OUR PROPERTY PICK #1: STUDENT PROPERTY
EMPIRIC STUDENT PROPERTY (ESP) 97P Yield: 5.2%
Discount to NAV: 7.2%
Student accommodation as an asset class offers returns which are relatively uncorrelated with the wider financial markets. The fortunes of this space are reliant instead on UK universities’ reputation for excellence.
Empiric Student Property is on the comeback trail after being forced to cut its dividend payments in November 2017 amid spiralling administration costs.
The progress made under acting chief executive Tim Atlee and chief financial and operating officer Lynne Fennah is not currently reflected in the valuation. At current levels the REIT trades at a 7.6% discount to net asset value compared with a 2% discount at its counterpart GCP Student Living (DIGS).
The plan is to sell non-core assets but only once these assets are fully let so the best possible price can be achieved. The management of its portfolio is also being brought in-house with the development of its Hello Student platform. This should improve margins and, with the company approaching full occupancy for the 2018/19 academic year, should support its target of delivering a fully covered
dividend for the 2019 financial year.
Empiric’s portfolio encompasses nearly 100 properties across 29 cities and towns including some of the UK’s top academic institutions.
Brexit is a risk to consider as it might depress the number of students coming from the European Union; however it is worth noting the large number of non-EU students which come to the UK to study. As the pie chart shows, just 10% of Empiric’s tenants are from the EU (ex-UK).
Investment bank Stifel says: ‘The shares have been steadily re-rating, and we believe will continue to do so over the next year as we see more evidence of the management team’s turnaround of the company’s financial and operational performance.’
Student accommodation rental growth in the UK – 3% per year between 2014 and 2016 – has surpassed all other real estate asset sectors and significantly outpaced the RPI measure of inflation.
EMPIRIC’S TENANTS BY NATIONALITY