Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Empiric Student Property PLC (LSE:ESP, Financial) achieved effectively full occupancy for the previous and current academic years, with expectations for the next year as well.
- The Hello Student operating platform delivered record-level rents, with academic year '24-'25 like-for-like rental growth expected to exceed 6%, significantly above inflation.
- The company completed GBP 115 million of disposals, achieving above book value in aggregate, and is redeploying capital into strong locations.
- Customer satisfaction metrics are strong, with a Net Promoter Score up 5 points to plus 37, and customer satisfaction at a high level of 87%.
- Empiric Student Property PLC (LSE:ESP) has a strong pipeline of acquisitions and refurbishments, with plans to refurbish over 500 beds in 2025 and a focus on high IRR projects.
Negative Points
- Administrative costs increased by 9%, primarily due to the group's growth agenda and inflationary pressures.
- Finance costs rose by 10% to GBP 9.9 million, including a nonrecurring charge related to recent refinancing.
- EPRA earnings were pared back by 4%, remaining at 2.3p per share, with nonrecurring items impacting the adjusted EPS.
- Higher overall drawn debt and lower cash reserves increased the loan-to-value ratio by 3 percentage points to 33.8%.
- The company faces potential challenges from rising construction costs and the risk of rent controls due to affordability concerns among students.
Q & A Highlights
Q: With the current supply-demand imbalance in student housing, are you concerned about potential rent controls affecting your business?
A: Duncan Garrood, CEO, explained that while there is a significant shortage of student accommodation, Empiric remains focused on providing high-quality, premium products. They believe that as long as they offer good value for money, they can continue to attract premium customers. The company is mindful of affordability and aims to match rent increases with quality improvements.
Q: What are your expectations for rental increases in the upcoming academic year?
A: Duncan Garrood, CEO, stated that while they haven't finalized decisions, they expect rental increases to be a couple of points above inflation. This is due to ongoing investments in refurbishments and improvements, although they anticipate more moderate increases compared to the previous year's 10.5% rise.
Q: Can you elaborate on the record demand from international students despite reports of declining visa applications?
A: Duncan Garrood, CEO, clarified that the reported drop in visa applications largely involved dependents, not students. Empiric has seen strong growth in demand from countries like India, China, and the Middle East. Their focus on top-tier universities and single occupancy has shielded them from the broader decline.
Q: Are there any cities within your portfolio that you plan to exit or reduce exposure to?
A: Duncan Garrood, CEO, mentioned that with three locations under offer, they are nearing the completion of their disposal program. However, they will continue to review their portfolio for potential capital recycling opportunities to enhance performance.
Q: Can you explain the nonrecurring items in the EPS figure and the one-off finance cost?
A: Donald Grant, CFO, explained that the nonrecurring item is a GBP 900,000 finance cost related to refinancing. This charge resulted from writing off residual arrangement fees from historic debt, and it is not expected to recur.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
