Empiric Student Property Share Discussion Threads

[stemis] 29/11/2017 13:01

You could ask them how many beds they expect to have when they've deployed their current capital (equity and debt).

[loglorry1] 29/11/2017 12:04

Small point maybe but their branding is dire at The website is bad and the flowers look more like a funeral parlor which given recent events might seem apt when I come to think of it.

Given their target market they need to spend a tiny bit on branding. A few K should sort this out and help with enquiry rates.

[jonwig] 29/11/2017 11:58

Shuffle - thanks for invitation. I do have a query:

"Current LtV is 32.2% against target of 35-40%, and they have undrawn facilities. Since raising new equity would be problematic, does the company intend pursuing further expansion by taking on further debt as far as the upper limit they have indicated?"

[Deliberately mild and civil wording. But I'd see further borrowing at this stage as a bad signal.]

[the shuffle man] 29/11/2017 11:30

I may get a chance to meet with the management next week and am compiling a list of questions to ask.

Any specific questions you would like answering apart from the obvious.

Thanks

[stemis] 28/11/2017 14:39

A bit of an overreaction.

[edwardt] 28/11/2017 14:35

think they can cut costs by removing fees to external consultants. yet for me it is also reliant on rents from Aberdeen and Cardiff which has always put me off this one. occupancy at 92% there could fall much more imo. substitution effect kicks in these local economies far more than in London ever will. I remain happy to be in digs despite the fact I love a discount to nav. the 15% here is not enough to compensate until NOI is above 70%. they have a lot of work to get there....

[jonwig] 28/11/2017 10:27

Horndean - thanks. Change in tp? (Was 94p, "reduce" on 23/11.)

[jdepp5] 27/11/2017 11:11

I did go and look at one of their properties in Sheffield, Trippet Lane one if I recall correctly a couple of months ago. Have to say it was very high spec and nice, too nice from my student days, or my current kids, but that is not the type of market they are going for. It was just finishing development so not occupied and had missed the start of the academic year, but there was some moving of students who had taken it up to another Sheffield property which was now full and the lady who showed me around seemed convinced they would have language students from January. So to summarize, the property itself was impressive.
I bought some at the recent fund raise so clearly not too happy as it was meant to be a safe holding and many other holders are in same position, i.e. this is not what they thought they were buying into.

I have tried to research the new CFO but given her background in a private company there is not that much information. Basically the future of co depends on how credible she is, as the other two are no longer credible.

Clearly they cannot issue any new shares but this is not necessarily bad - there will have to be focus to tighten the ship and the new issue share drag is removed. However the days of a premium are shot.

Question is how have previous reits investment trusts gone forward in a similar situation now that no more issues can be on the horizon?

I can imagine they will pay out the div declared going forward and the NAV will rise as the properties are impressive. They might trade a few to develop further but this will not help the discount short term.

[jonwig] 27/11/2017 09:52

@ joepublic - quite possibly! This is a quote Stemis gave:

"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 underlining is mine, and you use the word "targeted". I think a far better fallback would have been for the board to have set no public targets (it's a strong word in investorspeak - miss it and you've a profit warning!) but said they would pay a fully covered PID (~4.5p now) but based on actual rents received until the business had stabilised.

[joepublic1] 26/11/2017 10:26

Negative comments for obvious reasons but are there not reasons for some optimism and reasonable investment prospects now. Current investors feeling well stung and somewhat mislead however: New CFO looks good - good experience base and seems to be providing meaningful analysis of the issues; Looking forward from 90p this targeted to provide divis of 7.5p over 15 months; valuation on a 15% discount; if things went wrong properties would seem quite readily saleable so limited downside.

Is this a case where the directors were lacking financial skills and previous CFO was not doing a good job. Reasonable new investment now ?

[riskvsreward] 25/11/2017 21:00

Don't think the economy of size is the key factor for esp but the quality of management. Just look at digs which has a longer history but a smaller equity base, but now grows to have a bigger capitalization than esp. WJG came to market later with a much smaller cap. but is now also bigger than esp. Under poor management more money may simply mean overpaying for investment which cannot earn a return greater than the capital cost, or purchasing properties that cannot be let, like the esp properties in Cardiff and Aberdeen.

[spectoacc] 25/11/2017 07:31

It could; and another concern I thought of overnight - their chances of raising any further capital and therefore growing have all but disappeared. So economies of scale (admin in particular) are over.

Though I'd dispute that the business model itself is a scam.

Won't be trading at a premium again tho.

[belgraviaboy] 24/11/2017 17:32

I think HE raises an interesting question:

"The whole business model was a huge scam"

?

Clearly operational costs have crushed the original projections - could/should those costs have been anticipated? Has there been post IPO mismanagement of costs?

What credibility do the current management have? There have been some changes - but enough?

Could this just be an example of the risks trying to quickly gather and deploy excess capital into a 'hot' sector?

[spectoacc] 24/11/2017 12:50

@HE - all valid points. The only things I can counter with are:

1. Acquisition etc costs going to be worse in the early years (but were far too high, and that's at least being dealt with)
2. 3.2% rent increase is presumably based on RPI (or even CPI?) so may not be as bad as it sounds.

On the flipside - Brexit, other execution risk, ESP's track record so far, an increasingly crowded market...

I'm a holder for yield & discount but a decidedly cynical holder!

[stemis] 24/11/2017 12:33

The Group's rental growth target for the 2018/19 academic year is 3.2% in aggregate (2017/18: 2.8%).

The Company will continue to target a net total return of 10% p.a. over the medium term.

[horndean eagle] 24/11/2017 12:21

Ive got real concerns about them meeting targets re covered dividend. Exactly what are they factoring in in order to hit those. A return to full occupancy allied with quite a punchy increase in rental income and further acquisitions. If they fall short then we will continue with uncovered dividend. The whole business model was a huge scam. Acquisition yield is running at around 6.9%. They have cheap borrowing which gives a yield spread of about 3.5%. This should in theory give you an income return of circa 8.65% on equity. What we are promised for 2019 is about a 5% returns. That is after them factoring another 5.5% or so higher rents. Ive been wrong for many years but I struggle to see how you can continue to push rent increases through of this magnitude year after year. Surely at some point they don't stick. The revised 10% return target is absolute BS given their track record so. Operationally they need to make some fundamental changes re scale of their properties. Looks like it was assembled in a haphazard way and that is why we have such huge variances and leakage in costs. Natural way of resolving it would be to do a bit of wheeling and dealing but the costs of doing so probably don't help the immediate case.

[spectoacc] 24/11/2017 07:36

Again I make the point (and as a holder) - we're all looking at the execution failure (ie costs), and very little at the business risk. Cardiff & Aberdeen both performed below expectations, they withdrew from a purchase in London, & it may not take much Brexit turbulence (next excuse maybe?) for either that 92% occupancy to slip, or that 3.2% rent rise planned for next year to have to be reduced.

A general point, but it worries me when co's who should be making hay start coming unstuck in good markets. That might be a bit harsh on ESP so far, but it's true of the likes of SQN, RDL, P2P etc.

Also - Numis called the expenses/uncovered divi issue at ESP, & they sound little happier after yesterday's news.

[andyj] 24/11/2017 00:01

Some great discussion here, a rare 'troll free' bulletin board that welcomes both opinions. My initial reaction was that the results were at least free from major shocks. The uncovered dividend is largely the reason for the fall from 115, cutting it while leaving an attractive yield, is a sensible option. They are targetting 10% a year, 5% div and 5% growth in NAV. Its a very attractive market, probably due for consolidation at some point. All in all, I think the risk/reward ratio is attractive at this price, c90p. A further fall would be nice as I would like to buy them at an even cheaper price.

[jombaston] 23/11/2017 17:45

This is an extract from the results for the six months ending 31 Dec 2016, released in April:

"The Company is targeting a dividend of 6.1p per share for the 12 months ending 30 June 2017. This reflects the prior financial year dividend of 6p per share with an adjustment broadly in line with our dividend growth target of not less than RPI. The Directors anticipate that dividends for the year ended 31 December 2017 and going forward will be substantially covered by adjusted EPRA earnings per share."

In the release for the 6 mths to June 2017, adjusted EPRA eps was 34% of the dividend. I think that was the point they admitted they might have been a tad optimistic!

So, as Jonwig is saying, seeing is believing.

[a0002577] 23/11/2017 17:13

My worry here is that 'profit warnings' tend to come in threes - so I am certainly NOT re-investing here - and am just glad that I sold before before the first warning to invest in another company.

[stemis] 23/11/2017 16:04

I don't think they can say anymore than 'expects'. There's no certainty about future events...