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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.’

Source: Empiric Stu­dent Prop­erty

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.

Source: Empiric Stu­dent Prop­erty as at 31 Oc­to­ber 2017


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