Business, portfolio and dividend update & COVID-19
31 March 2020
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries, the "Group")
BUSINESS, PORTFOLIO AND DIVIDEND UPDATE AND COVID-19
The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of student accommodation across the UK, is today providing an initial update on the actions it is prudently taking to mitigate the impact of COVID-19 on its business operations and financial performance.
The Group's top priority remains the health, safety and welfare of its residents, employees and wider stakeholders, whilst protecting the long-term value of the Group.
Empiric continues to operate all of its buildings based on the advice issued by the World Health Organisation, Public Health England, Public Health Scotland, the NHS and other relevant authorities. The Senior Leadership Team is holding daily calls to monitor the situation and will adjust the Group's approach when and where necessary.
We are carefully considering the requirements of our residents to occupy their rooms, whether as a result of the closure of academic establishments, measures which are restricting domestic and global mobility, the enforcement of social distancing or other unavoidable factors, and also those residents who are experiencing financial hardship. Our accommodation is a person's home and often residents do not have alternative accommodation. This is particularly important for international students who comprise two thirds of Empiric's residents for the current academic year.
The Group's leadership team and all of our colleagues have been working tirelessly through this challenging and uncertain time, doing a fantastic job to maintain, secure and operate our buildings often under very difficult circumstances. The Board is hugely grateful to them all.
Current trading
For the 2019/20 academic year, occupancy of the Group's portfolio remains at 94%. The Group receives 9% of its student letting income from Nomination Agreements with higher education institutions and the balance from the direct letting of rooms to students. As the Group deploys a 50-week tenancy agreement, revenue from summer lettings is minimal.
For the current academic year 2019/20, the Group has received approximately 91% of all budgeted revenues due to it.
Despite a strong contractual position under the Group's lease agreements, but given the unprecedented and unpredictable impact of COVID-19, the Group will look favourably upon requests on a case by case basis from its residents who are either no longer in occupation or, due to University closures, plan not to return to their accommodation, to be released from their rent and lease obligations from 25 April 2020 onwards. We also remain committed to supporting residents who want to continue to stay at the Group's properties.
The Group has carefully considered the impact on all our key stakeholders and believes that this is the right thing to do in these extraordinary circumstances. The impact of this decision is expected to be a worst-case reduction in revenue of up to c.£21 million for the academic year 2019/20.
To date, the Group notes that bookings for the 2020/21 academic year are currently marginally ahead of the same time last year and bookings continue to be made but at reduced levels. Given the lack of certainty at this stage, there remains a risk of lower occupancy and rental rates for 2020/21 than currently forecast.
The Group is continuing to monitor closely the impact of COVID-19 and will keep shareholders updated on any material developments that affect the Group as the situation evolves.
Strong balance sheet and liquidity position
As at 31 December 2019, the Group had debt facilities of £390 million. The Loan to Value ("LTV") stood at 33%* with an all-in average interest payable of 3.2% p.a. and a weighted average term of 6.6 years.
Based on drawn facilities at 31 December 2019, the Group has significant headroom against banking covenants calculated on an average basis across the Group as follows: LTV covenant 65% compared to actual LTV of 35%, and Interest Cover Ratio ("ICR") covenant of 216% compared to actual ICR of 397%. In addition to this, the Group has £134 million of uncharged assets.
The Group currently has £10 million of cash and £57 million of undrawn debt facilities available. We announced at the 2019 annual results on 18 March 2020 that £22.5 million of development debt had been raised since the year end, but as the Group has now put on hold part of the development pipeline, the corresponding development debt of £10.5 million has also been deferred.
The Group has £32.8 million of re-financing remaining due in 2020 and is in the late stages of legal finalisation with the existing bank, having obtained final credit approval on 12 March 2020. This facility is for four years and on more favourable terms than the current facility. Following this, the Group will not have to refinance any debt before November 2022.
Enhanced financial strength
Due to this period of uncertainty, the Group today announces a number of actions it is implementing to strengthen further its cash position.
· The Group will further increase its focus on operational cost management and take appropriate action to balance the short and long term interests of the business.
· The Group will defer developments where it is cost effective to do so along with non-essential capital expenditure.
· The Board has decided to suspend all future dividend distributions until market conditions stabilise, although it remains mindful of its REIT tax obligations.
Taken together, these measures will provide the business with a reduction in cash outflows of net c.£26 million and ensure the Group retains cash headroom through the remainder of the 2020 calendar year.
The Board strongly believes that conserving liquidity is the right decision for the business, and in the longer-term interests of all stakeholders.
The Group will continue to review the cost base of the business and will make further savings if required.
Strong differentiated offering that targets growing student segments
Until there is clarity on the duration and consequences of this pandemic, the Board is suspending all previous financial guidance.
The Group remains committed to delivering sustainable growth in earnings, gross margins and revenues for its shareholders over the medium to longer term, supported by a greatly improved operational platform and robust balance sheet, and the Group is committed to return to dividend distributions as soon as conditions allow.
The medium to long-term outlook for the business remains positive thanks predominantly to the growth in number of UK 18-year olds, supportive Government policies targeting an increase of 30% in the number of international students by 2030 and a growing number of postgraduates. Also, despite growing student demand, the growth of supply of purpose-built student accommodation is slowing.
The Group's differentiated customer proposition, offering premium accommodation to affluent growing student segments, will continue to benefit from these trends in the long term.
We will continue to monitor closely the developing situation and update the market as appropriate.
* Total drawn borrowings, net of cash and fixed term deposits, as a percentage of Gross Asset Value.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
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Empiric Student Property plc |
(via Maitland/AMO below) |
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Tim Attlee (Chief Executive Officer) |
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Lynne Fennah (Chief Financial & Operating Officer) |
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Jefferies International Limited |
Tel: 020 7029 8000 |
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Stuart Klein |
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Tom Yeadon |
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RBC Europe Limited (trading as RBC Capital Markets) |
Tel: 020 7653 4000 |
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Charlie Foster Marcus Jackson |
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M aitland/AMO (Communications Adviser) |
Tel: 020 7379 5151 |
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James Benjamin |
The Company's LEI is 213800FPF38IBPRFPU87.
Further information on Empiric can be found on the Company's website at www.empiric.co.uk .
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® 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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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