TIDMESP
RNS Number : 5552J
Empiric Student Property PLC
20 August 2019
20 August 2019
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries,
the "Group")
HALF YEAR RESULTS FOR THE SIX MONTHS TO 30 JUNE 2019
Empiric Student Property plc (ticker: ESP), the owner and
operator of premium student accommodation across the UK, is today
reporting its half year results for the six months ended 30 June
2019.
Tim Attlee, Chief Executive Officer of Empiric Student Property
plc, commented:
"We have made good progress over the last six months and have
delivered the most significant part of our operational
transformation, from being a real estate owner to a fully
integrated operational business with customer service at its heart.
We continue to develop a dynamic and well-targeted digital
marketing platform, and bookings for the 2019/20 academic year are
progressing well. We are continuing to improve our financial and
operational performance, which remains in line with market
guidance, and we are confident in the outlook for our
business."
Financial headlines
H1 2019 H1 2018 FY 2018 Change from
H1 2018
Revenue GBP35.7m GBP31.3m GBP64.2m +14%
--------- --------- --------- ------------
Gross margin 68.5% 62.3% 61.8% +10%
--------- --------- --------- ------------
Administration expenses GBP5.0m GBP4.9m GBP9.1m -3%
--------- --------- --------- ------------
Profit before tax GBP28.8m GBP21.7m GBP40.3m +33%
--------- --------- --------- ------------
Basic earnings per
share 4.78p 3.60p 6.68p +33%
--------- --------- --------- ------------
Adjusted earnings
per share 2.36p 1.50p 3.20p +57%
--------- --------- --------- ------------
Dividends declared
per share 2.50p 2.50p 5.0p 0%
--------- --------- --------- ------------
Dividend cover 94% 60% 64% +57%
--------- --------- --------- ------------
As at 30 June 2019 30 June 2018 31 December Change from
2018 31 December
2018
Property valuation GBP1,001m GBP945m GBP971m +3%
------------- ------------- ------------ -------------
EPRA NAV per share 108.5p 105.6p 106.2p +2%
------------- ------------- ------------ -------------
Net Debt GBP345m GBP315m GBP324m +6%
------------- ------------- ------------ -------------
LTV 32% 31%(1) 31% +3%
------------- ------------- ------------ -------------
Strong Revenue Growth Driving Bottom Line Performance
-- Revenue grown by 14% to GBP35.7 million (H1 2018: GBP31.3 million).
-- Gross margin increased to 68.5% (H1 2018: 62.3%), on track
for our full year target of greater than 67%.
-- Profit before tax for the period rose 33% to GBP28.8 million (H1 2018: GBP21.7 million).
-- Basic earnings per share of 4.78 pence (H1 2018: 3.60 pence)
and adjusted earnings per share increased 57% to 2.36 pence (H1
2018: 1.50 pence).
-- Dividends of 2.50 pence per share were 94% covered by
adjusted earnings (H1 2018: 60%). We are on track for our target of
approximately 85% cover for 2019 given the typical seasonality of
trading.
Transforming Operational Performance
-- Facilities management for the remaining 57 operating assets
brought in-house at the end of March 2019. Significant progress
made with in-sourcing programme with revenue management on track
for 2021.
-- Reduction in the average cost per bed of 11% compared to the first half of 2018.
-- Senior leadership team now in place and performing well.
-- Administration costs of GBP5.0 million (H1 2018: GBP4.9
million), in line with our full-year target of around GBP10
million.
Income and Rental Growth Accelerating
-- Rapid and successful action taken to enhance sales
capabilities and attract short-term lets resulted in occupancy of
97% for the 2018/19 academic year as at 30 June 2019.
-- Bookings of 85% for the 2019/20 academic year at 19 August and progressing well.
-- Achieved a rebooker rate at this stage of 22% for the 2019/20 academic year.
-- 8% of beds are under nomination agreements with universities for the 2019/20 academic year.
High Quality Portfolio of Well-Located Assets
-- Property portfolio valued at GBP1,001 million at 30 June 2019
(31 December 2018: GBP971 million), representing a like-for-like
increase of 3.1%.
-- EPRA Net Asset Value per share up 2% to 108.5 pence (31 December 2018: 106.2 pence).
-- 95 assets with 9,401 beds contracted as at 30 June 2019 (31 December 2018: 9,397 beds).
-- 91 operating or revenue-generating assets with 8,714 beds at
the period end, with an average valuation yield of 5.58%.
-- Development pipeline of 687 beds to be delivered over the
next three academic years. In addition, 240 beds will come out of
operation this September in Southampton, Emily Davies and be
redeveloped.
Robust Financial Position
-- Total return up by 29% to 4.5% for the period (H1 2018: 3.5%).
-- Net debt of GBP345 million at 30 June 2019 (31 December 2018:
GBP324 million), resulting in a loan-to-value ratio of 32% (31
December 2018: 31%), below our long-term target of 35% and maximum
of 40%.
-- Of our total debt of GBP350 million, GBP222 million (63%) is
at fixed interest rates, GBP92 million (27%) is at floating rates,
and GBP36 million (10%) is subject to interest rate caps or swaps.
The aggregate cost of debt is 3.22%, with a weighted average term
to maturity of 7.1 years. We complied fully with our covenants
during the period.
Post Period End
On 19 August 2019, the Board declared a dividend of 1.25 pence
per ordinary share in respect of the quarter ended 30 June 2019,
which is to be paid on 20 September 2019 to ordinary shareholders
on the register on 6 September 2019. The Company is on track to
deliver its full-year target dividend of 5.0 pence.(2)
1 In December 2018, the Group changed the way LTV is measured to
bring it in line with its peers. See page 23 of December 2018
Annual Report for more detail.
2 The figures in relation to prospective dividends set out above
are not intended to be, and should not be taken as, a profit
forecast or estimate, or a dividend declaration.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Empiric Student Property plc (via Maitland/AMO below)
Tim Attlee (Chief Executive Officer)
Lynne Fennah (Chief Financial &
Operating Officer)
Jefferies International Limited Tel: 020 7029 8000
Gary Gould
Stuart Klein
Maitland/AMO (Communications Adviser) Tel: 020 7379 5151
James Benjamin Email: empiric-maitland@maitland.co.uk
The Company's LEI is 213800FPF38IBPRFPU87.
Further information on Empiric can be found on the Company's
website at www.empiric.co.uk.
Notes:
Empiric Student Property plc is a leading provider and operator
of modern, direct-let, nominated or leased student accommodation
across the UK. Investing in both operating and development assets,
Empiric is a multi-niche student property company focused on, (i)
providing good quality first year accommodation managed through its
Hello Student(R) operating platform in partnership with
universities, (ii) offering a variety of second and third year
purpose-built accommodation options for individual students and
those wanting a group living environment, and (iii) continuing to
expand the Group's existing premium, studio-led accommodation
portfolio which is attractive to international and postgraduate
students.
The Company, an internally managed real estate investment trust
("REIT") incorporated in England and Wales, listed on the premium
listing segment of the Official List of the Financial Conduct
Authority and was admitted to trading on the main market for listed
securities of the London Stock Exchange in June 2014.
A meeting for investors and analysts will be held at 9.00am
today at:
Maitland
3 Pancras Square
London
N1C 4AG
The presentation will also be accessible via a live conference
call and on-demand via the Company website:
https://www.empiric.co.uk/investor-information/company-documents
Those wishing to attend the presentation or access the live
conference call are kindly asked to contact Maitland at
empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379
5151.
In addition, a recorded webcast of this meeting and the
presentation will also be available to download on-demand from the
Company's website: www.empiric.co.uk.
Please note for environmental reasons there will be no hard
copies of the Interim Report and Accounts sent to shareholders.
Empiric Student Property Plc Interim Report to 30 June 2019
MANAGEMENT REPORT
This was a positive six months for Empiric. The considerable
work since the start of 2018 to transform the business is being
increasingly reflected in our financial performance and customer
satisfaction, where 79% of students surveyed said they would
recommend our accommodation to others. During the first half, we
delivered strong growth in revenue (up 14%) and a further increase
in gross margin to 68.5%, contributing to dividend cover of 94%. We
are confident of meeting our financial and operational targets for
the year. At the same time, we are continuing to strengthen the
business through further operational improvements and by investing
in our people.
Our Market
The UK higher education sector continues to both grow and
polarise. There is strong demand for education at top tier
universities, but the bottom tier are struggling to attract more
students. This means selectivity of location is key when student
accommodation providers are considering their growth plans.
There were two notable developments in Government policy during
the period, both of which are positive for Empiric. In March 2019,
the Departments for Education and International Trade published a
plan to increase the number of international students studying in
the UK by more than 30%. The UK currently hosts around 460,000
international higher education students and the education sector
generates approximately GBP20 billion per year through education
exports and transactional activity. The Government strategy sets
out an ambition to grow the total number of international students
to 600,000 and generate GBP35 billion by 2030 - a rise of 75%.
In May 2019, the Report of the Augur Review of higher education
suggested a reduction in tuition fees from the current GBP9,250 a
year to GBP7,500, balanced by extending repayment periods from 30
to 40 years. It also called for the return of maintenance grants
for poorer students. The proposals, if adopted, should help to
bolster the number of applicants and the reduction in revenue for
universities could incentivise them to further increase their
student numbers. However, until it becomes clear if the Government
will adopt the proposals, it is difficult to understand the full
impact.
Operational Review
The level of revenue we generate is the main determinant of our
gross margin. We therefore worked hard to maximise our revenue for
the 2018/19 academic year by attracting short-term lets. Our new
Customer Relations Team, which began work in January 2019, was
highly successful in supporting this effort, with occupancy of 97%
for the 2018/19 academic year at 30 June 2019.
We have also undertaken several initiatives to help drive
occupancy and revenue for future academic years, drawing on
enhancements we have made to our management information and
analytics. This gives us greater insight into our markets, which
helps to prevent shortfalls in occupancy but also allows us to earn
more revenue from assets that would otherwise fill too quickly.
We are also generating enhanced insights from our digital
marketing platform. This gives us greater understanding of the best
channels for acquiring and retaining web traffic, the quality of
the proposition we present online to potential customers and our
ability to convert website visitors to signed leases. These
insights have enabled us to control our pay-per-click spend and
adjust our advertising and media focus, resulting in a marked
increase in conversion rates.
During the period, we carried out a customer survey to
understand what our customers want from their accommodation and how
we rate against each of their criteria. This showed that overall
our students are satisfied with our service, with most criteria
scoring above 3.5 out of 5. The survey has also helped us to update
the proposition on our website to highlight the areas of greatest
interest to customers, again leading to improvements in converting
bookings to lettings.
The work described above has contributed to bookings of 85% for
the 2019/20 academic year as at 19 August, broadly in line with
last year, and we remain on track to achieve our revenue
forecast.
During the period, we brought facilities management ("FM") for
the remaining 57 operating properties in-house, having brought the
first 27 in-house ahead of the 2018/19 academic year. This saves us
the outsourced providers' profit margin and VAT, which we are
unable to reclaim. It also means that for the first time we have
complete control of our properties and have granular data on the
condition of each asset. This will allow us to manage property
lifecycles effectively, to prevent failures while minimising spend
and giving us a closer relationship with our students. In addition,
we now have full control of procurement and can secure better rates
by offering national contracts to potential suppliers. For example,
our customer survey showed internet speed was one of the top three
criteria for our customers. We have procured a national broadband
contract which will double speeds up to 200 megabytes per second
while reducing per unit costs.
This was an important six months in terms of our people. We
strengthened the team at a senior level and now directly employ all
the people who work in our business. At the period end, Empiric
employed 328 people; for the first time we have a single team where
we are working to instil a responsive dynamic culture focused on
delivering higher standards of service more efficiently at a lower
cost.
In May we completed the Senior Leadership Team with the
recruitment of a Commercial Director. We have also streamlined the
operational management structure, to make it more efficient.
We recognise that our people are key to delivering the Homes,
not Halls brand experience for our customers. During the period we
have further developed our people strategy, which aims to make
Empiric a great place to work through a focus on organisational
agility, having a performance and learning culture, delivering the
best customer experience, and growth. This is underpinned by a set
of People Principles, covering, for example, our approach to
recruitment, our people policies and practices, pay and reward,
adapting to changing expectations, learning and development, and
engagement.
Information technology is an important focus area. We currently
have two managed service providers for our IT systems, covering
head office and our student properties. We recently completed a
tender to move to a single service provider, with the new contract
starting in November 2019. The development of our new revenue
management system is also progressing well. This system will allow
us to process bookings, rent demands and rent collection in-house.
We plan to trial it in a single property in November 2019, for the
2020/21 academic year. There are also opportunities to continue to
enhance automation and our use of data, and to ensure we employ
consistent tools and processes to run all of our buildings.
Financial Performance
Revenue increased by 14% to GBP35.7 million (H1 2018: GBP31.3
million). The growth was primarily driven by improved occupancy,
the contribution from new developments completed, rental growth and
a full period of ownership of Emily Davies Hall, Southampton
(acquired in February 2018).
Property expenses were lower at GBP11.2 million (H1 2018:
GBP11.8 million) despite the increase in the number of operating
assets, driven by a reduction of the average cost per bed by 11%
compared to the first half of 2018, and we expect to see further
benefits flow through the balance of 2019 and in 2020, which will
be the first full year of having FM in-house. This performance
resulted in a further improvement in gross margin to 68.5%, up from
62.3% for the first half of 2018 and 61.8% for 2018 as a whole.
We maintained our rigorous focus on controlling administrative
expenses, which were broadly flat at GBP5.0 million (H1 2018:
GBP4.9 million) and in line with our target of around GBP10 million
for the year.
Operating profit under IFRS was GBP35.1 million (H1 2018:
GBP28.2 million). This included an aggregate revaluation uplift of
GBP15.7 million on our property portfolio at the period end (H1
2018: GBP13.6 million).
Net financing costs for the period were GBP6.3 million, net of
interest earned and the fair value gain on interest rate swaps (H1
2018: GBP6.5 million).
Profit before tax was GBP28.8 million (H1 2018: GBP21.7
million), an increase of 33%. No corporation tax was charged in the
period, as the Group fulfilled all of its obligations as a
REIT.
Adjusted EPS, the most relevant measure when assessing dividend
distributions, was 2.36 pence (H1 2018: 1.50 pence), resulting in
dividend cover of 94% (H1 2018: 60%), an increase of 57%. Adjusted
EPS is defined in Note 4 below.
Of the total dividend paid in the period, 0.68 pence per share
was declared as property income dividends and 1.82 pence per share
was declared as ordinary UK dividends (H1 2018: 1.04 pence and 1.46
pence respectively).
Dividends
The dividends paid or declared in relation to the period are
shown in the table below:
Quarter to Declared Paid Amount (p)
------------------- ----------------- ------------------ ----------
31 December 2018 20 February 2019 22 March 2019 1.25
------------------- ----------------- ------------------ ----------
31 March 2019 29 May 2019 28 June 2019 1.25
------------------- ----------------- ------------------ ----------
Total paid 2.50
---------------------------------------------------------- ----------
30 June 2019 19 August 2019 20 September 2019 1.25
------------------- ----------------- ------------------ ----------
Total declared not
paid 1.25
---------------------------------------------------------- ----------
As at 30 June 2019, the Net Asset Value ("NAV") per share was
108.45 pence, prior to adjusting for the interim dividend of 1.25
pence per share (31 December 2018: 106.14 pence, prior to adjusting
for the interim dividend of 1.25 pence per share).
At the period end, the Company had distributable reserves of
over GBP500 million, offering substantial headroom for dividend
payments. At the Annual General Meeting ("AGM") on 2 May 2019,
shareholders approved a resolution to cancel the Company's share
premium account, which stood at GBP467 million. The court order to
confirm the cancellation was received on 4 June 2019, following
which the share premium account was cancelled. Cancellation results
in this capital being treated as distributable profit, giving us
the flexibility to declare dividends, or make other distributions
to shareholders, although we have no current intention to do
so.
Financing
Our debt facilities were unchanged during the period. At the
period end, we had committed debt facilities of GBP390 million, of
which GBP350 million (31 December 2018: GBP330 million) had been
drawn down. This resulted in an LTV of 32% (31 December 2018: 31%).
The aggregate cost of debt is 3.22%, with a weighted average term
to maturity of 7.1 years at 30 June 2019. We fully complied with
our covenants during the period.
Of our total drawn down facilities, GBP222 million is at fixed
interest rates and GBP92 million is at floating rates, with GBP36
million subject to interest rate caps or swaps.
In October 2019, we will draw down the remaining GBP55.5 million
of the facility we entered into with Scottish Widows Limited in
December 2018. This will be used to repay an expiring NatWest
facility.
Transfer of Listing Category
At IPO, Empiric was categorised as a premium listed closed-ended
investment fund, under the Listing Rules. This required us to
follow an investment policy, operating within specific parameters.
Given our evolution into an operating business, the Board concluded
that we would be better served by being classified as a commercial
company. Shareholders approved the transfer of listing category at
the AGM and it became effective on 3 June 2019.
The Board believes that the transfer of its listing category to
that of a commercial company more appropriately reflects the
current management and operating structure, improves comparability
with the majority of internally managed REITs on the London Stock
Exchange, and affords cost and efficiency savings.
Portfolio
As at 30 June 2019, the Group owned, or was committed on, 95
assets representing 9,401 beds (31 December 2018: 9,397 beds). The
portfolio included 91 revenue-generating properties at the period
end, with 8,714 beds. We are currently exploring opportunities
within our portfolio to develop or reposition a number of assets.
This includes continually evaluating our portfolio and looking for
opportunities to dispose of non-core assets when market conditions
are favourable.
Developments and Redevelopment
At the period end, we had a pipeline of six development
projects, as shown in the table below:
Site Development Basis Beds Delivery Year
---------------------------- -------------------------------- ---- -------------
140/142 New Walk, Leicester Forward funded 52 2019
---------------------------- -------------------------------- ---- -------------
King's Stables Road, Forward funded 166 2019
Edinburgh
---------------------------- -------------------------------- ---- -------------
Ocean View, Falmouth Direct development 190 2019
---------------------------- -------------------------------- ---- -------------
408
------------------------------------------------------------- ---- -------------
Emily Davies, Southampton Major refurbishment 232 2020
---------------------------- -------------------------------- ---- -------------
FISC, Canterbury Major refurbishment/development 134 2021
---------------------------- -------------------------------- ---- -------------
St Mary's, Bristol Direct development 153 2021
---------------------------- -------------------------------- ---- -------------
519
------------------------------------------------------------- ---- -------------
The Edinburgh development is now complete and the Falmouth
project will complete in two phases in the 2019/20 academic year.
The Leicester development will only open in January 2020, but our
income is mitigated through a rental guarantee.
Valuation
Each property in the portfolio has been independently valued by
CBRE, in accordance with the Royal Institution of Chartered
Surveyors ("RICS") Valuation - Professional Standards January 2014
and the UK national supplement 2018 (the "Red Book"). At 30 June
2019, the portfolio was valued at GBP1,000.7 million, an increase
of 3% during the period (31 December 2018: GBP970.6 million).
The valuation increase was driven by improvements in income,
rental growth and capital expenditure. Additionally, investment
yields in prime student accommodation markets contracted slightly
during the first half of 2019, while secondary markets, which
represent only a modest proportion of our portfolio, saw yields
soften during the period.
Total Return ("TR")
TR is the growth in NAV per share plus dividends paid per share
in the period, as a percentage of the opening NAV per share. The TR
for the six months to 30 June 2019 was 4.53% (H1 2018: 3.52%).
Post Balance Sheet Events
On 19 August 2019, the Board declared a dividend of 1.25 pence
per ordinary share in respect of the quarter ended 30 June 2019,
which is to be paid on 20 September 2019 to ordinary shareholders
on the register on 6 September 2019.
Board
- On 1 March 2019, Alice Avis MBE joined as a Non-Executive
Director, bringing over 25 years of experience in advertising,
branding, marketing, e-commerce and consultancy across the consumer
goods and retail sectors.
- Stephen Alston resigned from his position as a Non-Executive
Director with effect from 29 March 2019.
Looking Forward
We are on track to deliver our financial targets for 2019. As we
have previously explained, student accommodation businesses are
seasonal, with lower revenues and profit in the third quarter due
to voids and turnaround costs between tenancy periods. The Group's
fourth quarter is then the first of the next academic year, when we
expect to achieve our highest margins. We therefore continue to
expect a gross margin above 67%, administrative costs in the region
of GBP10 million and dividend cover of around 85% for 2019.
Our operational transformation has come a long way and we are
continuing to improve the performance of the business. Our focus
remains:
- Delivering our financial targets
- Building an excellent and cost-efficient operational platform
- Providing exceptional customer service
- Creating value for shareholders
Together, these will enable us to consider appropriate routes by
which we can grow the business.
Tim Attlee Lynne Fennah
Chief Executive Chief Financial
Officer and Operating Officer
19 August 2019
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
INTERIM REPORT AND ACCOUNTS
The Directors confirm that to the best of their knowledge this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the operating and financial review herein includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8 of the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority, namely:
- an indication of important events that have occurred during
the first six months of the financial period and their impact on
the condensed financial statements and a description of the
principal risks and uncertainties for the remaining six months of
the financial period; and
- material related party transactions in the first six
months.
A list of the current Directors is shown on page 27 of the
Interim Report. Shareholder information is as disclosed on the
Empiric Student Property plc website, www.empiric.co.uk.
For and behalf of the Board
Mark Pain, Chairman
19 August 2019
KEY PERFORMANCE INDICATORS ("KPIS")
Financial KPIs
Gross Margin (%) Performance H1 2018
The gross margin reflects our ability to
drive occupancy and to control rigorously
our operating costs. 68.5% 62.3%
------------ ------------
Adjusted Earnings per Share (p) Performance H1 2018
------------ ------------
Adjusted earnings per share is the earnings
measure that best demonstrates our ability
to reward shareholders through dividends. 2.36p 1.50p
------------ ------------
Dividend Cover (%) Performance H1 2018
------------ ------------
Dividend cover shows our ability to pay
dividends out of current year adjusted earnings. 94% 60%
------------ ------------
Net Asset Value per Share (p) Performance 31 December
2018
------------ ------------
Growth in the NAV per share reflects the
quality of our assets and our ability to
generate revenue from them. 108.45p 106.14p
------------ ------------
Total Return (%) Performance H1 2018
------------ ------------
The total return shows the aggregate value
we have created for shareholders, through
both capital growth of NAV and dividends. 4.53% 3.52%
------------ ------------
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties we face are described in
detail on pages 29 to 33 of our Annual Report and Accounts for the
year ended 31 December 2018. The Audit Committee, which assists the
Board with its responsibilities for managing risk, considers that
those principal risks and uncertainties were unchanged during the
period.
Brexit
The Board continues to review the potential impact of Brexit on
the Group's business. While we do not deem it to be a principal
risk at this stage, we are monitoring developments. The reasoning
behind this decision is described in detail on page 29 of our
Annual Report and Accounts for the year ended 31 December 2018.
Principal Risks
The principal risks and uncertainties described in the Annual
Report and Accounts are summarised below:
Strategic Risks
- Development of the UK higher education market generally, or
any change in demand from international students
- Competition in the PBSA sector from UK and international property investors
Investment Risks
- General property and investment market conditions
- Dependence on both the rental income received from our
properties and the appreciation in property values
Development Risk
- General development risks, including construction risks and changes in market conditions
Funding Risk
- Inability to raise equity or debt on acceptable terms
People Risk
- Reliance on performance of the Executive Directors and senior staff
Operational Risks
- Ability to respond and adapt to the changing planning and regulatory environment
- Health and safety
- Control of costs
- Changes to the Company's tax status or UK tax legislation
- Inability to maintain occupancy rates
- Cyber security
INDEPENT REVIEW REPORT TO EMPIRIC STUDENT PROPERTY PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2019 which comprise the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Changes in Equity, the Condensed
Consolidated Statement of Cash Flows and related notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards ("IFRSs") as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, as adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of Our Report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London, United Kingdom
19 August 2019
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
Notes GBP'000 GBP'000 GBP'000
----------------------------------- ----- ----------- ----------- ---------------
Continuing operations
Revenue 35,735 31,289 64,156
Property expenses (11,245) (11,787) (24,500)
Gross profit 24,490 19,502 39,656
----------------------------------- ----- ----------- ----------- ---------------
Administrative expenses (5,030) (4,873) (9,071)
Change in fair value of investment
property 6 15,680 13,600 22,375
Operating profit 35,140 28,229 52,960
----------------------------------- ----- ----------- ----------- ---------------
Finance cost (6,408) (6,573) (12,788)
Finance income 94 46 104
----------- ----------- ---------------
Net finance cost 2 (6,314) (6,527) (12,684)
Profit before tax 28,826 21,702 40,276
----------------------------------- ----- ----------- ----------- ---------------
Corporation tax 3 - - -
Profit for the period 28,826 21,702 40,276
----------- ----------- ---------------
Other comprehensive income
Items that will be reclassified
to profit and loss
Fair value gain on cash flow hedge 104 239 402
Total comprehensive income for
the period 28,930 21,941 40,678
----------------------------------- ----- ----------- ----------- ---------------
Earnings per share expressed as
pence per share
Basic 4 4.78 3.60 6.68
Diluted 4 4.77 3.59 6.67
----------------------------------- ----- ----------- ----------- ---------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
Unaudited Audited 31
30 June Unaudited December
Notes 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
---------------------------------- ----- ---------------- -------------- ----------
Non-current assets
Property, plant and equipment 338 420 366
Intangible assets 1,406 1,332 1,253
Investment property - operational
assets 6 943,561 893,121 929,371
Investment property - development
assets 6 57,619 52,510 41,670
---------------------------------- ----- ---------------- -------------- ----------
1,002,924 947,383 972,660
---------------------------------- ----- ---------------- -------------- ----------
Current assets
Trade and other receivables 10,288 13,294 13,747
Fixed term deposit 10,000 - 10,000
Cash and cash equivalents 22,509 26,326 23,473
---------------------------------- ----- ---------------- -------------- ----------
42,797 39,620 47,220
---------------------------------- ----- ---------------- -------------- ----------
Total assets 1,045,721 987,003 1,019,880
================================== ===== ================ ============== ==========
Current liabilities
Trade and other payables 35,950 25,311 28,535
Borrowings 7 65,386 30,389 55,260
Derivative financial liability 112 334 237
Deferred rental income 10,983 10,186 26,968
---------------------------------- ----- ---------------- -------------- ----------
112,431 66,220 111,000
---------------------------------- ----- ---------------- -------------- ----------
Non-current liabilities
Bank borrowings 7 279,484 284,390 268,990
Derivative financial liability - 87 -
---------------------------------- ----- ---------------- -------------- ----------
279,484 284,477 268,990
---------------------------------- ----- ---------------- -------------- ----------
Total liabilities 391,915 350,697 379,990
---------------------------------- ----- ---------------- -------------- ----------
Total net assets 653,806 636,306 639,890
---------------------------------- ----- ---------------- -------------- ----------
Called up share capital 6,029 6,029 6,029
Share premium - 467,268 467,268
Capital reduction reserve 497,654 60,530 45,458
Retained earnings 150,099 102,722 121,215
Cash flow hedge reserve 24 (243) (80)
---------------------------------- ----- ---------------- -------------- ----------
Total equity/net assets 653,806 636,306 639,890
Total equity and liabilities 1,045,721 987,003 1,019,880
================================== ===== ================ ============== ==========
Net Asset Value per share basic
(pence) 8 108.45 105.54 106.14
Net Asset Value per share diluted
(pence) 8 108.17 105.25 105.96
EPRA Net Asset Value per share
basic (pence) 8 108.46 105.61 106.18
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
Period from 1 January to 30 June 2019 (unaudited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ------------- ---------- --------- -------------- --------
Balance at 1 January 2019 6,029 467,268 45,458 121,215 (80) 639,890
Changes in equity
Profit for the period - - - 28,826 - 28,826
Fair value gain on cash
flow hedge - - - - 104 104
--------------------------- --------- ------------- ---------- --------- -------------- --------
Total comprehensive income
for the period - - - 28,826 104 28,930
Share-based payment - - - 58 - 58
Reduction in share premium
(Note 12) - (467,268) 467,268 - - -
Dividends - - (15,072) - - (15,072)
--------------------------- --------- ------------- ---------- --------- -------------- --------
Total contributions and
distribution recognised
directly in equity - (467,268) 452,196 58 - (15,014)
--------------------------- --------- ------------- ---------- --------- -------------- --------
Balance at 30 June 2019 6,029 - 497,654 150,099 24 653,806
=========================== ========= ============= ========== ========= ============== ========
Period from 1 January to 30 June 2018 (unaudited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Balance at 1 January 2018 6,029 467,268 75,602 80,841 (482) 629,258
Changes in equity
Profit for the period - - - 21,702 - 21,702
Fair value gain on cash
flow hedge - - - - 239 239
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Total comprehensive income
for the period - - - 21,702 239 21,941
Share-based payment - - - 179 - 179
Dividends - - (15,072) - - (15,072)
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Total contributions and
distribution recognised
directly in equity - - (15,072) 179 - (14,893)
--------------------------- --------- ------------- ----------------- ----------------- -------------- --------
Balance at 30 June 2018 6,029 467,268 60,530 102,722 (243) 636,306
=========================== ========= ============= ================= ================= ============== ========
Year from 1 January to 31 December 2018 (audited)
Called Capital
up share reduction Retained Cash flow Total
capital Share premium reserve earnings hedge reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Balance at 1 January 2018 6,029 467,268 75,602 80,841 (482) 629,258
Changes in equity
Profit for the period - - - 40,276 - 40,276
Fair value gain on cash
flow hedge - - - - 402 402
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Total comprehensive income
for the period - - - 40,276 402 40,678
Share-based payment - - - 98 - 98
Dividends - - (30,144) - - (30,144)
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Total contributions and
distribution recognised
directly in equity - - (30,144) 98 - (30,046)
--------------------------- --------- ------------- ------------- ------------- -------------- --------
Balance at 31 December
2018 6,029 467,268 45,458 121,215 (80) 639,890
=========================== ========= ============= ============= ============= ============== ========
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ ----------- ---------------
Cash flows from operating activities
Profit before income tax 28,826 21,702 40,276
Share-based payments 58 179 98
Depreciation charge 128 148 299
Finance income (94) (46) (104)
Finance costs 6,408 6,573 12,788
Change in fair value of investment
property (15,680) (13,600) (22,375)
----------------------------------------- ------------ ----------- ---------------
19,646 14,956 31,230
Decrease in trade and other receivables 2,186 14,755 15,451
(Decrease)/increase in trade and other
payables (1,667) (2,866) 791
(Decrease)/increase in deferred rental
income (15,985) (12,099) 4,682
----------------------------------------- ------------ ----------- ---------------
(15,466) (210) 20,924
Net cash flows generated from operations 4,180 14,746 52,154
----------------------------------------- ------------ ----------- ---------------
Cash flows from investing activities
Purchase of tangible fixed assets (21) - (1)
Purchase of intangible assets (235) (2) (267)
Purchase of investment property (4,787) (36,600) (54,169)
Interest received 94 25 104
Fixed term deposit - - (10,000)
----------------------------------------- ------------ ----------- ---------------
Net cash flows from investing activities (4,949) (36,577) (64,333)
----------------------------------------- ------------ ----------- ---------------
Cash flows from financing activities
Dividends paid (14,645) (14,928) (30,144)
Bank borrowings 20,000 16,201 66,801
Repayments of bank borrowings - - (40,630)
Loan arrangement fees paid (4) (628) (2,058)
Finance costs (5,546) (5,209) (11,038)
----------------------------------------- ------------ ----------- ---------------
Net cash from financing activities (195) (4,564) (17,069)
----------------------------------------- ------------ ----------- ---------------
Decrease in cash and cash equivalents (964) (26,395) (29,248)
Cash and cash equivalents at beginning
of period 23,473 52,721 52,721
----------------------------------------- ------------ ----------- ---------------
Cash and cash equivalents at end of
period 22,509 26,326 23,473
========================================= ============ =========== ===============
UNAUDITED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
For the period 1 January 2019 to 30 June 2019
1. Accounting Policies
1.1. Trading Period
The condensed interim financial statements of the Group
reporting period is from 1 January 2019 to 30 June 2019.
1.2. Going Concern
The Group has performed strongly since IPO, having raised in
excess of GBP600 million from seven equity placements and GBP390
million of debt. The Group has deployed these funds across a
portfolio of operating assets that have stable income streams and
potential for capital appreciation. In addition, the Group has
committed to a number of developments which will become operational
in time for the 2019/20 academic year and beyond. As at 30 June
2019, the Group held GBP33 million of cash and fixed term deposits
that had not been invested in property but is expected to be
invested in line with these objectives.
The Group had undrawn debt facilities amounting to GBP40 million
as at 30 June 2019. GBP55 million of the Group's short-term debt
with NatWest will be repaid using the Scottish Widows facility
already in place.
The Directors are therefore satisfied that the Group has
sufficient resources to continue in operation for the foreseeable
future, for a period of not less than 12 months from the date of
this report.
1.3. Basis of Preparation
The condensed interim financial statements for the six months
ended 30 June 2019 have been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority (previously the Financial Services Authority) and with
IAS 34, Interim Financial Reporting, as adopted by the European
Union.
The condensed consolidated financial statements for the six
months ended 30 June 2019 have been reviewed by the Group's
independent auditor, BDO LLP, in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity and
were approved for issue on 19 August 2019.
The condensed consolidated financial statements presented herein
for the period to 30 June 2019 do not constitute full statutory
accounts within the meaning of section 434 of the Companies Act
2006. The Group's Annual Report and Accounts for the year to 31
December 2018 have been delivered to the Registrar of Companies.
The Group's independent auditor's report on those accounts was
unqualified, did not include references to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report and did not contain a statement under section 498(2) or
498(3) of the Companies Act 2006.
The Group's financial statements have been prepared on a
historical cost basis, except for investment property and
derivative financial instruments which have been measured at fair
value. The consolidated financial statements are presented in
Sterling, which is also the Group's functional currency.
The accounting policies adopted in this report are consistent
with those applied in the Group's statutory accounts for the year
ended 31 December 2018 and are expected to be consistently applied
during the year ending 31 December 2019.
1.4. Significant Accounting Judgements, Estimates and
Assumptions
The preparation of the Group's interim financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
Judgements
In the process of applying the Group's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the consolidated
interim financial statements:
a) Fair valuation of investment property
The market value of investment property is determined, by an
independent real estate valuation expert, to be the estimated
amount for which a property should exchange on the date of the
valuation in an arm's length transaction. Properties have been
valued on an individual basis. The valuation experts use recognised
valuation techniques and the principles of IFRS 13.
The valuations have been prepared in accordance with the Royal
Institution of Chartered Surveyors ("RICS") Valuation -
Professional Standards January 2014 and the UK national supplement
2018 (the "Red Book"). Factors reflected include current market
conditions, annual rentals, lease lengths, and location. The
significant methods and assumptions used by valuers in estimating
the fair value of investment property are set out in Note 6.
For properties under development the fair value is calculated by
estimating the fair value of the completed property using the
income capitalisation technique less estimated costs to completion
and an appropriate developer's margin.
b) Operating lease contracts - the Group as lessor
The Group has acquired investment properties which are subject
to commercial property leases with tenants. The Group has
determined, based on an evaluation of the terms and conditions of
the arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all the significant risks
and rewards of ownership of these properties and so accounts for
the leases as operating leases.
1.5. Impact of New Accounting Standards and Changes in
Accounting Policies
IFRS 16: Leases became effective on 1 January 2019 and as a
result this is the first period under this new standard.
The Group has applied IFRS 16 using the cumulative catch-up
approach, without restatement of the comparative information. For
leases the Group previously treated as operating leases, the Group
elected to measure its right-of-use assets with a lease
commencement date of the date of adoption of IFRS 16 (1 January
2019).
The Group has also made use of the allowance available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 14 will continue to be applied to
those leases entered into or altered before 1 January 2019.
As expected and detailed in the Group's Annual Report and
Accounts for the year to 31 December 2018, the Group's application
of IFRS 16 did not cause a material impact on the classification,
measurement and recognition of leases within the consolidated
financial statements.
While the Group has chosen the modified retrospective
transitional approach on adopting IFRS 16, no adjustment was
required to be made on adoption.
1.6. Seasonality of Operations
The results of the Group's operating business are closely
aligned to the levels of occupancy achieved by the property
portfolio in each academic year. Empiric targets 51-week tenancies,
with a one-week void period falling in September. This results in
slightly lower revenue on the existing portfolio in the second half
year combined with slightly higher costs from turning around the
rooms for the new academic year.
The Group counteracts this through the development cycle as
construction is timed to complete ready for the start of the
academic year in September each year. These new properties becoming
available increases revenue in the second half year.
1.7. Segmental Information
The Directors are of the opinion that the Group is engaged in a
single segment business, being the investment in student and
commercial lettings, within the United Kingdom.
2. Net Finance Cost
Audited year
Unaudited six Unaudited six to
months to months to 31 December
30 June 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------------ -------------- ------------- ------------
Finance costs
Fair value loss on interest rate
cap - 1 1
Interest expense on bank borrowings 5,792 5,514 11,037
Amortisation of loan transaction
costs 616 1,058 1,750
6,408 6,573 12,788
------------------------------------ -------------- ------------- ------------
Finance income
Fair value gain on interest rate
cap 21 21 -
Fair value gain on interest rate
swap - - 42
Interest received on bank deposits 73 25 62
94 46 104
------------------------------------ -------------- ------------- ------------
Net finance cost 6,314 6,527 12,684
==================================== ============== ============= ============
3. Corporation Tax
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises current and deferred tax. Taxation is
recognised in the profit and loss within the Group Consolidated
Statement of Comprehensive Income except to the extent that it
relates to items recognised as direct movement in equity, in which
case it is also recognised as a direct movement in equity.
Current tax is expected tax payable on any non-REIT taxable
income for the period, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax
payable in respect of previous years.
4. Earnings Per Share
The number of ordinary shares is based on the time-weighted
average number of shares throughout the period.
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated using the weighted
average number of shares adjusted to assume the conversion of all
dilutive potential ordinary shares.
EPRA EPS, reported on the basis recommended for real estate
companies by EPRA, is a key measure of the Group's operating
results.
Adjusted earnings is a performance measure used by the Board to
assess the Group's dividend payments. Licence fees, development
rebates and rental guarantees are added to EPRA earnings on the
basis noted below as the Board sees these cash flows as supportive
of dividend payments.
- The adjustment for licence fee receivable is calculated by
reference to the fraction of the total period of completed
construction during the period, multiplied by the total licence fee
receivable on a given forward funded asset.
- The development rebate is due from developers in relation to
late completion on forward funded agreements as stipulated in
development agreements.
- The discounts on acquisition are in respect of the vendor
guaranteeing a rental shortfall for the first year of operation as
stipulated in the sale and purchase agreement.
Reconciliations are set out below
Calculation
Calculation Calculation Calculation of EPRA Calculation
of basic of diluted of EPRA diluted of adjusted
EPS EPS basic EPS EPS basic EPS
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ----------- ----------- ----------- ------------
Unaudited six months to 30
June 2019
Earnings 28,826 28,826 28,826 28,826 28,826
Adjustment to include licence
fee receivable on forward
funded developments in the
period - - - - 991
Adjustment to include discounts
on acquisition due to rental
guarantees in the period - - - - 140
Changes in fair value of investment
property (Note 6) - - (15,680) (15,680) (15,680)
Changes in fair value of interest
rate derivatives (Note 2) - - (21) (21) (21)
------------------------------------ ----------- ----------- ----------- ----------- ------------
Earnings/adjusted earnings
(GBP'000) 28,826 28,826 13,125 13,125 14,256
Weighted average number of
shares ('000) 602,888 602,888 602,888 602,888 602,888
Adjustment for employee share
options ('000) - 1,549 - 1,549 -
Total number of shares ('000) 602,888 604,437 602,888 604,437 602,888
------------------------------------ ----------- ----------- ----------- ----------- ------------
Per-share amount (pence) 4.78 4.77 2.18 2.17 2.36
==================================== =========== =========== =========== =========== ============
Calculation
Calculation Calculation Calculation of EPRA Calculation
of basic of diluted of EPRA diluted of adjusted
EPS EPS basic EPS EPS basic EPS
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ----------- ----------- ----------- ------------
Unaudited six months to 30
June 2018
Earnings 21,702 21,702 21,702 21,702 21,702
Adjustment to include licence
fee receivable on forward
funded developments in the
period - - - - 971
Adjustment to include development
rebate receivable on forward
funded developments in the
period - - - - 5
Changes in fair value of investment
property (Note 6) - - (13,600) (13,600) (13,600)
Changes in fair value of interest
rate derivatives (Note 2) - - (20) (20) (20)
------------------------------------ ----------- ----------- ----------- ----------- ------------
Earnings/adjusted earnings
(GBP'000) 21,702 21,702 8,082 8,082 9,058
Weighted average number of
shares ('000) 602,888 602,888 602,888 602,888 602,888
Adjustment for employee share
options ('000) - 1,657 - 1,657 -
Total number of shares ('000) 602,888 604,545 602,888 604,545 602,888
------------------------------------ ----------- ----------- ----------- ----------- ------------
Per-share amount (pence) 3.60 3.59 1.34 1.34 1.50
==================================== =========== =========== =========== =========== ============
Audited year to 31 December
2018
Earnings 40,276 40,276 40,276 40,276 40,276
Adjustment to include licence
fee receivable on forward
funded developments in the
period - - - - 1,406
Adjustment to include discounts
on acquisition due to rental
guarantees in the year - - - - 5
Changes in fair value of investment
property (Note 6) - - (22,375) (22,375) (22,375)
Changes in fair value of interest
rate derivatives (Note 2) - - 1 1 1
------------------------------------ ------- ------- -------- -------- --------
Earnings/adjusted earnings 40,276 40,276 17,902 17,902 19,313
Weighted average number of
shares ('000) 602,888 602,888 602,888 602,888 602,888
Adjustment for employee share
options ('000) - 984 - 984 -
Total number of shares ('000) 602,888 603,872 602,888 603,872 602,888
------------------------------------ ------- ------- -------- -------- --------
Per-share amount (pence) 6.68 6.67 2.97 2.96 3.20
==================================== ======= ======= ======== ======== ========
5. Dividends Paid
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ----------- ---------------
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 December 2017 - 7,536 7,536
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 March 2018 - 7,536 7,536
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
30 June 2018 - - 7,536
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
30 September 2018 - - 7,536
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 December 2018 7,536 - -
Interim dividend of 1.25 pence per ordinary
share in respect of the quarter ended
31 March 2019 7,536 - -
15,072 15,072 30,144
============================================ ============ =========== ===============
On 19 August 2019, the Board declared a dividend of 1.25 pence
per ordinary share in respect of the quarter ended 30 June 2019,
which is to be paid on 20 September 2019 to ordinary shareholders
on the register on 6 September 2019.
6. Investment Property
Investment
Investment properties
properties long Total operational Properties
freehold leasehold assets under development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ----------- ----------------- ------------------ ---------
As at 1 January 2019 796,640 132,732 929,372 41,670 971,042
Property additions (970)* 21 (949) 15,407 14,458
Change in fair value during
the period 11,201 3,937 15,138 542 15,680
------------------------------- ----------- ----------- ----------------- ------------------ ---------
As at 30 June 2019 (unaudited) 806,871 136,690 943,561 57,619 1,001,180
=============================== =========== =========== ================= ================== =========
As at 1 January 2018 735,355 113,182 848,537 42,045 890,582
Property additions 12,041 5,343 17,384 24,065 41,449
Transfer of completed
developments 17,108 - 17,108 (17,108) -
Change in fair value during
the period 6,176 3,916 10,092 3,508 13,600
-------------------------------
As at 30 June 2018 (unaudited) 770,680 122,441 893,121 52,510 945,631
=============================== =========== =========== ================= ================== =========
*The credit recognised in additions relates to a non-cash
adjustment from the reversal of construction accruals previously
recognised.
Investment Investment
properties properties Total operational Properties
freehold long leasehold assets under development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- --------------- ----------------- ------------------ -------
As at 1 January 2018 735,355 113,182 848,537 42,045 890,582
Property additions 13,180 7,832 21,012 37,072 58,084
Transfer of completed developments 42,055 - 42,055 (42,055) -
Change in fair value during
the year 6,050 11,717 17,767 4,608 22,375
----------------------------------- ----------- --------------- ----------------- ------------------ -------
As at 31 December 2018 (audited) 796,640 132,731 929,371 41,670 971,041
=================================== =========== =============== ================= ================== =======
In accordance with IAS 40, the carrying value of investment
property is their fair value as determined by independent external
valuers. This valuation has been conducted by CBRE Limited, as
independent external valuers, and has been prepared as at 30 June
2019, in accordance with the Appraisal & Valuation Standards of
the Royal Institution of Chartered Surveyors ("RICS"), on the basis
of market value. This value has been incorporated into the
financial statements.
The valuation of all property assets uses market evidence and
also includes assumptions regarding income expectations and yields
that investors would expect to achieve on those assets over time.
Many external economic and market factors, such as interest rate
expectations, bond yields, the availability and cost of finance and
the relative attraction of property against other asset classes,
could lead to a reappraisal of the assumptions used to arrive at
current valuations. In adverse conditions, this reappraisal can
lead to a reduction in property values and a loss in Net Asset
Value.
All investment property is categorised as Level 3. There have
been no transfers between Level 1 and Level 2 during any of the
periods, nor have there been any transfers between Level 2 and
Level 3 during any of the periods.
The valuations have been prepared on the basis of Market Value
("MV"), which is defined in the RICS Valuation Standards as:
"The estimated amount for which a property should exchange on
the date of valuation between a willing buyer and a willing seller
in an arm's-length transaction after proper marketing wherein the
parties had each acted knowledgably, prudently and without
compulsion."
The table below reconciles the fair value of the investment
property as per the Consolidated Group Statement of Financial
Position and the market value of the investment property as per the
independent valuation performed in respect of each period end.
Unaudited Unaudited
six months six months Audited year
to 30 June to 30 June to 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ----------- ---------------
Value per independent valuation report 1,000,710 945,160 970,570
Plus: long leasehold liability 471 471 471
Fair value per Group Statement of Financial
Position 1,001,181 945,631 971,041
============================================ ============ =========== ===============
The following descriptions and definitions relate to valuation
techniques and key unobservable inputs made in determining fair
values. The valuation techniques for student properties use a
discounted cash flow with the following inputs:
a) Unobservable input: Rental values
The rent at which space could be let in the market conditions
prevailing at the date of valuation. The rent ranges per week are
as follows:
30 June 2019 30 June 2018 31 December 2018
-------------------------- --------------------------- ----------------------------
GBP93 - GBP347 GBP101 - GBP347 GBP92 - GBP343
per week per week per week
b) Unobservable input: Rental growth
The estimated average annual increase in rent based on both
market estimations and contractual arrangements. The assumed
growths in valuations are as follows:
30 June 2019 30 June 2018 31 December 2018
------------------------ ------------------------ ----------------------------
2.57% 2.67% 2.63%
c) Unobservable input: Net yield
The net initial yield is defined as the initial gross income as
a percentage of the market value (or purchase price as appropriate)
plus standard costs of purchase. The ranges in net initial yields
are as follows:
30 June 2019 30 June 2018 31 December 2018
------------------------- ------------------------- ----------------------------
4.50% - 7.00% 4.50% - 6.25% 4.50% - 6.75%
d) Unobservable input: Physical condition of the property
e) Unobservable input: Planning consent
No planning enquiries undertaken for any of the development
properties.
f) Sensitivities of measurement of significant unobservable inputs
As set out in the significant accounting estimates and
judgements, the Group's portfolio valuation is open to judgements
and is inherently subjective by nature.
As a result, the following sensitivity analysis for the student
properties has been prepared by the valuer:
-3% change +3% change
in rental in rental -0.25% change +0.25% change
income income in yield in yield
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ---------- ---------- ------------- -------------
(Decrease)/increase in
the fair
value of investment properties
As at 30 June 2019 (41,290) 41,230 48,810 (44,590)
As at 30 June 2018 (38,950) 39,030 45,310 (41,440)
As at 31 December 2018 (40,320) 40,290 47,270 (43,210)
-------------------------------- ---------- ---------- ------------- -------------
7. Borrowings
The existing facilities are secured by charges over individual
investment properties held by certain asset-holding subsidiaries.
These assets have a fair value of GBP868 million at 30 June 2019.
In some cases, the lenders also hold charges over the shares of the
subsidiaries and the intermediary holding companies of those
subsidiaries.
A summary of the drawn and undrawn bank borrowings in the period
is shown below:
Bank borrowings Bank borrowings
drawn 30 June undrawn 30 Total
2019 June 2019 30 June 2019
GBP'000 GBP'000 GBP'000
------------------------------------ ---------------- --------------- -------------
At 1 January 2019 (audited) 330,000 60,000 390,000
Bank borrowings drawn in the period 20,000 (20,000) -
------------------------------------ ---------------- --------------- -------------
At 30 June 2019 (unaudited) 350,000 40,000 390,000
==================================== ================ =============== =============
At 1 January 2018 (audited) 303,829 86,201 390,030
Bank borrowings drawn in the period 16,201 (16,201) -
------------------------------------ ---------------- --------------- -------------
At 30 June 2018 (unaudited) 320,030 70,000 390,030
==================================== ================ =============== =============
At 1 January 2018 (audited) 303,829 86,201 390,030
Bank borrowings from new facilities
in the year 30,600 - 30,600
Bank borrowings drawn in the year 36,201 (26,201) 10,000
Bank borrowings repaid in the year (40,630) - (40,630)
------------------------------------ ---------------- --------------- -------------
At 31 December 2018 (audited) 330,000 60,000 390,000
==================================== ================ =============== =============
Any associated fees in arranging the bank borrowings unamortised
as at the period end are offset against amounts drawn on the
facilities as shown in the table below:
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
Current borrowings GBP'000 GBP'000 GBP'000
------------------------------------- -------------- ------------- --------------
Balance brought forward 55,500 21,190 21,190
Bank borrowings becoming current
in the period 10,000 - 55,500
Less: Bank borrowings repaid in
the year - - (30,630)
Bank borrowings drawn down in the
year - 9,440 9,440
------------------------------------- -------------- ------------- --------------
Bank borrowings: due in less than
one year 65,500 30,630 55,500
Less: Unamortised costs (114) (241) (240)
------------------------------------- -------------- ------------- --------------
Current liabilities: Bank borrowings 65,386 30,389 55,260
===================================== ============== ============= ==============
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
Non-current borrowings GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ------------- --------------
Balance brought forward 274,500 282,639 282,639
Total bank borrowings in the period 20,000 6,761 66,801
Less: Bank borrowings becoming non-current
during the period - - 21,190
Less: Bank borrowings becoming current
during the period (10,000) - (55,500)
Less: Bank borrowings repaid during
the period - - (40,630)
------------------------------------------- -------------- ------------- --------------
Bank borrowings: due in more than
one year 284,500 289,400 274,500
Less: Unamortised costs (5,016) (5,010) (5,510)
------------------------------------------- -------------- ------------- --------------
Non-current liabilities: Bank borrowings 279,484 284,390 268,990
=========================================== ============== ============= ==============
Unaudited 30 Unaudited Audited 31
June 2019 30 June 2018 December 2018
Maturity of bank borrowings GBP'000 GBP'000 GBP'000
----------------------------------------- ------------- ------------- --------------
Repayable within 1 year 65,500 30,630 55,500
Repayable between 1 and 2 years 32,800 65,500 42,800
Repayable between 2 and 5 years 30,000 32,800 10,000
Repayable in over 5 years 221,700 191,100 221,700
-----------------------------------------
Non-current liabilities: Bank borrowings 350,000 320,030 330,000
========================================= ============= ============= ==============
Fair value
Fair value Book value less book value
Fair value of fixed rate debt GBP'000 GBP'000 GBP'000
------------------------------ ----------- ---------- ----------------
At 30 June 2019 - unaudited 243,317 217,626 25,691
At 30 June 2018 - audited 197,329 187,799 9,530
As at 31 December 2018 230,677 217,514 13,163
The fair value of the fixed rate debt has been valued by
independent financial valuation expert, JCRA. The floating rate
debt has been excluded as it is assumed the carrying value will be
similar to the fair value.
The fair value of these contracts is determined by discounting
the future cash flows estimated to be paid or received under these
contracts using a valuation technique based on forward rates
derived from short-term rates, futures, swap rates and implied
option volatility.
8. Net Asset Value ("NAV") Per Share
Basic NAV per share is calculated by dividing net assets in the
Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of ordinary shares outstanding
at the end of the year.
Diluted NAV per share is calculated using the number of shares
adjusted to assume the conversion of all dilutive potential
ordinary shares.
EPRA NAV is calculated as net assets per the Consolidated
Statement of Financial Position excluding fair value adjustments
for debt-related derivatives.
EPRA NNNAV is the EPRA NAV adjusted to include the fair values
of financial instruments and debt
Net asset values have been calculated as follows:
Unaudited Unaudited Audited 31
30 June 2019 30 June 2018 December 2018
GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- ------------- --------------
Net assets per Statement of Financial
Position 653,806 636,306 639,890
Adjustment to exclude the fair value
loss of financial instruments 112 422 238
EPRA NAV 653,918 636,728 640,128
-------------------------------------- -------------- ------------- --------------
Adjustment to include fair value of
debt (25,691) (9,530) (13,163)
Adjustment to include the fair value
loss of financial instruments (112) (422) (238)
EPRA NNNAV 628,115 627,776 626,727
-------------------------------------- -------------- ------------- --------------
Ordinary shares Number Number Number
-------------------------------------- -------------- ------------- --------------
Issued share capital 602,887,740 602,887,740 602,887,740
Issued share capital plus employee
options 604,437,181 604,545,037 603,871,448
-------------------------------------- -------------- ------------- --------------
Pence Pence Pence
-------------------------------------- -------------- ------------- --------------
NAV per share basic 108.45 105.54 106.14
NAV per share diluted 108.17 105.25 105.96
EPRA NAV per share basic 108.46 105.61 106.18
EPRA NAV per share diluted 108.19 105.32 106.00
EPRA NNNAV per share basic 104.18 103.96 103.95
EPRA NNNAV per share basic 103.92 103.68 103.78
-------------------------------------- -------------- ------------- --------------
9. Capital Commitments
As at 30 June 2019, the Group had total capital commitments of
GBP25 million (31 December 2018: GBP38 million) relating to forward
funded or direct developments.
10. Related Party Disclosures
Key Management Personnel
Key management personnel are considered to comprise the Board of
Directors.
Share Capital
There were no share transactions by related parties during the
period.
Share-Based Payments
On 25 April 2019, the Company granted Tim Attlee, Chief
Executive Officer, nil-cost options over 43,818 ordinary shares in
the Company ("Ordinary Shares") and Lynne Fennah, Chief Financial
and Operating Officer, nil-cost options over 57,559 Ordinary Shares
relating to the deferred shares element of the annual bonus award
for the financial period to 31 December 2018 (the "Annual Bonus
Award").
On the same date, the Company granted nil-cost options over a
total of 502,757 ordinary shares to Lynne Fennah pursuant to the
Empiric Long Term Incentive Plan (the "LTIP") for the 2019
financial year.
Board Change
On 1 March 2019, the Board announced that Alice Avis MBE had
been appointed as Non-Executive Director with effect from 1 March
2019. Alice joined the Remuneration Committee from this date.
Stephen Alston resigned from his position as a Non-Executive
Director with effect from 29 March 2019.
11. Subsequent Events
On 19 August 2019, the Board declared a dividend of 1.25 pence
per ordinary share in respect of the quarter ended 30 June 2019,
which is to be paid on 20 September 2019 to ordinary shareholders
on the register on 6 September 2019.
12. Share Premium Cancellation
At the Annual General Meeting ("AGM") on 2 May 2019,
shareholders approved a resolution to cancel the Company's share
premium account, which stood at GBP467 million. The court order to
confirm the cancellation was received on 4 June 2019, following
which the share premium account was cancelled. Cancellation results
in this capital being treated as realised profit, giving us the
flexibility to declare dividends or make other distributions to
shareholders, although there is no current intention to do so.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR MMGMRGLMGLZZ
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