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Empiric premium at risk as dividend cover remains elusive

Empiric premium at risk as dividend cover remains elusive

An unforeseen cost hike means Empiric Student Property (ESP) is still not managing to cover its dividend, meaning its 8.2% premium could start to look vulnerable.

In its interim results for the six months to 30 June, the student accommodation real estate investment trust (Reit) reported a net asset value of 105.8p, largely unchanged from 105.9p reported on 31 December.

The £634 million fund’s yield remained stable at 5.8%, compared to 5.9% at the end of 2016.

However, the earnings per share were affected by the impact of a 43% increase in administration costs to £7.6 million. The shares fell 4.5% to 108.8p yesterday on the news.

Paul Hadaway, chief executive of the trust, said: ‘As the business grows, and one-off costs fall away, underlying efficiencies will reduce overheads. However, where we do add resource to support growth, the cost tends to increase in steps in advance of income.’

Numis analyst Charles Cade said the increase in costs meant the dividend was just 34% covered.

‘As a consequence, in respect of its target 6.1p dividend per share, Empiric is no longer targeting "substantial" dividend cover by the end of the year,’ he said.

‘Investors may be disappointed by the delay in covering the dividend, with management giving no guidance as to when this will happen. The shares currently trade on a premium of 8% to the latest net asset value…although given the low level of cover the premium could look vulnerable.’

The trust has 6,833 operation beds across 90 buildings in 30 cities. Of those buildings, 56 are now operated under the Hello Student platform, with another 61 planned to be on the platform by 2017/18.

Hello Student is the operational platform that allows marketing, booking, billing and accounting to happen in one place.

In the first six months of the year the trust bought one ‘forward funded asset’ with 326 beds, and another 400 beds were acquired after the results period.

Rebooking rates for those living in the same building were 55% in the first half of the year and the number of second and third year students increased.

A capital raise by Empiric fell short of its £150 million target in July, raising £110 million.

Management is ‘optimistic’ about the outlook for the student accommodation sector and said Brexit was unlikely to affect students who do not usually stay in excess of 12 months.

Chairman of the trust Baroness Dean said the UK government ‘recognises the importance of the continued success of the higher education sector’.

Around 23% of students in the UK are international, with 7% from the EU.

‘Many are postgraduates who come to the UK for 12 months or less, which means they should not be affected by post-Brexit limits on immigration, which would apply to those coming here for more than one year,’ she said.

‘The student accommodation market remains highly attractive and we have the strategy, pipeline, financial resources, management team and people to continue to grow the business successfully in the second half of the year.’

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