Source - LSE Regulatory
RNS Number : 3731I
Empiric Student Property PLC
12 August 2021
 

12 August 2021

Empiric Student Property plc

("Empiric" or the "Company" or, together with its subsidiaries, the "Group")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021

Empiric Student Property plc (ticker: ESP), the owner and operator of premium student accommodation across the UK, today reports its interim results for the six months ended 30 June 2021.

 

Duncan Garrood, Chief Executive Officer of Empiric Student Property plc, said:

"Whilst we have been impacted by the pandemic, we remain encouraged by the resilience of the business, which is underpinned by the operational transformation we've undergone over the past three years, and our underlying business outlook remains positive. The number of students in our target market is set for continued growth and we are optimistic that a commitment to face to face teaching in most universities will result in occupancy levels for the upcoming 2021/22 academic year continuing to grow in the coming weeks.

Our unique Hello Student brand proposition gives us a competitive advantage, especially in a COVID affected world, and we plan to strengthen its impact and reach as we deliver on our five key priorities; actively managing our property portfolio; strengthening our brand proposition; driving performance through data analytics; delivering consistently high customer service; and developing our people.

We are actively managing the portfolio for capital recycling and are encouraged by progress on our disposal programme which supports the value of our balance sheet. We have also started the refurbishment works on our assets as planned. Our new revenue management system is working well and will allow us to reduce costs from September 2021 onwards as well as increase customer acquisition and revenue.

We are pleased to report that we will resume dividend payments in Q4 this year with a payment of 2.5p per share. This comprises the PID distribution requirement of 1p per share for the financial year 2019 and 1.5p per share for 2020. In 2022, we plan to start paying a minimum dividend of 1.5p per share per annum, with a view to increasing this as occupancy levels normalise. Our future dividend policy will be progressive, whilst also ensuring that dividends are paid on a fully covered basis. Driving long term shareholder value remains top of our agenda as we drive value enhancing changes in our business."

 

Financial performance

·      Revenue of £25.9 million (H1 2020: £34.0 million), as occupancy for this half year is 65% (H1 2020: 84%). The like for like rental growth for AY 2020/21 was 1.3%, down from the 1.8% previously reported as we prioritised occupancy levels over rental growth.

·      Property expenses at £10.9 million (H1 2020: £10.6 million). This increase was primarily driven through higher council tax liabilities due to lower occupancy.

·      Overall gross margin of 57.9% (H1 2020: 68.8%) as a result of lower revenues.

·      Maintained focus on controlling administrative expenses, which were £5.3 million (H1 2020: £5.2 million).

·      Disposal completed of four assets for £18.1 million, generating a profit on disposal of £1.7 million. 

·      Operating profit was £13.2 million (H1 2020 loss: £8.0 million), including a fair value gain of £1.8 million (H1 2020 loss: £26.2 million).

·      Net financing costs for the period were £6.2 million, net of interest earned (H1 2020: £6.4 million).

·      Profit before tax was £7.0 million (H1 2020 loss: £14.4 million). No corporation tax was charged in the period, as the Group fulfilled all its obligations as a REIT.

·      Basic EPS of 1.16p (H1 2020 loss: 2.39p).

·      The operating business continues to generate cash despite reduced occupancy rates. Adjusted earnings for H1 2021 are £3.5 million (H1 2020: £12.0 million).

·      Adjusted EPS was 0.59 pence (H1 2020: 1.98 pence).

·      No dividends paid during the period due to the ongoing impact of the pandemic (H1 2020: 1.25p). Resumption of dividend payments in Q4 this year with a payment of 2.5p.

·      As at 30 June 2021, the Group owned 91 assets representing 9,170 beds (31 December 2020: 9,396 beds). The portfolio included 87 revenue-generating properties at the period end, with 8,543 beds.

·      Property portfolio valued at £994 million at 30 June 2021 (31 December 2020: £1,005 million), reflecting the asset disposals completed.  The portfolio valuation has remained stable since the year end on a like for like basis. The COVID-19 valuation deduction made by CBRE as at 30 June 2021 reduced to £20 million compared to £21.4 million at the year end.

·      Underlying valuation yield of 5.59% (31 December 2020: 5.61%) has improved slightly, reflecting an improvement in rental growth on our super prime assets, partially offset by a reduction in secondary assets.

·      As at 30 June 2021, EPRA net tangible assets ("NTA") per share was 106.2 pence (31 December 2020: 105.0 pence).

·      Total Return in the period was 1.1% (30 June 2020: (2.1%)). 

·      During the period we fully complied with all of our banking covenants and there was no refinancing of debt facilities required. At the period end, the Group had committed investment debt facilities of £420 million, of which £375 million (31 December 2020: £390 million) had been drawn down, resulting in an LTV of 34.5% (31 December 2020: 35.4%), in line with our long term target of 35%.

Of total drawn debt of £375 million, £277 million (74%) is at fixed interest rates and £98 million (26%) is at floating rates. The aggregate cost of debt is 2.9%, with a weighted average term to maturity of 5.4 years at 30 June 2021.

As at 30 June 2021, we had £77.2 million of undrawn facilities and cash, and we currently have around £45 million of unencumbered assets.

No further refinancing requirements until November 2022.

 

Operational performance

·      Throughout the pandemic, we have taken a supportive approach to our students' situation, granting later check-ins, deferments, cost-free cancellations and refunds. Online reviews suggest this has helped enhance our brand reputation and drive future customer acquisition.

·      In November 2020, we successfully launched our new revenue management system and all bookings for the academic year 2021/22 are now managed in-house. We expect this to deliver annualised cost savings of about £1.5 million per annum from September 2021 onwards as well as increase customer acquisition and revenue.

·      We established an ESG Committee at Board level and set up three internal working groups to deliver the ESG initiatives. We conducted a benchmarking exercise against a relevant peer group, and also completed stakeholder interviews across a wide range of stakeholders. This has enabled us to identify and validate the four key themes that we intend to focus on and also align our initiatives with an industry reporting standard and establish clear metrics by which our progress can be measured:

Health and safety

Mental health and wellbeing

Energy efficiency

Sustainable properties

·      We continue to make good progress on all five of the key commercial priorities for the Group, which we are confident will further strengthen the Group's position: actively managing our property portfolio; strengthening our brand proposition; driving performance through data analytics; delivering consistently high customer service; and developing our people.

 

Market update

·      The latest data from UCAS, as of 30 June 2021, underlines that the UK student market is growing:

Student applications to UK Universities for AY 21/22 have grown 4% and university offers have increased 3% year on year.

UCAS predicts that these increases will see a record number of students starting university in the autumn. It is encouraging to see applications from the UK up 7% and Non-EU International Students up 14%, with application from China and India, two key markets for the Group, up 17% and 30%, respectively.

·      The Education Secretary has recently announced the end of restrictions on face to face teaching, and almost all universities are now planning a blended approach to learning, with a mix of face to face teaching and online lectures. In other words, they expect students to attend in person for AY 21/22 which is encouraging.

·      ONS estimates the number of UK 18-year-olds to grow 25% by 2030 adding almost 1 million more over the decade.

·      2020 was a record year with investment in student property totaling just over £6.0 billion, however the majority of this was Blackstone's £4.7 billion acquisition of the iQ portfolio. In 2021 so far, investment volumes are around £1.7 billion with the main sources of investment coming from REITs, private equity, sovereign wealth funds and private individuals. The potential acquisition of GCP Student Living is a good example. There is an expectation in the market that with only a number of weeks to go until the start of the 2021/22 academic year, many deals are likely to remain on hold until the start of the academic year or until bookings are confirmed through physical occupancy.

 

Post Period End

·      Bookings of 70% for the 2021/22 academic year at 11 August, compared to 65% as at 12 August 2020.

The lateness in bookings is mostly caused by some international students not yet committing to their plans. As a result, the Group currently has a greater proportion of UK Students in its mix, now representing 47% of bookings compared to about one third pre-pandemic. The remainder are international students and split equally between Chinese and other nationalities.

In recent weeks, an increasing number of bookings have come from international students outside the UK, who typically rent the Group's highest quality stock. The UK Government has indicated it will treat them in the same way as domestic residents, which means all students should be able to travel to the UK, regardless of country of origin, although relevant quarantine procedures will still apply.

The Group has put in place a comprehensive quarantine package for students coming from countries on the amber list offering two free weeks of accommodation as well as providing food, laundry services and making arrangements for testing so that they are able to self-isolate without any difficulties.

If the current level of bookings continues, we expect occupancy levels at the start of the academic year to be in the region of 75% to 85%.

·      We are pleased to resume dividend payments in Q4 this year with a payment of 2.5p. This comprises the PID distribution requirement of 1p per share for the financial year 2019 and a 1.5p per share for 2020.

·      In 2022, we intend to start paying a minimum dividend of 1.5p per share per annum, with a view to increasing this as occupancy levels normalise.

·      We are making good progress on the disposal of non-core assets, and plan to use these proceeds to invest an estimated £44 million on the refurbishment of properties, with a targeted IRR of 9% to 11%, and also spend approximately £30 million over the period to 2025 on work to ensure our buildings comply with forthcoming changes in fire and safety legislation.

·      Looking forward, once we achieve occupancy levels in line with those before the pandemic, we expect to deliver a Gross Margin above 70% and a total return in the 7% to 9% pa range.

 

Half year results Presentation

The Company presentation for investors and analysts will take place at 9.00am (BST) via a live webcast and conference call.

 

To access the live webcast, please register in advance here:

https://www.investis-live.com/empiric/60ed60cc0ed69a0a00480b39/eqgp

 

To access the live conference call, please contact Maitland/AMO at:

empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379 5151.

 

The recording of the webcast and presentation slides will also be accessible later on in the day from the Company website: https://www.empiric.co.uk/investor-information/company-documents 

 

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

Empiric Student Property plc

(via Maitland/AMO below)

Duncan Garrood (Chief Executive Officer)


Lynne Fennah (Chief Financial & Operating Officer)




Jefferies International Limited

020 7029 8000

Stuart Klein


Tom Yeadon




RBC Europe Limited (trading as RBC Capital Markets)

020 7653 4000

Charlie Foster

Marcus Jackson




Maitland/AMO (Communications Adviser)

07747 113 930

James Benjamin

empiric-maitland@maitland.co.uk

 

The Company's LEI is 213800FPF38IBPRFPU87.

 

Further information on Empiric can be found on the Company's website at www.empiric.co.uk.

 

Notes:

Empiric Student Property plc is a leading provider and operator of modern, predominantly direct-let, premium student accommodation located in high-demand university towns and cities across the UK. Investing in both operating and development assets, Empiric is a fully integrated operational student property business focused on premium studio-led accommodation managed through its Hello Student® operating platform, that is attractive to affluent growing student segments.

 

The Company, an internally managed real estate investment trust ("REIT") incorporated in England and Wales, listed on the premium listing segment of the Official List of the Financial Conduct Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in June 2014.

 

MANAGEMENT REPORT

Throughout the pandemic, we have adopted a supportive approach to our customers, and online reviews suggest this has helped enhance the Hello Student® brand reputation and drive up our Net Promoter Score to a sector leading +27. Driving long-term shareholder value remains top of our agenda as we drive value enhancing changes in our business and manage cash prudently.

Key Priorities

Within our 2020 Annual Report we highlighted five key priorities for the Group. We have made good progress on each of these, which are summarised below:

1)   Actively Managing our Property Portfolio

As we presented in March 2021, we have categorised our portfolio into four segments.

Segment A - This segment comprises properties we regard as core Hello Student sites. They are in good condition, have properly configured rooms, communal facilities and yield the best returns.

We plan to grow this segment through either standing asset acquisitions or developments. The location of these new sites will be situated near our existing buildings to increase the density of clustered buildings and drive operational efficiency.

Segment B - This segment comprises properties which fundamentally meet the Hello Student criteria but need investment in either refurbishment or modest reconfiguration. We will invest in these sites, where modelled returns are attractive, on a site-by-site basis. The aim is to eliminate this segment by converting them into Segment A quality. This will ensure that all Hello Student sites are of a consistently high standard. The level of refurbishments required are detailed further later on.

Segment C - This segment comprises properties which are not consistent with the Hello Student brand but have good commercial characteristics. There are two sub-categories in this segment.

The first sub-segment covers sites that are ideal for mature graduates or postgraduates who often look for accommodation in quieter locations, or perhaps something more suitable for couples. Holding this proposition enables us to retain and "upgrade" existing customers if they continue their studies, allowing us to benefit from building loyalty through their undergraduate experience.

The second sub-segment consists of properties ideally suited to first year UK students, typically because of their proximity to campus and cluster room configurations. These are usually managed through nomination agreements. However, if we cannot renew an agreement, we will consider moving the property to Segment D, for disposal. We have already taken one such decision and will continue to keep the remaining sites in the second sub-section under review.

Segment D - This segment comprises assets that no longer remain aligned to our brand proposition and are therefore identified for disposal.

To date, we have sold four sites in this segment for a total sale price of £18.1 million, this was above the December 2020 valuations leading to a profit on disposal for the half year of £1.7 million.

Further disposals are being pursued.

2)   Strengthening our Brand Proposition

The Hello Student brand already has strong awareness and a good reputation; however, it needs to have its proposition refined and refreshed through customer insight.

We have carried out extensive qualitative and quantitative customer research and identified the most important things to our customers. The survey covered more than 1,750 existing students who live in Halls, PBSA and those using HMOs. Our key question was "what are the most important factors when choosing accommodation (excluding location and price)".

The top priorities were very clear. Having their own space with some privacy, somewhere they feel safe and somewhere that feels like home where they can study.

Safety, security and our quality service, provided within a convenient distance of campus in a homely environment are all critical elements, which we have embedded in our proposition.

These findings also validate our recent change in working patterns to introduce 24-hour cover in our properties. Our reception desks are now manned around the clock, not just 9 to 5, ensuring that our residents feel safe and secure at all times.

The findings also confirm that our overriding brand message of "Homes, not Halls" is compelling.

3)   Driving Performance Through Data Analytics

With the completion of our in-house revenue management system (see operational update for detail), we are now refining and systemising our approach to pricing and marketing. We are ensuring that we have the capability within the Group to provide detailed understanding of revenue management, conversion rates and the effectiveness of our marketing.    

For example, we recently undertook an in-depth analysis of a cluster of properties in a city which seemed to be behind on bookings. This showed that across the cluster we had a large number of room types and prices. This was causing customer confusion and drop-off at the point of booking, so conversion was particularly low. This fragmented offering also led to sub-optimal search engine optimisation. As a result, we reduced the choice to six room types, re-aligned pricing against mapped local competitors and invested in targeted "pay per click" to drive more traffic to our website. As a result, our search position is now in the top three, and revenue occupancy grew 10% above the portfolio benchmark within two months of launching our revised offer.

4)   Delivering Consistent Customer Service

Our research has showed that providing social facilities and events through a period of lockdown and extended on-line learning, has been key to driving wellbeing and customer satisfaction.

For example, we hold mental health awareness programmes, exercise and yoga classes, quiz nights, music nights and cookery classes.

We have given all our colleagues "mental health first aid" training, to help them spot early signs of issues that our customers may be experiencing. We have also introduced an external counselling service free of charge to our customers to support them 24 hours a day.

As a result of this support, we have had an increased level of positive reviews on Google and social media which helps to build brand reputation and word of mouth recommendations. Our Net Promoter Score ("NPS") as measured by the independent Global Student Living Index has risen 6 points to +27 and compares favourably to -8 NPS for "All Halls".

5)   Developing our People

Our senior leadership and operations teams are now complete, providing us with the breadth and experience to execute our strategy. 

We have redefined and relaunched our values from the grassroots up, ensuring everyone has an opportunity to contribute. These have been received well and will form the bedrock of our service culture.

Following approval at our Annual General Meeting we introduced a sharesave scheme for the first time for all our employees, aligning rewards with shareholder interests.

In March 2021 we reported our colleague engagement was 81% which compares favourably to the national average of 68%. We have recently conducted a further survey where initial results indicate that this level was maintained. This is especially pleasing given the challenges of the past year of lockdown.

Our Market

2020 was a record year with investment volumes totalling just over £6 billion despite the challenges of the COVID-19 pandemic, however the majority of this was the result of Blackstone's £4.7 billion acquisition of the iQ portfolio. In 2021 so far, the investment volume is around £1.7 billion with the main sources of investment coming from REITs, private equity, sovereign wealth funds and private individuals. The potential acquisition of GCP is a good example. There is an expectation in the market that with only months to go until the start of the 2021/22 academic year, many deals are likely to remain on hold until the start of the year or until bookings are confirmed through physical occupancy.

Student demand figures for the upcoming year are looking positive. In the UCAS midcycle results the key points were:

-   Total undergraduate applicants up by 4%

-   Non-EU international applicants up by 14%

-   UK applicants up by 7%

-   EU applicants down by 43%

The Education Secretary has also announced the end of restrictions on face-to-face teaching, though it seems that almost all universities are planning a blended approach to learning, with a mix of in-person teaching and online lectures, meaning that they expect students to attend in person for AY 2021/22.    

Operational Update

Health and Safety Update

We continue to make health and safety our top priority. Focus areas have included in-depth fire safety studies, lone working arrangements including the introduction of an app-based process for regular check-ins and emergency support, enhanced reporting and colleague training. We have also maintained our focus on compliance which remains at high levels of achievement. During the half year we have had no serious injuries or fatalities, and our customer safety focus has been enhanced through 24/7 site presence.

Revenue Management System

We have continued our agile response to the challenges presented by COVID-19, enabled by our in-sourcing strategy over the previous three years.

As noted in our 2020 Annual Report, we started selling on our new platform for the academic year 2021/22 in November last year. This new system has several benefits including:

-   Direct control of all aspects of our revenue management, enabling us to make price changes much more efficiently and swiftly.

-   Improved customer journey on our website and ability to manage the relationship with our customers directly end-to-end and a CRM system.

-   Annualised cost savings of about £1.5 million per annum from September 2021 onwards, once our contract with a third-party provider expires.

The process for the collection of student debtors is the final element of this new platform which is currently being brought in-house. This will be completed by September 2021 and will be a centralised function within the finance team for the academic year 2021/22.

Our recently appointed Sales and Marketing Director will leverage this platform and focus in particular on:

-   systemising our approach to dynamic pricing; and

-   further improvements to the customer journey.

Both of the above link us back to our five key priorities as highlighted on pages 4 to 5 of our 2020 Annual Report.

 

Environment, Social and Governance ("ESG") Update

Having delivered the majority of the operational transformation, we now have direct control of our assets and are increasingly focused on sustainability.

We are committed to creating a sustainable, positive, environmentally focused, social and economic legacy for our shareholders, customers, colleagues and wider stakeholders.

In November 2020 we appointed an external ESG consultant to help us develop an ESG roadmap, which has progressed during the period.

We have also established an ESG Committee at Board level and set up three internal working groups to deliver the ESG initiatives.

We have conducted a benchmarking exercise against a relevant peer group, and also completed stakeholder interviews across a wide range of stakeholders, which has enabled us to validate the key themes.

We have identified four key themes we intend to focus on, as follows:

-   Health and safety

-   Mental health and wellbeing

-   Energy efficiency

-   Sustainable properties

We intend to align our initiatives with an industry reporting standard and establish clear metrics by which our progress can be measured. We will report further on our progress in our 2021 Annual Report.

Financial Performance

Revenue decreased by 24% to £25.9 million (H1 2020: £34.0 million), as occupancy for this half year is 65% compared to occupancy of 84% in the previous half year. The like-for-like rental growth for AY 2020/21 was 1.3%, down from the 1.8% previously reported as we prioritised occupancy levels over rental growth.

Property expenses were 3% higher at £10.9 million (H1 2020: £10.6 million). This increase was primarily driven by higher council tax liabilities due to lower occupancy. Overall gross margin reduced to 57.9% from 68.6% for the first half of 2020.

We maintained our focus on controlling administrative expenses, which were broadly flat at £5.3 million (H1 2020: £5.2 million).

Operating profit under IFRS was £13.2 million (H1 2020 loss: £8.0 million), including a fair value gain of £1.8 million (H1 2020 loss: £26.2 million), see Portfolio and Valuation section for detail. The initial yield of 5.59% is marginally better than the beginning of the year (31 December 2020: 5.61%). During the period we sold four assets with a net gain on disposal of £1.7 million.

Net financing costs for the period were £6.2 million, net of interest earned (H1 2020: £6.4 million).

Profit before tax was £7.0 million (H1 2020 loss: £14.4 million). No corporation tax was charged in the period, as the Group fulfilled all its obligations as a REIT.

Adjusted EPS was 0.59 pence (H1 2020: 1.98 pence. Adjusted EPS is defined in Note 4.

As at 30 June 2021, the EPRA NTA per share was 106.2 pence, (31 December 2020: 105.0 pence).

Total Return

Total Return in the period was 1.1% (H1 2020: (2.1)%).

Dividends

We did not pay any dividends during the period due to the ongoing impact of the pandemic. See the Looking Forward section for our future dividend policy.

Financing

During the period there was no refinancing of our debt facilities required. At the period end, we had committed investment debt facilities of £420 million, of which £375 million (31 December 2020: £390 million) had been drawn down, resulting in an LTV of 34.5% (31 December 2020: 35.4%). The aggregate cost of debt is 2.9%, with a weighted average term to maturity of 5.4 years at 30 June 2021. We fully complied with all of our banking covenants during the period.

Of our total drawn down facilities, £277 million is at fixed interest rates and £98 million is at floating rates.

We have also agreed waivers or an easing of covenant requirements on all our debt to ensure that we remain covenant compliant throughout the pandemic and through the majority of our Going Concern scenarios as set out further on. We would like to thank all of our lenders for the support which they have provided through this period.

We currently have around £45 million of unencumbered assets and as at the period end, we had £77 million of undrawn investment facilities and cash.

As we have no re-financing requirements until November 2022 and have taken protective measures to preserve liquidity, we are well placed to trade through the COVID-19 pandemic until the market recovers.

Portfolio and Valuation

As of 30 June 2021, the Group owned 91 assets representing 9,170 beds (31 December 2020: 9,396 beds). The portfolio included 87 revenue-generating properties at the period end, with 8,543 beds. 65% of our beds (including pipeline) are located in Russell Group university towns, and CBRE class 90% of our portfolio as prime or super prime.

Each property in the portfolio has been independently valued by CBRE, in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation-Professional Standards January 2014 and the UK national supplement 2018 (the "Red Book"). At 30 June 2021, the portfolio was valued at £994 million.

During the period we disposed of four properties for £18.1 million, they had a book value of £16.4 million and generated a profit on disposal of £1.7 million.

The underlying Net initial yield ("NIY") (after capital deductions) improved slightly to 5.59% (December 2020: 5.61%).

COVID Deduction

-   At 31 December 2020, the portfolio valuation reflected a £21.4 million COVID-related reduction mainly due to CBRE's assumption of 60% occupancy for the following nine months.   

-   As at 30 June 2021, CBRE revised this COVID deduction to £20.0 million and this is made up of:

-      A deduction for the remaining three months of AY 2020/21 covering July to September, being the difference between a normal year's expected income and predicted income for this period.

-      A deduction for AY 2021/22, reflecting their assumption of lower levels of international students, and income reductions ranging from 5% to 30% for each building in the portfolio.

Developments and Redevelopment

At the period end, we had a pipeline of four development projects, as shown in the table below:

Site

Development basis

Beds

Delivery year

Emily Davies, Southampton

Major refurbishment

232

2021

St Mary's, Bristol

Direct development

153

2022

South Bridge, Edinburgh

Major refurbishment

61

2022

FISC, Canterbury

Major refurbishment/development

1811

TBC

 

1 Potential for further beds as a result of the ongoing planning application.

Current Developments

The Southampton extension and refurbishment project completed in December 2020 is being mobilised into an operational building for the start of the 2021/22 academic year. The Edinburgh refurbishment project is due to start on site as we deliver this for the 2022/23 academic year.

St Mary's, Bristol development programme has been deferred to the next academic year as a consequence of COVID-19 that ultimately led to the required replacement of the main contractor. The new contractor is appointed, and the site is back to full construction activity. 

We are continuing to progress the Canterbury development, where we have achieved planning consent for the first phase of the development but are awaiting the outcome of a planning application for the second phase to ensure we get the greatest value from the development.

Planned Capital Expenditure and Refurbishments

As we mentioned at the year end and earlier in this report, we are now focused on active portfolio management.

Below we outline a high-level prudent indication of capital expenditure plans for the next five years:

-   An estimated £44 million to be spent on refurbishments. We are targeting an IRR of 9% to 11% for these refurbishment investment projects.

-   About £4 million on green initiatives to produce power or reduce energy consumption.

-   Approximately £30 million essential work to ensure our buildings comply with forthcoming changes in fire and safety legislation.

In recent years, our underlying level of ongoing capital expenditure that supports building life cycle plans has been circa £4 million per year and we expect this to continue throughout the five-year period.

Earlier in this report, we detail our approach to repositioning the portfolio and the rationale behind it.

If for any reason we cannot deliver the desired rate of return then we will look to dispose of the asset, although our expectations are that this is unlikely. 

We have already started two pilot projects in Bristol and Leeds, and we are carrying out the work whilst students are in residence for the first time. The projects are being managed to minimise the impact to our customers, and working in this way enables us to reduce any income loss.

Looking Forward

Whilst we have been impacted by the pandemic, our underlying business outlook remains positive.

The number of students in our target market is set for continued growth and we are optimistic that a commitment to face-to-face teaching in most universities will result in occupancy levels for the upcoming 2021/22 academic year growing in the coming weeks.

Our unique Hello Student brand proposition gives us a competitive advantage, especially in a COVID affected world, and we plan to strengthen its impact and reach as we deliver on our five key priorities.

We are actively managing the portfolio for capital recycling and are encouraged by progress on our disposal programme which supports the value of our balance sheet. We have also started the refurbishment works on our assets as planned.

Our new revenue management system is working well and will allow us to reduce costs from September 2021 as well as increase revenue and customer acquisition.

We expect our administration expense to be around £11 million for FY 2021. We have adopted a cautious approach to managing cash flow over the last year to ensure we protect shareholder value, including the pausing of dividend payments.

We are now pleased to report that we will resume dividend payments in Q4 this year with a payment of 2.5p per share. This comprises the PID distribution requirement of 1.0p per share for the financial year 2019 and a 1.5p per share for 2020.

In 2022, we intend to start paying a minimum of 1.5p per share per annum, with a view to increasing this as occupancy levels normalise.

Our future dividend policy will be progressive, whilst also ensuring that dividends are paid on a fully covered basis.

Our aim is to return to full occupancy as soon as it is possible to do so, once we achieve occupancy levels in line with those achieved pre-pandemic we would expect the Group to produce the following:

-   Total return in the range of 7% to 9%.

-   Gross margin above 70%.

If the current level of bookings continues, we expect occupancy levels at the start of the academic year to be in the region of 75%-85%.

Principal Risks and Uncertainties

The principal risks and uncertainties we face are described in detail on pages 42 to 46 of our Annual Report and Accounts for the year ended 31 December 2020. The Audit Committee, which assists the Board with its responsibilities for managing risk, has considered those principal risks and uncertainties in the light of the third national lockdown in early 2021 and concluded that whilst the categories of principal risks are unchanged during the period, there has been a slight reduction in risk across all aspects of our business as a result of the impact of COVID-19 vaccination roll-out.  

COVID-19

COVID-19 has had an impact across every industry, with the primary impact on the Group being the safety of our people and customers and reduced levels of occupancy.

As a result, for the December 2020 Annual Report, the Board introduced a new risk - Revenue Risk - which highlights the risk of reduced revenue from changes to university operations (for example, university teaching moving to an online platform or universities facing financial difficulties due to reduced student demand for higher education) and travel restrictions (for example, reduced domestic and international travel or issues with international student visas).The resilience of our business as a result of COVID-19 uncertainty has been documented under Going Concern.

Brexit

The UK left the European Union after a transition period, and to date we have not seen any impact from this event. The Board takes comfort that this government is committed to growing international student numbers - from the current level of almost 450,000 to 600,000 by 2030. The Treasury has also recognised the value of higher education exports by making visa applications and postgraduate employment limitations less onerous. As a result, no principal risk has been added due to Brexit.

Principal Risks

The principal risks and uncertainties described in the Annual Report and Accounts are summarised below:

External Risks

-   Student Demand Risk - There is a risk that the level of student demand will decrease.

-   Competition Risk - The risk of an increased level of competition and supply in the student accommodation sector.

-   Property Market Risk - The potential for a downturn in the property market.

-   Regulatory Risk - Large levels of regulation being applied to the student accommodation market.

-   Funding Risk - The availability of debt or equity and ability to raise it on acceptable terms.

-   Revenue Risk - The risk of reduced revenue from various changes to university operations and travel restrictions.

Internal Risks

-   Health and Safety Risk - The occurrence of a major health and safety incident including a fire.

-   Cyber Security Risk - The Group suffering from a cyber security breach.

-   People Risk - Inability to retain and attract top levels of staff.

Going Concern

The COVID-19 pandemic has created global economic uncertainty, and in particular uncertainty around income for the 2021/22 academic year. Accordingly, the Group has conducted a detailed going concern review and considered its liquidity position and banking covenant compliance strength. The detailed assessment we have undertaken is set out in Note 1.2 of the financial statements.

The Directors consider that the Group has adequate resources in place for at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the half year financial statements.

Responsibility Statement of the Directors in Respect of the Interim Report and Accounts

The Directors confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with UK -adopted International Accounting Standard 34 and that the operating and financial review herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:

-   an indication of important events that have occurred during the first six months of the financial period and their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial period; and

-   material related party transactions in the first six months.

A list of the current Directors is shown further on in this report. Shareholder information is as disclosed on the Empiric Student Property plc website, www.empiric.co.uk.

 

For and behalf of the Board

 

Mark Pain
Chairman
11 August 2021

 

Independent Review Report to Empiric Student Property plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' Responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group will be prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this interim financial report has been prepared in accordance with UK adopted International Accounting Standard 34, ''Interim Financial Reporting''.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our Report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

 

BDO LLP

Chartered Accountants
London, United Kingdom
11 August 2021

BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).

 

Unaudited Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

 

Unaudited six months to 30 June 2021

 

Unaudited six months to 30 June 2020

 

Audited year
31 December 2020

 

Notes

£'000

 

£'000

 

£'000

Continuing operations

 

 

 

 

 

 

Revenue

 

25,921

 

34,014

 

59,444

Property expenses

 

(10,925)

 

(10,599)

 

       (22,651)

 

 

 

 

 

 

 

Gross profit

 

14,996

 

23,415

 

36,793

 

 

 

 

 

 

 

Administrative expenses

 

(5,257)

 

         (5,199)

 

          (9,841)

Gain on disposal of investment property

 

1,651

 

-

 

-

Change in fair value of investment property

6

1,807

 

      (26,202)

 

       (37,603)

 

 

 

 

 

 

 

Operating profit/(loss)

 

  13,197

 

         (7,986)

 

(10,651)

 

 

 

 

 

 

 

Finance cost

 

(6,199)

 

         (6,445)

 

         (13,341)

Finance income

 

   1

 

  22

 

                22

 

 

 

 

 

 

 

Net finance cost

2

(6,198)

 

         (6,423)

 

     (13,319)

 

 

 

 

 

 

 

Profit/(Loss)before tax

 

    6,999

 

       (14,409)

 

    (23,970)

 

 

 

 

 

 

 

Corporation tax

3

-

 

-

 

-

 

 

 

 

 

 

 

Profit/(Loss) for the period and Total Comprehensive Income/(Expense)

 

          6,999

 

(14,409)

 

       (23,970)

 

 

 

 

 

 

 

Earnings per share expressed as pence per share

 

 

 

 

 

 

Basic

4

      1.16

 

   (2.39)

 

           (3.97)

Diluted

4

       1.16

 

  (2.39)

 

           (3.97)

 

Unaudited Condensed Consolidated Statement of Financial Position

 

 

 

Unaudited
30 June 2021

 

Unaudited
30 June 2020

 

Audited 31 December 2020

 

Notes

£'000

 

£'000

 

£'000

Non-current assets

 

 

 

 

Property, plant and equipment

 

177

 

333

 

135

Intangible assets

 

1,011

 

1,672

 

1,054

Investment property-operational assets

6

969,355

 

984,631

 

981,369

Investment property-development assets

6

24,942

 

25,449

 

23,751

 

 

995,485

 

1,012,085

 

1,006,309

Current assets

 

 

 

 

 

 

Trade and other receivables

 

7,161

 

6,335

 

14,510

Cash and cash equivalents

 

32,160

 

6,157

 

33,927

 

 

39,321

 

12,492

 

48,437

 

 

 

 

 

 

 

Total assets

 

1,034,806

 

1,024,577

 

1,054,746

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

15,878

 

13,590

 

15,527

Deferred rental income

 

8,007

 

8,110

 

20,676

 

 

23,885

 

21,700

 

36,203

Non-current liabilities

 

 

 

 

 

 

Bank borrowings

7

      370,508

 

359,913

 

385,266

 

 

370,508

 

359,913

 

385,266

 

 

 

 

 

 

 

Total liabilities

 

394,393

 

381,613

 

421,469

Total net assets

 

640,413

 

642,964

 

633,277

 

 

 

 

 

 

 

Called up share capital

 

           6,032

 

6,032

 

6,032

Share premium

 

              295

 

257

 

257

Capital reduction reserve

 

      475,038

 

475,038

 

475,038

Retained earnings

 

       159,048

 

161,637

 

151,950

Total equity

 

640,413

 

642,964

 

633,277

 

 

 

 

 

 

 

Total equity and liabilities

 

1,034,806

 

1,024,577

 

1,054,745

 

 

 

 

 

 

 

NAV per share basic (pence)

8

       106.17

 

       106.60

 

105.00

NAV per share diluted (pence)

8

       105.71

 

       106.36

 

104.60

EPRA NTA per share basic (pence)

8

       106.17

 

       106.60

 

105.00

 

Unaudited Condensed Consolidated Statement of Changes in Equity

Period from 1 January to 30 June 2021 (unaudited)

 

 

Called up share capital

 

Share premium

 

Capital reduction reserve

 

Retained earnings

 

Cash flow hedge reserve

 

Total equity

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2021

 

6,032

 

257

 

475,038

 

151,950

 

-

 

633,277

Changes in equity

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

6,999

 

-

 

6,999

Total comprehensive expense/income for the period

 

-

 

-

 

-

 

6,999

 

-

 

6,999

Share-based payment

 

-

 

-

 

-

 

137

 

-

 

137

Share options exercised (Note 10)

 

-

 

38

 

-

 

(38)

 

-

 

-

Total contributions and distribution recognised directly in equity

 

-

 

38

 

-

 

99

 

-

 

137

Balance at 30 June 2021

 

6,032

 

295

 

475,038

 

159,048

 

-

 

640,413

 

Period from 1 January to 30 June 2020 (unaudited)

 

 

Called up share capital

 

Share premium

 

Capital reduction reserve

 

Retained earnings

 

Cash flow hedge reserve

 

Total equity

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

6,032

 

257

 

482,578

 

175,891

 

-

 

664,758

Changes in equity

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

(14,409)

 

-

 

(14,409)

Fair value gain on cash flow hedge

 

-

 

-

 

-

 

-

 

-

 

-

Total comprehensive income for the period

 

-

 

-

 

-

 

(14,409)

 

-

 

(14,409)

Share-based payment

 

-

 

-

 

-

 

155

 

-

 

155

Dividends

 

-

 

-

 

(7,540)

 

-

 

-

 

(7,540)

Total contributions and distribution recognised directly in equity

 

-

 

-

 

(7,540)

 

155

 

-

 

(7,385)

Balance at 30 June 2020

 

6,032

 

257

 

475,038

 

161,637

 

-

 

642,964

 

Year from 1 January to 31 December 2020 (audited)

 

 

 

Called up share capital

 

Share premium

 

Capital reduction reserve

 

Retained earnings

 

Cash flow hedge reserve

 

Total equity

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

6,032

 

257

 

482,578

 

175,891

 

-

 

664,758

Changes in equity

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

-

 

-

 

-

 

(23,970)

 

-

 

(23,970)

Total comprehensive income for the period

 

-

 

-

 

-                               

 

(23,970)

 

-

 

(23,970)

Share-based payment

 

-

 

-

 

-

 

29

 

-

 

29

Dividends

 

-

 

-

 

(7,540)

 

-

 

-

 

(7,540)

Total contributions and distribution recognised directly in equity

 

-

 

-

 

(7,540)

 

29

 

-

 

(7,511)

Balance at 31 December 2020

 

6,032

 

257

 

475,038

 

151,950

 

-

 

633,277

Unaudited Condensed Consolidated Statement of Cash Flows

 

 

 Unaudited six months to 30 June 2021

 

Unaudited six months to 30 June 2020

 

Audited year to 31 December 2020

 

 

£'000

 

£'000

 

£'000

Cash flows from operating activities

 

 

 

 

 

 

(Loss)/Profit before income tax

 

6,999

 

(14,409)

 

(23,970)

Share-based payments

 

137

 

155

 

29

Depreciation charge

 

192

 

157

 

326

Impairment of fixed assets

 

-

 

-

 

898

Finance income

 

(1)

 

(22)

 

(22)

Finance costs

 

6,199

 

6,445

 

13,341

Gain on disposal of investment property

 

(1,651)

 

-

 

-

Change in fair value of investment property

 

(1,807)

 

26,202

 

37,603

 

 

10,068

 

18,528

 

28,205

Decrease in trade and other receivables

 

6,025

 

4,201

 

(3,971)

Increase/(decrease) in trade and               other payables

 

539

 

(512)

 

1,653

(Decrease) in deferred rental income

 

(12,669)

 

(21,094)

 

(8,528)

 

 

 

(6,105)

 

(17,405)

 

(10,846)

Net cash flows generated from operations

 

3,963

 

1,123

 

17,359

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of tangible fixed assets

 

(108)

 

(77)

 

(72)

Purchase of intangible assets

 

(83)

 

(113)

 

(370)

Purchase of investment property

 

(3,907)

 

(7,497)

 

(14,258)

Proceeds from disposal of investment property

 

18,020

 

-

 

-

Fixed term deposit

 

-

 

22

 

22

Net cash flows from investing activities

 

13,922

 

(7,665)

 

(14,678)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid

 

-

 

(7,540)

 

(7,540)

Bank borrowings

 

-

 

10,000

 

77,800

Repayments of bank borrowings

 

(15,000)

 

-

 

(42,800)

Loan arrangement fees paid

 

(137)

 

(371)

 

(1,009)

Finance costs

 

(4,515)

 

(5,907)

 

(11,722)

Net cash from financing activities

 

(19,652)

 

(3,818)

 

14,729

 

 

 

 

 

 

 

(Decrease)/increase in cash and             cash equivalents

 

(1,767)

 

(10,360)

 

17,410

Cash and cash equivalents at beginning    of period

 

33,927

 

16,517

 

16,517

Cash and cash equivalents at end of period

 

32,160

 

6,157

 

33,927

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

1. Accounting Policies

1.1 Trading Period

The condensed interim financial statements of the Group reporting period is from 1 January 2021 to 30 June 2021.

1.2 Going Concern

The COVID-19 pandemic has created global economic uncertainty, and in particular an uncertainty around income for the 2020/21 and 2021/22 academic years. Accordingly, the Group has conducted a detailed going concern review and considered its liquidity position and banking covenant compliance strength.

On 31 March 2020 the Group announced the difficult decision to suspend dividend distributions and guidance. The Group also took decisive action to focus on liquidity. All development spend was paused and other discretionary costs were reviewed with reductions identified and implemented. The Group also announced it would look favourably upon requests on a case-by-case basis from its customers who were either no longer in occupation or, due to university closures, plan not to return to their accommodation, to be released from their rent and lease obligations from 25 April 2020 onwards. The worst-case estimate for this was a £21.0 million cash impact, however the final actual impact of releasing students their rent obligations for the academic year 2020/21 was much less at £6.5 million.

As at 30 June 2021 the Group had £32 million in cash and £45 million of undrawn investment debt facilities. The Group is well funded and has no refinancing requirements until November 2022.

The Group's debt facilities include covenants in respect of LTV and interest cover, both projected and historic, and all debt facilities are ring-fenced with each specific lender. The Group maintains regular dialogue with all of its lenders as part of the ordinary course of business, however during the pandemic we have increased the frequency of this dialogue. As part of these discussions with our lenders we have had conversations specifically around the interest cover covenants to ensure we either temporarily restructure these or gain the relevant waivers from the banks to ensure that no issues arise. To date all of our banks have been supportive during this period and have expressed commitment to the long-term relationship they wish to build with Empiric.

Management has evaluated a number of scenarios in its going concern model. The critical assumption is the revenue occupancy for the upcoming 2021/22 academic year. Upside, central and downside cases have been constructed showing 2021/22 academic year occupancy of between 65% and 95%. For the 2020/21 academic year our occupancy has been 65%.

Scenario

Revenue occupancy for 2020/21 academic year

Revenue occupancy for 2021/22 academic year

Scenario 1 - Upside Scenario

65%

95%

Scenario 2 - Central Scenario

65%

80%

Scenario 3 - Downside Scenario

65%

65%

 

The Group continues to maintain covenant compliance for its LTV thresholds throughout the going concern assessment period. Property values would have to fall by more than 17% from June 2021 valuations before LTV covenants are breached.

In Scenario 1 and 2 above the Group continues to maintain covenant compliance for all its interest cover covenants. It maintains adequate levels of liquidity and does not need to utilise the additional £20 million RCF facility negotiated with Lloyds Bank plc throughout the same assessment period. In addition, no assumption is made as to the level of additional cost cutting measures or mitigating actions which could potentially be undertaken.

In Scenario 3, under our Downside Stress Scenario, we would not meet interest cover covenants at 31 March 2022 measurement date for two lenders. However, the Group has cure rights under the lending agreements and sufficient cash headroom to cure any interest cover ratio breaches if required. For one lender, under Scenario 3, we would not meet a specific 70% occupancy covenant requirement by October 2021. Under this scenario we would be dependent on the further support of this lender, and we would expect this support to be forthcoming.

To support the Directors' going concern assessment, the management also evaluated the occupancy level at which all ICR covenant tests were breached and, additionally, the impact of a "Reverse Stress Test" which was performed to determine the level of revenue occupancy for the 2021/22 academic year at which the Group would need to seek alternative sources of funding. For this model we kept revenue occupancy for the 2020/21 academic year at 65%.

The Directors noted that if occupancy falls below 44% then the Group would be in breach of all ICR covenants, and at 15% revenue occupancy for the 2021/22 academic year (50% lower revenue occupancy than our Downside Stress Scenario) the Group would need to seek alternative sources of funding.

As at 11 August 2021 our bookings for the 2021/22 academic year are at 70% and we are seeing these grow on a daily basis. As such we believe the downside scenario is unlikely.

Having reviewed and considered three modelled scenarios, the Directors consider that the Group has adequate resources in place for at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the annual financial statements.

1.3 Basis of Preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition.

This condensed consolidated interim financial report for the half-year reporting period ended 30 June 2021 has been prepared in accordance with the UK adopted International Accounting Standard 34, "Interim Financial Reporting" and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The Interim Report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this Report is to be read in conjunction with the Annual Report for the year ended 31 December 2020, which has been prepared in accordance with both "international accounting standards in conformity with the requirements of the Companies Act 2006" and "international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union", and any public announcements made by the Group during the interim reporting period.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 16 March 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These financial statements have been reviewed, not audited.

The Group's financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in Sterling, which is also the Group's functional currency.

The accounting policies adopted in this Report are consistent with those applied in the Group's statutory accounts for the year ended 31 December 2020 and are expected to be consistently applied during the year ending 31 December 2021.

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

 

1.4 Significant Accounting Judgements, Estimates and Assumptions

The preparation of the Group's interim financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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 affected in future periods.

Estimates

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

a) Fair valuation of investment property

The market value of investment property is determined, by an independent real estate valuation expert, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.

The valuations have been prepared in accordance with the RICS Valuation-Professional Standards January 2014 and the UK national supplement 2018 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths, and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Note 6.

For properties under development the fair value is calculated by estimating the fair value of the completed property using the income capitalisation technique less estimated costs to completion and an appropriate developer's margin.

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 interim financial statements:

a) Operating lease contracts-the Group as lessor

The Group has investment properties which have various categories of leases in place with tenants. The judgements by lease type are detailed below:

Student leases: As these leases all have a term of less than one year, the Group retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

Nominations and commercial leases: The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the lease terms, insurance requirements and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

1.5 Seasonality of Operations

The results of the Group's operating business are closely aligned to the levels of occupancy achieved by the property portfolio in each academic year. Empiric targets 51-week tenancies, with a one-week void period falling in September. This results in slightly lower revenue on the existing portfolio in the second half year combined with slightly higher costs from turning around the rooms for the new academic year.

The Group counteracts this through the development cycle as construction is timed to complete ready for the start of the academic year in September each year. These new properties becoming available increases revenue in the second half year.

1.6 Segmental Information

The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in student and commercial lettings, within the United Kingdom.

 

2. Net Finance Cost

 

 

Unaudited six months to 30 June 2021

 

Unaudited six months to 30 June 2020

 

Audited year to 31 December 2020

 

 

£'000

 

£'000

 

£'000

Finance costs

 

 

 

 

 

 

Interest expense on bank borrowings

 

                  5,820

 

5,890

 

                   11,838

Amortisation of loan transaction costs

 

                     379

 

555

 

                     1,503

 

 

6,199

 

6,445

 

13,341

 

 

 

 

 

 

 

Finance income

 

 

 

 

 

 

Interest received on bank deposits

 

                         1

 

22

 

                          22

 

 

                         1

 

22

 

                          22

 

 

 

 

 

 

 

Net finance cost

 

                  6,198

 

6,423

 

13,319

 

3. Corporation Tax

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Taxation is recognised in the profit and loss within the Group Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movement in equity, in which case it is also recognised as a direct movement in equity.

Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

4. Earnings Per Share

The number of ordinary shares is based on the time-weighted average number of shares throughout the period.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

EPRA EPS, reported on the basis recommended for real estate companies by EPRA, is a key measure of the Group's operating results.

Adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates and rental guarantees are added to EPRA earnings on the basis noted below as the Board sees these cash flows as supportive of dividend payments.

-   The adjustment for licence fees receivable is calculated by reference to the fraction of the total period of completed construction during the period, multiplied by the total licence fees receivable on a given forward funded asset.

-   The development rebate is due from developers in relation to late completion on forward funded agreements as stipulated in development agreements.

-   The discounts on acquisition are in respect of the vendor guaranteeing a rental shortfall for the first year of operation as stipulated in the sale and purchase agreement.

Reconciliations are set out below:

Unaudited six months to 30 June 2021

 

Calculation of basic EPS

 

Calculation of diluted EPS

 

Calculation of EPRA basic EPS

 

Calculation of EPRA diluted EPS

 

Calculation of adjusted basic EPS

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Earnings

 

 6,999

 

 6,999

 

 6,999

 

 6,999

 

 6,999

Changes in fair value of investment
property (Note 6)

 

-

 

-

 

(1,807)

 

(1,807)

 

(1,807)

Gain on disposal of investment property

 

-

 

-

 

(1,651)

 

(1,651)

 

(1,651)

Earnings/adjusted earnings (£'000)

 

6,999

 

6,999

 

3,541

 

3,541

 

3,541

Weighted average number of shares ('000)

 

 603,168

 

 603,168

 

 603,168

 

603,168

 

 603,168

Adjustment for employee share options ('000)

 

-

 

 2,593

 

-

 

2,593

 

-

Total number of shares ('000)

 

 603,168

 

 605,761

 

 603,168

 

 605,761

 

 603,168

Per-share amount (pence)

 

1.16

 

1.16

 

0.59

 

0.58

 

0.59

 

 

Unaudited six months to 30 June 2020

 

Calculation of basic EPS

 

Calculation of diluted EPS

 

Calculation of EPRA basic EPS

 

Calculation of EPRA diluted EPS

 

Calculation of adjusted basic EPS

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Earnings

 

(14,409)

 

(14,409)

 

(14,409)

 

(14,409)

 

(14,409)

Adjustment to include discounts on acquisition due to rental guarantees
in the period

 

-

 

-

 

-

 

-

 

162

Changes in fair value of investment
property (Note 6)

 

-

 

-

 

26,202

 

26,202

 

26,202

Earnings/adjusted earnings (£'000)

 

(14,409)

 

(14,409)

 

11,793

 

11,793

 

11,955

Weighted average number of shares ('000)

 

602,939

 

602,939

 

602,939

 

602,939

 

602,939

Adjustment for employee share options ('000)

 

-

 

-1

 

-

 

1,367

 

-

Total number of shares ('000)

 

602,939

 

604,306

 

602,939

 

604,306

 

602,939

Per-share amount (pence)

 

(2.39)

 

(2.39)

 

1.96

 

1.95

 

1.98

 

1 Due to the Group making a loss in the period, under IAS 33 the share options become antidilutive and thus are excluded from the above calculation.

 

 

 

 

 

 

 

 

 

 

 

Audited year to 31 December 2020

 

 

 

 

 

 

 

 

 

 

Earnings

 

(23,970)

 

(23,970)

 

(23,970)

 

(23,970)

 

(23,970)

Adjustment to include discounts
on acquisition due to rental
guarantees in the year

 

-

 

-

 

-

 

-

 

221

Changes in fair value of investment
property (Note 6)

 

-

 

-

 

37,603

 

37,603

 

37,603

Earnings/adjusted earnings

 

(23,970)

 

(23,970)

 

 13,633

 

 13,633

 

 13,854

Weighted average number of shares ('000)

 

 603,161

 

 603,161

 

 603,161

 

 603,161

 

 603,161

Adjustment for employee share options ('000)

 

 -  

 

-1

 

 -  

 

 551

 

 -  

Total number of shares ('000)

 

 603,161

 

 604,185

 

 603,161

 

 603,712

 

 603,161

Per-share amount (pence)

 

(3.97)

 

(3.97)

 

2.26

 

2.26

 

2.30

 

1 Due to the Group making a loss in the year, under IAS 33 the share options become antidilutive and thus are excluded from the above calculation.

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

 

5. Dividends Paid

 

 

Unaudited six months to 30 June 2021

 

Unaudited six months to 30 June 2020

 

Audited year to 31 December 2020

 

 

£'000

 

£'000

 

£'000

Interim dividend of 1.25 pence per ordinary share
in respect of the quarter ended 31 December 2020

 

-

 

7,540

 

7,540

 

 

-

 

7,540

 

7,540

 

 

 

 

 

 

 

6. Investment Property

 

 

Investment properties freehold

 

Investment properties long leasehold

 

Total operational assets

 

Properties under development

 

Total

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

As at 1 January 2021

 

849,220

 

132,149

 

981,369

 

23,751

 

1,005,120

Property additions

 

1,755

 

251

 

2,006

 

1,731

 

3,737

Property disposals

 

(16,367)

 

                     --  

 

(16,367)

 

-

 

(16,367)

Change in fair value during the period

 

3,765

 

(1,418)

 

2,347

 

(540)

 

1,807

As at 30 June 2021 (unaudited)

 

838,373

 

130,982

 

969,355

 

24,942

 

994,297

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2020

 

861,639

 

137,741

 

999,380

 

29,700

 

1,029,080

Property additions

 

2,064

 

227

 

2,291

 

4,911

 

7,202

Transfer of completed developments

 

5,582

 

-

 

5,582

 

(5,582)

 

-

Change in fair value during the period

 

(18,230)

 

(4,392)

 

(22,622)

 

(3,580)

 

(26,202)

As at 30 June 2020 (unaudited)

 

851,055

 

133,576

 

984,631

 

25,449

 

1,010,080

 

 

 

 

Investment properties freehold

 

Investment properties long leasehold

 

Total operational assets

 

Properties under development

 

Total

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

As at 1 January 2020

 

861,639

 

137,741

 

999,380

 

29,700

 

1,029,080

Property additions

 

      3,915

 

         352

 

                  4,267

 

         9,376

 

                  13,643

Transfer of completed developments

 

       13,082

 

               -  

 

                13,082

 

          (13,082)

 

                         -  

Change in fair value during the year

 

      (29,416)

 

              (5,944)

 

    (35,360)

 

      (2,243)

 

(37,603)

As at 31 December 2020 (audited)

 

  849,220

 

132,149

 

981,369

 

     23,751

 

1,005,120

 

 

 

 

 

 

 

 

 

 

 

In accordance with IAS 40, the carrying value of investment property is their fair value as determined by independent external valuers. This valuation has been conducted by CBRE Limited, as independent external valuers, and has been prepared as at 30 June 2021, in accordance with the Appraisal and Valuation Standards of the RICS, on the basis of market value. This value has been incorporated into the financial statements.

The valuation of all property assets uses market evidence and also includes assumptions regarding income expectations and yields that investors would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes, could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can lead to a reduction in property values and a loss in NAV.

All investment property is categorised as Level 3. There have been no transfers between Level 1 and Level 2 during any of the periods, nor have there been any transfers between Level 2 and Level 3 during any of the periods.

The valuations have been prepared on the basis of market value ("MV"), which is defined in the RICS Valuation Standards as:

"The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

 

The table below reconciles the fair value of the investment property as per the Consolidated Group Statement of Financial Position and the market value of the investment property as per the independent valuation performed in respect of each period end.

 

 

 

Unaudited six months to 30 June 2021

 

Unaudited six months to 30 June 2020

 

Audited year to 31 December 2020

 

 

£'000

 

£'000

 

£'000

Value per independent valuation report

 

993,828

 

1,009,610

 

1,004,651

Plus: long leasehold liability

 

469

 

470

 

469

Fair value per Group Statement of Financial Position

 

994,297

 

1,010,080

 

1,005,120

 

The following descriptions and definitions relate to valuation techniques and key unobservable inputs made in determining fair values. The valuation techniques for student properties use a discounted cash flow with the following inputs:

a)  Unobservable input: Rental values

The rent at which space could be let in the market conditions prevailing at the date of valuation. The rent ranges per week are as follows:

30 June 2021

 

30 June 2020

 

31 December 2020

£89-£339 per week

 

£102-£357 per week

 

£95-£357 per week

 

b)  Unobservable input: Rental growth

The estimated average annual increase in rent based on both market estimations and contractual arrangements. The assumed growths in valuations are as follows:

30 June 2021

 

30 June 2020

 

31 December 2020

1.0%

 

2.86%

 

1.48%

 

c)  Unobservable input: Net yield

The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase. The ranges in net initial yields are as follows:

30 June 2021

 

30 June 2020

 

31 December 2020

4.45%-8.15%

 

4.35%-7.50%

 

4.45%-8.50%

 

d)  Unobservable input: COVID rent deduction

The valuation as of 30 June 2021 includes a £19,982,000 capital deduction to the valuation to reflect the impact of COVID-19 on the valuations. This deduction is made up of three parts:

1)     The valuation reflects the contracted rental income as at 30 June 2021, with appropriate shortfalls made to each asset weighted to the remainder of the academic year.

2)     A general 'COVID Risk' deduction with a cap and collar of 5% and 30% has also been made to 2021/22 gross income, depending on each asset's performance. This reflects a risk adjustment weighted towards those assets which CBRE consider to be at risk if students fail to return as expected.

3)     A further deduction if there is a shortfall in projected rent for 2021/22, due to low demand. For example, in markets typically dominated by international students some operators have reduced their rents to attract more domestic bookings, but as set out earlier the market perception is that this is a one-year blip for 2021/22. In these instances, CBRE have calculated the difference between our opinion of market rent post 2021/22 and the proposed rents provided to us and, where CBRE have adopted the higher rent in the valuation, deducted any difference between the two where it is significant.

 

e)  Unobservable input: Physical condition of the property

 

f)   Unobservable input: Planning consent

No planning enquiries undertaken for any of the development properties.

 

g)  Sensitivities of measurement of significant unobservable inputs

As set out in the significant accounting estimates and judgements, the Group's portfolio valuation is open to judgements and is inherently subjective by nature.

 

As a result, the following sensitivity analysis for the student properties has been prepared by the valuer:

 

 

-3% change in rental income

 

+3% change in rental income

 

-0.25% change in yield

 

+0.25% change in yield

 

 

£'000

 

£'000

 

£'000

 

£'000

(Decrease)/increase in the fair value of investment properties

 

 

 

 

 

 

 

 

As at 30 June 2021

 

(39,130)

 

 39,250

 

 41,550

 

(45,720)

As at 30 June 2020

 

(40,000)

 

40,000

 

43,470

 

(47,530)

As at 31 December 2020

 

(40,020)

 

 40,060

 

 46,340

 

(42,230)

 

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

7. Borrowings

The existing facilities are secured by charges over individual investment properties held by certain asset-holding subsidiaries. These assets have a fair value of £948 million at 30 June 2021. In some cases, the lenders also hold charges over the shares of the subsidiaries and the intermediary holding companies of those subsidiaries.

A summary of the drawn and undrawn bank borrowings in the period is shown below:

 

 

 Bank borrowings drawn 30 June 2021

 

Bank borrowings

undrawn 30 June 2021

 

Total

30 June 2021

 

 

£'000

 

£'000

 

£'000

At 1 January 2021 (audited)

 

 390,000

 

 52,500

 

 442,500

Bank borrowings repaid during the year

(15,000)

 

 15,000

 

 -  

At 30 June 2021 (unaudited)

 375,000

 

 67,500

 

 442,500

 

 

 

 

 

 

At 1 January 2020 (audited)

355,000

 

35,000

 

390,000

Bank borrowings drawn in the period

10,000

 

22,500

 

32,500

At 30 June 2020 (unaudited)

365,000

 

57,500

 

422,500

 

 

 

 

 

 

At 1 January 2020 (audited)

355,000

 

35,000

 

390,000

Bank borrowings from new facilities in the year

52,800

 

42,500

 

95,300

Bank borrowings drawn in the year

25,000

 

(25,000)

 

-

Bank borrowings repaid in the year

(42,800)

 

-

 

(42,800)

At 31 December 2020 (audited)

390,000

 

52,500

 

442,500

 

Any associated fees in arranging the bank borrowings unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below:

 

 

 

Unaudited 30 June 2021

 

Unaudited 30 June 2020

 

Audited 31 December 2020

Current borrowings

 

£'000

 

£'000

 

£'000

Balance brought forward

 

-

 

42,800

 

42,800

Bank borrowings becoming current in the period

 

-

 

-

 

-

Less: Bank borrowings becoming non-current during the period

 

-

 

(42,800)

 

(42,800)

Less: Bank borrowings repaid in the year

 

-

 

-

 

-

Bank borrowings drawn down in the year

 

-

 

-

 

-

Bank borrowings: due in less than one year

 

-

 

-

 

-

Less: Unamortised costs

 

-

 

-

 

-

Current liabilities: Bank borrowings

 

-

 

-

 

-

 

 

 

 

 Unaudited 30 June 2021

 

Unaudited 30 June 2020

 

Audited 31 December 2020

Non-current borrowings

 

£'000

 

£'000

 

£'000

Balance brought forward

 

390,000

 

312,200

 

312,200

Total bank borrowings in the period

 

-

 

10,000

 

112,800

Bank borrowings becoming non-current
during the period

 

-

 

42,800

 

-

Less: Bank borrowings becoming current during the period

 

-

 

-

 

-

Less: Bank borrowings repaid during the period

 

(15,000)

 

-

 

(35,000)

Bank borrowings: due in more than one year

 

375,000

 

365,000

 

 390,000

Less: Unamortised costs

 

(4,492)

 

(5,087)

 

(4,734)

Non-current liabilities: bank borrowings

 

 370,508

 

359,913

 

 385,266

 

 

 

 

Unaudited 30 June 2021

 

Unaudited 30 June 2020

 

Audited 31 December 2020

Maturity of bank borrowings

 

£'000

 

£'000

 

£'000

Repayable within 1 year

 

-

 

-

 

-

Repayable between 1 and 2 years

 

-

 

-

 

-

Repayable between 2 and 5 years

 

 117,800

 

107,800

 

 132,800

Repayable in over 5 years

 

 257,200

 

257,200

 

 257,200

Non-current liabilities: bank borrowings

 

375,000

 

365,000

 

 390,000

 

 

 

 

 

 

 

 

 

Unaudited Notes to the Financial Statements

For the period 1 January 2021 to 30 June 2021

8. NAV Per Share

In October 2019, EPRA published new best practice recommendations for financial disclosures by public real estate companies. Three new measures of Net Asset Value ("NAV") were introduced namely: EPRA Net Tangible Assets ("NTA"), EPRA Net Reinvestment Value ("NRV") and EPRA Net Disposal Value ("NDV"). These recommendations are effective for accounting periods starting on 1 January 2020 and have been adopted by the Group.

The principles of the three new measures per EPRA are below:

EPRA Net Reinstatement Value: Assumes that entities never sell assets and aims to represent the value required to rebuild the entity.

EPRA Net Tangible Assets: Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

EPRA Net Disposal Value: Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. As the Group is a REIT, no adjustment is made for deferred tax.

The Group consider NAV to be the most relevant measure of the NAV measures and we expect this to be our primary NAV measure going forward.

A reconciliation of the three new EPRA NAV metrics from IFRS NAV is shown in the table below. The previously reported EPRA NAV has also been included for comparative purposes.

 

 

NAV

 

New EPRA NAV measures

 

Previously reported measure

Unaudited six months to 30 June 2021

 

IFRS

 

EPRA NRV

 

EPRA NTA

 

EPRA NDV

 

EPRA NAV

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Net assets per Statement of Financial Position

 

640,415

 

640,415

 

640,415

 

640,415

 

640,415

Adjustments

 

 

 

 

 

 

 

 

 

 

Purchaser's costs1

 

-

 

          34,658

 

-

 

-

 

-

Net assets used in per share calculation

 

640,415

 

675,073

 

640,415

 

640,415

 

640,415

 

 

 

 

 

 

 

 

 

 

 

Number of shares in issue

 

 

 

 

 

 

 

 

 

 

Issued share capital ('000)

 

603,203

 

603,203

 

603,203

 

603,203

 

603,203

Issued share capital plus employee options ('000)

 

605,796

 

605,796

 

605,796

 

605,796

 

605,796

 

 

 

 

 

 

 

 

 

 

 

Net asset value per share


£


£


£


£


£

Basic net asset value per share

 

   1.062

 

       1.119

 

        1.062

 

       1.062

 

  1.062

Diluted net asset value per share

 

     1.057

 

       1.114

 

        1.057

 

      1.057

 

1.057

1 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's costs. Any purchaser's costs deducted from the market value, are added back when calculating EPRA NRV.

 

 

 

 

NAV

 

New EPRA NAV measures

 

Previously reported measure

Year ended 31 December 2020

 

IFRS

 

EPRA NRV

 

EPRA NTA

 

EPRA NDV

 

EPRA NAV

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Net assets per Statement of Financial Position

 

633,278

 

633,278

 

633,278

 

633,278

 

633,278

Adjustments

 

 

 

 

 

 

 

 

 

 

Purchaser's costs1

 

-

 

          32,830

 

-

 

-

 

-

Net assets used in per share calculation

 

633,278

 

666,108

 

633,278

 

633,278

 

633,278

 

 

 

 

 

 

 

 

 

 

 

Number of shares in issue

 

 

 

 

 

 

 

 

 

 

Issued share capital ('000)

 

603,161

 

603,161

 

603,161

 

603,161

 

603,161

Issued share capital plus employee options ('000)

 

605,475

 

605,475

 

605,475

 

605,475

 

605,475

 

 

 

 

 

 

 

 

 

 

 

Net asset value per share


£


£


£


£


£

Basic net asset value per share

 

1.050

 

1.104

 

1.050

 

1.050

 

1.050

Diluted net asset value per share

 

1.046

 

1.100

 

1.046

 

1.046

 

1.046

1 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's costs. Any purchaser's costs deducted from the market value, are added back when calculating EPRA NRV.

 

 

 

 

NAV

 

New EPRA NAV measures

 

Previously reported measure

Unaudited six months to 30 June 2020

 

IFRS

 

EPRA NRV

 

EPRA NTA

 

EPRA NDV

 

EPRA NAV

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Net assets per Statement of Financial Position

 

642,964

 

642,964

 

642,964

 

642,964

 

642,964

Adjustments

 

 

 

 

 

 

 

 

 

 

Purchaser's costs1

 

-  

 

34,620

 

-

 

-

 

-

Net assets used in per share calculation

 

642,964

 

677,584

 

642,964

 

642,964

 

642,964

 

 

 

 

 

 

 

 

 

 

 

Number of shares in issue

 

 

 

 

 

 

 

 

 

 

Issued share capital ('000)

 

603,161

 

603,161

 

603,161

 

603,161

 

603,161

Issued share capital plus employee options ('000)

 

604,596

 

604,596

 

604,596

 

604,596

 

604,596

 

 

 

 

 

 

 

 

 

 

 

Net asset value per share


£


£


£


£


£

Basic net asset value per share

 

1.066

 

1.123

 

1.066

 

1.066

 

1.066

Diluted net asset value per share

 

1.063

 

1.121

 

1.063

 

1.063

 

1.063

1 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's costs. Any purchaser's costs deducted from the market value, are added back when calculating EPRA NRV.

9. Capital Commitments

As at 30 June 2021, the Group had total capital commitments of £1.0 million (31 December 2020: £11.3 million) relating to forward funded or direct developments.

10. Related Party Disclosures

Key Management Personnel

Key management personnel are considered to comprise the Board of Directors.

Share Capital

On 2 June 2021 the Company issued 42,112 ordinary shares to meet its obligations arising from a deferred share award granted on 25 April 2017 to Timothy Attlee, the former Chief Executive of the Company.

Share-Based Payments

On 22 April 2021, the Company granted nil-cost options over a total of 800,000 ordinary shares to Duncan Garrood and 632,400 ordinary shares to Lynne Fennah pursuant to the Empiric Long Term Incentive Plan (the "LTIP") for the 2021 financial year.

On 2 June 2021 the Company issued 42,112 ordinary shares to meet its obligations arising from a deferred share award granted on 25 April 2017 to Timothy Attlee, the former Chief Executive of the Company.

On 23 June 2021, under the Company's newly established SAYE Option Plan, the Company issued 324,784 options over ordinary shares.

Board Change

There were no changes in the period.

11. Subsequent Events

None.

Definitions

Adjusted EPS - Adjusted earnings per share is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates, rental guarantees and cumulative gains made on disposals of assets are added to EPRA earnings on the basis noted below as the Board sees these cash flows as supportive of dividend payments. This is then divided by the weighted average number of ordinary shares outstanding during the period (refer to Note 4).

ANUK - Accreditation Network UK is a central resource for tenants, landlords and scheme operators interested in accreditation of private rented housing.

Average Interest Cost - The weighted interest cost of our drawn debt portfolio at the balance sheet date.

Average Term of Debt - The weighted average term of our debt facilities at the balance sheet date.

Basic EPS - The earnings attributed to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period (refer to Note 4).

Colleague Engagement - KPI-Non IFRS measure-Calculated as per the results of our biannual colleague engagement surveys.

Company - Empiric Student Property plc.

CRM - Customer Relationship Management.

Customer Happiness - KPI-Non IFRS measure-Calculated per the results of our biannual customer surveys.

Dividend Cover - Adjusted earnings divided by dividend paid during the year.

EPRA - European Public Real Estate Association.

EPRA EPS - Reported on the basis recommended for real estate companies by EPRA (refer to Note 8).

EPRA NAV - EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for debt-related derivatives (refer to Note 8).

EPRA Net Disposal Value ("NDV") - Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. As the Group is a REIT, no adjustment is made for deferred tax.

EPRA Net Reinvestment Value ("NRV") - Assumes that entities never sell assets and aims to represent the value required to rebuild the entity.

EPRA Net Tangible Assets ("NTA") - Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

EU - European Union.

Executive Team - The Executive Directors made up of the CEO and CFO/COO.

GHG - Greenhouse gas.

Gross Asset Value ("GAV") - The total value of the Group's wholly owned property portfolio (refer to Note 6).

Gross Rent - The total rents achievable if the portfolio was 100% occupied for an academic year.

Gross margin - Gross profit expressed as a percentage of rental income.

Group - Empiric Student Property plc and its subsidiaries.

Hello Student® platform - Our customer-facing brand and operating system which we operate all of our buildings under.

HE - Higher education.

HMO - Homes of multiple occupants.

IASB - International Accounting Standards Board.

IFRS - International Financial Reporting Standards.

IPO - The Group's Initial Public Offering in June 2014.

IRR - Internal rate of return is a metric used to estimate the profitability of potential investments.

LIBOR - London interbank offered rate.

Loan-to-value ("LTV") - A measure of borrowings used by property investment companies calculated as total drawn borrowings (£375 million), net of cash (£32 million) and fixed term deposits, as a percentage of Gross Asset Value (£994 million) (refer to Notes 6 and 7) = 34.5%.

Net Asset Value ("NAV") - Net Asset Value is the net assets in the Statement of Financial Position attributable to ordinary equity holders.

Non-PID - Nonproperty income distribution.

PBSA - Purpose-built Student Accommodation.

PID - Property income distribution.

RCF - Revolving credit facility.

Rebooker Rate - KPI-Non IFRS measure-Calculated as the percentage of students staying with us in the previous year who chose to stay living with us for another academic year.

REIT - Real estate investment trust.

Revenue Occupancy - KPI - Non IFRS measure - Calculated as the percentage of our Gross Annualised Revenue we have achieved for an academic year.

RICS - Royal Institution of Chartered Surveyors.

Safety - Number of accidents - KPI-Non IFRS measure-Calculated as the number of RIDDOR accidents reported to the Health and Safety Executive.

Senior Leadership Team - The senior management team which sits beneath the Executive Team and is made up of the six department heads.

Total Return ("TR" or "TAR") - Growth in NAV per share plus dividends paid, expressed as a percentage of NAV per share at the beginning of the period.

Total Shareholder return - Share price growth with dividends deemed to be reinvested on the dividend payment date.

The Code - UK Code of Corporate Governance, as published in 2018.

UKLA - United Kingdom Listing Authority.

 

Company Information and Corporate Advisers

 

Directors and Advisers


Directors
Mark Pain (Chairman)

Duncan Garrood (Chief Executive Officer)
Lynne Fennah (Chief Financial and Operating Officer)
Jim Prower (Non-Executive Director)
Stuart Beevor (Non-Executive Director)
Alice Avis (Non-Executive Director)

Broker and Joint Financial Adviser
Jefferies International Ltd
Vintners Place
68 Upper Thames Street
London EC4V 3BJ

Broker and Joint Financial Adviser
RBC Europe Limited
Riverbank House
2 Swan Lane
London EC4R 3BF

Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU

Communications Adviser
Maitland/AMO
3 Pancras Square
London N1C 4AG

 

Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ

Auditor
BDO LLP
55 Baker Street
London W1U 7EU

Valuer
CBRE Limited
Henrietta House
Henrietta Place
London W1G 0NB

Administrator and Company Secretary
FIM Capital Limited
7 Cavendish Square
London W1G 0PE

 

 

Company Registration Number: 08886906
Incorporated in the UK (Registered in England)

Empiric Student Property plc is a public
company limited by shares

Registered Office
6th Floor, Swan House
17 to 19 Stratford Place
London W1C 1BQ

 

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