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London focus is attractive given strong fundamentals
Thursday 06 Apr 2017 Author: Tom Sieber

Student accommodation is a specialist asset class which offers investors returns relatively uncorrelated to the wider financial markets.

Within this subset, we view real estate investment trust (REIT) GCP Student Living (DIGS) as being in a particular sweet spot and therefore attractive to investors looking to secure an inflation-busting income.

GCP STUDENT LIVING - Comparison Line Chart (Rebased to first)

The company currently offers a dividend yield of 3.8% based on consensus forecasts.

Raising £70m alongside its stock market listing in May 2013, the REIT has gone from having a single asset to six, comprising a diversified portfolio of more than 2,000 beds.

This expansion has been supported by a partnership with development manager Scape Student Living and generously backed by shareholders.

Superb returns

Aiming to generate an annualised total return of between 8% and 10%, it has done substantially better. Managed by Gravis Capital Partners through Tom Ward and Nick Barker, since IPO it has delivered an annualised return of 16.3%.

As an asset class student accommodation has low volatility and does not react in the same way as commercial property.

According to Tom Ward it has  delivered rental growth in excess of retail price inflation in 15 out of the last 17 years.

In the UK there were 183,000 more applicants than places to study at university in 2016/17 with most of the growth coming from international students.

The focus for GCP Student Living is predominately on London where the supply-demand dynamics look particularly favourable due to heavy competition for land.

In 2015, for example, there was demand from 275,000 students for just 75,000 beds. This is likely to support continued rental growth.

Banking on intelligent design

Ward says the model involves offering mid-level pricing to target the broadest market segment. Teaming up with leading architect Ab Rogers, Scape uses customised design, including fitted furniture, to squeeze more studios in its developments and keep rental prices for individual students relatively low.

On average six Scape studios can fit into every five typical studios with rent around 20% lower than the typical level for London.

The capital has the largest international student population with more than 100,000 students but could Brexit see this population shrink if EU students stay away. That is a risk to consider, however Ward says he is positive on UK universities’ ability to ‘pick up a lot of numbers’ from outside the EU.


GCP Student Living  (GCP) 150p

Stop loss: 120p

Market value: £506m


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