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GCP Student Living: A textbook case of income and growth

Those who went to university in the past might find it hard to recognise some of GCP’s buildings as student lets

picture of Oxford Street
35% of students are in London and the South East

Demand way in excess of supply, inflation-proof income and a big chunk of recurring revenue sounds like a winning investment formula in anyone’s book.

It is proving the case for GCP Student Living (LON:DIGS), a real estate investment trust that focuses on accommodation for London’s higher education fraternity.

WATCH: GCP Student Living focused on quality accommodation in the UK capital

Since its formation in 2013 all of the trust’s sites, that are now eight in number with 3,000 bedrooms, have been fully booked.

As there are thousands more students in London looking for digs than places available, it is difficult to imagine why that position would change.

Designer rooms

It won’t be the standard of accommodation. Indeed, those who went to university in the past might find it hard to recognise some of GCP’s buildings as student lets.

Instead of draughty rooms and dodgy heating, there are gyms, terraces for barbecues, communal meeting spaces and built–in wi-fi.

Nick Barker, one of the fund’s managers, says attention to detail is such that Ab Rogers, the son of world famous architect Richard Rogers and a micro-spaces specialist, was commissioned to design the rooms so that everything is fitted, maximising what space there is.

Of course, one practical result is that GCP can now have six rooms in an area where previously there might only have been five, but the full occupancy suggests the clientele is more than happy with the arrangements.

Rents are £247 per week for a 51 week contract, which compares with £318 for a studio apartment in London in a recent survey.

READ: GCP Student Living says London digs market still very healthy

Barker points out that at 15 sq m, its rooms are 3 sq m smaller than those in the survey, but how many studios have the built-in add-ons of one of GCP’s sites? 

London is unique

Barker adds there is structural shortfall of purpose-built student accommodation in London that stems from land availability, planning and the desirability of the universities.

Around 35% of all students in UK higher learning institutions study in London and the South East.

The capital also has the world’s largest international student population at over 100,000 while the city contains two of the world’s top ten rated universities plus a clutch of industry standard Russell-listed establishments.

Characteristics like this mean potential shocks such as Brexit have had a minimal impact so far, though Barker adds that if the pound stays weak the capital becomes even more appealing to overseas visitors.

75% of renters are international students

Rental income has risen by about 4% each year on average since 2013 and rose by 3.9% in the year just ended but GCP is conscious that its renters can be price sensitive and takes a cautious approach to its rents.

That also encourages ‘rebookers’, who make up a sizeable chunk of its rental population, which eases admin during the traditional rush when places are allocated.

GCP is comfortable with the gap between its rents and the London studio average, Barker adds, with the target market being the emerging middle classes rather than the super-rich. This is ‘deepest pool’ of potential renters.

“They are price conscious, want quality and to be in a building where they will meet people. This includes a lot of domestic students as well as from overseas and post graduates who want an environment that is conducive to work.”

That atmosphere encourages people to stay on for their second and third years. 

Steady income growth 

GCP’s results underline the current solidity of the business.

The portfolio was valued at £635mln at the end of June, up from 425mln in 2016 and £177mln in 2015. That growth has been reflected in a rise the value on a per share basis over the same timescale to 139p from 125.5p.

The trust pays out all of its earnings as dividends and the annual payment has risen steadily from 5.5p at the time of the IPO in 2013 to 5.75p in its latest year, with a yield currently of 3.9%.

While the remit is to provide for ‘modest capital appreciation’ over the long term, the shares have also risen to 146p, up by 46% since it floated, which suggests how comfortable investors are with the quality of the income stream.

Two new sites

Two new properties in London are due to open over the next two academic years, which will add almost 1,000 beds and keep the recent momentum. GCP has an arrangement with Scape, a global specialist student accommodation developer and operator, that gives it an option to acquire sites it has built.

The trust likes a loan to property value ratio of around 30% and will issue shares to acquire when it comes across properties that offer its long term return of 8-10% to maintain that balance.

The last funding was in June when it raised £70mln for a rare foray outside of London in Brighton (it also has a site in Bristol).

Barker says the supply/demand characteristics there are similar to London with many more students than rooms available and crucially supply side barriers.

Sticking to areas where these barriers exist are the pillars that underpin GCP’s model and should guarantee demand for its accommodation remains strong for many years to come.


Quick facts: GCP Student Living PLC

Price: 143.4 GBX

Market: LSE
Market Cap: £652.5 m

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