DIGS succumbs to big dividend cut as rent takes Covid-19 hit

Dividend holdout GCP Student Living (DIGS) has bowed to reality and become the last of the three listed university property funds to slash shareholder payouts in the coronavirus pandemic.

Dividend holdout GCP Student Living (DIGS ) has bowed to reality and become the last of the three listed university property funds to slash shareholder payouts in the coronavirus pandemic.

The £510m specialist real estate investment trust (Reit) last week said it would cut its first quarter dividend by more than 80% to 0.25p from 1.42p per share in the last quarter. This follows a slump in bookings which means the Gravis-managed fund expects to collect just 62% of the £60.1m income it antiticipated in 2020/21.

Since its annual results in September, room reservations at its 11 properties with 4,100 beds have edged up just 1% to 69% as the number of international students booking courses for this year has fallen due to travel and social distancing restrictions. 

Of the rooms that are booked, 86% have been occupied which means the first term’s rent has been paid.

The dividend cut - which follows similar cuts earlier in the year by Unite (UTG) and Empiric Student Property (ESP) - came as the UK entered its second lockdown in the pandemic. It also follows a storm of protest by first-year students at many universities, including Manchester Metropolitan University (pictued), at the social and teaching restrictions imposed on them shortly after arriving on campus to start their undergraduate courses. DIGS, which focuses on London and Brighton, does not own properties in Manchester.

‘The company’s rental income for the financial year ended 30 June 2021 is being materially adversely impacted as a result of the disruption caused by the Covid-19 pandemic,’ DIGS said in a statement on Thursday.

‘The substantial majority of those students have indicated that it is their current intention to occupy their booked rooms for the second term of the 2020/21 academic year,’ it added.

DIGS’ board said it would review the dividend every three months and would increase it when there was greater visibility on revenues.

Analysts said the dividend cut was bigger than expected but the trust was not facing the same situation it had in the first lockdown this year when, like its rivals, the company had to return students their rents when they returned home.

‘We do not anticipate another scenario where blanket refunds are granted and expect DIGS and other PBSA [purpose built student accommodation] landlords to take a much harder line with students, given that accommodation was booked with the knowledge of Covid-related risks,’ said Stifel Securities, which retains the Reit on a ‘buy’ rating.

DIGS has also abandoned a second acquistion of a development by its preferred partner Scape, exiting the forward purchase agreement on the Scape Guildford property. This follows its exit of an agreement to purchase a development in Mile End, east London earlier this year.

There was bad news on its Shoreditch property, where troubled shared office provider WeWork has told DIGS it intends to exit immediately its lease on which it pays £2.5m annual rent. It remains in discussions over £1.5m of outstanding rent upaid, which DIGS says are guaranteed by WeWork’s US parent company.Despite cutting its dividend and seei

Despite the pressures, the trust remained optimistic about prospects saying universities were still open and offering a combination of in-person and online teaching.

‘The company continues to see modest numbers of enquiries and bookings being made by students for the second term of the 2020/21 academic year,’ it said.

The board also noted that UCAS data indicates increasing applications from both domestic and international students and ‘such demand for higher education in the UK should result in improved occupancy across the group’s portfolio in the absence of significant ongoing Covid-19 related disruption’.  

In a quarterly update, DIGS said it had seen its EPRA net asset value tick down 0.04% to 171.71p in the three months but the valuation of the company’s portfolio edge up 0.7% over the quarter to £1.01bn.

 

 

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