Empiric Student Property has raised £56.1m in a placing and retail offer as it looks to take advantage of favourable market conditions for the student accommodation sector.
A total of 59,686,950 new ordinary shares representing 9.9% of the company’s existing share capital have been placed at a price of 93p, raising proceeds of £55.5m. In addition, a total of 663,714 new ordinary shares have been placed via retail investors raising proceeds of £0.6m.
The board said that the proceeds provide the company with additional equity capital to invest in a number of attractive and earnings accretive investment opportunities which will accelerate the company’s growth ambitions.
The company’s portfolio currently consists of 76 operational assets with around 7,600 beds situated across its key cluster cities (87% of the current portfolio is located in top-tier university cities), with an aggregate property valuation of £1.1bn (as at 30 June 2024).
The company said that the UK purpose-built student accommodation (PBSA) sector continues to benefit from strong fundamentals. These include the UK’s globally recognised higher education sector, a decline in the supply of Houses in Multiple Occupation (HMOs), and the growing demand for university places from an increasingly diverse group of students ethnically.
The positive long-term outlook for UK student numbers is underpinned by continued growth in the number of 18-year-olds which is forecast to continue to climb until 2030. Furthermore, the quality of UK universities continues to appeal to a wide international student audience, with the international student population growing by over 40% since 2019, outpacing global growth of approximately 20%. This is particularly true for higher tariff, top-tier universities to which the company is strongly aligned.
The supply of PBSA continues to be significantly restrained with the forecasted delivery of new beds across the next four academic years falling short of forecasted growth in student numbers and remaining well below those delivered pre-pandemic.
The postgraduate market, which accounts for 25% of the UK student sector, is underserved by PBSA but represents 40% of the company’s bookings (as at 31 December 2023).
The company had been exploring joint venture opportunities to accelerate the group’s postgraduate product. However, the board has decided to end these discussions, noting that the timing of implementation was at risk and the associated disruption to the company’s business plans was not in the best interests of the company’s shareholders. Instead, the company intends to continue pursuing its postgraduate accommodation refurbishments independently.
The company said that it was seeing a number of opportunities in the market to institutionalise privately-held PBSA sites, which are well located in top-tier university cities.
Use of proceeds
The company said that it was reviewing a number of investment opportunities in its key target cities. Specifically, the company said it was in advanced discussions to acquire two operational assets in the top-tier university cities of Manchester and Edinburgh where the group already has an existing presence. The assets are operational and strategically located to unlock further value through efficiencies that can be derived from clustering, improved rental tone and future refurbishment.
The acquisition cost of these two operational assets is expected to be around £30m, with the assets expected to generate a blended net initial yield in excess of 6.0%, based on existing rents, with the potential for unlevered IRRs, over the next five years, in excess of 10%.
Prior to completion, the company said that the cash to fund the purchase of these assets will predominantly be used to pay down debt, and therefore be immediately earnings accretive following the prepayment of a flexible debt facility currently attracting a financing rate of 7.3% per annum.
In addition to its near-term acquisition opportunities, the company said that it has a broader pipeline of a further eight identified assets serving top-tier universities which are under negotiation. All these assets share similar characteristics being in key cluster locations and offering the company the chance to realise operational efficiencies or grow rents in their respective cities as well as enhancing the customer offering and rental tone. These assets are predominantly operational assets, with the potential for five-year unlevered IRRs in excess of 10% and net initial yield of between 5.8% and 7.0%.
The company also has 16 existing operational assets in its portfolio which would benefit from being marketed solely to postgraduate students, which would increase the company’s specific postgraduate offering to 18 assets and over 1,200 beds (17% of the portfolio). The cost of refurbishment of these assets is expected to be up to £45m and could be completed in phases across academic years. In the short term, the company has identified approximately £10m of refurbishment works at two properties that can commence in early 2025 and a further £10m of refurbishment that can commence later in the year. These refurbishments are expected to generate an initial yield on cost of 6.5% and deliver five-year unlevered IRRs in excess of 12%.
The acquisition of well-priced, near-term investment opportunities, as well as the unlocking of potential refurbishment gains, are expected to be earnings accretive within the calendar year 2025.
The offer will initially be marginally dilutive to EPRA NTA per share, however the board said that it expects that the planned acquisitions and refurbishments works will enhance shareholder returns and therefore be accretive to EPRA NTA per share over the medium term.
Duncan Garrood, chief executive of Empiric, commented:
“We would like to thank shareholders for their continued support. This placing will allow the business to grow, drive operational margins and create long-term shareholder value.
“There is a fantastic opportunity now ahead of us. We will remain focused on doing what we do best; creating high quality, modern student accommodation serving top-tier universities, incrementally driving value to generate stable, long-term returns for our shareholders.”