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: 020 7029 8000
Stuart Klein
Tom Yeadon
RBC Europe Limited (trading as RBC Tel: 020 7653 4000
Capital Markets)
Charlie Foster
Marcus Jackson
M aitland/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.
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
empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379 5151.
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%
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1 2 3 4 We clearly defined our Purpose, Vision and Values
5
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1 2 3 4 We introduced the Colleague Forum
5
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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
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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
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1 2 3 4
5 Our portfolio achieved like-for-like valuation uplift of 3.6%
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1 2 3 4
5 We completed two employee surveys in the year
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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 rns@lseg.com or visit www.rns.com.
END
FR MZGMFZNRGGZZ
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