GCP Student Living (DIGS) is an investment trust which as the name suggests focuses on the student accommodation market. A lot has changed since its IPO in 2013 but DIGS has positioned itself well with a focus on the lucrative London market.
Nick Barker, investment advisor for Gravis which owns DIGS, told Fundeye: “London is the toughest student accommodation in the UK. Commercial property has trumped student living as London boroughs are putting residential needs above all else and Sadiq Khan’s new plans makes it even harder to get panning permission so there is a very high barrier to entry to create a portfolio like ours.”
To outline the attractiveness of student accommodation to large investors, Mr Barker mentioned the recent Blackstone acquisition of a portfolio worth almost £5 billion. This comes despite Coronavirus and other issues such as Brexit.
Regarding Coronavirus, despite Chinese students making up for the largest amount of foreign students, the trust has seen no ill effects. In fact Mr Barker said his sales team recently reported their strongest week of the year. “Some students are preferring to stay in London due to the quality of our healthcare system,” Mr Barker told Fundeye.
When the trust floated in 2013 it was expected to generate a total shareholder return of between 8-10 percent. In reality it has produced an annualised total shareholder return of 15.6 percent with a dividend yield of 3.3 percent.
When the government increased tuition fees to £9000 in 2012, it expected the price to vary depending on the type of course and reputation of the institution. In reality all universities put their fees up to £9000 and Mr Barker said that this has caused students to seek out the best universities. For this money though, students expect the highest quality accommodation as well, which is why DIGS assets have facilities such as 24 hour concierges, gyms and other amenities.
“The difference between student accommodation and other real estate is regular income that tends to grow at a greater rate than inflation,” said Mr Barker.
Since IPO, the company has not sold one asset in its portfolio although every year takes a look at its assets and if management don’t think it will hit their high targets will consider selling it.
To illustrate how attractive this segment of the property market, one only needs to look at the shareholder register, which contains a heady mix of asset and wealth managers. Investec has the largest holding at nearly 8 percent of the fund, although other major shareholders include BlackRock, Brewin Dolphin, Rathbones, Close Brothers, Charles Stanley and Standard Life Investments to name a few.
While many bemoan the cost of higher education, this trusts takes all the upsides from rising prices and offers student digs that would rival some privately rented accommodation.
