TIDMESP
RNS Number : 2937X
Empiric Student Property PLC
23 November 2017
23 November 2017
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries,
the "Group")
BUSINESS REVIEW & TRADING UPDATE
Further to the announcement on 7 November 2017, the Board of
Empiric Student Property plc (the "Board") (ticker: ESP), the owner
and operator of premium student accommodation across the UK,
announces the following business review and update on trading.
The Company has grown significantly since its IPO in June 2014
and, particularly, since June 2016 to the start of this current
academic year, where operating properties have increased from 52 to
84 and the number of buildings under internal management have grown
from 18 to 61.
There has been good progress with regard to the Group's
development portfolio with 1,145 new beds becoming operational for
September 2017. However, the performance of the Group's operating
portfolio has been impacted by a number of financial and
operational inefficiencies within the Group and its supply chain,
which have adversely affected the Company's operating margins and
dividend cover.
Lynne Fennah, who joined the Company on 26 June 2017 as CFO, has
led and now completed a full financial and operational review of
the Group with Paul Hadaway (CEO) and Tim Attlee (CIO).
The Group is in the process of implementing significant
financial and operational improvements and cost savings arising
from this review, which the Board expects will deliver growth in
operating margin, dividend cover and total shareholder return
through 2018 and beyond.
These initiatives are not expected to negatively impact the
Company's core business activities or its investment strategy.
Key Points
-- Robust processes and procedures are now in place to
substantially improve the Group's key financial and operational
metrics and budgeting capability.
-- The Company's dividend target for the year ending 31 December
2017 is to be reduced from 6.1 pence per Share to 5.55 pence per
Share.
o A dividend of 1.25 pence per Share has been declared today in
respect of the quarter ended 30 September 2017.
o The Company is targeting a further dividend of 1.25 pence per
Share for the quarter ending 31 December 2017(1) .
-- The Company is targeting a dividend of 5.0 pence per Share
for the year ending 31 December 2018(1) .
-- The Board expects the dividend for the year ending 31
December 2018 to be substantially covered by adjusted EPRA earnings
and fully covered by the year ending 31 December 2019.
-- The Company's operating margin is expected to be between 57%
to 60% for the year ending 31 December 2017.
-- The Company is targeting an operating margin above 70% and
the Board expects to make significant progress towards this level
in 2018
-- The Group's operating portfolio is currently 92% let for the
2017/18 academic year. Excluding the Group's buildings in Cardiff
and Aberdeen, the operating portfolio is fully let(2) .
-- The Group's rental growth target for the 2018/19 academic
year is 3.2% in aggregate (2017/18: 2.8%).
-- From 27 June 2014 to 30 June 2017, the Group has generated an
aggregate net total return (NAV growth plus dividends paid) of 23.8
pence per share, of which dividends paid comprised 16.1 pence per
share. This equates to a total return of 24.3% over the three year
period.
-- The Company will continue to target a net total return of 10% p.a. over the medium term.
-- The Group is targeting a total expense ratio for 2018 of 1.15%.
Baroness Dean, Chairman of Empiric Student Property plc,
commented:
"With the increase in operating properties from 52 to 84 and in
internally managed buildings of 18 to 61, from June 2016 to the
start of the current academic year, 2017 has been a year of
exceptional growth for Empiric.
The review undertaken has identified a number of operational
inefficiencies which have adversely impacted performance. The Board
is acutely aware that performance has fallen below expectations and
is fully focused on delivering operational efficiencies. We are
confident in the quality of the portfolio, prospects for future
performance and the Company's potential to deliver returns which
meet market expectations."
Trading Update
-- The Group owns 84 assets (7,841 beds) which are operational
for the 2017/18 academic year and nine further assets (1,345(3)
beds) scheduled to become operational in future years, across 29
cities and towns in the UK.
-- 61 buildings are now operated by Hello Student(R) with the
remaining 23 buildings operated by third party providers.
-- The gross annualised rent roll (including commercial revenue)
for the 2017/18 academic year is GBP66.8 million(4) . This is
expected to increase to approximately GBP73.9 million for the
2018/19 academic year following completion of six development
assets currently under construction.
-- Lettings in Cardiff and Aberdeen are below budget having been
impacted by local property management issues in Cardiff which are
now largely resolved and local economic issues in Aberdeen arising
from the oil price slump. To address these issues, management has
adopted earlier and more effective marketing, implemented rent
reductions in Cardiff and Aberdeen, offset by higher than average
rents in other cities, and commenced rigorous weekly monitoring of
room-by-room bookings to effect earlier rental adjustments if
necessary.
Operating Cost Improvements and Margin Targets
-- Following completion of the financial and operational review,
more robust financial and operational processes, reporting and
procedures are now in place alongside a strengthened finance team
led by Lynne Fennah. Operational cost improvements identified to
date include the following:
o Restructuring of operating partner procedures to avoid
inefficient VAT treatment.
o Acceleration of central buying of utilities by the Group to
reduce external management fee costs and reduce and fix unit
costs.
o Acceleration of the internalisation of outsourced facilities
management in cities where the Group has a larger number of
properties, increasing efficiency and reducing costs.
o Implementation of tighter internal controls and budgeting of
outsourced management and facilities management.
-- With the successful implementation of the operating cost
improvements detailed above, and the completion of the development
pipeline, the Board anticipates a steady increase in operating
margin.
o The Company's operating margin is expected to be between 57%
to 60% for the year ending 31 December 2017.
o The Company is targeting an operating margin above 70% and the
Board expects to make significant progress towards this level in
2018.
Administration Expenses
-- Administration expenses in H1 2017 were reported as GBP7.6
million and are forecast to be approximately GBP6.0 million for H2
2017 (H2 2016: GBP5.3 million).
-- Savings in H2 2017 are expected to be achieved mainly from
one-off costs incurred in H1 2017 that have now fallen away,
including the cost of a settlement agreement with the previous CFO
and the cost of temporary finance staff to support the migration to
a new accounting platform.
-- The Group is targeting administration expenses for the year
ending 31 December 2018 of GBP10.0 million which would result in a
total expense ratio of approximately 1.15%.
-- Further savings to achieve this expense level include
completion of administration projects and a reduction in
consultancy agreements and contractor head-count.
Executive Bonus
-- Paul Hadaway and Tim Attlee have waived their rights entirely
to a bonus for the 2017 financial year under the Company's annual
bonus scheme.
Operational and Portfolio Strategy
-- The Group will continue to focus on internalising operational
building management and increasing bed numbers per city to drive
economies of scale and reduce costs per bed.
-- In this regard, in the seven cities or towns where the Group
owns more than 400 beds, the average estimated operating cost for
2018/19 is 12% lower than the estimated operating cost for the
current year, for the same cities.
-- In the seven cities or towns where the Group owns fewer than
200 beds, the estimated average operating cost for 2018/19 is 10%
higher than the estimated operating cost for the seven cities where
the Group owns more than 400 beds for the same year.
-- One of the central themes of the 2025 strategic plan is to
increase the number of operating beds in cities where the Group is
already active, with a diversified range of student accommodation
properties to drive efficiencies.
-- This has begun to be implemented in three cities in
particular: Exeter, Leicester and Manchester. The latter two cities
each have more than 700 beds and an estimated average operating
cost for the 2018/19 academic year 10% lower than the estimated
operating cost for the seven cities with more than 400 beds (above)
for the 2018/19 academic year.
-- The Group has conducted a review of cities where it owns
fewer than 200 beds (operating or in development) to assess their
viability. These cities are opportunities for further investment
or, where appropriate, assets may be sold with proceeds used to
fund development and redevelopment opportunities.
-- In October 2017, the Group exchanged unconditional contracts
to dispose of its development asset in Stirling substantially above
acquisition price.
Investment Strategy and Pipeline
In July 2017, the Company raised net proceeds of GBP107.8
million through an equity fundraising, of which GBP51 million has
been committed.
-- The Group continues to pursue a standing asset pipeline but
currently sees more opportunities in forward funded development and
direct development.
-- The Group has a GBP69 million pipeline of development assets,
both forward funded assets yielding approximately 6.8-7.5% on cost
and direct development assets yielding approximately 7.25-8.25% on
cost which will deliver higher yielding assets in the Group's
target cities.
-- The Group has also identified eight operating assets within
the existing portfolio that are suitable for redevelopment (subject
to planning).
-- All development opportunities will be phased to manage the impact on dividend cover.
-- The acquisition of a portfolio of operating assets in London
where the Company was in exclusive negotiations was not pursued to
completion due to uncertainty over latent liabilities within the
target's corporate structure.
Debt Arrangements
-- On 20 November 2017, the Company announced a new three year
GBP70 million revolving credit facility with Lloyds Bank ("Lloyds
RCF") with two 12-month extension options.
-- The Group now has total debt facilities of GBP390 million of
which GBP86.2 million is undrawn. The current LTV is 32.2%.
-- In aggregate, GBP191.1 million of debt is borrowed at fixed
interest rates and GBP198.9 million is borrowed at floating rates.
The prevailing aggregate cost of debt is 3.25% with a weighted
average term of 6.9 years.
Market Overview
Early UCAS figures for September 2018 showed a record number of
students making applications (61,440), an increase of 7% on
applications for September 2017, with applications from non-EU
students increasing by 12%, well above previous increases of c.1%
per year. EU applications increased by 6% after being down 9%
between September 2016 and 2017 following the Brexit vote, whilst
UK applications also increased by 6%.
As part of the due diligence for the Lloyds RCF, the lending
group assets were revalued by Knight Frank acting for the lender
after lettings for the 2017/18 year were complete. The revaluation
confirmed that yields have remained the same since the CBRE
revaluation of the Company's portfolio at the end of June 2017.
This underlines the continuing strength of the student
accommodation investment market where sentiment remains positive
for well located and well designed investments.
Notes:
(1) The target dividend is a target only and not a forecast.
There can be no assurance that the target will be met and it should
not be taken as an indication of the Company's expected or actual
future results.
(2) Meaning an occupancy and/or income level of the operating portfolio of 97% or more.
(3) 1,189 development beds remain subject to planning.
(4) Gross annualised rent includes commercial revenue and
marketed student revenue for the academic year at 100%
occupancy.
For further information on the Company, please contact:
Empiric Student Property plc (via Newgate below)
Paul Hadaway (Chief Executive)
Lynne Fennah (Chief Financial
Officer)
Tim Attlee (Chief Investment
Officer)
Akur Limited (Joint Financial Tel: 020 7493 3631
Adviser)
Tom Frost
Anthony Richardson
Siobhan Sergeant
Jefferies International Limited Tel: 020 7029 8000
(Joint Financial Adviser and
Broker)
Gary Gould
Stuart Klein
Newgate (PR Adviser) Tel: 020 7680 6550
James Benjamin Em: empiric@newgatecomms.com
Anna Geffert
Lydia Thompson
Further information on Empiric can be found on the Company's
website at www.empiric.co.uk.
The Company's LEI is 213800FPF38IBPRFPU87.
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Notes:
Empiric Student Property plc is a leading provider and operator
of modern, direct-let, nominated or leased student accommodation
across the UK. Investing in both operating and development assets,
Empiric is a multi-niche student property company focused on, (i)
providing good quality first year accommodation managed through its
Hello Student(R) operating platform in partnership with
universities, (ii) offering a variety of second and third year
purpose built accommodation options for individual students and
those wanting a group living environment, and (iii) continuing to
expand the Group's existing premium, studio-led accommodation
portfolio which is attractive to international and postgraduate
students.
The Company, an internally managed real estate investment trust
("REIT") incorporated in England and Wales, listed on the premium
listing segment of the Official List of the Financial Conduct
Authority and was admitted to trading on the main market for listed
securities of the London Stock Exchange in June 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
TSTLFFFVLTLFFID
(END) Dow Jones Newswires
November 23, 2017 02:00 ET (07:00 GMT)
Empiric Student Property (LSE:ESP)
Historical Stock Chart
From Apr 2024 to May 2024
Empiric Student Property (LSE:ESP)
Historical Stock Chart
From May 2023 to May 2024