The project involved Birmingham University seeking a private partner to design and build 496 student beds, refurbish a further 734 existing student beds, and finance, operate and maintain these over the 50-year lease term.
Pritchatts Park Student Village will use renewable energy sources and will include electric vehicle charging points.
The project reached financial close on 14 December 2021 and includes the construction of a new 482-space multi-storey car park in addition to the student accommodation.
Operis acted as sole financial advisor to the EQUANS / Equitix consortium which was selected as the University’s partner. Operis’s tax and accounting team has provided accounting advice to evaluate whether the proposed structure and contractual arrangements of the project under UK GAAP and the Statement of Recommended Practice 2015: Accounting for Further and Higher Education (SORP) would result in an off-balance sheet solution for the University.
On or Off-Balance Sheet
A key consideration in any university accommodation PPP transaction is whether the proposed structure and contractual arrangements under applicable accounting standards will result in an off-balance sheet solution for the University. From the point of view of the University, the advantage of an off-balance sheet solution is that the project vehicle’s liabilities do not need to be recognised in the University’s financial statements.
Where one entity is deemed to control another entity, the controlling entity would need to consolidate the financial statements of the controlled entity in its accounts. The team considered applicable accounting standards to determine whether the University would be considered to control the project vehicle under the proposed structure and contractual arrangements.
Control is assumed to exist where the parent owns, directly or indirectly more than 50% of the voting power of an entity. However, control can still exist where the parent owns less than 50% of the voting power. Therefore, the team had to assess whether control existed given other factors that influence control.
Other accounting considerations
The contractual arrangements include a nominations agreement under which the University has certain rights to reserve the available rooms each contract year. The accounting advice included considering whether the University would need to set up an accounting provision and/or a liability in their accounts in relation to this agreement.
The team also commented whether the other main accounting treatments adopted in the financial model were reasonable and in line with applicable accounting standards. This included commenting on the accounting treatment of the project in the project vehicle’s financial statements, the treatment of lifecycle costs and bid/upfront costs, and the recognition of revenue and costs.