Investment Overview
Empiric Student Property plc (LSE: ESP), a UK REIT, is a leading provider and operator of modern, direct-let, nominated or leased student accommodation located in prime city centre locations in top university towns and cities in the UK. The Company listed on the Main Market (Premium Listing) of the London Stock Exchange in June 2014.
Financial performance
As at 30 June 2021, the Group owned 91 assets representing 9,170 beds (31 December 2020: 9,396 beds). The portfolio included 87 revenue-generating properties at the period end, with 8,543 beds.
Property portfolio valued at £994 million at 30 June 2021 (31 December 2020: £1,005 million), reflecting the asset disposals completed. The portfolio valuation has remained stable since the year end on a like for like basis. The COVID-19 valuation deduction made by CBRE as at 30 June 2021 reduced to £20 million compared to £21.4 million at the year end.
Underlying valuation yield of 5.59% (31 December 2020: 5.61%) has improved slightly, reflecting an improvement in rental growth on our super prime assets, partially offset by a reduction in secondary assets.
As at 30 June 2021, EPRA net tangible assets ("NTA") per share was 106.2 pence (31 December 2020: 105.0 pence).
Operational performance
Throughout the pandemic, we have taken a supportive approach to our students' situation, granting later check-ins, deferments, cost-free cancellations and refunds. Online reviews suggest this has helped enhance our brand reputation and drive future customer acquisition.
In November 2020, we successfully launched our new revenue management system and all bookings for the academic year 2021/22 are now managed in-house. We expect this to deliver annualised cost savings of about £1.5 million per annum from September 2021 onwards as well as increase customer acquisition and revenue.
Outlook
We are pleased to resume dividend payments in Q4 this year with a payment of 2.5p. This comprises the PID distribution requirement of 1p per share for the financial year 2019 and a 1.5p per share for 2020.
In 2022, we intend to start paying a minimum dividend of 1.5p per share per annum, with a view to increasing this as occupancy levels normalise.
We are making good progress on the disposal of non-core assets, and plan to use these proceeds to invest an estimated £44 million on the refurbishment of properties, with a targeted IRR of 9% to 11%, and also spend approximately £30 million over the period to 2025 on work to ensure our buildings comply with forthcoming changes in fire and safety legislation.
Looking forward, once we achieve occupancy levels in line with those before the pandemic, we expect to deliver a Gross Margin above 70% and a total return in the 7% to 9% pa range.
Sustainability
We are committed to creating and operating a responsible and sustainable business which has a positive impact on all of our stakeholders. During 2020 we established a Board level ESG Committee tasked with providing a roadmap to deliver a significant step change in our approach to ESG. We will be setting out our ESG strategy in our Annual Report in March 2022.
