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Empiric Student Property seeks joint venture partner to expand

Empiric Student Property's international student bookings not impacted by Covid-19

Empiric Student Property is exploring bringing on board a joint venture partner to grow its portfolio of student accommodation.

The company, which reported strong half-year results yesterday, said in an analyst briefing that it had engaged PwC to look at options to expand its portfolio.

Chief executive Duncan Garrood said that traditional methods of growing the company were not available to it at the moment – with the company’s shares trading on a discount to NAV of around 30% excluding it from raising equity and debt currently very expensive.

Working in a joint venture partnership would see new assets acquired and operated by Empiric under its Hello Student or Postgrad by Hello Student brands, for which it would charge a fee for asset management, property management and in some cases development management.

Scaling up in its target locations (top university cities such as Manchester, Edinburgh and Bristol) would bring operational efficiencies, boost gross margins and drive earnings growth. The company embarked on a new strategy two years ago that would see it focus on ‘clustering’ in these target cities – which we talked about in a comment piece here.

The company is looking to grow its postgraduate offering where it said that returns were greater than the normal undergraduate sector. Accommodation is more bespoke with larger footprints, designed for greater independence of the more mature students. But it is a growing part of the student sector, growing 39% since 2011 and now making up 29% of the wider student market. Empiric said that rents are at a 20% premium to the undergraduate product, with a 14% IRR compared to 9%-11%.

Opportunities exist within its portfolio to convert £150m of property into postgraduate accommodation at a cost of £40m, as well as further acquisition opportunities in the market – especially distressed offices, department stores and blocks of flats that can be converted.

[QD comment: Discussions to bring on a joint venture partner are at very early stages but we commend the proactive steps taken by Empiric’s management team to expand the portfolio. The student sector is exhibiting very favourable supply and demand characteristics, where demand from students is far outstripping supply, especially in the premium sector that Empiric operates. This is borne out in Empiric’s portfolio that is already 98% let for the academic year 2023/24 and rental growth of a whopping 9%. Given this, the fact that the company trades on such a wide discount, which prohibits it from raising capital, is baffling.]

ESP : Empiric Student Property seeks joint venture partner to expand

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