MIDAS SHARE TIPS: Be clever and cash in on Empiric as students rush to rent luxury digs
Student digs are traditionally associated with dilapidated terrace houses, crammed with unkempt teenagers. Increasingly, however, students want more, particularly postgraduates and visitors from overseas.
Empiric Student Property specialises in accommodation a cut above the norm. The group is floating next week at 100p a share and intends to deliver a 6 per cent yield and 7 per cent capital growth. The targets are ambitious but achievable.
Empiric has been formed by property experts Paul Hadaway, Tim Attlee and Michael Enright, who have worked together for the past 15 years.
Kitted out: Empiric offers students modern rooms with WiFi
In 2008, they set up private firm London Cornwall Property Partners to buy, develop and manage purpose-built student accommodation. The company has been successful and owns four properties in Birmingham, Cardiff, Exeter and Bristol, all fully occupied. But the three are keen to expand and have set their sights on seven more properties, which they intend to buy shortly after the float. As none is in London or Cornwall, they are changing the firm’s name.
The listing will raise between £110million and £150million, of which £80million will be used to buy the first 11 properties. The firm expects to invest the rest of the money over the coming year, spending 80 per cent on sites that are operational and 20 per cent on those that need development.
The company is targeting the UK’s top 27 university cities, where there are more than 1.1million students. While first-years tend to be catered for, 96 per cent of the rest have no access to purpose-built accommodation. Some are happy to live in cheap, edge-of-town digs. Many are not, including the estimated 300,000 international students.
Empiric’s properties include gyms, cinemas and common rooms. Rents are between £130 and £209 a week and are paid a term or a year in advance. In this type of accommodation rents have been climbing by about 3 per cent a year.
The UK is the second most popular destination in the world for overseas students and numbers are forecast to rise by 15 to 20 per cent over the next five years. During this time, Hadaway, Attlee and Enright intend to build a portfolio of about 100 properties.
Empiric will be structured as a real estate investment trust. These are property companies that pay 90 per cent of rental income to shareholders as dividends, expected to be 6p a share in the first year.
Investors can expect capital gains on top as rents increase and the development properties become operational.
Midas verdict: Some student property groups have fallen into difficulties but Empiric intends to distinguish itself by focusing on smaller, top-end accommodation. The flotation prospectus comes out tomorrow and investors have until June 24 to buy. The minimum subscription is £10,000 but the business is expected to do well. One to buy for the long term.
Traded on: Main market Ticker: ESP Contact: 020 3036 0574 or espreit.co.uk
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