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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Empiric Student Property Plc | LSE:ESP | London | Ordinary Share | GB00BLWDVR75 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.20 | 0.22% | 89.70 | 89.50 | 89.90 | 89.90 | 88.70 | 89.70 | 1,324,513 | 16:35:23 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 80.5M | 53.4M | 0.0885 | 10.16 | 542.37M |
From Apr 2019 to Apr 2024
TIDMESP
RNS Number : 5552J
Empiric Student Property PLC
20 August 2019
20 August 2019
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries, the "Group")
HALF YEAR RESULTS FOR THE SIX MONTHS TO 30 JUNE 2019
Empiric Student Property plc (ticker: ESP), the owner and operator of premium student accommodation across the UK, is today reporting its half year results for the six months ended 30 June 2019.
Tim Attlee, Chief Executive Officer of Empiric Student Property plc, commented:
"We have made good progress over the last six months and have delivered the most significant part of our operational transformation, from being a real estate owner to a fully integrated operational business with customer service at its heart. We continue to develop a dynamic and well-targeted digital marketing platform, and bookings for the 2019/20 academic year are progressing well. We are continuing to improve our financial and operational performance, which remains in line with market guidance, and we are confident in the outlook for our business."
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H1 2019 H1 2018 FY 2018 Change from
H1 2018
Revenue GBP35.7m GBP31.3m GBP64.2m +14%
--------- --------- --------- ------------
Gross margin 68.5% 62.3% 61.8% +10%
--------- --------- --------- ------------
Administration expenses GBP5.0m GBP4.9m GBP9.1m -3%
--------- --------- --------- ------------
Profit before tax GBP28.8m GBP21.7m GBP40.3m +33%
--------- --------- --------- ------------
Basic earnings per
share 4.78p 3.60p 6.68p +33%
--------- --------- --------- ------------
Adjusted earnings
per share 2.36p 1.50p 3.20p +57%
--------- --------- --------- ------------
Dividends declared
per share 2.50p 2.50p 5.0p 0%
--------- --------- --------- ------------
Dividend cover 94% 60% 64% +57%
--------- --------- --------- ------------
As at 30 June 2019 30 June 2018 31 December Change from
2018 31 December
2018
Property valuation GBP1,001m GBP945m GBP971m +3%
------------- ------------- ------------ -------------
EPRA NAV per share 108.5p 105.6p 106.2p +2%
------------- ------------- ------------ -------------
Net Debt GBP345m GBP315m GBP324m +6%
------------- ------------- ------------ -------------
LTV 32% 31%(1) 31% +3%
------------- ------------- ------------ -------------
Strong Revenue Growth Driving Bottom Line Performance
-- Revenue grown by 14% to GBP35.7 million (H1 2018: GBP31.3 million).
-- Gross margin increased to 68.5% (H1 2018: 62.3%), on track for our full year target of greater than 67%.
-- Profit before tax for the period rose 33% to GBP28.8 million (H1 2018: GBP21.7 million).
-- Basic earnings per share of 4.78 pence (H1 2018: 3.60 pence) and adjusted earnings per share increased 57% to 2.36 pence (H1 2018: 1.50 pence).
-- Dividends of 2.50 pence per share were 94% covered by adjusted earnings (H1 2018: 60%). We are on track for our target of approximately 85% cover for 2019 given the typical seasonality of trading.
Transforming Operational Performance
-- Facilities management for the remaining 57 operating assets brought in-house at the end of March 2019. Significant progress made with in-sourcing programme with revenue management on track for 2021.
-- Reduction in the average cost per bed of 11% compared to the first half of 2018. -- Senior leadership team now in place and performing well.
-- Administration costs of GBP5.0 million (H1 2018: GBP4.9 million), in line with our full-year target of around GBP10 million.
Income and Rental Growth Accelerating
-- Rapid and successful action taken to enhance sales capabilities and attract short-term lets resulted in occupancy of 97% for the 2018/19 academic year as at 30 June 2019.
-- Bookings of 85% for the 2019/20 academic year at 19 August and progressing well. -- Achieved a rebooker rate at this stage of 22% for the 2019/20 academic year. -- 8% of beds are under nomination agreements with universities for the 2019/20 academic year.
High Quality Portfolio of Well-Located Assets
-- Property portfolio valued at GBP1,001 million at 30 June 2019 (31 December 2018: GBP971 million), representing a like-for-like increase of 3.1%.
-- EPRA Net Asset Value per share up 2% to 108.5 pence (31 December 2018: 106.2 pence). -- 95 assets with 9,401 beds contracted as at 30 June 2019 (31 December 2018: 9,397 beds).
-- 91 operating or revenue-generating assets with 8,714 beds at the period end, with an average valuation yield of 5.58%.
-- Development pipeline of 687 beds to be delivered over the next three academic years. In addition, 240 beds will come out of operation this September in Southampton, Emily Davies and be redeveloped.
Robust Financial Position
-- Total return up by 29% to 4.5% for the period (H1 2018: 3.5%).
-- Net debt of GBP345 million at 30 June 2019 (31 December 2018: GBP324 million), resulting in a loan-to-value ratio of 32% (31 December 2018: 31%), below our long-term target of 35% and maximum of 40%.
-- Of our total debt of GBP350 million, GBP222 million (63%) is at fixed interest rates, GBP92 million (27%) is at floating rates, and GBP36 million (10%) is subject to interest rate caps or swaps. The aggregate cost of debt is 3.22%, with a weighted average term to maturity of 7.1 years. We complied fully with our covenants during the period.
Post Period End
On 19 August 2019, the Board declared a dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 2019, which is to be paid on 20 September 2019 to ordinary shareholders on the register on 6 September 2019. The Company is on track to deliver its full-year target dividend of 5.0 pence.(2)
1 In December 2018, the Group changed the way LTV is measured to bring it in line with its peers. See page 23 of December 2018 Annual Report for more detail.
2 The figures in relation to prospective dividends set out above are not intended to be, and should not be taken as, a profit forecast or estimate, or a dividend declaration.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Empiric Student Property plc (via Maitland/AMO below) Tim Attlee (Chief Executive Officer) Lynne Fennah (Chief Financial & Operating Officer) Jefferies International Limited Tel: 020 7029 8000 Gary Gould Stuart Klein Maitland/AMO (Communications Adviser) Tel: 020 7379 5151 James Benjamin Email: empiric-maitland@maitland.co.uk
The Company's LEI is 213800FPF38IBPRFPU87.
Further information on Empiric can be found on the Company's website at www.empiric.co.uk.
Notes:
Empiric Student Property plc is a leading provider and operator of modern, direct-let, nominated or leased student accommodation across the UK. Investing in both operating and development assets, Empiric is a multi-niche student property company focused on, (i) providing good quality first year accommodation managed through its Hello Student(R) operating platform in partnership with universities, (ii) offering a variety of second and third year purpose-built accommodation options for individual students and those wanting a group living environment, and (iii) continuing to expand the Group's existing premium, studio-led accommodation portfolio which is attractive to international and postgraduate students.
The Company, an internally managed real estate investment trust ("REIT") incorporated in England and Wales, listed on the premium listing segment of the Official List of the Financial Conduct Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in June 2014.
A meeting for investors and analysts will be held at 9.00am today at:
Maitland
3 Pancras Square
London
N1C 4AG
The presentation will also be accessible via a live conference call and on-demand via the Company website: https://www.empiric.co.uk/investor-information/company-documents
Those wishing to attend the presentation or access the live conference call are kindly asked to contact Maitland at empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379 5151.
In addition, a recorded webcast of this meeting and the presentation will also be available to download on-demand from the Company's website: www.empiric.co.uk.
Please note for environmental reasons there will be no hard copies of the Interim Report and Accounts sent to shareholders.
Empiric Student Property Plc Interim Report to 30 June 2019
MANAGEMENT REPORT
This was a positive six months for Empiric. The considerable work since the start of 2018 to transform the business is being increasingly reflected in our financial performance and customer satisfaction, where 79% of students surveyed said they would recommend our accommodation to others. During the first half, we delivered strong growth in revenue (up 14%) and a further increase in gross margin to 68.5%, contributing to dividend cover of 94%. We are confident of meeting our financial and operational targets for the year. At the same time, we are continuing to strengthen the business through further operational improvements and by investing in our people.
Our Market
The UK higher education sector continues to both grow and polarise. There is strong demand for education at top tier universities, but the bottom tier are struggling to attract more students. This means selectivity of location is key when student accommodation providers are considering their growth plans.
There were two notable developments in Government policy during the period, both of which are positive for Empiric. In March 2019, the Departments for Education and International Trade published a plan to increase the number of international students studying in the UK by more than 30%. The UK currently hosts around 460,000 international higher education students and the education sector generates approximately GBP20 billion per year through education exports and transactional activity. The Government strategy sets out an ambition to grow the total number of international students to 600,000 and generate GBP35 billion by 2030 - a rise of 75%.
In May 2019, the Report of the Augur Review of higher education suggested a reduction in tuition fees from the current GBP9,250 a year to GBP7,500, balanced by extending repayment periods from 30 to 40 years. It also called for the return of maintenance grants for poorer students. The proposals, if adopted, should help to bolster the number of applicants and the reduction in revenue for universities could incentivise them to further increase their student numbers. However, until it becomes clear if the Government will adopt the proposals, it is difficult to understand the full impact.
Operational Review
The level of revenue we generate is the main determinant of our gross margin. We therefore worked hard to maximise our revenue for the 2018/19 academic year by attracting short-term lets. Our new Customer Relations Team, which began work in January 2019, was highly successful in supporting this effort, with occupancy of 97% for the 2018/19 academic year at 30 June 2019.
We have also undertaken several initiatives to help drive occupancy and revenue for future academic years, drawing on enhancements we have made to our management information and analytics. This gives us greater insight into our markets, which helps to prevent shortfalls in occupancy but also allows us to earn more revenue from assets that would otherwise fill too quickly.
We are also generating enhanced insights from our digital marketing platform. This gives us greater understanding of the best channels for acquiring and retaining web traffic, the quality of the proposition we present online to potential customers and our ability to convert website visitors to signed leases. These insights have enabled us to control our pay-per-click spend and adjust our advertising and media focus, resulting in a marked increase in conversion rates.
During the period, we carried out a customer survey to understand what our customers want from their accommodation and how we rate against each of their criteria. This showed that overall our students are satisfied with our service, with most criteria scoring above 3.5 out of 5. The survey has also helped us to update the proposition on our website to highlight the areas of greatest interest to customers, again leading to improvements in converting bookings to lettings.
The work described above has contributed to bookings of 85% for the 2019/20 academic year as at 19 August, broadly in line with last year, and we remain on track to achieve our revenue forecast.
During the period, we brought facilities management ("FM") for the remaining 57 operating properties in-house, having brought the first 27 in-house ahead of the 2018/19 academic year. This saves us the outsourced providers' profit margin and VAT, which we are unable to reclaim. It also means that for the first time we have complete control of our properties and have granular data on the condition of each asset. This will allow us to manage property lifecycles effectively, to prevent failures while minimising spend and giving us a closer relationship with our students. In addition, we now have full control of procurement and can secure better rates by offering national contracts to potential suppliers. 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.
This was an important six months in terms of our people. We strengthened the team at a senior level and now directly employ all the people who work in our business. At the period end, Empiric employed 328 people; for the first time we have a single team where we are working to instil a responsive dynamic culture focused on delivering higher standards of service more efficiently at a lower cost.
In May we completed the Senior Leadership Team with the recruitment of a Commercial Director. We have also streamlined the operational management structure, to make it more efficient.
We recognise that our people are key to delivering the Homes, not Halls brand experience for our customers. During the period we have further developed our people strategy, which aims to make Empiric a great place to work through a focus on organisational agility, having a performance and learning culture, delivering the best customer experience, and growth. This is underpinned by a set of People Principles, covering, for example, our approach to recruitment, our people policies and practices, pay and reward, adapting to changing expectations, learning and development, and engagement.
Information technology is an important focus area. We currently have two managed service providers for our IT systems, covering head office and our student properties. We recently completed a tender to move to a single service provider, with the new contract starting in November 2019. The development of our new revenue management system is also progressing well. This system will allow us to process bookings, rent demands and rent collection in-house. We plan to trial it in a single property in November 2019, for the 2020/21 academic year. There are also opportunities to continue to enhance automation and our use of data, and to ensure we employ consistent tools and processes to run all of our buildings.
Financial Performance
Revenue increased by 14% to GBP35.7 million (H1 2018: GBP31.3 million). The growth was primarily driven by improved occupancy, the contribution from new developments completed, rental growth and a full period of ownership of Emily Davies Hall, Southampton (acquired in February 2018).
Property expenses were lower at GBP11.2 million (H1 2018: GBP11.8 million) despite the increase in the number of operating assets, driven by a reduction of the average cost per bed by 11% compared to the first half of 2018, and we expect to see further benefits flow through the balance of 2019 and in 2020, which will be the first full year of having FM in-house. This performance resulted in a further improvement in gross margin to 68.5%, up from 62.3% for the first half of 2018 and 61.8% for 2018 as a whole.
We maintained our rigorous focus on controlling administrative expenses, which were broadly flat at GBP5.0 million (H1 2018: GBP4.9 million) and in line with our target of around GBP10 million for the year.
Operating profit under IFRS was GBP35.1 million (H1 2018: GBP28.2 million). This included an aggregate revaluation uplift of GBP15.7 million on our property portfolio at the period end (H1 2018: GBP13.6 million).
Net financing costs for the period were GBP6.3 million, net of interest earned and the fair value gain on interest rate swaps (H1 2018: GBP6.5 million).
Profit before tax was GBP28.8 million (H1 2018: GBP21.7 million), an increase of 33%. No corporation tax was charged in the period, as the Group fulfilled all of its obligations as a REIT.
Adjusted EPS, the most relevant measure when assessing dividend distributions, was 2.36 pence (H1 2018: 1.50 pence), resulting in dividend cover of 94% (H1 2018: 60%), an increase of 57%. Adjusted EPS is defined in Note 4 below.
Of the total dividend paid in the period, 0.68 pence per share was declared as property income dividends and 1.82 pence per share was declared as ordinary UK dividends (H1 2018: 1.04 pence and 1.46 pence respectively).
Dividends
The dividends paid or declared in relation to the period are shown in the table below:
Quarter to Declared Paid Amount (p) ------------------- ----------------- ------------------ ---------- 31 December 2018 20 February 2019 22 March 2019 1.25 ------------------- ----------------- ------------------ ---------- 31 March 2019 29 May 2019 28 June 2019 1.25 ------------------- ----------------- ------------------ ---------- Total paid 2.50 ---------------------------------------------------------- ---------- 30 June 2019 19 August 2019 20 September 2019 1.25 ------------------- ----------------- ------------------ ---------- Total declared not paid 1.25 ---------------------------------------------------------- ----------
As at 30 June 2019, the Net Asset Value ("NAV") per share was 108.45 pence, prior to adjusting for the interim dividend 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).
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 we have no current intention to do so.
Financing
Our debt facilities were unchanged during the period. At the period end, we had committed debt facilities of GBP390 million, of which GBP350 million (31 December 2018: GBP330 million) had been drawn down. This resulted in an LTV of 32% (31 December 2018: 31%). The aggregate cost of debt is 3.22%, with a weighted average term to maturity of 7.1 years at 30 June 2019. We fully complied with our covenants during the period.
Of our total drawn down facilities, GBP222 million is at fixed interest rates and GBP92 million is at floating rates, with GBP36 million subject to interest rate caps or swaps.
In October 2019, we will draw down the remaining GBP55.5 million of the facility we entered into with Scottish Widows Limited in December 2018. This will be used to repay an expiring NatWest facility.
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 affords cost and efficiency savings.
Portfolio
As at 30 June 2019, the Group owned, or was committed on, 95 assets representing 9,401 beds (31 December 2018: 9,397 beds). The portfolio included 91 revenue-generating properties at the period end, with 8,714 beds. We are currently exploring opportunities within our portfolio to develop or reposition a number of assets. This includes continually evaluating our portfolio and looking for opportunities to dispose of non-core assets when market conditions are favourable.
Developments and Redevelopment
At the period end, we had a pipeline of six development projects, as shown in the table below:
Site Development Basis Beds Delivery Year
---------------------------- -------------------------------- ---- -------------
140/142 New Walk, Leicester Forward funded 52 2019
---------------------------- -------------------------------- ---- -------------
King's Stables Road, Forward funded 166 2019
Edinburgh
---------------------------- -------------------------------- ---- -------------
Ocean View, Falmouth Direct development 190 2019
---------------------------- -------------------------------- ---- -------------
408
------------------------------------------------------------- ---- -------------
Emily Davies, Southampton Major refurbishment 232 2020
---------------------------- -------------------------------- ---- -------------
FISC, Canterbury Major refurbishment/development 134 2021
---------------------------- -------------------------------- ---- -------------
St Mary's, Bristol Direct development 153 2021
---------------------------- -------------------------------- ---- -------------
519
------------------------------------------------------------- ---- -------------
The Edinburgh development is now complete and the Falmouth project will complete in two phases in the 2019/20 academic year. The Leicester development will only open in January 2020, but our income is mitigated through a rental guarantee.
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 and the UK national supplement 2018 (the "Red Book"). At 30 June 2019, the portfolio was valued at GBP1,000.7 million, an increase of 3% during the period (31 December 2018: GBP970.6 million).
The valuation increase was driven by improvements in income, rental growth and capital expenditure. Additionally, investment yields in prime student accommodation markets contracted slightly during the first half of 2019, while secondary markets, which represent only a modest proportion of our portfolio, saw yields soften during the period.
Total Return ("TR")
TR is the growth in NAV per share plus dividends paid per share in the period, as a percentage of the opening NAV per share. The TR for the six months to 30 June 2019 was 4.53% (H1 2018: 3.52%).
Post Balance Sheet Events
On 19 August 2019, the Board declared a dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 2019, which is to be paid on 20 September 2019 to ordinary shareholders on the register on 6 September 2019.
Board
- On 1 March 2019, Alice Avis MBE joined as a Non-Executive Director, bringing over 25 years of experience in advertising, branding, marketing, e-commerce and consultancy across the consumer goods and retail sectors.
- Stephen Alston resigned from his position as a Non-Executive Director with effect from 29 March 2019.
Looking Forward
We are on track to deliver our financial targets for 2019. As we have previously explained, student accommodation businesses are seasonal, with lower revenues and profit in the third quarter due to voids and turnaround costs between tenancy periods. The Group's fourth quarter is then the first of the next academic year, when we expect to achieve our highest margins. We therefore continue to expect a gross margin above 67%, administrative costs in the region of GBP10 million and dividend cover of around 85% for 2019.
Our operational transformation has come a long way and we are continuing to improve the performance of the business. Our focus remains:
- Delivering our financial targets - Building an excellent and cost-efficient operational platform - Providing exceptional customer service - Creating value for shareholders
Together, these will enable us to consider appropriate routes by which we can grow the business.
Tim Attlee Lynne Fennah Chief Executive Chief Financial Officer and Operating Officer
19 August 2019
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM REPORT AND ACCOUNTS
The Directors confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the operating and financial review herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:
- an indication of important events that have occurred during the first six months of the financial period and their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial period; and
- material related party transactions in the first six months.
A list of the current Directors is shown on page 27 of the Interim Report. Shareholder information is as disclosed on the Empiric Student Property plc website, www.empiric.co.uk.
For and behalf of the Board
Mark Pain, Chairman
19 August 2019
KEY PERFORMANCE INDICATORS ("KPIS")
Financial KPIs
Gross Margin (%) Performance H1 2018
The gross margin reflects our ability to
drive occupancy and to control rigorously
our operating costs. 68.5% 62.3%
------------ ------------
Adjusted Earnings per Share (p) Performance H1 2018
------------ ------------
Adjusted earnings per share is the earnings
measure that best demonstrates our ability
to reward shareholders through dividends. 2.36p 1.50p
------------ ------------
Dividend Cover (%) Performance H1 2018
------------ ------------
Dividend cover shows our ability to pay
dividends out of current year adjusted earnings. 94% 60%
------------ ------------
Net Asset Value per Share (p) Performance 31 December
2018
------------ ------------
Growth in the NAV per share reflects the
quality of our assets and our ability to
generate revenue from them. 108.45p 106.14p
------------ ------------
Total Return (%) Performance H1 2018
------------ ------------
The total return shows the aggregate value
we have created for shareholders, through
both capital growth of NAV and dividends. 4.53% 3.52%
------------ ------------
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties we face are described in detail on pages 29 to 33 of our Annual Report and Accounts for the year ended 31 December 2018. The Audit Committee, which assists the Board with its responsibilities for managing risk, considers that those principal risks and uncertainties were unchanged during the period.
Brexit
The Board continues to review the potential impact of Brexit on the Group's business. While we do not deem it to be a principal risk at this stage, we are monitoring developments. The reasoning behind this decision is described in detail on page 29 of our Annual Report and Accounts for the year ended 31 December 2018.
Principal Risks
The principal risks and uncertainties described in the Annual Report and Accounts are summarised below:
Strategic Risks
- Development of the UK higher education market generally, or any change in demand from international students
- Competition in the PBSA sector from UK and international property investors
Investment Risks
- General property and investment market conditions
- Dependence on both the rental income received from our properties and the appreciation in property values
Development Risk
- General development risks, including construction risks and changes in market conditions
Funding Risk
- Inability to raise equity or debt on acceptable terms
People Risk
- Reliance on performance of the Executive Directors and senior staff
Operational Risks
- Ability to respond and adapt to the changing planning and regulatory environment - Health and safety - Control of costs - Changes to the Company's tax status or UK tax legislation - Inability to maintain occupancy rates - Cyber security
INDEPENT REVIEW REPORT TO EMPIRIC STUDENT PROPERTY PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprise the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of Our Report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, United Kingdom
19 August 2019
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
Notes GBP'000 GBP'000 GBP'000
----------------------------------- ----- ----------- ----------- ---------------
Continuing operations
Revenue 35,735 31,289 64,156
Property expenses (11,245) (11,787) (24,500)
Gross profit 24,490 19,502 39,656
----------------------------------- ----- ----------- ----------- ---------------
Administrative expenses (5,030) (4,873) (9,071)
Change in fair value of investment
property 6 15,680 13,600 22,375
Operating profit 35,140 28,229 52,960
----------------------------------- ----- ----------- ----------- ---------------
Finance cost (6,408) (6,573) (12,788)
Finance income 94 46 104
----------- ----------- ---------------
Net finance cost 2 (6,314) (6,527) (12,684)
Profit before tax 28,826 21,702 40,276
----------------------------------- ----- ----------- ----------- ---------------
Corporation tax 3 - - -
Profit for the period 28,826 21,702 40,276
----------- ----------- ---------------
Other comprehensive income
Items that will be reclassified
to profit and loss
Fair value gain on cash flow hedge 104 239 402
Total comprehensive income for
the period 28,930 21,941 40,678
----------------------------------- ----- ----------- ----------- ---------------
Earnings per share expressed as
pence per share
Basic 4 4.78 3.60 6.68
Diluted 4 4.77 3.59 6.67
----------------------------------- ----- ----------- ----------- ---------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited 31
30 June Unaudited December
Notes 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
---------------------------------- ----- ---------------- -------------- ----------
Non-current assets
Property, plant and equipment 338 420 366
Intangible assets 1,406 1,332 1,253
Investment property - operational
assets 6 943,561 893,121 929,371
Investment property - development
assets 6 57,619 52,510 41,670
---------------------------------- ----- ---------------- -------------- ----------
1,002,924 947,383 972,660
---------------------------------- ----- ---------------- -------------- ----------
Current assets
Trade and other receivables 10,288 13,294 13,747
Fixed term deposit 10,000 - 10,000
Cash and cash equivalents 22,509 26,326 23,473
---------------------------------- ----- ---------------- -------------- ----------
42,797 39,620 47,220
---------------------------------- ----- ---------------- -------------- ----------
Total assets 1,045,721 987,003 1,019,880
================================== ===== ================ ============== ==========
Current liabilities
Trade and other payables 35,950 25,311 28,535
Borrowings 7 65,386 30,389 55,260
Derivative financial liability 112 334 237
Deferred rental income 10,983 10,186 26,968
---------------------------------- ----- ---------------- -------------- ----------
112,431 66,220 111,000
---------------------------------- ----- ---------------- -------------- ----------
Non-current liabilities
Bank borrowings 7 279,484 284,390 268,990
Derivative financial liability - 87 -
---------------------------------- ----- ---------------- -------------- ----------
279,484 284,477 268,990
---------------------------------- ----- ---------------- -------------- ----------
Total liabilities 391,915 350,697 379,990
---------------------------------- ----- ---------------- -------------- ----------
Total net assets 653,806 636,306 639,890
---------------------------------- ----- ---------------- -------------- ----------
Called up share capital 6,029 6,029 6,029
Share premium - 467,268 467,268
Capital reduction reserve 497,654 60,530 45,458
Retained earnings 150,099 102,722 121,215
Cash flow hedge reserve 24 (243) (80)
---------------------------------- ----- ---------------- -------------- ----------
Total equity/net assets 653,806 636,306 639,890
Total equity and liabilities 1,045,721 987,003 1,019,880
================================== ===== ================ ============== ==========
Net Asset Value per share basic
(pence) 8 108.45 105.54 106.14
Net Asset Value per share diluted
(pence) 8 108.17 105.25 105.96
EPRA Net Asset Value per share
basic (pence) 8 108.46 105.61 106.18
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Period from 1 January to 30 June 2019 (unaudited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
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 period - - - 28,826 - 28,826
Fair value gain on cash
flow hedge - - - - 104 104
--------------------------- --------- ------------- ---------- --------- -------------- --------
Total comprehensive income
for the period - - - 28,826 104 28,930
Share-based payment - - - 58 - 58
Reduction in share premium
(Note 12) - (467,268) 467,268 - - -
Dividends - - (15,072) - - (15,072)
--------------------------- --------- ------------- ---------- --------- -------------- --------
Total contributions and
distribution recognised
directly in equity - (467,268) 452,196 58 - (15,014)
--------------------------- --------- ------------- ---------- --------- -------------- --------
Balance at 30 June 2019 6,029 - 497,654 150,099 24 653,806
=========================== ========= ============= ========== ========= ============== ========
Period from 1 January to 30 June 2018 (unaudited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Balance at 1 January 2018 6,029 467,268 75,602 80,841 (482) 629,258
Changes in equity
Profit for the period - - - 21,702 - 21,702
Fair value gain on cash
flow hedge - - - - 239 239
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Total comprehensive income
for the period - - - 21,702 239 21,941
Share-based payment - - - 179 - 179
Dividends - - (15,072) - - (15,072)
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Total contributions and
distribution recognised
directly in equity - - (15,072) 179 - (14,893)
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Balance at 30 June 2018 6,029 467,268 60,530 102,722 (243) 636,306
=========================== ========= ============= ================= ================= ============== ========
Year from 1 January to 31 December 2018 (audited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Balance at 1 January 2018 6,029 467,268 75,602 80,841 (482) 629,258
Changes in equity
Profit for the period - - - 40,276 - 40,276
Fair value gain on cash
flow hedge - - - - 402 402
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Total comprehensive income
for the period - - - 40,276 402 40,678
Share-based payment - - - 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
=========================== ========= ============= ============= ============= ============== ========
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ ----------- ---------------
Cash flows from operating activities
Profit before income tax 28,826 21,702 40,276
Share-based payments 58 179 98
Depreciation charge 128 148 299
Finance income (94) (46) (104)
Finance costs 6,408 6,573 12,788
Change in fair value of investment
property (15,680) (13,600) (22,375)
----------------------------------------- ------------ ----------- ---------------
19,646 14,956 31,230
Decrease in trade and other receivables 2,186 14,755 15,451
(Decrease)/increase in trade and other
payables (1,667) (2,866) 791
(Decrease)/increase in deferred rental
income (15,985) (12,099) 4,682
----------------------------------------- ------------ ----------- ---------------
(15,466) (210) 20,924
Net cash flows generated from operations 4,180 14,746 52,154
----------------------------------------- ------------ ----------- ---------------
Cash flows from investing activities
Purchase of tangible fixed assets (21) - (1)
Purchase of intangible assets (235) (2) (267)
Purchase of investment property (4,787) (36,600) (54,169)
Interest received 94 25 104
Fixed term deposit - - (10,000)
----------------------------------------- ------------ ----------- ---------------
Net cash flows from investing activities (4,949) (36,577) (64,333)
----------------------------------------- ------------ ----------- ---------------
Cash flows from financing activities
Dividends paid (14,645) (14,928) (30,144)
Bank borrowings 20,000 16,201 66,801
Repayments of bank borrowings - - (40,630)
Loan arrangement fees paid (4) (628) (2,058)
Finance costs (5,546) (5,209) (11,038)
----------------------------------------- ------------ ----------- ---------------
Net cash from financing activities (195) (4,564) (17,069)
----------------------------------------- ------------ ----------- ---------------
Decrease in cash and cash equivalents (964) (26,395) (29,248)
Cash and cash equivalents at beginning
of period 23,473 52,721 52,721
----------------------------------------- ------------ ----------- ---------------
Cash and cash equivalents at end of
period 22,509 26,326 23,473
========================================= ============ =========== ===============
UNAUDITED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
For the period 1 January 2019 to 30 June 2019
1. Accounting Policies
1.1. Trading Period
The condensed interim financial statements of the Group reporting period is from 1 January 2019 to 30 June 2019.
1.2. Going Concern
The Group has performed strongly since IPO, having raised in excess of GBP600 million from seven equity placements and GBP390 million of debt. The Group has deployed these funds across a portfolio of operating assets that have stable income streams and potential for capital appreciation. In addition, the Group has committed to a number of developments which will become operational in time for the 2019/20 academic year and beyond. As at 30 June 2019, the Group held GBP33 million of cash and fixed term deposits that had not been invested in property but is expected to be invested in line with these objectives.
The Group had undrawn debt facilities amounting to GBP40 million as at 30 June 2019. GBP55 million of the Group's short-term debt with NatWest will be repaid using the Scottish Widows facility already in place.
The Directors are therefore satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, for a period of not less than 12 months from the date of this report.
1.3. Basis of Preparation
The condensed interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34, Interim Financial Reporting, as adopted by the European Union.
The condensed consolidated financial statements for the six months ended 30 June 2019 have been reviewed by the Group's independent auditor, BDO LLP, in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity and were approved for issue on 19 August 2019.
The condensed consolidated financial statements presented herein for the period to 30 June 2019 do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group's Annual Report and Accounts for the year to 31 December 2018 have been delivered to the Registrar of Companies. The Group's independent auditor's report on those accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
The Group's financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in Sterling, which is also the Group's functional currency.
The accounting policies adopted in this report are consistent with those applied in the Group's statutory accounts for the year ended 31 December 2018 and are expected to be consistently applied during the year ending 31 December 2019.
1.4. Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Group's interim financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated interim financial statements:
a) Fair valuation of investment property
The market value of investment property is determined, by an independent real estate valuation expert, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.
The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Professional Standards January 2014 and the UK national supplement 2018 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths, and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Note 6.
For properties under development the fair value is calculated by estimating the fair value of the completed property using the income capitalisation technique less estimated costs to completion and an appropriate developer's margin.
b) Operating lease contracts - the Group as lessor
The Group has acquired investment properties which are subject to commercial property leases with tenants. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of 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.
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 modified retrospective transitional approach on adopting IFRS 16, no adjustment was required to be made on adoption.
1.6. Seasonality of Operations
The results of the Group's operating business are closely aligned to the levels of occupancy achieved by the property portfolio in each academic year. Empiric targets 51-week tenancies, with a one-week void period falling in September. This results in slightly lower revenue on the existing portfolio in the second half year combined with slightly higher costs from turning around the rooms for the new academic year.
The Group counteracts this through the development cycle as construction is timed to complete ready for the start of the academic year in September each year. These new properties becoming available increases revenue in the second half year.
1.7. Segmental Information
The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in student and commercial lettings, within the United Kingdom.
2. Net Finance Cost
Audited year
Unaudited six Unaudited six to
months to months to 31 December
30 June 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------------ -------------- ------------- ------------
Finance costs
Fair value loss on interest rate
cap - 1 1
Interest expense on bank borrowings 5,792 5,514 11,037
Amortisation of loan transaction
costs 616 1,058 1,750
6,408 6,573 12,788
------------------------------------ -------------- ------------- ------------
Finance income
Fair value gain on interest rate
cap 21 21 -
Fair value gain on interest rate
swap - - 42
Interest received on bank deposits 73 25 62
94 46 104
------------------------------------ -------------- ------------- ------------
Net finance cost 6,314 6,527 12,684
==================================== ============== ============= ============
3. Corporation Tax
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Taxation is recognised in the profit and loss within the Group Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movement in equity, in which case it is also recognised as a direct movement in equity.
Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
4. Earnings Per Share
The number of ordinary shares is based on the time-weighted average number of shares throughout the period.
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.
EPRA EPS, reported on the basis recommended for real estate companies by EPRA, is a key measure of the Group's operating results.
Adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates and rental guarantees are added to EPRA earnings on the basis noted below as the Board sees these cash flows as supportive of dividend payments.
- The adjustment for licence 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 Calculation of EPRA Calculation
of basic of diluted of EPRA diluted of adjusted
EPS EPS basic EPS EPS basic EPS
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ----------- ----------- ----------- ------------
Unaudited six months to 30
June 2019
Earnings 28,826 28,826 28,826 28,826 28,826
Adjustment to include licence
fee receivable on forward
funded developments in the
period - - - - 991
Adjustment to include discounts
on acquisition due to rental
guarantees in the period - - - - 140
Changes in fair value of investment
property (Note 6) - - (15,680) (15,680) (15,680)
Changes in fair value of interest
rate derivatives (Note 2) - - (21) (21) (21)
------------------------------------ ----------- ----------- ----------- ----------- ------------
Earnings/adjusted earnings
(GBP'000) 28,826 28,826 13,125 13,125 14,256
Weighted average number of
shares ('000) 602,888 602,888 602,888 602,888 602,888
Adjustment for employee share
options ('000) - 1,549 - 1,549 -
Total number of shares ('000) 602,888 604,437 602,888 604,437 602,888
------------------------------------ ----------- ----------- ----------- ----------- ------------
Per-share amount (pence) 4.78 4.77 2.18 2.17 2.36
==================================== =========== =========== =========== =========== ============
Calculation
Calculation Calculation Calculation of EPRA Calculation
of basic of diluted of EPRA diluted of adjusted
EPS EPS basic EPS EPS basic EPS
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ----------- ----------- ----------- ------------
Unaudited six months to 30
June 2018
Earnings 21,702 21,702 21,702 21,702 21,702
Adjustment to include licence
fee receivable on forward
funded developments in the
period - - - - 971
Adjustment to include development
rebate receivable on forward
funded developments in the
period - - - - 5
Changes in fair value of investment
property (Note 6) - - (13,600) (13,600) (13,600)
Changes in fair value of interest
rate derivatives (Note 2) - - (20) (20) (20)
------------------------------------ ----------- ----------- ----------- ----------- ------------
Earnings/adjusted earnings
(GBP'000) 21,702 21,702 8,082 8,082 9,058
Weighted average number of
shares ('000) 602,888 602,888 602,888 602,888 602,888
Adjustment for employee share
options ('000) - 1,657 - 1,657 -
Total number of shares ('000) 602,888 604,545 602,888 604,545 602,888
------------------------------------ ----------- ----------- ----------- ----------- ------------
Per-share amount (pence) 3.60 3.59 1.34 1.34 1.50
==================================== =========== =========== =========== =========== ============
Audited 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
period - - - - 1,406
Adjustment to include discounts
on acquisition due to rental
guarantees in the year - - - - 5
Changes in fair value of investment
property (Note 6) - - (22,375) (22,375) (22,375)
Changes in fair value of interest
rate derivatives (Note 2) - - 1 1 1
------------------------------------ ------- ------- -------- -------- --------
Earnings/adjusted earnings 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 of 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
==================================== ======= ======= ======== ======== ========
5. Dividends Paid
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ----------- ---------------
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 December 2017 - 7,536 7,536
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 March 2018 - 7,536 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 - -
15,072 15,072 30,144
============================================ ============ =========== ===============
On 19 August 2019, the Board declared a dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 2019, which is to be paid on 20 September 2019 to ordinary shareholders on the register on 6 September 2019.
6. Investment Property
Investment
Investment properties
properties long Total operational Properties
freehold leasehold assets under development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ----------- ----------------- ------------------ ---------
As at 1 January 2019 796,640 132,732 929,372 41,670 971,042
Property additions (970)* 21 (949) 15,407 14,458
Change in fair value during
the period 11,201 3,937 15,138 542 15,680
------------------------------- ----------- ----------- ----------------- ------------------ ---------
As at 30 June 2019 (unaudited) 806,871 136,690 943,561 57,619 1,001,180
=============================== =========== =========== ================= ================== =========
As at 1 January 2018 735,355 113,182 848,537 42,045 890,582
Property additions 12,041 5,343 17,384 24,065 41,449
Transfer of completed
developments 17,108 - 17,108 (17,108) -
Change in fair value during
the period 6,176 3,916 10,092 3,508 13,600
-------------------------------
As at 30 June 2018 (unaudited) 770,680 122,441 893,121 52,510 945,631
=============================== =========== =========== ================= ================== =========
*The credit recognised in additions relates to a non-cash adjustment from the reversal of construction accruals previously recognised.
Investment Investment
properties properties Total operational Properties
freehold long leasehold assets under development Total
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 (audited) 796,640 132,731 929,371 41,670 971,041
=================================== =========== =============== ================= ================== =======
In accordance with IAS 40, the carrying value of investment property is their fair value as determined by independent external valuers. This valuation has been conducted by CBRE Limited, as independent external valuers, and has been prepared as at 30 June 2019, in accordance with the Appraisal & Valuation Standards of the Royal Institution of Chartered Surveyors ("RICS"), on the basis of market value. This value has been incorporated into the financial statements.
The valuation of all property assets uses market evidence and also includes assumptions regarding income expectations and yields that investors would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes, could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can lead to a reduction in property values and a loss in Net Asset Value.
All investment property is categorised as Level 3. There have been no transfers between Level 1 and Level 2 during any of the periods, nor have there been any transfers between Level 2 and Level 3 during any of the periods.
The valuations have been prepared on the basis of Market Value ("MV"), which is defined in the RICS Valuation Standards as:
"The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion."
The table below reconciles the fair value of the investment property as per the Consolidated Group Statement of Financial Position and the market value of the investment property as per the independent valuation performed in respect of each period end.
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ----------- ---------------
Value per independent valuation report 1,000,710 945,160 970,570
Plus: long leasehold liability 471 471 471
Fair value per Group Statement of Financial
Position 1,001,181 945,631 971,041
============================================ ============ =========== ===============
The following descriptions and definitions relate to valuation techniques and key unobservable inputs made in determining fair values. The valuation techniques for student properties use a discounted cash flow with the following inputs:
a) Unobservable input: Rental values
The rent at which space could be let in the market conditions prevailing at the date of valuation. The rent ranges per week are as follows:
30 June 2019 30 June 2018 31 December 2018
-------------------------- --------------------------- ----------------------------
GBP93 - GBP347 GBP101 - GBP347 GBP92 - GBP343
per week per week per week
b) Unobservable input: Rental growth
The estimated average annual increase in rent based on both market estimations and contractual arrangements. The assumed growths in valuations are as follows:
30 June 2019 30 June 2018 31 December 2018
------------------------ ------------------------ ----------------------------
2.57% 2.67% 2.63%
c) Unobservable input: Net yield
The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase. The ranges in net initial yields are as follows:
30 June 2019 30 June 2018 31 December 2018
------------------------- ------------------------- ----------------------------
4.50% - 7.00% 4.50% - 6.25% 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 for the student properties has been prepared by the valuer:
-3% change +3% change
in rental in rental -0.25% change +0.25% change
income income in yield in yield
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ---------- ---------- ------------- -------------
(Decrease)/increase in
the fair
value of investment properties
As at 30 June 2019 (41,290) 41,230 48,810 (44,590)
As at 30 June 2018 (38,950) 39,030 45,310 (41,440)
As at 31 December 2018 (40,320) 40,290 47,270 (43,210)
-------------------------------- ---------- ---------- ------------- -------------
7. Borrowings
The existing facilities are secured by charges over individual investment properties held by certain asset-holding subsidiaries. These assets have a fair value of GBP868 million at 30 June 2019. In some cases, the lenders also hold charges over the shares of the subsidiaries and the intermediary holding companies of those subsidiaries.
A summary of the drawn and undrawn bank borrowings in the period is shown below:
Bank borrowings Bank borrowings
drawn 30 June undrawn 30 Total
2019 June 2019 30 June 2019
GBP'000 GBP'000 GBP'000
------------------------------------ ---------------- --------------- -------------
At 1 January 2019 (audited) 330,000 60,000 390,000
Bank borrowings drawn in the period 20,000 (20,000) -
------------------------------------ ---------------- --------------- -------------
At 30 June 2019 (unaudited) 350,000 40,000 390,000
==================================== ================ =============== =============
At 1 January 2018 (audited) 303,829 86,201 390,030
Bank borrowings drawn in the period 16,201 (16,201) -
------------------------------------ ---------------- --------------- -------------
At 30 June 2018 (unaudited) 320,030 70,000 390,030
==================================== ================ =============== =============
At 1 January 2018 (audited) 303,829 86,201 390,030
Bank borrowings from new facilities
in the year 30,600 - 30,600
Bank borrowings drawn in the year 36,201 (26,201) 10,000
Bank borrowings repaid in the year (40,630) - (40,630)
------------------------------------ ---------------- --------------- -------------
At 31 December 2018 (audited) 330,000 60,000 390,000
==================================== ================ =============== =============
Any associated fees in arranging the bank borrowings unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below:
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
Current borrowings GBP'000 GBP'000 GBP'000
------------------------------------- -------------- ------------- --------------
Balance brought forward 55,500 21,190 21,190
Bank borrowings becoming current
in the period 10,000 - 55,500
Less: Bank borrowings repaid in
the year - - (30,630)
Bank borrowings drawn down in the
year - 9,440 9,440
------------------------------------- -------------- ------------- --------------
Bank borrowings: due in less than
one year 65,500 30,630 55,500
Less: Unamortised costs (114) (241) (240)
------------------------------------- -------------- ------------- --------------
Current liabilities: Bank borrowings 65,386 30,389 55,260
===================================== ============== ============= ==============
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
Non-current borrowings GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ------------- --------------
Balance brought forward 274,500 282,639 282,639
Total bank borrowings in the period 20,000 6,761 66,801
Less: Bank borrowings becoming non-current
during the period - - 21,190
Less: Bank borrowings becoming current
during the period (10,000) - (55,500)
Less: Bank borrowings repaid during
the period - - (40,630)
------------------------------------------- -------------- ------------- --------------
Bank borrowings: due in more than
one year 284,500 289,400 274,500
Less: Unamortised costs (5,016) (5,010) (5,510)
------------------------------------------- -------------- ------------- --------------
Non-current liabilities: Bank borrowings 279,484 284,390 268,990
=========================================== ============== ============= ==============
Unaudited 30 Unaudited Audited 31
June 2019 30 June 2018 December 2018
Maturity of bank borrowings GBP'000 GBP'000 GBP'000
----------------------------------------- ------------- ------------- --------------
Repayable within 1 year 65,500 30,630 55,500
Repayable between 1 and 2 years 32,800 65,500 42,800
Repayable between 2 and 5 years 30,000 32,800 10,000
Repayable in over 5 years 221,700 191,100 221,700
-----------------------------------------
Non-current liabilities: Bank borrowings 350,000 320,030 330,000
========================================= ============= ============= ==============
Fair value
Fair value Book value less book value
Fair value of fixed rate debt GBP'000 GBP'000 GBP'000
------------------------------ ----------- ---------- ----------------
At 30 June 2019 - unaudited 243,317 217,626 25,691
At 30 June 2018 - audited 197,329 187,799 9,530
As at 31 December 2018 230,677 217,514 13,163
The fair value of the fixed rate debt has been valued by independent financial valuation expert, JCRA. The floating rate debt has been excluded as it is assumed the carrying value will be similar to the fair value.
The fair value of these contracts is determined by discounting the future cash flows estimated to be paid or received under these contracts using a valuation technique based on forward rates derived from short-term rates, futures, swap rates and implied option volatility.
8. Net Asset Value ("NAV") 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:
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- ------------- --------------
Net assets per Statement of Financial
Position 653,806 636,306 639,890
Adjustment to exclude the fair value
loss of financial instruments 112 422 238
EPRA NAV 653,918 636,728 640,128
-------------------------------------- -------------- ------------- --------------
Adjustment to include fair value of
debt (25,691) (9,530) (13,163)
Adjustment to include the fair value
loss of financial instruments (112) (422) (238)
EPRA NNNAV 628,115 627,776 626,727
-------------------------------------- -------------- ------------- --------------
Ordinary shares Number Number Number
-------------------------------------- -------------- ------------- --------------
Issued share capital 602,887,740 602,887,740 602,887,740
Issued share capital plus employee
options 604,437,181 604,545,037 603,871,448
-------------------------------------- -------------- ------------- --------------
Pence Pence Pence
-------------------------------------- -------------- ------------- --------------
NAV per share basic 108.45 105.54 106.14
NAV per share diluted 108.17 105.25 105.96
EPRA NAV per share basic 108.46 105.61 106.18
EPRA NAV per share diluted 108.19 105.32 106.00
EPRA NNNAV per share basic 104.18 103.96 103.95
EPRA NNNAV per share basic 103.92 103.68 103.78
-------------------------------------- -------------- ------------- --------------
9. Capital Commitments
As at 30 June 2019, the Group had total capital commitments of GBP25 million (31 December 2018: GBP38 million) relating to forward funded or direct developments.
10. Related Party Disclosures
Key Management Personnel
Key management personnel are considered to comprise the Board of Directors.
Share Capital
There were no share transactions by related parties during the period.
Share-Based Payments
On 25 April 2019, the Company granted Tim Attlee, Chief Executive Officer, nil-cost options over 43,818 ordinary shares in the Company ("Ordinary Shares") and Lynne Fennah, Chief Financial and Operating Officer, nil-cost options over 57,559 Ordinary Shares relating to the deferred shares element of the annual bonus award for the financial period to 31 December 2018 (the "Annual Bonus Award").
On the same date, the Company granted nil-cost options over a total of 502,757 ordinary shares to Lynne Fennah pursuant to the Empiric Long Term Incentive Plan (the "LTIP") for the 2019 financial year.
Board Change
On 1 March 2019, the Board announced that Alice Avis MBE had been appointed as Non-Executive Director with effect from 1 March 2019. Alice joined the Remuneration Committee from this date.
Stephen Alston resigned from his position as a Non-Executive Director with effect from 29 March 2019.
11. Subsequent Events
On 19 August 2019, the Board declared a dividend of 1.25 pence per ordinary share in respect of the quarter ended 30 June 2019, which is to be paid on 20 September 2019 to ordinary shareholders on the register on 6 September 2019.
12. Share Premium Cancellation
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 realised profit, giving us the flexibility to declare dividends or make other distributions to shareholders, although there is no current intention to do so.
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 rns@lseg.com or visit www.rns.com.
END
IR MMGMRGLMGLZZ
(END) Dow Jones Newswires
August 20, 2019 02:00 ET (06:00 GMT)
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