Source - PRN

GCP STUDENT LIVING PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016

GCP Student Living plc, (the "Group" or the "Company"), which was the first student accommodation real estate investment trust ("REIT") in the UK, today announces its results for the financial year ended 30 June 2016.

The full annual report and financial statements can be accessed via the Company's website at www.gcpuk.com/gcp-student-living-plc or by contacting the Company Secretary by telephone on 01392 477500.

AT A GLANCE

2016    2015 2014
Revenue for the year £22.5m £11.5m £9.1m
Net operating margin 79% 78% 82%
Rental growth 4.5% 3.6% 3.3%
Annualised shareholder return since IPO 13.9% 18.1% 11.5%
Dividends per ordinary share for the year 5.66p  5.60p 5.47p
EPRA NAV per ordinary share 136.93p  125.51p 102.64p
Share price per ordinary share 130.75p  129.25p 107.75p
Value of property portfolio £424.8m £177.2m £151.6m
Loan-to-value 26.6% 22.5% 26.2%

HIGHLIGHTS FOR THE YEAR

  • The Company delivered a strong set of results generating total revenue for the year of £22.5 million.
  • The Company successfully raised £79 million through two oversubscribed placings of  ordinary shares.
  • Annualised shareholder returns since IPO of 13.9%, in excess of the Company’s target return of 8-10%.
  • The Company’s properties continue to benefit from the supply/demand imbalance for high-quality, modern student facilities in London, with all properties fully occupied and rental growth of 4.5% for the 2015/16 academic year.
  • Dividends of 5.66 pence per ordinary share paid/declared in the period in line with target.
  • EPRA NAV (cum income) per ordinary share of 136.93 pence and EPRA NAV (ex-income) per ordinary share of 135.50 pence at 30 June 2016.
  • Broad student mix with students from 106 countries studying at 72 HEIs.
  • High-quality portfolio of six modern, high-specification properties with c.2,000 beds located primarily in and around London with a valuation of £424.8 million at the year end.
  • Loan-to-value at 30 June 2016 of 26.6%.
  • During the year, the Company acquired four properties and entered into a forward purchase agreement and a forward funding agreement, in respect of two further properties.

Robert Peto, Chairman, commented:

“I am pleased to report a year of continued growth, underpinned by the acquisition of four high quality properties and strong rental growth. The Company has grown its dividend to 5.66 pence per ordinary share in respect of the year and delivered annualised total returns since IPO in 2013 of 13.9%, in excess of its annualised target of
8-10%.

The Company’s core focus on student residential accommodation assets located in and around London, where 96% of the value of the portfolio is located, coupled with conservative levels of borrowings, provides shareholders with a property portfolio offering defensive income characteristics which should offer greater resilience to market uncertainty following the ‘Brexit’ vote, particularly relative to wider UK commercial property. The two oversubscribed capital raises over the period are a reflection of the strong ongoing support for the Company’s investment mandate by new and existing investors alike.

The outlook for the Company remains positive in light of the Investment Manager’s ability to secure the opportunity to acquire additional assets in the Company’s core market. The Board further looks forward to the Company’s migration to listing on the Official List of the UK Listing Authority and to trading on the Premium Segment of the London Stock Exchange’s Main Market which should result in a broader investor base over the longer term.”

For more information:

Gravis Capital Partners LLP                                +44 020 7518 1490

Tom Ward                      [email protected]
Nick Barker                    [email protected]
Dion Di Miceli                [email protected]


Stifel Nicolaus Europe Limited                            +44 020 7710 7600

Neil Winward                  [email protected]
Mark Young                    [email protected]
Tom Yeadon                  [email protected]


Buchanan                                                         +44 020 7466 5000

Charles Ryland              [email protected]
Vicky Watkins               [email protected]

ABOUT US

GCP Student Living plc was the first real estate investment trust in the UK focused on student residential assets. The Company invests in modern, private student residential accommodation and teaching facilities located primarily in and around London.

Our primary objective is to provide shareholders with attractive total returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long-term dividends with RPI inflation-linked income characteristics.

The Company invests in properties located primarily in and around London where the Investment Manager believes the Company is likely to benefit from supply and demand imbalances and a growing number of international students.

The Company is a closed-ended investment company incorporated in England and Wales, and its shares trade on the SFS of the Main Market of the London Stock Exchange.

INVESTMENT OBJECTIVES

The Company invests in UK student accommodation to meet the following key objectives:

Dividend income

To provide shareholders with regular, sustainable, long-term dividends, with RPI inflation-linked characteristics.

The Company has paid/declared a total of 5.66 pence per ordinary share as dividends in the year, increasing the Company’s dividend on an annualised basis.

Capital appreciation

To provide modest capital appreciation over the long term.

The valuation of the Company’s property portfolio has increased by 7.1% over the year driven by a combination of uplifts in valuation on acquisition, increasing rental rates and yield compression.

Portfolio quality

Focus on high-quality, modern, private student residential accommodation and teaching facilities for students studying at leading academic institutions primarily in and around London.

At 30 June 2016, the Company’s property portfolio comprised six modern, high-specification student residential accommodation buildings, of which 96% of the value is located in and around London.

Key performance highlights

Dividends paid/declared in the year 5.66p
Annualised dividend growth 1.1%
Capital appreciation 7.1%
Value of property portfolio £424.8m
Occupancy for 2015/16 academic year 100%
Rental growth 4.5%

CHAIRMAN’S STATEMENT

Introduction

On behalf of the Board, I am pleased to report a year of continued growth, with the acquisition of four further high-quality properties in addition to entering into a forward purchase agreement and a forward funding agreement in respect of two further properties.

The Company has paid dividends of 5.66 pence per ordinary share in respect of the year and in total has delivered an annualised shareholder return since IPO of 13.9%, in excess of its annualised target of 8-10%.

Portfolio

The Company has successfully grown its property portfolio to c.2,000 studios and beds through the addition of c.1,000 studios and beds over the year. Through positioning the portfolio in those areas which the Investment Manager believes are well positioned to benefit from significant demand/supply imbalances, it is pleasing to note strong year-on-year rental growth from the portfolio of 4.5%.

The Company’s core focus on student residential accommodation assets located in and around London, where 96% of the value of the property portfolio is located, coupled with conservative levels of borrowings, provides shareholders with a property portfolio with defensive income characteristics which should offer greater resilience to the market volatility following the ‘Brexit’ vote, particularly relative to wider UK commercial property.

The external market valuation of the Company’s property portfolio was £424.8 million at 30 June 2016. This represents a valuation uplift of £58.9 million or 16.1% over the aggregate acquisition price (excluding acquisition costs). The valuation increase has been driven by a combination of uplift in valuation at acquisition, rising rental rates and the high levels of investment demand for student accommodation driving upward pressure on asset prices impacting yields across the sector.

Acquisitions

During the year, the Company acquired four high-specification, student accommodation assets – Scape Shoreditch, Scape Surrey, The Pad 2 development at RHUL and Water Lane Apartments in Bristol. In addition, the Board was pleased to have secured a rare opportunity to acquire a large scale, forward-funded development at Apex House, Wembley, which will enable the Company to acquire an asset, which is expected to be operational for the 2017/18 academic year, at an attractive valuation relative to acquiring existing operating assets. Once complete, it is expected that Apex House will add a further c.580 modern studios and beds to the Company’s portfolio. Finally, the Company also entered into a conditional forward purchase agreement which will allow it to acquire Podium, which is in the same locality as The Pad at RHUL and which is expected to provide a further c.170 studios and beds once completed for the 2017/18 academic year.

Financial results

Full occupancy, strong rental growth and valuation uplifts have all contributed to a strong set of results for the year. The Company’s property portfolio generated £22.5 million of rental income over the year. The EPRA NAV per ordinary share increased by 9%, from 125.51 pence to 136.93 pence as at 30 June 2016. Total operating profit (including valuation gains) was £39.3 million (£12.2 million excluding valuation gains).

Dividends

The Company paid dividends in respect of the financial year ended 30 June 2016 of 5.66 pence per ordinary share. The dividends were paid as 5.31 pence per ordinary share as a REIT property income distribution in respect of the Group’s tax exempt property rental business and 0.35 pence per ordinary share as an ordinary UK dividend.

The Board

Mrs Wood was appointed as Chair of the audit committee with effect from 21 July 2015. Mr Dunscombe was appointed as Senior Independent Director with effect from 15 September 2015 and Chair of the newly formed remuneration committee with effect from 28 July 2016.

Following the implementation of the Market Abuse Regulation (“MAR”), which came into effect on 3 July 2016, the Board agreed to form a disclosure committee to ensure the identification and disclosure of inside information and the Company’s ongoing compliance with MAR. Further details regarding the committee are provided in the corporate governance statement in the full annual report.

Management

The Board welcomes Mr Di Miceli, who recently joined the Company’s Investment Manager as a dedicated Head of Investment Companies, further strengthening the management team at the Company’s Investment Manager, Gravis Capital Partners LLP.

Financing

The Board was pleased with the level of ongoing support shown by both new and existing investors in the Company through two oversubscribed capital raisings during the period, raising gross proceeds of c.£79 million. We thank you for your ongoing support for the Company.

As detailed in the review of the financial year, during the period, the Company successfully refinanced its senior debt facility through a £130 million fixed rate loan with Pricoa Mortgage Capital, at a rate of 3.07%. In order to facilitate the drawdown of the facility, the Group was restructured. The Board believes that the new borrowing facility provides fixed, long dated, financing at an attractive pricing level which will reduce the long-term weighted cost of capital for the Group and should help to enhance shareholder value over the long term.

The Company remains conservatively positioned as regards its borrowing levels, with a loan-to-value of 26.6% as at 30 June 2016.

Migration

As a sign of the Company’s continued growth, on 14 September 2016, the Company announced it had satisfied the requirements for migration to a premium listing on the Official List of the UK Listing Authority and accordingly, it is expected that, with effect from 16 September 2016, its ordinary shares will be admitted to the Official List and trading transferred from the SFS to the Premium Segment of the Main Market of the London Stock Exchange. The Board believes this will result in a broader investor base over the longer term and better position the Company to meet the liquidity requirements of a wider audience of investors. Migration will also help the Company meet the requirements of the FTSE Group for inclusion in the relevant FTSE indices in due course.

Outlook

The UK student accommodation investment market experienced a record year in 2015. Approximately £5.7 billion was transacted over the course of the year, which constituted over one-quarter of the total privately-owned UK purpose-built student accommodation stock. These assets were traded to a broad range of investors, many of which the Directors believe are expected to hold their assets long term.

Investment into the sector continued through the first half of 2016, with c.£1.5 billion transacted prior to the UK referendum to leave the EU on 23 June 2016.

Whilst the long-term implications of the result of the UK referendum remain unknown, it is the Investment Manager’s current expectation that ‘Brexit’ will not have a material impact on the performance of its existing portfolio. The portfolio is focused on student accommodation assets in and around London which has the largest student population of any city in the UK and positions the Company to benefit from supply and demand imbalances. Accordingly, the Investment Manager remains confident that investor interest in the Company’s student accommodation portfolio will continue due to its defensive income qualities as well as the prospect for continued rental growth.

The number of new schemes due for development in London over the next three years is at an historic low, with the implications of ‘Brexit’ unlikely to be helpful for any further development projects in the short term. Planning approvals, and the new development tax on student accommodation, continue to make it difficult to bring on-stream new developments in and around London.

In this context, the Board is encouraged by the Company’s ability to secure the opportunity to acquire Apex House, a forward-funded development asset in London, and the Podium asset adjacent to RHUL. The Company’s right of first offer arrangements with Scape is anticipated to provide further attractive pipeline assets in future. The Investment Manager continues to conduct due diligence on a number of assets, which including Apex House and Podium, offer an attractive pipeline of c.1,800 studios and beds in locations which the Investment Manager believes will benefit from attractive and sustainable rental growth underpinned by supportive supply/demand characteristics.

Demand by overseas students for private sector student accommodation in and around London is likely to remain resilient relative to the rest of the UK, given the international perception of London as a cosmopolitan, multicultural, global centre of learning. Depreciation in the value of the Pound Sterling may further enhance the relative attractions of a UK-based degree for overseas students.

The Group’s portfolio remains well positioned to provide shareholders with regular, sustainable, long-term dividends through the defensive qualities of the rental income generated by its assets.

The Directors and Investment Manager have sought to position the portfolio, and gearing levels, in a conservative manner to offer shareholders some protection against volatile markets. To this effect, the Company decided not to proceed with the acquisition of a 530-bed asset located in a city centre location in close proximity to a globally recognised UK university, outside of London, in respect of which it had been in advanced negotiations and which would have required additional borrowings to acquire. The Company remains modestly geared at a loan-to-value of 26.6%.

Robert Peto
Chairman
15 September 2016

STRATEGIC REPORT

The strategic report has been prepared in accordance with section 414A of the Companies Act 2006 (the “Act”). Its purpose is to inform members of the Company and help them assess how the Directors have performed their legal duty under section 172 of the Act to promote the success of the Company and the Group.

STRATEGIC OVERVIEW

The Company’s investment objective is to provide shareholders with attractive total returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long-term dividends with RPI inflation-linked income characteristics.

Investment policy

The Company intends to meet its investment objective through owning, leasing and licensing student residential accommodation and teaching facilities to a diversified portfolio of direct let tenants and HEIs. The Company will mostly invest in modern, private student residential accommodation and teaching facilities located primarily in and around London where the Investment Manager believes the Company is likely to benefit from supply and demand imbalances for student residential accommodation. The Company may also invest in development and forward-funded projects which are consistent with the objective of providing shareholders with regular, sustainable dividends and have received planning permission for student accommodation, subject to the Board being satisfied as to the reputation, track record and financial strength of the relevant developer and building contractor.

Rental income will predominantly derive from a mix of contractual arrangements including direct leases and/or licences to students (direct let agreements), leases and/or licences to students guaranteed by HEIs and/or leases and/or licences directly to HEIs. The Company may enter into soft nominations agreements (pari passu marketing arrangements with HEIs to place their students in private accommodation) or hard nominations agreements (longer-term marketing arrangements with HEIs of between two and 30 years in duration). Where the Company invests in properties which contain commercial or retail space, it may derive further income through leases of such space. Where the Company invests in development and forward-funded projects, development costs will typically be paid in stages through construction, with a bullet payment at completion.

The Company intends to focus primarily on accommodation and teaching facilities for students studying at Russell Group universities and other leading academic institutions, regional universities with satellite teaching facilities in and around London and at specialist colleges.

The Company may invest directly or through holdings in special purpose vehicles and its assets may be held through limited partnerships, trusts or other vehicles with third party co-investors.

Borrowing and gearing policy

The Company may seek to use gearing to enhance returns over the long term. The level of gearing will be governed by careful consideration of the cost of borrowing and the Company may seek to use hedging or otherwise seek to mitigate the risk of interest rate increases. Gearing, represented by borrowings as a percentage of gross assets, will not exceed 55% at the time of investment. It is the Directors’ current intention to target gearing of less than 30% of gross assets in the long term and to comply with the REIT condition relating to the ratio between the Group’s property profits and property finance costs. Details of the Company’s borrowings are given in note 19.

Use of derivatives

The Company may invest through derivatives for efficient portfolio management. In particular, the Company may engage in interest rate hedging or otherwise seek to mitigate the risk of interest rate increases as part of the Company’s efficient portfolio management.

Investment restrictions

The Company invests and manages its assets with the objective of spreading risk through the following restrictions:

  • the Company will derive its rental income from a portfolio of not less than 500 studios;
  • the value of any newly acquired single property will be limited to 25% of gross assets, calculated as at the time of investment;
  • the Company mostly invests in modern, purpose built, private student residential accommodation and teaching facilities located primarily in and around London. Accordingly, no less than 75% of the Group’s property portfolio will comprise assets which are located in and around London, calculated as at the time of investment;
  • at least 90% by value of the properties directly or indirectly owned by the Company shall be in the form of freehold or long leasehold (over 60 years remaining at the time of acquisition) properties or the equivalent;
  • the Company will not (i) invest more than 20% of its gross assets in undeveloped land; and (ii) commit more than 15% of its gross assets to forward-funded projects in respect of such undeveloped land, such commitment to be determined on the basis of the net construction funding requirements (and associated advisory costs) of such projects at the time of commitment up to their completion, in both cases as measured at the time of investment;
  • the Company will not invest in completed assets which are not income generative at, or shortly following, the time of acquisition; and
  • the Company will not invest in closed-ended investment companies.

The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable it to qualify as the principal company of a REIT for the purposes of Part 12 of the CTA (and the regulations made thereunder).

In the event of a breach of the investment guidelines and restrictions set out above, the Investment Manager shall inform the Directors upon becoming aware of the same and, if the Directors consider the breach to be material, notification will be made to a Regulatory Information Service.

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

Business and status of the Company

The Company is registered as a public limited company and is an investment company within the terms of section 833 of the Act. The Company is a REIT for the purposes of Part 12 of the CTA. Notification has been submitted to, and acknowledged by, HMRC for the Company to enter the UK REIT regime. The Company will be treated as a REIT so long as it continues to meet the REIT conditions in relation to any accounting period.

The Company was incorporated on 26 February 2013. The Company’s shares trade on the SFS.

The Company’s performance, along with the important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the financial period are set out in the Chairman’s statement above and on the following pages.


UK STUDENT ACCOMMODATION MARKET

Overview

The UK has some of the highest ranking universities in the world, with three in the top 10 and seven in the top 50 in 2015/161. The UK higher education sector is a c.£60 billion contributor to the UK’s economy.

Students have become increasingly globally mobile with, according to the OECD, over 4.5 million students studying abroad in 2014, up from 2 million in 2000. This figure is forecast to reach 8 million by 2025. China, India, the Republic of Korea, Germany and Saudi Arabia are the top five countries with students going abroad, with c.500,000 Chinese students going abroad in 2014, an increase of 11% over 2013.

The world’s population is increasingly becoming more educated. Many of the world’s largest established economies now have nearly half of their 25 to 34 year-olds with tertiary education. A stark contrast to that of the population of 55 to 64 year-olds, where the proportion is much lower2.

The student body has also changed over the period, becoming younger and with a higher proportion of full-time students, as the decline in the number of part-time and mature students has continued. Full-time students now make up 74% of the student body, up from 62% at the start of the decade, and under-25s now make up three-quarters of all undergraduates and a third of postgraduates3.

As well as changes in the age of students and their mode of study, the student body has become more cosmopolitan over the decade. In 2004/05, 4% of students came from the EU and 9% from outside the EU. By 2014/15, the numbers had increased to 5% and 14% respectively4.

The US is the most popular market for international students, with the UK in second place, though significantly stronger on a per capita basis. One of the UK’s advantages is its average cost of living and tuition, which is generally lower than in both the US and Australia5.

Investment market

2015 saw record levels of investment activity in the UK student accommodation market with over £5.7 billion traded. The year was marked by a number of large portfolios being traded, which combined, totalled over £3.4 billion in six portfolios. The portfolios were acquired by a number of new entrants to the market including sovereign wealth funds, US multi-family specialist investors, institutional funds and some opportunity and private equity funds.

In addition to the portfolios, a number of individual asset transactions took place with purchasers including UK institutional investors, international investors and listed companies. Three individual assets in London each traded for in excess of £100 million.

2016 has continued in a similar vein with c.£2 billion traded to date and a further c.£1.5 billion forecast to trade by the end of the year.

HEI acceptance rates

The 2015/16 academic cycle broke last year’s record, with the intake of undergraduates entering UK higher education totalling c.532,000.

On 2 September 2016, UCAS published daily clearing analysis with students placed at that date which showed UK students were up 1%, EU students were up 8% and non-EU students were down 1% giving an overall increase of 1% across the student population for the 2016/17 academic year.

Student accommodation – the importance of design and quality

Purpose-built student accommodation has evolved as a product over the past 15 years. Over this period, and in particular, following the introduction of tuition fees, students have become consumers in their own right and are making their investment decisions for their higher education not just based on course price, but also on a mix of quality of the academia and the quality and location of accommodation.

Increasingly, students are demanding high-quality living space with clever design, quality materials, TV areas, communal kitchens and social areas in the buildings which provide opportunities for social groups to form and bond centred around work spaces and play space. Likewise, they are demanding services that create wider social interaction such as talks, events, workshops and tie-ins with local businesses and educational establishments.

This is particularly the case for international students who tend to demand a higher standard of accommodation than domestic students and who have a requirement for greater social interaction.

Student accommodation – supply/demand imbalance

There is a fundamental supply/demand imbalance in the UK student accommodation sector which is responsible for the stability and the strong rental and capital returns produced in this financial year.

The UK has seen a rising tide of student numbers since the early 1990s, with the student population more than doubling over this period. Domestic student applications have increased despite an ageing population and international student numbers continue to grow at a disproportionate rate, as evidenced by the increase in international student application rates for the 2016/17 academic year.

There is a structural shortfall of purpose-built student accommodation in most of the UK. The supply of private student accommodation has failed to keep pace with the increasing demand owing to the following:

  • the residential property market has recovered over the past few years, increasing land values as well as increasing the pressure on the private residential sector to house tenants other than students who are willing to pay higher rent levels;
  • the private rented sector has become subject to greater local authority and government legislation for houses in multiple occupancy; and
  • universities are not developing new accommodation as they are becoming more focused on their core competency of investing in education.

The London market

London has more world-class universities than any other city in the world. International students are attracted to London for a number of reasons, including the reputation of London’s universities, the quality of education and London’s status as a social and cultural centre.

The Company is primarily focused on the London student accommodation market because this is where the supply/demand imbalance is at its greatest. London has a number of important demand dynamics that separate it from the wider UK student housing market:

  • London has the largest number of students of any city in the UK, with over 400,000 students being educated at HEIs in the capital;
  • London has the largest number of international students of any city in the world with c.109,000 students in 2014/15 from over 190 countries;
  • London is home to some of the leading HEIs in the world which attract a significant number of international students;
  • London is one of the most popular cities in the world to visit with an estimated 18.6 million international visitors in 2015; and
  • London universities are only able to supply accommodation to c.30% of first year and international students.

On the supply side, the main constraints are as follows:

  • availability of well-located sites is at its lowest and land prices have experienced significant inflation driven by residential development; and
  • the introduction of the community infrastructure levy in some boroughs has eliminated the commercial viability of many student schemes.

The acute supply/demand imbalance is more pronounced in London than in any other major UK city. In 2015, there were over 250,000 domestic first year undergraduates, international students and postgraduates studying in the capital with only c.70,000 purpose-built student accommodation beds in halls of residence available in aggregate from both the university and private sectors, indicating a structural supply shortfall of c.178,000 beds. It is this shortfall that underpins the strong performance of the asset class in the capital.

1. Times Higher Education World University Rankings 2015/16.
2. OECD Education at a Glance 2014. A1-3.
3. HESA student record.
4. OECD Education at a Glance 2014. A1-3.
5. Savills: Spotlight, World Student Housing 2015/16.


REVIEW OF THE FINANCIAL YEAR

Financial results

The Company achieved average rental growth of 4.5% across the portfolio for the 2015/16 academic year, producing a strong set of results, with total rental income for the year ended 30 June 2016 of £22.5 million generated from the Company’s enlarged property portfolio following the acquisition of Scape Shoreditch, Scape Surrey, The Pad 2 and Water Lane Apartments.

Total gains on investment properties through revaluation of the Company’s investment portfolio were £27.2 million as at 30 June 2016, positively impacting operating profit and generating EPS of 15.5 pence. The adjusted EPS for the period was 5.30 pence (excluding one-off finance costs relating to the C share issue in 2015 and fair value gains on investment properties).

Total administration expenses of £5.7 million comprise fund running costs, including the Investment Manager’s fee, Asset and Facilities Managers’ fees and other service provider costs in the period.

Ongoing finance charges of £3.4 million in the period comprise loan and swap interest associated with the Company’s financing arrangements.

Exceptional finance costs of £7.6 million relate to the C share issue together with costs associated with the cancellation and refinance of loan facilities. In accordance with IFRS, the C shares were accounted for as debt instruments. The costs of the C share issue and property valuation gains for the period the C shares were in issue are amortised through finance costs. The amortisation charge is fully offset by a corresponding increase in equity upon conversion, which has positively impacted the net assets of the Company.

The Company generated total profit before tax for the period of £28.3 million.

Financial performance

Income statement


For the   
year ended   
30 June    2016   
£’000   

For the  
year ended  
30 June   2015  
£’000
Rental income 22,482    11,505
Operating expense (4,600)   (2,529)
Gross profit (net operating income) 17,882    8,976
Net operating margin 79% 78%
Administration expenses (5,712)   (2,001)
Gains on investment properties 27,156    25,660
Operating profit 39,326    32,635
Finance income 75    43
Finance costs – ongoing (3,441)   (1,293)
Finance costs – other (7,635)  
Profit before tax for the year 28,325    31,299

Dividends

In order to maintain its REIT status, the Company is required to meet a minimum distribution test for each accounting period for which it is a REIT.

This test requires the Company to distribute at least 90% of the income profits of the property rental business for each accounting period, as adjusted for tax purposes. In respect of the financial year ended 30 June 2016, the Company paid dividends of 5.66 pence per ordinary share.

The dividends were paid as 5.31 pence per ordinary share as a REIT property income distribution in respect of the Group’s tax exempt property rental business and 0.35 pence per ordinary share as an ordinary UK dividend. The Company fulfilled all of its obligations under the UK REIT regime and is in full compliance with the REIT requirements at 30 June 2016 and as at the date of this report.

Dividend cover

The Company seeks to maintain a high level of dividend cover. Dividends of £10.6 million (5.66 pence per ordinary share) were paid during the year. The dividends were 94% covered by adjusted EPS of 5.30 pence per share, which is adjusted to exclude exceptional items principally those arising in connection with the oversubscribed issue of C shares during the period, which include charges arising due to the accounting treatment of C shares as debt instruments and the issue costs, which were met by subscribers for the C shares rather than the Company.

Capital raises

The Company completed two oversubscribed equity capital raises during the period, raising gross proceeds of £19 million in February 2016 and £60 million in May 2016.

Cash flow generation

The Company held cash and cash equivalents of £66.3 million at the end of the financial year. A total of £4.2 million of operating cash flows were generated in relation to the Company’s student accommodation portfolio. Total equity capital raised in the year amounted to £79 million, which was used in part to fund the acquisition of Water Lane Apartments. The remaining cash outflows relate to the cost of servicing the Company’s debt facility in addition to payment of dividends, resulting in a net increase in cash and cash equivalents at the year end.

Debt financing

During the period, the Company successfully secured a £130 million debt facility with Pricoa Mortgage Capital, which replaced its previous facility with Barclays Bank. The Pricoa facility, matures in September 2024 and was issued at a fixed rate of 3.07%. In order to facilitate the drawdown of the facility, the Group was restructured. Further information is given in note 15. The Company remains conservatively positioned as regards to its borrowing levels, with a loan-to-value of 26.6% as at 30 June 2016.

Asset performance

The Company experienced 4.5% year-on-year rental growth for the 2015/16 academic year and marginal yield compression. The valuation of the Company’s property portfolio has increased by £58.9 million or 16.1% since the Company’s IPO or its acquisition of assets.

The portfolio was fully occupied for the 2015/16 academic year, on 51-week tenancies.

Net assets

Net assets attributable to equity holders at 30 June 2016 were £358.5 million, up from £137.7 million at 30 June 2015. The increase in net assets since the prior year end is primarily driven by the acquisition of four further properties.

At 30 June 2016, there were 261,795,015 ordinary shares in issue, giving an EPRA NAV (cum-income) per ordinary share of 136.93 pence.

Financial performance

Net assets

For the   
year ended   
30 June   2016   
£’000   
For the  
year ended  
30 June   2015  
£’000
Assets
Property 424,787    177,220
Receivables 7,682    18,991
Cash and cash equivalents 66,337    106,292
Total assets 498,806    302,503
Liabilities
Payables (6,929)   (5,341)
Deferred income (5,235)   (2,442)
Senior loan (128,174)   (39,569)
Financial liabilities at amortised cost —    (117,422)
Total liabilities (140,338)   (164,774)
Net assets 358,468    137,729
Number of shares 261,795,015    109,910,428
EPRA NAV per share 136.93p  125.51p
EPRA NNNAV per share 136.93p  125.31p

NAV and share price performance

The Company’s ordinary shares have traded at an average premium of 5.7% since IPO, with an average premium over the financial year of 4.6%. The Company’s share price hit an all-time high of 141.00 pence per ordinary share on 2 November 2015. The Company’s ordinary shares have persistently traded at a premium to their NAV since IPO in 2013. However, as a consequence of the significant market volatility arising in the immediate aftermath of the ‘Brexit’ vote on 23 June 2016, the Company’s ordinary shares briefly traded at a discount to their NAV. As at 30 June 2016 the Company’s ordinary shares traded at a 3.6% discount to NAV.

The secondary market rating of the Company’s ordinary shares in the period since the year end has recovered and as at 14 September 2016, this being the latest practicable date prior to the publication the Company’s accounts, its ordinary shares traded at a premium of 8.1% to the prevailing NAV.

EPRA NAV (cum income) has increased from 125.51 pence as at 30 June 2015 to 136.93 pence per ordinary share as at 30 June 2016, a 9% increase year-on-year. Dividends of 5.66 pence per ordinary share were paid/declared to shareholders. At the Group level, the annualised total return since IPO was 13.9%, which exceeds the annualised target return of 8-10%.

COMPANY PERFORMANCE

Key performance indicators

2016    2015   
Annualised shareholder return since IPO 13.9% 18.1%
EPRA NAV per ordinary share 136.93p 125.51p
Basic earnings per ordinary share 15.5p 28.5p
Loan-to-value 26.6% 22.5%
Dividends per ordinary share for the year 5.66p 5.60p
Rental growth 4.5% 3.6%

PROPERTY PORTFOLIO

Quality, design and brand

The Company’s property portfolio is made up of high-quality, modern student accommodation focusing on international students, postgraduates and domestic students alike. The living experience forms a mainstay of each student’s university life and the Company has put the quality, design, experience and performance of its assets at the heart of its operational strategy. This is achieved through the Company’s investment selection and its choice of Asset and Facilities Managers.

Scape is the Asset and Facilities Manager for Scape East, Scape Greenwich, Scape Surrey and Scape Shoreditch. The vision of the Scape brand was to create a new kind of student accommodation; one that was affordable but with modern design. By enlisting the help of leading interior designers and top architects, Scape continues to ensure that high standards of quality finishes and service are met. Years of hard work and listening to student feedback has resulted in some of the best student accommodation in London.

Alongside the striking design features, the properties also offer ample common space for students to socialise and study. High-speed internet and wi-fi are available throughout each location. Scape responds proactively to student feedback, which has resulted in the provision of extra facilities and amenities, such as additional private rooms for group study, recreational areas and a gym.

During the year under review, CRM was the Asset and Facilities Manager for The Pad and Pad 2. Scape will replace CRM as Asset and Facilities Manager with effect from 1 September 2016.

Collegiate is the Asset and Facilities Manager for Water Lane Apartments. Collegiate’s management philosophy is based on enhancing the university experience for their residents. Collegiate specialises in managing high-specification, design led schemes with a focus on superior service quality. Collegiate’s team has experience in managing a range of diverse student accommodation assets, in over 20 cities, and across over 30 student blocks, serving some 30,000 student tenants.

Scape East
450 Mile End Road, London E1 4GG

Scape East is a private student residence located in Mile End, London. It was completed in June 2012 under the Scape brand.

Scape East is located directly opposite QMUL, which is a Russell Group HEI and one of London’s leading universities with c.17,000 students. Approximately 87% of all Scape East’s direct let students study at QMUL. The impressive building encompasses a double height entrance and floor-to-ceiling glazed reception. Residents have access to a private courtyard garden, free gym, TV and games lounge, communal kitchen, study areas and two on-site restaurants.

Additional rental income is generated through a 30-year FRI lease with annual RPI uplifts of teaching facilities. This has generated 6.5% of total revenues for Scape East for the 2015/16 academic year.

As at 30 June 2016, Scape East was occupied by students from 25 different HEIs and of 67 different nationalities, with c.89% of tenants coming from outside the UK.

Scape Shoreditch
45 Brunswick Place, London N1 6DX

Scape Shoreditch is located in a prime London location in Shoreditch. The property was acquired by the Company in September 2015.

The property is within a 15-minute walk of The City University (c.18,000 students) and CASS Business School.

The building comprises 541 studio bedrooms and c.10,000 sq ft of communal areas including a gym, dance studio, study lounge, games room, cinema, communal kitchen, sun terrace and barbecue terrace. The building also includes c.49,000 sq ft of commercial facilities let to WeWork on a 15-year fully repairing and insuring lease. The lease generates approximately 25% of total revenues for Scape Shoreditch after expiry of the tenant’s incentives.

At 30 June 2016, Scape Shoreditch was occupied by students from 45 HEIs and of 59 different nationalities, with c.94% of tenants coming from outside the UK.

Scape Greenwich
Bear Point, 2 East Parkside, Greenwich SE1 0FQ

Scape Greenwich is a private student residence located on the Greenwich Peninsula, London, which was acquired by the Company in May 2014.

The property is situated in a prime London student residential location within 30 minutes of c.75% of London’s HEIs and in close proximity to Ravensbourne College (with c.1,600 students), a leading specialist digital media HEI, and to the University of Greenwich (with c.26,000 students).

Designed by award-winning architects, AHMM, Scape Greenwich comprises 280 studios and approximately 10,000 sq ft of communal facilities, kitchens, study areas and breakout rooms.

As at 30 June 2016, Scape Greenwich was occupied by students from 20 different HEIs and of 53 different nationalities, with c.43% of tenants coming from outside the UK.

Scape Surrey
1 Kernel Court, Walnut Tree Close, Guildford GU1 4BJ

Scape Surrey is a private student residence located in Guildford, which was acquired by the Company in September 2015.

Scape Surrey is located in Guildford within 100 metres of the south gate to The University of Surrey (ranked 4th in the UK) and in close proximity to the University of Law and the Academy of Contemporary Music and five minutes to Guildford train station and town centre. The building comprises 141 bedrooms (c.40% en-suite bedrooms and c.60% studios) and c.2,000 sq ft of communal space including a games room, private study area and a cinema room.

At 30 June 2016, Scape Surrey was occupied by students from 5 HEIs and of 32 different nationalities, with c.54% of tenants coming from outside the UK.

The Pad
71 Egham Hill, Egham TW20 0ER

The Pad is a private student residence which was acquired by the Company in two phases, in December 2013 and September 2015 and is located adjacent to RHUL, in Egham.

The Pad is the only purpose-built private student accommodation within five miles of RHUL.

The building contains modern, purpose-built student accommodation blocks. The Pad offers 220 rooms comprising of 119 studios and 101 en-suite rooms. The studios comprise fully-furnished rooms with kitchenette and appliances provided and en-suite shower room. Blocks in the main building are typically three to six bedrooms, share a large fully-fitted kitchen and living area and include fully-furnished study bedrooms with en-suite shower rooms.

The property opens out onto a large leafy courtyard area with patios, outdoor seating and gardens for students to break out in the summer months.

As at 30 June 2016, The Pad was occupied exclusively by students from RHUL, comprising 35 different nationalities, with c.78% of tenants coming from outside the UK.

Water Lane Apartments
Template Street, Bristol BS1 6WG

Water Lane Apartments is a private student residence located in Bristol, which was acquired by the Company in February 2016.

The University of the West of England, which has over 27,000 students, lies to the North of Bristol approximately six miles from the property. The University of Bristol, which has over 22,000 students, is approximately one mile away from the property.

The property comprises 153 studio beds, which are fully occupied on 51-week lettings for the 2015/16 academic year, and associated communal areas including a gym, common and study rooms, and a cinema.

The site is located in central Bristol between Bristol Temple Meads train station and the city centre. The property is located on Water Lane, and has the ruins of The Temple or Holy Cross Church adjoining the property.

As at 30 June 2016, Water Lane Apartments was occupied by students of 34 nationalities, with c.54% of tenants coming from outside the UK.

Acquisitions in the year

The Company acquired four modern student accommodation assets, doubling the size of its property portfolio. The acquisitions were financed by a combination of the proceeds from share issuance and the new Pricoa debt facility.

Scape Surrey and The Pad 2 were both acquired by way of forward purchase agreements, enabling the Company to lock in a purchase price based on the yield at the time of signing the agreements. Prior to purchase, yields compressed which translated into an attractive acquisition price for shareholders on both assets. Scape Shoreditch was acquired by way of a corporate acquisition and was negotiated with the vendor in an off-market transaction.

Water Lane Apartments was acquired by way of a property purchase and was sourced and negotiated with the vendor in an off-market transaction.

Future acquisitions

The Company has exchanged contracts, subject to planning, to secure the acquisition of Apex House, a forward-funded development asset located in Wembley, London.

The Company has also entered into a conditional forward purchase agreement to acquire Podium, a high specification, purpose-built, private student accommodation residence adjacent to RHUL.

Podium, Royal Holloway
Forward purchase agreement

The property is expected to be completed for the 2017/18 academic year providing approximately 170 beds in four buildings, and is in the same locality as The Pad, which comprises two buildings with c.220 beds currently owned by the Group. The Company entered into the agreement to lock in a purchase price based on the yield at the time of signing, providing visibility over future acquisition cost.

Apex House, Wembley
Forward funding agreement

Apex House will provide high-specification, purpose-built private student accommodation with c.580 modern studios and beds with communal areas. The property is located adjacent to Wembley Stadium and within short walking distance from Wembley Park Station with travel times of eight minutes to Marylebone, 20 minutes to Bond Street and 25 minutes to King’s Cross. The majority of London’s universities are accessible within 30 minutes.

Apex House will be constructed and designed to specifications set by the Group and Scape, who will oversee the development and be appointed as the Asset and Facilities Manager upon completion. The property is expected to be operational for the 2017/18 academic year.

CORPORATE, SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

The Company’s aim is to operate a fully sustainable business model with a low carbon footprint.

Sustainability

The Company’s environmental sustainability measures include the use of highly-efficient combined heat and power systems, ground source heat pumps and intelligent interior heating and lighting to minimise GHG emissions. The Company’s property portfolio incorporates green roof space, rainwater harvesting and sustainable waste management, including diverting waste from landfill to generate renewable electricity via the waste management process. In the year to 30 June 2016, Scape converted c.88% of property waste from Scape East, Scape Greenwich, Scape Surrey and Scape Shoreditch into renewable energy, with an additional 10% into national recycling schemes.

Environmental impact

The Company is committed to being both socially and environmentally responsible and recognises the impact it has on the environment. The Company has delegated the day-to-day asset and facilities management to the Asset and Facilities Managers, who are responsible for the provision of energy supplies, including the procurement of renewable energy, managing the Company’s waste schemes and raising general awareness of environmental impact and waste reduction amongst the Group’s employees and residents.

Details of the Company’s GHG emissions are given in the Directors’ report in the full annual report.

Diversity and equality

The Company is committed to achieving a working environment which provides equality of opportunity and freedom from unlawful discrimination on the grounds of race, sex, pregnancy and maternity, marital or civil partnership status, gender reassignment, disability, religion or beliefs, age or sexual orientation. The Company’s policy aims to remove unfair and discriminatory practices and to encourage full contribution from its diverse community. The Company is committed to actively opposing all forms of discrimination and values diversity amongst its workforce.

Further information on the Company’s diversity policy is included in the corporate governance statement in the full annual report.

Social and community

The Company is committed to being socially responsible and the Directors consider community involvement to be an important part of that responsibility. The Company is indirectly involved with a number of social and local community initiatives via the Asset and Facilities Managers, such as local employment schemes and initiatives to give back to the local area through student bursaries, sponsorship and local events.

Human rights

The Company respects human rights and aims to provide assurance to internal and external stakeholders that it will carry out its affairs in accordance with the principles of the Universal Declaration of Human Rights. No human rights concerns have arisen within the Company’s operations or its supply chain during the year ended 30 June 2016.

The Company is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and therefore no further disclosure is required.

Employees

Scape has overall responsibility for the supervision and provision of asset management services through oversight and management of the employees of GCP Operations Limited, a subsidiary of the Company, and has responsibility for the procurement and supervision of the facilities management services on behalf of the Company in connection with Scape East, Scape Greenwich, Scape Surrey and Scape Shoreditch, and with effect from 1 September 2016, The Pad.

Gender breakdown

The gender breakdown of the Group’s Directors, senior management and employees as at 30 June 2016 is detailed below.

Male Female
Directors 3 (2015: 3) 1 (2015: 1)
Senior management 3 (2015: 2) 3 (2015: 2)
Employees 38 (2015: 33) 30 (2015: 14)

RISK MANAGEMENT

Role of the Board

The Directors have overall responsibility for risk management and internal control within the Group. The Directors recognise that risk is inherent in the operation of the Group and that effective risk management is key to the success of the organisation. The Directors have delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the audit committee.

The Directors, when setting the risk management strategy, also determine the nature and extent of the significant risks and its risk appetite in implementing this strategy. A formal risk identification and assessment process has been in place since IPO, resulting in a risk framework document which summarises the key risks and their mitigants.

The Directors undertake a formal risk review with the assistance of the audit committee at least twice a year in order to assess the effectiveness of the Group’s risk management and internal control systems. During the course of such review, the Directors have not identified, nor been advised of any failings or weaknesses which it has determined to be of a material nature. The principal risks and uncertainties which the Group faces are set out below.

Internal control review

The Board is responsible for the systems of internal controls relating to the Group and the reliability of the financial reporting process and for reviewing their effectiveness.

The Directors have reviewed and considered the guidance supplied by the Financial Reporting Council on risk management, internal control and related finance and business reporting and an ongoing process has been established for identifying, evaluating and managing the risks faced by the Group. This process, together with key procedures established with a view to providing effective financial control, was in place during the year under review and at the date of the signing of this report. The internal control systems are designed to ensure that proper accounting records are maintained, that the financial information on which business decisions are made and which are issued for publication is reliable and that the assets of the Company are safeguarded. The risk management process and Group systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company’s objectives. It should be recognised that such systems can only provide reasonable, not absolute, assurance against material misstatement or loss.

The Directors have carried out a review of the effectiveness of the systems of internal control as they have operated over the period and up to the date of approval of the report and financial statements.

There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.

Internal control assessment process

Regular risk assessments and reviews of internal controls are undertaken in the context of the Company’s overall investment objective. The Board, through the audit committee, has identified risk management controls in the following key areas:

  • investment objective and portfolio;
  • investment strategy;
  • operational risks (particularly in relation to preparation of financial information);
  • compliance with laws and regulations; and
  • reliance on third party service providers and financial risks.

In arriving at its judgement of what risks the Company faces, the Board has considered the Company’s operations in the light of the following factors:

  • the nature and extent of risks which it regards as acceptable for the Company to bear within its overall business objective;
  • the threat of such risks becoming reality;
  • the Company’s ability to reduce the incidence and impact of risk on its performance;
  • the cost to the Company and benefits related to the review of risk and associated controls of the Company; and
  • the extent to which the third parties operate the relevant controls.

A risk matrix has been produced against which the risks identified and the controls in place to mitigate those risks can be monitored. The risks are assessed on the basis of the likelihood of them happening, the impact on the business if they were to occur and the effectiveness of the controls in place to mitigate them. This risk register is reviewed at least every six months by the audit committee and at other times as necessary.

The Board reviews financial information produced by the Investment Manager and the Administrator on a regular basis at each Board meeting as part of the NAV and dividend approval process.

Most functions for the day-to-day management of the Company are sub-contracted, and the Directors therefore obtain regular assurances and information from key third party suppliers regarding the internal systems and controls operated in their organisations. In addition, each of the third parties is requested to provide a copy of its report on internal controls each year, which is reviewed by the audit committee.

Going concern

In assessing the Company’s ability to continue as a going concern, the Directors have considered the Company’s investment objective (detailed above), risk management policies (detailed above), capital management (see note 28 to the financial statements), its quarterly NAV and the nature of its portfolio and expenditure projections. The Directors believe that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. In addition, the Board has had regard to the Company’s investment performance, the price at which the Company’s shares trade relative to the NAV, and ongoing investor interest in the continuation of the Company (including feedback from meetings and conversations with shareholders by the Company’s advisers).

Based on their assessment and considerations, the Directors have concluded that they should continue to prepare the financial statements of the Company on a going concern basis and the financial statements have been prepared accordingly.

Viability statement

The Directors have considered each of the Company’s principal risks and uncertainties detailed below, in particular the risk and impact of a downturn in the UK commercial property market or the international student market which could materially affect the valuation and cash flows of the Company’s investments, impacting the viability of the Company. The Directors also considered the Company’s policy for monitoring, managing and mitigating its exposure to these risks.

This assessment involved an evaluation of the potential impact on the Company of these risks occurring. Where appropriate, the Company’s financial model was subject to a sensitivity analysis involving flexing a number of key assumptions in the underlying financial forecasts in order to analyse the effect on the Company’s net cash flows and other key financial ratios including loan covenants.

The Directors have assessed the prospects of the Company over a longer period than the twelve months required by the going concern provision. The Board has conducted this review for a period covering the next five years as the Company does not have a fixed life, it assumes long term hold periods for the assets in its portfolio and analyses its financial model over a five-year horizon.

The Company’s assets derive revenues considered to be dependable due to the inherent supply demand imbalances of the market in which the Company operates. Additionally the Company’s low leverage comprises a fixed rate facility which matures beyond the five year horizon. Therefore the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment.

Principal financial risks

The principal financial risks, the Company’s policies for managing these risks and the policy and practice with regard to financial instruments are summarised in note 27 to the financial statements.

The Directors have also identified the following additional risks and uncertainties:

Risk How the risk is managed
Investment strategy
Investment objective
There can be no guarantee that the investment objective of the Company will be achieved. The Company’s investment objective is to provide shareholders with attractive total returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long-term dividends with RPI inflation-linked income characteristics. The Company has acquired six assets which meet the investment strategy. The Investment Manager and Asset and Facilities Managers have significant experience in the sector which should provide the Company with access to assets to continue to meet its investment strategy going forward.
Execution
Availability of suitable investments
There can be no assurance that the Investment Manager will be successful in sourcing suitable investments or that the Company will make any further investments in property assets. The availability of such future investment opportunities will depend upon a number of factors including, but not limited to, the availability of suitable assets for acquisition within the Company’s investment objective and policy, conditions in the UK student accommodation sector and the ability of the Company to access appropriate funding. The Investment Manager has significant relationships and experience in the sector which provide the Group with access to an investment pipeline. The Company has a high-quality broad shareholder base and an accordion debt facility which minimises capital raising risk.
Due diligence
Prior to entering into an agreement to acquire any property, the Investment Manager will perform due diligence, on behalf of the Company, on the proposed investment. To the extent that the Investment Manager underestimates or fails to identify risks and liabilities associated with the investment in question, the Company may be subject to defects in title, to environmental, structural or operational defects requiring remediation, or may be unable to obtain necessary permits which may materially and adversely impact the NAV and the earnings of the Company. In addition to the due diligence carried out by the Investment Manager, third party technical, insurance and legal experts are engaged to advise on specific risks to an acquisition, whether it be structured via a property owning vehicle or a direct property acquisition.
Portfolio
General property and investment market conditions
The Company’s performance depends on property values in the UK to a significant extent. An overall downturn in the UK property market and the availability of credit to the UK property sector may have a materially adverse effect upon the value of the property owned by the Group and ultimately upon the net asset value and the ability of the Company to generate revenues. The Investment Manager continuously monitors market conditions and provides the Board with quarterly updates on the student accommodation market and senior debt market to act as an early warning signal of any adverse market conditions ahead.
Property valuation
The valuation of the Group’s property portfolio is inherently subjective, in part because all property valuations are made on the basis of assumptions which may not prove to be accurate, and because of the individual nature of each property and limited transactional activity. Valuations of the Company’s investments may not reflect actual sale prices, even where any such sales occur shortly after the relevant valuation date. The Company has entered into a valuation agreement with Knight Frank LLP to provide quarterly valuations. Knight Frank is one of the largest valuers of student accommodation in the UK and therefore has access to the maximum number of data points to support their valuations. In addition to this, the Board of Directors has significant experience of property valuation and its constituent elements.
Development risk
The Company may invest in development and forward-funded projects which have received planning permission for student accommodation. Development activities may involve a higher degree of risk than is associated with operating properties and may be subject to delays or disruptions which are outside of the Company’s control. The Company will engage third party professional advisers to review and opine on development risk prior to commitment. All contracts entered into will be guaranteed maximum price contracts with a suitable contractor and significant equity buffer.
Scape Student Living brand
The Group’s success and results are, to some extent dependent on the strength and reputation of the Scape Student Living brand. The Scape Student Living brand is vulnerable to adverse market perception as it operates in an industry where integrity, customer trust and confidence are paramount. Any damage to the Scape Student Living brand could cause a decline in the demand for accommodation and/or the rental rates that can be achieved at the properties owned by the Group, the occurrence of which could have an adverse effect on the Group’s revenue, performance, margins and asset values. The Investment Manager and Asset and Facilities Manager, Scape, provide the Board with quarterly reports which include any operational or performance-related issues which could potentially have an impact on brand confidence or integrity. The analysis provides the Board with the tools to address any occurrence which could have an adverse effect on the Group’s revenue, performance, margins and asset values.
Concentration risk
Whilst it is the Board’s intention for the Group to acquire additional property assets in the future, there can be no certainty that it will be able to do so. Substantially all of the Group’s assets are currently located in and around London; as a result of this concentration, the Company may be adversely affected by events which damage or diminish London’s attractiveness to students (especially overseas students) or London property values. Any circumstances which materially affect the returns generated by the Group’s property portfolio may materially and adversely impact the NAV and earnings of the Company. The Company acquired four assets during the year, which provides an increased level of diversification across the portfolio. The Company is focused on the London market because this is where the largest supply/demand imbalance exists in the UK student accommodation market. The Investment Manager and the Asset and Facilities Managers have significant experience in the sector and continuously monitor the market to act as an early warning signal of any adverse market conditions ahead.
Liquidity
The Group invests in student residential accommodation and teaching facilities. Such investments are illiquid and may be difficult for the Company to sell and the price achieved on any such realisation may be at a discount to the prevailing valuation of the relevant investments, which may materially and adversely impact the NAV and earnings of the Company. Whilst the Company invests funds with the aim of both capital appreciation and investment income, it has no immediate plans to sell or realise the capital appreciation (and so generate returns) from any increase in the value of its investment properties, except by way of increased rental income. Accordingly the Board considered that this risk is mitigated to a suitably low level.
Rental income
Rental income and property values may be adversely affected by increased supply of student accommodation and teaching facilities, the failure to collect rents, periodic renovation costs and increased operating costs. A decrease in rental income and/or in property values may materially and adversely impact the NAV and earnings of the Company as well as the ability to service interest on its debts in the longer term. The Investment Manager will only propose to the Board those assets which it believes are in the most advantageous locations and benefit from large supply and demand imbalances that can bear the entry of new competitors into the market. In addition, the quality of assets that the Company acquires will be amongst the best in class to minimise occupancy risk. The Investment Manager monitors the performance of the Asset and Facilities Managers to ensure that all rental income is collected and that operating costs are within the parameters of the approved budgets. The Investment Manager provides the Board with performance reports on a quarterly basis.
Occupancy rates
The ability of the Group to maintain attractive occupancy levels (or to maintain such levels on economically favourable terms) on its assets may be adversely affected by a number of factors, including a fall in the number of students, competing sites, any harm to the reputation of the Group amongst universities, students or other potential customers, or as a result of other local or national factors. A fall in occupancy levels may adversely affect the Group’s revenue performance, margins and asset values. The Investment Manager and Asset and Facilities Managers provide the Board with quarterly reports on asset performance. The analysis provides both the Investment Manager and Board with the tools to adjust the Company’s operational strategy in order to maximise shareholder value.
Financial
Borrowings and interest rate hedging
The Company’s investment strategy may involve securing borrowing facilities to finance additions to the Company’s portfolio. It is not certain that the Company will be able to secure such facilities. Lack of access to debt or the utilisation of debt on more expensive terms than anticipated may adversely affect the Company’s investment returns. The use of borrowings by the Company may increase the volatility of the NAV per share and the Company’s ability to pay dividends to shareholders. The Company’s borrowing policy provides for the Company to have no more than 55% gearing in the short term and 30% in the long term, thereby reducing the volatility that changes in debt rates can have on the Company. In addition to this, the Investment Manager provides the Board with a quarterly update on the state of the senior debt market to ensure debt facilities are renewed well in advance of expiration, and interest rate derivatives are used where required to hedge fluctuations in underlying interest rates.
Taxation
Any change in the Company’s tax status or in taxation legislation in the UK (including a change in interpretation of such legislation) could affect the Company’s ability to achieve its investment objective or provide favourable returns to shareholders. In particular, an increase in the rates of stamp duty land tax could have a material impact on the value of assets acquired. If the Company fails to remain a REIT for UK tax purposes, its profits and gains will be subject to UK corporation tax. The Board has ultimate responsibility for ensuring adherence to the UK REIT regime and monitors the compliance reports provided by the Investment Manager on potential transactions to be undertaken, the Administrator on asset levels and the Registrar on shareholdings.
Other
Compliance with laws and regulations
The Group and its operations are subject to laws and regulations enacted by national and local governments and government policy.  Any change in the laws, regulations and/or government policy affecting the Group may have a material adverse effect on the ability of the Company to successfully pursue its investment policy and meet its investment objective and on the value of the Company and its shares. The Board has appointed Gowling WLG (UK) LLP as legal counsel, Capita Company Secretarial Services Limited as Company Secretary and Capita Sinclair Henderson Limited as Administrator to ensure compliance with all relevant laws and regulations.
Reliance on third party service providers
The Group relies upon the performance of third party service providers to perform its executive functions that are integral to the Group’s operations and financial performance. Failure by any service provider to carry out its obligations in accordance with the terms of its appointment, to exercise due care and skill, or to perform its obligations to the Group at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Group’s performance and returns to shareholders. The termination of the Group’s relationship with any third party service provider or any delay in appointing a replacement for such service provider could disrupt the business of the Group materially and could have a material adverse effect on the Group’s performance and returns to shareholders. The misconduct or misrepresentations by employees of the Group, the Investment Manager, the Asset and Facilities Managers or other third party service providers could cause significant losses to the Group. The performance of the Group’s service providers is closely monitored by the management engagement committee of the Company, which conducts review meetings with each of the Group’s principal third party service providers on an annual basis. The committee meets at least once a year to make formal recommendations to the Board about the performance and continuing appointment of these service providers; it also considers any variation to the terms of service providers’ agreements, and reports its findings to the Board. The audit committee reviews the internal controls reports and other compliance and regulatory reports of its service providers on an annual basis. The performance of the employees within the Group is monitored by Scape and considered by the board of GCP Operations Limited which meets at least twice a year.
Operational risk
The risk of a change in value caused by inadequate or failed internal processes, people and systems, or from external events (including legal risk). Events may be manifested as direct financial losses or result in damage to reputation causing longer-term financial consequences. The Company has sufficient defined operational risk procedures and policies in place to manage and mitigate operational risk across the Group.

The strategic report has been approved by the Board and signed on its behalf.


Robert Peto
Chairman
15 September 2016

BOARD OF DIRECTORS

Robert Peto - Chairman
Marlene Wood - Chair of the audit committee
Peter Dunscombe – Senior Independent Director and chair of the remuneration committee
Malcolm Naish - Chair of the management engagement committee

All Directors are non-executive and independent of the Investment Manager.

EXTRACTS FROM THE DIRECTORS’ REPORT

Share capital

At the general meeting held on 21 March 2013, the Company was granted authority to allot ordinary shares up to an aggregate nominal amount of £2,500,000 in accordance with statutory pre-emption rights. Following the issue of new shares in May 2014 and as at the date of this report, the Company may allot ordinary shares up to an aggregate nominal amount of £2,101,895.73 under this authority. This authority will expire at the conclusion of the annual general meeting to be held on 27 October 2016.

Pursuant to the admission to trading of 120 million C shares with a nominal value of £1,200,000 at an issue price of 100 pence per share on 30 June 2015, the Company announced on 27 October 2015 that the C shares would be converted into ordinary shares at a rate of 0.781044 ordinary shares for every C share, resulting in 93,725,280 new ordinary shares. The remaining 26,274,720 C shares were redeemed by the Company on the same date and cancelled. Accordingly, 93,725,280 new ordinary shares were admitted to trading on the SFS from 28 October 2015.

At the annual general meeting held on 3 December 2015, the Company was granted authority to issue ordinary shares up to an aggregate nominal value of £229,910 on a non-pre-emptive basis, amounting to 22,991,000 shares. Pursuant to an announcement on 3 February 2016 regarding its intention to raise additional capital by way of a placing of new ordinary shares (the “February Placing”), the Company announced on 10 February 2016 that the Board had resolved to accept gross proceeds under the February Placing of £19,000,001 through the issuance of 14,074,075 ordinary shares at a price of 135 pence per ordinary share, with an aggregate nominal value of £140,740.75. These shares were issued under the placing to institutional investors and professionally-advised investors and admitted to trading on the SFS on 12 February 2016. Following the February Placing, and as at the date of this report, the Company may allot ordinary shares up to an aggregate nominal value of £89,169.25 under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the annual general meeting to be held on 27 October 2016, to issue ordinary shares up to an aggregate nominal value of £261,795 on a non-pre-emptive basis, amounting to 26,179,500 shares.

At a general meeting held on 27 April 2016, the Company was granted the authority to allot and to disapply pre-emption rights in respect of a placing programme of up to 65 million ordinary shares (the “Placing Programme”). Pursuant to the publication of a prospectus in respect of the Placing Programme on 29 April 2016, the Company announced on 20 May 2016 that it had accepted applications in respect of a placing of 44,085,232 ordinary shares at a price of 136.10 pence per share, with an aggregate nominal value of £440,852.32 raising gross proceeds of £60 million for the Company (the “May Placing”). These shares were issued under the placing to institutional investors and professionally-advised private investors and admitted to trading on the SFS on 24 May 2016. Following the May Placing, and as at the date of this report, the Company may allot up to a further 20,914,768 ordinary shares under this authority. This authority will expire on 6 May 2017.

At the annual general meeting held on 3 December 2015, the Company was granted authority to purchase up to 14.99% of the Company’s ordinary share capital in issue at that date, amounting to 16,475,573 ordinary shares. No ordinary shares have been bought back under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the annual general meeting to be held on 27 October 2016.

Shares bought back by the Company may be held in treasury, from where they could be re-issued at or above the prevailing NAV quickly and cost effectively. This provides the Company with additional flexibility in the management of its capital base. No shares were held in treasury during the year or at the year end.

At 30 June 2016 and as at the date of this report, the Company’s issued share capital comprised 261,795,015 ordinary shares.

At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every ordinary share held. The total voting rights of the Company at 30 June 2016, and as at the date of this report, is 261,795,015.

Dividends

Dividends totalling 5.66 pence per ordinary share have been paid in respect of the year ended 30 June 2016 as follows:

2016 2015
pence pence
First interim dividend 1.41 1.40
Second interim dividend 1.41 1.40
Third interim dividend 1.41 1.40
Fourth interim dividend 1.43 1.40

No final dividend is being recommended.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES
In respect of the annual report and financial statements

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable UK law and IFRS as adopted by the EU.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that year.

In preparing the financial statements, the Directors are required to:

  • select suitable accounting policies in accordance with IAS 8: “Accounting Policies, Changes in Accounting Estimates and Errors” and then apply them consistently;
  • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
  • provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;
  • state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and
  • make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors’ report, Directors’ remuneration report and corporate governance statement that comply with that law and those regulations, and for ensuring that the annual report includes information required by the Disclosure Guidance and Transparency Rules of the UKLA. The Company is voluntarily complying with certain of the listing rules of the UKLA.

The financial statements are published on the Company’s website, www.gcpuk.com/gcp-student-living-plc, which is maintained on behalf of the Company by the Investment Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Under the investment management agreement, the Investment Manager is responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Visitors to the website need to be aware that legislation in the UK covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

  • the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
  • this annual report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

On behalf of the Board
 

Robert Peto
Chairman
15 September 2016

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 June 2016 or the year ended 30 June 2015 but is derived from those accounts. Statutory accounts for the year ended 30 June 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Act. The text of the Auditor's report can be found in the Company's full annual report and financial statements at www.gcpuk.com/gcp-student-living-plc.

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
For the year ended 30 June 2016

30 June  2016  30 June  2015
Continuing operations Notes £’000  £’000
Revenue 4 22,482  11,505
Property operating expenses 5 (4,600) (2,529)
Gross profit 17,882  8,976
Administration expenses 5 (5,712) (2,001)
Operating profit before gains on investment properties 12,170  6,975
Fair value gains on investment properties 3 27,156  25,660
Operating profit 39,326  32,635
Finance income 9 75  43
Finance expenses – ongoing 10 (3,441) (1,379)
Finance expenses – other 10 (7,635)
Profit before tax 28,325  31,299
Tax credit/(charge) for the year 11 (18)
Profit for the year 28,328  31,281
Other comprehensive income to be reclassified to profit and loss in subsequent years
Net gains/(losses) on the valuation of cash flow hedges 20 214  (261)
Total comprehensive income for the year 28,542  31,020
Earnings per share (basic and diluted) (pps) 14 15.48  28.46

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2016

30 June 
2016 

30 June 2015
Notes £’000  £’000
Assets
Non-current assets
Investment property 3 424,787  177,220
Retention account 815  308
425,602  177,528
Current assets
Cash and cash equivalents 16 66,337  106,292
Trade and other receivables 17 6,867  18,683
73,204  124,975
Total assets 498,806  302,503
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 19 (128,174) (39,569)
Derivative financial instruments  20 —   (214)
Retention account (815) (308)
(128,989) (40,091)
Current liabilities
Trade and other payables 18 (6,114) (4,819)
Deferred income 18 (5,235) (2,442)
Financial liabilities at amortised cost 21 —  (117,422)
(11,349) (124,683)
Total liabilities (140,338) (164,774)
Net assets 358,468  137,729
Equity
Share capital 22 2,618  1,099
Share premium 23 239,653  39,946
Hedging reserve —  (214)
Special reserve 24 58,371  65,223
Retained earnings 24 57,826  31,675
Total equity 358,468  137,729
Number of shares in issue 261,795,015  109,910,428
EPRA NNNAV per share (pps) 25 136.93  125.31
EPRA NAV per share (pps) 25 136.93  125.51

These financial statements were approved by the Board of Directors of GCP Student Living plc on 15 September 2016 and signed on its behalf by:

Robert Peto
Chairman
Company number: 08420243

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2016



Notes
Share
capital
£’000
Share 
premium 
£’000 
Hedging 
reserve 
£’000 
Retained 
earnings 
£’000 
Special 
reserve 
£’000 
Total 
£’000 
Balance at 1 July 2015 1,099 39,946  (214) 31,675  65,223  137,729 
Profit for the year —  —  28,328  —  28,328 
Other comprehensive income that may be
reclassified subsequently to profit and loss
Fair value movement on financial derivative —  214  —  —  214 
Total comprehensive income —  214  28,328  —  28,542 
Ordinary shares issued 1,519 201,251  —  —  —  202,770 
Share issue costs (1,544) —  —  —  (1,544)
Dividends paid in respect of the previous year 13 —  —  (1,005) (534) (1,539)
Dividends paid in respect of the current year 13 —  —  (1,172) (6,318) (7,490)
Balance at 30 June 2016 2,618 239,653  —  57,826  58,371  358,468 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2015



Notes
Share
capital
£’000
Share
premium
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Special
reserve
£’000

Total
£’000
Balance at 1 July 2014 1,099 39,937 47 5,010 66,762 112,855
Profit for the year 31,281 31,281
Other comprehensive income that may be
reclassified subsequently to profit and loss
Net gains on the valuation of cash flow hedges


(261)



(261)
Total comprehensive income (261) 31,281 31,020
Share issue costs1 9 9
Dividends paid in respect of the previous period
13





(1,539)

(1,539)
Dividends paid in respect of the current year
13




(4,616)


(4,616)
Balance at 30 June 2015 1,099 39,946 (214) 31,675 65,223 137,729

1. This represents a change in the estimated share issue costs accrued at 30 June 2014.

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2016

30 June  2016  30 June  2015
Notes £’000  £’000
Cash flows from operating activities
Operating profit 39,326  32,635
Adjustments to reconcile profit for the year to net cash flows:
Gains from change in fair value of investment properties (27,156) (25,660)
Costs reclassified as capital —  (85)
Corporation tax refunds 12  (158)
Increase in other receivables and prepayments (3,120) (560)
(Increase)/decrease in other payables and accrued expenses (4,891) 184
Net cash flow generated from operating activities 4,171  6,356
Cash flows from investing activities
Acquisition of investment properties (54,469)
Acquisition of subsidiaries, net of cash acquired (156,092)
Net cash used in investing activities (210,561)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 79,000 
Share issue costs (1,538) (47)
Proceeds from issue of C shares 16,195  103,805
C share issue costs (2,490) (76)
Bank loan drawn down 130,000 
Repayment of bank loan (40,000)
Finance income 75  10
Finance expenses (5,942) (1,240)
Dividends paid in the year (8,865) (6,145)
Net cash flow generated from financing activities 166,435  96,307
Net (decrease)/increase in cash and cash equivalents (39,955) 102,663
Cash and cash equivalents at start of the year 106,292  3,629
Cash and cash equivalents at end of the year 16 66,337  106,292

The accompanying notes form an integral part of these financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2016

1. General information

GCP Student Living plc is a closed-ended investment company incorporated in the UK on 26 February 2013. The registered office of the Company is located at 51 New North Road, Exeter EX4 4EP. The Company’s shares are traded on the SFS of the Main Market of the London Stock Exchange.

2. Basis of preparation

These financial statements are prepared in accordance with IFRS issued by the IASB as adopted by the European Union. The financial statements have been prepared under the historical cost convention, except for investment property, investments in subsidiaries and derivative financial instruments that have been measured at fair value. The audited financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (£’000), except when otherwise indicated.

On 30 June 2015, the Company issued 120,000,000 C shares which were converted to ordinary shares on 28 October 2015. Whilst in issue, the C shares are recognised in the financial statements as a liability stated at amortised cost which is equivalent to the net asset value of the C shares. Therefore the net assets and profits shown in these financial statements represent the assets and profits attributable to the ordinary shareholders. Further details on the accounting treatment of the C shares and the financial information attributable to the C shares can be found below and in note 21 of the financial statements.

These financial statements are for the year ended 30 June 2016. Comparative figures are for the previous accounting period, the year ended 30 June 2015.

The Group has chosen to adopt the EPRA best practice guidelines for calculating key metrics such as net asset value and earnings, which are presented alongside the IFRS measures.

2.1 Changes to accounting standards and interpretations

The following new standards and amendments to existing standards have been published and once approved by the EU, will be mandatory for the Group’s accounting periods beginning after 1 July 2016 or later periods. The Group has decided not to adopt them early.

  • IAS 1 Presentation of Financial Statements – amendments resulting from the disclosure initiative (effective for annual periods beginning on or after 1 January 2016).
  • Various standards – amendments resulting from September 2014 Annual Improvements to IFRS (effective for annual periods beginning on or after 1 January 2016).
  • IFRS 15 Revenue from Contracts (effective for annual periods beginning on or after 1 January 2018).
  • IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018).
  • IFRS 7 Financial Instruments: Disclosures – amendments regarding additional hedge accounting disclosures (applies when IFRS 9 is applied).
  • IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019).

The Group does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on its financial statements.

2.2 Significant accounting judgements and estimates

The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

Valuation of property

The valuations of the Group’s investment property are at fair value as determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation – Professional Standards January 2014 (incorporating the International Valuation Standards) and in accordance with IFRS 13.

C share liability

The Directors have considered whether the C share liability should be valued in the financial statements at fair value or stated at amortised cost.

The C shares were traded on the SFM (now the SFS). The amortised cost value of the C share pool equates to the net asset value of the C shares, which the Directors consider is the most appropriate way to disclose the liability within the financial statements.

Going concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.

2.3 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are stated in the notes to the financial statements.

a) Basis of consolidation

As a real estate entity the Company does not meet the definition of an investment entity and therefore does not qualify for the consolidation exemption under IFRS 10. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2016. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. An investor controls an investee when the investor is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In preparing these financial statements, intra-group balances, transactions and unrealised gains or losses have been eliminated in full. The subsidiaries all have the same year end as the Company. Uniform accounting policies are adopted in the financial statements for like transactions and events in similar circumstances.

As a real estate entity, the Company does not qualify for IFRS 10 and continues to consolidate its accounts in full.

b) Functional and presentation currency

The overall objective of the Group is to generate returns in Pound Sterling and the Group’s performance is evaluated in Pound Sterling. Therefore, the Directors consider Pound Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have therefore adopted it as the functional and presentation currency.

c) Operating segments

All of the Group’s revenue and results are generated from student accommodation provision (including ancillary restaurant and teaching facilities) operating in the UK.

3. UK investment property

30 June 2016 30 June 2015
£’000 £’000
At the start of the year 177,220 151,560
Acquisitions arising from business combinations 166,100
Acquisition of property 54,311
Fair value gains on revaluation of investment property 27,156 25,660
Valuation at the end of the year 424,787 177,220

During the year, the Group purchased Scape Shoreditch by way of the corporate acquisition of the company Old Street Acquisitions Limited and its subsidiary companies. Details of the corporate acquisition of Old Street Acquisitions Limited are shown in note 15.

The Group purchased three other properties, Scape Surrey, The Pad 2 and Water Lane Apartments. Scape Surrey and The Pad 2 were purchased directly by previously dormant subsidiary companies, GCP SG Limited and GCP RHUL Limited. Water Lane Apartments was purchased by a wholly owned subsidiary, GCP WL Limited which was incorporated in the year.

During the year the Group entered into forward purchase and forward funding arrangements in respect of two properties. Details of these commitments can be found above.

Accounting policy
Investment property comprises property held to earn rental income or for capital appreciation or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.

Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the income statement in the period in which they arise under IAS 40 Investment Property.

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (from lettings, tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets.

Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset.

4. Revenue

30 June  2016  30 June  2015
£’000  £’000
Nomination rental income 3,688  2,963
Direct let rental income 16,623  7,823
Discounts (426) (46)
Total student income 19,885  10,740
Teaching space income 471  452
Retail space income 1,747  38
22,103  11,230
Service charge income 264  124
Staff costs recharge income 115  151
Total 22,482  11,505

The Group employs the staff of the Asset and Facilities Manager, Scape. Staff costs recharge income above represents payroll costs relating to staff time spent on the Group’s pipeline properties which were already managed by Scape which had not yet been acquired by the Group.

Accounting policy
Rental income including direct lets to students, leases to universities and commercial tenants receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income which is recognised when it arises.

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Service charges are recognised on an accruals basis and are received to cover expenditure on hard and soft facilities management.

5. Property operating and administration expenses

30 June  2016  30 June  2015
£’000  £’000
Property operating expenses
Property operating expense 1,583   854
Utilities 856  627
Insurance 144  116
Sales and marketing 249  5
Property maintenance 38  112
Staff costs 1,718  950
Ground rent 234 
Ancillary income (222) (135)
4,600  2,529
Investment management fees 3,026  1,286
Directors’ remuneration 121  101
Other administration expenses 2,565  614
Administration expenses 5,712  2,001
Total 10,312  4,530

Included within administration expenses are investment management fees, as disclosed in note 29 and Directors’ remuneration as disclosed in note 6.

Ancillary income includes income received through such activities as laundry, cleaning and vending machines. Ancillary income is offset against amounts invoiced to the Company by Scape.

Accounting policy
All property operating expenses and administration expenses are charged to the income statement and are accounted for on an accruals basis.

6. Directors’ remuneration

30 June 2016 30 June 2015
£’000 £’000
Robert Peto 34 34
Peter Dunscombe 28 31
Malcolm Naish 28 28
Marlene Wood 31 8
Total 121 101

A summary of the Directors’ emoluments, including the disclosures required by the Companies Act 2006 is set out in the Directors’ remuneration report in the full annual report.

7. Staff costs

30 June 2016 30 June 2015
£’000 £’000
Salaries 1,702 938
Other benefits 17 12
Total 1,719 950

With the exception of the Directors, whose remuneration is shown in the Directors’ remuneration report in the full annual report, as at 30 June 2016 the Group employed 74 (2015: 51) members of staff, with an average of 72 (2015: 39) employees during the year.

Staff costs totalling £115,000 (2015: £151,000) have been recharged to entities outside the Group. This amount is included within revenue in note 4.

The Group operates a defined contributions pension scheme for one (2015: two) of its employees. The costs for the year ended 30 June 2016 totalled £4,000
(2015: £5,000).

8. Auditor’s remuneration  

30 June 2016 30 June 2015
£’000 £’000
Audit fee 95 83
Other services 255 184
Total 350 267

The Company reviews the scope and nature of all proposed non-audit services before engagement, to ensure that the independence and objectivity of the Auditor are safeguarded. Audit fees are comprised of the following items:

30 June 2016 30 June 2015
£’000 £’000
Year end annual report and financial statements 26 26
Subsidiary accounts for the year ended 30 June 2016 69
Subsidiary accounts for the year ended 30 June 2015 38
Subsidiary accounts for the period ended 30 June 2014 19
Total 95 83

The Auditor has provided tax advice, tax compliance services and non-audit services. These fees are broken down as follows:

30 June 2016 30 June 2015
£’000 £’000
Reporting accountant services 35 60
Tax advice 18 17
Tax compliance services for VAT 30 37
Tax compliance services for corporation tax returns 119 70
Tax advice in respect of aborted property purchases 53
Total 255 184

Accordingly tax fees totalling £106,000 will be non-recurring. The Directors made the decision to change tax advisers in March 2016 from Ernst & Young LLP, who are the Group’s Auditor, to Deloitte LLP. Further information is given in the audit committee report in the full annual report.

9. Finance income               

30 June 2016 30 June 2015
£’000 £’000
Income from cash and short-term deposits 75 10
Amortisation of financial liabilities 33
Total 75 43

   

Accounting policy
Interest income is recognised on an effective interest rate basis and shown within the income statement as finance income.

10. Finance expenses

30 June 2016 30 June 2015
Ongoing charges £’000 £’000
Swap interest 10 177
Loan interest 3,239 1,038
Loan commitment fee 15 12
Bank charges and other interest 6 9
Amortisation of loan arrangement fees 171 113
Amortisation of C share issue costs 30
Total 3,441 1,379

   

30 June 2016 30 June 2015
Other charges £’000 £’000
Amortisation of loan arrangement fees 431
Swap break fees 255
Loan cancellation fees 610
Amortisation of C share issue costs 2,536
Return on C shares 3,803
Total 7,635

Other finance charges have arisen from two items:

1. during the year, the Group entered into significantly improved new financing arrangements. The total costs of repaying and breaking the original bank borrowings and interest rate swap was £1,296,000.

2. finance costs of £6,339,000 arising in the year from the accounting treatment of the C shares as debt, this represents:

i. issue costs of £2,536,000 which on an equity raise would be treated as a reduction to equity rather than a finance cost; and

ii. the C shares issued last year represented contracts for conversion into a variable number of ordinary shares and therefore the C shares were classified as liabilities   under IFRS. The classification resulted in the issue costs and the return on the C shares being presented as finance costs in the statement of comprehensive income of the Group. The return on the C shares represented an increase in the assets attributable to the C shares over and above the funds raised from their issue.

Accounting policy
Any finance costs that are separately identifiable and directly attributable to a liability which takes a period of time to complete are amortised as part of the cost of the liability. All other finance costs are expensed in the period in which they occur. Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings.

After initial recognition, C shares are subsequently measured at amortised costs using the effective interest method. Amortisation is credited or charged to finance income or finance costs in the income statement. Transaction costs are amortised to the earliest conversion period.

11. Taxation

Corporation tax has arisen as follows:

30 June  2016  30 June 2015
£’000  £’000
Corporation tax on residual income for current year —  11
Corporation tax on residual income for prior periods (3) 7
Total (3) 18

Reconciliation of tax charge to profit before tax:

30 June  2016  30 June  2015
£’000  £’000
Profit before tax 28,325  31,299
Corporation tax at 20.00% (2015: 20.75%) 5,665  6,495
Change in value of investment properties (5,431) (5,324)
Tax exempt property rental business (2,107) (1,021)
Amounts not deductible for tax purposes 1,367  (107)
Capital allowances (318) (38)
Excess management expenses 824 
Other (3) 13
Total (3) 18

   

Accounting policy
Corporation tax is recognised in the income statement except where in certain circumstances corporation tax may be recognised in other comprehensive income.

As a REIT, the Company is exempt from corporation tax on the profits and gains from its property investment business, provided it continues to meet certain conditions as per REIT regulations.

Non-qualifying profits and gains of the Company (the residual business) continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the non-qualifying taxable income for the year if applicable, using tax rates enacted or substantively enacted at the balance sheet date.


12. Operating leases

Leases are typically direct-let agreements with individual students or higher education institutions for the academic year or a shorter period. The Group also has a small number of commercial leases on teaching and retail spaces and a number of nomination agreements whereby blocks of beds are let out for a set number of years.

Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2016 are as follows:

30 June 2016 30 June 2015
£’000 £’000
Within one year 26,912 7,323
Between one and five years 21,491 12,548
More than five years 41,647 22,647
Total 90,050 42,518


13. Dividends


Pence
30 June 2016
Pence
30 June 2015
per share £’000 per share £’000
For the year ended 30 June 2016
First interim dividend paid on 4 December 2015 1.41 1,549 1.40 1,538
Second interim dividend paid on 4 March 2016 1.41 2,871 1.40 1,539
Third interim dividend paid on 6 June 2016 1.41 3,070 1.40 1,539
Dividends paid during the year 4.23 7,490 4.20 4,616
Fourth interim dividend paid on 5 September 20161 1.43 3,744 1.40 1,539
Total 5.66 11,234 5.60 6,155
Paid as
Property income distributions 5.31 10,849 3.70 4,067
Ordinary dividends 0.35 385 1.90 2,088
Total 5.66 11,234 5.60 6,155

1.  The fourth interim dividend is paid after the year end and is not accrued as a provision in the financial statements.

As a REIT, the Company is required to pay PIDs equal to at least 90% of the property rental business profits of the Group. A final PID for the year ended 30 June 2016 was paid on 5 September 2016.

Accounting policy
Dividends due to the Company’s shareholders are recognised when they become payable. For interim dividends this is when they are paid.


14. Earnings per share

Basic EPS amounts are calculated by dividing profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares during the year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical. The following reflects the net asset and share data used in the basic and diluted NAV per share computations:

30 June  2016  30 June  2015
£’000  £’000
Group earnings for EPS 28,328  31,281
Fair value gains on investment properties (27,156) (25,660)
Group earnings for EPRA EPS 1,172  5,621
Group specific adjustments:
Finance costs – other per note 10 7,635 
Other exceptional items 884  171
Group specific adjusted earnings 9,691  5,792

For the purpose of the Company’s internal reporting, 30% of the investment management fee is charged to capital as opposed to income as approximately 30% of the Company’s stated annual total return target is generated through capitalised rental income.

30 June 
2016 
30 June 2015
Pence per  Pence per
share  share
Basic Group EPS 15.48  28.46
Basic Group EPRA EPS 0.64  5.11
Diluted Group EPS 15.48  28.46
Diluted Group EPRA EPS 0.64  5.11
Group specific adjusted EPS 5.30  5.27

   

30 June 2016 30 June 2015
Number Number
of shares of shares
Weighted average number of shares in issue 183,007,508  109,910,428
Effects of dilution from C shares —  2,567
Weighted average number of shares in issue adjusted for the effects of dilution 183,007,508  109,912,995

A third EPS calculation has been made to show EPRA earnings excluding the exceptional one-off finance costs arising in the year. The costs have arisen from two items:

1.   costs of repaying and breaking the original bank borrowings and interest rate swap totalling £1,296,000; and

2.   finance costs of £6,339,000 arising from the accounting treatment of the C shares. For further details please refer to note 10.

15. Business combinations and Group structure

The fair value of the identifiable assets and liabilities of Old Street Acquisitions Limited upon acquisition at 30 September 2015 were:

Fair
value of

Initial
further assets Identifiable 
assets at
valuation identified fair value
£’000 £’000 £’000
Investment properties 166,100 - 166,100
Trade receivables 1,394 (130) 1,264
Cash and cash equivalents 1,753 764 2,517
Trade payables (8,602) 102 (8,500)
Deferred rental income (1,539) (724) (2,263)
Retention liability (507) - (507)
Corporation tax provision (2) - (2)
158,597 12 158,609
Analysis of cash flows on acquisition
Cash consideration 79,186
Repayment of borrowings 79,423
Fair value of consideration paid 158,609
Cash and cash equivalents acquired (2,517)
Net cash outflow from acquisition 156,092 

Old Street Acquisitions Limited contributed £3,214,000 to revenue and £12,209,000 to the Group’s profit in the period between the date of the acquisition and the statement of financial position date. Accordingly, had the acquisition taken place at the beginning of the period, revenue contributed would have been £3,529,000 and the contribution to the Group’s profit would have been £12,385,000.

Subsidiaries

The financial statements comprise the financial statements of the Company and its subsidiaries, GCP Topco Limited, GCP Holdco Limited, GCP Scape East Limited, GCP Brunswick Limited (formerly Ternion (Danehurst) Limited), GCP Operations Limited, Leopard Guernsey Greenwich JV Limited, Leopard Guernsey Greenwich Limited and Leopard Guernsey Greenwich 2 Limited, Old Street Acquisitions Limited, Leopard Guernsey Old Street Limited, Leopard Guernsey Old Street 2 Limited, GCP RHUL Limited, GCP SG Limited and GCP WL Limited for the year ended 30 June 2016, and the comparative year for the year ended 30 June 2015.

The Company also owns three dormant subsidiaries: GCP Brunswick 2 Limited, GCP Apex Limited and GCP RHUL 2 Limited which have not yet commenced activities.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and distributions are eliminated in full. The Company has a 100% beneficial interest in the issued share capital of all subsidiaries.

On 27 August 2015 GCP Topco Limited and GCP Holdco Limited were incorporated and were wholly owned by GCP Student Living plc. These companies were dormant until 30 September 2015. GCP Holdco Limited on 30 September 2015 purchased 100% of the share capital of the following companies from GCP Student Living plc: GCP Scape East Limited, GCP Brunswick Limited, Leopard Guernsey Greenwich JV Limited, GCP SG Limited, and GCP RHUL Limited.

On 30 September 2015, GCP Topco Limited acquired GCP Holdco Limited from GCP Student Living plc.

On 30 September 2015, the Group obtained control of Old Street Acquisitions Limited by obtaining 100% of the issued share capital. The principal activity of this company and its subsidiaries is the provision of student accommodation in line with the Group’s investment strategy.

GCP SG Limited, incorporated 20 February 2014, was dormant until 7 September 2015 when it purchased Scape Surrey. The principal activity of this company is the provision of student accommodation in line with the Group’s investment strategy.

GCP WL Limited, incorporated 3 February 2016, was dormant until 15 February 2016 when it purchased Water Lane Apartments. The principal activity of the company is the provision of student accommodation in line with the Group’s investment strategy.

GCP RHUL Limited, incorporated 15 November 2013, was dormant until 21 September 2015 when it purchased The Pad 2. The principal activity of this company is the provision of student accommodation in line with the Group’s investment strategy.

GCP WL Limited, incorporated 3 February 2016, was dormant until 15 February 2016 when it purchased Water Lane Apartments. The principal activity of the company is the provision of student accommodation in line with the Group’s investment strategy.

On 17 May 2016 Ternion (Danehurst) Limited changed its name to GCP Brunswick Limited.





 


Company

 

Country of
registration,
incorporation
and operation




Number and
class of
share held by
the Group






Group holding

Capital  and 
reserves  at 
30 June  2016 
£’000 

Profit after  tax for the 
year  ended 
30 June  2016 
£’000 
GCP Apex Limited UK 2 ordinary shares 100% —  — 
GCP Brunswick Limited1 UK 1,046,728,191 ordinary shares
100%

15,229 

225 
GCP Brunswick 2 Limited1 UK 2 ordinary shares 100% —  — 
GCP Holdco Limited1 UK 5 ordinary shares 100% 286,775  36,013 
GCP Operations Limited UK 2 ordinary shares 100% 69  53 
GCP RHUL Limited1 UK 4 ordinary shares 100% 20,730  4,405 
GCP RHUL 2 Limited UK 2 ordinary shares 100% —  — 
GCP Scape East Limited1 UK 51,508,283 ordinary shares
100%

89,527 

15,751 
GCP SG Limited1 UK 4 ordinary shares 100% 23,307  4,261 
GCP Topco Limited UK 4 ordinary shares 100% 286,761  35,999 
GCP WL Limited UK 3 ordinary shares 100% 18,744  (114)
Leopard Guernsey Greenwich Limited1 Guernsey 102 ordinary shares 100% 24,028  4,200 
Leopard Guernsey Greenwich 2 Limited1 Guernsey 102 ordinary shares 100% 215  91 
Leopard Guernsey Greenwich JV Limited1 Guernsey 103 ordinary shares 100% (2,399) (26)
Leopard Guernsey Old Street Limited1 Guernsey 100 ordinary shares 100% 87,504  5,521 
Leopard Guernsey Old Street 2 Limited1 Guernsey 100 ordinary shares 100% 5,915  5,716 
Old Street Acquisitions Limited1 Guernsey 450 A ordinary shares 100% (3,482) (588)
550 B ordinary shares

1.  Indirect subsidiaries.

Accounting policy
Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree.

For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value of the proportionate share of the acquiree’s identifiable net assets. Acquisition costs (except for costs of issue of debt or equity) are expensed in accordance with IFRS 3 Business Combinations.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Contingent consideration is deemed to be equity or a liability in accordance with IAS 32. If the contingent consideration is classified as equity, it is not re-measured and its subsequent settlement shall be accounted for within equity. If the contingent consideration is classified as a liability, subsequent changes to the fair value are recognised in the income statement.

16. Cash and cash equivalents

30 June 2016 30 June 2015
£’000 £’000
Cash and cash equivalents 57,565 103,821
Subsidiary cash and cash equivalents 8,772 2,471
Total 66,337 106,292

   

Accounting policy
Cash and cash equivalents comprise cash at bank and short-term deposits with banks and other financial institutions, with an initial maturity of three months or less.

17. Trade and other receivables

30 June 2016 30 June 2015
£’000 £’000
Prepayments 254 84
Rent receivable 581 1,599
Amounts held on deposit 2,000
Amounts receivable from issue of C shares 16,195
Other receivables 4,032 805
Total 6,867 18,683

The amounts held on deposit is in relation to GCP Apex Limited and is a deposit for the purchase of land in respect of the Apex House forward funding project. A further £18 million is due upon completion.

Accounting policy
Rent and other receivables are recognised at their original invoiced value. An impairment provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

18. Other payables and accrued expenses

30 June 2016 30 June 2015
£’000 £’000
Property operating expenses payable 3,359 672
Finance expense payable 425 237
C share issue costs payable 2,499
Other expenses payable 2,330 1,411
Trade and other payables 6,114 4,819
Deferred income 5,235 2,442
Total 11,349 7,261

   

Accounting policy
Trade and other payables are initially recognised at fair value and subsequently held at amortised cost.

Deferred income is rental income received in advance during the accounting period. The income is deferred and is unwound to revenue on a straight-line basis over the period in which it is earned.

19. Interest-bearing loans and borrowings

30 June 2016
New 
facility 
£’000 
Previous 
facility 
£’000 
30 June  2015 
£’000
Loans drawn down at the start of the year —  40,000  40,000
Repayment of initial loan —  (40,000)
Loan drawn down 130,000  — 
Total loans drawn down 130,000  —  40,000
Loan arrangement fees (1,997) (655) (655)
Prior year amortisation —  224 
Amortised in the year 171  431  224
Unamortised loan arrangement fees (1,826) —   (431)
Loan balance less unamortised loan arrangement fees 128,174  —   39,569

At 30 June 2016, the interest rate on the loans was 3.07% (2015: 2.59%).

During the year, the Group’s £40 million loan with Barclays was repaid and the Company entered into new financing arrangements with a new lender, Pricoa Mortgage Capital. The Group has secured a facility for up to £130 million of borrowings at a fixed rate of 3.07% which is set to mature in September 2024. On 30 September 2015, the Group drew down £130 million under the new facility to finance the acquisition of Scape Shoreditch and refinance the existing assets and Barclays facility.

The Group uses gearing to enhance returns over the long term. The level of gearing is governed by careful consideration of the cost of borrowing and the Group uses hedging or otherwise seeks to mitigate the risk of interest rate increases. Gearing, represented by borrowings as a percentage of gross assets, will not exceed 55% at the time of investment. It is the Directors’ current intention to target gearing of less than 30% of gross assets in the long term and to comply with the REIT condition relating to the ratio between the Group’s ‘property profits’ and ‘property finance costs’.

The debt facility includes loan-to-value of and interest cover covenants that are measured at a Group level and the Group has maintained significant headroom against all measures throughout the financial period. The Group is in full compliance with all loan covenants at 30 June 2016.

For the purposes of the AIFMD, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and is calculated under the gross and commitment methods, in accordance with AIFMD.

The Company is required to state its maximum and actual leverage levels, calculated as prescribed by the AIFMD as at 30 June 2016, figures are as follows:

Leverage exposure Maximum limit Actual exposure
Gross method 155% 118.5%
Commitment method 155% 137.5%

   

Accounting policy
Loans and borrowings are initially recognised at the proceeds received net of directly attributable transaction costs. Loans and borrowings are subsequently measured at amortised cost with interest charged to the income statement at the effective interest rate, and shown within finance costs. Transaction costs are spread over the term of loan.


20. Financial derivatives and hedging


Hedged
30 June  2016  30 June 2015
amount Total  Total
£’000 Maturity £’000  £’000
Interest rate swap at fair value: 20,000 02/05/2017
Fair value at start of year (214) 47
Change in valuation —  (261)
Termination of swap contract 214 
Fair value of financial derivatives —  (214)

Cash flow hedges

On 30 September 2015 the Group terminated its interest rate swap contract. Break costs of £214,000 were incurred and have been expensed within finance costs in the consolidated statement of comprehensive income.

The Group’s interest rate swap was used to hedge the exposure to the variable interest rate payments on the variable rate element of the Company’s secured loans, which is no longer required.

Derivatives are classified in Level 2 in the fair value hierarchy under IFRS 13.

Accounting policy
The Group uses interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are recognised as an asset when the fair value is positive and as a liability when the fair value is negative.


21. C shares: financial liability

30 June 2016  30 June  2015
£’000  £’000
Value at start of year 117,422 
Proceeds from issue of C shares —  120,000
C share issue costs (2,575)
Amortisation of C share issue costs 2,536  30
Return on C share liability 3,803  (33)
Extinguishment of C share liability upon conversion to ordinary shares (123,770)
Value at end of the year —  117,422

On 25 June 2015, the Company announced the issue of 120,000,000 C shares, issued at £1 per share. The C shares are convertible redeemable preference shares. The shares (when in issue) were listed on the SFM (now the SFS) and dealing commenced on 30 June 2015. After the conversion of the C shares to ordinary shares, the shares were delisted on 28 October 2015.

The funds were raised in order to finance a number of property acquisitions.

Whilst the C shares were in issue, the results, assets and liabilities attributable to the C shares were accounted for in a separate pool to the results, assets and liabilities of the ordinary shares. A share of fund level expenses for the period the C shares had been in issue was allocated to the C shares based on the net assets of each share class pool.

On 28 October 2015 the C shares were converted to ordinary shares on the basis of a conversion ratio of 0.781044 C shares for every ordinary share which gives a conversion rate of 781 ordinary shares for every 1,000 C shares held.

The tables below give a summary of the results of the C share pool up to the date of conversion and the value of the C share pool assets on the date of conversion.

For the period from issue to conversion £’000 
Proceeds from issue of C shares 120,000 
C share issue costs (2,566)
Net rental income 87 
Administration expenses (946)
Fair value gains on investment properties 7,879 
Finance income 64 
Finance expenses (735)
Tax charge on residual income (13)
Value of C shares on conversion 123,770 

   

Represented by the following assets and liabilities £’000 
Investment property 209,430 
Trade and other receivables 3,800 
Cash and cash equivalents 14,342 
Deferred income (4,161)
Trade and other payables (10,516)
Retention liabilities (507)
Interest-bearing loans and borrowings (88,618)
Value of C shares on conversion 123,770 

   

Accounting policy
C shares are convertible redeemable preference shares and under IAS 32 Financial Instruments: Presentation, meet the definition of a financial liability. C shares are recognised on issue at fair value less directly attributable transaction costs. After initial recognition, C shares are subsequently measured at amortised cost using the effective interest method. Amortisation is credited or charged to finance income or finance costs in the income statement. Transaction costs are amortised to the earliest conversion period.


22. Share capital

 30 June 2016  30 June 2015
£’000 £’000
Issued and fully paid:
At the start of the year 1,099 1,099
Shares issued on conversion of C shares 93,725,280 ordinary shares of £0.01 each 937
Shares issued on 15 February 2016 14,074,075 ordinary shares of £0.01 each 141
Shares issued on 24 May 2016 44,085,232 ordinary shares of £0.01 each 441
Balance at the end of the year 2,618 1,099

On 28 October 2015, 93,725,280 ordinary shares were issued for the conversion of the C shares for a consideration of £123,770,000 representing the value of the C share asset pool, the balance of C shares were redeemed.

On 15 February 2016 and 24 May 2016, 14,074,075 and 44,085,232 ordinary shares were issued respectively.

The share capital comprises one class of ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every share held. There are no restrictions on the size of a shareholding or the transfer of shares, except for the UK REIT restrictions.


23. Share premium

30 June  2016  30 June 2015
£’000  £’000
At the start of the year 39,946  39,937
Shares issued on conversion of C shares 122,833 
Shares issued on 15 February 2016 18,859 
Shares issued on 24 May 2016 59,559 
Share issue costs (1,544) 9
Balance at the end of the year 239,653  39,946

The credit of £9,000 in the prior year represents a change in the estimated share issue costs accrued at 30 June 2014.


24. Capital and reserves

Share capital
Share capital is the nominal amount of the Company’s ordinary shares in issue.

Share premium
Share premium relates to amounts subscribed for share capital in excess of nominal value less associated issue costs of the subscriptions. On 31 July 2013, the Company by way of special resolution cancelled the then value of its share premium account, by an Order of the High Court of Justice, Chancery Division. As a result of this cancellation, £67.4 million was transferred from share premium to retained earnings in the financial period ended 30 June 2014.

Share premium comprises the following cumulative amounts:

30 June  2016 30 June  2015
£’000 £’000
Issue of share capital 312,252 111,001
Share issue costs (5,241) (3,697)
Share premium cancelled (67,358) (67,358)
Share premium 239,653 39,946

Hedging reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments.

Retained earnings

Retained earnings represent the profits of the Group less dividends paid from revenue profits to date. It should be noted that unrealised gains on the revaluation of investment properties contained within this reserve are not distributable until any gains crystallise on the sale of the investment property.

Retained earnings comprise the following cumulative amounts:

30 June  2016 30 June  2015
£’000 £’000
Total unrealised gains on investment properties 57,826 30,670
Total revenue profits 9,492 8,320
Dividends paid from revenue profits (9,492) (7,315)
Retained earnings 57,826 31,675

Special reserve

The special reserve represents the cancelled share premium less dividends paid from these reserves.

The special reserve comprises the following cumulative amounts:

30 June  2016 30 June  2015
£’000 £’000
Cancelled share premium 67,358 67,358
Dividends paid from reserves (8,987) (2,135)
Special reserve 58,371 65,223


25. Net asset value per share

Basic NAV per share amounts are calculated by dividing net assets in the statement of financial position attributable to ordinary equity holders of the Company by the number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical. The following reflects the net asset and share data used in the basic and diluted NAV per share computations:

30 June 2016 30 June 2015
Net assets attributable to ordinary shareholders (for calculation of EPRA NNNAV) (£’000)
358,468

137,729
Financial derivative (£’000) 214
Adjusted net assets for calculation of EPRA NAV (£’000) 358,468 137,943
Number of shares in issue 261,795,015 109,910,428
EPRA NNNAV (pence per share) 136.93 125.31
EPRA NAV (pence per share) 136.93 125.51


26. Fair value

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.

The fair value of cash and short-term deposits, trade receivables, trade payables, and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments.

Interest bearing loans and borrowings are disclosed at amortised cost. The carrying value of the loans and borrowings approximate to their fair value due to the contractual terms and conditions of the loan.

During their existence the C shares actively traded on the SFM (now the SFS). At 30 June 2015, their share price was 105.25 pence per share, giving a fair value (Level 1 in the fair value hierarchy) of the C shares of £126,300,000 compared to the amortised cost value of £117,422,000. As at 30 June 2015 the amortised cost value of the C share pool equated to the NAV of the C shares which the Directors considered the most appropriate way to disclose the liability within the financial statements.

The fair values of the derivative interest rate swap contracts are estimated by discounting expected future cash flows using current market interest rates yield curves and performance risk over the remaining term of the instrument.

Quarterly valuations of investment property are performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued, however the valuations are the ultimate responsibility of the Directors, who appraise these quarterly.

The valuation of the Company’s investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation – Professional Standards (incorporating the International Valuation Standards).

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets.

The following tables show an analysis of the fair values of financial instruments recognised in the statement of financial position by level of the fair value hierarchy1:

30 June 2016
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £’000 £’000 £’000 £’000
Investment properties 424,787 424,787
Total 424,787 424,787

   

30 June 2015
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £’000 £’000 £’000 £’000
Investment properties 177,220 177,220
Financial derivatives (214) (214)
Financial liability (117,422) (117,422)
Total (214) 59,798 59,584

1.             Explanation of the fair value hierarchy:

  • Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
  • Level 2 – use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and
  • Level 3 – use of a model with inputs that are not based on observable market data.

Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group’s portfolio of investment property are:

  • ERV;
  • rental growth;
  • tenancy period;
  • sundry income;
  • facilities management cost; and
  • initial yield.

Significant increases/(decreases) in the ERV (per sq ft p.a.) and rental growth p.a. in isolation would result in a significantly higher/(lower) fair value measurement. Significant increases/(decreases) in the long-term vacancy rate and discount rate (and exit or yield) in isolation would result in a significantly lower/(higher) fair value measurement.

Generally, a change in the assumption made for the ERV (per sq ft p.a.) is accompanied by:

  • a similar change in the rent growth p.a. and discount rate (and exit yield); and
  • an opposite change in the long-term vacancy rate.

The following table analyses:

  • the fair value measurements at the end of the reporting period;
  • a description of the valuation techniques applied;
  • the inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building; and
  • for Level 3 fair value measurements, quantitative information about significant unobservable inputs used in the fair value measurement.
Class Fair value Valuation
technique
Key unobservable
inputs
Range
Student property
30 June 2016
£424,787,000 Income
capitalisation
ERV – 2015/16
Rental growth
Tenancy period
Sundry income
Facilities management cost
Initial yield
£164.50 - £430 per week
2.5% - 3.0%
51 weeks
£50 - £100 per bed per annum
£1,950 - £2,150 per bed per annum
4.75% - 5.75% blended (4.75% - 7.50%)
Student
property
30 June 2015
£177,220,000 Income
capitalisation
ERV – 2014/15
Rental growth
Tenancy period
Sundry income
Facilities management cost
Initial yield
£180 – £340 per week
2.5% – 3.0%
51 weeks
£100 per bed per annum
£1,800 – £2,000 per bed per annum
5.12% – 5.75% blended (4.85% – 7.50%)

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to £27,156,000 (2015: £25,660,000) and are presented in the consolidated statement of comprehensive income in line item ‘fair value gains on investment properties’.

All gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.

The carrying amount of the Company’s assets and liabilities, except for the liability to the C shareholders in the prior period, is considered to be the same as their fair value.

27. Financial risk management objectives and policies

The Company’s principal financial liabilities, other than derivatives, are liabilities due to the C shareholders, loans and borrowings. The main purpose of the Company’s loans and borrowings is to finance the acquisition of the Company’s property portfolio. The Company has trade and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

The Company is exposed to market risk, interest rate risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Market risk

Market risk is the risk that future values of investments in property and related investments will fluctuate due to changes in market prices. The total exposure at the statement of financial position date is £424,787,000 and to manage this risk, the Group diversifies its portfolio across a number of assets. For more information on this please refer to the risk management section of the report.

Market risk is also the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The derivative financial instruments that were held by the Company in the prior period, were all fixed terms at fixed rates with the floating elements hedged on 50% of total borrowings. The Company’s exposure to market risk was limited to the remaining 50% which was not hedged.

Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates is minimal as it has taken out a fixed rate bank loan.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its leasing activities and its financing activities, including deposits with banks and financial institutions and derivatives.

Credit risk is managed by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed at the time of entering into a lease agreement. Outstanding tenants’ receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

The following table analyses the Group’s exposure to credit risk:

30 June 2016 30 June 2015
£’000 £’000
Deposit account 815 308
Cash and cash equivalents 66,337 106,292
Trade and other receivables 6,867 18,683
Total 74,019 125,283

The deposit account, cash and cash equivalents are held with Barclays which holds an A credit rating.

Liquidity risk

Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Group could be required to pay its liabilities earlier than expected. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:

Less Three
than three to twelve One to Two to More than
months months two years five years five years Total
Year ended 30 June 2016 £’000 £’000 £’000 £’000 £’000 £’000
Interest-bearing loans
and borrowings 1,006 2,985 3,941 11,984 145,975 165,891
Trade and other payables 774 5,340 6,114
Retention account 815 815
Total 1,780 8,325 4,756 11,984 145,975 172,820

   

Less Three
 than three to twelve One to Two to More than
months months two years five years five years Total
Year ended 30 June 2015 £’000 £’000 £’000 £’000 £’000 £’000
Interest-bearing loans
and borrowings 259 771 1,028 41,855 43,913
Trade and other payables 2,866 1,953 4,819
Retention account 308 308
Derivative financial instruments 44 131 146 321
Total 3,169 2,855 1,482 41,855 49,361

The disclosed amounts for financial derivatives in the above table are the net undiscounted cash flows.

28. Capital management

The Group’s capital is represented by share capital, reserves and borrowings.

The primary objective of the Group’s capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. No changes were made in the objectives, policies or processes during the period.

The Group may use gearing to enhance returns over the long term. The level of gearing will be governed by careful consideration of the cost of borrowing and the Group may use hedging or otherwise seek to mitigate the risk of interest rate increases. Gearing, represented by borrowings as a percentage of gross assets, will not exceed 55% at the time of investment. It is the Directors’ current intention to target gearing of less than 30% of gross assets in the long term and to comply with the REIT condition relating to the ratio between the Group’s property profits and property finance costs. As at the year end, the Group was operating with a property loan-to-value of 26.6% (30 June 2015: 22.5%).

During the year, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreement.

29. Related party transactions

Directors

The Directors (all non-executive Directors) of the Company and subsidiaries are considered to be the key management personnel of the Group. Directors’ remuneration for the year totalled £121,000 and at 30 June 2016, a balance of £13,000 (2015: £11,000) was outstanding. Further information is given in note 6.

Investment Manager

The Company is party to an investment management agreement with the Investment Manager, pursuant to which the Company has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction by the Board of Directors.

For its services to the Company, the Investment Manager receives an annual fee at the rate of 1.0% of the NAV of the Company (or such lesser amount as may be demanded by the Investment Manager at its own absolute discretion).

The Investment Manager has committed additional resource in providing its client funds, including the Company, a more comprehensive service which strengthens the level of transaction and marketing support for the Company, in a cost efficient manner. The Investment Manager receives a fee of 0.30% of the aggregate gross proceeds from any issue of new shares in consideration for the provision of marketing and investor introduction services. The Investment Manager has appointed Highland Capital Partners Limited to assist it with the provision of such services and pays all fees due to Highland Capital Partners Limited out of the fees it receives from the Company.

During the year, the Group incurred £3,354,000 (2015: £1,286,000) in respect of investment management fees, marketing fees and transaction management and documentation services, £3,029,000 which is included within administration expenses in the consolidated income statement and £325,000 included within the share issue costs relating to shares issued during the year. As at 30 June 2016 £897,000 (2015: £368,000) was outstanding.

With effect from 22 July 2014, the Company’s Investment Manager was authorised as an AIFM by the FCA under the AIFMD regulations. The Company has provided disclosures on its website, www.gcpuk.com/gcp-student-living-plc, incorporating the requirements of the AIFMD regulations.

Subsidiaries

GCP Student Living plc as at 30 June 2016 owns a 100% controlling stake in GCP Topco Limited, GCP Holdco Limited, GCP Scape East Limited, GCP Brunswick Limited and GCP Brunswick 2 Limited, GCP Operations Limited, Leopard Guernsey Greenwich JV Limited, Leopard Guernsey Greenwich Limited, Leopard Guernsey Greenwich 2 Limited, Old Street Acquisitions Limited, Leopard Guernsey Old Street Limited and Leopard Guernsey Old Street 2 Limited, GCP RHUL Limited and GCP RHUL 2 Limited, GCP WL Limited, GCP Apex Limited and GCP SG Limited respectively.

The tables below disclose the transactions and balances between the Company and subsidiary entities:

30 June 2016 30 June 2015
Transactions £’000 £’000
Recharges of fund level expenses to:
GCP Scape East Limited 285 384
GCP Brunswick Limited 20 39
Leopard Guernsey Greenwich JV Limited 138 192
GCP SG Limited 51
GCP RHUL Limited 74
Old Street Acquisitions Limited 340
GCP WL Limited 21
GCP Topco Limited 5 5
GCP Holdco Limited 5
GCP Operations Limited 17 17
Share capital issued in exchange for repayment of loans:
GCP Scape East Limited 51,508
GCP Brunswick Limited 10,467

   

30 June 2016 30 June 2015
Balances £’000 £’000
Loan balances included within book cost:
Leopard Guernsey Greenwich Limited 962
Leopard Guernsey Greenwich 2 Limited 637
Leopard Guernsey Greenwich JV Limited 29,846
Other intercompany balances due from/(to):
GCP Topco Limited 4,182
GCP Scape East Limited (721)
GCP Brunswick Limited (23)
Leopard Guernsey Greenwich 2 Limited 304
Leopard Guernsey Greenwich JV Limited (1,602)
GCP Operations Limited 41 11
GCP WL Limited 468

The loans for Leopard Guernsey Greenwich Limited, Leopard Guernsey Greenwich 2 Limited and Leopard Guernsey Greenwich JV Limited were capitalised in the year.

On 30 September 2015, on a share-for-share basis, GCP Holdco Limited acquired the following subsidiaries from GCP Student Living plc. GCP Topco Limited then acquired GCP Holdco Limited from GCP Student Living plc.

Company £’000
GCP Scape East Limited 76,448
GCP Brunswick Limited 15,003
Leopard Guernsey Greenwich JV Limited 47,324
GCP SG Limited 19,047
GCP RHUL Limited 16,288
Total purchased from GCP Student Living plc: 174,110
Purchased directly from third party:
Old Street Acquisitions Limited 76,652
Total 250,762

30. Events after the reporting period

On 14 September 2016, the Company announced that applications have been made to the UK Listing Authority and London Stock Exchange for listing on the Official List and a transfer to trading from the Specialist Fund Segment to the Premium Segment of the Main Market of the London Stock Exchange in respect of 261,795,015 ordinary shares. The admission is expected to occur with effect from 8.00am on 16 September 2016.

31. Ultimate controlling party

It is the view of the Directors that there is no ultimate controlling party.

COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2016

30 June  2016 30 June  2015
Notes £’000 £’000
Assets
Non-current assets
Investment in subsidiary companies 3 305,574 140,492
305,574 140,492
Current assets
Cash and cash equivalents  4 57,565 103,821
Trade and other receivables 5 2,040 16,216
Total assets 365,179 260,529
Liabilities
Current liabilities
Trade and other payables 6 (6,711) (5,378)
Financial liabilities at amortised cost (117,422)
Total liabilities (6,711) (122,800)
Net assets 358,468 137,729
Equity
Share capital 2,618 1,099
Share premium 239,652 39,946
Retained earnings 116,198 96,684
Total equity 358,468 137,729
Number of shares in issue 261,795,015 109,910,428
NAV per share (pps) 7 136.93 125.31

These financial statements were approved by the Board of Directors of GCP Student Living plc on 15 September 2016 and signed on its behalf by:

Robert Peto
Chairman

Company number: 08420243

The accompanying notes form an integral part of these Company financial statements.

COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2016

Share Share Retained
capital premium earnings Total
£’000 £’000 £’000 £’000
Balance at 1 July 2015 1,099 39,946 96,684 137,729
Profit for the year 28,543 28,543
Other comprehensive income
Total comprehensive income 28,543 28,543
Ordinary shares issued 1,519 201,251 202,770
Share issue costs (1,545) (1,545)
Dividends (9,029) (9,029)
Balance at 30 June 2016 2,618 239,652 116,198 358,468

COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2015

Share Share Retained
capital premium earnings Total
£’000 £’000 £’000 £’000
Balance at 1 July 2014 1,099 39,937 71,819 112,855
Profit for the year 31,020 31,020
Other comprehensive income
Total comprehensive income 31,020 31,020
Share issue costs 9 9
Dividends (6,155) (6,155)
Balance at 30 June 2015 1,099 39,946 96,684 137,729

The accompanying notes form an integral part of these Company financial statements.

COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 June 2016

30 June 2016 30 June 2015
£’000 £’000
Cash flows from operating activities
Operating profit 34,811 31,023
Adjustments to reconcile profit for the year to net cash flows:
Gains from change in fair value of subsidiary companies (34,237) (32,642)
Dividends received from subsidiary companies (2,671)
Costs reclassified as capital (145)
Corporation tax paid (7)
Recharges made to subsidiary companies (955) (631)
(Increase)/decrease in other receivables and prepayments (2,035) 154
Increase in other payables and accrued expenses 1,018 420
Net cash flow used in operating activities (4,069) (1,828)
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (130,492) 349
Net cash (used in)/generated from investing activities (130,492) 349
Cash flows from financing activities
Proceeds from issue of ordinary share capital 79,000
Share issue costs (1,538) (47)
Proceeds from the issue of C shares 16,195 103,805
C share issue costs (2,490) (76)
Cash received from subsidiary companies 5,933 7,613
Finance income 71 2
Finance expenses (1) (1)
Dividends paid in the year (8,865) (6,145)
Net cash flow generated from financing activities 88,305 105,151
Net (decrease)/increase in cash and cash equivalents (46,256) 103,672
Cash and cash equivalents at start of the year 103,821 149
Cash and cash equivalents at end of the year 57,565 103,821

The accompanying notes form an integral part of these Company financial statements.

NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 June 2016

1. General information
GCP Student Living plc is a closed-ended investment company incorporated in the UK on 26 February 2013. The registered office of the Company is located at 51 New North Road, Exeter EX4 4EP. The Company’s shares trade on the SFS.

2. Basis of preparation
These financial statements are prepared in accordance with IFRS issued by the IASB as adopted by the European Union. The financial statements have been prepared under the historical cost convention, except for investment property, investments in subsidiaries and derivative financial instruments that have been measured at fair value. The audited financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (£’000), except when otherwise indicated.

These financial statements are for the year ended 30 June 2016. Comparative figures are for the previous accounting period, the year ended 30 June 2015.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement or statement of comprehensive income.

The financial statements of the Company follow the accounting policies laid out above.

3. Investment in subsidiary companies

30 June 2016 30 June 2015
£’000 £’000
At the beginning of the year 140,492 129,020
Investment in subsidiary companies 130,845
Reduction in purchase costs (864)
Total acquisitions 130,845 (864)
Fair value gains on the revaluation of subsidiary companies 34,237 12,336
Total 305,574 140,492

The reduction in purchase costs represents a reduction in the purchase cost as agreed with the vendors and return of escrow balances.

Investments in and transfers of subsidiary companies

30 June 2016 30 June 2015
£’000 £’000
Investments in subsidiary companies
GCP SG Limited 19,047
GCP RHUL Limited 16,288
GCP Holdco Limited 76,652
GCP WL Limited 18,858
130,845
Cash items included in cashflow
GCP Holdco Limited 76,446
GCP SG Limited 18,888
GCP RHUL Limited 16,300
GCP WL Limited 18,858
Total 130,492

The difference between the acquisition of the subsidiaries are in respect of non-cash items being movements in intercompany loan balances.

On 30 September 2015, on a share-for-share exchange, GCP Holdco Limited acquired 100% of the share capital of the companies below for £174 million. An investment of £77 million was made in GCP Holdco Limited. GCP Student Living plc acquired 100% of the shares in GCP Topco Limited in exchange for 100% share capital of GCP Holdco Limited at a value of £251 million.

Company £’000
GCP Scape East Limited 76,448
GCP Brunswick Limited 15,003
Leopard Guernsey Greenwich JV Limited 47,324
GCP SG Limited 19,047
GCP RHUL Limited 16,288
Total purchased from GCP Student Living plc 174,110

   

Accounting policy
Investments in subsidiary companies which are all 100% owned by the Company are valued at NAV, which is equivalent to fair value.

Changes in fair value of investments and gains on the sale of investments are recognised as they arise in the Company statement of comprehensive income.

4. Cash and cash equivalents

30 June 2016 30 June 2015
£’000 £’000
Cash and cash equivalents 57,565 103,821
Total 57,565 103,821

   

Accounting policy
Cash and cash equivalents comprise cash at bank and short-term deposits with banks and other financial institutions, with an initial maturity of three months or less.

5. Trade and other receivables

30 June 2016 30 June 2015
£’000 £’000
Prepayments and other receivables 40 10
Amounts held on deposit 2,000
Amounts receivable from issue of C shares 16,195
Amounts receivable from subsidiary companies 11
Total 2,040 16,216

6. Other payables and accrued expenses

30 June 2016 30 June 2015
£’000 £’000
C share issue costs payable 2,499
Amounts due to subsidiary companies 4,691 2,042
Other expenses payable 2,020 837
Total 6,711 5,378

7. NAV per share

Basic NAV per share amounts are calculated by dividing net assets in the statement of financial position attributable to ordinary equity holders of the Company by the number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical. The following reflects the net asset and share data used in the basic and diluted NAV per share computations:

30 June 2016 30 June 2015
Net assets attributable to ordinary shareholders (£’000) 358,468 137,729
Number of shares in issue 261,795,015 109,910,428
NAV (pence per share) 136.93 125.31

8. Fair value

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.

The fair value of cash and short-term deposits, trade receivables, trade payables, interest loans and borrowings, and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments.

Interest-bearing loans and borrowings are disclosed at amortised cost.

Quarterly valuations of subsidiaries are based on NAV. The NAV of the subsidiaries are based on fair values of the assets held by the subsidiary. However the valuations are the ultimate responsibility of the Directors, who appraise these quarterly.

The following tables show an analysis of the fair values of financial instruments recognised in the statement of financial position by level of the fair value hierarchy1:

30 June 2016
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £’000 £’000 £’000 £’000
Investment in subsidiaries 305,574 305,574
Total 305,574 305,574

   

30 June 2015
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £’000 £’000 £’000 £’000
Investment in subsidiaries 140,492 140,492
Total 140,492 140,492

1.     Explanation of the fair value hierarchy:

  • Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
  • Level 2 – use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and
  • Level 3 – use of a model with inputs that are not based on observable market data.

9. Events after the reporting period

On 14 September 2016, the Company announced that applications have been made to the UK Listing Authority and London Stock Exchange for listing on the Official List and a transfer to trading from the Specialist Fund Segment to the Premium Segment of the Main Market of the London Stock Exchange in respect of 261,795,015 ordinary shares. The admission is expected to occur with effect from 8.00am on 16 September 2016.

ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held at the offices of Gowling WLG (UK) LLP, 4 More London Riverside, London SE1 2AU at 12.00 noon on Thursday, 27 October 2016.

The notice of this meeting will be circulated to shareholders with the full annual report and financial statements and will also available at www.gcpuk.com/gcp-student-living-plc.

NATIONAL STORAGE MECHANISM

A copy of the annual report and financial statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.

GLOSSARY OF KEY TERMS

AIC                                                         Association of Investment Companies

AIC Code                                               AIC Code of Corporate Governance

AIC Guide                                              AIC Corporate Governance Guide for Investment Companies

AIFM                                                      Alternative Investment Fund Manager

AIFMD                                                    Alternative Investment Fund Managers’ Directive

BARCLAYS                                            Barclays Bank PLC

Collegiate                                               Collegiate AC Limited – Asset and Facilities Manager for Water Lane Apartments, Bristol

COMPANY                                             GCP Student Living plc

COST OF BORROWING                       Cost of borrowing expressed as a percentage weighted according to period drawn down

CRM                                                       Corporate Residential Management Limited – Asset and Facilities Manager for The Pad until 31 August 2016

C SHARES                                             Convertible redeemable preference shares of one pence each in the capital of the Company

CTA                                                        Corporation Tax Act 2010

EPRA                                                     European Public Real Estate Association

EPRA EPS                                             Recurring earnings from core operational activities excluding movements relating to revaluation of investment
                                                               properties and interest rate swaps and the related tax effects, divided by the number of shares in issue

EPRA NAV PER SHARE                       EPRA NAV – includes all property at market value but excludes the mark to market of interest rate swaps

EPRA NNNAV PER SHARE                  As EPRA NAV but includes interest rate swaps carried at market value

EPS                                                        Earnings per share

ERV                                                        Estimated rental value

EU                                                          European Union

FRI                                                         Full repairing and insuring

GHG                                                      Greenhouse gas

GROUP                                                 GCP Student Living plc and its subsidiaries

HEI                                                         Higher education institution

HMRC                                                    HM Revenue & Customs

IASB                                                       International Accounting Standards Board

IFRS                                                       International Financial Reporting Standards

IPO                                                         Initial public offering

LOAN-TO-VALUE                                 Net debt expressed as a percentage of net assets excluding property value

NAV                                                       Net asset value

NON-PID                                               Non-property income distribution

OECD                                                    Organisation for Economic Co-operation and Development

PID                                                         Property income distribution

PORTFOLIO TOTAL RETURN             Unleveraged weighted capital and income return of the investment portfolio weighted by net rental income

PPS                                                        Pence per share

QMUL                                                    Queen Mary University of London

REIT                                                       Real estate investment trust

RHUL                                                     Royal Holloway, University of London

RICS                                                      Royal Institution of Chartered Surveyors

RPI                                                         Retail price index

SCAPE                                                   Scape Student Living Limited – Asset and Facilities Manager for Scape Shoreditch, Scape East, Scape Greenwich,                                                                 Scape Surrey and The Pad (with effect from 1 September 2016)

SFS                                                        Specialist Fund Segment of the Main Market of the London Stock Exchange (formerly SFM or Specialist Fund Market)

TOTAL SHAREHOLDER RETURN       Share price growth with dividend deemed to be reinvested on the dividend date

UCAS                                                     Universities and Colleges Admissions Service

UKLA                                                     United Kingdom Listing Authority

UK CODE                                              UK Code of Corporate Governance

ENDS

Neither the contents of GCP Student Living plc's website nor the contents of any website accessible from hyperlinks on the website (or any website) is incorporated into, or forms part of, this announcement.