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GCP Student Living receives knock out £969m bid

GCP Student Living receives £969m bid

GCP Student Living (DIGS) has received a takeover bid valuing the company at £969m.

The bid by Scape Living (funded by APG – a current shareholder in DIGS) and iQ (funded by Blackstone) is at a large premium to both its share price and net asset value.

The bid price of 213p per share is 30.7% premium to DIGS’ share price on 1 July (the day before the offer period commenced) and a 19.1% premium to its 31 March EPRA net tangible asset value of 179p.

It is also a 9.3% premium to DIGS’ pro-forma EPRA NTA of 195p, adjusted for the increase in property values to 30 June 2021.

DIGS’ board intends to recommend unanimously in favour of the bid.

If the takeover goes through, DIGS’ assets will be split between Scape and iQ, with Scape getting five assets (Wembley, Shoreditch, Circus Street, Bloomsbury and Guildford) representing 60.05% of the value of the portfolio, and iQ getting six assets (Mile End, Brighton, Greenwich, The Pad, Podium and Water Lane) representing 39.95% of assets.

The board said in an announcement this afternoon: “In arriving at its recommendation, the GCP board has factored in the increasingly positive news flow in recent months, most notably the COVID-19 vaccine rollout as well as the extremely strong investment appetite and transaction activity in the purpose-built student accommodation sector. However, the GCP board has tempered these factors with a recognition that, because of the continued global impact on travel caused by the COVID-19 pandemic and the effect of Brexit on student movement from the EU, there remains considerable uncertainty on occupancy levels for at least one further academic year and possibly beyond. By way of reference, in the academic year 2020/21, 73% of GCP’s reservations were from overseas students.

“Consequently, whilst the GCP board remains confident in the standalone prospects for GCP, having negotiated several improved proposals from the consortium the GCP board believes that the acquisition allows shareholders to capture anticipated future value today, whilst eliminating the associated uncertainties. In addition, the GCP board recognises that the acquisition allows GCP shareholders the opportunity to fully exit in cash at a price which represents:

  • an all-time high share price for GCP;
  • a significant premium of 30.7% to the undisturbed share price of 163 pence per GCP share as at 1 July 2021;
  • an attractive premium of 19.1% to the last reported EPRA NTA of 179 pence per  GCP share as at 31 March 2021; and
  • an attractive premium of 9.3% to the pro forma NTA of 195 pence per GCP share.”

David Hunter, chairman, added: “GCP has a formidable record of value creation since IPO. GCP and its managers have assembled a portfolio of the highest quality focused on a location which, in normal circumstances, has the highest imbalance between supply and demand in its sector. However, at a time when investment market demand for assets of this type is at an unprecedented level, despite ongoing uncertainty created by the pandemic and Brexit on international student movements, this transaction enables our shareholders to realise full value for their investment at a price which exceeds GCP’s previous all-time high share price.”

DIGS’ manager Gravis will get two years’ of management fee in compensation for a change of control. This will make no difference to the price that shareholders get but adds to all-in price for the bidders.
[QD comment: This is a knock out bid and as the board says allows shareholders to capture anticipated future value of the company today, whilst eliminating the associated uncertainties – which are large.

The student accommodation sector has been one of the hardest hit during COVID as a large portion of students moved to online learning. This has been borne out in DIGS’ recent performance figures. Occupancy this academic year (2020/21) is 68% and it expects to book between 55% and 60% of budgeted total income of £60.1m.

The consortium is betting that full occupancy can be achieved in the next couple of years and the value of the assets materially rise.

Future uncertainties still exist, not least the impact on international students. DIGS had a high percentage of international occupants prior to COVID (73% in 2019/20) owing to its London-focused portfolio.

Encouragingly, UCAS applications for 2021/22 from non-EU international student is up 17%, with Chinese applicants up 21%. Whether these students are willing to travel to the UK (especially as COVID cases could be up to 100,000 a day by September) for in-person teaching over remote learning remains to be seen.

A shortfall in take-up by international students should be met by demand from UK students. UCAS applications from UK students for the 2021/22 academic year are up 11%. However, Unite (UTG – the largest listed student accommodation company) says that UK students pay, on average, 20% less annual rent than international students.

The exit price, for us, looks too good to turn down.]

DIGS : GCP Student Living receives £969m bid

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