returns. The message was clear: focus matters. Institutions must be selective, aligning revenue strategies with their unique strengths and market positions.

Final Reflections

The session was a timely and thought-provoking exploration of the financial crossroads facing larger HEPs. It revealed a sector that is pragmatic, collaborative, and willing to face the sector’s financial challenges. While there are no silver bullets, the session affirmed that with shared insight, bold thinking, and strategic focus, universities can chart a sustainable path forward.

How can QMPF help?

We can provide support to universities in navigating this environment, evaluating any change opportunities, debt restructuring options and assisting in delivering solutions. Our experience supporting the sector is longstanding and we have good relationships with its primary funders. We can support you through:

• Forecasting and options appraisals: preparation of financial forecasts and models is at the core of our expertise. It is critical that any forecasting to inform decision making is robust, transparent and able to present a range of scenarios. We can assist in development of your forecasts or undertake a review of existing forecasts, acting as a “critical friend”, prior to circulation through internal governance or externally to funders or regulators.
• Lender engagement and covenant negotiation: We have developed strong relationships across banking and capital markets over 20+ years advising in the HE sector, which are maintained through our live engagements. These relationships allow us to have candid discussions with funder contacts and anticipate key credit We believe that a skilled intermediary can help find solutions and reduce the workload of internal finance teams during periods of potentially difficult circumstances.
• Refinancing, re-optimisation and arrangement of new facilities: We are actively supporting various university clients on debt options analysis, covenant negotiations, asset optimisation, repayment of existing borrowing (including benchmarking of hedge breakage gains/costs using Bloomberg) and procurement of new facilities. Our market coverage means that we can provide you with visibility of the full range of refinancing options, including property-based solutions such as income strips.
• Liquidity and Treasury Management: In the current environment it may be prudent to review your wider treasury management policies or benchmark your approach to liquidity. We can provide ongoing strategic and treasury management advice leveraging innovation and technology where possible to facilitate better, more informed strategic decisions.
• Trusted Advisor: We aim to develop long-term client relationships and can act as a trusted advisor, deploying our expertise to assist you in the development of innovative strategies to maintain financial and operational sustainability. We can provide independent challenge, support and guidance in managing governance processes, including project management of the implementation of strategic plans.

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An introduction

QMPF has previously produced a general introduction to ‘income strip’ finance which you can find here.

In the Higher Education sector this financing route has gained increasing prominence both through its use in off-balance sheet structures to deliver Design Build Finance and Operate (“DBFO”) student accommodation projects, such as that for University of Staffordshire (Project Detail), and its use for direct fund raising, such as transactions for the University of Lancashire  and University of Kent.

The emergence of income strips has partly been driven by the increasingly selectivity of other funders to the HE market, constraints on availability of long-term lending from commercial banks, and the competitive position of income strips when compared to index-linked bond financing for DBFO projects.

With more of our clients considering income strips and an increasing number of providers in the market, we have identified a number of matters universities should contemplate where they are considering this financing route.

How do income strips compare with debt?

Universities have historically used debt to meet funding requirements and deliver long-term investment. Given very restricted availability of long-term commercial bank lending, financing for longer term capital projects tends to be limited to:

• Capital markets funding: private placements or public bonds, which generally pay interest at fixed rate with a bullet capital repayment on maturity;

• Initial use of shorter-term bank lending (including Revolving Credit Facilities) with the need to refinance this in the future; or

• Income strip finance (we are also seeing emergence of secured debt structured with an inflation link, sharing many of the features of an income strip).

More generally, income strip and debt finance also have several different features including:

How might the finance costs compare?

The annual financing cost from structures, and how its varies over its full term (through inflation, interest rate risk or amortisation) is a critical question for HE institutions.

An income strip is based on provision of upfront capital (a “lease premium”) from a funder in return for committing to an inflation-linked series of lease payments. The product is priced based on a ‘net initial yield’, reflecting the initial rent level divided by the upfront capital provided. The lease payment is subject to annual increases to reflect a chosen indexation basis. This may be further subject to a cap and a floor. The lease length, indexation basis and cap/floor levels all impact pricing and are important aspects of deal structuring.

When compared purely on an IRR basis, income strip finance can appear more expensive than equivalent term debt. However, the structure provides benefits of a significantly lower initial debt service costs, wider availability, long-term maturities (with no refinancing risk) and it will not normally include financial covenant tests for the borrower. In current market conditions income strip finance offers:

The main disadvantages of an income strip structure are its relative inflexibility once transacted, and the exposure to inflation-risk on future debt service (albeit this can be mitigated through the cap). The lease payment obligations will also normally be considered within borrowings by financial covenant tests in other debt facilities, so it is important to check relevant drafting and monitor the impact.

We would recommend a full consideration of funding options – which, in addition to pricing, should consider their commercial implications, pros/cons and suitability for your specific circumstances – before embarking on a funding process.

Other considerations

In contemplating an income strip there are a range of wider considerations relevant to HE institutions. These include:

Structuring depends on the funding purpose

While an income strip is a catch all term for long term index linked leases with asset reversion to the borrower, they can be structured in a number of ways.

This is frequently driven by the purpose of the fund raising. Where the project involves development of the asset (or other capital spending on the asset), a number of options exist on how the leases can be structured alongside development finance. Consideration needs to be given to issues including where development risk sits, how works are contracted for, financial diligence on contractors, lease start dates, delay risk, funder step-in rights and long stop positions.

To address these a number of structures have emerged in the market, including where the lenders acts as both funder and developer, inclusion of a third-party developer or the University retaining the development role. Where an income strip is used to raise finance for other general purposes, on an existing asset, these considerations become simpler.

Similar considerations are also likely to apply where an income strip is used within an off-balance sheet structure, for example in a “DBFO” student accommodation partnership. These projects can add further layers of complexity and specialist legal and tax advice is typically taken.

QMPF in the income strip market

QMPF’s income strip experience is long-standing. Our first income strip transaction with a university was with Swansea in 2011 and we supported University of Brighton to finance a DBFO transaction using an income strip over 5 years ago. More recently we supported University of Staffordshire deliver its student accommodation DBFO project, where the DBFO project company is income strip funded. There are also several current projects we are acting on considering this evolving funding option.

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For students, living matters as much as learning 

Student recruitment is key to the financial sustainability of universities. Many institutions have strategically targeted growth in their student population, particularly internationals, to offset the impact of fixed domestic undergraduate tuition fees, which have eroded in real-term value over the years. Recruitment is highly competitive and requires institutions to market their student experience effectively. The availability, quality and pricing of student accommodation are vital in this effort and significantly impact student satisfaction.    

Key challenges to meeting the demand for student accommodation 

Many universities face a shortage of quality, affordable local accommodation. In some locations this has intensified following growth in students, coinciding with a slowdown of new build construction and a reduction in the availability of HMOs (“Houses in Multiple Occupation”). University-owned stock often also includes a high proportion of dated bedspaces in need of modernisation. Key challenges affecting the supply of accommodation include:  

• Construction cost increases to around £110k to £150k per bed, being driven higher by materials and labour costs, coupled with stricter safety, environmental and energy performance regulations.  
• Higher borrowing costs, which since late 2022 have been based on prevailing gilt yields/SONIA rates of more than 4.5%, far exceeding funding costs over the previous decade. 

• These factors have affected project viability and made it increasingly difficult to deliver affordable accommodation, particularly in non-premium markets. Minimum viable rents to support new PBSA (Purpose Built Student Accommodation) will now normally exceed £200 per week.  

• Student affordability is major issue, as rental inflation has outstripped maintenance loans in many locations. According to a HEPI / Unipol 2024 report, the average student rent in London  in 24/25 (£13,595) now exceeds the maximum student maintenance loan of £13,348.  

• International student recruitment is volatile. Global trends (such as the falling Nigerian currency), UK visa policies and student preferences can all create significant year-on-year fluctuations in local markets. This volatility makes forecasting demand more complex and has contributed to a ‘flight to quality’ trend among investors.     

• The planning process is increasingly complex and developers must also comply with Building Safety Act 2022 (“BSA”) requirements for buildings of more than 11m or 5 storeys in height. The BSA process requires gateway steps before construction and occupation, including additional regulatory approval for ‘higher risk’ buildings of 18m+. Unite is quoted as warning that the BSA will typically add six months to a development, which is consistent with our own experience, and poses a particular challenge for PBSA given the imperative to deliver for the start of term time. (Trading Update and Q3 Fund Valuations – 07:00:04 08 Oct 2024 – UTG News article | London Stock Exchange) 

These challenges are evidenced in the slowdown in PBSA construction activity since 2022, despite strong student demand. Analysis by StuRents estimates that around 12,500 beds were added in 2024, which is significantly below the pre-2020 trend, which ranged from 25,000 to 35,000 annually. The new supply and planning pipeline is also concentrated in several major cities: London, Bristol, Glasgow, Nottingham, Leeds, Edinburgh and Manchester – which are all characterised by strong rent levels and the presence of Russell Group universities.   

How to address the accommodation shortfall? Are partnership models the answer?  

The scale of capital investment required to deliver and maintain quality student residences is significant. Both universities and private sector developers are increasingly exploring partnerships as a means to solving these challenges. Universities will generally have access to the lowest cost sources of funding of all the options  – in theory  – however, financial pressures and balance sheet constraints mean that direct funding for student residences often cannot be prioritised. For universities, partnership approaches can help diversify funding sources, limit university balance sheet commitments and share risk, while drawing upon private sector development and operational expertise.  

Partnering with universities can provide developers with access to large, high-quality projects, wider university relationships and reduce their cost of capital (relative to a direct let development) by de-risking the project and stabilising demand.  

• Design Build Finance & Operate (“DBFO”) models are normally based on a concession agreement of up to 50-years and the grant of a headlease on university-owned land, which reverts to the university at maturity. The project agreement will confer the university the rolling annual right to nominate, but without providing a fixed occupancy underwrite, although other protections are provided to the partner and its funders (such as a restrictive covenant). DBFOs have been the most common route for universities to raise off-balance sheet third party investment for on-campus accommodation, delivered to their specification.    

• Joint-ventures (“JVs”) are bespoke and can take various forms. A prominent recent JV in the sector is Unite’s agreement with Newcastle University for the provision of up to 2,000 beds at its Castle Leazes site announced in 2024  Unite press release. The University will own a 49% stake in the JV and contribute land under a 150-year lease, while Unite will act as developer and asset manager. These emerging joint venture structures may involve longer-term land interest sitting with the JV-partner and a more material university equity stake (20-49%) than under a DBFO.  

Both of these approaches can be tailored to meet specific project objectives, and deliver amenities such as gyms or learning hubs and renewable energy technologies. Investors also have appetite for refurbishment of existing university assets, which can generate a capital premium for the University under the right conditions. There is also flexibility in DBFO structures for universities to retain services, such as pastoral case, security or Soft FM, if desired.  

How to identify the best approach for your circumstances?  

Understanding local market dynamics is crucial to identifying the best funding approach and building a sensible commercial case, including the factors that influence student demand, competing supply and rental levels. Financial viability is the key challenge affecting all developments. This must be modelled carefully to assess deliverability, taking into account all relevant project ‘levers’ and the potential appetite and terms available from investors for a given scheme, structure or location.    

Private sector student accommodation operators and investors remain keen for university partnership opportunities. Appetite can be enhanced if universities adopt an efficient procurement route (to minimise bid costs and time at-risk), present the opportunity effectively and structure deals on an appropriate commercial basis. We have experienced heightened scrutiny of university resilience and financial sustainability from funders (and increased credit differentiation between institutions) however core student demand for on-campus schemes remains generally robust. 

How we can help 

We have experience of structuring projects, including joint ventures and “DBFOs”, leading procurement processes and providing financial advice across all project stages from initial feasibility work to reaching financial close. We can manage the commercial interface between universities and the private sector. We can assist you with:   

• Financial modelling to assess project viability and potential rent strategies 

• Options appraisals and business cases  

• Comparing ‘self- financed’ options with the partnership alternatives (DBFO, JV and nominations) 

• ‘Soft market testing’ among providers and funders to help affirm options  

• Arrangement of finance through bank facilities and income strips 

• Benchmarking of rents, capex and operating costs across the sector, locations or peer groups 

• Deal structuring and negotiation between universities and commercial partners 

• Financial or lead advisor through procurement processes 

• Residences portfolio financial modelling 

• Support throughout university governance 

We have also advised universities on the establishment of joint-ventures (with Unite, among others); and support private sector investors and operators on financial modelling, commercial structuring and raising funding for student accommodation.  

Our ongoing projects comprise delivery of more than 5,000 bedspaces with clients including the University of Manchester, London School of Economics, University of Southampton and Durham University.  

Please get in contact if we could be of any assistance, or for a general discussion about the market and wider opportunities.  

Staffordshire University Student Village – DBFO Partnership – QMPF

University of Birmingham – Pritchatts Park Student Village – QMPF

Manchester Met – Unite student accommodation Joint Venture

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