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Empiric Student Property NAV slips on over distribution – Over the course of 2017, Empiric Student Property’s EPRA NAV fell from 106.2p to 104.5p. The portfolio value at 31 December 2017 was £890.1m. EPRA earnings per share rose from 0.4p to 0.7p, still well short of the 5.55p of dividends that they declared (and their 6.1p target) and this hit the NAV. They prefer a measure they call adjusted basic earnings per share, which adds licence fees and rebates from forward funded developments plus adjustments related to rental guarantees. On this measure, earnings per share were 1.86p.
The portfolio comprises 94 assets with 9,158 beds in 29 prime university cities and towns. 85 of these were operational at the year end and these had an average valuation yield of 5.7% and average yield on cost of 6.7%. Six more should become operational in 2018, with the balance coming on stream in later years (if they don’t sell them). Trippet Lane in Sheffield, was delayed and is due to be completed in April 2018. Trippet Lane was therefore subject to a rental guarantee from the developer for the 2017/18 academic year. Rental guarantees on forward funded developments give them full protection in the first year of selling, mitigating construction risk. They have identified eight operating assets which are suitable for redevelopment, giving them the potential to enhance the properties and increase rental income and capital values. Any redevelopment would be subject to the availability of finance and would be timed to minimise the impact on dividend cover.
Low occupancy of 92% held back revenue. They say that this was down to property management issues and local economic conditions in some cities (Aberdeen and Cardiff mainly). The group’s operating margin was 57% – they acknowledge that this needs to be higher. They are targeting rental increases of 3.2% for the new academic year.
Tim Attlee, Acting Chief Executive Officer of Empiric Student Property plc, commented: “We have a very strong property portfolio which operationally underperformed in 2017. We have identified the causes of that underperformance and are implementing the changes necessary to allow the business to deliver the improvements we all want to see. We expect these actions will deliver growth in operating margin and dividend cover during 2018 and beyond. As a result, we continue to target a total return of 10% per annum over the medium term.”
The chairman’s statement was largely written before her death on 13 March. She said “The board is acutely aware that performance was below expectations in what was a difficult year for Empiric. We have identified the reasons for this and have taken quick and decisive action to rectify it. The work we are doing will transform Empiric’s performance and support delivery of our target total return of 10% per annum.”
ESP : Empiric Student Property NAV slips on over distribution