Empiric Student Property PLC Full Year Results (5406G)

TIDMESP

RNS Number : 5406G

Empiric Student Property PLC

18 March 2020

18 March 2020

Empiric Student Property plc

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

RESULTS FOR THE 12 MONTHSED 31 DECEMBER 2019

The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of student accommodation across the UK, today announces the Company's full year results for the 12 months ended 31 December 2019.

Financial headlines

 
                            As at 31 December   As at 31 December   Change 
                                         2019                2018 
 Revenue                             GBP70.9m            GBP64.2m     +11% 
                           ------------------  ------------------  ------- 
 Gross margin                           67.1%               61.8%      +9% 
                           ------------------  ------------------  ------- 
 Administration expenses              GBP9.2m             GBP9.1m      +1% 
                           ------------------  ------------------  ------- 
 Profit before tax                   GBP54.8m            GBP40.3m     +36% 
                           ------------------  ------------------  ------- 
 Basic earnings per 
  share                                 9.08p               6.68p     +36% 
                           ------------------  ------------------  ------- 
 Adjusted earnings per 
  share                                 4.43p               3.20p     +38% 
                           ------------------  ------------------  ------- 
 Dividends declared 
  per share                              5.0p                5.0p       0% 
                           ------------------  ------------------  ------- 
 Dividend cover                         88.5%               64.1%     +38% 
                           ------------------  ------------------  ------- 
 Property valuation                 GBP1,029m             GBP971m      +6% 
                           ------------------  ------------------  ------- 
 EPRA NAV per share                    110.2p              106.2p      +4% 
                           ------------------  ------------------  ------- 
 

Financial Performance

-- Revenue increased 11% to GBP70.9 million (2018: GBP64.2 million) driven by an increase in number of beds as well as higher occupancy levels and ongoing rental growth.

-- Gross margin increased to 67% (2018: 62%), reflecting further good progress in increasing revenue and reducing property costs.

   --      Profit for the year increased by 36% to GBP54.8 million (2018: GBP40.3 million). 

-- Dividends declared in relation to 2019 totalled 5.0 pence per share, dividend cover increased to 88.5% (2018: 64.1%).

-- Property portfolio valued at GBP1,029 million at 31 December 2019 (31 December 2018: GBP971 million) an increase of 6% (3.6% on a like for like basis).

   --      EPRA net asset value per share up 4% to 110.2 pence (2018: 106.2 pence). 
   --      Total Return for the 2019 financial year of 8.6% (2018: 6.5%). 

-- LTV at year end of 32.9% (31 December 2018: 30.6%) below our long-term target of 35% and maximum of 40%, with GBP35m of undrawn facilities.

-- We have raised an additional GBP32.5 million of debt since the year end and currently have GBP67.5 million of undrawn facilities.

Operational Performance

-- Facilities management for the remaining 57 operating assets was brought in-house at the end of March 2019.

-- Significant progress has been made with the in-sourcing programme, with revenue management on track for delivery in 2021.

-- Direct led model continues to drive numerous benefits for the business with rental growth across the portfolio on a like for like basis of around 3% for the 2018/19 academic year (2017/18: 2%)

-- Improvements in operating efficiencies and cost management has led to a reduction in the average cost per bed of 9% compared to 2018

   --      95 assets with 9,401 beds contracted as at 31 December 2019 (31 December 2018: 9,397 beds). 
   --      Development pipeline of 356 beds delivered in 2019 averaging a profit on cost of 14%. 

COVID-19

-- The safety and welfare of our students and our employees remains our number one priority. The Senior Leadership Team are holding daily calls to monitor the situation and the Company's approach. We continue to operate all of our buildings and closely follow and implement advice from the World Health Organisation, Public Health England and Public Health Scotland.

-- Bookings for the 2020/21 academic year are in line with this time last year. Contingency plans are well advanced, and we benefit from a conservative financing structure.

Tim Attlee, Chief Executive Officer of Empiric Student Property plc, commented:

"This is the second successive year of improved margins, dividend cover and total returns, financial indicators which reflect the continuing benefits of our business transformation.

Positive customer satisfaction results and significantly improved colleague engagement scores demonstrate that the business transformation is benefitting customers and colleagues as well as shareholders.

In 2020, we expect to build on the progress we have made in 2019, as we continue to drive revenue and reduce costs, creating a solid base for sustainable growth."

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

 
 Empiric Student Property plc                (via M aitland/AMO below) 
 Tim Attlee (Chief Executive Officer) 
 Lynne Fennah (Chief Financial & Operating 
  Officer) 
 
 Jefferies International Limited             Tel: [phone] 
 Stuart Klein 
 Tom Yeadon 
 
 RBC Europe Limited (trading as RBC          Tel: [phone] 
  Capital Markets) 
 Charlie Foster 
 Marcus Jackson 
 
 M aitland/AMO (Communications Adviser)      Tel: [phone] 
 James Benjamin                              Email: [e-mail] 
 

The Company's LEI is 213800FPF38IBPRFPU87.

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

Notes:

Empiric Student Property plc is a leading provider and operator of modern, 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.

The Company presentation of its full year results for analysts and investors will still take place at 9.00am on Wednesday, 18 March 2020 but it will now only be accessible via a live conference call and webcast.

As a precautionary measure, there will be no face to face Company presentation to help ensure the health and safety of the Company's shareholders, staff and other stakeholders.

For those wishing to access the live webcast please register here: https://www.investis-live.com/empiric/5e626dd1422218100083ff40/lmlm

For those who have not yet responded and wish to access the live conference call please contact Maitland/AMO at

[e-mail]   or by telephone on [phone]. 

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

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 2020, on or around 27 March 2020.

Chairman's Statement

Focused progress

MARK PAIN

Non-Executive Chairman

17 March 2020

We have once again improved performance against our key financial and operational metrics. This year we delivered double-digit revenue growth, reduced costs per bed, generated further improvements in our gross margin and achieved a material improvement in dividend cover. This stands us in strong stead to maximise our returns to shareholders by delivering sustainable future growth.

Our People

Our continued good progress is only possible because of the dedication and ability of our management team and all of our people. I would like to thank everyone in our business for their contribution over the past year. I would particularly like to welcome the 69 people who joined this year as we completed the in-sourcing of our Facilities Management (FM) activities in relation to 57 buildings.

The views of our people are important to the Board. We carried out two colleague engagement surveys in 2019. Response rates were strong and engagement scores were very encouraging. Additional comments provided by survey respondents helped the business to understand what needs to be done to make Empiric a great place to work.

Our Colleague Forum, established in May 2019 and formed of colleagues across the Group, met four times during the year to discuss a variety of topics including the design and results of the colleague engagement survey, new and revised HR policies, the in-housing of FM as well as a review of the summer turnaround process. Representatives from the Forum supported by the HR Director presented a colleague engagement update to the Board in November 2019. To further enhance the Board's engagement with colleagues, the Board appointed Alice Avis, our newest Non-Executive Director and a member of the Remuneration Committee, as the designated Non-Executive Director to support workforce engagement. Alice will attend at least one Colleague Forum meeting each year and will act as a contact point for Forum Representatives to update the Board in respect of any key issues raised at meetings. Individual representatives from the Colleague Forum will continue to be invited to attend an annual end-of-year Board meeting to update on what they have worked on, the key issues and changes made.

Health, Safety and the Environment

The insourcing of our FM activities also means we have complete control of our health and safety environment. We can continue to enhance our monitoring and make our buildings as safe as possible.

During the year we have reviewed how we interact with our key stakeholder groups and fulfil our aim as a responsible, sustainable business. Whilst there is still work to do, good progress has been made with our key stakeholders and encouraging feedback has been obtained, highlighting that we are heading in the right direction.

Board Appointments and Succession

At the beginning of 2019, we announced the appointment of Alice Avis as a Non-Executive Director. Alice brings a wealth of invaluable experience in driving digital transformation and operational excellence in customer-focused, multi-site businesses, which are important for the Board as Empiric focuses on further enhancing its operations.

At the same time, and, after nearly five years on the Board, we announced that Stephen Alston had decided not to seek re-election as a Non-Executive Director at the Annual General Meeting on 2 May 2019. On behalf of the Board, I would like to thank Stephen for his contribution and time committed since the IPO.

No further appointments were made to the Board during the year. The Board effectiveness review supported the view that following Alice's appointment the Board currently comprises the appropriate skills and experience to drive the delivery of our strategy forward.

Dividends

The Board has declared four quarterly dividends in respect of 2019, of 1.25 pence per share each. We therefore met our dividend target for the year of 5.0 pence per share. Adjusted earnings per share were 4.43 pence, resulting in a marked improvement in dividend cover to 88.5% (2018: 64.1%).

Summary

We have continued to make significant progress with the Operational transformation of the business and we are now embedding and driving improved performance from our new operating model. There is still more to be done to deliver the performance we are capable of and we remain focused intensely on delivering for our shareholders and all other stakeholders in our business. At the time of writing, we are facing into the challenges being posed by the COVID-19 pandemic. As of today, bookings for the 2020/21 academic year are very much in line with the bookings we had taken for the 2019/ 20 at this time last year. The situation is rapidly evolving and it is not yet clear how the student population and University sector will respond to the impact of the virus. We remain vigilant and are closely monitoring the situation and will provide updates as appropriate. Protecting and supporting our Customers, colleagues and other stakeholders whilst underpinning the value of our assets for shareholders will guide our actions over the coming months.

Another successful year of transformation. Much of the heavy lifting has been completed and we are now embedding and driving improved performance from our new operating model.

Our Values

The success of our business is grounded in our culture - the way we think, behave and act towards our key stakeholders (each other, our customers and our investors). Our culture is based on our core values listed below and behaviours demonstrated by our people across our business who are working towards our purpose detailed on the inside front cover. During 2019 we have spent a great deal of time aligning our purpose, our brand and our culture and have held meetings across the business to ensure that everyone understands and is aligned behind what we are and how we want to operate.

Honest

We act with integrity and have courage to do the right things.

Creative

We do things differently, delighting our customers, colleagues and shareholders.

Open

We are transparent in what we do. We engage, involve and share.

Strive

We are always looking for better ways to do things for our customers, colleagues and shareholders.

Reasons to Invest

1

Differentiated business model within the popular PBSA property sector

We target investment in regional cities which attract students from the growing pool of international, postgraduate and returning undergraduates, whose premium accommodation requirements are relatively under-served by the PBSA market. This segmented supply and demand imbalance drives both occupancy and rental growth, creating relatively high-yielding investment providing attractive total returns.

2

Industry-leading operating brand

Hello Student, our operating platform, has become one of the most recognisable in the sector. Its online presence continues to grow with 3.25 million page views of its website in 2019 compared with 2.00 million in 2018.

3

Sustainable long-term business model

There has been consistently strong growth in student numbers over the past decade, and our premium, smaller, characterful and collegiate accommodation with generous communal facilities help us stand out in the market.

4

Strengthening financial performance

We have produced a total return of 8.6% up from 6.5% in 2018 while remaining below our long-term gearing target of 35%.

5

Progressive culture embedded by core values and purpose

We believe in our strong culture which is supported by the core values we live by each day throughout the business from the Board down.

6

Socially and environmentally responsible

We seek to conduct and run our business in a socially and environmentally responsible way through charity partnerships and monitoring emissions.

Our Market

Rising demand for higher education

A ccording to the latest HESA data, the number of full-time students exceeded 1.88 million in 2018/19. This is the largest number of students to have ever enrolled full time in UK higher education.

Understanding changing trends in applications and acceptances provides an indication of current and future demand for our accommodation. Ahead of the 2020/21 academic year, more than 568,330 students applied to UK universities to start a full-time undergraduate course (Source: UCAS January 2020 Applicant Deadline Analysis) - this is the first year-on-year rise for four years.

Despite 2020 being the lowest point in the population of 18-year olds in the UK - there are 771,000 this year. In 2015 there were 787,000 and by 2030 there will be 887,000 - participation rates are at their highest this year. According to UCAS research 39.5% of UK 18-year-olds applied for university. The growth in the participation rate and the absolute size of the 18-year old cohort in the UK are expected to drive growth in the full-time student population in the coming decade.

Meanwhile, this year, 20% of all applicants were from outside of the UK. (Source: UCAS January 2019 Applicant Deadline Analysis). Over 73,080 students from outside the EU had applied by January 2020, which represents an increase of 15% compared to 2019. Interestingly, international student numbers grew despite the heightened level of political uncertainty surrounding Brexit, highlighting the ongoing global appeal of UK higher education - and the relative value of Sterling.

The numbers of applicants from China, India, Hong Kong, the USA and Singapore continue to grow, with UCAS reporting a 30% year-on-year increase in applicants from China and India. Chinese students still make up the largest proportion of the UK's international student population.

Full-time students in 2018/19

1.88 million

Over the same time period, there was also a 1% increase in applications from within the EU - now comprising 7% of the total student population. For the 2020/21 academic year, the UK government has extended the same terms of enrolment and finance to EU students as UK students enjoy, but future funding and admission arrangements for EU students will emerge from the Brexit trade discussions being conducted this year. The shape of that deal will determine the future of the EU's participation in the UK higher education sector including the fate of EU teaching and research staff employed in HE, and the Pan-European medical and science research programmes.

Government Policy

Over the past year, the UK government has begun to change the previously negative migration environment for skilled immigrants and has encouraged applications from overseas students. The International Education Strategy, announced in March 2019, aims to increase international student numbers in the UK to 600,000 by 2030. This would mark an increase in the present international student population of over 30% (Source: International Education Strategy, March 2019). As part of this strategy, more pragmatic post-study work visa arrangements have been reintroduced.

The UK is home to 18 of the world's top 100 universities, another factor that will entice the increasingly affluent and mobile global student population to Britain (Source: International Education Strategy, March 2019).

The UK government also published the Augar Review, in May 2019. This focused on lowering the maximum undergraduate tuition fee to GBP7,500 per annum, from the 2021/22 academic year. It also endorses the renewal of maintenance grants, which were ceased in 2016. These policy changes, should they be enacted, will provide further support to the existing high participation rates.

The introduction of student loans to UK residents wishing to embark on postgraduate study have also stimulated demand. Since these loans were introduced in the 2016/17 academic year, the annual growth rate in the number of full-time postgraduate student numbers has risen from 3% to 5%. The total number of full-time postgraduates has increased from 321,215 in AY 2016 to 356,650 in AY 2018 (Source: HESA 2018/19).

Demand for PBSA is set to remain strong and is reflected by the total number of students living in PBSA continuing to rise year-on-year. Whilst there are around 114,000 PBSA beds in the development pipeline, the demand for bed spaces in the UK is rising at a rate approximately 30% faster than the supply. 1.1 million students are now studying away from home, further supporting the PBSA market (Source: Cushman & Wakefield/UK local authorities). This recurring and growing demand drives the strong income streams that have stimulated investment activity in the PBSA sector.

All of this is positive news for the PBSA sector, and according to JLL's Q4 2019 Living Bulletin this combination of demographic growth and government stimuli could lead to a 500,000 increase in the number of HE students in the UK by 2030.

The growth feeds into all segments of the PBSA market, both for the majority of PBSA investors who specialise in providing accommodation for first-year undergraduates, and for us whose target market is returning UK undergraduate, postgraduate and international students.

Supply of PBSA

The supply of PBSA has continued to grow, with around 32,000 beds completing across the UK for the start of the 2019/20 academic year. This raises the overall number of PBSA beds to over 650,000.

According to JLL's Q4 2019 Living Bulletin, the national development pipeline has declined in size over the last three years by 25%. This decline in the delivery pipeline arises from the relative strength of competing land uses and planning policies which now seek to restrict the number of PBSA beds being built.

Analysis carried out by Knight Frank shows that the type of stock in the pipeline is also changing, with a shift towards the delivery of ensuite rooms arranged in cluster flats. This trend highlights a reduction in the delivery of studio bed spaces which is at 32% of stock in 2018.

This change in unit composition is partly a reaction to affordability pressures. A recent survey of students identified value for money as a key factor when deciding where to live. It also highlights the importance of quality and convenience (Source: Knight Frank Research).

Our own customer surveys consistently identify location, convenience, quality of service, and security as the key drivers of decision-making by residents. Value for money is more of a secondary concern than affordability for them.

Market Yields - Best in Class, Direct Let

 
                                              December 2019      December 2018 
                                            -----------------  ----------------- 
                                            Current     Trend  Current     Trend 
------------------------------------------  -------  --------  -------  -------- 
Central London                                4.00%  Stronger    4.00%  Stronger 
Super Prime Regional                          5.00%  Stronger    5.00%  Stronger 
Prime Regional                                5.25%  Stronger    5.50%  Stronger 
Secondary Regional                            7.75%    Weaker    7.00%    Weaker 
------------------------------------------  -------  --------  -------  -------- 
 
 

Source: CBRE Student Sector Investment Yields.

Investment Demand for PBSA

Valued at over GBP50 billion by Knight Frank, the UK is the second largest PBSA market outside of North America. Investors remain attracted to the sector due to the favourable demand statistics and established nature of the UK PBSA market. More specifically, long-term and stable growth in rents, the popularity of the UK higher education sector and the continued undersupply of quality accommodation are all factors for the continuing rise in the number of investors (Source: Global Student Property 2019, Knight Frank).

Whilst some property sectors have experienced a slowdown in transactions, largely due to Brexit-related uncertainty and challenges in the retail sector, PBSA has remained resilient.

JLL reports that GBP5.2 billion of PBSA investment transactions were completed in 2019. The acquisition of Liberty Living by Unite at GBP1.4 billion and 24,021 beds was the largest single transaction by far although not directly comparable to our own portfolio.

More relevant was the purchase by Singapore Press Holdings in December of the 2,383-bed Student Castle Portfolio sold for GBP448 million at a NIY of 5.35% This provides supportive comparable evidence for us since we operate in 71.4% of the cities in that portfolio. It follows the comparable sale in June 2019 of the 3,195-bed, GBP590 million Vita Student portfolio to DWS at a yield of 5.3%.

2020 looks set to be another big year as the sale of the iQ portfolio by its owners Goldman Sachs and Wellcome Trust to Blackstone has been agreed subject to regulatory approval. The portfolio comprises some 32,000 beds, with over 80% in Russell Group towns and a sale price of GBP4.7 billion. JLL suggests in its Q4 2019 Living Sector report that the value of transactions in 2020 could be as high as GBP7.5 billion, a record year.

This investment demand is not evenly spread, so it is important to own assets in the right markets where there is strong demand. During 2019, CBRE reported on a number of asset sales in secondary cities such as Dundee and Derby, all of which traded at yields of 6.50% or higher. As outlined above, this trend has been driven by investors - predominantly international funds and large investor operators - looking to move away from secondary locations and towards mature markets, with at least one strong university and compelling supply and demand characteristics (Source: Student Sector Investment Yields, CBRE).

The result of this trend - the continued shift in demand towards good-quality assets - has resulted in yield compression at the top end of the quality spectrum. CBRE reported that between Q4 2018 and Q4 2019, best-in-class direct let Prime Regional yields1 compressed by 25 basis points, from 5.50% to 5.25%, whilst best-in-class2 direct let Super Prime Regional3 yields stayed flat but continued to strengthen. Given that over 85% of Empiric's portfolio was classified as either Prime Regional or Super Prime Regional in December 2019, the trends outlined above support Empiric's investment strategy (Source: CBRE Student Sector Investment Yields, 2019).

PBSA investment transactions in 2019:

GBP5.2 billion

1 Mature markets with healthy supply and demand ratio and generally more than one university. There are a spread of towns and cities from this level to our secondary locations.

2 CBRE define "best-in-class" as: "well located modern purpose-built property of an operationally efficient scale with a strong letting track record and appropriate room mix". These yields are intended as a guide and we would emphasise the need to appraise individual schemes on a case-by-case basis.

   3          Towns and cities with restricted supply or restrictive planning policies. 

Our Business Model

Our business model combines an attractive portfolio of high-quality student homes with an efficient in-house operational platform. Together, our operations and assets enable us to create value for all our stakeholders. This in turn allows us to generate maximum returns for our shareholders and build a strong platform for future growth.

 
Key Strengths                             How We Add Value                        Outputs 
--------------------------------------  --------------------------------------  -------------------------------------- 
Buildings                                 Our Culture                             Customers 
We have a diversified and attractive      We put customers and our people at      Our customers benefit from having a 
portfolio of properties that offer        the heart of everything we do. We       great home to live in during their 
high-quality accommodation                treat our customers                     studies, at a rent 
to customers ranging from first-year      and our people as individuals by        that represents value for money. 
undergraduates to postgraduates.          building meaningful, long - term        Customer Satisfaction 
Our People                                relationships based on happiness        7.8 out of 10 
Our people are key to our customer        and creating amazing places to live.    Our People 
journey. Our passionate and committed     Select Locations/Specifications         Our people have the opportunity to 
colleagues allow                          We are selective about where we         develop their careers in an exciting 
us to deliver a high level of service     invest, with a focus on the towns       and growing sector. 
while maintaining cost control.           and cities that are home                Internal Promotions During the Year 
Specialist Knowledge                      to the most successful universities     19 
We have the knowledge to develop,         and where student numbers are rising    Shareholders 
acquire and operate successfully          faster than average.                    Shareholders benefit from strong 
student accommodation                     We select sites based on their          property sector leading total 

assets.                                   compatibility with the types of         returns which are underpinned 
Brand                                     accommodation we provide and            by income. 
The Hello Student(R) brand has            their proximity to universities and     Total Return for 2019 
continued to grow, becoming a leading     amenities.                              8.6% 
brand and giving us                       Develop/Buy                             Communities 
a clear identity in the student           Developing assets allows us to          The communities around our assets 
property market.                          acquire them at a greater yield on      benefit from increased employment, 
Financing                                 cost than buying standing               reduced pressure on 
We finance our business through a         assets. Forward funded projects are     local housing stock, and from the 
combination of shareholder equity and     typically less complex than direct      improvements we fund to social 
debt facilities.                          developments and have                   infrastructure in the surrounding 
Our debt has a weighted average term      a lower risk profile, as the            area. 
of 6.6 years and average interest         planning, construction and time risk    Jobs created in Falmouth and 
costs of 3.2%, 71%                        lies with the third-party               Edinburgh as a result of our 
of our debt is fixed rate and the         developer. These projects also have     completed developments 
remainder is variable rate.               lower staffing requirements and         11 
Technology                                benefit from a forward 
We continue to leverage technology to     funding coupon charged to the 
augment business processes that drive     developer. However, direct 
efficiencies                              development delivers higher yielding 
operationally, financially, and           assets than forward funding. We have 
commercially whilst also improving our    a strong proven track record in 
user and customer experiences.            direct development. 
                                          We also buy standing assets when a 
                                          specific opportunity arises which 
                                          complements our portfolio. 
                                          Operate 
                                          Our assets are marketed through our 
                                          Hello Student(R) platform. This 
                                          platform gives us a clearly 
                                          identifiable brand which helps to 
                                          offer our customers a range of 
                                          options. Encouraging our 
                                          people to follow our values helps to 
                                          increase ownership and pride in our 
                                          homes. This ensures 
                                          that customers have the best 
                                          experience possible, helping to 
                                          drive occupancy, rents and profit. 
                                          Reinvest 
                                          We intend to hold our buildings for 
                                          the long term. However, we may sell 
                                          an asset if we see 
                                          an opportunity to create more value 
                                          for shareholders by reinvesting the 
                                          proceeds. We therefore 
                                          continually review the portfolio to 
                                          ensure our capital is effectively 
                                          allocated. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 

Our Strategic Objectives

Our strategic objectives are designed so that we can create the maximum returns to shareholders and create long-term sustainable value growth.

1.

Customers

We want to achieve customer satisfaction by building welcoming communities in our homes and by giving our customers a sense of security and belonging.

Key Aims for 2020

Further focus on finding out what the students of today really want from their home. The market is ever evolving and we can never stop learning.

2.

Brand

We want to raise awareness of the Hello Student(R) consumer brand among students, to support our premium accommodation and service offering. We want to become known as the provider of homes not halls.

Key Aims for 2020

Launching a reinvigorated mystery shopper campaign across our buildings so we can ensure our customer service experience is positive and consistent across the Group.

3.

People and Operations

We will continue to develop a culture where our people are engaged and proud to continue to work for the business, making Empiric a destination choice for candidates wanting to work in the student accommodation sector and simply "a great place to work".

We will aim to continually improve operational efficiency through enhancing our in-house functions and performance coaching our colleagues to help them provide the best and most efficient customer service experience.

Key Aims for 2020

We have invested in a Training and Development Manager who joined the HR team in January 2020 to develop our in-house Learning and Development offer across the business.

4.

Buildings

We will maximise the value from the asset portfolio by growing the portfolio profitably and sustainably. This will be done by maintaining a portfolio of attractively high yielding investments with rental growth record and further growth potential.

Key Aims for 2020

284 beds across two developments due for completion for the 2020/21 academic year.

5.

Shareholders

We want to provide our shareholders with attractive sustainable returns. This is achieved through improving profitability and growing our portfolio.

Key Aims for 2020

In 2020 we are targeting dividend cover of around 95% and an improved gross margin.

Progress in the year

 
1 2 3 4  We achieved a customer rating of 7.8 out of 10 and a rebooker 
 5        rate of 21.3% 
-------  --------------------------------------------------------------------- 
1 2 3 4  We clearly defined our Purpose, Vision and Values 
 5 
-------  --------------------------------------------------------------------- 
1 2 3 4  We introduced the Colleague Forum 
 5 
-------  --------------------------------------------------------------------- 
1 2 3 4  This is the first year we have had all properties on the Hello 
 5        Student(R) platform which helps us ensure a consistent approach 
          to branding, operations and management, which will enhance the 
          brand in the eyes of our customers 
-------  --------------------------------------------------------------------- 
1 2 3 4  We completed two developments for the 2019/20 academic year providing 
 5        an additional 356 beds in locations where we already have assets 
-------  --------------------------------------------------------------------- 
1 2 3 4 
 5       Our portfolio achieved like-for-like valuation uplift of 3.6% 
-------  --------------------------------------------------------------------- 
1 2 3 4 
 5       We completed two employee surveys in the year 
-------  --------------------------------------------------------------------- 
1 2 3 4  We launched the central Customer Relations Team in January, based 
 5        in Glasgow 
-------  --------------------------------------------------------------------- 
1 2 3 4  We finalised bringing all FM in-house providing us with complete 
 5        control of our cost base 
-------  --------------------------------------------------------------------- 
1 2 3 4 
 5       We achieved rental growth of 3% for the 2018/19 academic year 
-------  --------------------------------------------------------------------- 
1 2 3 4 
 5       We introduced Workplace by Facebook to all of our people 
-------  --------------------------------------------------------------------- 
 

Chief Executive Officer's Review

Delivering our promise

TIM ATTLEE

Chief Executive Officer

17 March 2020

This is the second successive year of improved total return and dividend cover growth, financial indicators which clearly reflect the benefits of the continuing transformation of the business. The greatly improved colleague engagement scores during the year and positive customer satisfaction results show that the transformation is benefitting all stakeholders in the business: residents, colleagues and shareholders alike.

T he revenue we generate drives the Group's gross margin and profit. Now that we have direct control of all of our assets, we have been able to implement a number of actions to ensure we maximise the revenue from our buildings.

In January 2019, we launched our Customer Relations Team ("CRT") to support customer relations and sales across our sites. This centralised team helps us to provide consistently high levels of service to all our residents and helps us to generate revenue during an academic year.

Now that we have a clear view of day-to-day occupancy across the whole operational portfolio, we can identify opportunities to "backfill" buildings with semester lets when vacancies arise during the academic year. We use the CRT to lead the effort to make these sales. The CRT follow up on and close leads generated by our digital marketing activity and the marketing is directed by the occupancy data we have.

Growing revenue is a top priority and we are encouraged in achieving like-for-like rental growth for the 2018/19 academic year of 3% - this compares with average growth of 2% in the previous academic years and is further evidence of the benefit of owner operation of this class of asset.

The CRT also helped to tackle areas where we could improve service, such as our website, which we developed further during the year. For example, we have enhanced the enquiries function which gives us an early warning if we are not dealing promptly with a resident's enquiry. Because we can now track the customer's booking journey we also know if we are losing potential bookings because of issues with process.

The biannual resident surveys we run give us great insight into our customers' views and opinions. Our customers are at the heart of what we do, so the detailed feedback from these surveys influences our future customer proposition. With a resident satisfaction rating of 7.8, our check-out score is very similar to last year. We have listened to the feedback we have been given and look forward to improving this score in 2020. We remain committed to providing the best service possible.

75% colleague engagement Score which is above the UK national average of 68%.

Timely management information ("MI") is key to making effective decisions, and we continue to develop reporting that fully supports the business. Our emerging suite of increasingly sophisticated MI reporting tools is transforming both the way we deliver service and how we respond to the changing needs of our customers.

Value-driven Culture

As a result of our in-housing programme we have nearly doubled our headcount since 31 December 2017. It has therefore become increasingly important to define and communicate our purpose, vision and values so that everyone can understand and align their behaviour and actions accordingly.

Our purpose is defined on the inside front cover of this report and this is at the heart of what we do, it's why we get excited about coming to work and why we exist as a business.

We deliver our vision of providing our residents with "homes not halls" through our four values, which are: Honest, Creative, Open and Strive and behaviours which form part of our performance development processes.

We treat our people and our customers as individuals and strive to create meaningful long-term relationships with both groups.

Our values drive our culture, ensuring that everyone knows how they are expected to act, even when no one is watching. These values will provide the foundation that the business needs to succeed.

Pride in Our People

From 1 May 2019, the HR function of our Group was brought in-house. As well as this being a cost-saving initiative, it also brought us a wealth of opportunities with new, skilled team members who have been able to provide value-adding HR services and support across the business.

We now have a Colleague Forum made up of volunteer elected representatives from across the business, supported by the HR team and a nominated Non-Executive Director. It has proved to be a highly effective channel of communication, encouraging the free flow of ideas and opinions.

The Colleague Forum helps us to meet our obligations under the Corporate Governance Code but more importantly it provides all our colleagues with a named representative who is able to raise matters on their behalf, and seek a response from the management team or Board.

In May, the HR team launched the Group's first ever colleague engagement survey which achieved a response rate of 66% and an overall colleague engagement score of 69% against the UK all-sector average of 68%. The full survey results were shared with all colleagues and with the help of the Colleague Forum an action plan has been developed to focus on key areas for improvement.

Developments Delivered in 2019

 
Site                            Development basis                Beds  Completed 
------------------------------  -------------------------------  ----  -------------- 
King's Stables Road, Edinburgh  Forward funded                   166   August 2019 
------------------------------  -------------------------------  ----  -------------- 
Ocean View, Falmouth            Direct development               190   September 2019 
------------------------------  -------------------------------  ----  -------------- 
 
Future Development Pipeline 
 
Site                            Development basis                Beds  Delivery year 
------------------------------  -------------------------------  ----  -------------- 
                                                                       Forecast April 
140/142 New Walk, Leicester     Forward funded                   52     2020 
------------------------------  -------------------------------  ----  -------------- 
Emily Davies, Southampton       Major refurbishment/development  232   2020 
------------------------------  -------------------------------  ----  -------------- 
FISC, Canterbury                Major refurbishment/development  134   2021 
------------------------------  -------------------------------  ----  -------------- 
St Mary's, Bristol              Direct development               153   2021 
------------------------------  -------------------------------  ----  -------------- 
 

An extract from our action plan is shown below:

 
Area of focus      Action taken 
-----------------  ------------------------------------------------------------------ 
Senior Leadership  We've increased the visibility of the SLT members as the 
 Team ("SLT")       majority were new to the business in 2019. A weekly communication 
                    from an SLT member provides a business update to all colleagues. 
-----------------  ------------------------------------------------------------------ 
Caring             We launched an employee assistance programme, supported 
                    by a third party, to provide confidential 24/7 advice 
                    and support for our colleagues and their immediate family. 
-----------------  ------------------------------------------------------------------ 
Communication      We promoted "Workplace by Facebook" to increase the number 
                    of active users and ran 14 roadshows across the business 
                    in the autumn to engage our colleagues in understanding 
                    our business strategy and direction as well as providing 
                    key updates on our full action plan aimed to make us a 
                    "great place to work". 
-----------------  ------------------------------------------------------------------ 
Pay and Reward     We completed pay and benefit benchmarking across the Group 
                    supported by an external consultancy. We have also created 
                    a banding structure including revised terms and conditions 
                    as well as benefits in some instances so that we now offer 
                    a more competitive and market-aligned offer. 
-----------------  ------------------------------------------------------------------ 
 

A shorter "pulse" colleague engagement survey was conducted in November 2019 to review progress. This achieved a 5% higher response rate at 74% and an increase in the colleague engagement score of 6% to 75% which strongly confirmed we are on the right track. Our next survey will be in May 2020 and following the recent results we have refreshed our action plan, adding "cost control" and "summer turnaround planning" as new focus areas. The focus areas are each sponsored by a member of the Senior Leadership Team and we are committed to continued improvements.

Diversified Portfolio

Operating under the unifying Hello Student(R) platform we have a diversified portfolio of assets which are on average around 100 beds in size, occupying prime locations in strong university cities and with unique character. At 31 December 2019, we owned or were committed to owning 95 assets, representing 9,401 beds (31 December 2018: 95 assets, 9,397 beds). Of these, 92 were revenue generating (31 December 2018: 91 assets). Of our total beds 65% are in Russell Group university towns or cities. At this point, like-for-like revenue growth for the academic year 2019/20 averaged approximately 3% across the portfolio.

Independent Valuation

Each property in the portfolio has been independently valued by CBRE, in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Professional Standards January 2014 (the "Red Book"). At 31 December 2019, the portfolio was valued at GBP1,028.6 million, an increase of 6% for the year (31 December 2018: GBP970.6 million).

The valuation benefited from increased income growth alongside modest positive yield shift. Yields in the Prime and Super Prime regional markets strengthened while secondary markets were weaker, reflecting demand and demonstrating why it is vital to have a well-located portfolio. The valuation also includes the recognition of development profit on the projects which reached practical completion ahead of the 2019/20 academic year. The like-for-like increase in the portfolio valuation was 3.6%.

Recycling Our Assets

Now we have full control of our buildings, we have a full suite of granular operational and financial management information which allows us to make informed decisions about the status and performance of all our assets in a market where both supply and demand change over time.

Applying this information, we have identified a small number of properties which are "non-core" to the Company's investment and operational strategy and we will make orderly disposals of these buildings over the coming months.

To safeguard and ultimately improve the financial KPIs of the business, the proceeds of these sales will be promptly deployed into the Company's core strategies through the purchase of standing assets, forward funding agreements and direct development.

Developments and Redevelopments

We completed two developments during 2019, adding 356 beds to our operating portfolio. One was a forward funded development in Edinburgh. The second was a direct development in Falmouth, adjacent to our existing site, Maritime Studios, providing us with a broader offering in the town while allowing us to gain economies of scale.

The forward funded development in Leicester did not complete in time for the 2019/20 academic year, as the site suffered from a series of delays. However, the development agreement protects our position with a rental guarantee. We suffered no reputational damage for the late site as the rooms were not marketed for the 2019/20 academic year.

Our future development pipeline ensures we have a steady supply of quality assets to add to our portfolio.

Outlook

In 2020 we expect to build on the progress we have made in 2019, as we continue to drive revenue and reduce costs, creating a solid base for sustainable growth.

For 2020, the Board is continuing to target a dividend of 5.0 pence per share, which it expects to be around 95% covered by adjusted earnings with an enhanced gross margin.

Despite the uncertainty caused by Brexit we believe that the sector and our proposition are largely insulated from this potential impact and from other economic conditions.

At the time of writing, we are facing into the challenges being posed by the COVID-19 pandemic.

The market continues to polarise with a focus on prime locations and key university towns and cities. We believe we have the right portfolio and an improving operational platform.

The Board is positive about the outlook for the business and is excited about its potential.

Select Locations

More than just a location

We pride ourselves on the locations of our buildings. We aim to locate them in the areas which students want to live in, within walking distances of university while close to all the local amenities. This was supported by our recent resident survey which reconfirmed that while high-quality accommodation is a prerequisite, it is the location which is the most important factor for students when they choose their accommodation.

Edinburgh is a city with three universities and a student population in excess of 49,000 (HESA 2017/18). At the start of the year we had 152 beds operating in the city and in September 2019 a further 166 were added when we opened the King's Stables Road property.

Edinburgh King's Stables Road is situated just ten minutes' walk from the University of Edinburgh. As can be seen from the roof terrace, the property is situated in the heart of the city with fantastic views of the castle.

Edinburgh Student Population

49,000

Key Performance Indicators

Driving our performance

Our key performance indicators ("KPIs") are central to how we run our business and allow us to drive the performance of the business for our shareholders. During the year we have made two small changes to our KPIs. We have introduced one additional non-financial metric around colleague engagement. We have also amended our occupancy KPI so that it now reflects the revenue occupancy we have achieved for an academic year as a percentage of the gross annualised rent.

Strategic Links for below KPIs

   1.     Customers 
   2.     Brand 
   3.     People and Operations 
   4.     Buildings 
   5.     Shareholder Outcomes 

Non-Financial KPIs

 
                  Rebooker Rate (%)                        Customer Happiness (Out of 
                                                           10) 
                   21.3%                                    7.8 
---------------  ---------------------------------------  ------------------------------------ 
Performance      2019               21.3%                 2019                  7.8 
                 2018               21.3%                 2018                  8.1 
---------------  -----------------  --------------------  --------------------  -------------- 
Purpose          The rebooker rate demonstrates           Student satisfaction reflects 
                  our ability to retain customers          the quality of service we provide 
                  within the Hello Student(R)              and the attractiveness of our 
                  brand, which in turn is an indicator     buildings. 
                  of the quality of service we 
                  provide. 
---------------  ---------------------------------------  ------------------------------------ 
Strategic Link   1 2 3 4 5                                1 2 3 4 5 
---------------  ---------------------------------------  ------------------------------------ 
 
 
                  Revenue Occupancy (%)                 Safety - Number of Accidents 
                   93.9%                                 3 
---------------  ------------------------------------  ------------------------------------ 
                 2019/20 As at the end 
Performance       of February 2020             93.9%   2019                  3 
                 2018/19 As at the end         93.3%   2018                  N/A 
                  of February 2019 
---------------  ----------------------------  ------  --------------------  -------------- 
Purpose          Occupancy is a key driver of          The number of reportable accidents 
                  our revenue and demonstrates          throughout the Group each year. 
                  the quality and location of           This is a key reporting metric 
                  our assets, the strength of           to the Health & Safety Executive 
                  our sales process and our ability     as well as a measure of our 
                  to set appropriate rents.             health and safety strategy and 
                                                        procedures. 
---------------  ------------------------------------  ------------------------------------ 
Strategic Link   1 2 3 4 5                             1 2 3 4 5 
---------------  ------------------------------------  ------------------------------------ 
 
 
                 Colleague Engagement 
                  75.0% 
---------------  --------------------------------- 
Performance      2019            75.0% 
                 2018            N/A 
---------------  --------------  ----------------- 
Purpose          Colleague engagement scores 
                  provide an insight into the 
                  happiness of our people across 
                  a range of topics regarding 
                  their working environment. 
---------------  --------------------------------- 
Strategic Link   1 2 3 4 5 
---------------  --------------------------------- 
 

Financial KPIs

 
                  Gross Margin (%)                        Adjusted Earnings per Share 
                                                          (p) 
                   67.1%                                   4.43p 
---------------  --------------------------------------  --------------------------------- 
Performance      2019              67.1%                 2019              4.43 
                 2018              61.8%                 2018              3.20 
---------------  ----------------  --------------------  ----------------  --------------- 
Purpose          The gross margin reflects our           Adjusted earnings per share 
                  ability to drive occupancy and          is the earnings measure that 
                  to rigorously control our operating     best demonstrates our ability 
                  costs.                                  to reward shareholders through 
                                                          dividends. 
---------------  --------------------------------------  --------------------------------- 
Strategic Link   1 2 3 4 5                               1 2 3 4 5 
---------------  --------------------------------------  --------------------------------- 
 
 
                  Dividend Cover (%)                  Net Asset Value per Share (p) 
                   88.5%                               110.21p 
---------------  ----------------------------------  ------------------------------------- 
Performance      2019/20              88.5%          2019            110.21 
                 2018/19              64.1%          2018            106.14 
---------------  -------------------  -------------  --------------  --------------------- 
Purpose          Dividend cover shows our ability    Growth in the NAV per share 
                  to pay dividends out of current     reflects the quality of our 
                  year earnings.                      assets and our ability to generate 
                                                      revenue from them. 
---------------  ----------------------------------  ------------------------------------- 
Strategic Link   1 2 3 4 5                           1 2 3 4 5 
---------------  ----------------------------------  ------------------------------------- 
 
 
                  Total Return (%) 
                   8.6% 
---------------  ------------------------------------------ 
Performance      2019                  8.6% 
                 2018                  6.5% 
---------------  --------------------  -------------------- 
Purpose          The total return shows the aggregate 
                  value we have created for shareholders, 
                  through both capital growth 
                  of NAV and dividends. 
---------------  ------------------------------------------ 
Strategic Link   1 2 3 4 5 
---------------  ------------------------------------------ 
 

Operational and Financial Review

Driving efficiencies

LYNNE FENNAH

Chief Financial and Operating Officer

17 March 2020

O ur operational performance has continued to improve over the last year with a strong emphasis on controlling costs. We have reduced our average cost per bed by 9% as a result of our in-housing journey and a range of other initiatives we have implemented which are detailed below:

- In-housing means that we save both the outsourced providers, profit margin and the VAT which we cannot reclaim, while gaining complete control of our own properties, staff working in our buildings and data.

   -         Accurate and timely information has allowed us to target specific areas of savings on a property-by-property basis. This granularity has helped to identify a number of key supply streams which have been rationalised. 

- For the first time the staff in all of our buildings work for us, rather than for an outsourced provider. This aligns all of our staff to the business objectives and means that they can truly support our revenue generation and cost-saving initiatives. The finance team provides each building with a monthly update on the performance against their budget to help our people understand their buildings and ensure that our targets are met.

- Control over procurement allows us to benefit from economies of scale and serve our customers better. For example, our customer survey showed internet speed was one of the top three criteria for our customers. We have procured a national broadband contract which will double speeds up to 200 megabytes per second while reducing per unit costs.

- As well as the new and improved services the HR team are delivering, having HR in-house allows us to develop and implement new initiatives. For example, we will be launching our own careers website in 2020 backed up by a new applicant tracking system to recruit a greater number of candidates directly as well as focusing on internal development to "grow our own", with both approaches aimed at saving on agency recruitment fees.

- The rationalisation of our IT platform has provided another huge opportunity. During the year we completed an IT asset audit, which means for the first time we have a clear picture of the IT estate across our portfolio. This will allow us to ensure that we are using all of our resources as efficiently as possible.

- In November 2019 we moved all of our people onto a single managed IT service provider. This reduced cost and gave us the opportunity to enhance automation, and use our data to ensure our business is run as profitably as possible and is fit for the future.

- The last step of our in-housing journey is to bring the revenue management system in-house. The development of the revenue management system is on track for full rollout for the 2021/22 academic year. This system will allow us to process bookings, raise rent demands and handle rent collection in-house, resulting in a significant cost saving. We will then also be able to be even more dynamic in our revenue generation, allowing us to maximise the output of our portfolio.

As well as driving down direct property costs, we have also focused on our administrative expenses. The largest category after people costs are legal and professional fees. We have reduced this year-on-year by 30%, as a result of a greater capability within the finance team and the Group generally, meaning that we are less reliant on professional advisers.

Now that the majority of our systems, processes and infrastructure are internalised, our key focus is now on embedding the changes made to the business and ensuring efficiencies are maximised so that we can achieve our 2020 targets.

Our In-Housing Journey

2018

 
July 
             *    Utility management and purchasing brought in-house 
September   *    Facilities Management for 27 buildings in-housed 
 
November 
             *    All buildings operated by Hello Student(R) for the 
                  first time 
 
 
             *    IT strategic lead brought in-house 
 

2019

 
           *    Central Customer Relations Team established 
January 
           *    FM for remaining 57 buildings in-housed 
April 
 
May         *    Senior Leadership Team recruitment largely completed 
           *    HR brought in-house 
 
           *    IT platform rationalised from two platforms to one 
November 
 

2021

 
September 
             *    Commence the migration in-house of the back-office 
                  revenue management system once our contract with our 
                  current provider ends 
 

HelloStudent.co.uk page views

3.25m

2018 - 2.00m

We seek to go above and beyond the statutory fire requirements to ensure the safety of our buildings. The safety of our customers and people is paramount.

Health and Safety ("H&S")

The data we now have access to not only leads to cost-savings but more importantly gives us greater control of the H&S environment. We have enhanced our H&S reporting and improved our compliance dashboard, which is reviewed daily to ensure that we are fully compliant across the Group on such things from fire safety to water testing. We want to ensure that all of our buildings are as safe as possible, giving comfort to our customers, our people and anyone who may visit our sites.

Fire safety management is critical and we aim above and beyond the statutory fire requirements to ensure the safety of our buildings. In the wake of Grenfell, we commissioned a report across our entire portfolio which found no buildings contained any ACM cladding material, and all are of sound construction.

In Q1 2020 we will commission a portfolio-wide survey on enhanced fire safety in our buildings as well as reviewing all building fire strategy documents. We also complete regular testing on fire alarms, sprinklers, emergency lighting, fire extinguishers and building evacuations. Our Fire Risk Assessments are completed annually on each building by our external H&S Consultants. We have a strong moral obligation and commitment to ensuring that our homes are safe for anyone to reside in.

Our Brand and Marketing

Our brand strength continues to grow, allowing us to attract and retain customers. We continue to invest in our online and social media marketing to reach potential customers in a cost-effective way. As well as the revenue-generating changes, we have sought to ensure our branding is consistent across the Group. We have utilised mystery shopping and now also conduct on-site monthly audits to ensure we are following consistent processes across sites. In 2019 we had 3.25 million page views on the website, up 63% on 2018; this shows our targeted marketing strategy is adding value.

Financial Performance

Revenue in 2019 was GBP70.9 million, up 11% from GBP64.2 million in 2018. The increase resulted from the initial contribution from developments completed in 2019, a full year of the developments completed in 2018, as well as increased occupancy and income growth, which benefited the final four months of the year.

Property costs were GBP23.4 million, down 5% overall and 9% on a cost per bed basis due to lower property management fees, procurement savings and other efficiencies. The gross margin for the year was 67.1% (2018: 61.8%).

Operating profit under IFRS was GBP67.5 million, an increase of 27% compared to the GBP53.0 million achieved in 2018. This included an aggregate revaluation uplift on our property portfolio at the year end of GBP29.2 million, net of property acquisition costs (2018: GBP22.4 million).

Administration expenses were GBP9.2 million in 2019, lower than our initial guidance of GBP10 million (2018: GBP9.1 million). For 2020, we continue to expect administration costs of approximately GBP10 million, with the additional costs of recruitment in areas such as HR and IT offset by savings elsewhere.

Net financing costs for the year were GBP12.7 million, net of money market investment income and the fair value gain on interest rate swaps of GBP0.1 million (2018: GBP12.7 million and GBP0.1 million, respectively).

Profit before tax was GBP54.8 million, up 36% (2018: GBP40.3 million). No corporation tax was charged, as the Group fulfilled all of its obligations as a UK Real Estate Investment Trust ("REIT"). Basic earnings per share ("EPS") were therefore 9.08 pence (9.07 pence on a diluted basis) (2018: 6.68 pence and 6.67 pence (diluted)).

The Net Asset Value ("NAV") per share as at 31 December 2019 was 110.21 pence, prior to adjusting for the interim dividend for the quarter ended 31 December 2019 of 1.25 pence per share (31 December 2018: 106.14 pence, prior to adjusting for the interim dividend of 1.25 pence per share). The NAV is shown net of all property acquisition costs and dividends paid during the year.

Adjusted EPS is the most relevant measure of earnings when assessing dividend distributions. It increased by 38% from 3.20 pence in 2018 to 4.43 pence in 2019, to give dividend cover of 88.5% (2018: 64.1%).

Purpose-built for students

Developing our own assets allows us to build the homes we want in the best locations.

King's Stables Road in Edinburgh comprises a mix of studio flats and is built to our premium specification, which helps us to target our market segment.

We developed King's Stables Road using a forward funded deal structure. Forward funded deals give us protection against any risk around late deliveries through the provision of a rental guarantee. We also receive a licence fee under the agreement which supports dividend cover through the development period of the building.

Across the PBSA sector nearly one third of student properties are completed late, which causes significant disruption to students. We do not advertise a building for bookings until we have a high degree of certainty that the buildings will be completed on time. King's Stables was completed on time, and Falmouth Ocean View was partially completed. However, we did not market the incomplete rooms ensuring there was no disruption to our customers.

Forward funding and developing our own assets also allows us to unlock additional value from our expertise in developments. On King's Stables Road we achieved a profit on cost of 14%. This helps deliver value to our shareholders by driving out total return.

Accommodating spaces

Statistics for King's Stables Road this year

Friendliness of Staff

9.0/10

Overall Quality of Welcome

8.5/10

Efficiency of Check-in

8.4/10

We want to make all of our customers feel as though they are living in homes not halls.

Therefore our biannual student surveys are crucial to us. They allow us to understand the customers' experience in each and every building.

These results are just a snapshot across our portfolio and are a testament to all the hard work our people put in to get to know each and every customer who lives in their building.

For example, we also host events in all of our buildings to foster a sense of community and ensure people do not feel lonely. Our people in King's Stables Road have already held eight events this year. These have ranged from Fruity Friday to Guy Fawkes night and received great feedback from our customers. The check-in survey indicated that 65% of King's Stables Road customers have attended at least one Hello Student(R) event.

Dividends

 
Quarter to          Declared           Paid                Amount (p) 
------------------  -----------------  ------------------  ---------- 
31 March 2019       29 May 2019        28 June 2019              1.25 
30 June 2019        19 August 2019     20 September 2019         1.25 
30 September 2019   27 November 2019   20 December 2019          1.25 
31 December 2019    17 February 2020   Due 20 March 2020         1.25 
------------------  -----------------  ------------------  ---------- 
                                                                 5.00 
  -------------------------------------------------------  ---------- 
 

Dividends

The dividends declared in respect of the 2019 financial year are shown in the table above.

Of the total dividends, 2.75 pence per share was declared as property income distributions and 2.25 pence per share was declared as ordinary UK dividends (2018: 1.32 pence per share and 3.68 pence per share, respectively).

At the period end, the Company had distributable reserves of over GBP500 million, offering substantial headroom for dividend payments. At the Annual General Meeting ("AGM") on 2 May 2019, shareholders approved a resolution to cancel the Company's share premium account, which stood at GBP467 million. The court order to confirm the cancellation was received on 4 June 2019, following which the share premium account was cancelled. Cancellation results in this capital being treated as distributable profit, giving us the flexibility to declare dividends, or make other distributions to shareholders, although there is no current intention to do so.

Debt Financing

Our debt facilities were unchanged during the period. At the year end, we had committed debt facilities of GBP390 million, of which GBP355 million (31 December 2018: GBP330 million) had been drawn down. This resulted in an LTV of 32.9% (31 December 2018: 30.6%). The aggregate cost of debt is 3.2%, with a weighted average term to maturity of 6.6 years at 31 December 2019. We fully complied with our covenants during the year.

Of our total drawn down facilities, GBP277 million is at fixed interest rates and GBP78 million is at floating rates.

In October 2019, we drew down the remaining GBP55.5 million of the facility we entered into with Scottish Widows Limited in December 2018. This was used to repay an expiring NatWest facility.

On 27 February 2020, we refinanced an expiring GBP10 million unsecured facility with First Commercial Bank on a three-year term and extended the facility value to GBP20 million.

On 16 March 2020, we entered into a four and a half-year GBP22.5 million development debt facility with RBS.

We have a further GBP32.8 million of debt due for repayment in October 2020 which we are in an advanced stage of refinancing on more favourable terms.

Transfer of Listing Category

At IPO, Empiric was categorised as a premium listed closed-ended investment fund, under the Listing Rules. This required us to follow an investment policy, operating within specific parameters. Given our evolution into an operating business, the Board concluded that we would be better served by being classified as a commercial company. Shareholders approved the transfer of listing category at the AGM and it became effective on 3 June 2019.

The Board believes that the transfer of its listing category to that of a commercial company more appropriately reflects the current management and operating structure, improves comparability with the majority of internally managed REITs on the London Stock Exchange, and incurs lower compliance costs.

Principal Risks and Uncertainties

Robust risk management

E mpiric has a strong culture of managing risk and a well-defined risk management process. This process is designed to identify, evaluate and mitigate (rather than eliminate) the significant risks we face. The process can therefore only provide reasonable, rather than absolute, assurance.

The Audit Committee formally reviews the effectiveness of our risk management processes and internal control systems bi-annually, on the Board's behalf. During the course of these reviews, the Committee has not identified or been advised of any material failings or weaknesses.

Changes to Risks During the Year

The risk environment we operate in continues to evolve and this is reflected in the principal risks and uncertainties that are set out on the following pages. During the year the Audit Committee had the following considerations on the Group's principal risks:

As a result of Empiric's change in listing category the Group is no longer required to have a formal Investment Policy, and we therefore removed the risk of the Group not adhering to this.

The prior year tax risk has been removed. The Group has significant headroom on all of its REIT tests and through an experienced finance team and the use of a professional tax adviser the Committee feel this risk should no longer be classed as a principal risk.

Given the recent events at Grenfell Tower and The Cube in Bolton, the Committee considered whether a further principal risk should be added for fire safety.

However, it was agreed that this would be within the health and safety risk, where a specific sub-point will be raised around fire safety.

The Committee reviewed the occupancy risk, student demand risk and competition risk and agreed that the occupancy risk held last year comfortably fits in to the student demand risk and competition risk, and so would be removed. The Committee aims to ensure that the principal risks to the business remain concise and relevant.

The Committee did not consider there to be any additional risks which should be added to our principal risks at this time.

Our Risk Appetite

The Board is ultimately responsible for defining the level and type of risk that the Group considers appropriate, ensuring it remains in line with our overall strategy of delivering sustainable shareholder returns.

The Board reviews the risk appetite of the business biannually and reassesses the internal and external information available and the relevant risk factors. This ensures our risk exposure remains appropriate when the risks we face are dynamic.

The Group is conservatively financed, with a target LTV ratio of 35% in the long term and a maximum of 40%. The Board has zero tolerance to health and safety risk within our control and looks to go beyond its statutory requirements. The safety of our people, customers and visitors to our sites is paramount.

Viability Statement

The Directors have assessed the prospects of the Group over a three-year period to December 2022 and confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due.

This period has been chosen for the assessment period as this is the horizon for reasonably predicting the following:

   -         occupancy levels; 
   -         rental growth; 
   -         interest rates; 
   -         debt planning cycle; 
   -         practical completion of development pipeline; and 
   -         impact of principal risks. 

The three-year plan review is underpinned by regular Board briefings provided by the Executive Directors and any new strategies which may be undertaken by the Board in its normal course of business. These reviews consider both the market opportunity and the associated risks.

The strategic plan is built using a bottom-up model, on an asset-by-asset basis. The model makes certain prudent assumptions about the acquisition of properties (both standing assets and development assets), the ability to refinance debt as it falls due and/or recycle capital, the performance of the property portfolio both in terms of income generation and capital appreciation and the payment of dividends to shareholders, in line with the Company's obligations under the UK REIT regime.

We have assumed the refinancing of our current borrowings of GBP42.8 million during 2020. As at the date of this report we have already refinanced GBP10 million of this expiring debt with credit approved terms on the remaining GBP32.8 million. Our model assumes the Group enters into no further debt facilities other than the RBS development debt of GBP22.5 million (see note 26) or undertakes any asset disposals although the Group had GBP148.7 million of unencumbered assets at 31 December 2019 should further security be required. We expect to refinance the facility due in October 2020 in advance of our half year results.

The model is subject to sensitivity analysis, which involves flexing a number of key assumptions underlying the forecast, both individually and in aggregate as set out below:

 
                                        Associated principal 
Sensitised assumptions   Sensitivities   risk 
-----------------------  -------------  -------------------- 
Revenue occupancy                 (4%)  E1, E2, E3, 
                                        E4, I1, I2, I3, 
Cost increase                      10%   I4 
                                        E1, E2, E3, E5, 
Fall in property values          (10%)   I5 
-----------------------  -------------  -------------------- 
 

We model a worst-case scenario with all worst-case assumptions being applied. The results of these sensitised assumptions on the three-year plan led to the Director's conclusion on viability.

Principal Risks

The principal risks and uncertainties we face have the potential to materially affect our business, either favourably or unfavourably. Some risks may be unknown to us at present, and there are some risks that we currently regard as immaterial, and have therefore not included here, may become material in the future.

Brexit

Until Brexit negotiations are finalised it is hard to say what impact leaving the EU will have. This government is, however, committed to growing international student numbers - from the current level of almost 450,000 to 600,000 by 2030 - the Treasury has also recognised the value of higher education exports by making visa applications and postgraduate employment limitations less onerous. In the context of the previous administration these moves are positively enlightened, and we are inclined to hope that common sense will prevail in Brexit negotiations to preserve this forward momentum. Having said all of that, EU international students make up about 7.0% of the full-time student population in the UK - a relatively small proportion. Of equal potential significance to the sector is the fate of EU teaching and research staff employed in higher education, and the European medical and science research programmes.

Coronavirus

Since the outbreak of the coronavirus has worsened, there has been regular near-daily communication across the Group with the fundamental concern being the safety of our customers and our people.

We have been regularly reviewing the guidance issued by Public Health England and the World Health Organization as well as communicating with our peers.

We believe COVID-19 falls under our Student Demand risk, however to date, we have not seen a negative impact on reservations from international students for the 2020/21 academic year.

In addition to our sensitivity analysis we have modeled severe stress tests on all of our loan covenants and have significant headroom.

We will continue to develop our planned mitigations to this very dynamic situation and will provide update as appropriate.

Change in Risk Trends

Competition risk

The Directors believe the competition risk has increased during the year due to the consolidation in the market exemplified by Unite's acquisition of Liberty Living.

Regulatory Risk

The Directors believe the regulatory risk has increased due to the growing level of fire and safety legislation which is being applied to the property industry.

Cyber Security Risk

Cyber security attacks are becoming more frequent across the globe and as such has increased the risk profile.

Strategic Links

   1.        Customers 
   2.        Brand 
   3.        People and Operations 
   4.        Buildings 
   5.        Shareholder Outcomes 

Strategic Links

Increasing

No change

Decreasing

External Risks

 
      Risk and         Potential impact                                           Mitigation in place                                            Trend 
      brief 
      description 
    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
E1    Student 
      Demand             *    Loss of revenue                                      *    Senior Leadership Team and the Board closely monitor 
      Risk                                                                              government policy, student numbers and other micro 
      There is a                                                                        and macro-economic factors. 
      risk               *    Erosion of asset values 
      that the 
      level                                                                        *    Through a detailed selection process, we ensure our 
      of student         *    High void costs                                           assets are well located serving established leading 
      demand                                                                            universities. 
      will 
      decrease.          *    Potential breach in bank covenants 
                                                                                   *    Where possible, we ensure our buildings are fit for 
      Link to                                                                           alternative use, such as private residential, subject 
      Strategy                                                                          to planning. 
      1 2 3 4 5 
 
                                                                                   *    High-quality management information is provided 
                                                                                        across the business. 
 
 
                                                                                   *    All properties are now managed in-house under the 
                                                                                        Hello Student(R) brand. 
    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
E2    Competition 
      Risk               *    Oversupply of student accommodation                  *    UK student numbers are due to increase from 2021. See 
      The risk of                                                                       page 6. 
      an 
      increased          *    Reduction of student rental growth 
      level                                                                        *    Through a detailed selection process, we ensure our 
      of                                                                                assets are well located serving established leading 
      competition        *    Inflated asset and land prices                            universities. 
      and supply in 
      the 
      student                                                                      *    Assets in prime locations, in varying formats and at 
      sector.                                                                           different price points. 
 
      Link to 
      Strategy                                                                     *    High-quality management information is provided 
      1 2 3 4 5                                                                         across the business. 
 
 
                                                                                   *    All properties are now managed in-house under the 
                                                                                        Hello Student(R) brand helping to provide a unique 
                                                                                        identity. 
    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
E3    Property 
      Market             *    Erosion of asset values                               *    Assets in multiple prime locations, diversifying the 
      Risk                                                                               risk. 
      The potential 
      for                *    Potential breach in bank covenants 
      a downturn in                                                                 *    We maintain prudent levels of gearing, with a LTV 
      the                                                                                limit of 40% and a long-term target of 35%. 
      property           *    Lower Total Return for shareholders 
      market. 
                                                                                    *    The higher education sector is made up of a wide 
      Link to                                                                            range of students from the UK, EU and non-EU 
      Strategy                                                                           countries. This range helps to insulate the student 
      1 2 3 4 5                                                                          accommodation market. 
    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
E4    Regulatory 
      Risk              *    Potential impact on our Total Return                  *    Hello Student(R) is ANUK accredited, and Lynne Fennah 
      Large levels                                                                      sits on the Student Accommodation Committee of the 
      of                                                                                British Property Federation. 
      regulation        *    Reputational damage and penalties if we fall foul 
      being 
      applied to                                                                   *    Involvement with these bodies means that we are well 
      the               *    Higher compliance costs                                    informed of any potential upcoming regulatory change. 
      student                                                                           It also provides a basis for industry lobbying if 
      accommodation                                                                     required. 
      market. 
 
      Link to                                                                      *    Our operational teams try to build close working 
      Strategy                                                                          relationships with local authorities to keep abreast 
      1 2 3 4 5                                                                         of any changes. 

    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
E5    Funding Risk 
      The                *    Stifling of future growth potential                   *    Our average maturity of debt is 6.6 years with GBP35 
      availability                                                                       million undrawn as at 31 December 2019. 
      of debt or 
      equity             *    Forced sale of assets to repay debt 
      and ability                                                                   *    We maintain prudent levels of gearing, with a LTV 
      to                                                                                 limit of 40% and a long-term target of 35%. 
      raise it on        *    Reduction of profit 
      acceptable 
      terms.                                                                        *    Experienced finance team with a strong track record 
                                                                                         in delivering both debt and equity. 
      Link to 
      Strategy 
      1 2 3 4 5 
    ---------------  ---------------------------------------------------------  -------------------------------------------------------------  ------- 
 

Internal Risks

 
      Risk and        Potential impact                                Mitigation in place                                            Trend 
      brief 
      description 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
I1    Health and 
      Safety           *    Injury and impact on customers, contra     *    Health and safety metrics are reported monthly. 
      Risk            ctors, staff 
      The                   and visitors 
      occurrence                                                       *    Policies, procedures and training for all staff. 
      of a major 
      health           *    Compensation costs incurred 
      and safety                                                       *    Ultimate Board responsibility involving regular Board 
      incident                                                              reporting from the Head of FM. 
      including a      *    Reputational impact 
      fire. 
                                                                       *    Live compliance dashboard which is monitored daily. 
      Link to          *    Loss of life in a worst-case scenario 
      Strategy 
      1 2 3 4 5                                                        *    Going above and beyond our statutory fire 
                                                                            requirements. Read more on page 29. 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
I2    Cyber 
      Security         *    Reputational damage                         *    Developed a business continuity plan to enable Group 
      Risk                                                                   operations to continue in the event of a breach. 
      The Group 
      suffering        *    Deteriorated customer experience 
      from a cyber                                                      *    Centralised our IT network across the Group and 
      security                                                               recruited an in-house IT team. 
      breach.          *    Higher costs and reduced profitability 
 
      Link to                                                           *    Deployed an updated training programme across all 
      Strategy                                                               staff. 
      1 2 3 4 5 
 
                                                                        *    Implemented a data monitoring system to protect our 
                                                                             platforms across the IT estate. 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
I3    People Risk 
      Inability to      *    Loss of key business knowledge             *    HR department has been brought in-house, meaning 
      retain                                                                 greater support for our people. 
      and attract 
      top               *    Higher costs 
                                                                        *    Senior Leadership Team is largely in place, meaning 
      Link to                                                                less reliance on the Executive Directors. 
      Strategy          *    Impact on customer service 
      1 2 3 4 5 
                                                                        *    Exit interviews are used to identify any areas for 
                                                                             improvement within the business. 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
I4    Cost Control 
      Risk             *    Higher costs and reduced profitability      *    High-quality management information is provided 
      Costs rising                                                           across the business. 
      out 
      of control       *    Impact on dividend cover 
      across                                                            *    All properties are now managed in-house under the 
      the Group.                                                             Hello Student(R) brand. 
                       *    Deterioration of asset values 
      Link to 
      Strategy                                                          *    There is a detailed annual budget cycle with monthly 
      1 2 3 4 5                                                              annual reforecasting. This helps us stringently 
                                                                             control costs. 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
I5    Development 
      Risk             *    Customer experience would be disrupted     *    We put in place suitable contracts with our 
      The                                                                   developers which afford us good levels of protection, 
      potential                                                             contingencies and other arrangements to cover the 
      for              *    Loss of income                                  impact of any delay. 
      developments 
      to 
      be delivered     *    Reputational damage                        *    Action plans are drafted for a site if there is any 
      late                                                                  indication that a development may be delivered late 
      or                                                                    or incomplete. 
      incomplete.      *    Total Return would be impacted 
 
      Link to                                                          *    Experienced development team with a strong track 
      Strategy                                                              record of on-time project delivery. 
      1 2 3 4 5 
    --------------  ----------------------------------------------  -------------------------------------------------------------  ------- 
 

Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Group and Company financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that year.

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

   -         select suitable accounting policies and then apply them consistently; 
   -         make judgements and accounting estimates that are reasonable and prudent; 

- state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business; and

- prepare a Directors' Report, a Strategic Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

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

Website Publication

The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the UK governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' Responsibilities Pursuant to DTR4

The Directors confirm that to the best of their knowledge:

- the Group financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and the undertakings included in the consolidation as a whole;

- the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the Parent Company, together with a description of the principal risks and uncertainties that they face; and

- the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

Mark Pain

Chairman | 17 March 2020

Group Statement of Comprehensive Income

 
                                                                              Year ended   Year ended 
                                                                             31 December  31 December 
                                                                                    2019         2018 
                                                                       Note      GBP'000      GBP'000 
---------------------------------------------------------------------  ----  -----------  ----------- 
Continuing operations 
Revenue                                                                   2       70,908       64,156 
Property expenses                                                         3     (23,351)     (24,500) 
---------------------------------------------------------------------  ----  -----------  ----------- 
Net rental income                                                                 47,557       39,656 
Administrative expenses                                                   4      (9,222)      (9,071) 
Change in fair value of investment property                              13       29,176       22,375 
---------------------------------------------------------------------  ----  -----------  ----------- 
Operating profit                                                                  67,511       52,960 
Finance cost                                                                    (13,148)     (12,788) 
Finance income                                                                       409          104 
Net finance costs                                                         5     (12,739)     (12,684) 
---------------------------------------------------------------------  ----  -----------  ----------- 
Profit before income tax                                                          54,772       40,276 
Corporation tax                                                           7            -            - 
---------------------------------------------------------------------  ----  -----------  ----------- 
Profit for the year                                                               54,772       40,276 
Other comprehensive income 
Items that will be reclassified to Statement of Comprehensive Income 
Fair value gain on cash flow hedge                                                    80          402 
---------------------------------------------------------------------  ----  -----------  ----------- 
Total comprehensive income for the year                                           54,852       40,678 
---------------------------------------------------------------------  ----  -----------  ----------- 
Earnings per share expressed in pence per share                           8 
Basic                                                                               9.08         6.68 
Diluted                                                                             9.07         6.67 
Margin                                                                             67.1%        61.8% 
---------------------------------------------------------------------  ----  -----------  ----------- 
 

Group Statement of Financial Position

 
                                                           At           At 
                                                  31 December  31 December 
                                                         2019         2018 
                                            Note      GBP'000      GBP'000 
------------------------------------------  ----  -----------  ----------- 
ASSETS 
Non-current assets 
Property, plant and equipment                 11          352          366 
Intangible assets                             12        1,619        1,253 
Investment property - Operational Assets      13      999,380      929,371 
Investment property - Development Assets      13       29,700       41,670 
------------------------------------------  ----  -----------  ----------- 
Total non-current assets                            1,031,051      972,660 
------------------------------------------  ----  -----------  ----------- 
Current assets 
Trade and other receivables                   14       10,538       13,747 
Fixed term deposit                            15            -       10,000 
Cash and cash equivalents                     15       16,517       23,473 
------------------------------------------  ----  -----------  ----------- 
Total current assets                                   27,055       47,220 
------------------------------------------  ----  -----------  ----------- 
Total assets                                        1,058,106    1,019,880 
------------------------------------------  ----  -----------  ----------- 
LIABILITIES 
Current liabilities 
Trade and other payables                      16       14,372       28,535 
Borrowings                                    17       42,675       55,260 
Derivative financial liability                18            -          237 
Deferred income                               16       29,204       26,968 
------------------------------------------  ----  -----------  ----------- 
Total current liabilities                              86,251      111,000 
------------------------------------------  ----  -----------  ----------- 
Non-current liabilities 
Borrowings                                    17      307,097      268,990 
------------------------------------------  ----  -----------  ----------- 
Total non-current liabilities                         307,097      268,990 
------------------------------------------  ----  -----------  ----------- 
Total liabilities                                     393,348      379,990 
------------------------------------------  ----  -----------  ----------- 
Total net assets                                      664,758      639,890 
------------------------------------------  ----  -----------  ----------- 
Equity 
Called up share capital                       19        6,032        6,029 
Share premium                                 20          257      467,268 
Capital reduction reserve                     21      482,578       45,458 
Retained earnings                                     175,891      121,215 
Cash flow hedge reserve                                     -         (80) 
------------------------------------------  ----  -----------  ----------- 
Total equity                                          664,758      639,890 
------------------------------------------  ----  -----------  ----------- 
Total equity and liabilities                        1,058,106    1,019,880 
------------------------------------------  ----  -----------  ----------- 
Net Asset Value per share basic (pence)        9       110.21       106.14 
Net Asset Value per share diluted (pence)      9       109.99       105.96 
EPRA Net Asset Value per share (pence)         9       110.21       106.18 
------------------------------------------  ----  -----------  ----------- 
 

These financial statements were approved by the Board of Directors on 17 March 2020 and signed on its behalf by:

Lynne Fennah

Chief Financial Officer

Company Statement of Financial Position

 
                                                     At           At 
                                            31 December  31 December 
                                                   2019         2018 
                                      Note      GBP'000      GBP'000 
------------------------------------  ----  -----------  ----------- 
ASSETS 
Non-current assets 
Property, plant and equipment           11          288          366 
Intangible assets                       12        1,080          627 
Investments in subsidiaries             30       81,686        8,623 
------------------------------------  ----  -----------  ----------- 
Total non-current assets                         83,054        9,616 
------------------------------------  ----  -----------  ----------- 
Current assets 
Trade and other receivables             14          304          202 
Amounts due from Group undertakings     14      420,006      517,778 
Cash and cash equivalents               15       12,407       15,955 
------------------------------------  ----  -----------  ----------- 
Total current assets                            432,717      533,935 
------------------------------------  ----  -----------  ----------- 
Total assets                                    515,771      543,551 

------------------------------------  ----  -----------  ----------- 
LIABILITIES 
Current liabilities 
Trade and other payables                16        2,841        2,198 
Amounts due to Group undertakings       16        9,721           11 
Borrowings                              17        9,995            - 
------------------------------------  ----  -----------  ----------- 
Total current liabilities                        22,557        2,209 
Non-current liabilities 
Borrowings                              17            -        9,965 
------------------------------------  ----  -----------  ----------- 
Total non-current liabilities                         -        9,965 
------------------------------------  ----  -----------  ----------- 
Total liabilities                                22,557       12,174 
------------------------------------  ----  -----------  ----------- 
Total net assets                                493,214      531,377 
------------------------------------  ----  -----------  ----------- 
Equity 
Called up share capital                 19        6,032        6,029 
Share premium                           20          257      467,268 
Capital reduction reserve               21      482,578       45,458 
Retained earnings                                 4,347       12,622 
------------------------------------  ----  -----------  ----------- 
Total equity                                    493,214      531,377 
------------------------------------  ----  -----------  ----------- 
Total equity and liabilities                    515,771      543,551 
------------------------------------  ----  -----------  ----------- 
 

The Company made a loss for the year of GBP8,179,000 (2018: GBP37,313,000 profit).

These financial statements were approved by the Board of Directors on 17 March 2020 and signed on its behalf by:

Lynne Fennah

Director

Group Statement of Changes in Equity

 
                                            Called up      Share            Capital  Retained      Cash flow     Total 
                                        share capital    premium  reduction reserve  earnings  hedge reserve    equity 
Year ended 31 December 2019                   GBP'000    GBP'000            GBP'000   GBP'000        GBP'000   GBP'000 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Balance at 1 January 2019                       6,029    467,268             45,458   121,215           (80)   639,890 
Changes in equity 
Profit for the year                                 -          -                  -    54,772              -    54,772 
Fair value gain on cash flow hedge                  -          -                  -         -             80        80 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Total comprehensive income for the 
 year                                               -          -                  -    54,772             80    54,852 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Share-based payments                                -          -                  -       164              -       164 
Share premium cancellation                          -  (467,268)            467,268         -              -         - 
Share options exercised                             3        257                  -     (260)              -         - 
Dividends                                           -          -           (30,148)         -              -  (30,148) 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Total contributions and distribution 
 recognised directly in equity                      3  (467,011)            437,120      (96)              -  (29,984) 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Balance at 31 December 2019                     6,032        257            482,578   175,891              -   664,758 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Year ended 31 December 2018 
Balance at 1 January 2018                       6,029    467,268             75,602    80,841          (482)   629,258 
Changes in equity 
Profit for the year                                 -          -                  -    40,276              -    40,276 
Fair value gain on cash flow hedge                  -          -                  -         -            402       402 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Total comprehensive income for the 
 year                                               -          -                  -    40,276            402    40,677 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Share-based payments                                -          -                  -        98              -        98 
Dividends                                           -          -           (30,144)         -              -  (30,144) 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Total contributions and distribution 
 recognised directly in equity                      -          -           (30,144)        98              -  (30,046) 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
Balance at 31 December 2018                     6,029    467,268             45,458   121,215           (80)   639,890 
--------------------------------------  -------------  ---------  -----------------  --------  -------------  -------- 
 

Company Statement of Changes in Equity

 
                                                           Called up      Share            Capital  Retained     Total 
                                                       share capital    premium  reduction reserve  earnings    equity 
Year ended 31 December 2019                                  GBP'000    GBP'000            GBP'000   GBP'000   GBP'000 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Balance at 1 January 2019                                      6,029    467,268             45,458    12,622   531,377 
Changes in equity 
Loss for the year                                                  -          -                  -   (8,179)   (8,179) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Total comprehensive loss for the year                              -          -                  -   (8,179)   (8,179) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Share-based payments                                               -          -                  -       164       164 
Share premium cancellation                                         -  (467,268)            467,268         -         - 
Share options exercised                                            3        257                  -     (260)         - 
Dividends                                                          -          -           (30,148)         -  (30,148) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Total contributions and distribution recognised 
 directly in equity                                                3  (467,011)            437,120      (96)  (29,984) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Balance at 31 December 2019                                    6,032        257            482,578     4,347   493,214 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Year ended 31 December 2019 
Balance at 1 January 2018                                      6,029    467,268             75,602  (24,789)   524,110 
Changes in equity 
Profit for the year                                                -          -                  -    37,313    37,313 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Total comprehensive income for the year                            -          -                  -    37,313    37,313 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Share-based payments                                               -          -                  -        98        98 
Dividends                                                          -          -           (30,144)         -  (30,144) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Total contributions and distribution recognised 
 directly in equity                                                -          -           (30,144)        98  (30,046) 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
Balance at 31 December 2018                                    6,029    467,268             45,458    12,622   531,377 
-----------------------------------------------------  -------------  ---------  -----------------  --------  -------- 
 

Group Statement of Cash Flows

 
                                                           Year ended   Year ended 
                                                          31 December  31 December 
                                                                 2019         2018 
                                                              GBP'000      GBP'000 
--------------------------------------------------------  -----------  ----------- 
Cash flows from operating activities 
Profit before income tax                                       54,772       40,276 
Share-based payments                                              164           98 
Depreciation and amortisation                                     283          299 
Finance income                                                  (409)        (104) 
Finance costs                                                  13,148       12,788 
Intangible asset impairment                                         -          248 
Change in fair value of investment property                  (29,176)     (22,375) 
--------------------------------------------------------  -----------  ----------- 
                                                               38,782       31,230 
--------------------------------------------------------  -----------  ----------- 
Decrease in trade and other receivables                           958       15,451 
(Decrease)/increase in trade and other payables               (1,269)          791 
Increase in deferred rental income                              2,236        4,682 
--------------------------------------------------------  -----------  ----------- 
                                                               1,92 5       20,924 
--------------------------------------------------------  -----------  ----------- 
Net cash flows generated from operations                       40,707       52,154 
--------------------------------------------------------  -----------  ----------- 
Cash flows from investing activities 
Purchases of tangible fixed assets                               (85)          (1) 
Purchases of intangible assets                                  (552)        (267) 
Purchase of investment property                              (39,620)     (54,169) 
Interest received                                                 409          104 
Fixed term deposit                                             10,000     (10,000) 
--------------------------------------------------------  -----------  ----------- 
Net cash flows from investing activities                     (29,848)     (64,333) 
--------------------------------------------------------  -----------  ----------- 
Cash flows from financing activities 
Dividends paid                                               (30,148)     (30,144) 
Bank borrowings drawn                                         115,500       66,801 
Bank borrowings repaid                                       (90,500)     (40,630) 
Loan arrangement fee paid                                     (1,064)      (2,058) 
Finance cost (excluding fair value loss on derivatives)      (11,603)     (11,038) 
--------------------------------------------------------  -----------  ----------- 
Net cash flows from financing activities                     (17,815)     (17,069) 
--------------------------------------------------------  -----------  ----------- 
Decrease in cash and cash equivalents                         (6,956)     (29,248) 
Cash and cash equivalents at beginning of year                 23,473       52,721 
--------------------------------------------------------  -----------  ----------- 
Cash and cash equivalents at end of year                       16,517       23,473 
--------------------------------------------------------  -----------  ----------- 
 

Company Statement of Cash Flows

 
                                                           Year ended   Year ended 
                                                          31 December  31 December 
                                                                 2019         2018 
                                                              GBP'000      GBP'000 
--------------------------------------------------------  -----------  ----------- 
Cash flows from operating activities 
(Loss)/profit before income tax                               (8,179)       37,313 
Share-based payments                                              164           98 
Depreciation and amortisation                                     189          165 
Dividends received                                                  -     (44,000) 
Gain on sale of subsidiaries                                        -      (1,571) 
Finance income                                                  (101)         (60) 
Finance costs                                                     304          285 
--------------------------------------------------------  -----------  ----------- 
                                                              (7,623)      (7,770) 
(Increase)/decrease in trade and other receivables              (102)        4,065 
Increase in trade and other payables                              643           68 
--------------------------------------------------------  -----------  ----------- 
                                                                  541        4,133 
Net cash flows generated from operations                      (7,082)      (3,637) 
--------------------------------------------------------  -----------  ----------- 
Cash flows from investing activities 
Purchases of tangible fixed assets                               (12)          (1) 
Purchases of intangible assets                                  (552)        (191) 
Payments and receipts to/from subsidiaries, net               3 4,419      33,030* 
Interest received                                                 101           60 
--------------------------------------------------------  -----------  ----------- 
Net cash flows from investing activities                       33,956       32,898 
--------------------------------------------------------  -----------  ----------- 
Cash flows from financing activities 
Dividends paid                                               (30,148)     (30,144) 
Finance cost (excluding fair value loss on derivatives)         (274)        (253) 
--------------------------------------------------------  -----------  ----------- 
Net cash flows from financing activities                     (30,422)     (30,397) 
--------------------------------------------------------  -----------  ----------- 
Decrease in cash and cash equivalents                         (3,548)      (1,136) 
Cash and cash equivalents at beginning of year                 15,955       17,091 
--------------------------------------------------------  -----------  ----------- 
Cash and cash equivalents at end of year                       12,407       15,955 
--------------------------------------------------------  -----------  ----------- 
 

*In accordance with IAS 7 the Group has decided to show inter-company loan movements net. In the previous year such balances were shown gross.

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 January 2019 to 31 December 2019.

The consolidated financial statements of the Group for the year ended 31 December 2019 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries and were approved by the Board for issue on 17 March 2020. The Company is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are admitted to the official list of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on the London Stock Exchange. The registered address of the Company is disclosed in the Company information.

1.2 Basis of Preparation

The consolidated financial statements of the Group for the year to 31 December 2019 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 GBP8,179,000 2018: (profit of GBP37,313,000) 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 year ended 31 December 2019 or the year ended 31 December 2018 but is derived from those accounts. The Group's statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2019 and December 2018 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.

At the year-end the Group had GBP42.8 million of debt due for repayment in less than one year spread across 2 facilities. Since the year-end the Group has re-financed one of these facilities for GBP10 million. The remaining facility of GBP32.8 million falls due for repayment in October 2020. The Group is in advanced negotiations to refinance this facility and expects to complete the re-financing well in advance of the repayment date. In addition to these loans we have also entered into a development debt facility for GBP22.5 million subsequent to the year end.

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.

Estimates

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.

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:

(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.

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 2019. 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

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Group's accounting policy for each category is as follows:

Fair Value Through Profit or Loss

This category comprises only in-the-money derivatives (see "Financial liabilities" section of out-of-money derivatives). They are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortised Cost

These assets are primarily from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivable is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, 12-month expected credit losses against gross interest income are recognised. For those where the credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the Statement of Comprehensive Income (operating profit).

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the Statement of Financial Position.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and - for the purpose of the Statement of Cash Flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the Statement of Financial Position.

Financial Liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

Other than financial liabilities in a qualifying hedging relationship (see below), the Group's accounting policy for each category is as follows:

Fair Value Through Profit or Loss

This category comprises only out-of-the-money derivatives (see "Financial assets" for in-the-money derivatives). They are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income. The Group does not hold or issue derivative financial instruments for speculative purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.

Other Financial Liabilities

Other financial liabilities include the following items:

- Bank borrowing is initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

- 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.

Hedge Accounting

Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met:

- at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge; and

- the hedge relationship meets all of the hedge effectiveness requirements, including that an economic relationship exists between the hedged item and the hedging instrument, the credit risk effect does not dominate the value changes, and the hedge ratio is designated based on actual quantities of the hedged item and hedging instrument.

Cash Flow Hedges

The effective part of forward contracts designated as a hedge of the variability in cash flows of interest rate risk arising from firm commitments, and highly probable forecast transactions, are measured at fair value with changes in fair value recognised in Other Comprehensive Income and accumulated in the cash flow hedge reserve. The Group uses such contracts to fix the cost interest payments.

Intangible Assets

Intangible assets are initially recognised at cost and then subsequently carried at cost less accumulated amortisation and impairment losses.

Amortisation has been charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over ten years, except for the Hello Student(R) application, which is being amortised on a straight-line basis over five years due to the nature of the asset.

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.

Once purchased, 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.

Operating Leases

Rentals paid under operating leases are charged to the Consolidated Statement of Income on a straight-line basis over the period of the lease within administrative expenses.

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% per annum 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.

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.

Segmental Information

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

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 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 the 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 Impact of New Accounting Standards and Changes in Accounting Policies

IFRS 16: Leases became effective on 1 January 2019 and as a result this is the first period under this new standard.

The Group has applied IFRS 16 using the cumulative catch-up approach, without restatement of the comparative information. For leases the Group previously treated as operating leases, the Group elected to measure its right-of-use assets with a lease commencement date of the date of adoption of IFRS 16 (1 January 2019).

The Group has also made use of the allowance available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 14 will continue to be applied to those leases entered into or altered before 1 January 2019.

As expected and detailed in the Group's Annual Report and Accounts for the year to 31 December 2018, the Group's application of IFRS 16 did not cause a material impact on the classification, measurement and recognition of leases within the consolidated financial statements.

While the Group has chosen the method of retrospective transitional approach on adopting IFRS 16, management determined the adjustment required was not material to the accounts and so no adjustment nor disclosures were made in respect to the adoption.

2. REVENUE

 
                                    Group 
                           ------------------------ 
                            Year ended   Year ended 
                           31 December  31 December 
                                  2019         2018 
                               GBP'000      GBP'000 
-------------------------  -----------  ----------- 
Student rental income           69,209       62,454 
Commercial rental income         1,699        1,702 
-------------------------  -----------  ----------- 
Total revenue                   70,908       64,156 
-------------------------  -----------  ----------- 
 

3. PROPERTY EXPENSES

 
                                          Group 
                                 ------------------------ 
                                  Year ended   Year ended 
                                 31 December  31 December 
                                        2019         2018 
                                     GBP'000      GBP'000 
-------------------------------  -----------  ----------- 
Direct site costs                      7,128       10,413 
Technology services                      936        1,025 
Site office and utilities              9,832        8,200 
Cleaning and service contracts         2,729        2,591 
Repairs and maintenance                2,726        2,271 
-------------------------------  -----------  ----------- 
Total property expenses               23,351       24,500 
-------------------------------  -----------  ----------- 
 

4. ADMINISTRATIVE EXPENSES

 
                                                                       Group 
                                                              ------------------------ 
                                                               Year ended   Year ended 
                                                              31 December  31 December 
                                                                     2019         2018 
                                                                  GBP'000      GBP'000 
------------------------------------------------------------  -----------  ----------- 
Salaries and Directors' remuneration                                5,024        3,372 
Legal and professional fees                                         1,776        2,708 
Other administrative costs                                          1,604        2,012 
IT expenses                                                           333          471 
------------------------------------------------------------  -----------  ----------- 
                                                                    8,737        8,563 
------------------------------------------------------------  -----------  ----------- 
Auditor's fees 
Fees payable for the audit of the Group's annual accounts             210          210 
Fees payable for the review of the Group's interim accounts            40           40 
Fees payable for the audit of the Group's subsidiaries                136          125 
------------------------------------------------------------  -----------  ----------- 
Total auditor's fees                                                  386          375 
------------------------------------------------------------  -----------  ----------- 
Abortive acquisition costs                                             99          133 
------------------------------------------------------------  -----------  ----------- 
Total administrative expenses                                       9,222        9,071 
------------------------------------------------------------  -----------  ----------- 
 

5. NET FINANCE COST

 
                                                  Group 
                                         ------------------------ 
                                          Year ended   Year ended 
                                         31 December  31 December 
                                                2019         2018 
                                             GBP'000      GBP'000 
---------------------------------------  -----------  ----------- 
Finance costs 
Fair value loss on interest rate cap               -            1 
Interest expense on bank borrowings           11,947       11,037 
Amortisation of loan transaction costs         1,201        1,750 
---------------------------------------  -----------  ----------- 
                                              13,148       12,788 
---------------------------------------  -----------  ----------- 
Finance income 
Fair value gain on interest rate swap            181           42 
Interest received on bank deposits               228           62 
---------------------------------------  -----------  ----------- 
                                                 409          104 
---------------------------------------  -----------  ----------- 
Net finance cost                              12,739       12,684 
---------------------------------------  -----------  ----------- 
 

6. EMPLOYEES AND DIRECTORS

 
                                                 Group                                  Company 
                                     ------------------------------  --------------------------------------------- 
                                          Year ended     Year ended           Year ended  Year ended December 2018 
                                       December 2019   December2018        December 2019                   GBP'000 
                                             GBP'000        GBP'000              GBP'000 
-----------------------------------   --------------  -------------  ---  --------------  ------------------------ 
Wages and salaries                             6,994          4,642                3,542                     2,455 
Pension costs                                    327            281                  206                       216 
Cash bonus                                       878            294                  656                       243 
Share-based payments                             164             98                  164                        98 
National insurance                               750            557                  455                       360 
------------------------------------  --------------  -------------  ---  --------------  ------------------------ 
                                               9,113          5,872                5,024                     3,372 
 -----------------------------------  --------------  -------------  ---  --------------  ------------------------ 
Less: Hello Student amounts included 
 in property expenses                        (4,089)        (2,500)                    -                         - 
 
Amounts included in administrative 
 expenses                                      5,024          3,372                5,024                     3,372 
------------------------------------  --------------  -------------  ---  --------------  ------------------------ 
The average monthly number of 
employees of the Group during the 
year was as follows: 
Management                                                        5    4               5                         4 
Administration - ESP                                             27   22              27                        22 
Operations - Hello Student(R)                                   335  222               -                         - 
------------------------------------  --------------  -------------  ---  --------------  ------------------------ 
                                                                367  248              32                        26 
 -----------------------------------  --------------  -------------  ---  --------------  ------------------------ 
 
 
                             Group and Company 
                          ------------------------ 
                           Year ended   Year ended 
                          31 December  31 December 
                                 2019         2018 
Directors' remuneration       GBP'000      GBP'000 
------------------------  -----------  ----------- 
Salaries and fees               1,007          903 
Pension costs                     107           95 
Cash bonus                        212          145 
Share-based payments              164           28 
------------------------  -----------  ----------- 
                                1,490        1,171 
------------------------  -----------  ----------- 
 

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006 is set out in the Directors' Remuneration Report.

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:

- 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;

- at least 75% of the Group's total profits must arise from the tax-exempt property rental business; and

- 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 year ended 31 December 2019.

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 
                                                                                              ------------------------ 
                                                                                               Year ended   Year ended 
                                                                                              31 December  31 December 
                                                                                                     2019         2018 
                                                                                                  GBP'000      GBP'000 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Current tax 
Income tax charge/(credit) for the year                                                                 -            - 
Adjustment in respect of prior year                                                                     -            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Total current income tax charge/(credit) in the income statement                                        -            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Deferred tax 
Total deferred income tax charge/(credit) in the income statement                                       -            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Total current income tax charge/(credit) in the income statement                                        -            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
The tax assessed for the year is lower than the standard rate of corporation tax in the 
year. 
Profit for the year                                                                                54,772       40,276 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Profit before tax multiplied by the rate of corporation tax in the UK of 19% (2018: 19%)           10,407        7,652 
Exempt property rental profits in the year                                                        (4,194)      (2,725) 
Exempt property revaluations in the year                                                          (5,543)      (4,251) 
Effects of: 
Non-allowable expenses                                                                                 47           83 
Capital Allowances                                                                                (1,143)      (1,393) 
Unutilised current year tax losses                                                                    426          634 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Total current income tax charge/(credit) in the income statement                                        -            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
 

A deferred tax asset in respect of the tax losses generated by the residual (non-tax exempt) business of the Group GBP426,000 31 (December 2018: GBP634,000) will be recognised to the extent that their utilisation is probable. On the basis that the residual business is not expected to be income generating in future periods, a deferred tax asset of GBP3,818,000 (2018: GBP3,823,000) has not been recognised in respect of such losses.

8. EARNINGS PER SHARE

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

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 year.

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

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

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

- The adjustment for licence fee receivable is calculated by reference to the fraction of the total period of completed construction 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 agreements as stipulated in development agreements.

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

Reconciliations are set out below:

 
                                                                              Calculation  Calculation 
                                              Calculation of  Calculation of      of EPRA      of EPRA  Calculation of 
                                                   basic EPS     diluted EPS    basic EPS  diluted EPS    adjusted EPS 
                                                     GBP'000         GBP'000      GBP'000      GBP'000         GBP'000 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Year to 31 December 2019 
Earnings                                              54,772          54,772       54,772       54,772          54,772 
Adjustment to include licence fee receivable 
 on forward funded developments in the year                -               -            -            -           1,038 
Adjustment to include discounts on 
 acquisition due to rental guarantees in the 
 year                                                      -               -            -            -             229 
Adjustments to remove: 
Changes in fair value of investment 
 properties (Note 13)                                      -               -     (29,176)     (29,176)        (29,176) 
Changes in fair value of interest rate 
 derivatives (Note 18)                                     -               -        (181)        (181)           (181) 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Earnings/Adjusted Earnings                            54,772          54,772       25,415       25,415          26,682 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Weighted average number of shares ('000)             602,929         602,929      602,929      602,929         602,929 
Adjustment for employee share options ('000)               -           1,215            -        1,215               - 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Total number shares ('000)                           602,929         604,144      602,929      604,144         602,929 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Per-share amount (pence)                                9.08            9.07         4.22         4.21            4.43 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Year to 31 December 2018 
Earnings                                              40,276          40,276       40,276       40,276          40,276 
Adjustment to include licence fee receivable 
 on forward funded developments in the year                -               -            -            -           1,406 
Adjustment to include discounts on 
 acquisition due to rental guarantees in the 
 year                                                      -               -            -            -               5 
Adjustments to remove: 
Changes in fair value of investment 
 properties (Note 13)                                      -               -     (22,375)     (22,375)        (22,375) 
Changes in fair value of interest rate 
 derivatives (Note 18)                                     -               -            1            1               1 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Earnings/Adjusted Earnings (GBP'000)                  40,276          40,276       17,902       17,902          19,313 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Weighted average number of shares ('000)             602,888         602,888      602,888      602,888         602,888 
Adjustment for employee share options ('000)               -             984            -          984               - 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Total number shares ('000)                           602,888         603,872      602,888      603,872         602,888 
--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
Per-share amount (pence)                                6.68            6.67         2.97         2.96            3.20 

--------------------------------------------  --------------  --------------  -----------  -----------  -------------- 
 

9. NET ASSET VALUE PER SHARE

Basic NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary equity holders of the Parent by the number of ordinary shares outstanding at the end of the year.

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

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

EPRA NNNAV is the EPRA NAV adjusted to include the fair values of financial instruments and debt.

Net asset values have been calculated as follows:

 
                                                                                        Group 
                                                                               ------------------------ 
                                                                               31 December  31 December 
                                                                                      2019         2018 
                                                                                   GBP'000      GBP'000 
-----------------------------------------------------------------------------  -----------  ----------- 
Net assets per Statement of Financial Position                                     664,758      639,890 
Adjustment to exclude the fair value loss of financial instruments                       -          238 
EPRA NAV                                                                           664,758      640,128 
Adjustment to include the fair value of debt (Note 18)                            (23,527)     (13,163) 
Adjustment to include the fair value loss of financial instruments (Note 18)             -        (238) 
EPRA NNNAV                                                                         641,231      626,727 
-----------------------------------------------------------------------------  -----------  ----------- 
 
 
Ordinary shares                                   Number       Number 
-------------------------------------------  -----------  ----------- 
Issued share capital                         603,160,958  602,887,740 
Issued share capital plus employee options   604,375,503  603,871,448 
-------------------------------------------  -----------  ----------- 
 
 
                                Pence   Pence 
-----------------------------  ------  ------ 
NAV per share basic            110.21  106.14 
NAV per share diluted          109.99  105.96 
EPRA NAV per share basic       110.21  106.18 
EPRA NAV per share diluted     109.99  106.00 
EPRA NNNAV per share basic     106.31  103.95 
EPRA NNNAV per share diluted   106.10  103.78 
-----------------------------  ------  ------ 
 

10. DIVIDS PAID

 
                                                                                                 Group and Company 
                                                                                              ------------------------ 
                                                                                               Year ended   Year ended 
                                                                                              31 December  31 December 
                                                                                                     2019         2018 
                                                                                                  GBP'000      GBP'000 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 31 
 December 
 2017                                                                                                   -        7,536 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 31 March 
 2018                                                                                                   -        7,536 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 
 2018                                                                                                   -        7,536 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 
 September 
 2018                                                                                                   -        7,536 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 31 
 December 
 2018                                                                                               7,536            - 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 31 March 
 2019                                                                                               7,536            - 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 
 2019                                                                                               7,536            - 
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 
 September 
 2019                                                                                               7,540            - 
--------------------------------------------------------------------------------------------  -----------  ----------- 
                                                                                                   30,148       30,144 
--------------------------------------------------------------------------------------------  -----------  ----------- 
 

On 17 February 2020, the Company announced the declaration of a final interim dividend in respect of the financial year ended 31 December 2019, of 1.25 pence per ordinary share amounting to GBP7.5 million, which will be paid on 20 March 2020 to ordinary shareholders.

11. FIXED ASSETS

 
                                                Group                           Company 
                              Fixtures and   Computer           Fixtures and   Computer 
                                  fittings  equipment    Total      fittings  equipment    Total 
Year ended 31 December 2019        GBP'000    GBP'000  GBP'000       GBP'000    GBP'000  GBP'000 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Costs 
As at 1 January 2019                   490        181      671           490        181      671 
Additions                                -         85       85             -         12       12 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
As at 31 December 2019                 490        266      756           490        193      683 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Depreciation 
As at 1 January 2019                   165        140      305           165        140      305 
Charge for the year                     58         41       99            49         41       90 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
As at 31 December 2019                 223        181      404           214        181      395 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Net book value 
As at 31 December 2019                 267         85      352           276         12      288 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
 
 
                                                Group                           Company 
                              Fixtures and   Computer           Fixtures and   Computer 
                                  fittings  equipment    Total      fittings  equipment    Total 
Year ended 31 December 2018        GBP'000    GBP'000  GBP'000       GBP'000    GBP'000  GBP'000 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Costs 
As at 1 January 2018                   490        180      670           490        180      670 
Additions                                -          1        1             -          1        1 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
As at 31 December 2018                 490        181      671           490        181      671 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Depreciation 
As at 1 January 2018                   108         87      195           108         87      195 
Charge for the year                     57         53      110            57         53      110 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
As at 31 December 2018                 165        140      305           165        140      305 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
Net book value 
As at 31 December 2018                 325         41      366           325         41      366 
----------------------------  ------------  ---------  -------  ------------  ---------  ------- 
 

12. INTANGIBLE ASSETS

 
                                                       Group                                  Company 
                              --------------------------------------------------------  -------------------- 
                              Hello Student(R)  Hello Student(R) 
                                   application           website     NAVision              NAVision 
                                   development       development  development    Total  development    Total 
Year ended 31 December 2019            GBP'000           GBP'000      GBP'000  GBP'000      GBP'000  GBP'000 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Costs 
As at 1 January 2019                       311               878          719    1,908          719      719 
Additions                                    -                 -          552      552          552      552 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
As at 31 December 2019                     311               878        1,271    2,460        1,271    1,271 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Amortisation 
As at 1 January 2019                       311               252           92      655           92       92 
Charge for the year                          -                87           99      186           99       99 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
As at 31 December 2019                     311               339          191      841          191      191 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Net book value 
As at 31 December 2019                       -               539        1,080    1,619        1,080    1,080 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
 
 
                                                       Group                                  Company 
                              --------------------------------------------------------  -------------------- 
                              Hello Student(R)  Hello Student(R) 
                                   application           website     NAVision              NAVision 
                                   development       development  development    Total  development    Total 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Year ended 31 December 2018            GBP'000           GBP'000      GBP'000  GBP'000      GBP'000  GBP'000 
Costs 
As at 1 January 2018                       311               802          528    1,641          528      528 
Additions                                    -                76          191      267          191      191 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
As at 31 December 2018                     311               878          719    1,908          719      719 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Amortisation 
As at 1 January 2018                        16               165           37      218           37       37 
Charge for the year                         47                87           55      189           55       55 
Write off                                  248                 -            -      248                     - 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
As at 31 December 2018                     311               252           92      655           92       92 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
Net book value 
As at 31 December 2018                       -               626          627    1,253          627      627 
----------------------------  ----------------  ----------------  -----------  -------  -----------  ------- 
 

13. INVESTMENT PROPERTY

 
                                                                  Group 
                                       ------------------------------------------------------------ 
                                                   Investment 
                                       Investment  properties        Total   Properties         Total 
                                       properties        long  operational        under    investment 
                                         freehold   leasehold       assets  development      property 
Year ended 31 December 2019               GBP'000     GBP'000      GBP'000      GBP'000       GBP'000 
-------------------------------------  ----------  ----------  -----------  -----------  ------------ 
As at 1 January 2019                      796,640     132,731      929,371       41,670       971,041 
Property additions                          4,206         410        4,616       24,247        28,863 
Transfer of completed developments         34,441           -       34,441     (34,441)             - 
Change in fair value during the year       26,352       4,600       30,952      (1,776)        29,176 
-------------------------------------  ----------  ----------  -----------  -----------  ------------ 
As at 31 December 2019                    861,639     137,741      999,380       29,700     1,029,080 
-------------------------------------  ----------  ----------  -----------  -----------  ------------ 
 
 
 
                                                                     Group 
                                       ----------------------------------------------------------------- 
                                       Investment       Investment        Total   Properties       Total 
                                       properties  properties long  operational        under  investment 
                                         freehold        leasehold       assets  development    property 
Year ended 31 December 2018               GBP'000          GBP'000      GBP'000      GBP'000     GBP'000 
-------------------------------------  ----------  ---------------  -----------  -----------  ---------- 
As at 1 January 2018                      735,355          113,182      848,537       42,045     890,582 
Property additions                         13,180            7,832       21,012       37,072      58,084 
Transfer of completed developments         42,055                -       42,055     (42,055)           - 
Change in fair value during the year        6,050           11,717       17,767        4,608      22,375 
-------------------------------------  ----------  ---------------  -----------  -----------  ---------- 
As at 31 December 2018                    796,640          132,731      929,371       41,670     971,041 
-------------------------------------  ----------  ---------------  -----------  -----------  ---------- 
 

During the year GBP5,418,000 (31 December 2018: GBP10,171,000) of additions related to expenditure were recognised in the carrying value of standing 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 Limited, as external valuer, and has been prepared as at 31 December 2019, in accordance with the Appraisal & Valuation Standards of the 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 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 Net Asset Value.

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 year end.

 
                                                                Group 
                                                       ------------------------ 
                                                             As at        As at 
                                                       31 December  31 December 
                                                              2019         2018 
                                                           GBP'000      GBP'000 
-----------------------------------------------------  -----------  ----------- 
Value per independent valuation report                   1,028,610      970,570 
-----------------------------------------------------  -----------  ----------- 
Add:                                                     1,028,610      970,570 
Head lease                                                     470          471 
-----------------------------------------------------  -----------  ----------- 
Fair value per Group Statement of Financial Position     1,029,080      971,041 
-----------------------------------------------------  -----------  ----------- 
 

Fair Value Hierarchy

The following table provides the fair value measurement hierarchy for investment property:

 
                                                Quoted prices  Significant   Significant 
                                                    in active   observable  unobservable 
                                                      markets       inputs        inputs 
                                         Total      (Level 1)    (Level 2)     (Level 3) 
Date of valuation 31 December 2019     GBP'000        GBP'000      GBP'000       GBP'000 
-----------------------------------  ---------  -------------  -----------  ------------ 
Assets measured at fair value: 
Student properties                   1,004,450              -            -     1,004,450 
Commercial properties                   24,160              -            -        24,160 
-----------------------------------  ---------  -------------  -----------  ------------ 
As at 31 December 2019               1,028,610              -            -     1,028,610 
-----------------------------------  ---------  -------------  -----------  ------------ 
 
 
                                              Quoted prices  Significant   Significant 
                                                  in active   observable  unobservable 
                                                    markets       inputs        inputs 
                                       Total      (Level 1)    (Level 2)     (Level 3) 
Date of valuation 31 December 2018   GBP'000        GBP'000      GBP'000       GBP'000 
-----------------------------------  -------  -------------  -----------  ------------ 
Assets measured at fair value: 
Student properties                   945,990              -            -       945,990 
Commercial properties                 24,580              -            -        24,580 
-----------------------------------  -------  -------------  -----------  ------------ 
As at 31 December 2018               970,570              -            -       970,570 
-----------------------------------  -------  -------------  -----------  ------------ 
 

There have been no transfers between Level 1 and Level 2 during the year, nor have there been any transfers between Level 2 and Level 3 during the year.

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 uses 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 GBP97 per week-GBP347 per week (31 December 2018: GBP92-GBP343 per week).

   (b)       Unobservable input: Rental growth 

The estimated average increase in rent based on both market estimations and contractual arrangements. Assumed growth of 3.55% used in valuations (31 December 2018: 2.63%).

   (c)       Unobservable input: Net initial yield 

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

Range: 4.50%-7.25% (31 December 2018: 4.50%-6.75%).

   (d)       Unobservable input: Physical condition of the property 
   (e)       Unobservable input: Planning consent 

No planning enquiries 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 has been prepared by the valuer:

 
                                                                                                     -0.25%    +0.25% 
                                                                     -3% change in  +3% change in    change    change 
                                                                     rental income  rental income  in yield  in yield 
As at 31 December 2019                                                     GBP'000        GBP'000   GBP'000   GBP'000 
-------------------------------------------------------------------  -------------  -------------  --------  -------- 
(Decrease)/increase in the fair value of the investment properties        (39,190)         39,270    46,520  (42,350) 
-------------------------------------------------------------------  -------------  -------------  --------  -------- 
 
 
                                                            -3% change in  +3% change in  -0.25% change  +0.25% change 
                                                            rental income  rental income       in yield       in yield 
As at 31 December 2018                                            GBP'000        GBP'000        GBP'000        GBP'000 
----------------------------------------------------------  -------------  -------------  -------------  ------------- 
(Decrease)/increase in the fair value of the investment 
 properties                                                      (40,320)         40,290         47,270       (43,210) 
----------------------------------------------------------  -------------  -------------  -------------  ------------- 
 

(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. TRADE AND OTHER RECEIVABLES

 
                                               Group                    Company 
                                      ------------------------  ------------------------ 
                                      31 December  31 December  31 December  31 December 
                                             2019         2018         2019         2018 
                                          GBP'000      GBP'000      GBP'000      GBP'000 
------------------------------------  -----------  -----------  -----------  ----------- 
Trade receivables                             314          704            -            - 
Other receivables                             470        2,112           20           90 
Amounts owed by property managers           5,144        6,696            -            - 
Prepayments                                 4,355        4,170          277          105 
VAT recoverable                               255           65            7            7 
------------------------------------  -----------  -----------  -----------  ----------- 
                                           10,538       13,747          304          202 
------------------------------------  -----------  -----------  -----------  ----------- 
Amounts due from Group undertakings             -            -      420,006      517,778 
------------------------------------  -----------  -----------  -----------  ----------- 
                                           10,538       13,747      420,310      517,980 
------------------------------------  -----------  -----------  -----------  ----------- 
 

At 31 December 2019, there were no material trade receivables overdue at the year end, and no aged analysis of trade receivables has been included. The carrying value of trade and other receivables classified at amortised cost approximates fair value.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivable and contract assets.

To measure expected credit losses on a collective basis, trade receivable and contract assets are grouped together based on similar credit risk and ageing. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.

The expected credit loss rates are based on the Group's historical credit losses experienced over the three-year period prior to the year end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. Both the expected credit loss provision and the incurred loss provision in the current and prior year are immaterial. No reasonably possible changes in the assumptions underpinning the expected credit loss provision would give rise to a material expected credit loss.

The Company applies the expected credit losses approach to amounts due from Group undertakings. These amounts are interest free and repayable on demand; however, as these amounts are primarily utilised to pay for the property acquisition and therefore are considered not to be immediately recoverable, they are deemed to be categorised as stage 3. The expected credit losses are based on management's assessment of the Group undertaking's ability to repay the funds.

The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the underlying companies, property value sensitivities alongside the potential sale values of the properties, cash flow projections arising from the underlying properties and the ability to hold the assets to ensure recovery of the amounts due from the Group undertakings. Both the expected credit loss provision and the incurred loss provision in the current and prior year and immaterial. No reasonably possible changes in the assumptions underpinning the expected credit loss provision would give rise to a material expected credit loss.

15. FIXED TERM DEPOSITS AND CASH AND CASH EQUIVALENTS

Fixed term deposits were amounts held as part of our debt renewal. This deposit was interest bearing and matured in October 2019.

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 
                            ------------------------  ------------------------ 
                            31 December  31 December  31 December  31 December 
                                   2019         2018         2019         2018 
                                GBP'000      GBP'000      GBP'000      GBP'000 
--------------------------  -----------  -----------  -----------  ----------- 
Cash and cash equivalents        16,517       23,473       12,407       15,955 
--------------------------  -----------  -----------  -----------  ----------- 
 

16. TRADE AND OTHER PAYABLES

 
                                           Group                   Company 
                                     31 December  31 December  31 December  31 December 
                                            2019         2018         2019         2018 
                                         GBP'000      GBP'000      GBP'000      GBP'000 
-----------------------------------  -----------  -----------  -----------  ----------- 
Trade payables                             3,294        2,723          533            - 
Other payables                             1,287        2,408          325          146 
Accrued expenses                           8,821       23,013        1,013        1,661 
Directors' bonus accrual                     970          391          970          391 
-----------------------------------  -----------  -----------  -----------  ----------- 
                                          14,372       28,535        2,841        2,198 
-----------------------------------  -----------  -----------  -----------  ----------- 
Amounts owed to Group undertakings             -            -        9,721           11 
-----------------------------------  -----------  -----------  -----------  ----------- 
                                          14,372       28,535       12,562        2,209 
-----------------------------------  -----------  -----------  -----------  ----------- 
 

At 31 December 2019, there was deferred rental income of GBP29,204,000 (31 December 2018: GBP26,968,000) which was rental income that had been booked that relates to future periods.

The Directors consider that the carrying value of trade and other payables approximates to their fair value.

Amounts due to Group undertakings are interest free and repayable on demand.

17. BANK BORROWINGS

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

 
                                                                                Group 
                                                ---------------------------------------------------------------------- 
                                                       Bank         Bank                   Bank         Bank 
                                                 borrowings   borrowings     Total   borrowings   borrowings     Total 
                                                      drawn      undrawn    31 Dec        drawn      undrawn    31 Dec 
                                                31 Dec 2019  31 Dec 2019      2019  31 Dec 2018  31 Dec 2018      2018 
                                                    GBP'000      GBP'000   GBP'000      GBP'000      GBP'000   GBP'000 
----------------------------------------------  -----------  -----------  --------  -----------  -----------  -------- 
At 1 January                                        330,000       60,000   390,000      303,829       86,201   390,030 
Bank borrowings from new facilities in the 
 year                                                55,500            -    55,500       30,600            -    30,600 
Bank borrowings drawn in the year                    60,000     (25,000)    35,000       36,201     (26,201)    10,000 
Bank borrowings repaid during the year             (90,500)            -  (90,500)     (40,630)            -  (40,630) 
----------------------------------------------  -----------  -----------  --------  -----------  -----------  -------- 
At 31 December                                      355,000       35,000   390,000      330,000       60,000   390,000 
----------------------------------------------  -----------  -----------  --------  -----------  -----------  -------- 
 

The Group has fully repaid one facility, continued to draw down on an existing facility and fully drew down the second tranche of another existing facility. A total of GBP115,500,000 (31 December 2018: GBP66,801,000) of additional debt was drawn and a total of GBP90,500,000 was repaid during the year. There is an undrawn debt facility available of GBP35,000,000 at 31 December 2018 (31 December 2018: GBP60,000,000). The weighted average term to maturity of the Group's debt as at the year end is 6.6 years (31 December 2018: 7.6 years).

Bank borrowings are secured by charges over individual investment properties held by certain asset-holding subsidiaries. These assets have a fair value of GBP879,910,000 at 31 December 2019 (31 December 2018: GBP853,220,000). In some cases, the lenders also hold charges over the shares of the subsidiaries and the intermediary holding companies of those subsidiaries.

The Company has a GBP10 million unsecured facility (2018: GBP10 million) repayable in less than one year, fully drawn. The balance net of loan arrangement fees carried as at 31 December 2019 was GBP9,995,000 (31 December 2018: GBP9,965,000).

The Group drew down a further GBP55,500,000 of the Scottish Widows facility, the second tranche of the existing facility. This was used to repay the RBS facility of GBP55,500,000.

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

 
                                                              Group 
                                                     ------------------------ 
                                                     31 December  31 December 
                                                            2019         2018 
Non-current                                              GBP'000      GBP'000 
---------------------------------------------------  -----------  ----------- 
Balance bought forward                                   274,500      282,639 
Total bank borrowings in the year                        115,500       66,801 
Bank borrowings becoming non-current in the year          55,500       21,190 
Less: Bank borrowings becoming current in the year      (42,800)     (55,500) 
Less: Bank borrowings repaid during the year            (90,500)     (40,630) 
---------------------------------------------------  -----------  ----------- 
Bank borrowings drawn: due in more than one year         312,200      274,500 
Less: Unamortised costs                                  (5,103)      (5,510) 
---------------------------------------------------  -----------  ----------- 
Bank borrowings due in more than one year                307,097      268,990 
---------------------------------------------------  -----------  ----------- 
 
 
                                                            Group 
                                                   ------------------------ 
                                                   31 December  31 December 
                                                          2019         2018 
Current                                                GBP'000      GBP'000 
-------------------------------------------------  -----------  ----------- 
Balance bought forward                                  55,500       21,190 
Total bank borrowings in the year                            -        9,440 
Less: Bank borrowings repaid during the year          (55,500)     (30,630) 
Bank borrowings becoming current in the year            42,800       55,500 
-------------------------------------------------  -----------  ----------- 
Bank borrowings drawn: due in less than one year        42,800       55,500 
Less: Unamortised costs                                  (125)        (240) 
-------------------------------------------------  -----------  ----------- 
Bank borrowings due in less than one year               42,675       55,260 
-------------------------------------------------  -----------  ----------- 
 

Maturity of Bank Borrowings

 
                                                            Group 
                                                   ------------------------ 
                                                   31 December  31 December 
                                                          2019         2018 
                                                       GBP'000      GBP'000 
-------------------------------------------------  -----------  ----------- 
Repayable between one and two years                     35,000       42,800 
Repayable between two and five years                         -       10,000 
Repayable in over five years                           277,200      221,700 
-------------------------------------------------  -----------  ----------- 
Bank borrowings drawn: due in more than one year       312,200      274,500 
-------------------------------------------------  -----------  ----------- 
 

Each of the Group's facilities has an interest charge which is payable quarterly. Four of the facilities have an interest charge that is based on a margin above LIBOR whilst the other five facility interest charges are fixed at 3.97%, 3.52%, 3.24%, 3.64% and 3.20%. The weighted average rate payable by the Group on its debt portfolio as at the year end was 3.20% (31 December 2018: 3.26%).

18. INTEREST RATE DERIVATIVES

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group 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 has been 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 2019 was GBPnil (31 December 2018: GBP0.5 million gain) recognised in Other Comprehensive Income. GBPnil of this derivative liability has been recognised as a non-current liability (31 December 2018: GBPnil). The contract matured on 23 October 2019.

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  31 December 
                                                                   2019         2018 
                                                                GBP'000      GBP'000 
----------------------------------------------------------  -----------  ----------- 
Non-current assets: Interest rate derivatives - cap                   -            - 
Current liabilities: Interest rate derivatives - swap                 -        (237) 
Non-current liabilities: Interest rate derivatives - swap             -            - 
----------------------------------------------------------  -----------  ----------- 
 

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  31 December 
                                                            2019         2018 
                                                         GBP'000      GBP'000 
Interest rate cap premium - opening fair value                 -            1 
Changes in fair value of interest rate derivatives             -          (1) 
---------------------------------------------------  -----------  ----------- 
Closing fair value                                             -            - 
---------------------------------------------------  -----------  ----------- 
 
 
                                                                                              31 December  31 December 
                                                                                                     2019         2018 
                                                                                                  GBP'000      GBP'000 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Total bank borrowings                                                                             355,000      330,000 
Total fixed borrowings                                                                          (277,200)    (221,700) 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Total floating rate borrowings                                                                     77,800      108,300 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Notional value of borrowings hedged by interest rate derivative - swap                                  -       35,500 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Proportion of notional value of interest rate swap derivative to floating rate bank 
 borrowings                                                                                          0.0%        32.8% 
--------------------------------------------------------------------------------------------  -----------  ----------- 
 

Fair Value of Debt

 
                                       Group 
                      --------------------------------------- 
                                                   Fair value 
                      Fair value  Book value  less book value 
                         GBP'000     GBP'000          GBP'000 
--------------------  ----------  ----------  --------------- 
At 31 December 2019      295,498     271,971           23,527 
At 31 December 2018      230,677     217,514           13,163 
--------------------  ----------  ----------  --------------- 
 

The fair value of the fixed rate debt has been valued by the independent valuation expert, Chatham Financial. 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 
                                                                 ---------------------------------------------------- 
                                                                                            Significant   Significant 
                                                                          Quoted prices in   observable  unobservable 
                                                                            active markets       inputs        inputs 
                                                                                 (Level 1)    (Level 2)     (Level 3) 
Assets/(liability) measured at fair value:   Date of valuation   GBP'000           GBP'000      GBP'000       GBP'000 
-------------------------------------------  ------------------  -------  ----------------  -----------  ------------ 
                                             31 December 2019 
Interest rate derivative - cap                                         -                 -            -             - 
Interest rate derivative - swap                                        -                 -            -             - 
                                             31 December 2018 
Interest rate derivative - cap                                         -                 -            -             - 
Interest rate derivative - swap                                    (237)                 -        (237)             - 
---------------------------------------------------------------  -------  ----------------  -----------  ------------ 
 

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 year end.

There have been no transfers between Level 1 and Level 2 during the year, nor have there been any transfers between Level 2 and Level 3 during the year.

19. SHARE CAPITAL

Ordinary shares issued and fully paid at 1p each

 
                             Group and Company         Group and Company 
                          ------------------------  ------------------------ 
                          31 December  31 December  31 December  31 December 
                                 2019         2019         2018         2018 
                               Number      GBP'000       Number      GBP'000 
------------------------  -----------  -----------  -----------  ----------- 
Balance brought forward   602,887,740        6,029  602,887,740        6,029 
Share options exercised       273,218            3            -            - 
------------------------  -----------  -----------  -----------  ----------- 
Balance carried forward   603,160,958        6,032  602,887,740        6,029 
------------------------  -----------  -----------  -----------  ----------- 
 

There were two share issues in the year relating to vesting share options; see Note 27 for further details. One was on 2 October 2019 for 120,833 ordinary shares and the other on 26 November 2019 for 152,385 ordinary shares.

20. SHARE PREMIUM

The share premium relates to amounts subscribed for share capital in excess of nominal value:

 
                                              Group and Company 
                                           ------------------------ 
                                           31 December  31 December 
                                                  2019         2018 
                                               GBP'000      GBP'000 
-----------------------------------------  -----------  ----------- 
Balance brought forward                        467,268      467,268 
Share premium cancellation                   (467,268)            - 
Share premium on share options exercised           257            - 
-----------------------------------------  -----------  ----------- 
Balance carried forward                            257      467,268 
-----------------------------------------  -----------  ----------- 
 

Cancellation

At the AGM on 2 May 2019, shareholders approved a resolution to cancel the Company's share premium account, which stood at GBP467 million. The court order to confirm the cancellation was received on 4 June 2019, following which the share premium account was cancelled. Cancellation results in this capital being treated as realised profit, giving us the flexibility to declare dividends or make other distributions to shareholders, although there is no current intention to do so.

21. CAPITAL REDUCTION RESERVE

 
                                                          Group and Company 
                                                       ------------------------ 
                                                       31 December  31 December 
                                                              2019         2018 
                                                           GBP'000      GBP'000 
-----------------------------------------------------  -----------  ----------- 
Balance brought forward                                     45,458       75,602 
Less interim dividends declared and paid per Note 10      (30,148)     (30,144) 
Share premium cancellation                                 467,268            - 
-----------------------------------------------------  -----------  ----------- 
Balance carried forward                                    482,578       45,458 
-----------------------------------------------------  -----------  ----------- 
 

The capital reduction reserve account is a distributable reserve.

Refer to Note 10 for details of the declaration of dividends to shareholders.

22. LEASING AGREEMENTS

Future total minimum lease receivables under non-cancellable operating leases on investment properties are as follows:

 
                                      Group 
                             ------------------------ 
                             31 December  31 December 
                                    2019         2018 
                                 GBP'000      GBP'000 
---------------------------  -----------  ----------- 
Less than one year                49,278       45,564 
Between one and five years         7,377        9,757 
More than five years               9,851       10,630 
---------------------------  -----------  ----------- 
Total                             66,506       65,951 
---------------------------  -----------  ----------- 
 

The above relates to commercial leases and nomination agreements with UK universities in place as at 31 December 2019. The impact of student leases for the forthcoming academic year signed by 31 December 2019 have not been included as the certainty of income does not arise until the tenant takes occupation of the accommodation. As at 31 December 2019 GBP29,204,000 (31 December 2018: GBP26,968,000) of the future minimum lease receivables have been received as cash.

23. CONTINGENT LIABILITIES

There were no contingent liabilities at 31 December 2019 (31 December 2018: GBPnil).

24. CAPITAL COMMITMENTS

The Group had capital commitments relating to developments totalling GBP31,542,000 at 31 December 2019 31 (December 2018: GBP37,950,000).

25. 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

Share transactions of related parties during the year ended 31 December 2019 were as follows:

 
Name        How related  No of shares  Transaction          Date 
----------  -----------  ------------  -------------------  ---------------- 
Tim Attlee  Director     120,833       Exercise of options  02 October 2019 
----------  -----------  ------------  -------------------  ---------------- 
Tim Attlee  Director     64,000        Disposal             15 October 2019 
----------  -----------  ------------  -------------------  ---------------- 
Tim Attlee  Director     152,385       Exercise of options  26 November 2019 
----------  -----------  ------------  -------------------  ---------------- 
Tim Attlee  Director     94,500        Disposal             02 December 2019 
----------  -----------  ------------  -------------------  ---------------- 
 

Share-based Payments

On 24 April 2019, nil cost options were granted to Executive Directors in the amounts of:

 
Lynne Fennah  560,316 shares 
------------  -------------- 
Tim Attlee    43,818 shares 
------------  -------------- 
 

On 2 October 2019, Executive Directors exercised vested nil-cost options in the amounts of:

 
Tim Attlee  120,833 shares 
 

On 26 November 2019, Executive Directors exercised vested nil-cost options in the amounts of:

 
Tim Attlee  152,385 shares 
 

Details of the shares granted and exercised are outlined in Note 27.

26. SUBSEQUENT EVENTS

On 27 February 2020 we refinanced an expiring GBP10 million unsecured facility with First Commercial Bank on a three year term and extended the facility value to GBP20 million.

On 16 March 2020 we entered into a four and a half year GBP22.5 million development debt facility with RBS.

27. SHARE-BASED PAYMENTS

The Company operates three equity-settled share-based remuneration schemes for Executive Directors under the deferred annual bonus, LTIP and the VDP. The details of the schemes are included in the Remuneration Committee Report.

Issued

On 24 April 2019, the Company granted nil-cost options over a total of 101,377 (Tim Attlee 43,818 and Lynne Fennah 57,559) ordinary shares pursuant to the deferred shares element of the annual bonus awards for the financial period ended 31 December 2018 (the "Annual Bonus Awards").

Further, and also on 24 April 2019, Lynne Fennah was granted nil-cost options over 502,757 ordinary shares pursuant to the Empiric 2014 Long-Term Incentive Plan (the "2017-20 LTIP Awards") for the 2019 financial year.

Lapsed Awards

Exercised

On 2 October 2019 Tim Attlee, Director of the Company, exercised vested nil-cost options over 120,833 ordinary shares in the Company ("ordinary shares") pursuant to the Empiric Student Property Plc 2014 Long-Term Incentive Plan (the "Exercise").

On 26 November 2019 Tim Attlee, Director of the Company, exercised vested nil-cost options over 152,385 ordinary shares in the Company ("ordinary shares") pursuant to the Empiric Student Property Plc 2014 Long-Term Incentive Plan (the "Exercise").

None of the nil-cost options is currently exercisable. The weighted average remaining contractual life of these options was 1.7 years (2018: 1.6 years). During the year to 31 December 2019 the amount recognised relating to the options was GBP164,000 (2018: GBP98,000).

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.

 
                                          12/31/19   12/31/18     12/31/17   12/31/16 
---------------------------------------  ---------  ---------  -----------  --------- 
Outstanding number brought forward       1,051,708  1,477,817    3,913,420  2,880,391 
Granted during the period                  604,134    439,022      207,198  1,033,029 
Vested and exercised during the period   (129,253)  (139,325)    (691,237)          - 
Lapsed during the period                 (276,544)  (725,806)  (1,951,564)          - 
---------------------------------------  ---------  ---------  -----------  --------- 
Outstanding number carried forward       1,250,045  1,051,708    1,477,817  3,913,420 
---------------------------------------  ---------  ---------  -----------  --------- 
 

The fair value on date of grant for the nil-cost options under the 2017-20 LTIP Awards and Annual Bonus Awards were priced using the Monte Carlo pricing model.

The following information is relevant in the determination of the fair value of these nil-cost options in the year:

 
                                                                     Annual Bonus 
                                                                            Award 
----  -------------------------------------------------------------  ------------ 
(a)   Weighted average share price at grant date of                       GBP0.93 
(b)   Exercise price of                                                    GBPnil 
(c)   Contractual life of                                                 3 years 
(d)   Expected volatility of                                               14.80% 
(e)   Expected dividend yield of                                            6.09% 
(f)   Risk-free rate of                                                     1.20% 
      The volatility assumption is based on a statistical analysis 
       of daily share prices of comparator companies over the last 
(g)    three years 
      The TSR performance conditions have been considered when 
(h)    assessing the fair value of the options 
 

28. 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 Company and 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 Company and Group that are affected by market risk are principally the Company and Group 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 of financial loss to the Company and Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company and Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions.

The Group has established a credit policy under which each new tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement.

The Group's review includes external rating, when available, and in some cases bank references.

The Group determines concentrations of credit risk by monthly monitoring the creditworthiness rating of existing customers and through a monthly review of the trade receivables' ageing analysis.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating "B" are accepted.

Further disclosures regarding trade and other receivables, which are neither past due nor impaired, are provided in Note 14.

(i) Tenant Receivables

Tenant receivables, primarily tenant rentals, are presented in the Group 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 year end.

(ii) Credit Risk Related to Financial Instruments and Cash Deposits

One of the principal credit risks of the Company and 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 Company and Group, with high credit ratings assigned by international credit rating agencies.

 
Credit ratings (Moody's)  Long-term   Outlook 
------------------------  ---------  -------- 
AIB Group                      Baa2  Positive 
Canada Life                     Aa3    Stable 
Mass Mutual                     Aa2  Negative 
Scottish Widows                  A2  Positive 
Lloyds Bank Plc                 Aa3    Stable 
------------------------  ---------  -------- 
 

(c) Liquidity Risk

Liquidity risk arises from the Company and Group 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 Company and Group will encounter difficulty in meeting their financial obligations as they fall due as the majority of the Company and Group assets are property investments and are therefore not readily realisable. The Company and Group objective is to ensure they have sufficient available funds for their operations and to fund their 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 than  3 to 12   1 to 5 
                               On demand   3 months   months    years  > 5 years    Total 
                                 GBP'000    GBP'000  GBP'000  GBP'000    GBP'000  GBP'000 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
At 31 December 2019 
Bank borrowings and interest           -     13,101   41,801  149,450    317,287  521,639 
Trade and other payables               -     14,372        -        -          -   14,372 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
                                       -     27,473   41,801  149,450    317,287  536,011 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
 
                                                         Group 
                               ---------------------------------------------------------- 
                                          Less than  3 to 12   1 to 5 
                               On demand   3 months   months    years  > 5 years    Total 
                                 GBP'000    GBP'000  GBP'000  GBP'000    GBP'000  GBP'000 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
At 31 December 2018 
Bank borrowings and interest           -      3,183   65,048   87,895    262,435  418,561 
Swap derivatives                       -         94      282        -          -      376 
Trade and other payables               -     28,535        -        -          -   28,535 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
                                       -     31,812   65,330   87,895    262,435  447,472 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
 
 
                                                        Company 
                               ---------------------------------------------------------- 
                                          Less than  3 to 12   1 to 5 
                               On demand   3 months   months    years  > 5 years    Total 
                                 GBP'000    GBP'000  GBP'000  GBP'000    GBP'000  GBP'000 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
At 31 December 2019 
Bank borrowings and interest           -     10,045        -        -          -   10,045 
Trade and other payables               -      2,841        -        -          -    2,841 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
                                       -     12,886        -        -          -   12,886 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
 
                                                        Company 
                               ---------------------------------------------------------- 
                                          Less than  3 to 12   1 to 5 
                               On demand   3 months   months    years  > 5 years    Total 
                                 GBP'000    GBP'000  GBP'000  GBP'000    GBP'000  GBP'000 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
At 31 December 2018 
Bank borrowings and interest           -         68      203   10,046          -   10,317 
Trade and other payables               -      2,198        -        -          -    2,198 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
                                       -      2,266      203   10,046          -   12,515 
-----------------------------  ---------  ---------  -------  -------  ---------  ------- 
 

29. 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.

30. SUBSIDIARIES

Those subsidiaries listed below are considered to be all subsidiaries of the Company at 31 December 2019, 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 England and Wales.

 
                                 Company 
                         ------------------------ 
                         31 December  31 December 
                                2019         2018 
                             GBP'000      GBP'000 
-----------------------  -----------  ----------- 
As at 1 January                8,623       12,571 
Additions in the year         73,063        8,622 
Disposals                          -     (12,570) 
-----------------------  -----------  ----------- 
Balance at 31 December        81,686        8,623 
-----------------------  -----------  ----------- 
 

During the current year and prior year there were a number of subsidiaries which moved around the Group, due to reorganisations relating to debt, these were all non -- cash movements whereby PLC forgave intercompany debt owned by subsidiaries in return for the issue of further shares.

 
Company                                  Status   Ownership  Principle activity 
---------------------------------------  -------  ---------  ---------------------- 
Brunswick Contracting Limited            Active   100%       Property Contracting 
Empiric (Alwyn Court) Limited            Active   100%       Property Investment 
Empiric (Baptists 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 St Mary's) Limited      Active   100%       Property Investment 
Empiric (Bristol St Mary's) Leasing 
 Limited                                 Dormant  100%       Property Leasing 
Empiric (Bristol) Leasing Limited        Dormant  100%       Property Leasing 
Empiric (Bristol) Limited                Active   100%       Property Investment 
Empiric (Buccleuch Street) Leasing 
 Limited                                 Dormant  100%       Property Leasing 

Empiric (Buccleuch Street) Limited       Active   100%       Property Investment 
Empiric (Canterbury Franciscans) 
 Limited                                 Active   100%       Property Investment 
Empiric (Canterbury Pavilion Court) 
 Limited                                 Active   100%       Property Investment 
Empiric (Cardiff Wndsr House) Leasing 
 Limited                                 Dormant  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 
Empiric (Developments) Limited           Active   100%       Development Management 
Empiric (Durham St Margarets) Limited    Active   100%       Property Investment 
Empiric (Edge Apartments) Limited        Active   100%       Property Investment 
Empiric (Edinburgh KSR) Limited          Active   100%       Property Investment 
Empiric (Exeter Bishop Blackall School) 
 Limited                                 Active   100%       Property Investment 
Empiric (Exeter Bonhay Road) Leasing 
 Limited                                 Dormant  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                                 Dormant  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) Leasing Limited        Active   100%       Property Leasing 
Empiric (Glasgow) Limited                Active   100%       Property Investment 
Empiric (Hatfield CP) Limited            Active   100%       Property Investment 
Empiric (Huddersfield Oldgate House) 
 Leasing Limited                         Dormant  100%       Property Leasing 
Empiric (Huddersfield Oldgate House) 
 Limited                                 Active   100%       Property Investment 
Empiric (Huddersfield Snow Island) 
 Leasing Limited                         Active   100%       Property Leasing 
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 Mary Morris) Limited      Active   100%       Property Investment 
Empiric (Leeds Pennine House) Limited    Active   100%       Property Investment 
Empiric (Leeds St Marks) 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 (Leicester West Walk) Limited    Dormant  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 (Liverpool Octagon/Hayward) 
 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 (Nottingham 95 Talbot) Limited   Active   100%       Property Investment 
Empiric (Nottingham Frontage) Leasing 
 Limited                                 Dormant  100%       Property Leasing 
Empiric (Nottingham Frontage) Limited    Active   100%       Property Investment 
Empiric (Oxford Stonemason) Limited      Active   100%       Property Investment 
Empiric (Picturehouse Apartments) 
 Limited                                 Active   100%       Property Investment 
Empiric (Portobello House) Limited       Active   100%       Property Investment 
Empiric (Portsmouth Elm Grove Library) 
 Limited                                 Active   100%       Property Investment 
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) Limited        Active   100%       Property Investment 
Empiric (Stirling Forthside) Leasing 
 Limited                                 Dormant  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) 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 (York Lawrence Street) Limited   Active   100%       Property Investment 
Empiric (York Percy's Lane) Limited      Active   100%       Property Investment 
                                                             Intermediate Holding 
Empiric Acquisitions Limited             Active   100%        Company 
Empiric Investment Holdings (Five) 
 Limited                                 Active   100%       Holding Company 
Empiric Investment Holdings (Four) 
 Limited                                 Active   100%       Holding Company 
Empiric Investment Holdings (Six) 
 Limited                                 Active   100%       Holding Company 
Empiric Investment Holdings (Three) 
 Limited                                 Active   100%       Holding Company 
Empiric Investment Holdings (Two) 
 Limited                                 Active   100%       Holding Company 
                                                             Immediate Holding 
Empiric Investments (Five) Limited       Active   100%        Company 
                                                             Immediate Holding 
Empiric Investments (Four) Limited       Active   100%        Company 

                                                             Immediate Holding 
Empiric Investments (One) Limited        Active   100%        Company 
                                                             Immediate Holding 
Empiric Investments (Six) Limited        Active   100%        Company 
                                                             Immediate Holding 
Empiric Investments (Three) Limited      Active   100%        Company 
                                                             Immediate Holding 
Empiric Investments (Two) Limited        Active   100%        Company 
                                                             Immediate Holding 
Empiric Investments (Seven) Limited      Dormant  100%        Company 
Empiric Investment Holdings (Seven) 
 Limited                                 Dormant  100%       Holding Company 
Empiric Student Property Trustees 
 Limited                                 Active   100%       Trustee of EBT 
Empiric (Edinburgh South Bridge) 
 Limited                                 Active   100%       Property Investment 
Hello Student(R) Management Limited      Active   100%       Property Management 
---------------------------------------  -------  ---------  ---------------------- 
 

Definitions

Adjusted EPS - Adjusted earnings per share is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates, rental guarantees and cumulative gains made on disposals of assets are added to EPRA earnings on the basis noted below as the Board sees these cash flows as supportive of dividend payments. This is then divided by the weighted average number of ordinary shares outstanding during the period (refer to Note 8).

AIFM - Alternative Investment Fund Manager

AIFMD - Alternative Investment Fund Managers Directive

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

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

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

Basic EPS - The earnings attributed to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period (refer to Note 8).

Company - Empiric Student Property plc

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

EPRA - European Public Real Estate Association

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

EPRA NAV - EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for debt-related derivatives (refer to Note 9).

EU - European Union

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

GHG - Greenhouse gas

Gross Asset Value or GAV - The total value of the Group's wholly owned property portfolio (refer to Note 13).

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

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

Group - Empiric Student Property plc and its subsidiaries.

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

HMO - Homes of multiple occupants

IASB - International Accounting Standards Board

IFRS - International Financial Reporting Standards

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

LIBOR - London interbank offered rate

Loan-to-value or LTV - A measure of borrowings used by property investment companies calculated as total drawn borrowings, net of cash and fixed term deposits, as a percentage of Gross Asset Value (refer to Notes 13 and 17).

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

Non-PID - Non -- property income distribution

PBSA - Purpose Built Student Accommodation

PID - Property income distribution

RCF - Revolving credit facility

REIT - Real estate investment trust

RICS - Royal Institution of Chartered Surveyors

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

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

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

UKLA - United Kingdom Listing Authority

VDP - Value Delivery Plan

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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March 18, 2020 03:00 ET (07:00 GMT)