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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Empiric Student Property Plc | LSE:ESP | London | Ordinary Share | GB00BLWDVR75 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.90 | -0.95% | 94.00 | 93.90 | 94.20 | 95.40 | 94.00 | 94.80 | 843,369 | 16:28:02 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 80.5M | 53.4M | 0.0885 | 10.62 | 567.1M |
From May 2019 to May 2024
TIDMESP
RNS Number : 0249C
Empiric Student Property PLC
10 April 2017
10 April 2017
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2016
The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of modern, premium student accommodation across the UK, today announced the Company's audited results for the six months to 31 December 2016.
Following consideration of the Group's activities, in particular, the focus of operational and development activity around the start of the academic year in September, the Board decided that it would be appropriate to change the accounting reference date to 31 December. These results have, therefore, been prepared for the shortened six month period to 31 December 2016.
HIGHLIGHTS
Financial Highlights
Hot Features
Premium
As at 31 December % change
2016(1)
------------------------ ------------------ -----------------
Portfolio valuation GBP721.3m 37.7% on 30 June
2016
------------------------ ------------------ -----------------
NAV per share (basic) 105.9p 0.5% on 30 June
2016
------------------------ ------------------ -----------------
Dividend declared 3.05p 1.67% based on
per share 12 month target
------------------------ ------------------ -----------------
Gross annualised GBP52.1m 57.4% on 30 June
rent (2) 2016
------------------------ ------------------ -----------------
Adjusted EPRA Earnings
Per Share 0.72p
------------------------ ------------------ -----------------
Revenue GBP19.2m
------------------------ ------------------ -----------------
Earnings Per Share
(basic) 3.38p
------------------------ ------------------ -----------------
EPRA Earnings Per
Share 0.38p
------------------------ ------------------ -----------------
(1The comparative figures for the 12 months to 30 June 2016 have not been provided as these would not provide a meaningful comparison)
(2 Gross Annualised rent includes commercial revenue and marketed student revenue for the academic year 2016/17 at full occupancy')
-- Operating profit of GBP20.2 million
o GBP14.5 million revaluation gain
o GBP19.2 million rental income from standing assets
-- GBP143.4 million of new debt raised through two new facilities
-- As at 31 December 2016, the Loan to Value ratio ("LTV") was 31.1% (compared to a target of 35% and maximum of 40%), with a weighted average term to maturity for the debt of 7.5 years and a weighted average interest payable of 3.46%
Operational Highlights
-- 14 new assets (1,142 beds) contracted in the six months to 31 December 2016
-- 2,515 new beds generating revenue for 2016/17 academic year, including 1,728 beds from 13 newly completed developments
-- Portfolio now consists of 89 assets (8,504 beds) in 30 prime UK cities and towns as at 31 December 2016, continued progress to the IPO target of 10,000 beds within five years
-- Average valuation yield on the portfolio of operating assets at 31 December 2016 was 5.9% compared with average yield on acquisition or cost of 6.5%
-- Average rental uplift of 2.5% targeted for the 2017/18 academic year
-- Hello Student(R) managed 3,075 beds as at 31 December 2016 (30 June 2016: 1,868) and was ANUK accredited
Post balance sheet highlights
-- Acquired one new standing asset (Foss Studios, 220 beds) and one forward funded asset (Percy's Lane, 106 beds)
-- Acquired the remaining 50 per cent. share in joint venture asset (Glasgow, Willowbank) previously owned by an investment fund affiliated with Revcap Advisors Limited
-- Agreed GBP10m, three year unsecured loan with First Commercial Bank which has been drawn down
The Rt Hon Baroness Dean of Thornton-le-Fylde, Chairman of Empiric Student Property plc, commented:
"The last six months has been a period of continuing growth. We invested in or committed to a further 14 buildings with 1,142 beds in eight towns and cities across the UK, of which 10 buildings were operational. The number of revenue generating assets increased from 52 at 30 June 2016 to 75 at 31 December 2016.
"In addition, a key development was the approval by shareholders of a revised Investment Policy which enables us to grow our existing studio portfolio, as well as diversifying the range of student accommodation formats, catering for a wider group of students. These changes have facilitated the implementation of our 2025 Plan - our blueprint for the future growth of the Group."
For further information on the Company, please contact:
Empiric Student Property plc (via Newgate below) Paul Hadaway (Chief Executive) Tim Attlee (Chief Investment Officer) Akur Limited (Joint Financial Tel: 020 7493 3631 Adviser) Tom Frost Anthony Richardson Siobhan Sergeant Jefferies International Limited Tel: 020 7029 8000 (Joint Financial Adviser and Broker) Gary Gould Stuart Klein Newgate (PR Adviser) Tel: 020 7680 6550 James Benjamin Em: empiric@newgatecomms.com Zoe Pocock Lydia Thompson
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, direct-let, nominated or leased student accommodation across the UK. Investing in both operating and development assets, Empiric is a multi-niche student property company focused on, (i) providing good quality first year accommodation managed through its Hello Student(R) operating platform in partnership with universities, (ii) offering a variety of second and third year purpose built accommodation options for individual students and those wanting a group living environment, and (iii) continuing to expand the Group's existing premium, studio-led accommodation portfolio which is attractive to international and postgraduate students.
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.
A meeting for investors and analysts will be held at 9:00am today at:
Newgate
Sky Light City Tower
50 Basinghall Street
London, EC2V 5DE
In addition, a recorded webcast of this meeting and the presentation will also be available to download from the Company's website: www.empiric.co.uk.
The Annual Report and Accounts will today be available on the Company's website at www.empiric.co.uk. In accordance with Listing Rule 9.6.1, copies of these documents will also be submitted today to the UK Listing Authority via the National Storage Mechanism and will be available for viewing shortly at www.morningstar.co.uk/uk/NSM.
Hard copies of the Annual Report and Accounts will be sent to shareholders, along with the notice for Annual General Meeting 2016, on or around 21 April 2017.
Chairman's Statement
The six month period to 31 December 2016 has been one of continuing growth at the Company. Shareholders approved a revised Investment Policy which enables the Company to grow our existing studio portfolio, as well as a more diverse range of student accommodation formats, catering for a wider group of students.
Overview
I am pleased to introduce the financial results of Empiric Student Property plc for the six months ended 31 December 2016.
We continued to grow our portfolio of purpose-built student accommodation. During the six month period, we invested in or committed to a further 14 buildings with 1,142 beds in eight towns and cities across the UK, of which 10 buildings were operational.
At the period end, the Group owned or had committed to a portfolio of purpose-built student accommodation assets amounting to 8,504 beds across 89 buildings (including sites acquired subject to planning) across 30 cities and towns in the UK (30 June 2016: 7,396 beds across 75 buildings).
I am very pleased to report that 12 properties being developed on a forward funded or forward committed basis and one through our development joint venture with Revcap Advisors Limited ("Revcap") became income-producing for the 2016/17 academic year, with these 1,728 new beds forming part of our portfolio of standing assets. This includes our flagship development of the former Willowbank Primary School in Glasgow, which has been completed to a very high standard and complements our adjoining Ballet School property.
The Group's portfolio of assets (including the Company's share of a joint venture development asset) had an aggregate value of GBP721.3 million as at 31 December 2016 (30 June 2016: GBP523.9 million) as valued by CBRE. Of these properties, 75 (6,775 beds) were operational (or revenue generating) at the period end with gross annualised rent of GBP52.1 million (30 June 2016: 52 standing assets with 4,257 beds and gross annualised rent of GBP33.1 million) and were fully let.1
Our operating platform, Hello Student(R) , and its website, hellostudent.co.uk, launched in February 2016, has continued to expand. The marketing and management of more standing assets and the developments that commenced operation in September 2016 were brought in-house under Hello Student(R) . The number of buildings under management doubled to 36 over the six months to 31 December 2016 (3,075 beds (30 June 2016: 1,868 beds across 18 buildings)) with 4,882 beds being marketed.
The investments made over the six months were funded through existing equity capital and further debt. During the six month period to 31 December 2016, the Group secured a further GBP143.4 million of debt financing through two development loans secured against forward funded development assets and extensions to two existing facilities of GBP40 million each.
As at 31 December 2016, GBP243.9 million (excluding the Group's share of the debt relating to a joint venture development) was drawn down. As at 31 December 2016, the Loan to Value ratio ("LTV") was 31.1% (30 June 2016: 22.7%) (compared to a target of 35% and maximum of 40%), with a weighted average interest payable of 3.46%.
With the dividend declared for the quarter ended 31 December 2016 of 1.55p per share, we have paid out dividends in respect of the six month period equating to 3.05p per share (12 months to 30 June 2016: 6.0p per share). Of this, 0.93p per share was paid as a property income distribution ("PID") under the UK Real Estate Investment Trust ("REIT") rules.
We are targeting a dividend of 6.1p per share for the 12 months to 30 June 2017 (in line with our annual dividend growth target of not less than RPI), which we expect to be substantially covered by adjusted EPRA earnings per share for 2017.(2)
Future Growth
A key development for the Company was the approval by shareholders in December 2016 of the revised Investment Policy which increases the types of student accommodation investments that the Group can make, facilitating the implementation of our 2025 Plan - our blueprint for the future growth of the Group (see page 21 of the Annual Report for more detail).
The 2025 Plan is the culmination of a significant amount of research and analysis into the student accommodation market, including feedback from our own customers, which informed discussions around the Board and with our advisers. We also undertook a comprehensive consultation process with our major shareholders before proposing the necessary amendments to our Investment Policy in a General Meeting.
Another significant change to the Investment Policy was the removal of forward funded development assets from the restriction on developments. These assets enable us to develop further purpose-built student accommodation but with the advantage of reduced risk (the principal risk lies with the third party developer), together with a coupon from the developer which is accrued over the period of the development, as well as the enhanced capital returns typical of developments (these properties are usually acquired by us at a yield on cost of 7+%).
Together, these changes mean that we will be able to acquire or develop a more diverse range of student accommodation formats, catering for students from their first year as undergraduates to postgraduates, both UK and international, and from varying economic backgrounds, reducing marketing and operational costs, without losing focus on our core portfolio of premium studios. We will also look to work more closely with higher education institutions, themselves, to assist them in addressing the accommodation needs of a growing, and more demanding, student population.
Alongside these changes, shareholders approved a new Directors' Remuneration Policy to enable the introduction of a Value Delivery Plan which aligns the long term remuneration of the Executive Directors responsible for the delivery of the 2025 Plan, currently Paul Hadaway and Tim Attlee, with that of our shareholders.
Our Shareholders
Our aim, always, is to provide our shareholders with a secure and steadily growing return, with a covered dividend (increasing in line with RPI) and capital growth over the medium to long term, and we believe that the 2025 Plan will help us to deliver this.
We have gone to great lengths to engage with our shareholders regarding the 2025 Plan and its related proposals, incorporating their feedback wherever possible. As a Board, we are committed to maintaining a dialogue with all of our shareholders, with direct access to both Jim Prower, our Senior Independent Director, and me, as well as the ongoing programme of market updates, analyst presentations, site visits and one-on-one meetings between our Executive Directors and key shareholders and other potential investors.
The Board, Management and Staff
In the six months to 31 December 2016 we continued to secure financing, source and deliver investment opportunities and maintain the governance framework that our shareholders expect. We have also successfully delivered over 1,700 new beds through our development activities, significantly grown our operations capabilities, expanded our central management function to support this growth and, importantly, we have a plan in place for the future growth of the Company.
These achievements would not have been possible without the hard work and dedication of the Executive Directors and my other fellow Board members who have demonstrated outstanding commitment, as well as the Group's employees, who are key to our success. I would like to thank them all for their individual contributions.
Following the period end, in March 2017, Michael Enright tendered his resignation from the Group, for personal reasons. Michael had been Chief Financial Officer since the Company listed in June 2014 and my colleagues and I would like to thank him for his input and contribution and we wish him well for the future.
We have made good progress in seeking a permanent replacement for the role of Chief Financial Officer, further details of which are set out in my Nominations Committee Report on page 59 of the Annual Report.
Outlook
The fundamentals of the student accommodation sector remain the same: excess demand with limited supply. With our 2025 Plan, we expect to be able to address this demand in a wider context.
The UK is still in the process of determining how its exit from the EU will take place and the impact it may have on the future of the country and the economy. The UK Government has publicly committed to promoting UK higher education internationally in order to maintain the world-class reputation of our universities.
In a time of persisting uncertainty in the macro-economic backdrop, we aim to provide our shareholders with the certainty of a stable return on their investment together with the anticipation of future growth prospects.
The Rt Hon the Baroness Dean of Thornton-le-Fylde
Chairman
10 April 2017
(1 The Company budgets and models on 97% occupancy.)
(2 Shareholders should note that the figures in relation to dividends set out above and elsewhere in this Annual Report are for illustrative purposes only and are not intended to be, and should not be taken as, a profit forecast or estimate.)
Our Business
Our aim is to provide shareholders with regular, sustainable and growing long term dividends, together with the potential for capital appreciation over the medium to long term. We deliver value by investing in operating and development assets, and managing a diversified portfolio of properties to offer premium university student accommodation to a range of customers, from first year undergraduates through to postgraduates.
Our business generates value for our shareholders...
-- Dividends paid in respect of the six months to 31 December 2016 of 3.05p per share, targeting 6.1p per share for the 12 months to 30 June 2017
-- NAV was 105.9p per share at the end of the six month period to 31 December 2016 (30 June 2016: 105.4p per share)
...in a unique and efficient way ...by drawing on
our key strengths
------------------------------------------ -------------------------------------------------------------
Locations Prime university towns
and cities * 36 target locations based on the strengths and
trajectory of each university
----------- ----------------------------- -------------------------------------------------------------
Highly selective
* Sites selected on their attractiveness and proximity
to universities and city centre amenities
----------- ----------------------------- -------------------------------------------------------------
Buildings Buildings that fit strategic
niches * Picking stock that fits strategic niches, with an eye
on future value
* Buildings of character
----------- ----------------------------- -------------------------------------------------------------
Acquisition, development
and asset management * Effective acquisition strategies based on
tried-and-tested methods
* Development of purpose-built accommodation and
facilities
----------- ----------------------------- -------------------------------------------------------------
Design specification
* Specifications tailored to each building, versatile
approach to high quality interiors
* Innovative use of communal space
----------------------------- -------------------------------------------------------------
Size tailored to target
market * Smaller buildings that engender loyalty and build
* Larger buildings to facilitate interactions within a
student body
* Clustered together for operational efficiency
----------- ----------------------------- -------------------------------------------------------------
Operations Marketing
----------- ----------------------------- -------------------------------------------------------------
People * A boutique approach to marketing and management
* Focus on recruitment of experienced and dedicated
staff
* Empowerment of property managers to feel ownership,
pride and vested interest
----------- ----------------------------- -------------------------------------------------------------
Asset management
* Hello Student(R) operational platform established
with the aim to manage 10,000 beds by 2018
----------------------------- -------------------------------------------------------------
Building relationships
* Supporting universities directly and indirectly
through delivery of a range of stock types
----------- ----------------------------- -------------------------------------------------------------
Technology Bespoke and fit-for-purpose
systems * Contracting with specialist providers to develop new
accounting, central operational and booking systems
* Underpinned by reliable supplier relationships
----------- ----------------------------- -------------------------------------------------------------
Our Strategy
Deepen and widen engagement with, and understanding of, all stakeholders
Achieving positive returns for our shareholders through:
Focus on target locations and increasing our presence
Diversification of building types while retaining a focus on quality
In-house management leading to cost reductions
Brand management facilitating cross-marketing
Broadening of our customer base
Theme 2025 Plan Objectives What we did July-Dec Outlook
2016
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Locations
* Selectively invest in 36 towns and cities * Established a presence in 30 of 36 towns and cities * In all locations we have a requirement for additional
beds
* Create efficiencies in locations with existing assets, * Analytical review of demand and supply
plus some additional leading university locations characteristics of 36 target cities * Asset selectivity will be informed by the existing
holding in each location. Some cities are new and all
four asset types under the 2025 Plan will be
* Metrics of university performance and trajectory to * Granular investigation into the four property targeted. In our largest cities (for example,
be developed in-house, to refine product types and subgroups Manchester with over 700 beds and Cardiff with over
assess locational risk 500 beds), acquisition will be more selective
* Updated acquisitions strategy
* The 2025 Plan envisages growth to 1,200 - 1,500 beds
per city or town over the medium to long term
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Buildings
* Continue to purchase core assets * Worked on the proto-typical building design and * Opportunities to purchase different types of stock
appraisals to establish investment and acquisition regularly emerge in portfolios and individually
criteria at a building level to enable acquisition
* Increase development options team to appraise in each location
* Development pipeline is very strong
* Diversifying income between direct-let and leased * Purchased the Campbell property portfolio
properties and between different markets and product * We are actively pursuing university relationship
types, to spread operational risk and increase opportunities
efficiencies
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Management
* Provide the majority of operational functions * Head office relocated to accommodate expansion * Continue transfer to management by Hello Student(R)
in-house platform from outsourced
* Hired five central staff and 28 regional hires plus
* Grow at a sustainable rate 16 TUPE * As the number of properties managed by Hello
Student(R) increases, the drag of up-front set-up
costs will diminish, and an increase in economies of
* Build gross income * Moved 18 operating assets under the Hello Student(R) scale will emerge
brand
* Reduce marketing costs per asset
* Pilot of Newcastle based accountants
* Improve operational efficiency
* Continued to develop relationship with Incentive FM
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Brand
* Improve the student experience through a consistent * First full letting season for Hello Student(R) * 4,882 beds will be operational under Hello Student(R)
and high quality approach to branding, operation and management started by September 2017 (if no further acquisitions)
management through the Hello Student(R) platform
* At 31 December 2016, 3,075 beds being marketed by * App rollout to other cities for September 2017
* Build on the Hello Student(R) consumer brand and Hello Student(R)
capture first year students as new customers and then
provide a fresher to PhD accommodation and service * Continued work towards a "click-click-book" bookings
offering * 17 cities being marketed by Hello Student(R) system
* Customer app testing in Nottingham * Commercial relationships with other brands in our
space being nurtured
* Restructure of the "no deposit" booking system
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Customers
* Enable loyal customers to move building to building * Social media - Facebook grew to a reach of 4.1 * First premium houses and affordable apartments
and city to city but keep them attracted to an million prototypes will launch in 2017
Empiric building
* Perkbox customer loyalty scheme rolled out to tenants * #SayHelloStudent campaign to win a free room will be
repeated
* Focus group testing on the new affordable apartments
and premium house stock typologies * Social media marketing continues
* More research and focus groups will take place in the
year
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Shareholder
outcomes * Improve profitability through lower cost base per * Increased number of operating buildings by c. 50% in * Working towards increasing building marketing and
city the six months to 31 December 2016 management in-house
* Mitigate risk of a single-niche approach and broaden * Delivered significantly higher rental income * Increasing density of assets per city
growth opportunities
* Increased beds per city, and city switching/block * More efficient marketing and facilities management
* Continue to grow a high yielding portfolio through mover/rebooker take-up rates will begin to result in should lead to higher profitability
development lower marketing and operational costs
----------- -------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------
Key Performance Indicators
The Company's objective is to deliver attractive returns to shareholders through the execution of its Investment Policy which is set out on page 26 of the annual report. The Key Performance Indicators on which we report each period to track the progress made are set out below in respect of the six month financial period to 31 December 2016.
Financial
Performance
-------------------------------------------- ---------------------
1. Total Return ("TR") to shareholders
TR to shareholders is the ratio of growth 1.1%
in share price plus dividends paid as
a percentage of the mid-market price (4.6% for the 12
at the start of the financial period. months to 30 June
2016)
The TR of the Group was 1.1% for the
six months to 31 December 2016, compared
with 5.7% for the FTSE All-Share REIT
Index for the six months ended 31 December
2016. The Group's TR was negatively
impacted by the volatility in the market
at the period end which caused the share
price to drop, but it has since recovered.
-------------------------------------------- ---------------------
2. NAV per share (basic)
The value of the Group's total assets 105.9p
less the book value of its liabilities
attributable to shareholders. (105.4p as at 30
June 2016)
The Group's NAV per share grew by 0.5%
over the six month period to 31 December
2016.
-------------------------------------------- ---------------------
3. LTV ratio
The proportion of borrowings compared 31.1%
to Gross Asset Value (defined as total
assets less current liabilities). Pursuant (22.7% as at 30
to the Company's Investment Policy, June 2016)
the Group targets a 35% LTV but no more
than 40%, measured at the time of drawdown.
-------------------------------------------- ---------------------
4. Dividend against target
Dividends declared in respect of the 3.05p
six month financial period.
(6.00p for the
The dividend per share was 3.05p compared 12 months
to a target of 6.10p for the 12 months to 30 June 2016)
to 30 June 2017.
-------------------------------------------- ---------------------
5. Earnings per share (basic)
The post-tax earnings generated that 3.38p
are attributable to shareholders.
(7.29p for the
12 months
to 30 June 2016)
-------------------------------------------- ---------------------
6. Adjusted EPRA earnings per share
Post-tax adjusted EPRA earnings per 0.72p
share attributable to shareholders which
includes the licence fee receivable (1.89p for the
on the Group's forward funded development 12 months
assets and late completion development to 30 June 2016)
rebate on forward funded assets.
-------------------------------------------- ---------------------
EPRA Performance Measures
Performance
------------------------------------- -------------------- --------------------
1 EPRA earnings (basic)
Earnings from operational GBP1.9m 0.38p
activities.
(GBP5.2m for (1.34p per share
Purpose the 12 months (basic) for
A key measure of a company's to 30 June 2016) the 12 months
underlying operating results to 30 June 2016)
and an indication of
the extent to which current
dividend payments are supported
by earnings.
------------------------------------- -------------------- --------------------
2 EPRA NAV (basic)
NAV adjusted to include properties GBP532.1m 106.2p
and other investment interests
at fair value and to exclude (GBP530.0m as (105.7p per
certain items not expected at 30 June 2016) share (basic)
to crystallise in a long as at 30 June
term investment property 2016)
business.
Purpose
Makes adjustments to International
Financial Reporting Standards
("IFRS") NAV to provide stakeholders
with the most relevant information
on the fair value of the
assets and liabilities for
a true real estate investment
company.
------------------------------------- -------------------- --------------------
3 EPRA NNNAV (basic)
EPRA NAV adjusted to include GBP519.6m 103.65p
the fair values of:
(i) financial instruments; (GBP516.5m as (103.04p as
(ii) debt and; at 30 June 2016) at 30 June 2016)
(iii) deferred taxes.
Purpose
Makes adjustments to EPRA
NAV to provide stakeholders
with the most relevant information
on the current fair value
of all the assets and liabilities
within a real estate company.
------------------------------------- -------------------- --------------------
4 EPRA net initial yield ("NIY")
Annualised rental income based on the 4.2%
cash rents passing at the balance sheet
date, less non-recoverable property operating (5.5% as at
expenses, divided by the market value 30 June 2016)
of the property net of (estimated) purchasers'
costs.
Purpose
A comparable measure for portfolio valuations.
This measure should make it easier for
investors to judge how the valuation of
portfolios compare.
----------------------------------------------------------- --------------------
Our Market
The student accommodation market is now an asset class in its own right, catering for a wide variety of both first year and returning students. The development of the purpose-built student accommodation ("PBSA") market has emerged from the needs of the sector.
In the course of the development of our 2025 Plan, we have undertaken extensive analysis of the student accommodation sector. Several factors have emerged as impacting the overall sector:
-- Growth in full-time student numbers and participation in higher education: Due to policy, curriculum innovation, university outreach and labour market factors such as the globalisation of high skilled labour, engagement of young people in higher education is the highest that it has even been. The Department of Education reported the 2014/15 initial participation rate for UK 18-30 year olds had risen to 48%1, rising from 42% in 2006/07.
-- Competition between universities: The pressure to do well at university, alongside policy drivers to create competition between universities (including the Higher Education and Research Bill and introduction of the Teaching Excellence Framework), are contributory factors in a polarisation in the attractiveness of universities. Good universities continue to attract students from wide national and international backgrounds. Successful universities will be those that are able to adapt to external factors through solid planning, adaptable funding and attractive and relevant course portfolios.
-- University investment in facilities: Accommodating growth and the need to attract high quality students are key drivers underpinning universities' investment in academic and residential space. Maintenance and the need for further expansion has led to increasing pressure on institutions to prioritise expenditure, which together with borrowing limits imposed by Higher Education Funding Councils is typically driving investment in the academic rather than residential estates.
-- The emergence of residential business models, on and off campus: Higher education institutions ("HEIs") have generally come to see other providers of student accommodation as supportive to their needs - that money is available through other sources to build residential capacity with private development of accommodation (on and off campus) as a mainstream option for residential development.
-- Private PBSA investment levels: Levels of investment into the development of PBSA have risen over the past decade, as have student numbers. High levels of liquidity and investment activity are driving changes in the UK student accommodation market, encouraging greater levels of competition between operators and differentiation in stock types. Those students with a larger budget have few alternatives to renting in student halls or the private rented sector (houses of multiple occupancy ("HMOs")), particularly those wishing to share. Students with a more limited budget, the fastest growing sector of the market, are competing with the wider rented residential sector.
-- Constraints on housing markets: Growth in student populations in recent decades has led to pressure on housing stock near many universities with a widespread conversion of houses to HMOs around university campuses, pushing out local employees, young families and changing the balance of voting and Council Tax paying populations. There is concern over "studentification" and ensuring that student "ghettos" do not detract from the sustainable balance of communities. Rents have risen significantly in areas of high demand.
-- Council activity and effects on the housing market: Local Authorities have responded to this increasing pressure on housing markets through licensing that aims to limit the irrevocable loss of houses to student and other transient populations, and to control the quality of the HMO housing stock. The tool of Article 4 Direction ("A4D") has been available for use by Councils since 2010 for C4 use class, requiring owners to obtain planning permission to convert houses to HMOs. A4D is in place in many major cities. Private businesses are entering the space, packaging houses into larger portfolios, with professional landlords and greater investment and quality. High quality houses now mimic the convenience and room types of PBSA in some cases. The blurring of lines between property types may be a further opportunity to convert audiences towards PBSA alternatives.
-- The student experience vs affordability: The rise in tuition fees has had widespread effects on the sector. Students are under pressure to demonstrate good degrees, and investment in higher education has risen. They come from families with consumer lifestyles, with concerns about safety and they rely on their parents to a greater degree and for a longer duration, which has led students and parents to choose PBSA for at least some part of the student's time at university. The higher quality of PBSA over time and it being more widely available and accepted in the market have led to it being seen as mainstream for first years, and other groups are following suit. Demand for en-suite and high-end product outstrips demand for more affordable, generally older accommodation. At the same time, the National Union of Students ("NUS") and students in London are protesting the rise in costs of university accommodation, reflecting the value imbalance between private and university owned PBSA. The replacement of supplementary grants for students from lower income households with loans does not seem to have diminished the appetite of 18 year olds from lower income families for a university education. However, with the increasing number of UK students studying without additional parental financial support, the issue of affordability may well become the subject of even more attention in future.
1.Participation Rates in Higher Education: Academic Years 2006/2007 - 2014/2015 (Provisional), Department of Education
Provision of Student Accommodation
Student demand for private sector PBSA has increased significantly over recent years, with 568,000 beds, albeit serving primarily first year undergraduates, reported by Cushman & Wakefield in 2016/17. An increase in room numbers is being projected for 2017 and beyond. The increase in rooms is reflected in the rising number of students reporting to their universities that they are living in PBSA off campus.
Student preferences towards PBSA have evolved over recent years, along with an expectation of having an enjoyable and valuable student experience during their time at university. Living within walking distance of the university campus; being able to choose from a variety of room types and price points; as well as an overall contemporary interior and fit-out including modern social spaces are all regarded as important factors that students take into consideration when making accommodation choices.
In response to changing student preferences, as well as the rise in the quality of accommodation off campus, universities are improving their accommodation stock through refurbishments and the replacement of standard rooms with shared bathrooms, though they remain behind the curve in terms of quality. In 2015, Cushman & Wakefield recorded a total of c.7,000 rooms had been refurbished on campuses, with a negligible increase in the volume of rooms on campus. Some of this work is being undertaken by universities themselves, but also the joint venture market for on campus and off balance sheet projects is now seen as a more acceptable route by universities.
Although private PBSA accounted for only 27% of provision for all students in 2015/16, it was the fastest growing stock type in the sector. Within the next few years, there is likely to be a shift from majority university ownership of rooms to private provision.
Due to the increasing maturity of the student accommodation market, we considered niche markets both in terms of location as well as product design in relation to our growth prospects.
Being responsive to student preferences and finding innovative solutions for differentiation, e.g. securing development sites close to campus, designing new inventive room types such as townhouses, and the inclusion of a variety of social spaces and being sensitive to affordability, will be key factors in ensuring the future success of schemes in a more competitive marketplace. Micro market analysis will also be crucial in ensuring the sustainable attractiveness of schemes long term.
Sector Outlook
------------------------------------------------------------
Students
* Expectations around the student experience are
driving up the quality of PBSA
* A flight to quality universities drives students
further away from home
* New ways of studying and alternative providers of
higher education may continue to emerge, but could
present opportunities for PBSA providers
* NUS and student voice reiterate the importance of
student experience but also express concerns about
value for money
------------------------------------------------------------
Cities and towns
* Pressure on housing markets (A4D and licensing)
drives increasing demand for PBSA, but also
improvement in the quality of existing HMOs
* Encouragement of PBSA for regenerative purposes, and
where there is demonstrable need
* Recognition that successful institutions may continue
to grow, driving additional demand for PBSA
------------------------------------------------------------
Universities and policy
* Competition between universities to invest in
academic facilities and quality means external
sources of PBSA funding will be needed
* Polarisation between winning and losing universities
will drive a focus on successful institutions and
core PBSA locations
* Student loans, grants and affordability are central
debates within the sector
* Longer-term competition from alternative providers
and higher apprenticeships cause competition as well
as innovation on campus (foundation year provision,
new pathways and outreach)
------------------------------------------------------------
PBSA
* Pipeline and competition between PBSA blocks is a
concern in some cities
* Competition in PBSA market will drive the need for
diversification and economies of scale
* Product, price point innovation and the quality of
service offering
* Blurring of lines between HMO and PBSA stock types
------------------------------------------------------------
Chief Executive Officer's Q&A
Q
Q How has the Company performed this period? What were the highlights?
We have continued to build towards the achievement of our IPO goal of 10,000 beds in five years, which we are on target to complete ahead of time with 8,504 beds under contract at the six month period end. Of these, 6,775 were operational (or revenue generating) with 869 due to become operational in time for the 2017/18 academic year and 860 operational in September 2018. We are continuing to build a strong pipeline that should enable us, within 2017, to achieve the IPO aim. In the six month period to 31 December 2016, we contracted on GBP95.5 million of buildings (1,142 beds), funded through existing equity and further gearing.
Within the six month period, we engaged with shareholders over the development of the 2025 Plan, our strategy for the future beyond 10,000 beds. In December 2016, shareholders voted in favour of the diversification of our Investment Policy. This is hugely exciting for us, facilitating further opportunities for growth, appeal to a wider customer base and increased efficiencies across the portfolio to the benefit of our shareholders.
Hello Student(R) , our operating platform, was launched in early 2016. By the end of December 2016, 3,075 rooms were being operated by Hello Student(R) . For the 2017/18 academic year, 4,882 beds are being marketed directly by Hello Student(R) , out of a total of 7,644 beds currently available. This is significant progress towards the previously stated target of all of the beds currently owned or contracted being run in-house by September 2018. With the enacting of the 2025 Plan, future acquisitions will include standing assets and new developments. The standing assets are likely to be acquired with incumbent operational management which will be transitioned onto the Hello Student(R) platform.
As well as concluding an attractive series of purchases, the acquisition team has generated a strong pipeline of both standing assets and forward funded opportunities. I would like to thank the acquisition and development teams for their efforts; the acquisition team who have secured a further 787 operational beds for the portfolio, and the development team who have delivered the 1,728 new beds. We, therefore, achieved a balance of standing assets for income generation and forward funded developments to increase the future size of the portfolio at enhanced yields; always with a view to achieving full cover of our dividend in the near future.
In terms of acquisitions, Leicester stands out as a particular highlight. Leicester is a city of 32,600 full-time students which has seen growth of 15% between 2010/11 and 2015/16. De Montfort University grew to its largest size in 2015/16 with 17,400 full-time students, driven by impressive growth at a postgraduate level in a range of subjects. The University of Leicester is one of the Russell Group of universities, ranked 25th in The Times University Guide 2017 and attracting 15,300 full-time students. De Montfort has no accommodation of its own and there are few private operators serving the University of Leicester.
The five assets we acquired in Leicester, obtained through two deals, are the most interesting of all the properties acquired in the period. Princess Road, in the corner of De Montfort Square, is one of the finest sites in Leicester, where a 106 bed building with full Empiric studio-based specification is being developed by forward funding a local developer for delivery for the 2018/19 academic year. We also continue work on the contiguous Victorian terrace at New Walk, within sight of the University of Leicester, and we were very happy with the two warehouse conversions we acquired (The Hosiery Factory and The Shoe & Boot Factory) located in the city centre, which target returning students. Our first two buildings in Leicester, CityBlocks 1 & 2, continue to perform well and have started the letting cycle for September 2017 encouragingly.
Another highlight was the delivery of 13 of our development assets for operation in the 2016/17 academic year. Of those, there were five forward commitments (The Exchange, Bath; James House, Bath; Windsor House, Cardiff; Claremont House, Newcastle; and Metrovick House, Newcastle), one direct development (Willowbank, our flagship development in Glasgow) and seven forward funded developments (St Peter Studios, Aberdeen; William & Matthew House, Bristol; Buccleuch St, Edinburgh; Oldgate House, Huddersfield; The Frontage, Nottingham; Talbot Point, Nottingham; and Portobello House, Sheffield). These assets have added 1,728 new revenue generating beds to our portfolio, creating a significant increase to our rental income.
While this considerable growth has resulted in an increase in one-off property costs expensed in full during the period, the continued acquisition of income producing assets and the completion of the development assets, has generated a substantial uplift in revenue in the second half of the six month period. We expect this to contribute to a significant increase in the adjusted EPRA earnings per share for the financial year to 31 December 2017, with a view towards our target of a substantially covered dividend for 2017.
We paid total dividends of 3.05p for the six month period to 31 December 2016 in line with our target of 6.1p for the 12 months to 30 June 2017 - an increase in excess of RPI compared to the year ended 30 June 2016.
In December 2016, we moved our head office to Swan House, Stratford Place, London. We had outgrown our previous office at James Street and were in need of space to house additional central staff members to support the expanding business. The refurbished office is about twice the size and will allow for new staff to be recruited to support the strategy and operation of the business. The increased size of the business has significantly outpaced the growth of the head office overhead to date.
Q What was the rationale for the multi-niche diversification - the 2025 Plan?
Our IPO strategy was based on an accommodation type virtually unknown ten years ago, satisfying the needs of a wealthier, but substantial part of the student market. Whilst a good deal of development activity in recent years has focused on this, research carried out for Empiric during the last year bears out that there is still significant opportunity in this area. For that reason, as one of the four niche strategies within the 2025 Plan, we see continued expansion beyond the 10,000 beds targeted at IPO.
The IPO strategy has delivered a robust portfolio of small and medium-sized city centre buildings in the 30 leading university towns and cities in the UK. We have had good rebooker rates in these buildings but having some of the studio apartment based tenants ask whether they could share in newly formed friendship groups was one of the catalysts for the development of the 2025 Plan.
As we know from our tenant base (of 137 different countries with an age range of 17-61 this academic year) the student market is large and complex. As the numbers of both UK and international students have expanded over recent decades (reaching 1.7 million full-time students in 2015/16) and participation of young UK people in higher education is at record levels, we recognise that there is more diversity in the UK student population than there has ever been. These students have expectations of good value, quality accommodation in attractive, central locations or on campus. The growing pressures on the HMO market, and on universities which are unable to keep up with the guarantee to provide for their first years, are resulting in a huge opportunity for a specialist provider to think differently about this target market. Indeed, as the supply of purpose-built accommodation has increased, a greater proportion of students is attracted to this way of life, and we believe there is a structural shift towards PBSA. The Cushman & Wakefield Student Accommodation Annual Report 2016/17 indicated that the number of students per PBSA bed has actually increased from 2.1 to 2.3 in 2016/17, signifying that supply is not keeping up with demand.
We believe that there is a role for a multi-niche student accommodation provider to become more widely embedded in the market to meet and capitalise on these opportunities. The 2025 Plan enables us to respond in a targeted and distinctive way, opening up new channels and stock types which will add value to students, our business and our shareholders.
Q How quickly will the portfolio grow in the 2025 Plan, and what impact will it have on the mix of room types and customer demographics?
The 2025 Plan sets out four different niches which we believe cross-fertilise and do not compete with each other. By becoming engaged in a wider range of accommodation types, the business will be able to continue to grow and target different potential customers at different stages of their academic life. The four niches are described as:
-- Core Studio and Premium Small Group - this is a continuation of the offer from our initial strategy and includes premium studio, two bed and three bed apartments;
-- Premium Houses - accommodation in prime locations configured into townhouses with large living spaces which will appeal to customers seeking high specifications within a group environment. Shared communal facilities and a concierge desk are provided similar to the Core Studio and Premium Small Group;
-- Affordable Apartments - with a focus on prime locations, new stock types which fit with the Empiric brand and service offer, but that manifest in more affordable rent levels. These are designed as tightly planned and contemporary two, three and four bedroom apartments arranged around staircases to avoid an institutional feel; and
-- University Relationships - innovation in our business and operating model to work with universities to bring a range of product types and the strength of our business to bear on or near campus, through either new build or sale, refurbish and leaseback of existing stock.
Each of these niches might grow at different rates, as the pipeline of opportunities is likely to vary in each case.
Equally, operational efficiencies will be achieved differently for each niche. Working with universities might take longer to bring to fruition, but with larger numbers in each deal. In the core niche, we will seek to retain the small community feel and character of the estate by clustering smaller assets.
In the evolution of the 2025 Plan we expanded the number of towns and cities under watch from 30 to 36, expanding the IPO strategy into new locations. Across these cities we modelled an even distribution of activity. Crossed with a desire to slow the overall expansion of the business, this will result in modest investment in each niche over the next one to two years. The guiding principle for expansion is to be able to fund development without endangering cash returns to shareholders, which means that the capacity for development will grow only as the portfolio grows and consequently, income with it.
The 2025 Plan is designed to attract a wider target customer base. Some of the changes will come from purchasing different types of assets, and there is evidence that recent acquisitions are already affecting demographics in our tenancy profile. For example, the purchase of the Campbell portfolio with buildings in Exeter, Leicester and Portsmouth in late 2016 included assets that largely target returning UK undergraduates. This addition has resulted in a slightly greater proportion of UK returning undergraduates being exhibited in our tenant demographics. The tenant mix is also tending more towards female than it was last year. Equally, the new universities niche will have an impact. Working with universities will bring us into contact with more first year students due to the guarantees they offer, again opening a new channel for tenant progression through the Empiric portfolio, reducing marketing and operational costs.
Q How far can the core strategy grow?
The core strategy focuses on postgraduate and international students. If the Government's target of promoting education exports remains unchallenged, the market is set fair to grow. Transnational education has been growing at nearly 5% p.a. since the mid-1970s (source: UNESCO) and is predicted to continue at this rate. This is driven by the rising wealth and numbers of the middle classes globally, accompanied by a desire to educate their children.
Considering the overall wealth of international students in the UK (most of whom, our research shows, tend to be privately funded and a vast proportion of whom are postgraduate) as well as the propensity for students, generally, to live in purpose-built student accommodation, we believe there is still an undersupply of high quality accommodation to meet the needs of students who are willing and able to pay for the best accommodation.
Our core offer consists of studio accommodation and premium small group apartments, configured in relatively small buildings with high quality social and amenity space. They engender a sense of community, which generates loyalty from our customer base.
After our core portfolio reaches the initial 10,000 bed target, we envisage it expanding by between 500 and 1,000 beds per year on a measured opportunistic basis, responding to market demands and in-filling our existing portfolio to achieve operational efficiencies.
Q How is the Hello Student(R) brand and platform development progressing?
The Hello Student(R) platform continues to roll out its brand across the portfolio, allowing us to build a coherent presence in the market. Following the launch of the website in February 2016, we have been steadily adding buildings to the Hello Student(R) platform and it is now the primary marketing platform for 53 of the assets available for the 2017/18 academic year.
We are running a rolling programme of platform developments and improvements. At the end of 2016, we began a pilot of a streamlined website/booking system integration of Hello Student(R) in Cardiff, which has been brought in-house from the previous outsourced management. This will be a test bed of how all the assets will run in future. We see a phased transition as important to mitigating risk and to ensure that we maintain the effectiveness of the systems as Hello Student(R) takes on a greater proportion of the income producing assets. A parallel pilot initiative is running in Nottingham where we will deploy the full marketing, booking, allocation and communication technology of Hello Student(R) to our residents through the Hello Student(R) app. These initiatives will bring an improved customer experience, retention and income generation.
The Operations Review covers Hello Student(R) and our marketing initiatives in more detail (see pages 34 to 37 of the annual report).
Q What will be the financial impact of the 2025 Plan?
The diversification plan allows us to build a multi-niche portfolio appealing to students at all stages of study and across the price spectrum. Marketing and operating costs are expected to reduce over time due to variety of factors including:
-- Continuing to build on Hello Student's(R) capacity to reduce the reliance on per room percentage fees to outsourced operators
-- Consolidating within cities through acquisition in existing locations and a small number of target cities, where more stock can be added to build a city portfolio containing a diversified range of assets under the new strategy
-- Continuing to exercise our buying power through the supply chain to obtain greater economies of scale
-- Benefiting from re-bookers, building-switchers (moving year to year in the same city) and city-switchers (moving from one city to another within the UK) all with the Hello Student(R) brand
The 2025 Plan will allow the business to grow and find more opportunity from within the market, and growing income through improved net operating margins, a lower total expense ratio and lower cost bases per city or town will improve profitability and, hence returns to shareholders. The focus will remain on providing value for our shareholders through regular, sustainable income returns, capital appreciation and growing a high yielding portfolio.
Future outlook
The core strategy is one where we intend to progress with our characteristic small building, small group model, and we feel, based on first-hand research, that there is mileage in this approach to building communities.
We are very excited about the potential for the diversified strategy arising from the 2025 Plan to assist us in reaching ever more deeply into the student accommodation market, to assist universities in their aspirations and to bring the high quality and distinctive brand of Hello Student(R) to a wider audience of students.
As we move into the second quarter of 2017 with Article 50, a devalued currency, immigration questions, President Trump and uncertain statuses for the other members of the EU, the outlook for 2017 is tough to call. The Conservative Party policy from Summer 2015 to expand exports through education to GBP30 billion by 2020 remains uncontradicted and British universities go from strength to strength. Our own lettings for the 2017/18 academic year have made an excellent start since going live in November 2016, as a result of our well chosen and well managed portfolio. Our position is probably best described as cautiously optimistic.
CASE STUDY
Willowbank, Glasgow
Willowbank is an exemplar within the Empiric portfolio; an example of our latest design standards for new and refurbished buildings.
A fantastic redevelopment of a Victorian primary school, mixing new and old, it brings a dilapidated city centre building back to life. The original building was Willowbank Primary School, commissioned by the Glasgow School Board in 1900 designed by renowned Paisley born architect Alexander Petrie (c. 1836 to 1910). The iconic red sandstone building, listed in 2002, was used as a school for children aged 5-12 until 2010 when it fell into disrepair, and was added to the Buildings at Risk Register for Scotland.
Empiric acquired the site shortly after IPO in 2014 and worked with Susan Stephen Architects to redevelop and extend it, adding four modern, stone, brick and metal clad buildings. Located within the Woodlands conservation area, this project was a labour of love for all those involved and exemplifies the marriage of commercial development and restoration to great effect.
Within five minutes' walk of the University of Glasgow, and connected by local buses, the scheme contains 178 rooms including studios and 2-5 bed apartments. With great amenity spaces and preserved internal features it includes study rooms, a gym, a large cinema room and several communal areas where students can engage and socialise. Feedback from students is that they love the high ceilings, the building's history and how it has been revitalised. The old headmaster and teachers have also visited, noting how sympathetically the school has been restored, how kind to the old features, but also how modern the restoration is.
Building operational efficiencies in the West End of Glasgow by linking with Empiric's adjacent scheme, the Ballet School, it delivers an impressive product near to the leading university in Glasgow, a city of 55,000 students. Currently fully occupied and letting well for September 2017, it is marketed and managed by Hello Student(R) . A direct development joint venture with Revcap; Empiric's share generated a nearly 60% leveraged IRR. The Group acquired Revcap's share in the joint venture in March 2017.
Willowbank was commended in the Scottish Property Awards 2017 and is shortlisted for the forthcoming Royal Institute of Chartered Surveyors (Scotland) awards for both the Residential Development and Building Conservation categories.
Chief Investment Officer's Portfolio Review
As at 31 December 2016, our portfolio had benefitted from 2,515 new beds generating income for the 2016/17 academic year, comprising 988 beds from standing assets acquired and 1,728 beds from assets under development that reached practical completion1. We also have a strong pipeline of standing assets and new forward funding opportunities.
Overview
Over the six month period to 31 December 2016, a key feature was the impact of our assets under development becoming income generating in time for the 2016/17 academic year on our portfolio. Taking into account the operating assets acquired over the period, as at 31 December 2016, 75 assets were operational (or revenue generating) for the 2016/17 academic year, equivalent to 6,775 beds available to students in our target cities and towns across the UK.
Virtually all of the newly completed assets were developed via forward funded contracts. Forward funded projects typically are less complex than direct developments, have a lower risk profile as the planning, construction and time risk lies with the third party developer, have lower staffing requirements and benefit from a forward funding coupon charged to the developer. In addition, as with a direct development, we are able to configure and design a property to our specifications and benefit from a greater yield on cost than standing asset investments.
In December 2016, we obtained shareholder approval to amend the Company's Investment Policy so as to remove forward funded assets from the scope of the restriction on developments undertaken by the Group. This will enable us to take advantage of the increasing number of forward funding opportunities that are being presented to us as the student accommodation market evolves.
A further change to the Investment Policy was the expansion of our investment remit, our 2025 Plan. We believe that there is still significant growth to be achieved in our core market of premium student accommodation targeting individual postgraduate and international students. However, our market research and analysis indicates that there are a number of other "niche" markets within the student accommodation sector, that are currently underserved, and which offer growth opportunities, whilst at the same time selectively consolidating, broadening and diversifying the Group's exposure across a wider spectrum of the student accommodation market.
This key change to our Investment Policy will enable the Group to evolve from a single-niche investor and developer, to a multi-niche student property company focused on, (i) providing good quality first year accommodation managed by Hello Student(R) in partnership with universities, (ii) offering a variety of second and third year purpose-built accommodation options for individual students and those wanting a group living environment, and (iii) continuing to expand the Group's existing premium, studio led accommodation portfolio which is attractive to international and postgraduate students. We have also expanded this "fresher to PhD" approach and service offering to 36 cities and towns across the UK.
Assets
During the six months to 31 December 2016, the Group invested in, or committed to, the freeholds (unless otherwise stated) of 12 new assets, comprising a mix of operating properties and forward funded assets (funding of third party developments in return for a discount on the acquisition price), with an aggregate price of GBP81.0 million (including acquisition costs) (12 months to 30 June 2016: 35 assets with an aggregate price of GBP251.2 million (including acquisition costs).
The Group had also exchanged conditional contracts on two further properties (both acquired subject to practical completion), for which the outstanding conditions had not been met as at 31 December 2016, with an aggregate price of GBP14.5 million (excluding acquisition costs) (12 months to 30 June 2016: three assets with an aggregate price of GBP72.6 million (excluding acquisition costs)).
As at 31 December 2016, the Group owned, or was committed on, a total of 84 assets (representing 7,829 beds) (30 June 2016: 68 assets representing 6,191 beds) and had exchanged conditional contracts, including on sites subject to planning permission being obtained (with the conditions or planning remaining outstanding at the period end) on a further five assets (representing 675 beds) (30 June 2016: seven assets representing 1,207 beds), in a total of 30 cities and towns.
(1 This includes The Frontage in Nottingham, where practical completion has been delayed to April 2017 but for which the Group benefits from a rental guarantee for the 2016/17 academic year.)
Summaries of these properties are set out in Tables 1 and 2 below.
Table 1 - Operating Assets (and those that had reached practical completion) as at 31 December 2016 (74 in total)
Date of
Acquisition Purchase Net Yield
Number or Practical Price on Acquisition Valuation
Location of Beds Completion (GBPm) or Cost Yield
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Centro Court Aberdeen 56 2014 6.5 6.8% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
St Peter Studios Aberdeen 123 June 2016 13.7 7.0% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
November
Canal Bridge Bath 20 2015 1.7 5.9% 5.5%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
James House Bath 169 2016 25.0 5.7% 5.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
November
Piccadilly Place Bath 47 2015 3.6 5.9% 5.5%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Radway House (formerly
Oolite Road) Bath 31 July 2016 2.6 6.7% 6.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
The Exchange (formerly December
1-3 James Street West)(1) Bath 78 2016 7.7 5.8% 5.3%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
November
Widcombe Wharf Bath 40 2015 3.9 5.5% 5.3%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Edge Apartments Birmingham 77 2014 8.9 7.0% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
The Brook Birmingham 106 July 2014 12.0 6.5% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
College Green(2) Bristol 84 July 2014 10.0 6.7% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
William & Matthew September
House Bristol 75 2016 7.9 6.7% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Pavilion Court Canterbury 79 2016 9.2 6.0% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
Alwyn Court Cardiff 51 2014 3.5 6.4% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
February
Northgate House Cardiff 67 2015 5.2 7.0% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Summit House Cardiff 87 July 2014 9.6 7.0% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Windsor House Cardiff 314 2016 41.0 5.6% 5.5%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
St Margaret's Flats Durham 109 May 2015 5.1 7.5% 6.4%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Buccleuch St Edinburgh 88(3) June 2016 9.2 8.1% 5.5%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
Bishop Blackall School Exeter 113 2016 8.0 6.0% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
December
Dean Clarke Lofts(4) Exeter 30 2014 4.5 6.6% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Isca Lofts Exeter 71 2016 4.7 6.9% 6.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Library Lofts Exeter 61 2015 6.1 6.3% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Picturehouse Apartments Exeter 102 July 2014 11.4 6.3% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Maritime Studios Falmouth 141(5) 2015 8.8 6.5% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
333 Bath Street Glasgow 70 2015 7.4 6.5% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Ballet School Glasgow 103 March 2015 11.9 6.7% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Willowbank(6) Glasgow 178 2016 6.9 7.7% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
December
Curzon Point(7) Hatfield 116 2014 9.2 6.4% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Kingsmill Studios Huddersfield 98 2015 7.5 7.5% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Oldgate House Huddersfield 179 2016 11.1 8.3% 6.4%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
CityBlock 1 Lancaster 30 May 2015 2.1 6.1% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
CityBlock 2 Lancaster 77 May 2015 5.6 6.1% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
CityBlock 3 Lancaster 100 May 2015 7.9 6.1% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
January
Algernon Firth Leeds 111 2015 7.2 6.6% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Pennine House Leeds 127 June 2016 17.8 6.6% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
St Mark's Court Leeds 85 March 2015 7.1 6.0% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
136-138 New Walk Leicester 30 May 2016 2.9 6.0% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
160 Upper New Walk Leicester 17 May 2016 1.6 6.1% 6.3%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Bede Park Leicester 59 May 2016 4.5 6.2% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
CityBlock 1 Leicester 98 May 2015 6.2 6.3% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
CityBlock 2 Leicester 76 May 2015 4.8 6.3% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
The Hosiery Factory Leicester 107 2016 5.6 6.3% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
The Shoe & Boot Factory Leicester 173 2016 8.9 6.3% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Art School Lofts Liverpool 64 June 2015 8.4 6.3% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Chatham Lodge Liverpool 50 June 2015 3.9 6.5% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Grove Street Studios Liverpool 28 June 2015 2.7 6.5% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Hayward House Liverpool 74 June 2015 5.4 6.3% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Maple House Liverpool 147 June 2015 12.9 6.3% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
The Octagon Liverpool 19 June 2015 2.0 6.4% 6.2%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Francis Gardner Hall London 70 2016 10.6 5.5% 4.6%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
Grosvenor Hall London 72 2016 6.2 6.3% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
February
Halsmere Studios London 79 2015 13.3 6.4% 5.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Ladybarn House Manchester 117 March 2016 10.3 6.3% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Victoria Point 1,
2, 3, 4, 5 (8) and
6 Manchester 561 April 2016 29.5 5.6% 6.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
December
Claremont House Newcastle 88 2016 10.9 6.3% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Metrovick House Newcastle 63 May 2016 7.4 6.5% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Talbot Point Nottingham 77 2016 6.0 7.0% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Talbot Studios Nottingham 98 2014 8.2 6.9% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Stone Mason House Oxford 44 May 2016 4.5 5.1% 5.0%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
Elm Grove Library Portsmouth 19 2016 1.1 6.5% 6.4%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
October
Kingsway House Portsmouth 52 2016 3.1 6.4% 6.4%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
August
The Registry Portsmouth 41 2015 4.5 6.5% 6.3%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Saxon Court Reading 83 March 2016 13.0 6.0% 5.7%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Portobello House Sheffield 134 2016 11.2 7.1% 5.8%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
September
Brunswick Apartments Southampton 173 2015 16.7 7.2% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
November
London Road(9) Southampton 46 2014 3.6 7.0% 5.9%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
December
Ayton House St Andrews 241 2015 26.0 5.5% 5.6%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Caledonia Mill Stoke-on-Trent 120 June 2015 6.3 6.5% 6.1%
--------------------------- --------------- -------- ------------- -------- --------------- ---------
Total/average yield 6,613 593.7 6.5% 5.9%
-------------------------------------------- -------- ------------- -------- --------------- ---------
Notes:
(1) Reached practical completion as at the date indicated but was not operational as at 31 December 2016.
(2) 150 year lease, started in August 2010.
(3) In June 2016, the Group acquired a retail site adjacent to the Buccleuch Street building which will be converted to provide an additional two studios, (resulting in a total of 88 beds for the property and increased communal facilities with an estimated total project cost of GBP0.74 million.)
(4) 999 year lease, started in March 2014.
(5) This figure includes two studios which were acquired after 31 December 2016.
(6) Owned in a 50:50 joint venture with Revcap at 31 December 2016. On 30 March 2017, the Group acquired Revcap's 50% interest in the joint venture.
(7) 199 year lease, started in December 2014.
(8) This building (132 beds) is to be significantly refurbished and, therefore, is not operational for the 2016/17 academic year.
(9) Freehold/leasehold.
The portfolio of 75 revenue generating properties (30 June 2016: 52) is fully let for the 2016/17 academic year(2) . The gross annualised rent for these properties was GBP52.1 million (30 June 2016: GBP33.1 million), of which GBP1.8 million (representing 3.4% of the gross annualised rent) was attributable to commercial revenue (30 June 2016: GBP0.9 million representing 2.7% of gross annualised rent). The average uplift in annual rents was 2.78% for the 2016/17 academic year (2015/16: 3.0%).
The average net yield on acquisition of the operating properties, or on cost for those development assets that had reached practical completion, as at 31 December 2016 was 6.5% (30 June 2016: 6.4%). The average valuation yield as at 31 December 2016 was 5.9% (30 June 2016: 5.9%).
2 The Company budgets and models on the basis of 97% occupancy (previously 97.5%). Occupancy or income of the operational portfolio (being available beds) to this level and in excess is considered fully let. This letting figure, however, excludes The Frontage in Nottingham which had not reached practical completion as at 31 December 2016, notwithstanding the rental guarantee in place for the 2016/17 academic year.
Table 2 Forward Funded and Development Assets as at 31 December 2016 and Projects and Sites Acquired Subject to Planning (15 in total)
Price
Paid or
Total
Proposed Investment Estimated
Number Date of to Completion Completion
Name Location of Beds Acquisition (GBPm) Date
------------------------ ----------- -------- ------------ -------------- -----------
Forward Funded Projects
------------------------ ----------- -------- ------------ -------------- -----------
September September
The Emporium Birmingham 185 2016 19.6 2018
------------------------ ----------- -------- ------------ -------------- -----------
September October
Bonhay Road Exeter 150 2015 12.6 2017
------------------------ ----------- -------- ------------ -------------- -----------
November September
155 George Street Glasgow 89 2015 9.5 2017
------------------------ ----------- -------- ------------ -------------- -----------
November September
134 New Walk Leicester 16 2016 1.5 2017
------------------------ ----------- -------- ------------ -------------- -----------
September
Welsh Baptist Chapel Manchester 87 May 2015 8.8 2017
------------------------ ----------- -------- ------------ -------------- -----------
October
The Frontage(1) Nottingham 162 2015 17.1 April 2017
------------------------ ----------- -------- ------------ -------------- -----------
April September
Europa House Portsmouth 242 2016 21.4 2017
------------------------ ----------- -------- ------------ -------------- -----------
April September
Trippet Lane Sheffield 63 2016 5.5 2017
------------------------ ----------- -------- ------------ -------------- -----------
March September
Lawrence Street York 115 2016 11.1 2017
------------------------ ----------- -------- ------------ -------------- -----------
Development Project
------------------------ ----------- -------- ------------ -------------- -----------
December January
Provincial House Sheffield 107 2015 10.9 2018
------------------------ ----------- -------- ------------ -------------- -----------
Total 1,216 118.1
------------------------------------- -------- ------------ -------------- -----------
Projects and Sites Acquired Subject to Planning
------------------------------------------------------------------------------------------
September
Well Street(2) Exeter 68 - - 2018
------------------------ ----------- -------- ------------ -------------- -----------
September
Ocean Bowl(3) Falmouth 249 - - 2018
------------------------ ----------- -------- ------------ -------------- -----------
September
140-142 New Walk Leicester 48 - - 2018
------------------------ ----------- -------- ------------ -------------- -----------
September
Princess Road Leicester 106 - - 2018
------------------------ ----------- -------- ------------ -------------- -----------
September
Forthside(4) Stirling 204 - - 2018
------------------------ ----------- -------- ------------ -------------- -----------
(1) Practical completion of this asset has been delayed until April 2017 but the Group benefits from a rental guarantee for the 2016/17 academic year.
(2) The Group had exchanged contracts on this site, subject to planning consent being obtained. Planning consent had not been obtained as at 31 December 2016 and, in January 2017, the Group allowed the contract to lapse.
(3) The Group had exchanged contracts on this site, subject to planning consent being obtained. Planning consent had not been obtained as at 31 December 2016.
(4) The Group had exchanged contracts on this site, subject to planning consent being obtained. While planning consent had been obtained prior to 31 December 2016, the Group had not completed the acquisition of this site by 31 December 2016.
Valuation
Each individual property in the Company's property portfolio has been valued by an external valuer, CBRE, in accordance with the RICS Valuation - Professional Standards January 2014 (the "Red Book"). CBRE now values the portfolio off 97% occupancy (previously 97.5%) which has had a slight negative impact on the valuation of the portfolio.
As at 31 December 2016, the Group's property portfolio had a market value of GBP721.3 million (including the Company's interest in a joint venture development asset but excluding the value of properties on which only conditional contracts had been exchanged at the year end) (30 June 2016: GBP523.9 million). Of this, GBP654.0 million was attributable to operating assets or those which had reached practical completion, an increase of 10.2% in value compared to the aggregate purchase price or cost of development of GBP593.7 million (30 June 2016: GBP443.4 million, an increase of 4.7% compared to purchase price or cost of development of GBP423.2 million). The aggregate valuation attributable to the forward funded and development assets that had unconditionally exchanged was GBP67.4 million, which is based on progress of the development of the assets to 31 December 2016.
The Group had also exchanged conditional contracts on five properties and sites for which conditions (e.g. practical completion or planning consent) remained outstanding as at 31 December 2016 and, therefore, the value of these properties has not been included in the aggregate valuation of the Group's property portfolio as at 31 December 2016.
Post Balance Sheet Events
Since the period end, we have announced the acquisition of one asset which was operational and one forward funded development property which, together, represent a further 326 beds. Details of these acquisitions are set out in Table 3 below.
In March 2017, the Group acquired Revcap's 50% share of the Willowbank joint venture for GBP4.65 million.
Table 3 - Assets Acquired Since 31 December 2016 to Date (2 in Total)
Name Location Number Date of Price Estimated Net
of Beds Acquisition Paid or Completion Initial
Total Date Yield
Investment
to Completion
(GBPm)
------------------------ --------- -------- ------------ -------------- ----------- --------
Operating
------------------------ --------- -------- ------------ -------------- ----------- --------
January
Foss Studios York 220 2017 23.3 N/A 5.6%
------------------------ --------- -------- ------------ -------------- ----------- --------
Forward Funded Projects
------------------------ --------- -------- ------------ -------------- ----------- --------
January September
Percy's Lane York 106 2017 9.3 2018 N/A
------------------------ --------- -------- ------------ -------------- ----------- --------
Total 326 32.6
----------------------------------- -------- ------------ -------------- ----------- --------
Our Teams
Our investment and development teams have continued to work hard over the six month period and I would like to thank them for all their efforts. We look forward to delivering further investment opportunities within the Group's expanded Investment Policy.
Tim Attlee
Chief Investment Officer
10 April 2017
CASE STUDY
Our Social Media Strategy
When it comes to connecting with students in the UK and abroad, social media is proven to be the most effective channel. Some 90% of younger millennials and Gen-Z, the two generations currently at university, use social media every day. We use social media platforms to curate a modern, unified brand presence which speaks to students, and it drives 53% of the traffic on the Hello Student(R) website.
Facebook has regularly been the top traffic driver to the Hello Student(R) website. We use it to drive sales and engage our audience with the brand. It's also a great place to grow and interact with a student audience. We are so pleased to see so many residents interacting by leaving comments, posting pictures and reviewing us. Our reach through Facebook was 4.1 million in the 1 July to 31 December 2016 period, and we gained 11,950 new followers in this time.
Meanwhile on Instagram, we are less about driving sales and more about curating the Hello Student(R) brand. Instagram is a key platform for millennials and Gen-Z. We post a mix of our own beautiful property pictures, and repost content from top-performing accounts. Each month we pick a new theme to guarantee consistency. January was clean living and February was interior design, for example.
Our average engagement rate (the percentage of people who liked, commented or shared) is around 4% - the industry average is 1%.
Twitter is less of a priority for Hello Student(R) ; however, we do use it for keeping up with customer service, and for reaching out to influencers. Where students are leaving Twitter, they are joining Snapchat in droves. On this platform we run filters to showcase selected properties and campuses. These allow students to customise the photos they share with Hello Student(R) branding. Student photos encourage user-generated content in a mobile first format that students are connecting with every day.
Chief Executive Officer's Operations Review
Over the six months to 31 December 2016, we experienced our fastest acceleration in the number of operating (or revenue generating) buildings, from 52 buildings at the end of June 2016 to 75 buildings at the period end. Hello Student(R) is also making good progress, increasing the number of buildings under management over the six month period from 18 to 36.
Introduction
The six months to 31 December 2016 saw a significant ramp-up in the number of operating (or revenue generating) assets - 23 buildings in the six month period compared to 52 buildings over the previous two years. We are also making good progress in moving assets to sit within the Hello Student(R) marketing and operational platform, whilst continuing to grow and diversify our portfolio of properties. Hello Student(R) received accreditation into the Accreditation Network UK (ANUK) in December 2016.
Both the number and proportion of rooms under the Hello Student(R) platform increased significantly, moving us towards the aim of running most of the core portfolio by September 2018. The operational (or revenue generating) portfolio grew by 2,515 beds across 23 buildings between 1 July and 31 December 2016, including the largest handover of buildings under development to date, comprising 13 assets (totalling 1,728 beds) becoming operational in the 2016/17 academic year.
These new rooms coming into operation gave us additional capacity in several key cities including Bath, Cardiff, Glasgow and Leicester.
The operational (or revenue generating) portfolio included 6,775 beds in total by December 2016, across 75 buildings (30 June 2016: 4,257 beds across 52 buildings) of which Hello Student(R) operated 3,075. The beds not operated by Hello Student(R) were operated by third party student accommodation management companies.
Summary Beds Owned and Operated
December
June 2016 2016
--------------------------------------- --------- --------
Operational (or revenue generating)
building 52 75
--------------------------------------- --------- --------
Operational (or revenue generating)
beds 4,257 6,775
--------------------------------------- --------- --------
Buildings operated by Hello Student(R) 18 36
--------------------------------------- --------- --------
Rooms operated by Hello Student(R) 1,868 3,075
--------------------------------------- --------- --------
The transition to marketing and operation by our single student branded website Hello Student(R) has been successful to date, and allows us greater access to information on our customer base, savings on operational costs and the potential for efficiencies and excellence in service provision.
Marketing
Hello Student's(R) marketing cycle for the 2017/18 academic year commenced during November 2016. 4,882 beds will be marketed directly by Hello Student(R) , of 7,644 beds available for the 2017/18 academic year (at period end).
In line with the strategic move of assets to Hello Student(R) , we have invested in additional in-house marketing capability to provide central marketing and support to the regional network.
We remain very interested in who our tenants are, and how we can add value to their experience in our residences and as part of their time at university. As at December 2016, our portfolio, fully let, comprised the following tenant diversity:
Tenant Demographics, 2016/17 and 2015/16
2016/17 2015/16
--------------------------------------------- ------- -------
Postgraduate 26% 30%
--------------------------------------------- ------- -------
Undergraduate (including Foundation/other) 74% 70%
--------------------------------------------- ------- -------
First year undergraduate 21% 32%
--------------------------------------------- ------- -------
Returning undergraduate 34% 68%
--------------------------------------------- ------- -------
UK 49% 31%
--------------------------------------------- ------- -------
EU 10% 8%
--------------------------------------------- ------- -------
Non EU 41% 61%
--------------------------------------------- ------- -------
Number of nationalities 137 98
--------------------------------------------- ------- -------
First year UK undergraduates, under 20 years
old 4% 3%
--------------------------------------------- ------- -------
Female 55% 51%
--------------------------------------------- ------- -------
Male 45% 49%
--------------------------------------------- ------- -------
Average age 22 22
--------------------------------------------- ------- -------
December 2016.
The demographic analysis highlights that over one year we have increased the number of UK students (rather than decreased the number of international students as the total number of beds has increased). One of the reasons for this is the purchase of the portfolio of assets in Exeter, Leicester and Portsmouth from Campbell Properties which, historically, has targeted returning UK students.
Given the diversification plan, these assets support the transition of the business into a multi-niche operator appealing to students at all stages of study and across the price spectrum.
Our research has told us that international students are typically funded by parents whereas UK students are funded predominantly by loans. In our latest tenant survey, more than half of our international tenants' self-reported levels of disposable income, on average, of GBP500 per week, once tuition fees and accommodation were paid for. Non-UK students are also more demanding in their expectations from their accommodation, valuing location, safety, technology, cleanliness and amenities more highly than UK students in general. This research reinforces the need for student accommodation to be as diverse as the student population.
We continue to look for ways to add value to our tenants, and one new but very effective service that we have been able to supply is Perkbox. This rewards-based provider was created for employees to use companies' shared discounted products and preferential deals (such as cinema tickets, Tastecard, high street store discounts etc.). We have rolled out Perkbox to every tenant (and every member of staff) on a cost-effective basis due to the large number of our twenty-something tenants. It is early days in our relationship with this company and by December, 15% of tenants had activated their accounts. However, the benefits to those 15% were substantial at GBP22,000 of savings in one month. This is indicative of the purchasing power of our customer base and their importance as economic drivers for their local economies.
During the period, the trial version of the Hello Student(R) app went live for testing in Nottingham. The app allows customers to access a range of add-on services (such as dry cleaning and room servicing) as well as creating an additional channel of communication between residents and management and maintenance teams.
The aim will be to roll out the app in phases across the cities beginning next year. We believe that there is significant potential for the app to assist operations further. As part of the IT plan, we wish to move to a three-click booking process which can be accessed from mobile devices.
Hello Student's(R) social media outreach has met with a huge level of engagement from prospective tenants. During the 1 July to 31 December 2016 period we gained almost 12,000 new Facebook followers and our posts reached 4.1 million users. We also ran a campaign #SayHelloStudent across a range of social media channels based around a competition to win a free room for a year. The prize was won by a student at Glasgow University for her video of international students saying "Hello Student(R) " in their own languages; she is now living in our Willowbank building. Facebook is used as a marketing channel for increasing influence rather than just simply sales, which is a departure from how the tool is used by other operators. However, Facebook is now the biggest driver of traffic to Hello Student's(R) booking website.
Booking System
The Hello Student(R) booking system was improved and the website booking process streamlined in November 2016. There were several reasons for the changes. We wanted to reduce the abandonment rates and implement benefits of the recent distance selling law change that could make the booking system simpler for prospective tenants.
We refined and customised the website customer journey, and took the innovative move of removing the requirement for deposits and booking fees (which were due to be prevented by law at the end of 2016). Due to the quality of the buildings and the tenants they attract, we experience little malicious damage where we claim on deposits, so the removal of them was deemed beneficial; as they can only be a significant drag on the take-up of bookings. We are showing a level of trust to our customers which we believe they appreciate. Early indications are that the level of abandonment has been reduced from the booking system as a result, and will significantly improve the efficiency of tenant recruitment over time.
A further benefit has been to create more certainty of income earlier in the booking cycle. Rather than pay a deposit, the tenant enters into the licence agreement earlier. Tenants also benefit from not having their deposits held by a tenant protection scheme (at a cost of time and expense to us); one of which suffered a major failure last year, temporarily affecting our tenants, and creating unnecessary concern within the sector.
Management
As the business grows, it remains vital that those staff who are managing the assets and engaging with tenants become integral to the operation of the Hello Student(R) platform.
The regional operational and management structure is being grown, with the first regional office opening soon in Glasgow. Two Heads of Operations (Northern England and Scotland) started during the period, and five City Managers were recruited with total staff of 44, together with 73 student ambassadors. Recruitment will be ongoing - and will be supported by the implementation of a structured induction plan, central training and support and creating best practice networks between buildings and cities. The positive effect of managers being brought into one operational platform is already being felt, and we believe the sense of ownership and community will result in even more positive engagement with current and prospective tenants in future. The growth of the Hello Student(R) platform and overhead reflects the increasing total number of beds and mirrors the reducing number of outsourced management contracts and their fee burden.
Empiric head office staff are closely engaged with the expansion of the operational platform, including those not directly involved in it or overseeing it. With so many new beds and buildings completing for the 2016/17 academic year, over move-in weekends in September, central staff assisted hands-on, working side by side with building managers to welcome tenants and their parents. This has been a great way for staff to see the business at the sharp end, saying "Hello" to customers.
As a group, central office staff were taken to Edinburgh for a weekend in August to stay in the recently completed Buccleuch Street property to experience an Empiric building first-hand. Not only did the business come to life for the more office bound of the central office employees, but the latest design and specification of our product was reviewed and discussed by a new and critical group of testers.
Our London head office moved to Swan House, Stratford Place near Bond Street Station. The additional office space will accommodate the expansion of the central team and support development and diversification of the business and the new strategy.
Direct Operational Costs
The basis of Hello Student(R) as an operational platform is the operational cost savings and quality improvements that can be achieved by bringing the operation in-house. One of the central elements of the operational plan was to bring in-house more of the management of the buildings, by directly employing the team of management people around the country. A core premise was that as the business enlarges, so the economies of scale of managing residences becomes a greater financial benefit. The added cost of investing in an in-house operational platform is expected to be more than offset by the savings that we are able to make through reducing percentage based per-bed fees currently paid for services which are outsourced.
A benefit of this change, and the restructured outsourcing of other functions, has been to examine the full detail of the operational costs that are involved in running the portfolio and to enable us to customise a cost plan to respond to the unique nature of our buildings and our service offer. In developing the budgeting process for Hello Student(R) , we built a financial model using the external valuation as a starting point; utilising industry benchmark numbers, categorised into the various operational areas. Since September 2016, we have been refining this model, moving away from narrow assumptions and thinking smartly about how operational efficiencies can be achieved with the future portfolio that the delivery of the 2025 Plan will bring.
Cost tracking and sensitivity testing are now in place to feed into the modelling, as we will be bringing newly acquired standing assets onto the operating platform on a recurring basis in all asset types described in the 2025 Plan.
The aim is to improve operating costs per bed over a period of time by moving them from external fee based management contracts to the in-house Hello Student(R) platform. Conducting ongoing testing of operational costs will ultimately result in efficiencies and a costing model that really reflects the business and its needs. We are running this model on an ongoing basis as a test bed which will evolve from year to year.
The preparatory work to replace the current accounting system took place and the new system is expected to go live in phases during 2017. This change allows the operational cost reporting to be more integrated and simplified than before and puts the reporting systems on a footing to accommodate future growth.
Preventative Maintenance and Reactive Repairs
We contracted with Incentive FM in the previous financial year to provide highly responsive facilities management to support us. This move to a directly employed national contractor long term will enable us to have more oversight of operational costs, greater economies of scale within the supply chain and a coordinated and consistent approach to delivery.
Overall the continuing rollout of the Hello Student(R) platform will enable us to achieve greater quality control and efficiencies as the portfolio continues to grow and evolve which will feed into shareholder value.
Paul Hadaway
Chief Executive Officer
10 April 2017
Financial Review
The financial results for the six months to 31 December 2016 reflect the Group's significant expansion and capital deployment over the period including the practical completion of a substantial number of development properties which became operational for the 2016/17 academic year.
Accounting Policies
The Group changed its accounting reference date from 30 June to 31 December and the consolidated financial statements have been prepared for a shortened six month period to 31 December 2016. The comparative financial information included in this report relates to the audited consolidated financial statements for the 12 months ended 30 June 2016.
The Group's consolidated financial statements for the six months to 31 December 2016 have been prepared in accordance with IFRS.
Overview
The Group has undergone significant growth during the six month period to 31 December 2016, with the addition of 23 assets to the existing portfolio of 52 operating (or revenue generating) purpose-built accommodation assets owned at 30 June 2016. As a result, gross annualised rent as at 31 December 2016 increased to GBP52.1 million (30 June 2016: GBP33.1 million).
Of these additional assets, 13 were development properties which reached practical completion (or became revenue generating) for the 2016/17 academic year, equivalent to 1,728 beds. This has resulted in a commensurate uplift in the valuation of these assets. Development assets typically are slower to let in the first year and, while the portfolio was fully let1 at the period end, three of our 13 newly completed assets were not fully let for the start of the 2016/17 academic year. This, together with there being only three months of operations at 31 December 2016, means that the full impact of the additional rental income will only flow through to the Group's revenues for the financial year ending 31 December 2017.
However, the cost of mobilisation (one-off setup costs) of these assets, including staffing and other one-off expenses associated with setting up these properties on the Hello Student(R) management platform, were incurred in full during the period. Similarly, the set-up costs associated with transferring operating assets acquired previously and during the period onto the Hello Student(R) platform (resulting in a total of 36 buildings managed by Hello Student(R) at the period end (30 June 2016: 18 buildings)) were also expensed in full during the period.
Again, the benefits associated with an in-house management structure are expected to have a positive impact in the short to medium term as the Group is able to take advantage of economies of scale, with the operation and management of all currently owned operating properties moving to Hello Student(R) by September 2018.
1 The Company budgets and models on the basis of 97% occupancy (compared to 97.5% previously) adjusted in line with the valuation methodology. Occupancy or income of the operational portfolio (being available beds) to this level and in excess is considered fully let.
Financial Results
The operating profit for the Group for the six months to 31 December 2016 under IFRS was GBP20.2 million (12 months to 30 June 2016: GBP30.0 million), including an aggregate revaluation uplift of GBP14.5 million, net of property acquisition costs, on the Group's property portfolio at the period end (12 months to 30 June 2016: GBP21.7 million). The operating profit includes the rental income derived from the standing assets in the portfolio, which were fully let1 and produced rental income of GBP19.2 million in the six month period (12 months to 30 June 2016: GBP21.6 million).
Revenue during the six months ended 31 December 2016 was negatively impacted by slower than anticipated lettings at some properties (see above), particularly those new to the Group and/or those under construction where completion was achieved later than scheduled, adversely affecting pre-bookings during the Summer. However, the majority of these properties had achieved full occupation by the end of the period. In addition, the voids on properties acquired on 44 week tenancies (as opposed to our standard 51 week tenancy) impacted on revenue as these tenancies terminated shortly after the start of the period.
Property expenses included:
-- significant non-recurring expenditure on certain properties associated with their transfer to the Hello Student(R) platform;
-- legacy utility and other running costs inherited on the transfer of the properties concerned from their previous operators as standing investments; and
-- one-off mobilisation costs on assets new to the letting market.
The impact of the factors affecting the revenue and one off expenses is magnified by the shortened reporting period.
The Group's share of results from joint ventures in the six month period was GBP0.7 million, which primarily related to uplift in the fair values of the property (12 months to 30 June 2016: GBP1.8 million).
Administrative and other expenses, which include the ongoing costs of running the business, were GBP5.3 million (12 months to 30 June 2016: GBP7.3 million). During the period, the Group expanded its head office operation, adding seven new recruits, moved to new premises, continued to establish the Hello Student(R) platform and negotiated several new debt facilities.
Net financing costs for the six month period were GBP4.0 million net of money market investment income of GBP0.3 million (12 months to 30 June 2016: GBP3.6 million and GBP0.9 million, respectively).
The profit before tax for the six month period was GBP16.9 million (12 months to 30 June 2016: GBP28.1 million), with basic earnings per share for the six month period of 3.38p (3.35p on a diluted basis) (12 months to 30 June 2016: 7.29p and 7.23p (diluted)).
No Corporation Tax has been charged in the period because of the Group's fulfilment of all of its obligations as a REIT.
The NAV per share as at 31 December 2016 was 105.9p prior to adjusting for the second interim dividend of 1.55p per share (30 June 2016: 105.4p prior to adjusting for the fourth interim dividend of 1.5p) and is shown net of all property acquisition costs and dividends paid during the six months.
Asset Valuation
The Group's portfolio has been independently valued by CBRE in accordance the RICS Valuation - Professional Standards January 2014 (the "Red Book"). As at 31 December 2016, the aggregate market value of property in our portfolio was GBP721.3 million (including the Company's interest in a joint venture development asset) (30 June 2016: GBP523.9 million).
CBRE now values the portfolio off 97% occupancy (previously 97.5%) which has led to a slight relative reduction in the valuation of the portfolio. In addition, we have implemented a valuation policy pursuant to which only 25% of the valuation increase related to rental uplifts for the 2016/17 academic year is recognised as at 31 December 2016. A further 50% will be recognised for the six months ending 30 June 2017 and the balance during the second half of the financial year.
Further details on the portfolio and valuation are set out in the Chief Investment Officer's Portfolio Review on pages 28 to 33 (inclusive).
Dividends
For the six month period ended 31 December 2016, the Company declared two interim dividends amounting, in aggregate, to 3.05p per share (of which 1.55p per share was declared on 11 January 2017) (12 months to 30 June 2016: 6.0p per share including 1.5p per share declared after the period end), which is in line with the target of a dividend of 6.1p per share for the 12 months ending 30 June 2017.
Of these dividends, 0.93p per share was declared as a PID in respect of the Group's tax exempt property rental business and 2.12p per share was declared as ordinary UK dividends (year to 30 June 2016: 1.45p per share and 4.55p per share, respectively).
The Group's adjusted EPRA earnings per share for the six month period was 0.72p (12 months to 30 June 2016: 1.89p per share). The adjusted EPRA earnings per share figure takes the EPRA earnings per share for the year and adds the licence fee on forward funded developments and the rental guarantee payments on two forward funded assets that were delivered late by the developer. We see this as a more relevant measure when assessing dividend distributions.
The Company is targeting a dividend of 6.1p per share for the 12 months ending 30 June 2017. This reflects the prior financial year dividend of 6p per share with an adjustment broadly in line with our dividend growth target of not less than RPI. The Directors anticipate that dividends for the year ended 31 December 2017 and going forward will be substantially covered by adjusted EPRA earnings per share.2
(2 Shareholders should note that the figures in relation to prospective dividends set out above and elsewhere in this Annual Report are for illustrative purposes only and are not intended to be, and should not be taken as, a profit forecast or estimate.)
Financing
In March 2016, the Company launched a share issuance programme enabling it to issue up to 165 million shares valid until 28 February 2017 (the "Share Issuance Programme"). The only tranche of the Share Issuance Programme, which closed on 16 March 2016, raised gross equity of GBP125 million, well above the original target of GBP90 million.
As a consequence, the Company had sufficient equity capital for the six month period to 31 December 2016 and sought to raise debt financing.
During the period, the Group agreed four further debt facilities, namely:
-- on 15 July 2016, a new facility of GBP32.8 million with AIB Group (UK) PLC secured on five forward funded assets, to be drawn down in stages over the development period, with practical completion on all five assets expected by July 2017 when the facility will convert into an investment loan. The development loan interest rate is at a margin of 2.80% per annum over LIBOR. The investment loan interest rate is at a margin of 1.80% per annum over LIBOR. At 31 December 2016, GBP14.7 million had been drawn;
-- on 6 September 2016, a new facility of GBP30.63 million with The Royal Bank of Scotland plc secured against a portfolio of five forward funded assets, to be drawn down in stages over each asset's development period, converting to an investment loan, separately, on practical completion of each of the developments. At 31 December 2016, GBP8.4 million had been drawn down;
-- on 13 December 2016, a new GBP40 million extension facility to the existing GBP80 million fixed rate term facility (together, the "Amended and Restated Facility") through Barings Real Estate Advisers (a member of the Massachusetts Mutual Group), secured against 25 operating properties. The fixed all in blended interest rate for the Amended and Restated Facility is 3.37% per annum. The new GBP40 million facility was drawn down in full on 16 December 2016; and
-- on 27 July 2016, a supplementary GBP40 million facility to the existing GBP31.1 million fixed rate term facility with Canada Life Investments became available for draw down against completion and acquisition of four forward committed purchases. By 31 December 2016, GBP34.2 million of the facility had been drawn down against three property acquisitions.
As at 31 December 2016, the Group had, in aggregate, GBP310.0 million of committed debt in place of which GBP243.9 million had been drawn down. The Group's aggregate LTV ratio as at 31 December 2016 was 31.1% (30 June 2016: 22.7%), compared to a target LTV of 35% and a maximum of 40%) and it was in full compliance with its covenants.
Post Balance Sheet Events
The Company has announced the acquisition of one asset which was operational and one property under development which, together, represent a further 326 beds. Details of these acquisitions are set out in Table 3 of the Chief Investment Officer's Portfolio Review.
On 3 March 2017, the Company agreed a new unsecured term loan facility of GBP10 million with First Commercial Bank Limited, repayable three years from the date of agreement.
On 30 March 2017, the Group acquired Revcap's 50% share of the Willowbank joint venture, Empiric (Glasgow) Limited, for GBP4.65 million. At the same time, the outstanding debt for the joint venture, amounting to GBP9.5 million, was repaid to Close Brothers.
Alternative Investment Fund Manager ("AIFM")
The Company continues to be authorised as a full-scope AIFM and is regulated by the Financial Conduct Authority. The Company has engaged a specialist compliance consultancy, Portman Compliance Consulting LLP, to ensure that it adheres to all of its regulatory obligations.
Thanks
The Board would like to thank our finance team for their hard work and dedication over this period of significant growth in the business and successfully meeting the significant challenges along the way.
Principal Risks and Uncertainties
The Board has overall responsibility for risk management and internal controls within the Group.
The Audit Committee formally reviews the effectiveness of the Company's risk management processes on behalf of the Board.
The Board recognises that the operation of a company is not without risk but that effective risk management is key to the success of an organisation.
Approach to Managing Risk
The overall risk management process is designed to identify, evaluate and mitigate (rather than eliminate) significant risks that the Group faces. Therefore, the process can only provide reasonable, rather than absolute, assurance. The Company outsources certain services to its administrator, FIM Capital Limited (the "Administrator"), and other service providers, and a certain element of reliance is placed on the Company's service providers' own systems and controls.
The Board undertakes formal risk reviews with the assistance of the Audit Committee in order to assess the effectiveness of the Company's risk management and internal control systems. During the course of such reviews, the Board has not identified, nor been advised of, any failings or weaknesses which it has determined to be of a material nature.
The principal risks and uncertainties that the Group faces are set out on pages 42 to 47 of the Annual Report.
Principal Risks
Principal risks have the potential to affect the Group's business materially - either favourably or unfavourably. Some risks may be unknown at present, and certain risks that are currently regarded as immaterial, and therefore not included here, might well become material in the future.
Risk Impact Mitigation
------------------------------- --------------------------- -----------------------------
Strategic risks
-------------------------------------------------------------------------------------------
1 The Group will An adverse change The Board constantly
continue to focus in the higher education monitors government
exclusively on market in the UK, policy and its
the student accommodation generally, or in impact on, and
sector. It will, a speci c region, forecasts of, UK,
therefore, have could lead to a EU and international
direct reliance reduction in student student numbers
on the development numbers and a consequent studying in the
of the higher education reduction in demand UK. Further, the
market in the UK, for student accommodation Board will pay
generally, or in across the UK or particular attention
speci c regions, any such region. to proposals relating
including any change This, in turn, to the UK's exit
in demand from could result in from the EU and
international students. reduced rental how these impact
income and negatively the UK as a whole
impact the value and speci c regions,
of all, or a signi such as Scotland.
cant proportion
of, the Group's The Board acquires
portfolio. or develops student
accommodation properties
serving leading
university cities
and towns in the
UK, such as the
Russell Group or
high growth universities.
Where the Directors
perceive a weakening
in a particular
market (either
a speci c city
or region), they
will carefully
monitor the performance
of existing assets
in such market
and adjust rental
levels and marketing
activities, as
necessary, to ensure
occupancy levels
are maintained.
The properties
are well located,
with the majority
being within walking
distance of the
universities they
serve and are also
close to leisure
amenities. The
Board therefore
believes maintaining
competitive rental
levels should ensure
high occupancy
levels across the
portfolio during
periods of weaker
demand.
The recently approved
2025 Plan provides
for further future
diversification
across multiple
sub-markets including:
i) low cost housing;
ii) quality townhouses;
iii) on-campus
accommodation;
and iv) the first/second
year markets.
The Directors also
seek to ensure
the Group's developments
and, where possible,
acquisitions of
standing assets,
are t for alternative
use such as private
residential, subject
to planning.
--------------------------- --------------------------- -----------------------------
2 The Group faces Increased competition The full-time student
competition in may lead to an population across
the student accommodation oversupply of rooms the UK (from rst
sector from a number through overdevelopment, year to postgraduate
of UK and international to prices for existing level) was over
property investors, properties or land 1.7 million for
both existing and for development the 2015/16 academic
new, which may being in ated or year. The Group
have access to to an adverse impact is focused on 36
larger nancial on rents able to cities and towns
resources and/or be achieved. with high quality
be targeting lower and growing higher
investment returns. education institutions
and where research
indicates that
there is a significant
under supply of
PBSA. The Group's
assets are situated
in prime locations
in varying formats
and different price
points and, therefore,
in times of reduced
demand, these properties
should be more
attractive to prospective
customers than
the competition
at the right price.
--------------------------- --------------------------- -----------------------------
Investment risks
-------------------------------------------------------------------------------------------
3 The performance Market conditions The Group's assets
of the Group's may negatively are located in
portfolio will impact on the revenues multiple, prime
depend on general earned from the locations, diversifying
property and investment property assets, the risk of adverse
market conditions. which may impact changes to the
the Group's ability portfolio.
There remains uncertainty to make distributions
in respect of the to shareholders. The Company's Investment
property market, Policy provides
in general, following An adverse change for a prudent borrowing
the result of the in the Group's limit for the asset
EU referendum in property valuations class of a maximum
June 2016, which may lead to the of 40% of the Gross
could prevail until Group breaching Asset Value (with
Brexit negotiations its banking covenants. a target of 35%).
are concluded and The Board regularly
beyond, depending reviews property
on the outcome market conditions
of such negotiations. and would seek
to take action
If market conditions in advance should
deteriorate and, it look like any
as a result, the property used as
value of the Group's collateral had
assets falls, the decreased in value
NAV of the Group to the extent that
will reduce. Furthermore, there was a risk
the Group's borrowings that the Group
contain LTV covenants. might breach any
of its LTV covenants.
The LTV covenants
have been negotiated
to be as exible
as possible.
Further, with international
students paying
in advance, the
Group maintains
substantial cash
balances on account.
The student property
sector has demonstrated
considerable robustness
underpinned by
a signi cant and
bene cial supply
and demand imbalance.
Notwithstanding
this imbalance,
the Group does
not overstretch
annual rent increases
and varies such
increases according
to the local market
conditions for
each particular
area or building.
With EU students
representing only
6% of all full-time
students in the
UK, and with the
high number of
other international
students applying
to study in the
UK, the higher
education sector
in the UK is not
reliant on students
from the EU.
--------------------------- --------------------------- -----------------------------
4 The ability of Rental income and The Group's portfolio
the Group to achieve property values of properties is
its investment may be adversely geographically
objective is dependent affected by an diversified and
on both the rental increased supply where there is
income received of student accommodation, more than one property
from the properties failure to collect serving a town/university,
and the appreciation rents, increasing the total number
in property values. costs or any deterioration of beds equates
in the quality to no more than
of the properties 2% of the location's
in the portfolio. full-time student
population. Each
operational property
is managed either
by the Group directly
or by reputable
property management
companies. Therefore,
the Group is not
unduly exposed
to any one student
market.
The Group's Operations
Director liaises
with the property
managers to ensure
rental income is
collected on time
(usually in advance
at the start of
an academic year),
that the properties
are well maintained
and the desired
level of customer
service is provided.
--------------------------- --------------------------- -----------------------------
Development risks
-------------------------------------------------------------------------------------------
5 The Group's development Any of the risks Under the Company's
activities are associated with current Investment
likely to involve the Group's development Policy, the Company
a higher degree activities could may only commit
of risk than is reduce the value up to a maximum
associated with of the Group's of 15% of NAV to
operating properties assets. expenditure on
including general development (excluding
construction risks the cost of the
such as delays land or property
or health and safety to be developed).
problems, developments Since IPO, a greater
not being completed proportion of the
(while associated Group's development
costs are still activities has
incurred) or changes been undertaken
in market conditions through forward
which could result funded projects
in completed developments rather than by
having substantial direct development.
vacancies. Investment into
forward funded
projects reduces
the risk to the
Company as the
developer takes
on the construction
risk and the risk
of cost over-runs.
The Group's development
activities span
a range of towns
and cities and
there is little
or no overlap in
the developers
acting on these
projects (with
the maximum exposure
to any one developer
restricted to 20%
of GAV for forward
funded projects),
further reducing
the impact of any
delays or changes
in market conditions.
--------------------------- --------------------------- -----------------------------
6 Construction of A delay in the Building programmes
the Group's development timely construction are structured
projects may be of the Group's to ensure construction
subject to delays assets under development completion occurs
or disruptions could result in at least one month
that are outside one or more of before the commencement
of the the development of the academic
Group's control. assets not being year and that contractors
delivered in time provide show flats
for the start of and assist Empiric
a particular academic with marketing
year with a resultant during the construction
impact on occupancy phase.
and revenue.
Properties developed
using third party
developers generally
bene t from a one
year rental guarantee
for the rst year
of operations in
the event the asset
is not delivered
in time for the
start of the academic
year. For assets
developed by the
Group (directly
or through its
joint venture arrangement
with Revcap), the
Group puts in place
suitable contingencies,
insurance cover
and other arrangements
with the responsible
contractor or sub-contractor
to cover the impact
of any delay.
--------------------------- --------------------------- -----------------------------
Funding risks
-------------------------------------------------------------------------------------------
7 The Group's strategy Future increases Since IPO, the
anticipates the in the amount of Executive Directors
Company or certain interest payable have been in active
Group companies by the Group on discussions with
incurring debt its borrowings a number of debt
with interest payable would reduce the providers and,
based on LIBOR pro tability of to date, have secured
and it may hedge the Company. facilities with
or partly hedge ve separate providers
interest rate exposure (including joint
on borrowings. venture debt providers)
However, such measures and have agreed
may not be suf xed rates or employed
cient to protect interest rate hedging
the Group from which is in place
adverse movements for 61% of the
in prevailing interest variable rate debt.
rates.
As at 31 December
2016, the weighted
average term to
maturity of the
Group's debt investment
debt was 9 years
and 2 years for
its development
debt.
--------------------------- --------------------------- -----------------------------
8 The Group may not Without the continued The Executive Directors
be able to secure availability of are in active discussions
further debt on debt on acceptable with a number of
acceptable terms. terms, the Group debt providers
may be unable to in order to secure
progress investment future debt on
opportunities as acceptable terms.
they arise and The forward funded
continue to grow developments' yields
the Group in line on cost reduce
with the long-term the need for gearing
strategy. to meet the dividend
target.
--------------------------- --------------------------- -----------------------------
People
-------------------------------------------------------------------------------------------
9 The Group's ability Failure by the The Executive Directors'
to achieve its Executive Directors interests are aligned
investment objective to acquire and with those of other
is dependent on manage assets effectively shareholders, with
the performance could materially each Executive
of the Executive adversely affect Director currently
Directors which the Company's pro holding a meaningful
cannot be guaranteed. tability, the NAV interest in the
and the share price. shares and their
As a result, the Similarly, the long-term incentivisation
Group's performance departure of an to be satis ed
will, to a large Executive Director in shares.
extent, be dependent or member of senior
upon the ability staff, and either The Remuneration
of the Company a delay or failure Committee takes
to align the incentives in recruiting a formal external
of the Executive suitable replacement, advice to ensure
Directors to shareholder could have an adverse that the Remuneration
interests and retain impact on the performance Policy for the
key staff and/or of the Group. Executive Directors
recruit individuals incentivises them
of appropriate to achieve the
experience and goals of the Company
calibre on a timely for the bene t
basis. of the shareholders.
The Value Delivery
Plan has recently
been approved by
shareholders in
order to achieve
further alignment.
Other senior staff
are remunerated
in accordance with
market practice
and conditions.
--------------------------- --------------------------- -----------------------------
Operational risks
-------------------------------------------------------------------------------------------
10 The Group's operations, A failure to comply The Company's investment
including its development with the relevant team has significant
activities, are law or regulations experience and,
subject to laws may negatively together with its
and regulations impact the Group's relevant advisers,
enacted by national ability to deliver closely monitors
and local government or acquire further the planning environment
and by government buildings, or result both nationally
policy, for example, in one or more and locally in
the requirement existing buildings the Group's target
for Energy Performance to be temporarily markets.
Certificates for or permanently
all of the Group's closed which may The Executive Directors
buildings. have a material are ultimately
adverse effect responsible for
The ability to on the performance ensuring that planning
respond and adapt of the Group. submissions are
to the changing well prepared,
planning and regulatory Any change in the addressing local
environment is laws, regulations concerns and demonstrating
key to Group's and/or government good design, and
future business policy in relation that all buildings
performance. to the Group's comply with all
operations or development the relevant building
activities may regulations and
have a material are sustainable
adverse impact and environmentally
on the Company's efficient.
ability to implement
its investment
policy and, hence,
negatively impact
returns to shareholders.
--------------------------- --------------------------- -----------------------------
11 The Company operates If the Company The Board is ultimately
as a UK REIT and fails to remain responsible for
has a tax ef cient a REIT for UK tax ensuring adherence
corporate structure purposes, its pro to the UK REIT
with advantageous ts and gains will regime and monitors
consequences for be subject to UK the compliance
UK shareholders. Corporation Tax. reports provided
Any change to the by the Executive
Company's tax status Directors on potential
or in UK tax legislation transactions to
(or interpretation be undertaken,
thereof) could the Administrator
affect the Company's reports on asset
ability to achieve levels and the
its investment Company's registrar
objective or provide and broker on shareholdings.
favourable returns The Company's Head
to shareholders. of Compliance provides
internal compliance
support.
In addition, Ernst
& Young LLP provide
REIT compliance
monitoring services
to Empiric and
a third party consultant,
Portman Compliance
Consulting LLP,
assists the Company
with compliance
matters.
--------------------------- --------------------------- -----------------------------
12 The Group may not A number of the Under the Company's
be able to let Group's properties Investment Policy,
the commercial include commercial commercial leases
units which form units which generate are limited to
part of some of between 2%-17% 25% of total rent
the properties (depending on each receipts of any
it owns or acquires. property) of the single building
individual total and 15% of the
rental income from Group's total rent
such properties. receipts limiting
If the Group was the impact of any
not able to lease one commercial
some or all of unit. For the six
these commercial months to 31 December
units, it could 2016, the aggregate
have a material annualised rental
adverse effect income from commercial
on the Group's leases amounted
pro tability, the to 3.4% of the
NAV and the price Group's gross annualised
of the shares. rent for its operating
assets (30 June
2016: 2.7%).
--------------------------- --------------------------- -----------------------------
13 The Group may not If the Group is The Board carefully
be able to maintain unable to maintain assesses the Group's
the occupancy rates attractive occupancy acquisitions to
of its properties levels (or to maintain ensure that the
or any other student such levels on properties are
accommodation properties economically favourable well located in
it acquires. terms) in relation prime university
to its properties, towns and cities.
there may be a The diverse portfolio
material adverse of midsized buildings
effect on the Group's reduces the impact
pro tability, NAV of reduced occupancy
and the share price. in any one building
on the overall
portfolio and allows
the Group to adjust
its pricing property
by property to
ensure maximum
occupancy levels
for each property.
--------------------------- --------------------------- -----------------------------
14 A significant health A serious health The Group undertakes
and safety incident and safety incident landlord risk assessments
could put people could result in for every property
at risk, including criminal or civil prior to occupation.
injury to, or loss proceedings and Additionally, all
of life of, employees, severe reputational student property
contractors, customers damage to the Group. is insured as occupied
and the general It could also lead residential property,
public. to delays in development property managers
projects. receive suitable
training to minimise
the risk of a health
and safety incident
occurring in one
of our buildings,
and student buildings
are inspected on
a sample basis
as part of the
Company's ANUK
accreditation.
Whilst the Group
undertakes development
activity in respect
of the property
portfolio, construction
is undertaken by
third party contractors
who retain responsibility
for the health
and safety of their
staff and subcontractors
working on the
construction sites.
Appropriate risk
assessments have
also been undertaken
in respect of the
Company's head
office function,
and the Health
and Safety policy
is available to
all members of
staff.
--------------------------- --------------------------- -----------------------------
15 Lettings on the An inability to The Hello Student(R)
Group's in-house secure lettings website acts as
platform, Hello for properties a portal for all
Student(R), may marketed by the properties in the
not reach target Group, directly, Group's operational
levels. would result in portfolio. Residences
occupancy levels run entirely by
below target and, Hello Student(R)
hence, a shortfall appear on this
in rental income. website and other
third party listings.
Where a property
is run by a third
party manager,
it appears on (and
can be booked from)
the manager's website,
as well as being
present on the
Hello Student(R)
website. The website
features on several
third party websites
and is supported
by a strong social
media presence.
In this way, each
property is marketed
through multiple
sources. The migration
of all residences
to being run entirely
by Hello Student(R)
is phased until
September 2018.
--------------------------- --------------------------- -----------------------------
16 We collect and A major information Our networks are
retain information security breach protected by rewalls
in computer systems could have a signi and anti-virus
regarding our business cant negative impact protection systems
dealings, our customers on our reputation with back-up procedures
and our suppliers. and could result also in place.
The secure processing, in the loss of
maintenance and business-critical The Company has
transmission of information. This retained the services
this information in turn could have of a specialist
is critical to a negative impact information technology
our business and on our ability consultancy to
we must comply to do business enhance controls
with restrictions or result in nes further and optimise
on the handling or compensation, our systems design
of sensitive information impacting on the in order to minimise
(including employee Group's pro tability. the risk of hacking.
and customer information). This latter service
is particularly
critical to the
Group as we expand
our portfolio and
our operational
capabilities. In
order to ensure
that our investment
into computer systems
is aligned with
our overall business
strategy is cost-effective
and designed to
reduce as far as
possible the risk
of security breaches.
All staff are given
appropriate training
to identify emails
and other communications
that could result
in a security breach.
--------------------------- --------------------------- -----------------------------
Financial Statements
Group Statement of Comprehensive Income
Period Year
ended ended
31 December 30 June
2016 2016
Note GBP'000 GBP'000
--------------------------------------- ---- ------------ --------
Continuing operations
--------------------------------------- ---- ------------ --------
Revenue 2 19,210 21,600
--------------------------------------- ---- ------------ --------
Property expenses 3 (8,152) (6,092)
--------------------------------------- ---- ------------ --------
Net rental income 11,058 15,508
--------------------------------------- ---- ------------ --------
Administrative expenses 4 (5,323) (7,262)
--------------------------------------- ---- ------------ --------
Change in fair value of investment
property 13 14,474 21,724
--------------------------------------- ---- ------------ --------
Operating profit 20,209 29,970
--------------------------------------- ---- ------------ --------
Finance cost (4,231) (4,552)
--------------------------------------- ---- ------------ --------
Finance income 255 910
--------------------------------------- ---- ------------ --------
Net finance costs 5 (3,976) (3,642)
--------------------------------------- ---- ------------ --------
Share of results from joint ventures 14 713 1,793
--------------------------------------- ---- ------------ --------
Profit before income tax 16,946 28,121
--------------------------------------- ---- ------------ --------
Corporation tax 7 - -
--------------------------------------- ---- ------------ --------
Profit for the period 16,946 28,121
--------------------------------------- ---- ------------ --------
Other comprehensive income
--------------------------------------- ---- ------------ --------
Items that will be reclassified to
Statement of Comprehensive Income
--------------------------------------- ---- ------------ --------
Fair value gain or (loss) on cash flow
hedge 453 (1,237)
--------------------------------------- ---- ------------ --------
Total comprehensive income for the
period 17,399 26,884
--------------------------------------- ---- ------------ --------
Earnings per share expressed in pence
per share 8
--------------------------------------- ---- ------------ --------
Basic 3.38 7.29
--------------------------------------- ---- ------------ --------
Diluted 3.35 7.23
--------------------------------------- ---- ------------ --------
Group Statement of Financial Position
At At
31 December 30 June
2016 2016
Note GBP'000 GBP'000
------------------------------------------ ---- ------------ --------
ASSETS
------------------------------------------ ---- ------------ --------
Non-current assets
------------------------------------------ ---- ------------ --------
Property, plant and equipment 11 509 297
------------------------------------------ ---- ------------ --------
Intangible assets 12 1,017 737
------------------------------------------ ---- ------------ --------
Investment property - operational assets 13 644,510 443,440
------------------------------------------ ---- ------------ --------
Investment property - development assets 13 67,380 70,754
------------------------------------------ ---- ------------ --------
Investment in joint venture 14 4,923 4,197
------------------------------------------ ---- ------------ --------
Derivative financial assets 19 19 18
------------------------------------------ ---- ------------ --------
Total non-current assets 718,358 519,443
------------------------------------------ ---- ------------ --------
Current assets
------------------------------------------ ---- ------------ --------
Trade and other receivables 15 24,852 18,716
------------------------------------------ ---- ------------ --------
Cash and cash equivalents 16 59,399 163,923
------------------------------------------ ---- ------------ --------
Total current assets 84,251 182,639
------------------------------------------ ---- ------------ --------
Total assets 802,609 702,082
------------------------------------------ ---- ------------ --------
LIABILITIES
------------------------------------------ ---- ------------ --------
Current liabilities
------------------------------------------ ---- ------------ --------
Trade and other payables 17 16,033 14,974
------------------------------------------ ---- ------------ --------
Borrowings 18 - 9,257
------------------------------------------ ---- ------------ --------
Derivative financial liability 19 485 479
------------------------------------------ ---- ------------ --------
Deferred income 17 15,760 4,418
------------------------------------------ ---- ------------ --------
Total current liabilities 32,278 29,128
------------------------------------------ ---- ------------ --------
Non-current liabilities
------------------------------------------ ---- ------------ --------
Borrowings 18 238,718 143,639
------------------------------------------ ---- ------------ --------
Derivative financial liability 19 748 1,206
------------------------------------------ ---- ------------ --------
Total non-current liabilities 239,466 144,845
------------------------------------------ ---- ------------ --------
Total liabilities 271,744 173,973
------------------------------------------ ---- ------------ --------
Total net assets 530,865 528,109
------------------------------------------ ---- ------------ --------
Equity
------------------------------------------ ---- ------------ --------
Called-up share capital 20 5,013 5,013
------------------------------------------ ---- ------------ --------
Share premium 21 359,958 359,958
------------------------------------------ ---- ------------ --------
Capital reduction reserve 22 106,198 121,236
------------------------------------------ ---- ------------ --------
Retained earnings 60,686 43,345
------------------------------------------ ---- ------------ --------
Cashflow hedge reserve (990) (1,443)
------------------------------------------ ---- ------------ --------
Total equity 530,865 528,109
------------------------------------------ ---- ------------ --------
Total equity and liabilities 802,609 702,082
------------------------------------------ ---- ------------ --------
Net Asset Value per share basic (pence) 9 105.90 105.35
------------------------------------------ ---- ------------ --------
Net Asset Value per share diluted (pence) 9 105.07 104.73
------------------------------------------ ---- ------------ --------
EPRA Net Asset Value per share (pence) 9 106.15 105.73
------------------------------------------ ---- ------------ --------
These financial statements were approved by the Board of Directors on 10 April 2017 and signed on its behalf by:
Paul Hadaway
Director
Company Statement of Financial Position
At At
31 December 30 June
2016 2016
Notes GBP'000 GBP'000
------------------------------------ ----- ------------ --------
ASSETS
------------------------------------ ----- ------------ --------
Non-current assets
------------------------------------ ----- ------------ --------
Property, plant and equipment 11 509 133
------------------------------------ ----- ------------ --------
Intangible assets 12 127 -
------------------------------------ ----- ------------ --------
Investments in subsidiaries 31 5,118 5,117
------------------------------------ ----- ------------ --------
Investment in joint venture 14 2,965 2,952
------------------------------------ ----- ------------ --------
Total non-current assets 8,719 8,202
------------------------------------ ----- ------------ --------
Current assets
------------------------------------ ----- ------------ --------
Trade and other receivables 15 602 511
------------------------------------ ----- ------------ --------
Amounts due from Group undertakings 15 651,897 460,845
------------------------------------ ----- ------------ --------
Cash and cash equivalents 16 14,997 143,819
------------------------------------ ----- ------------ --------
Total current assets 667,496 605,175
------------------------------------ ----- ------------ --------
Total assets 676,215 613,377
------------------------------------ ----- ------------ --------
LIABILITIES
------------------------------------ ----- ------------ --------
Current liabilities
------------------------------------ ----- ------------ --------
Trade and other payables 17 1,639 1,681
------------------------------------ ----- ------------ --------
Amounts due to Group undertakings 17 216,305 134,163
------------------------------------ ----- ------------ --------
Total current liabilities 217,944 135,844
------------------------------------ ----- ------------ --------
Total net assets 458,271 477,533
------------------------------------ ----- ------------ --------
Equity
------------------------------------ ----- ------------ --------
Called-up share capital 20 5,013 5,013
------------------------------------ ----- ------------ --------
Share premium 21 359,958 359,958
------------------------------------ ----- ------------ --------
Capital reduction reserve 22 106,198 121,236
------------------------------------ ----- ------------ --------
Retained earnings (12,898) (8,674)
------------------------------------ ----- ------------ --------
Total equity 458,271 477,533
------------------------------------ ----- ------------ --------
Total equity and liabilities 676,215 613,377
------------------------------------ ----- ------------ --------
The Company made a loss for the period of GBP4,619,000 (12 months to 30 June 2016: GBP5,774,000).
These financial statements were approved by the Board of Directors on 10 April 2017 and signed on its behalf by:
Paul Hadaway
Director
Group Statement of Changes in Equity
Cash
Called-up Capital flow
share Share reduction Retained hedge Total
capital premium reserve earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- -------- ---------- --------- -------- --------
Period ended 31 December
2016
---------------------------- --------- -------- ---------- --------- -------- --------
Balance at 1 July 2016 5,013 359,958 121,236 43,345 (1,443) 528,109
---------------------------- --------- -------- ---------- --------- -------- --------
Changes in equity
---------------------------- --------- -------- ---------- --------- -------- --------
Profit for the period - - - 16,946 - 16,946
---------------------------- --------- -------- ---------- --------- -------- --------
Fair value gain on cash
flow hedge - - - - 453 453
---------------------------- --------- -------- ---------- --------- -------- --------
Total comprehensive income
for the period - - - 16,946 453 17,399
---------------------------- --------- -------- ---------- --------- -------- --------
Share-based payments - - - 395 - 395
---------------------------- --------- -------- ---------- --------- -------- --------
Dividends - - (15,038) - - (15,038)
---------------------------- --------- -------- ---------- --------- -------- --------
Total contributions and
distributions recognised
directly in equity - - (15,038) 395 - (14,643)
---------------------------- --------- -------- ---------- --------- -------- --------
Balance at 31 December 2016 5,013 359,958 106,198 60,686 (990) 530,865
---------------------------- --------- -------- ---------- --------- -------- --------
Balance at 1 July 2015 2,329 82,280 141,417 14,575 (206) 240,395
---------------------------- --------- -------- ---------- --------- -------- --------
Changes in equity
---------------------------- --------- -------- ---------- --------- -------- --------
Profit for the period - - - 28,121 - 28,121
---------------------------- --------- -------- ---------- --------- -------- --------
Fair value (loss) on cash
flow hedge - - - - (1,237) (1,237)
---------------------------- --------- -------- ---------- --------- -------- --------
Total comprehensive income
for the period - - - 28,121 (1,237) 26,884
---------------------------- --------- -------- ---------- --------- -------- --------
Issue of share capital 2,684 283,742 - - - 286,426
---------------------------- --------- -------- ---------- --------- -------- --------
Share issue costs - (6,064) - - - (6,064)
---------------------------- --------- -------- ---------- --------- -------- --------
Share-based payments - - - 649 - 649
---------------------------- --------- -------- ---------- --------- -------- --------
Dividends - - (20,181) - - (20,181)
---------------------------- --------- -------- ---------- --------- -------- --------
Total contributions and
distributions recognised
directly in equity 2,684 277,678 (20,181) 649 - 260,830
---------------------------- --------- -------- ---------- --------- -------- --------
Balance at 30 June 2016 5,013 359,958 121,236 43,345 (1,443) 528,109
---------------------------- --------- -------- ---------- --------- -------- --------
Company Statement of Changes in Equity
Called-up Capital
share Share reduction Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- --------- -------- ---------- --------- --------
Period ended 31 December 2016
-------------------------------------- --------- -------- ---------- --------- --------
Balance at 1 July 2016 5,013 359,958 121,236 (8,674) 477,533
-------------------------------------- --------- -------- ---------- --------- --------
Changes in equity
-------------------------------------- --------- -------- ---------- --------- --------
Loss for the period - - - (4,619) (4,619)
-------------------------------------- --------- -------- ---------- --------- --------
Total comprehensive loss for
the period - - - (4,619) (4,619)
-------------------------------------- --------- -------- ---------- --------- --------
Share-based payments - - - 395 395
-------------------------------------- --------- -------- ---------- --------- --------
Dividends - - (15,038) - (15,038)
-------------------------------------- --------- -------- ---------- --------- --------
Total contributions and distributions
recognised
directly in equity - - (15,038) 395 (14,643) -------------------------------------- --------- -------- ---------- --------- -------- Balance at 31 December 2016 5,013 359,958 106,198 (12,898) 458,271 -------------------------------------- --------- -------- ---------- --------- -------- Year ended 30 June 2016 -------------------------------------- --------- -------- ---------- --------- -------- Balance at 1 July 2015 2,329 82,280 141,417 (3,549) 222,477 -------------------------------------- --------- -------- ---------- --------- -------- Changes in equity -------------------------------------- --------- -------- ---------- --------- -------- Loss for the period - - - (5,774) (5,774) -------------------------------------- --------- -------- ---------- --------- -------- Total comprehensive loss for the period - - - (5,774) (5,774) -------------------------------------- --------- -------- ---------- --------- -------- Issue of share capital 2,684 283,742 - - 286,426 -------------------------------------- --------- -------- ---------- --------- -------- Share issue costs - (6,064) - - (6,064) -------------------------------------- --------- -------- ---------- --------- -------- Share-based payments - - - 649 649 -------------------------------------- --------- -------- ---------- --------- -------- Dividends - - (20,181) - (20,181) -------------------------------------- --------- -------- ---------- --------- -------- Total contributions and distributions recognised directly in equity 2,684 277,678 (20,181) 649 260,830 -------------------------------------- --------- -------- ---------- --------- -------- Balance at 30 June 2016 5,013 359,958 121,236 (8,674) 477,533 -------------------------------------- --------- -------- ---------- --------- --------
Group Statement of Cash Flows
Period ended
31 December Year ended
2016 30 June 2016
GBP'000 GBP'000
----------------------------------------- ------------ -------------
Cash flows from operating activities
----------------------------------------- ------------ -------------
Profit before income tax 16,946 28,121
------------------------------------------ ------------ -------------
Share-based payments 395 649
------------------------------------------ ------------ -------------
Depreciation and amortisation 73 113
------------------------------------------ ------------ -------------
Finance income (255) (910)
------------------------------------------ ------------ -------------
Finance costs 4,231 4,552
------------------------------------------ ------------ -------------
Share of results from joint venture (713) (1,793)
------------------------------------------ ------------ -------------
Change in fair value of investment
property (14,474) (21,724)
------------------------------------------ ------------ -------------
6,203 9,008
----------------------------------------- ------------ -------------
Increase in trade and other receivables (6,135) (14,541)
------------------------------------------ ------------ -------------
Increase in trade and other payables 1,059 10,919
------------------------------------------ ------------ -------------
Increase in deferred rental income 11,342 2,041
------------------------------------------ ------------ -------------
6,266 (1,581)
----------------------------------------- ------------ -------------
Net cash flows generated from operations 12,469 7,427
------------------------------------------ ------------ -------------
Cash flows from investing activities
----------------------------------------- ------------ -------------
Purchases of tangible fixed assets (240) (287)
------------------------------------------ ------------ -------------
Purchases of intangible assets (325) (781)
------------------------------------------ ------------ -------------
Investments in joint ventures (13) (1,108)
------------------------------------------ ------------ -------------
Purchase of investment property (183,222) (235,999)
------------------------------------------ ------------ -------------
Interest received 254 910
------------------------------------------ ------------ -------------
Net cash flows from investing activities (183,546) (237,265)
------------------------------------------ ------------ -------------
Cash flows from financing activities
----------------------------------------- ------------ -------------
Share issue proceeds - 286,426
------------------------------------------ ------------ -------------
Share issue costs - (6,064)
------------------------------------------ ------------ -------------
Dividends paid (15,038) (20,181)
------------------------------------------ ------------ -------------
Bank borrowings drawn 97,346 99,117
------------------------------------------ ------------ -------------
Bank borrowings repaid (9,286) (37,860)
------------------------------------------ ------------ -------------
Loan arrangement fee paid (2,789) (2,124)
------------------------------------------ ------------ -------------
Finance cost (excluding fair value
loss on derivatives) (3,680) (4,341)
------------------------------------------ ------------ -------------
Net cash flows from financing activities 66,553 314,973
------------------------------------------ ------------ -------------
(Decrease)/increase in cash and
cash equivalents (104,524) 85,135
------------------------------------------ ------------ -------------
Cash and cash equivalents at beginning
of period 163,923 78,788
------------------------------------------ ------------ -------------
Cash and cash equivalents at end
of period 59,399 163,923
------------------------------------------ ------------ -------------
Company Statement of Cash Flows
Period
ended
31 December Year ended
2016 30 June 2016
GBP'000 GBP'000
----------------------------------------- ------------ -------------
Cash flows from operating activities
----------------------------------------- ------------ -------------
Loss before income tax (4,619) (5,774)
------------------------------------------ ------------ -------------
Share-based payments 395 649
------------------------------------------ ------------ -------------
Depreciation charge 28 29
------------------------------------------ ------------ -------------
Finance income (227) (826)
------------------------------------------ ------------ -------------
(4,423) (5,922)
----------------------------------------- ------------ -------------
Increase in trade and other receivables (91) (107)
------------------------------------------ ------------ -------------
Increase in trade and other payables (42) 645
------------------------------------------ ------------ -------------
(133) 538
----------------------------------------- ------------ -------------
Net cash flows generated from operations (4,556) (5,384)
------------------------------------------ ------------ -------------
Cash flows from investing activities
----------------------------------------- ------------ -------------
Purchases of tangible fixed assets (404) (83)
------------------------------------------ ------------ -------------
Purchases of intangible fixed assets (127) -
------------------------------------------ ------------ -------------
Investments in subsidiaries (1) (4,952)
------------------------------------------ ------------ -------------
Investments in joint ventures (13) (1,108)
------------------------------------------ ------------ ------------- Payments to/on behalf of subsidiaries (196,358) (248,045) ------------------------------------------ ------------ ------------- Repayments from subsidiaries 87,448 83,521 ------------------------------------------ ------------ ------------- Interest received 227 826 ------------------------------------------ ------------ ------------- Net cash flows from investing activities (109,228) (169,841) ------------------------------------------ ------------ ------------- Cash flows from financing activities ----------------------------------------- ------------ ------------- Share issue proceeds - 286,426 ------------------------------------------ ------------ ------------- Share issue costs - (6,064) ------------------------------------------ ------------ ------------- Dividends paid (15,038) (20,181) ------------------------------------------ ------------ ------------- Net cash flows from financing activities (15,038) 260,181 ------------------------------------------ ------------ ------------- (Decrease)/increase in cash and cash equivalents (128,822) 84,956 ------------------------------------------ ------------ ------------- Cash and cash equivalents at beginning of period 143,819 58,863 ------------------------------------------ ------------ ------------- Cash and cash equivalents at end of period 14,997 143,819 ------------------------------------------ ------------ -------------
Notes to the Financial Statements
1. Accounting Policies
1.1 Period of Account
The consolidated financial statements of the Group are in respect of the reporting period from 1 July 2016 to 31 December 2016. Results for the six month period to 31 December 2016 do not provide a meaningful comparison to the 12 months to 30 June 2016.
1.2 Basis of Preparation
The consolidated financial statements of the Group for the period to 31 December 2016 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries (together "the Group"). These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union.
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 Company and the Group's functional currency.
The Company has applied the exemption allowed under Section 408(1b) of the Companies Act 2006 and has therefore not presented its own Statement of Comprehensive Income in these financial statements. The Group profit for the year includes a loss after taxation of GBP4.62 million (30 June 2016: GBP5.77 million) for the Company, which is reflected in the financial statements of the Company.
The financial information does not constitute the Group's statutory accounts for the six month period ended 31 December 2016 or the year ended 30 June 2016 but is derived from those accounts. The Group's statutory accounts for the year ended 30 June 2016 have been delivered to the Registrar of Companies. The Group's statutory accounts for the six month period ended 31 December 2016 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2016 and June 2016 accounts; the reports were unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain any statement under Section 498 of the Companies Act 2006.
1.3 Going Concern
The consolidated financial statements have been prepared on a going concern basis as discussed in the Director's Report on page 85.
1.4 Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Group's 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.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
(a) Fair Valuation of Investment Property
The market value of investment property is determined, by an independent external 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 ('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 13.
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.
(b) Operating Lease Contracts - the Group as Lessor
The Group has acquired investment properties which have commercial property leases in place with tenants. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the lease terms 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.
(c) Fair Valuation of Interest Derivatives
In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by an independent financial valuation expert with revaluation occurring on a six-monthly basis. The independent financial valuation expert will use a number of assumptions in determining the fair values. The fair value is derived by using the mid-point of the yield curve prevailing on the reporting date and the valuation is performed on a clean basis. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.
(d) Business Combinations
The Group acquires subsidiaries that own investment properties. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.
Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations, rather the cost to acquire the corporate equity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.
Summary of significant Accounting Policies
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2016. Subsidiaries are those investee entities where control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, it has:
(a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
(b) exposure, or rights, to variable returns from its involvement with the investee; and
(c) the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group's voting rights and potential voting rights.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-Group balances, transactions and unrealised gains and losses resulting from intra-Group transactions are eliminated in full.
Financial Assets - Loans and Receivables
The Group classifies its financial assets into one of the categories required by the accounting standards, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as "held to maturity".
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently impaired if there is doubt over recovery.
The Group's loans and receivables comprise "trade and other receivables" and "cash and cash equivalents" in the Consolidated Statement of Financial Position.
"Cash and cash equivalents" includes cash in hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities of three months or less from inception.
Financial Liabilities
The Group's financial liabilities predominantly comprise trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Forward Funded Developments
Under the terms of certain funding agreements, the Group commits to pay the total fixed price construction cost to the developer upon entering into the agreement. As construction costs are incurred, funds are released subject to the authorisation of the Group's subsidiary that has contracted the development, along with the appropriate monitoring surveyor certification.
During the period between initial investment in a forward funded agreement and the practical completion date, the Group typically earns licence fee income. This is payable by the developer to the Group once the development is complete. Under IFRS, such licence fees are deducted from the cost of the investment and are shown as a receivable until settled. Any economic benefit of the licence fee is reflected within the Group Statement of Comprehensive Income as a movement in the fair value of investment property.
Hedge accounting
The Group's activities expose it to the financial risks of changes in interest rates.
The use of financial derivatives (interest rate swaps and caps) is approved by the Board of Directors and is consistent with the Group's risk management strategy.
Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. Any difference between the transaction price and the initial fair value is recognised immediately in the Consolidated Statement of Comprehensive Income. The Group designates certain derivatives as hedges against the change in fair value of recognised assets and liabilities ("cash flow hedges"). Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or the Group chooses to end the hedging relationship.
Cash Flow Hedges
The Group has entered into a derivative contract in order to convert its floating rate debt to a fixed rate to hedge the interest rate risk. This hedging instrument was designated as a cash flow hedge at inception. Changes in fair value of the hedging instrument are recognised in Other Comprehensive Income to the extent that they represent an effective hedge; otherwise fair value changes are recognised as financial costs in the Consolidated Statement of Comprehensive Income.
Intangible Assets
Intangible assets are initially recognised at cost and then subsequently carried at cost less accumulated amortisation and impairment losses.
For all intangibles amortisation has been charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over ten years.
Investment Property
Investment property comprises property that is held to earn rentals or for capital appreciation, or both, and property under development rather than for sale in the ordinary course of business or for use in production or administrative functions.
Investment property is measured initially at cost including transaction costs and is included in the financial statements on unconditional exchange. Transaction costs include transfer taxes, professional fees and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the period in which they arise.
Investment property is derecognised when it has been disposed of, or permanently withdrawn from use, and no future economic benefit is expected from its disposal. The investment property is derecognised upon unconditional exchange. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised in the Consolidated Statement of Comprehensive Income in the period of retirement or disposal.
Joint Ventures
The Group is party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as either:
Joint ventures: where the Group has rights to only the net assets of the joint arrangement; or
Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
the structure of the joint arrangement;
the legal form of the joint arrangements structured through a separate vehicle;
the contractual terms of the joint arrangement agreement; and
any other facts and circumstances (including any other contractual arrangements).
Joint ventures are initially recognised in the Consolidated Statement of Financial Position at cost and are subsequently accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the Consolidated Statement of Comprehensive Income (except for losses in excess of the Group's investment in the joint venture, unless there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and its joint venture are recognised only to the extent of unrelated investors' interests in the joint venture. The investor's share in the joint venture's profits and losses resulting from these transactions is eliminated against the carrying value of the joint venture.
Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.
The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.
Operating Leases
Rentals paid under operating leases are charged to the Consolidated Statement of Profit or Loss on a straight-line basis over the period of the lease.
Property, Plant and Equipment
All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure which is directly attributable to the acquisition of the asset.
Depreciation has been charged to the Consolidated Statement of Comprehensive Income on the following basis:
fixtures and fittings - 15% p.a. on a reducing balance basis; and
computer equipment - straight-line basis over three years.
Rental Income
The Group is the lessor in respect of operating leases. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in gross rental income in the Consolidated Statement of Comprehensive Income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Consolidated Statement of Comprehensive Income when the right to receive them arises.
Rent and Other Receivables
Rent and other receivables are recognised at their original invoiced value net of VAT. A provision is made when there is objective evidence that the Group will not be able to recover balances in full.
Segmental Information
The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in the UK in student and commercial lettings.
Share-Based Payments
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Consolidated Statement of Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. So long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the Consolidated Statement of Comprehensive Income over the remaining vesting period. National Insurance obligations with respect to equity-settled share-based payments awards are accrued over the vesting period.
Share Capital
Ordinary shares are classified as equity. External costs directly attributable to the issuance of shares are recognised as a deduction from equity.
Taxation
As the Group is a UK Real Estate Investment Trust ("REIT"), profits arising in respect of the property rental business are not subject to UK Corporation Tax.
Taxation in respect of profits and losses outside of the property rental business comprises current and deferred taxes. Taxation is recognised in 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 the total of the expected corporation tax payable in respect of any non-REIT taxable income for the year and any adjustment in respect of previous periods, based on tax rates applicable to the periods.
Deferred tax is calculated in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases, based on tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax liabilities are recognised in full (except to the extent that they relate to the initial recognition of assets and liabilities not acquired in a business combination). Deferred tax assets are only recognised to the extent that it is considered probable that the Group will obtain a tax benefit when the underlying temporary differences unwind.
1.5 Accounting standards and interpretations issued But Not Yet effective
At the date of authorisation of these financial statements, the following accounting standards had been issued which are not yet applicable to the Group:
Mandatory for accounting periods beginning on or after 1 January 2018:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Mandatory for accounting periods beginning on or after 1 January 2019:
IFRS 16 'Leases'
The Group has carried out an initial assessment of the impact of the adoption of the standards above. Based on this, the Directors do not anticipate that these will have a material impact on the financial statements of the Group in future periods, although it is noted that additional disclosures may be required. A detailed review of the impact of these standards will be undertaken in advance of their mandatory adoption.
Other amendments
Additionally, amendments to existing standards have been issued by the IASB, including:
IFRS 2 (amendments) 'Classification and Measurement of Share-based Payment Transactions'
IAS 7 (amendments) 'Disclosure Initiative'
IAS 12 (amendments) 'Recognition of Deferred Tax Assets for Unrealised Losses'
IFRS 10 and IAS 28 (amendments) 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture'
The Directors do not consider that these amendments will materially impact the financial statements.
2. Revenue
Group
------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
------------------------- ------------ --------
Student rental income 18,320 20,616
------------------------- ------------ --------
Commercial rental income 890 723
------------------------- ------------ --------
Rental income 19,210 21,339
------------------------- ------------ --------
Development services - 261
------------------------- ------------ --------
Total revenue 19,210 21,600
------------------------- ------------ --------
3. Property Expenses
Group
------------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
------------------------------- ------------ --------
Direct site costs 3,143 2,782
------------------------------- ------------ --------
Technology services 358 332
------------------------------- ------------ --------
Site office and utilities 2,000 1,873
------------------------------- ------------ --------
Cleaning and service contracts 991 615
------------------------------- ------------ --------
Repairs and maintenance 1,660 490
------------------------------- ------------ --------
Total property expenses 8,152 6,092
------------------------------- ------------ --------
4. Administrative Expenses
Group
------------------------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
------------------------------------------- ------------ --------
Salaries and Directors' remuneration 2,018 3,321
------------------------------------------- ------------ --------
Legal and professional fees 1,123 1,470
------------------------------------------- ------------ --------
Other administrative costs 1,179 1,248
------------------------------------------- ------------ --------
Irrecoverable VAT 717 469
------------------------------------------- ------------ --------
5,037 6,508
------------------------------------------- ------------ --------
Auditor's fees
------------------------------------------- ------------ --------
Fees payable for the audit of the Group's
annual accounts 175 160
------------------------------------------- ------------ --------
Fees payable for the review of the Group's
interim accounts - 53
------------------------------------------- ------------ --------
Fees payable for the audit of the Group's
subsidiaries 86 35
------------------------------------------- ------------ --------
Total auditor's fees 261 248
------------------------------------------- ------------ --------
Abortive acquisition costs 25 271
------------------------------------------- ------------ --------
Non-capitalised Hello Student(R) website
development - 235
------------------------------------------- ------------ --------
Total administrative expenses 5,323 7,262
------------------------------------------- ------------ --------
The auditor has not received any remuneration in respect of providing reporting accountant services in relation to share offerings during the period (30 June 2016: GBP164,000). The prior period non-audit fees related to share issue expenses and offset against the share premium account.
5. Net Finance Cost
Group
--------------------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
--------------------------------------- ------------ --------
Finance cost
--------------------------------------- ------------ --------
Fair value loss on interest rate cap - 211
--------------------------------------- ------------ --------
Interest expense on bank borrowings 3,680 3,986
--------------------------------------- ------------ --------
Amortisation of loan transaction costs 551 355
--------------------------------------- ------------ --------
4,231 4,552
--------------------------------------- ------------ --------
Finance income
--------------------------------------- ------------ --------
Fair value gain on interest rate cap 1 -
--------------------------------------- ------------ --------
Interest received on bank deposits 254 910
--------------------------------------- ------------ --------
255 910
--------------------------------------- ------------ --------
Net finance costs 3,976 3,642
--------------------------------------- ------------ --------
6. Employees and Directors
Group Company
---------------------------------- ---------------------- ----------------------
Period Year Period Year
ended ended ended ended
31 December 30 June 31 December 30 June
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ -------- ------------ --------
Total wages and salaries 1,469 1,805 1,021 1,606
---------------------------------- ------------ -------- ------------ --------
Less: capitalised salary costs (31) (258) (31) (258)
---------------------------------- ------------ -------- ------------ --------
Less: Hello Student(R) wages and
salaries included in property
expenses (448) (199) - -
---------------------------------- ------------ -------- ------------ --------
Total wages and salaries included
in administrative expenses 990 1,348 990 1,348
---------------------------------- ------------ -------- ------------ --------
Pension costs 134 179 134 179
---------------------------------- ------------ -------- ------------ --------
Cash bonus 164 601 164 601
---------------------------------- ------------ -------- ------------ --------
Share-based payments 395 691 395 691
---------------------------------- ------------ -------- ------------ --------
National Insurance 335 502 335 502
---------------------------------- ------------ -------- ------------ --------
2,018 3,321 2,018 3,321
---------------------------------- ------------ -------- ------------ --------
The average monthly number of employees
of the Group during the period was as follows;
---------------------------------------------------------- ------------ --------
Management 3 3 3 3
---------------------------------- ------------ -------- ------------ --------
Administration - Empiric 21 14 21 14
---------------------------------- ------------ -------- ------------ --------
Administration - Hello Student(R) 57 20 - -
---------------------------------- ------------ -------- ------------ --------
81 37 24 17
---------------------------------- ------------ -------- ------------ --------
Group and
Company
---------------------------------- ------------ -------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
Directors' remuneration GBP'000 GBP'000
---------------------------------- ------------ -------- ------------ --------
Salaries and fees 625 1,110
---------------------------------- ------------ -------- ------------ --------
Pension costs 74 137
---------------------------------- ------------ -------- ------------ --------
Cash bonus 164 601
---------------------------------- ------------ -------- ------------ --------
Share-based payments 395 691
---------------------------------- ------------ -------- ------------ --------
1,258 2,539
---------------------------------- ------------ -------- ------------ --------
GBP31,000 of wages and salaries are directly related to the costs necessary to develop the Hello Student(R) application and new accounting software and have therefore been capitalised within intangible assets. GBP258,000 was capitalised in the year ended 30 June 2016 in relation to the development of the Hello Student(R) website. The Hello Student(R) wages and salaries are included within Direct site costs in Property expenses and, therefore, have been excluded here.
A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006 is set out in the Directors' Remuneration Report on pages 77 to 84 of the Annual Report. No Directors received any advances, credits or guarantees during the period.
7. Corporation Tax
The Group became a REIT on 1 July 2014 and as a result does not pay UK Corporation Tax on its profits and gains from its qualifying property rental business in the UK provided it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to Corporation Tax as normal.
In order to achieve and retain REIT status, several conditions have to be met on entry to the regime and on an ongoing basis, including:
(i) at the start of each accounting period, the assets of the property rental business (plus any cash and certain readily realisable investments) must be at least 75% of the total value of the Group's assets;
(ii) at least 75% of the Group's total profits must arise from the tax exempt property rental business; and
(iii) at least 90% of the tax-exempt profit of the property rental business (excluding gains) of the accounting period must be distributed.
In addition, the full UK Corporation Tax exemption in respect of the profits of the property rental business will not be available if the profit: financing cost ratio in respect of the property rental business is less than 1.25.
The Group met all of the relevant REIT conditions for the six months ended 31 December 2016.
The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is not required to be recognised in respect of temporary differences relating to the property rental business.
Group
--------------------------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
--------------------------------------------- ------------ --------
Current tax
--------------------------------------------- ------------ --------
Income tax charge/(credit) for the period - -
--------------------------------------------- ------------ --------
Adjustment in respect of prior period - -
--------------------------------------------- ------------ --------
Total current income tax charge/(credit)
in the Statement of Comprehensive Income - -
--------------------------------------------- ------------ --------
Deferred tax
--------------------------------------------- ------------ --------
Total deferred income tax charge/(credit)
in the Statement of Comprehensive Income - -
--------------------------------------------- ------------ --------
Total current income tax charge/(credit)
in the Statement of Comprehensive Income - -
--------------------------------------------- ------------ --------
The tax assessed for the period is lower
than the standard rate of Corporation Tax
in the period.
--------------------------------------------- ------------ --------
Group
--------------------------------------------- ----------------------
Period Year
ended ended
31 December 30 June
2016 2016
GBP'000 GBP'000
--------------------------------------------- ------------ --------
Profit for the period 16,946 28,121
--------------------------------------------- ------------ --------
Profit before tax multiplied by the rate
of Corporation Tax in the UK of 20.00%
(June 2016: 20.00%) 3,389 5,624
--------------------------------------------- ------------ -------- Exempt property rental profits in the period (856) (1,332) --------------------------------------------- ------------ -------- Exempt property revaluations in the period (2,895) (4,454) --------------------------------------------- ------------ -------- Effects of: --------------------------------------------- ------------ -------- Non-allowable expenses 15 - --------------------------------------------- ------------ -------- Residual property revaluations in the period - 110 --------------------------------------------- ------------ -------- Unutilised current period tax losses 347 52 --------------------------------------------- ------------ -------- Total current income tax charge/(credit) in the Statement of Comprehensive Income - - --------------------------------------------- ------------ --------
On the basis that the residual (non-tax exempt) business is not expected to be income generating in future periods, a deferred tax asset has not been recognised in respect of the tax losses generated by the residual business of the Group of GBP347,000 (30 June 2016: GBP52,000).
8. Earnings per Share
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.
Reconciliations are set out below:
Calculation
Calculation Calculation of EPRA
Calculation Calculation of EPRA of EPRA adjusted
of basic of diluted basic diluted basic
EPS EPS EPS EPS EPS
----------------------------------- ----------- ----------- ----------- ----------- -----------
Period to 31 December 2016
----------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings (GBP'000) 16,946 16,946 16,946 16,946 16,946
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustment to include licence
fee receivable on forward
funded developments in the
year (GBP'000) - - - - 1,201
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustment to include development
rebate receivable on forward
funded developments in the
year (GBP'000) - - - - 496
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustments to remove:
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
investment properties (Note
13) (GBP'000) - - (14,474) (14,474) (14,474)
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
share of joint venture investment
(GBP'000) - - (557) (557) (557)
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
interest rate derivatives
(Note 19) (GBP'000) - - (1) (1) (1)
----------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings/adjusted earnings
(GBP'000) 16,946 16,946 1,914 1,914 3,611
----------------------------------- ----------- ----------- ----------- ----------- -----------
Weighted average number of
shares ('000) 501,279 501,279 501,279 501,279 501,279
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustment for employee share
options ('000) - 3,990 - 3,990 -
----------------------------------- ----------- ----------- ----------- ----------- -----------
Total number shares ('000) 501,279 505,269 501,279 505,269 501,279
----------------------------------- ----------- ----------- ----------- ----------- -----------
Per-share amount (pence) 3.38 3.35 0.38 0.38 0.72
----------------------------------- ----------- ----------- ----------- ----------- -----------
Year to 30 June 2016
----------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings (GBP'000) 28,121 28,121 28,121 28,121 28,121
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustment to include licence
fee receivable on forward
funded developments in the
year (GBP'000) - - - - 2,140
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustments to remove:
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
investment properties (Note
13) (GBP'000) - - (21,724) (21,724) (21,724)
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
share of joint venture investment
(GBP'000) - - (1,450) (1,450) (1,450)
----------------------------------- ----------- ----------- ----------- ----------- -----------
Changes in fair value of
interest rate derivatives
(Note 19) (GBP'000) - - 211 211 211
----------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings/adjusted earnings
(GBP'000) 28,121 28,121 5,158 5,158 7,298
----------------------------------- ----------- ----------- ----------- ----------- -----------
Weighted average number of
shares ('000) 385,889 385,889 385,889 385,889 385,889
----------------------------------- ----------- ----------- ----------- ----------- -----------
Adjustment for employee share
options ('000) - 2,957 - 2,957 -
----------------------------------- ----------- ----------- ----------- ----------- -----------
Total number shares (GBP'000) 385,889 388,846 385,889 388,846 385,889
----------------------------------- ----------- ----------- ----------- ----------- -----------
Per share amount (pence) 7.29 7.23 1.34 1.33 1.89
----------------------------------- ----------- ----------- ----------- ----------- -----------
The ordinary number of shares is based on the time-weighted average number of shares throughout the period.
EPRA adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. Licence fees and development rebates received during the period are added to earnings on the basis noted below.
The adjustment for licence fee receivable is calculated by reference to the fraction of the total construction completed during the period, multiplied by the total licence fee receivable on a given forward funded asset.
The development rebate is due from developers in relation to late completion on forward funded developments, as stipulated in the development agreements.
EPRA EPS, reported on the basis recommended for real estate companies by the European Public Real Estate Association, is a key measure of the Group's operating results.
9. Net Asset Value per Share (NAV)
Basic NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary equity holders of the Company by the number of ordinary shares outstanding at the end of the period. EPRA NNNAV adjusts EPRA NAV to include the fair values of, inter alia, debt and financial instruments, which provides shareholders with the most relevant information on the current fair value of the assets and liabilities of the Group.
Diluted NAV, EPRA NAV and EPRA NNNAV per share are calculated using the number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.
NAVs have been calculated as follows:
Group
------------------------------------------- ------------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
------------------------------------------- ----------- -----------
Net assets per Statement of Financial
Position 530,865 528,109
------------------------------------------- ----------- -----------
Adjustment to exclude the fair value loss
of financial instruments 1,232 1,905
------------------------------------------- ----------- -----------
EPRA NAV 532,097 530,014
------------------------------------------- ----------- -----------
Adjustment to include fair value of debt (11,285) (11,589)
------------------------------------------- ----------- -----------
Adjustment to include the fair value loss
of financial instruments (1,232) (1,905)
------------------------------------------- ----------- -----------
EPRA NNNAV 519,580 516,520
------------------------------------------- ----------- -----------
Ordinary shares Number Number
------------------------------------------- ----------- -----------
Issued share capital 501,279,071 501,279,071
------------------------------------------- ----------- -----------
Issued share capital plus employee options 505,269,491 504,236,462
------------------------------------------- ----------- -----------
Pence Pence
------------------------------------------- ----------- -----------
NAV per share basic 105.90 105.35
------------------------------------------- ----------- -----------
NAV per share diluted 105.07 104.73
------------------------------------------- ----------- -----------
EPRA NAV per share basic 106.15 105.73
------------------------------------------- ----------- -----------
EPRA NAV per share diluted 105.31 105.11
------------------------------------------- ----------- -----------
EPRA NNNAV per share basic 103.65 103.04
------------------------------------------- ----------- -----------
EPRA NNNAV per share diluted 102.83 102.44
------------------------------------------- ----------- -----------
10. Dividends Paid
Group and Company
----------------------------------------- ------------------------
For the
period
ended Year ended
31 December 30 June
2016 2016
GBP'000 GBP'000
----------------------------------------- ------------ ----------
Interim dividend in respect of quarter
ended 30 June 2015 at 1.0p per ordinary
share - 2,329
----------------------------------------- ------------ ----------
Interim dividend of 1.5p per ordinary
share in respect of the quarter ended
30 September 2015 - 4,558
----------------------------------------- ------------ ----------
Interim dividend of 1.5p per ordinary
share in respect of the quarter ended
31 December 2015 - 5,775
----------------------------------------- ------------ ----------
Interim dividend of 1.5p per ordinary
share in respect of the quarter ended
31 March 2016 - 7,519
----------------------------------------- ------------ ----------
Interim dividend in respect of quarter
ended 30 June 2016 at 1.5p per ordinary
share 7,519 -
----------------------------------------- ------------ ----------
Interim dividend of 1.5p per ordinary
share in respect of the quarter ended
30 September 2016 7,519 -
----------------------------------------- ------------ ----------
15,038 20,181
----------------------------------------- ------------ ----------
On 11 January 2017, the Company announced the declaration of a final interim dividend in respect of the financial year ended 31 December 2016, of 1.55p per ordinary share amounting to GBP7.8 million, which was paid on 3 February 2017 to ordinary shareholders.
11. Property, Plant and Equipment
Group Company
----------------------------------- ------------------------------- -------------------------------
Fixtures Fixtures
and Computer and Computer
Period ended 31 December fittings equipment Total fittings equipment Total
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- ---------- -------- --------- ---------- --------
Costs
----------------------------------- --------- ---------- -------- --------- ---------- --------
As at 01 July 2016 242 140 382 94 84 178
----------------------------------- --------- ---------- -------- --------- ---------- --------
Additions 460 43 503 361 43 404
----------------------------------- --------- ---------- -------- --------- ---------- --------
Transfer to Investment Property (247) (56) (303) - - -
----------------------------------- --------- ---------- -------- --------- ---------- --------
As at 31 December 2016 455 127 582 455 127 582
----------------------------------- --------- ---------- -------- --------- ---------- --------
Depreciation
----------------------------------- --------- ---------- -------- --------- ---------- --------
As at 01 July 2016 54 31 85 29 16 45
----------------------------------- --------- ---------- -------- --------- ---------- --------
Charge for the period 13 15 28 13 15 28
----------------------------------- --------- ---------- -------- --------- ---------- --------
Depreciation on assets transferred
to Investment Property (25) (15) (40) - - -
----------------------------------- --------- ---------- -------- --------- ---------- --------
As at 31 December 2016 42 31 73 42 31 73
----------------------------------- --------- ---------- -------- --------- ---------- --------
Net book value as at 31
December 2016 413 96 509 413 96 509
----------------------------------- --------- ---------- -------- --------- ---------- --------
Group Company
------------------------ ------------------------------- -------------------------------
Fixtures Fixtures
and Computer and Computer
fittings equipment Total fittings equipment Total
Year ended 30 June 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- ---------- -------- --------- ---------- --------
Costs
------------------------ --------- ---------- -------- --------- ---------- --------
As at 01 July 2015 75 20 95 75 20 95
------------------------ --------- ---------- -------- --------- ---------- --------
Additions 167 120 287 19 64 83
------------------------ --------- ---------- -------- --------- ---------- --------
As at 30 June 2016 242 140 382 94 84 178
------------------------ --------- ---------- -------- --------- ---------- --------
Depreciation
------------------------ --------- ---------- -------- --------- ---------- --------
As at 01 July 2015 11 5 16 11 5 16
------------------------ --------- ---------- -------- --------- ---------- --------
Charge for the year 43 26 69 18 11 29
------------------------ --------- ---------- -------- --------- ---------- --------
As at 30 June 2016 54 31 85 29 16 45
------------------------ --------- ---------- -------- --------- ---------- --------
Net book value as at 30
June 2016 188 109 297 65 68 133
------------------------ --------- ---------- -------- --------- ---------- --------
12. Intangible Assets
Group Company
-------------- -------------------------------------------------- --------------------------------------------------
Hello Hello Hello Hello
Student(R) Student(R) Accountancy Student(R) Student(R) Accountancy
Period ended application website software application website software
31 December development development development Total development development development Total
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Costs
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 01 July
2016 - 781 - 781 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Additions 187 11 127 325 - - 127 127
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 31
December
2016 187 792 127 1,106 - - 127 127
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Amortisation
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 01 July
2016 - 44 - 44 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Charge for the
period - 45 - 45 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 31
December
2016 - 89 - 89 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Net book value
as at 31
December
2016 187 703 127 1,017 - - 127 127
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Group Company
-------------- -------------------------------------------------- --------------------------------------------------
Hello Hello Hello Hello
Student(R) Student(R) Accountancy Student(R) Student(R) Accountancy
application website software application website software
Year ended development development development Total development development development Total
30 June 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Costs
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 01 July
2015 - - - - - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Additions - 781 - 781 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 30 June
2016 - 781 - 781 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Amortisation
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 01 July
2015 - - - - - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Charge for the
year - 44 - 44 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
As at 30 June
2016 - 44 - 44 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
Net book value
as at
30 June 2016 - 737 - 737 - - - -
-------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
No amortisation charge has been recognised for the accountancy software or Hello Student(R) application as neither were in use at 31 December 2016.
13. Investment Property
Group
----------------------------------- -----------------------------------------------------------------
Investment Investment Total Properties Total
properties properties operational under investment
freehold long assets development property
Period ended 31 December GBP'000 leasehold GBP'000 GBP'000 GBP'000
2016 GBP'000
----------------------------------- ----------- ----------- ------------ ------------ -----------
As at 01 July 2016 368,260 75,180 443,440 70,754 514,194
----------------------------------- ----------- ----------- ------------ ------------ -----------
Property additions and
transfers 151,036 1,658 152,694 30,528 183,222
----------------------------------- ----------- ----------- ------------ ------------ -----------
Transfer of completed developments 40,495 - 40,495 (40,495) -
----------------------------------- ----------- ----------- ------------ ------------ -----------
Change in fair value during
the period 5,091 2,790 7,881 6,593 14,474
----------------------------------- ----------- ----------- ------------ ------------ -----------
As at 31 December 2016 564,882 79,628 644,510 67,380 711,890
----------------------------------- ----------- ----------- ------------ ------------ -----------
Group
----------------------------------- -----------------------------------------------------------------
Investment Investment Total Properties Total
properties properties operational under investment
freehold long assets development property
GBP'000 leasehold GBP'000 GBP'000 GBP'000
Year ended 30 June 2016 GBP'000
----------------------------------- ----------- ----------- ------------ ------------ -----------
As at 01 July 2015 193,375 25,375 218,750 21,025 239,775
----------------------------------- ----------- ----------- ------------ ------------ -----------
Property additions 131,258 48,352 179,610 73,085 252,695
----------------------------------- ----------- ----------- ------------ ------------ -----------
Transfer of completed developments 33,869 - 33,869 (33,869) -
----------------------------------- ----------- ----------- ------------ ------------ -----------
Change in fair value during
the year 9,758 1,453 11,211 10,513 21,724
----------------------------------- ----------- ----------- ------------ ------------ -----------
As at 30 June 2016 368,260 75,180 443,440 70,754 514,194
----------------------------------- ----------- ----------- ------------ ------------ -----------
During the period GBP4,917,000 (30 June 2016: GBP1,500,000) of additions related to subsequent expenditure recognised in the carrying value of operational assets.
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, as independent external valuers, and has been prepared as at 31 December 2016, in accordance with the Appraisal & Valuation Standards of the Royal Institution of Chartered Surveyors ("RICS"), on the basis of market value. Properties have been valued on an individual basis. 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.
The table below reconciles between the fair value of the investment property per the Consolidated Group Statement of Financial Position and investment property per the independent valuation performed in respect of each period end.
Group
-------------------------------------------- -------------------
As at 31 As at
December 30 June
2016 2016
GBP'000 GBP'000
-------------------------------------------- --------- --------
Value per independent valuation report 721,345 523,890
-------------------------------------------- --------- --------
Less:
-------------------------------------------- --------- --------
Investment in joint ventures (9,455) (8,150)
-------------------------------------------- --------- --------
711,890 515,740
-------------------------------------------- --------- --------
Less:
-------------------------------------------- --------- --------
Licence fee receivable - (1,546)
-------------------------------------------- --------- --------
Fair value per Group Statement of Financial
Position 711,890 514,194
-------------------------------------------- --------- --------
The licence fee income earned on forward funded developments of GBP1,613,000 (30 June 2016: GBP1,546,000) has been included within the independent valuation report whereas, within the prior year, it has been excluded and, therefore, deducted from the investment property total. This does not affect the valuation.
Fair Value Hierarchy
The following table provides the fair value measurement hierarchy for investment property:
Quoted Significant
prices Significant unobservable
in active observable inputs
markets inputs (Level
Date of valuation 31 December Total (Level (Level 3)
2016 GBP'000 1) GBP'000 2) GBP'000 GBP'000
------------------------------- -------- ----------- ----------- -------------
Assets measured at fair value:
------------------------------- -------- ----------- ----------- -------------
Student properties 688,390 - - 688,390
------------------------------- -------- ----------- ----------- -------------
Commercial properties 23,500 - - 23,500
------------------------------- -------- ----------- ----------- -------------
As at 31 December 2016 711,890 - - 711,890
------------------------------- -------- ----------- ----------- -------------
Quoted Significant
prices Significant unobservable
in active observable inputs
markets inputs (Level
Date of valuation 30 June Total (Level (Level 3)
2016 GBP'000 1) GBP'000 2) GBP'000 GBP'000
------------------------------- -------- ----------- ----------- -------------
Assets measured at fair value:
------------------------------- -------- ----------- ----------- -------------
Student properties 492,624 - - 492,624
------------------------------- -------- ----------- ----------- -------------
Commercial properties 21,570 - - 21,570
------------------------------- -------- ----------- ----------- -------------
As at 30 June 2016 514,194 - - 514,194
------------------------------- -------- ----------- ----------- -------------
There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.
The valuations have been prepared on the basis of market value 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."
Market value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.
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 income
The rent at which space could be let in the market conditions prevailing at the date of valuation.
Range GBP89-GBP337 per week (30 June 2016: GBP93-GBP329).
(b) Unobservable input: Rental growth
The estimated average increase in rent based on both market estimations and contractual arrangements.
Assumed growth of 2.16% used in valuations (30 June 2016: 2.78%).
(c) Unobservable input: Net initial yield
The net initial yield is defined as the initial net income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase.
Range: 5.20%-6.80% per week (30 June 2016: 5.00%-6.35%).
(d) Unobservable input: Physical condition of the property
(e) Unobservable input: Planning consent
No planning inquiries undertaken for any of the development properties.
(f) 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 +3% Change
in Rental in Rental -0.25% Change -0.25% Change
Income Income in Yield in Yield
As at 31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---------- ---------- ------------- -------------
(Decrease)/increase in the
fair value of investment properties (30,320) 29,590 34,230 (31,350)
------------------------------------- ---------- ---------- ------------- -------------
-3% Change +3% Change
in Rental in Rental -0.25% Change -0.25% Change
Income Income in Yield in Yield
As at 30 June 2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---------- ---------- ------------- -------------
(Decrease)/increase in the
fair value of investment properties (22,200) 22,770 25,430 (22,710)
------------------------------------- ---------- ---------- ------------- -------------
(g) The key assumptions for the commercial properties are net initial yield, current rent and rental growth. A movement of 3% in passing rent and 0.25% in the net initial yield will not have a material impact on the financial statements.
14. Joint Ventures
Willowbank - Glasgow
In July 2014 the Group entered a joint venture with Revcap Advisors Limited to develop a 178 room site in Glasgow called Willowbank. The development completed in time for the 2016/17 academic year and the total cost of the development was GBP13 million. Funding for the development was obtained with a contribution of equity and debt (50% from each entity). See Note 27 Subsequent Events for further information.
Net Assets of the Joint Venture
The summarised balance sheet, results and the Group's share of the joint venture for the period are as follows:
Willowbank
---------------------------- ------------------
Gross Share
As at 31 December 2016 GBP'000 GBP'000
---------------------------- -------- --------
Investment property 18,910 9,455
-------------------------------- -------- --------
Cash and cash equivalents 1,185 592
-------------------------------- -------- --------
Loans and borrowings (9,197) (4,599)
-------------------------------- -------- --------
Trade and other receivables 611 306
-------------------------------- -------- --------
Trade and other payables (1,663) (831)
-------------------------------- -------- --------
Net assets 9,846 4,923
-------------------------------- -------- --------
Willowbank
-------------------------- ------------------
Gross Share
As at 30 June 2016 GBP'000 GBP'000
-------------------------- -------- --------
Investment property 16,300 8,150
------------------------------ -------- --------
Cash and cash equivalents 1,002 501
------------------------------ -------- --------
Loans and borrowings (7,024) (3,512)
------------------------------ -------- --------
Other current assets 130 65
------------------------------ -------- --------
Other current liabilities (2,013) (1,007)
------------------------------ -------- --------
Net assets 8,395 4,197
------------------------------ -------- --------
The following table shows how the increase in the carrying value of the Group's investment in joint ventures has arisen:
Group Company
---------------------------------- --------------------------- ---------------------------
Period
ended Period ended
31 December Year ended 31 December Year ended
2016 30 June 2016 2016 30 June 2016
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------- ------------ -------------
Capital invested in Willowbank 13 930 13 929
---------------------------------- ------------ ------------- ------------ -------------
Net capital movement in Brunswick - (6,904) - (3,595)
---------------------------------- ------------ ------------- ------------ -------------
13 (5,974) 13 (2,666)
---------------------------------- ------------ ------------- ------------ -------------
Group's share of net revaluation
gains 557 1,450 - -
---------------------------------- ------------ ------------- ------------ -------------
Group's share of other trading
results 156 343 - -
---------------------------------- ------------ ------------- ------------ -------------
713 1,793 - -
---------------------------------- ------------ ------------- ------------ -------------
Total movement in investment
in joint
ventures in the period 726 (4,181) 13 (2,666)
---------------------------------- ------------ ------------- ------------ -------------
Carrying value bought forward 4,197 8,378 2,952 5,618
---------------------------------- ------------ ------------- ------------ -------------
Carrying value carried forward 4,923 4,197 2,965 2,952
---------------------------------- ------------ ------------- ------------ -------------
15. Trade and Other Receivables
Group Company
------------------------------------ ---------------------- ----------------------
30 30
31 December June 31 December June
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- --------- ----------- ---------
Trade receivables 729 500 11 -
------------------------------------ ----------- --------- ----------- ---------
Other receivables 6,346 4,647 85 358
------------------------------------ ----------- --------- ----------- ---------
Amounts owed by property managers 9,743 3,192 - -
------------------------------------ ----------- --------- ----------- ---------
Prepayments 5,591 7,846 506 146
------------------------------------ ----------- --------- ----------- ---------
VAT recoverable 2,443 2,531 - 7
------------------------------------ ----------- --------- ----------- ---------
24,852 18,716 602 511
------------------------------------ ----------- --------- ----------- ---------
Amounts due from Group undertakings - - 651,897 460,845
------------------------------------ ----------- --------- ----------- ---------
24,852 18,716 652,499 461,356
------------------------------------ ----------- --------- ----------- ---------
As there were no material trade receivables past due at the period end, no aged analysis of trade receivables has been included. The Directors consider that the carrying value of trade and other receivables approximate to their fair value.
16. Cash and Cash Equivalents
The amounts disclosed on the Statement of Cash Flow as cash and cash equivalents are in respect of the following amounts shown in the Consolidated Statement of Financial Position:
Group Company
-------------------------- ---------------------- ----------------------
30 30
31 December June 31 December June
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- --------- ----------- ---------
Cash and cash equivalents 59,399 163,923 14,997 143,819
-------------------------- ----------- --------- ----------- ---------
17. Trade and Other Payables
Group Company
----------------------------------- ---------------------- ----------------------
30 30
31 December June 31 December June
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- --------- ----------- ---------
Trade payables 1,974 6,040 - 382
----------------------------------- ----------- --------- ----------- ---------
Other payables 3,362 2,540 640 173
----------------------------------- ----------- --------- ----------- ---------
Accrued expenses 10,080 5,540 382 272
----------------------------------- ----------- --------- ----------- ---------
Directors' bonus accrual 617 854 617 854
----------------------------------- ----------- --------- ----------- ---------
16,033 14,974 1,639 1,681
----------------------------------- ----------- --------- ----------- ---------
Amounts owed to Group undertakings - - 216,305 134,163
----------------------------------- ----------- --------- ----------- ---------
16,033 14,974 217,944 135,844
----------------------------------- ----------- --------- ----------- ---------
At 31 December 2016, there was deferred rental income of GBP15,760,000 (30 June 2016: GBP4,418,000) which was rental income that had been received that relates to future periods.
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
18. Bank Borrowings
A summary of the drawn and undrawn bank borrowings in the period is show below:
Group
------------------------------ ----------------------------------------------------------------------
Bank Bank
Bank Bank borrowings borrowings
borrowings borrowings Total drawn undrawn Total
drawn undrawn 31 30 30 30
31 Dec 31 Dec Dec June June June
2016 2016 2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- -------- ----------- ----------- --------
Balance bought forward 155,857 60,773 216,630 85,343 20,000 105,343
------------------------------ ----------- ----------- -------- ----------- ----------- --------
Bank borrowings in the period 97,346 - 97,346 108,374 - 108,374
------------------------------ ----------- ----------- -------- ----------- ----------- --------
Bank borrowings repaid during
the period (9,286) - (9,286) (37,860) - (37,860)
------------------------------ ----------- ----------- -------- ----------- ----------- --------
Bank borrowings available
but undrawn
in the period - 5,340 5,340 - 40,773 40,773
------------------------------ ----------- ----------- -------- ----------- ----------- --------
243,917 66,113 310,030 155,857 60,773 216,630
------------------------------ ----------- ----------- -------- ----------- ----------- --------
The Group has entered into two new separate banking facilities during the period, and drawn down on two existing available facilities.
A total of GBP97,346,000 (30 June 2016: GBP99,117,000) of additional debt was drawn whilst having an undrawn debt facility available of GBP66,113,000 at 31 December 2016 (30 June 2016: GBP60,773,000). The weighted average term to maturity of the Group's debt as at the period end is 7.5 years (30 June 2016: 9.7 years).
Bank borrowings are secured by charges over individual investment properties held by certain asset-holding subsidiaries. These assets have a fair value of GBP573,015,000 at 31 December 2016 (30 June 2016: GBP298,690,000). In some cases the lenders also hold charges over the shares of the subsidiaries and the intermediary holding companies of those subsidiaries.
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:
Group
------------------------------------------ ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
------------------------------------------ ----------- --------
Balance bought forward (including current
liability of GBP9,257,000 (30 June 2016:
GBP750,000)) 155,857 84,593
------------------------------------------ ----------- --------
Total bank borrowings in the period 97,346 108,374
------------------------------------------ ----------- --------
Less bank borrowings: repaid during the
period (9,286) (37,860)
------------------------------------------ ----------- --------
Less bank borrowings: due within one year - (8,507)
------------------------------------------ ----------- --------
Bank borrowings drawn: due in more than
one year 243,917 146,600
------------------------------------------ ----------- --------
Less: Unamortised costs (5,199) (2,961)
------------------------------------------ ----------- --------
Non-current liabilities: Bank borrowings 238,718 143,639
------------------------------------------ ----------- --------
Maturity of Bank Borrowings
Group
---------------------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
---------------------------------------- ----------- --------
Repayable between one and two years 23,117 -
---------------------------------------- ----------- --------
Repayable between two and five years 35,500 35,500
---------------------------------------- ----------- --------
Repayable in over five years 185,300 111,100
---------------------------------------- ----------- --------
Bank borrowings drawn: due in more than
one year 243,917 146,600
---------------------------------------- ----------- --------
Each of the Group's facilities has an interest charge which is payable quarterly. Three of the facilities have an interest charge that is based on a margin above LIBOR whilst the other four facility interest charges are fixed at 3.97%, 3.52%, 3.24% and 3.64%. The weighted average margin payable by the Group on its debt portfolio as at the period end was 3.46% (30 June 2016: 3.54%).
19. Interest Rate Derivatives
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group has entered into an interest rate cap and interest rate swap. The interest rate cap has been taken out to cap the rate to which three-month LIBOR can rise and is coterminous with the initial term of the facility. The premium of GBP238,500 is being settled over the five-year life of the loan.
On 24 October 2014 a derivative swap contract was taken out to hedge the interest rate risk on long-term debt. The change in valuation of this derivative at 31 December 2016 was GBP0.5 million gain (30 June 2016: GBP1.2 million loss), recognised in other comprehensive income. GBP0.5 million of this derivative liability has been recognised as a non-current liability (30 June 2016: GBP0.5 million).
The Group will continue to review the level of its hedging in the light of the current low interest rate environment.
Fair Value of Derivative Instruments
31 December 30 June
2016 2016
GBP'000 GBP'000
----------------------------------------------- ----------- --------
Non-current assets: Interest rate derivatives
- cap 19 18
----------------------------------------------- ----------- --------
Current liabilities: Interest rate derivatives
- swap (485) (479)
----------------------------------------------- ----------- --------
Non-current liabilities: Interest rate
derivatives - swap (748) (1,206)
----------------------------------------------- ----------- --------
The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IAS 39. Any movement in the fair values of the interest rate cap are taken to the net finance costs in the Group Statement of Comprehensive Income.
31 December 30 June
2016 2016
GBP'000 GBP'000
----------------------------------------- ----------- --------
Interest rate cap premium - opening fair
value 18 229
----------------------------------------- ----------- --------
Changes in fair value of interest rate
derivatives 1 (211)
----------------------------------------- ----------- --------
Closing fair value 19 18
----------------------------------------- ----------- --------
31 December 30 June
2016 2016
GBP'000 GBP'000
-------------------------------------------- ----------- ---------
Total bank borrowings 243,917 155,857
-------------------------------------------- ----------- ---------
Total fixed borrowings (185,300) (120,357)
-------------------------------------------- ----------- ---------
Total floating rate borrowings 58,617 35,500
-------------------------------------------- ----------- ---------
Notional value of borrowings hedged by
interest rate derivative - swap 35,500 35,500
-------------------------------------------- ----------- ---------
Proportion of notional value of interest
rate swap derivative to floating rate bank
borrowings 60.6% 100.0%
-------------------------------------------- ----------- ---------
Fair Value of Debt
Group
--------------------- ----------------------------------------------------------------
Fair Book Fair Book
Value Value Difference Value Value Difference
at 31 at 31 at 31 at 30 at 30 at 30
December December December June June June
2016 2016 2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- --------- ---------- -------- -------- ----------
Fixed rate bank debt 193,092 181,807 11,285 129,784 118,195 11,589
--------------------- --------- --------- ---------- -------- -------- ----------
The fair value of the fixed rate debt has been valued by independent financial valuation expert, JCRA. The floating rate debt has been excluded as it is assumed the carrying value will be similar to the fair value.
The fair value of these contracts is determined by discounting the future cash flows estimated to be paid or received under these contracts using a valuation technique based on forward rates derived from short term rates, futures, swap rates and implied option volatility.
Fair Value Hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Group
-------------------------------- ------------------ ------- --------------------------------------
Quoted
prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level (Level (Level
Assets/(liability) 1) 2) 3)
measured at fair value: Date of Valuation GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------ ------- ---------- ----------- -------------
31 December
2016
-------------------------------- ------------------ ------- ---------- ----------- -------------
Interest rate derivative - cap 19 - 19 -
---------------------------------------------------- ------- ---------- ----------- -------------
Interest rate derivative - swap (1,232) - (1,232) -
---------------------------------------------------- ------- ---------- ----------- -------------
30 June 2016
-------------------------------- ------------------ ------- ---------- ----------- -------------
Interest rate derivative - cap 18 - 18 -
---------------------------------------------------- ------- ---------- ----------- -------------
Interest rate derivative - swap (1,685) - (1,685) -
---------------------------------------------------- ------- ---------- ----------- -------------
The fair value of these contracts is recorded in the Group Consolidated Statement of Financial Position and is determined by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the period end.
There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.
20. Share Capital
Ordinary Shares Issued and Fully Paid at 1p Each
Group and Company Group and Company
------------------------------ ------------------------ -------------------------
31 December 31 December 30 June
2016 2016 2016 30 June 2016
Number GBP'000 Number GBP'000
------------------------------ ----------- ----------- ----------- ------------
Balance brought forward 501,279,071 5,013 232,926,830 2,329
------------------------------ ----------- ----------- ----------- ------------
Issued in relation to further
equity issuance - - 268,352,241 2,684
------------------------------ ----------- ----------- ----------- ------------
Balance carried forward 501,279,071 5,013 501,279,071 5,013
------------------------------ ----------- ----------- ----------- ------------
There were no share issues during the period or have there been since 31 December 2016.
21. Share Premium
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Group and
Company
---------------------------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
---------------------------------------------- ----------- --------
Balance brought forward 359,958 82,280
---------------------------------------------- ----------- --------
Share premium on ordinary shares issued
in relation to further equity share issuance - 283,742
---------------------------------------------- ----------- --------
Costs associated with the issue of ordinary
shares - (6,064)
---------------------------------------------- ----------- --------
Balance carried forward 359,958 359,958
---------------------------------------------- ----------- --------
22. Capital Reduction Reserve
Group and
Company
----------------------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
----------------------------------------- ----------- --------
Balance brought forward 121,236 141,417
----------------------------------------- ----------- --------
Less interim dividends declared and paid
per Note 10 (15,038) (20,181)
----------------------------------------- ----------- --------
Balance carried forward 106,198 121,236
----------------------------------------- ----------- --------
The capital reduction reserve account is a distributable reserve.
Refer to Note 10 for details of the declaration of dividends to shareholders.
23. Leasing Agreements
Future total minimum lease payments under non-cancellable operating leases fall due as follows:
On Office Space Currently Rented
Group
--------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
--------------------------- ----------- --------
Less than one year 361 141
--------------------------- ----------- --------
Between one and five years 1,446 282
--------------------------- ----------- --------
More than five years 1,717 -
--------------------------- ----------- --------
Total 3,524 423
--------------------------- ----------- --------
Future total minimum lease receivables under non-cancellable operating leases on investment properties are as follows:
Group
--------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
--------------------------- ----------- --------
Less than one year 32,834 5,392
--------------------------- ----------- --------
Between one and five years 12,862 19,713
--------------------------- ----------- --------
More than five years 10,727 10,484
--------------------------- ----------- --------
Total 56,423 35,589
--------------------------- ----------- --------
The above relates to commercial leases, contracted student rent and nomination agreements with UK universities in place as at the period end. The impact of student leases for the forthcoming academic year signed by 31 December 2016 have not been included as the certainty of income does not arise until ten days before the tenant takes occupation of the accommodation when the first rental instalment falls due.
24. Contingent Liabilities
There were no contingent liabilities at 31 December 2016 (30 June 2016: GBPnil).
25. Capital Commitments
The Group had capital commitments relating to forward funded developments totalling GBP61,443,000 at 31 December 2016 (30 June 2016: GBP75,356,000).
26. Related Party Disclosures
Key Management Personnel
Key management personnel are considered to comprise the Board of Directors. Please refer to Note 6 for details of the remuneration for the key management.
Share Capital
There were no share transactions of related parties during the period ended 31 December 2016.
Share transactions of related parties during the year ended 30 June 2016 were as follows:
No.
Name How related of shares Transaction Date
---------------------------- ----------- ---------- ----------- ---------------
Rock Nominees Limited (Paul
Hadaway) Director 62,510 Purchased 22 October 2015
---------------------------- ----------- ---------- ----------- ---------------
Rock Nominees Limited (Paul
Hadaway) Director 31,285 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Paul Hadaway Director 125,000 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Michael Enright Director 104,999 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Baroness Brenda Dean Chairman 4,785 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Redmayne Bentley (Brenda
Dean) Chairman 10,000 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Jim Prower Director 14,175 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Killik & Co (Stephen Alston) Director 12,500 Purchased 21 March 2016
---------------------------- ----------- ---------- ----------- ---------------
Share-Based Payments
On 29 September 2016, nil-cost options were granted to executive Directors in the amounts of:
Paul Hadaway 373,297 shares Tim Attlee 373,297 shares Michael Enright 286,435 shares
Details of the shares granted are outlined in Note 28 - Share-Based Payments.
Other
Payments for professional services totalling GBP150,000 (excluding VAT) were made to Real Estate Venture Capital Management LLP (Revcap). Revcap is deemed to be a related party as one of its employees, Stephen Alston, is a Non-Executive Director of the Company.
27. Subsequent Events
Property Transactions
York
On 17 January 2017, the Group acquired the freehold of a 220 bed student accommodation scheme in York for GBP23.3 million (excluding costs). Foss Studios was developed for the 2015/16 academic year.
On 20 January 2017, the Group acquired the land and entered into a forward funded development agreement for a 106 bed, premium student accommodation development in York for a total funding commitment of GBP9.245 million. The Percy's Lane development comprises the redevelopment of a site involving the demolition of the existing buildings and the construction of new purpose-built student accommodation.
Other transactions
On 3 March 2017, the Company agreed a new unsecured term loan facility of GBP10 million with First Commercial Bank Limited. The facility, which was available to draw down in full over the next 12 months, has been drawn down. It is repayable three years from the date of the agreement with an all-in cost of 2.15% p.a.
On 30 March 2017, the Group acquired the remaining 50% shareholding in Empiric (Glasgow) Limited from joint venture partner, Revcap, for GBP4.65 million. The outstanding debt of GBP9.5 million was also repaid to lender, Close Brothers.
28. Share-Based Payments
The Company operates two equity-settled share-based remuneration schemes for Executive Directors under the deferred annual bonus and a long-term incentive plan. The details of the schemes are included in the Remuneration Committee Report on page 74 of the Annual Report.
On 29 September 2016, the Company granted nil-cost options over a total of 361,908 ordinary shares pursuant to the deferred shares element of the annual bonus awards for the 2015/16 financial year (the "Annual Bonus Awards") and nil-cost options over a total of 671,121 ordinary shares pursuant to the Empiric 2014 Long Term Incentive Plan (the "2016-2019 LTIP Awards") to the Company's three Executive Directors (Paul Hadaway 373,297, Tim Attlee 373,297, and Michael Enright 286,435).
None of the nil-cost options are currently exercisable.
The fair value on date of grant for the nil-cost options under the 2016-2019 LTIP Awards were priced using the Monte Carlo pricing model.
During the period to 31 December 2016 the amount recognised relating to the options was GBP395,000 (30 June 2016: GBP649,000).
The awards have the benefit of dividend equivalence. The Remuneration Committee will determine on or before vesting whether the dividend equivalent will be provided in the form of cash and/or shares.
Group and
Company
----------------------------------- ------------------------
Period Year
ended ended
31 December 30 June
2016 2016
----------------------------------- ------------ ----------
Outstanding number brought forward 2,880,391 1,220,423
----------------------------------- ------------ ----------
Granted during the period 1,033,029 1,659,968
----------------------------------- ------------ ----------
Outstanding number carried forward 3,913,420 2,880,391
----------------------------------- ------------ ----------
The following information is relevant in the determination of the fair value of these nil-cost options:
(a) Weighted average share price at grant date of GBP1.1625
(b) Exercise price of GBPnil
(c) Contractual life of three years
(d) Expected volatility of 28.7%
(e) Expected dividend yield of 0%
(f) Risk-free rate of 0.04%
(g) The volatility assumption is based on a statistical analysis of daily share prices of comparator companies over the last three years.
(h) The TSR performance conditions have been considered when assessing the fair value of the options.
29. Financial Risk Management
Financial Instruments
The Group's principal financial assets and liabilities are those which arise directly from its operations: trade and other receivables, trade and other payables and cash and cash equivalents.
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are shown in the financial statements:
Risk Management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk.
The Board of Directors oversees the management of these risks.
The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
(a) Market Risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the Group's bank balances along with the interest rate derivatives (swap and cap) entered into to mitigate interest rate risk.
(b) Credit Risk
Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions. Credit risk is managed by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement.
Outstanding tenants' receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.
(i) Tenant Receivables
Tenant receivables, primarily tenant rentals, are presented in the Consolidated Statement of Financial Position net of allowances for doubtful receivables and are monitored on a case-by-case basis. Credit risk is primarily managed by requiring tenants to pay rentals in advance and performing tests around strength of covenant prior to acquisition. There are no trade receivables past due as at the period end.
(ii) Credit Risk Related to Financial Instruments and Cash Deposits
One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that the credit risk on short-term deposits and current account cash balances are limited because the counterparties are banks, which are committed lenders to the Group, with high credit ratings assigned by international credit-rating agencies.
Long-term
Credit Ratings (Moody's) Outlook
-------------------------- --------------
AIB Group A3 Positive
-------------------------- --- ---------
Canada Life Aa3 Positive
-------------------------- --- ---------
Mass Mutual Aa2 Excellent
-------------------------- --- ---------
Royal Bank of Scotland Plc A3 Positive
-------------------------- --- ---------
(c) Liquidity Risk
Liquidity risk arises from the Group's management of working capital and going forward, the finance charges and principal repayments on any borrowings, of which currently there are none. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Group's assets are property investments and are therefore not readily realisable. The Group's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of forecast and actual cash flows by management.
The following table sets out the contractual obligations (representing undiscounted contractual cash flows) of financial liabilities:
Group
----------------------------- --------------------------------------------------------------
Less 1 to
than 3 to 5 > 5
On demand 3 months 12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- ---------- -------- -------- --------
At 31 December 2016
----------------------------- --------- --------- ---------- -------- -------- --------
Bank borrowings and interest - 2,129 6,387 94,067 217,196 319,779
----------------------------- --------- --------- ---------- -------- -------- --------
Swap derivatives - 123 365 830 - 1,318
----------------------------- --------- --------- ---------- -------- -------- --------
Trade and other payables - 16,033 - - - 16,033
----------------------------- --------- --------- ---------- -------- -------- --------
- 18,285 6,752 94,897 217,196 337,130
----------------------------- --------- --------- ---------- -------- -------- --------
Less 1 to
than 3 to 5 > 5
On demand 3 months 12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- ---------- -------- -------- --------
At 30 June 2016
----------------------------- --------- --------- ---------- -------- -------- --------
Bank borrowings and interest - 1,251 13,691 56,050 135,763 206,755
----------------------------- --------- --------- ---------- -------- -------- --------
Swap derivatives - 156 476 1,453 - 2,085
----------------------------- --------- --------- ---------- -------- -------- --------
Trade and other payables - 14,974 - - - 14,974
----------------------------- --------- --------- ---------- -------- -------- --------
- 16,381 14,167 57,503 135,763 223,814
----------------------------- --------- --------- ---------- -------- -------- --------
Company
----------------------------- --------------------------------------------------------------
Less 1 to
than 3 to 5 > 5
On demand 3 months 12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- ---------- -------- -------- --------
At 31 December 2016
----------------------------- --------- --------- ---------- -------- -------- --------
Bank borrowings and interest - - - - - -
----------------------------- --------- --------- ---------- -------- -------- --------
Swap derivatives - - - - - -
----------------------------- --------- --------- ---------- -------- -------- --------
Trade and other payables - 1,639 - - - 1,639
----------------------------- --------- --------- ---------- -------- -------- --------
- 1,639 - - - 1,639
----------------------------- --------- --------- ---------- -------- -------- --------
Less
than 3 to 1 to > 5
On demand 3 months 12 months 5 years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- ---------- -------- -------- --------
At 30 June 2016
----------------------------- --------- --------- ---------- -------- -------- --------
Bank borrowings and interest - - - - - -
----------------------------- --------- --------- ---------- -------- -------- --------
Swap derivatives - - - - - -
----------------------------- --------- --------- ---------- -------- -------- --------
Trade and other payables - 1,681 - - - 1,681
----------------------------- --------- --------- ---------- -------- -------- --------
- 1,681 - - - 1,681
----------------------------- --------- --------- ---------- -------- -------- --------
30. Capital Management
The primary objectives of the Group's capital management are to ensure that it remains a going concern and continues to qualify for UK REIT status.
The Board of Directors monitors and reviews the Group's capital so as to promote the long-term success of the business, facilitate expansion and to maintain sustainable returns for shareholders.
Capital consists of ordinary shares, other capital reserves and retained earnings.
31. Subsidiaries
Those subsidiaries listed below are all considered to be subsidiaries of the Company at 31 December 2016, with the shares issued being ordinary shares. All subsidiaries are registered in London at the following address: 6th Floor, Swan House, 17-19 Stratford Place, London, England, W1C 1BQ.
In each case the country of incorporation is the UK.
Company
---------------------------- ---------------------
31 December 30 June
2016 2016
GBP'000 GBP'000
---------------------------- ----------- --------
As at 1 July 2016 5,117 -
---------------------------- ----------- --------
Additions in the period 1 5,117
---------------------------- ----------- --------
Balance at 31 December 2016 5,118 5,117
---------------------------- ----------- --------
Principal
Status Ownership activity
--------------------------------- ----------- --------- --------------------
Brunswick Contracting Limited Active 100% Property contracting
--------------------------------- ----------- --------- --------------------
Empiric (Alwyn Court) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leeds Cookridge)
Limited
Previously (Empiric Baptists
Chapel Leasing Limited) Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Baptist Chapel) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bath Canalside) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bath James House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bath JSW) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bath Oolite Road)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bath Piccadilly Place)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Birmingham Emporium)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Birmingham) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Bristol) Leasing
Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Bristol) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Buccleuch Street)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Canterbury Pavilion
Court) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Cardiff Wndsr House)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Cardiff Wndsr House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Centro Court) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Claremont Newcastle)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (College Green) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Development
Empiric (Developments) Limited Active 100% management
--------------------------------- ----------- --------- --------------------
Empiric (Durham St Margarets)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Edge Apartments)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter Bishop Blackall
School) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter Bonhay Road)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Exeter Bonhay Road)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter City Service)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter DCL) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter Isca Lofts)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Exeter LL) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Falmouth Maritime
Studios) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Falmouth Ocean Bowl)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow Ballet School)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow Bath St)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow George Square)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow George Square)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow George St)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow George St)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Glasgow Otago Street)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Hatfield CP) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Huddersfield Oldgate
House) Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Huddersfield Oldgate
House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Huddersfield Snow
Island) Leasing Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Lancaster Penny Street
1) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Lancaster Penny Street
2) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Lancaster Penny Street
3) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leeds Algernon) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leeds Pennine House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leeds St Mark's)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester 134 New
Walk) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester 136-138
New Walk) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester 140-142
New Walk Limited) Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester 160 Upper
New Walk) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester Bede Park)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester De Montfort
Square) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester Hosiery
Factory) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester Peacock
Lane) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leicester Shoe &
Boot Factory) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Liverpool Art School
/ Maple House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Liverpool Chatham
Lodge) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Liverpool Grove Street)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Liverpool Hahnemann
Building) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (London Camberwell)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (London Francis Gardner)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (London Road) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Manchester Ladybarn)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Manchester Victoria
Point) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Newcastle Metrovick)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Northgate House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Leeds Mary Morris)
Limited
Previously Empiric (Nottingham
95 Talbot) Leasing Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Nottingham 95 Talbot)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Nottingham Frontage)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Nottingham Frontage)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Liverpool Octagon
/ Hayward) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Oxford Stonemason)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Picturehouse Apartments)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Egham High Street)
Limited
Previously Empiric (Portobello
House) Leasing Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Portobello House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Portsmouth Elm Grove
Library) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (York Percy's Lane)
Limited
Previously Empiric (Portsmouth
Europa House) Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Portsmouth Europa
House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Portsmouth Kingsway
House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Portsmouth Registry)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Provincial House)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Provincial House)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Reading Saxon Court)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Reading Saxon Court)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Snow Island) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Southampton) Leasing
Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Southampton) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (St Andrews Ayton
House) Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (St Andrews Ayton
House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (St Peter Street)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (St Peter Street)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Stirling Forthside)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Stirling Forthside)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Stoke Caledonia Mill)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Summit House) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Talbot Studios) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Trippet Lane) Leasing
Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (Trippet Lane) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Twickenham Grosvenor
Hall) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (York Foss Studios
1) Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Buccleuch Street)
Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Empiric (York Lawrence Street)
Limited Active 100% Property investment
--------------------------------- ----------- --------- --------------------
Empiric (Portsmouth Europa
House) Leasing Limited Active 100% Property leasing
--------------------------------- ----------- --------- --------------------
Intermediate
Empiric Acquisitions Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investment Holdings
(Four) Limited Active 100% Holding company
--------------------------------- ----------- --------- --------------------
Empiric Investment Holdings
(Three) Limited Active 100% Holding company
--------------------------------- ----------- --------- --------------------
Empiric Investment Holdings
(Two) Limited Active 100% Holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (Five) Intermediate
Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investment Holdings
(Six) Limited Active 100% Holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (Three) Intermediate
Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investment Holdings
(Five) Limited Active 100% Holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (Four) Intermediate
Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (One) Intermediate
Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (Six) Intermediate
Limited Active 100% holding company
--------------------------------- ----------- --------- --------------------
Empiric Investments (Two) Intermediate Limited Active 100% holding company --------------------------------- ----------- --------- -------------------- Empiric Student Property Limited Active 100% Property Management --------------------------------- ----------- --------- -------------------- Empiric Student Property Trustees Trustee of Limited Active 100% EBT --------------------------------- ----------- --------- -------------------- Hello Student(R) Management Limited Active 100% Property Management --------------------------------- ----------- --------- -------------------- Grove St Studios Ltd Liquidation 100% Property investment --------------------------------- ----------- --------- -------------------- Spring Roscoe Limited Liquidation 100% Property investment --------------------------------- ----------- --------- --------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAKLEFLSXEEF
(END) Dow Jones Newswires
April 10, 2017 02:56 ET (06:56 GMT)
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