REG - Empiric Student Prop - Full Year Results
03/03/2022 07:00
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RNS Number : 4616D Empiric Student Property PLC 03 March 2022
3 March 2022
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries, the "Group")
FULL YEAR RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2021
Good progress in 2021 with increasing confidence in outlook
Empiric Student Property plc (ticker: ESP), the owner and operator of premium
student accommodation serving key UK universities, today reports its annual
results for the 12 months ended 31 December 2021.
Duncan Garrood, Chief Executive Officer of Empiric Student Property plc, said:
"We are seeing improving trends in demand and occupancy for Academic Year
22/23 with bookings to date broadly returning to pre-Covid levels. We are
increasingly encouraged by the outlook for our business and the wider sector.
Our guidance for revenue occupancy for the 2022/23 academic year is 85% to 95%
and we are targeting the top end of this range, assuming no further market
disruption. We have resumed dividend payments and remain committed to our
policy of a minimum of 2.5p in 2022 and to pay fully covered and progressive
dividends going forward.
We are progressing well with our strategy of further enhancing the quality of
our portfolio and business. We have commenced two outstanding developments and
remain on track with our refurbishments. We are continuing to make further
non-core disposals, with nine assets sold to date for £44.6 million and above
book value, and we recently made our first acquisition since 2018, all in line
with our strategy of recycling capital, building clusters in key cities and
driving operational performance and returns.
With our continuing support given to our students, our establishment of clear
and ambitious objectives to become a sustainable and net zero carbon business,
we are protecting and enhancing the Group's long-term sustainable value and
profitable growth for all our stakeholders."
HIGHLIGHTS
31 December 2021 31 December 2020 change
Revenue £56.0m £59.4m -6%
Property costs £23.1m £22.7m -2%
Gross margin 58.8% 61.9% -5%
Administrative expenses £10.5m £9.8m +7%
Adjusted earnings per share 1.65p 2.30p -28%
Gain on disposal of investment property £1.7m - +100%
Change in fair value of investment property £17.6m (£37.6)m +147%
Profit/(Loss) before taxation £29.2m (£24.0m) +222%
Dividends paid £15.1m £7.5m +101%
Property valuation £1,022m £1,005m +3%
EPRA NTA Per share 107.4p 105.0p +2%
Total return (%) 4.6% (3.6%) +228%
Loan to value (%) 33.1% 35.4% -6%
Financial Performance
· Revenue in 2021 of £56.0 million (2020: £59.4 million), as
occupancy for the first eight months in academic year 20/21 was 65% compared
to 84% for the same period in 2020.
· Like for like rental growth for the academic year 20/21 was 1.3%,
as we prioritised occupancy levels over rental growth.
· Started the academic year 21/22 at 81% revenue occupancy, which
has increased to 84% since then, at the upper end of our guidance.
· Property costs were £23 million, up by 2%, mainly driven by
having to pay council tax on empty rooms as a result of lower occupancy
levels.
· The impact of reduced revenue compared to pre-COVID levels
produced a gross margin for the year of 58.8% (2020: 61.9%).
· Administration expenses were £10.5 million, below our £11
million guidance.
· Adjusted Earnings for the year were £10 million (2020: £13.9
million), with Adjusted earnings per share of 1.65 pence (2020: 2.30 pence).
· Net gain on disposal of four assets of £1.7 million.
· The net profit from a change in the fair value of investment
properties was £17.6 million (2020: loss of £37.6 million).
· Profit before tax of £29.2 million (2020: loss of £24.0
million), with basic earnings per share of 4.84 pence (2020: loss of 3.97
pence).
· Resumed dividend payments in Q4 2021 with a payment of 2.5p.
· Property portfolio valued at £1,022 million (2020: £1,005m). On
a like for like basis, the investment property valuation increased by 3%.
· Net Initial Yield improvement to 5.3% (2020: 5.6%).
· EPRA Net Tangible Assets ("NTA") per share up 2.3% to 107.4 pence
(2020: 105.0 pence).
· Total accounting return, the sum of income and capital growth,
increased by 228% to 4.6% (2020: minus 3.6%).
Good progress on all key commercial priorities to further strengthen the
Group's position: actively managing our property portfolio; strengthening our
brand proposition; driving performance through data analytics; delivering
consistently high customer service; and developing our people.
Further enhancing our business and portfolio
During the year
· Successfully launched our new revenue management system, with all
bookings for the 2021/22 academic year now managed in-house. This has
delivered annualised cost savings of £1.5 million per annum from September
2021 as well as increasing customer acquisition and revenue.
· Sold four non-core assets for £18.1 million, above book value.
· Pilot refurbishments successfully completed in Bristol and Leeds
on time and on budget, which are on track to achieve their target IRR of
9-11%.
Following the year end
· Sold five non-core assets for £26.5 million, in line with the
latest book value and our portfolio realignment strategy.
· Acquired the freehold post period end of a new 92-bed
purpose-built studio asset in a prime location in Bristol city centre for £19
million with significant reversionary potential, helping to build out our
presence in a key target city. We will have a total of 404 beds in the city
for the academic year 2022/23.
· Two developments underway in Bristol and Edinburgh will complete
in time for the forthcoming academic year and provide accommodation for an
additional 212 students.
Strong balance sheet
· Loan to Value for the Group was 33.1%, broadly in line with our
35% long-term target.
· At 31 December 2021, before deduction of loan arrangement fees,
the Group had committed investment debt facilities of £420 million, of which
£375 million were drawn down. £277 million of this debt is fixed and £98
million is floating. The aggregate cost of debt was 3%, with a weighted
average term of 4.9 years.
Responsible business
· Throughout the pandemic, we have taken a supportive approach to
our students' situation, granting later check-ins, deferments, cost-free
cancellations and refunds. Online reviews suggest this has helped enhance our
already strong brand reputation and drive future customer acquisition.
· Our ESG Committee completed a detailed materiality assessment and
have agreed clear metrics for our ESG programme including setting a target of
achieving net zero in our own operations no later than 2035.
· Commitments to improving health and safety in relation to work on
external wall systems and fire stopping.
Encouraged by the outlook for our business and the wider sector
· As at 2 March 2022, bookings of 36% for the 2022/23 academic year
(20% for the 2021/22 academic year as at 16 March 2021), and broadly in line
with our pre-Covid bookings at this stage of the year.
· Targeting revenue occupancy for the 2022/23 academic year of 85%
to 95% and expect to be towards the top of this range, assuming no further
disruption.
· In 2022, we intend to start paying a minimum dividend of 2.5p per
share per annum, on a covered and progressive basis, with a view to increasing
this as occupancy levels normalise.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Empiric Student Property plc (via Maitland/AMO below)
Duncan Garrood (Chief Executive Officer)
Lynne Fennah (Chief Financial & Sustainability Officer)
Jefferies International Limited 020 7029 8000
Tom Yeadon
Andrew Morris
RBC Europe Limited (trading as RBC Capital Markets) 020 7653 4000
Marcus Jackson
Elliot Thomas
Maitland/AMO (Communications Adviser) 07747 113 930 / 020 7379 5151
James Benjamin empiric-maitland@maitland.co.uk (mailto:empiric-maitland@maitland.co.uk)
Alistair de Kare-silver
The Company's LEI is 213800FPF38IBPRFPU87.
Further information on Empiric can be found on the Company's website at
www.empiric.co.uk (http://www.empiric.co.uk/) .
Notes:
Empiric Student Property plc is a leading provider and operator of modern,
predominantly direct-let, premium student accommodation serving key UK
universities. Investing in both operating and development assets, Empiric is a
fully integrated operational student property business focused on premium
studio-led accommodation managed through its Hello Student® operating
platform, that is attractive to affluent growing student segments.
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.
Results Presentation
The Company presentation for investors and analysts will take place via a
webcast and conference call at 8.30am (GMT) on the day.
For those who wish to access the live webcast, please register here:
https://www.investis-live.com/empiric/620d0348f73bbc23003f9a6b/pymdi
(https://urldefense.com/v3/__https:/www.investis-live.com/empiric/620d0348f73bbc23003f9a6b/pymdi__;!!IHJ3XrWN4X8!dygIh09Ay5eNsCZWnXaPSZTRyuknJRrZ5xmjA8OR3WFqSHN7UgE99dIaDwe2aT8I-zMtZg$)
For those who wish to access the live conference call, please contact
Maitland/AMO at empiric-maitland@maitland.co.uk
(mailto:empiric-maitland@maitland.co.uk) or by telephone on +44 (0) 20 7379
5151.
The recording of the webcast/conference call will also be made available later
in the day via the Company
website: http://www.empiric.co.uk/investor-information/company-documents
(http://www.empiric.co.uk/investor-information/company-documents)
Annual Report
Hard copies of the Annual Report and Accounts will be sent to shareholders,
along with the proxy form and notice for Annual General Meeting to be held on
23 May 2022. These documents will also be made available on the Company's
website at www.empiric.co.uk (http://www.empiric.co.uk/) . In accordance with
Listing Rule 9.6.1, copies of these documents will be submitted to the
National Storage Mechanism and will be available for viewing shortly at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
CHAIRMAN'S STATEMENT
Driving sustainable value
"We have made good progress on actively managing our portfolio, with asset
sales during the year and an acquisition post year end. We have continued to
support our students as well as resuming dividend payments, announcing new
Group targets and strengthening our team."
2021 was a difficult year. COVID-19 having had a full 12-month impact on
occupancy, and, as a result, our financial performance. However, we have made
good progress in implementing our strategic priorities laid out last year, we
have continued to strengthen our leadership team, and have successfully
completed the full insourcing of the business.
Environmental, Social and Governance ("ESG")
At the core of our proposition is a commitment to create a sustainable,
positive, environmental, social and economic legacy for all our stakeholders.
During 2020 we created a Board-level ESG Committee, tasked with providing a
roadmap to deliver a significant step change in our approach to ESG.
I am delighted that Lynne Fennah our experienced CFO and COO has been
appointed our Chief Sustainability Officer, relinquishing her COO role,
bringing a real focus to ESG whilst ensuring that we continue to deliver a
sustainable business for all stakeholders.
During 2021 we completed our first formal materiality assessment where we
identified our four key topics which we will build our ESG Roadmap around. We
can also announce that we will target becoming net zero within our business by
2035.
Health and Safety
Health and Safety remains a critical area of attention for your Board. Having
insourced our FM activities we have complete control of our health and safety
environment. We continue to enhance our monitoring and make our buildings as
safe as possible. We continue to focus, in particular, on ensuring that our
approach to fire safety takes full cognisance of current and emerging best
practice.
Our People
Our continued progress is only possible because of the dedication and ability
of all of our people. I would like to thank everyone in our business for their
contribution over the past year. Our people are extremely important, they are
at the heart of our customer proposition and core to us living our brand. Our
2021 colleague engagement survey showed engagement scores of 82%.
Our Colleague Forum, formed of colleagues across the Group, met a number of
times during the year to discuss a variety of topics.
Board Appointments and Succession
On 27 September 2021, we announced that Jim Prower would be stepping down from
his role as Senior Independent Director of the Company with effect from 1
October 2021, as part of a planned succession process. Jim had served on the
Board for over seven years, providing valuable insights and supporting the
financial and operational transformation of the Group. The Board has
benefitted significantly from his expertise, commitment and wise counsel and
Jim leaves with our very best wishes for the future.
On 1 October 2022, Martin Ratchford was appointed to the Board as an
independent Non-Executive Director and Chair of the Audit and Risk Committee.
Martin brings a wealth of invaluable real estate and finance experience having
held a range of senior finance and leadership roles in a number of UK and
International real estate companies.
Also, on 1 October 2022, Alice Avis was appointed Senior Independent Director.
The Board effectiveness review concluded that the Board and its Committees
continued to operate effectively throughout 2021.
Dividends
On 29 October 2021, the Board announced its intention to recommence dividend
payments which were suspended in March 2020 due to the uncertainty arising
from the COVID-19 pandemic. On 3 December 2021, a payment of 2.5 pence per
share was made. The payment comprised the PID distribution requirement of 1
pence per share for the 2019 financial year and 1.5 pence per share for 2020.
Regular dividend payments have been reinstated from 1 January 2022, paid
quarterly, fully covered, and progressive in nature. Given our current
assessment of our 2021/22 academic year revenue levels, and assuming no
further adverse impact from the pandemic, the Board is expecting to pay a
minimum dividend of 2.5 pence per share per annum in 2022 with a view to
increasing this as occupancy levels normalise.
AGM
Our 2022 AGM will be held on 23 May 2022. Further details about the AGM will
be provided in the AGM Notice.
Looking Forward
Whilst near-term uncertainty, caused by the COVID-19 pandemic, remains, we are
seeing improving trends in demand and occupancy in our target market. We are
making good progress in implementing our revised strategy, our senior
leadership team is now fully in place and the operational transformation of
the business is now complete. We have re-commenced dividend payments, albeit
at prudent levels, and remain committed to a policy of progressive, fully
covered dividend payments going forward. We remain confident that we have the
right proposition, targeted at the right market segment, and can see robust
and consistent future growth.
MARK PAIN
Non-Executive Chairman
2 March 2022
OUR MARKET
A resilient sector
In 2021, the PBSA sector rebounded from the COVID-19 pandemic in a buoyant
fashion, driven by the underlying growth in the UK's full-time ("FT") student
population. Confidence is returning to the market following reduced low
occupancy rates in 2020/21 as learning shifted online and restrictions on
travel were implemented due to COVID-19. International mobility has been
impacted by the pandemic, but the PBSA sector has remained much more resilient
than analysts had initially projected. Domestic students partially filled the
void left by international students, while in some markets, certain groups of
international students rose to boost overall occupancy rates.
Remote study has worked for many students, although it is a weak substitute
for on-campus tuition and the holistic student experience. As a result, PBSA
occupancy rates recovered considerably in 2021 as restrictions gradually
lifted. At the end of Q3 2021, JLL reported that 90% of beds were leased for
the 2021/22 academic year, compared with 83% for the comparative period in
2020/21.
In the year to September 2021, the CBRE PBSA Index reported total returns of
7.7% for the 250 assets in the index, 2.8% higher than in 2020. Capital value
growth for PBSA assets recovered from -0.4% in the year to September 2020 to
2.2% in 2021. Notably, capital growth in Super Prime Regional markets grew
from 0.3% in the year to September 2020 to 4.7% in the same period to
September 2021. The performance gap between the regional markets (Super Prime
and Prime) and Central London narrowed. Assets in the capital achieved total
returns that were 0.3% higher than those in the regions, a fall from the 2-4%
outperformance seen over the previous four years, mainly due to falling net
income return for London assets. Assets in Secondary locations saw capital
values fall again in 2021, but not as dramatically as in 2020. The Empiric
portfolio is well aligned to the best-performing locations with 92% by value
classified as either London, Super Prime Regional or Prime Regional in the
December 2021 portfolio valuation, compared with 86% in December 2020.
Only 58% of demand for PBSA is currently being met
Strengthening Student Demographics
Increase in UCAS Applicants for 2021/22 academic year: 3%
In UCAS's latest End of Cycle Report, strengthening demand statistics for the
2021 admissions cycle were published. In 2021, 749,570 students applied to
higher education institutions in the UK, 20,790 students (+2.9%) higher than
2020. Applications from non-EU domiciled students rose 12.8% to 111,255,
somewhat offsetting the significant fall in applications from EU domiciled
students, which fell 40.1% to 31,670.
Overall student acceptances fell slightly from a record in 2020, with 562,060
students accepted by higher education institutions, mainly due to a 50% fall
in acceptances from EU students. However, only higher tariff providers
reported year-on-year growth in acceptances (1.33%), with both medium and
lower tariff providers reporting declines of 3.72% and 1.88% respectively.
Following Brexit, the UK left the EU's Erasmus+ scheme in 2020, before which
it was the fourth most popular destination for Erasmus+ students. The UK
created the "Turing Scheme" as a replacement for UK domiciled students, but
the scheme does not provide reciprocal funding for UK inbound placements.
Acceptances from UK and non-EU domiciled students rose by 6,605 (+1.4%) and
1,275 (+2.4%) respectively. In 2020, UCAS reported 24% and 35% year-on-year
increases in applicants from China and India respectively with growing demand
from the USA. This trend continued in 2021, with Chinese applicants growing by
a further 4,135 (+15.8%) and India by 1,980 (+21.7%). Demand from overseas
students is predicted to continue growing as the appeal of UK higher education
institutions strengthens and levels of household wealth in these countries
rise. Savills report that between 2021 and 2026, the number of households
earning above $70,000 per annum is forecast to grow annually by 13% in China
and 24% in India.
Growing domestic demand for places at UK higher education institutions has
been fuelled by sustained growth in the UK's 18-year-old population and
increasing participation rates. UCAS reports that the proportion of UK
domiciled 18-year-olds accepted by UK providers increased from 37% in 2020 to
38% in 2021, the 9th consecutive year-on-year increase. The demographic surge
is expected to increase the number of 18-year-olds in the UK by over 160,000
in the next decade. Postgraduate courses are also becoming increasingly
popular. HESA report that 468,575 students enrolled on a full-time
postgraduate course in the UK in AY 2020/21, 16% higher than the previous
year. Enrolments from non-EU domiciled postgraduates also rose by 16%.
Student Demographics
Applicants Acceptances
% %
Domicile 2020 2021 Change Change 2020 2021 Change Change
UK 577,260 606,645 29,385 5.1 485,400 492,005 6,605 1.4
EU 52,865 31,670 -21,195 -40.1 32,320 16,025 -16,295 -50.4
Non-EU 98,660 111,255 12,595 12.8 52,755 54,030 1,275 2.4
Total 728,785 749,570 20,785 2.9 570,475 562,060 -8,415 -1.5
Source: UCAS End of Cycle Report 2021
PBSA Development Pipeline - Constrained Supply
The demand-supply imbalance of high-quality assets in prime locations market
remains. According to research combining HESA 2019/20 data and PBSA supply for
2021/22, only 58% of demand for PBSA is currently being met, 66% including
consented pipeline. The UK market has seen development volume recover
significantly as students return to campus. Over 30,000 beds were completed in
2021, more than double the 14,000 achieved in 2020, a year in which the
pandemic disrupted construction programmes and put many developments on hold.
A further 21,000 beds are estimated to be in the pipeline for delivery in time
for the 2022/23 academic year. However, in the last five years planning
application activity has slowed significantly. In the first seven months of
2021, less than 15,000 were submitted for approval, compared with 32,000
during the same period in 2017. This is partly due to some early adopted
markets becoming saturated, reducing opportunities for developers. Some
markets have been more popular as developers pre-empt emerging and
increasingly restrictive local planning authority policies. These include
affordable housing requirements and location-specific policies intended to
control future development. Furthermore, the impacts of Brexit, COVID-19 and
inflationary pressure has led to rapidly rising construction costs, raising
challenges for developers over the viability of some projects. These factors
may compound to restrict the supply of new PBSA beds in 2022, despite the
projected demand growth.
Sector Investment - Strong Investor Appetite
Investor appetite continued to be strong throughout 2021, reflected in the
year's transactional activity. In the second half of 2021, investors spent
over £2.5 billion on UK PBSA, taking total investment volume for the year to
£4.4 billion. In 2020, investment reached £5.9 billion, of which
Blackstone's acquisition of the IQ portfolio contributed £4.7 billion.
Analysis of transaction volume in 2021 shows a much more active market in
2021, with 35% more deals being struck than in 2020 and 6% more than in 2019.
The year saw numerous landmark portfolio deals as an influx of overseas
capital was drawn to UK PBSA. Most notably, in December 2021, Blackstone and
APG acquired the GCP Student Living portfolio for £1.1 billion, reflecting
£277,300 per bed across 4,100 beds in 11 assets.
In the 18 months from March 2020, when COVID-19 lockdown restrictions began,
pricing held firm at pre-pandemic levels reflecting the reliance of the
sector. With a greater variety and larger weight of capital targeting the
sector, the deals in the markets are now reflecting record sharper yields.
Subsequently, the year saw some record-breaking single asset deals such as
iQ's purchase of 347 beds from Nido in West Hampstead for over £120 million
reflecting a yield of 3.80%. Portfolio deals were prevalent in Super Prime
Regional and Prime Regional markets at sharper yields too. Notably, in
February 2021, Greystar purchased 2,163 beds from Round Hill Capital for £291
million (4.75%) across five assets in London, Glasgow, Coventry and Bristol
and Apollo's purchase of 1,655 from Crown Student for £210 million based in
Cardiff, Norwich and Portsmouth reflected a yield of 5.25%. In 2021, Asian
investors committed over £400 million to UK PBSA. Greystar continued a trend
of portfolio deals in January, securing the acquisition of "Project Jura" from
Downing for £365 million. The portfolio of 1,807 beds in London, Manchester
and Coventry traded for £202,120 per bed.
Market Yields - Best in Class, Direct Let
Market transactions in 2021 have supported yield compressions reported by the
leading valuers. CBRE report that between Q4 December 2020 and Q4 December
2021, Best-In-Class Direct Let Central London, Super Prime Regional and Prime
Regional yields compressed by 25 basis points, 10 basis points and 25 basis
points respectively. After considerable softening in previous years, Secondary
Regional yields have stabilised, but remain more polarised from the stronger
markets with a risk of further weakening.
In the coming years, more investment is expected to be drawn to the PBSA
sector as investors look for stable diversified income returns and
counter-cyclical performance in the face of potential economic downturn. With
the worst of COVID-19 restrictions widely accepted to be in the past,
investors are looking past short-term issues to a growing demand pool. The
subsequent growth in demand for high-quality PBSA will continue to outstrip
the supply of beds particularly in the prime market. In addition to this
undersupply, ongoing uncertainty and investment risk in other global markets
is likely to be a key driver for investment into UK student assets. This also
follows a wider trend as institutional investors pivot towards assets in the
residential sector.
Market Yields - Best-In-Class, Direct Let
December 2021 December 2020
Current Trend Current Trend
Central London 3.65% Stronger 3.90% Stronger
Super Prime Regional 4.65% Stronger 4.75% Stronger
Prime Regional 5.00% Stronger 5.25% Stable
Secondary Regional 8.00% Stable 8.00% Weaker
Source: CBRE Student Sector Investment Yields, December 2021.
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
allows us to generate attractive returns for our shareholders and build a
strong platform for long-term growth.
Key Strengths
Buildings
We have a diverse and attractive portfolio of properties that offer
high-quality and safe accommodation to our customers.
Our People
Our people are key to our customer journey. Our passionate and committed
colleagues allow us to deliver a high level of service to our customers while
maintaining cost control.
Specialist Knowledge
We have the knowledge to develop, acquire and operate high-quality,
sustainable student accommodation assets.
Brand
The Hello Student(®) brand has continued to grow, becoming a leading brand
and giving us a clear identity in the student property market.
Financing
We finance our business through a combination of shareholder equity and debt
facilities. We have strong liquidity and good relationships with our lenders.
Technology
We continue to leverage technology to augment business processes that drive
efficiencies operationally, financially and commercially whilst also improving
our user and customer experiences.
How We Add Value
Our Culture
Our people and customers are our key focus and we are here to deliver
excellent seamless service and financial returns through working together.
Select Locations/Specifications
We are selective about where we invest, with a focus on the towns and cities
that are home to the most successful universities and where student numbers
are rising faster than average. We select sites based on their compatibility
with the types of accommodation we provide and their proximity to universities
and amenities.
Our buildings have on average around 100 beds, which helps to foster a more
homely, collegiate feeling to living. However, through our clustering strategy
we are able to yield the economies of scale which are generated from larger
buildings.
Develop/Buy
Developing assets allows us to acquire them at a greater yield on cost than
buying standing assets. Forward-funded projects are typically less complex
than direct developments and have a lower risk profile, as the planning,
construction and time risk lies with the third-party developer. These projects
also have lower staffing requirements and benefit from a forward-funding
coupon charged to the developer. However, direct development delivers
higher-yielding assets than forward funding. We have a strong proven track
record in 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(®) 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.
We have a student welfare programme in place to ensure that we provide the
support that our customers need during their stay with us.
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.
Outputs for our Stakeholders
Customers
Our customers benefit from having a great home to live in during their
studies, at a rent that represents value for money.
NPS in the Global Student Living Index: +22
Higher than PBSA private hall average +20
Our People
Our people have the opportunity to develop their careers in an exciting and
growing sector.
Colleague Engagement Score: 82%
Shareholders
Shareholders benefit from Total Returns which are underpinned by income and
continued rental growth.
Total Return target of 7-9%
Communities
The communities around our assets benefit from increased employment, reduced
pressure on local housing stock, and from the improvements we fund to social
infrastructure in the surrounding area.
Net Carbon Neutral Target by 2035
OUR STRATEGY
Continuing to make progress against our strategic objectives.
Strategic area Strategic objective Progress in the year Associated KPIs Key aims for 2022 Associated risks
1. Our customers are at the heart of what we do. We want our customers to have a - Our net promoter score was +22, compared to PBSA private hall average A, B, C, D, E - Roll out a student app so that students can access all services in one E1, E2, E4, I1, I2
great experience and stay with us year after year and to recommend us to their +20. place.
Customers friends. We aim to achieve customer satisfaction by building welcoming
communities in our homes and by giving our customers a sense of safety, - Developing our 24-hour, seven-days-a-week, staff cover in all our - Increase customer NPS score even further in 2022.
wellbeing and belonging in an environment of high-quality communal areas and cities and seeing the benefits which come from this.
facilities.
- We continued to strengthen our relationship with a number of key
We aim to deliver a friendly personalised service and be there when our universities.
customers need us.
2. We want to raise awareness of the Hello Student(®) brand among students, to - We have undertaken in-depth customer research to understand what is A, B, C, E, F - Review the design and layout of both the Hello Student(®) and Empiric E1, E2, E4, I1, I2, I4
support our premium accommodation and service offering. We want to become important to our them and how we will shape our future brand proposition. corporate website.
Brand known as a responsible provider.
- Begun to develop and built a new brand platform that steers how we - Launch a rebranding exercise to ensure that the Hello Student(®)
communicate with our customers, our look and feel and how we deliver our brand is relevant and appropriate for the coming years.
customer experience.
3. We are committed to making Empiric "a great place to work" and destination of - We have refreshed our Company values. A, B, C, D, E, F - Embed the new Operations Director who joined in January 2022. E1, E2, E4, I1, I2, I4
choice for candidates wanting to work in the student accommodation sector;
Our People and Operations through this we will be able to deliver a high standard of customer service. - We have provided mental health first aid training to all people - Open a new strategic hub in Birmingham where we will embed our support
managers. teams.
We will continually enhance our in-house functions and performance coach our
colleagues to help them provide the best and most efficient customer service - We received a "One to Watch" rating by the Best Companies survey on
experience. our debut rating.
4. We will maximise the value from the asset portfolio by actively managing the - We disposed of four non-core assets at a premium to their book value. A, B, C, D, E, J - Complete the Bristol St Mary's development providing an additional 153 E1, E2, E5, I4
portfolio to recycle capital and to improve returns and sustainability. This
beds in the city.
Building is achieved by maintaining a portfolio of investments with attractive yields - We completed two refurbishments in Bristol and Leeds. We achieved this
and rental growth opportunities. while students remained in residence around the refurbishment site with no - To launch new redevelopment schemes and continue our portfolio review,
disruption. looking at disposal, refurbishment and acquisition targets.
5. We want to provide our shareholders with attractive sustainable returns. This - We recommenced the payment of dividends in Q4 2021 with a view to A, B, C, D - Continue to deliver on our five key priorities as laid out on pages x E1, E2, E3, E4, E5, I1, I2, I3, I4
is achieved through improving the profitability, performance and size of our returning to quarterly dividend payments in 2022. to y.
Shareholders portfolio.
- Completed a materiality assessment of our key ESG priorities and have - Beyond COVID-19, we are positioned to return to full occupancy and
commenced our roadmap. optimise profitability enabling us to resume paying an attractive dividend.
For 2022 we are targeting a 2.5p dividend.
- The progress achieved in all of the above strategic areas contributes
to shareholder returns. - We will continue to engage closely with all shareholders.
KPI Links
A. Rebooker Rate
B. Net Promoter Score
C. Revenue Occupancy
D. Safety - Number of Accidents
E. Colleague Engagement
F. Gross Margin
G. Adjusted Earnings per Share
H. Dividend Cover
I. Net Asset Value per Share
J. Total Return
Risks Links
External Risks
E1. Revenue Risk
E2. Competition Risk
E3. Property Market Risk
E4. Regulatory Risk
E5. Funding Risk
Internal Risks
I1. Health and Safety Risk
I2. Cyber Security Risk
I3. People Risk
I4. Safe and Sustainable Buildings Risk
Strategy in Action
CUSTOMERS
Caring for our customers
Delivering Consistently High Customer Service
The Group undertakes a biannual survey with the Global Student Living Index.
The outcome in Q4 was a Net Promoter Score ("NPS") of +22 - slightly lower
than Spring 2021 (+27) but in line with Autumn last year (+21).
82% rated their accommodation positively, in line with private hall and large
operator benchmarks (83%). 70% said their accommodation had a positive impact
on their wellbeing, an improvement on Spring and Autumn 2020 (67%). The
wellbeing impact score is an encouraging 4% points above the benchmark for UK
private halls (66%). 28% said they would be staying in their current
accommodation next year, higher than the average for private halls. 77% of
students rated their moving-in experience as good or very good, with the
highest rating score being the staff welcome. All of these scores were ahead
of our peers despite the difficulty COVID-19 has brought.
"Customer service is key to retaining customers and ensuring our brand is
spread by word of mouth."
OUR PEOPLE AND OPERATIONS
Supporting our people
Training Our People
Our key focus as a business is providing the best experience for our students.
Our people are on the front line of providing that experience and as such any
investment in our people means happy customers.
We have a dedicated in-house training resource which specialises in ensuring
all our people provide great customer service. These skills stay with our
people for a lifetime and so will help them through all stages of their
career. Despite the challenges posed by COVID-19 we have delivered 120 hours
of sales and customer training to our people.
The impact of this training is clear to see in the reviews our students leave
across various platforms. We have selected two examples here out of the many
we read.
"Perfect location within a short walk to town, the uni and the beaches.
Incredible staff who are on-site most days, no issue is too big or small,
there is always someone to help, whether that's a maintenance issue or just
for someone to talk to. Best accommodation I've stayed in, this is one of the
reasons why I rebooked."
Resident - Ocean View
"Moved in here three months ago and really glad I chose this place. The
location couldn't have been better, given the proximity to the city centre as
well as uni. The staff is super sweet and friendly, always a delight to chat
with, and they've gone above and beyond their duties to ensure our comfort and
safety. Barring the ongoing COVID-19 situation, they organise events and
socials so I think that's cool. Overall, the facilities and everything about
this place has fairly exceeded my expectations so there's no complaints so
far. Oh, and the best part? Free coffee in the common room!"
Resident - York Foss Studios
Throughout the pandemic we continued to ensure our training schedule was
unaffected, delivering training through video conferences.
CHIEF EXECUTIVE OFFICER'S REVIEW
Delivering our strategic priorities
"We have made good progress executing our strategy through investment in our
people, customers, assets and systems, despite the challenges of the
pandemic."
Throughout the year, we remained committed to supporting and doing the right
thing by each student on a case-by-case basis, focusing on Health and Safety,
whilst also protecting the long-term value of the Group, even though 2021
brought further challenging times as the pandemic continued to disrupt many
students' education plans.
In March 2021, we identified five key priorities that would drive value for
shareholders:
Driving performance to improve shareholder returns
Five Key Priorities
1.
Actively Managing the Property Portfolio
2.
Strengthening our Brand Proposition
3.
Driving Performance through Data Analytics
4.
Delivering Consistent Customer Service
5.
Developing Our People
An overriding focus that spans everything we do is the safety and wellbeing of
our colleagues, customers, communities and stakeholders, and we have devoted
significant resources to ensure this is the case.
I will expand on this, as we look at the progress of each of these priorities
in turn:
Actively Managing the Property Portfolio
As at 31 December 2021, we owned or were committed to owning 91 assets with
9,170 beds (31 December 2020: 95 assets, representing 9,396 beds). Of these,
87 were revenue-generating assets, with 8,543 beds (31 December 2020: 91 were
revenue-generating assets, with 8,887 beds).
Portfolio Safety
Safety remains our top priority as a business and to that end we ensure that
our buildings comply with not only all relevant regulations but also with best
practice within the industry. We have updated our fire risk and mitigation
strategies throughout our estate, and where appropriate that includes
undertaking detailed External Wall Surveys. Such surveys will ensure any
potential risks are clearly identified and are being undertaken by highly
experienced professional teams and where necessary qualified experts. Should
remedial actions be identified as necessary, these are being addressed. In our
interim results, we previously advised that we planned to spend £30 million
on fire safety works in our buildings. However, we are uncertain how much we
will recover from developers so we have increased this estimate to £37
million.
Independent Valuation
Each property in our 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 2021, the portfolio was valued at £1,022 million, an increase of 2%
from prior year (31 December 2020: £1,005 million). See valuation bridge
further on which details the breakdown of the fair value movement in the year.
Property Portfolio Management
As described last year, we have undertaken a strategic review of our
portfolio, with the aim of rationalising it to maximise the expertise,
positive reputation, and commercial power of the Hello Student(®) brand. We
have made good progress disposing of non-core assets, and to date we have sold
£45 million of these, which on aggregate have sold above book value.
This gives us an opportunity for capital recycling, which we will undertake
whilst focusing on the best interests of shareholders. This includes
consideration of investment in refurbishments or reconfigurations, as we aim
to bring the portfolio to a consistently high standard, where we have
identified £44 million of refurbishment capex to be spent over five years.
This spend will be subject to a hurdle rate of 9-11% IRR. During the year, we
completed two pilot refurbishment schemes to upgrade rooms, both of which were
successfully completed and achieved target IRR. As a result, we have drawn up
plans to roll out the refurbishment programme and will make progress on this
in 2022.
"Safety remains our top priority as a business."
Total operational beds
March 2022
8,391
AY 2022/23
8,603
"We help build futures by providing the best and safest buildings,
environments and support for our students to study and flourish. We
continuously focus on improving our offer."
As a refresher on the portfolio segmentation:
Segment A comprises properties we regard as core Hello Student(®) sites. They
are in great condition, properly configured and produce our best results.
Apart from a continuous programme of ensuring they remain in great condition,
there are no further significant actions to take with the existing sites. This
segment is targeted for growth through either acquisitions or developments, as
described below.
Segment B comprises sites which fundamentally meet the Hello Student(®)
criteria, but need investment in refurbishment or modest reconfiguration, to
upgrade them to core Hello Student(®) brand standards, and thus command an
improved rental yield. We will invest in these sites, assuming the 9-11% IRRs
hurdle rate. The objective is to eliminate this segment over a five-year
period.
Segment C comprises sites which are not core Hello Student(®) sites for
various reasons, but have good commercial characteristics. This segment might
also offer interesting opportunities for different ownership models which we
will explore further. They can be divided into two subcategories.
The first sub-category comprises sites ideally suited to first-year UK
students (who are not core Hello Student(®) customers). However, with
nomination agreements for these sites, they represent attractive commercial
propositions. Should this not be possible for any reason, they could be
disposal targets, as has already been identified for one site.
The second sub-category comprises sites that do not fit our core Hello
Student(®) criteria but are ideal for mature graduates or postgraduates who
often look for accommodation in quieter locations, or in city centres, or
perhaps something more suitable for couples. In 2022 or 2023 we will be
trialling a sub-brand of Hello Student(®) aimed at more mature students,
enabling us to retain, and "upgrade" existing customers as they continue their
further studies, allowing us to benefit from building loyalty through their
Hello Student(®) experiences.
Segment D comprises properties that currently represent approximately 8% of
the value of our portfolio, which for various reasons no longer remain core.
The disposal programme has realised £45 million in gross proceeds so far, and
we remain confident that the remaining properties will be sold over the course
of the next 18 months, after which segment D will no longer exist.
Proceeds from disposal are being deployed in the best interests of
shareholders, and a variety of opportunities will be evaluated. This will
include reinvestment in new developments, refurbishments or acquisitions to
grow our Segment A core Hello Student(®) portfolio, especially on a cluster
density increase basis.
Developments and Redevelopments
Work is progressing well at St Mary's Hospital in Bristol which will be
completed in time to operate for the 2022/23 academic year.
Due to COVID-19 we paused two projects, a development in Canterbury called
Franciscans, and a refurbishment in Edinburgh called Southbridge. The latter
is now scheduled to begin construction in 2022.
In December 2020 we secured planning permission for the redevelopment of
Francis Gardner Apartments in London. The new seven-storey development will
provide 18 new bedrooms with a mix of two, three and four-bed flats with
shared kitchens and living facilities.
Portfolio Growth Strategy
As we release cash through the disposal programme, reinvestment will take
place in two separate ways. Firstly, there is the capex deployment as
identified above to bring our existing portfolio to standard, and secondly
there is the development or acquisition of new bed stock. We have undertaken a
strategic review of growth locations and will invest in growing bed stock in
those cities with Russell Group, or closely adjacent to Russell Group
Universities, where international student participation is targeted for growth
over the next ten years or longer.
Development Pipeline
Site Development basis Beds Delivery year
St Mary's, Bristol Direct Development 153 2022
Southbridge, Edinburgh Major refurbishment/development 59 2022
Francis Gardner, London Major refurbishment/development 72 TBC
FISC, Canterbury Major refurbishment/development 134 TBC
"University is a time for making new friends, learning new things and having
new experiences. Experiences that create memories to last a lifetime. And
Hello Student is more than just a home from home, we're basecamp for your next
adventure."
We will drive operational efficiencies through acquiring or developing new
sites in these cities that are close to well-located existing sites. This
clustering strategy delivers the benefits of scale of additional beds, whilst
maintaining the personalised service and positioning requirements of being a
Hello Student(®) property, with that key homely boutique feel.
Strengthening Our Brand Proposition (including Our Sustainability Approach)
It is critical that we enshrine data-driven customer insight into our property
and service offerings, and into our designs and development. It should also
drive innovation and our marketing and communications strategies. In 2021 we
undertook extensive qualitative and quantitative customer research which is
informing our plans, especially on executing the digital customer journey
where we are working on an overhaul of our website and communications.
Our Hello Student(®) brand has good awareness and reputation, and we have
used the customer insight to refine its proposition.
Its execution in the various media we use to communicate will be revisited to
ensure we have the right reach in the right channels. Our aim is to build
further on the strength of our brand within our properties and ensure the
Hello Student(®) name becomes more prominent within the student accommodation
sector.
Our customers mostly belong to the late Millennial or early Generation Z
demographic groupings, and as such it is highly important for them to choose
service providers who act in a sustainable and responsible way. As such, ESG
is not just a corporate requirement for us, it is a customer necessity. We
have covered this key area in a major section of this Annual Report on [page
X]. Suffice to say it is driven by a wish to inspire colleagues, customers and
investors.
Driving Performance through Data Analytics
Our Hello Hub operating platform has given us a complete in-house solution to
managing our own revenues. Not only do we have the technical systems in place,
with the help of experts in this field we have completely revised our revenue
management processes, accountabilities and now systemised our dynamic pricing
approach. Algorithms have been written, data management expertise has been
brought in-house, and this is being used for the first time to take weekly
pricing decisions, enabling us to improve rental yields over time.
As an example, we used our data analytics on a slow to fill city, finding that
our room categorisation was too complicated, not understood by potential
customers, and as a result they abandoned their search with Hello Student(®)
and went to competitors. Changes were made to simplify room types and their
digital route to market, and within two weeks this city grew their occupancy
over 50% more than the average occupancy growth across the portfolio.
Dynamic pricing gives us a formalised time-bound process to maximise our
revenues on sites that are in high demand, and similarly to maximise occupancy
in those slower to fill. Our premium positioning and improvements in quality
and customer service will enable us to command better rents. The use of data
is now giving us the best possible direct control of room categorisation and
price setting, informed by real-time sales and competitor data.
Delivering Consistent Customer Service
Since foundation, the Company has been on a service journey. Until relatively
recently, it was largely outsourced with relatively little direct control over
its nature, quality or consistency. Operations were fully brought in-house
three years ago, and since then we have been building the people management
expertise, and now it is time to really drive a service culture and put
customer experience at the heart of what we deliver.
In 2021 we changed our working patterns and introduced 24-hour service at our
sites, improving safety and security and customer engagement. Our reception
desks are now manned when our customers most need to talk to us, not just
"9-5". We have our own maintenance team, shared between clusters of sites, so
that we can quickly and cost effectively complete repairs and only call in
experts when more complex maintenance is required.
Service requirements and standards are set through researched customer insight
and are measured through satisfaction surveys. In 2021 extensive customer
insight has been gathered in order to determine the most important elements,
and we have joined the Global Student Living Index in order to benchmark our
performance against others. Through this, we get a Net Promoter Score ("NPS")
twice yearly, where we can benchmark progress, areas of shortfall that need
addressing, and understand our competitive position.
The most recent result gave us an NPS of +22 which has grown 1 point over the
last 12 months, and compares to an all-sector average of -8 and a private
halls average of +20. This means we are 2 points above the average for our
comparator group competitors, which we need to be in order to earn our premium
positioning.
24hr
service at our sites
NPS
+22
against PBSA Private halls average of +20
Colleague Engagement Score
82%
(2020: 83%)
Understanding our customers' growing needs is critical to maintaining
competitive edge, and delivering a consistent experience remains the
challenge. We also understand that knowing our residents' families, especially
their parents, is a key part of reassurance that makes the Hello Student(®)
experience different from those in halls of residence or HMOs.
Supporting Our Customers
During 2021 we have provided a Student Assistance Programme in partnership
with Endsleigh and Health Assured. This scheme provides a suite of wellbeing
services for our customers, offering them support to deal with physical and
mental health issues or financial difficulties. The provision of this scheme
has also supported some universities that have faced challenges in providing
sufficient wellbeing support to their students throughout the pandemic and
this will not just be in place during COVID-19 times but a permanent
enhancement of our student wellbeing support.
In addition, we have invested in Mental Health First Aid training for all of
our key colleagues, in partnership with MHFA England. Whilst we do not profess
to be medical experts, our team are now equipped to identify potential issues
and assist students to get the professional support they require, particularly
at times of stress such as examinations.
Developing our People
At the heart of any service business are the people that design, support and
deliver the customer experience. It has been a key priority in 2021, and will
remain so, to invest in our people to ensure we remain at the competitive
leading edge providing premium experiences.
Health and Safety
Health and safety is of paramount importance to the Group. We have a legal and
moral responsibility to ensure that everyone who is living, working in or
visiting our buildings is kept safe. Our customer insight shows it is the
number one priority, by some margin, for our students.
In particular, we have focused on fire safety, ensuring that we are ahead of
any legislative changes and that we have risk assessments, qualified surveys,
mitigation procedures, checking processes and we invest in prevention and
mitigation. To this end, we have allocated £37 million capex over the next
five years, to undertake any building changes required.
Our buildings are inspected on a regular basis to ensure that we identify and
eliminate hazards. To assess the buildings we have engaged with specialist
consultants to undertake thorough assessments of general safety, hazards, fire
risks and prevention and water systems and treatment against Legionella.
During 2021 we have undertaken extensive formal health and safety training by
the Institute of Occupational Safety and Health ("IOSH") for our teams, from
the Board to the front line.
We have delivered a series of Toolbox Talks which are in document and
e-learning format enabling all site teams to have continual access to
training.
A Health & Safety Forum has been implemented during 2021 which includes
representatives from teams throughout the country.
Investments in People
In January 2020, we appointed a Training & Development Manager to design
and deliver programmes to our people for their personal and professional
growth, which range from mandatory training for governance to selling and
practical skills. We have further enhanced this, with the engagement of an
experienced performance improvement coach who is helping the leadership team
to improve effectiveness.
We overhauled our e-learning platform and provided support for new learning
opportunities to various roles within the business. This change in emphasis
from classroom to online webinar delivery has been efficient, especially
during restrictions from the pandemic, and we have continued to focus on key
sessions such as sales and customer services to increase the knowledge and
skills of our operational teams.
We increased focus on mandatory training with new measures to track compliance
levels and ensure high standards are being achieved. In 2022 we will enhance
the skills of colleagues within our maintenance teams. This will allow for
cost efficiencies as a broader range of repairs and maintenance works can be
conducted in-house, and will also develop the network of our regional teams so
they are able to support each other across the country.
We recognised the contribution that our front-line operational teams have made
to our customers and the business and in 2021, we increased pay to align with
the Real Living Wage as our minimum, and we are committed to pay a fair wage
for all core roles. We have accreditation from the Real Living Wage Foundation
and have undertaken to uphold those standards for years to come.
As in previous years, we have undertaken a colleague engagement survey which
achieved a response rate of 64% and an overall colleague engagement score of
82% against the UK all-sector average of 68% and previous year's result of
83%. These results were delivered despite the current pandemic and help to
give us a better understanding of what matters to our people and to ensure we
deliver improvements.
To provide a higher quality, consistent 24/7 personalised service, we need the
right calibre of people, appropriately rewarded, who are trained and
developed. That process is underway and we have already made changes to our
site management structure and invested in quality colleagues to reduce
turnover and increase our service engagement. To deliver a personalised homely
service we need our front-line colleagues to be in their positions for a long
time to develop those critical customer relationships, so measuring turnover
and retention will be key.
We will put more focus and resources into developing our people, with an aim
of significantly raising the proportion of internal promotions versus external
recruitment.
STRATEGY IN ACTION
Buildings
Refurbishing our key assets
Summer Refurbishments
Leeds Pennine House & Bristol College Green
In the summer of 2021, we undertook the first stage of our refurbishment
programme. This consisted of a refurbishment of 37 beds across two buildings
and a refreshing of our communal areas in Leeds. These refurbishments were
completed over the summer while students were still in situ within the
building with no disruption. The total project cost was £1.5 million with a
number of works undertaken which will ensure the second phase of renovations
in these buildings can be completed at a lower cost. The studio suites have
been adapted and fully upgraded to include new kitchen, study, bedspace and
extended storage facilities. Bathrooms were refreshed including new shower
enclosures, equipment and accessories. All works were carried out to a
market-leading standard.
"All refurbished rooms are 100% occupied for the 2021/22 academic year."
28% rental uplift achieved on the newly refurbished rooms
Developing Our People
Introducing our new values
We have redefined and relaunched our values from the grassroots up.
On 1 July 2021 we relaunched our values; in developing our values we started
with interactive colleague workshops, mainly as face-to-face sessions,
delivered at locations across the UK.
Where this was not possible we also ran some virtual sessions meaning everyone
had the opportunity to contribute their ideas. This ranged from colleagues to
customers who all had an opportunity to feed into our values. The outputs were
then put to the Colleague Forum who reviewed them and came up with the
anacronym HOMES. The final values were then shared across the business and
were met with very positive sentiment.
Our new values
Honest
We value transparency and integrity in our words and actions.
One
We work as one team to develop safe, friendly and inclusive communities for
our customers and colleagues.
Memorable
We create positive experiences and lifelong memories.
Equals
We welcome individual differences and support each other with the same amount
of respect and kindness.
Successful
We provide high-quality services that deliver results now and for the future.
Value in Action
One
We believe that we are all truly one equal team where we want to work hard to
ensure we develop safe, friendly and inclusive communities for our customers.
We ensure all people managers in the Group have undertaken mental health first
aid training and that colleagues endeavour to respond to customers as soon as
they can. This value stretches throughout the organisation and helps underpin
everything else that we do.
Value in Action
Equal
We believe and support everyone from all backgrounds. For the first time in
2021 we started an exercise to understand the ethnicity of our workforce and
how we could ensure that we continue to be a welcoming business.
We have also continued our obligations to report under the gender pay gap. For
another year our gender pay gap is actually negative, which means that on
average within our businesswomen are paid more than men. We want to ensure
that we are always an equal employer but also always ensure we welcome people
from all backgrounds in our buildings as well.
KEY PERFORMANCE INDICATORS
Monitoring our performance
Non-Financial KPIs
A B
Rebooker Rate (%) Net Promoter Score
16% +22
Performance 2021: 16% 2021: 22.0
2020: 23% 2020: 21.0
Purpose The rebooker rate demonstrates our ability to retain customers within the NPS calculated by the Global Student Living Index which also allows us to
Hello Student(®) brand, which is an indicator of the quality of service we benchmark against our peers.
provide.
Strategic Link 1 2 3 4 5 1 2 3 4 5
C D
Revenue Occupancy (%) Safety - Number of Accidents
84% 0
Performance 2021/22 (as at end February 2022): 84% 2021: 0
2020/21 (as at end February 2021): 65% 20220: 0
Purpose Occupancy is a key driver of our revenue and demonstrates the quality and The number of reportable accidents throughout the Group each year. This is a
location of our assets, the strength of our sales process and our ability to key reporting metric to the Health & Safety Executive as well as a measure
set appropriate rents. of our health and safety strategy and procedures.
Strategic Link 1 2 3 4 5 1 2 3 4 5
E
Colleague Engagement
82%
Performance 2021: 82%
2020: 83%
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
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.
Due to the impact of COVID-19 during this and the previous year, several of
our usual KPIs are showing anomalous figures during this reporting period. We
expect this impact to carry forward into our 2022 KPI reporting.
During the year we have amended our customer-related KPIs, we have moved from
a customer happiness score, which was internally measured, to a NPS score
calculated by the Global Student Living Index which also allows us to
benchmark against our peers.
In 2022 we will review our KPIs to ensure our ESG agenda is appropriately
reflected.
Our KPIs are defined in the Definitions.
Financial KPIs
F G
Gross Margin (%) Adjusted Earnings per Share (p)
58.8% 1.65p
Performance 2021: 58.8% 2021: 1.65
2020: 61.9% 2020: 2.30
Purpose The gross margin reflects our ability to drive occupancy and to rigorously Adjusted earnings per share is the earnings measure that best demonstrates our
control our operating costs. ability to reward shareholders through dividends.
Strategic Link 1 2 3 4 5 1 2 3 4 5
H I
Dividend Cover (%) Net Asset Value per Share (p)
66.0% 107.36p
Performance 2021: 66.0% 2021: 107.36
2020: 183.8% 2020: 105.00
Purpose Dividend cover shows our ability to pay dividends out of current year Movement in the NAV per share reflects the quality of our assets and our
earnings. Note that in the past two years dividends were suspended. See [page ability to generate revenue from them.
31] for details.
Strategic Link 1 2 3 4 5 1 2 3 4 5
J
Total Return (%)
4.6%
Performance 2021: 4.6%
2020: (3.6)%
Purpose The Total Return shows the aggregate value (lost)/gained for shareholders,
through both capital (decline)/growth of NAV and dividends.
Strategic Link 1 2 3 4 5
Strategic Links
1. Customers
2. Brand
3. People and Operations
4. Buildings
5. Shareholders
DUNCAN GARROOD
Chief Executive Officer
2 March 2022
CFO AND CSO STATEMENT
Driving efficiencies
"We have had a busy year, embedding new systems and change so that we have a
strong platform for growth."
2021 has seen us complete what can be viewed as the first phase of our
operational transformation which we started in 2018, with all activities now
safely migrated in-house. The key final milestone this year was the previous
external revenue management contract ending in October 2021 with the academic
year 2020/21 being the final one externally managed. In November 2020 we had
already started selling for the academic year 2021/22 on our in-house platform
for the first time, and throughout 2021 we have now also successfully taken
payments directly from students for the first time.
This first phase of the transformation journey has been a significant
undertaking, and I would like to thank the entire team for their contribution
in making this happen.
The next phase of our transformation will see us focus on continuing to drive
performance and efficiency across the business, with the key areas of
operational focus in this respect in 2021 having been:
- Completed the induction and establishment in the senior team of
the CEO and Head of Property Director, who both joined towards the end of the
previous financial year, and for the Sales & Marketing Director who joined
in June 2021.
- Embedding the day-to-day management of the in-house revenue
management platform and the related dynamic pricing model.
- Re-structuring of the IT team and the development of a small
project office to assist in the further rationalisation of our IT platforms
and automation of processes.
- An external review of cyber security and IT enterprise
architecture.
Revenue Management System
The final work on our new revenue management system concluded in October when
we brought the process for the collection of Receivables in-house. This is now
a centralised function within the finance team.
This system gives us direct control of our revenue management, enabling us to
make price changes more efficiently and swiftly:
· it allows us to manage the relationship with our customers
directly end to end;
· it makes debt collection easier, and importantly we are
delivering annualised cost savings of £1.5 million which started in
September.
Financial Performance
Our performance in 2021 continued to be impacted by COVID-19 but there was an
improvement as restrictions relaxed during the year and despite the Omicron
surge in December we ended the year with greater confidence that market
conditions are starting to normalise for academic year 2022/23.
Revenue decreased 6% to £56.0 million, as occupancy for the first eight
months in 2021 was 65% compared to 84% for the same period in 2020. We started
the academic year 2021/22 at 81% occupancy and this has increased to 84% since
then.
Like for Like rental growth for the 2020/21 academic year was 1.3% as reported
previously, as we prioritised occupancy levels over rental growth.
Property Expenses were up 2% mainly driven by having to pay council tax on
empty rooms as a result of lower occupancy levels.
Gross Margin decreased from 62% to 59% as a result of a £3.5 million fall in
revenue.
During the period we sold four assets with a net gain on disposal of £1.7
million.
Since the year end you will have seen that we have announced further disposals
of five assets also above book value alongside one acquisition. These have
been reported on as assets held for sale as at the balance sheet date.
The net profit from a change in the fair value of investment properties was
£17.6 million compared to a £37.6 million loss the previous year.
Net finance expense was £12.4 million, 7% less than last year due to
maintaining the RCF at a lower level and continued low interest rates.
The result of this is a profit before tax of £29.2 million, (2020: loss
£24.0 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") was therefore 4.84 pence and also 4.84 pence on a diluted
basis (2020: loss (3.97) pence and (3.97) pence (diluted).
Adjusted EPS is the most relevant measure of earnings when assessing dividend
distributions.
In 2021 Adjusted EPS was 1.65 pence (2020: 2.30). This shows that the
underlying operating business is continuing to generate cash despite the
impact of the pandemic.
The Net Asset Value ("NAV") per share as at 31 December 2021 was 107.36 pence,
(31 December 2020: 105.00 pence.
The NAV is shown net of all property acquisition costs and dividends paid
during the year.
Valuation Movement
During 2021 we sold four assets for £18.1 million, above the book value shown
here of £16.3 million. After that disposal the portfolio was valued at
£988.8 million.
In August 2021 we indicated we would spend £30 million on health and safety
works over the next five years. We are uncertain how much we will recover from
developers, so we have increased this to £37 million. CBRE accepted
management's assumption is that £17.2 million of this cost should now be
reflected in the valuation at the year-end in respect of in respect of work on
fire stopping and external wall systems.
The value of developments has fallen by £2.5 million due to a delay in
obtaining planning consent on Canterbury.
At the end of December 20, we reported a COVID-19 related reduction in the
year end portfolio valuation of £21.4 million mainly due to CBRE's assumption
of 50% occupancy for the balance of the academic year.
We are now reporting a £15.2 million move in our favour as CBRE reduced their
COVID-19 deduction to £6.2 million. This deduction of £6.2 million relates
to the balance of the 2021/22 academic year only, with no deduction proposed
for the academic year 2022/23.
During the year we spent £8.0 million on capital expenditure and £7.4
million on development.
Our operational assets increased in value by £21.3 million, driven by
improved rental growth on our super prime assets, partially offset by a
reduction in secondary assets.
Our commercial portfolio, which comprises convenience stores and restaurants
within our sites, went up £0.8 million.
The valuation at the end of December, before adjusting for assets that have
been sold following the year end, was £1.022 billion.
Over the year Net Initial Yield has slightly improved from 5.6% to 5.3%.
Dividends
The dividends declared in respect of the 2021 financial year are shown in the
table.
We are pleased to report that we resumed dividend payments in Q4 2021 with a
payment of 2.5p per share. This comprises the PID distribution requirement of
1p per share for the financial year 2019 and 1.5p per share for 2020. In 2022,
we plan to start paying a minimum dividend of 2.5p per share per annum, with a
view to increasing this as occupancy levels normalise.
Our future dividend policy will be progressive, whilst also ensuring that
dividends are paid on a fully covered basis. Driving long-term shareholder
value remains top of our agenda as we drive value-enhancing changes in our
business.
Quarter ending Declared Paid Amount (p)
30 September 2021 29 October 2021 3 December 2021 2.50
Debt
At the year end, before deduction of loan arrangement fees, the Group had
committed investment debt facilities of £420 million, of which £375 million
were drawn down (2020: £390 million drawn down).
Of our drawn investment debt, £277 million of this debt is fixed and £98
million is floating. The aggregate cost of our investment debt was 3.0%, with
a weighted average term of 4.9 years.
The Loan to Value for the Group was 33.1% (2020: 35.4%), broadly in line with
our long-term LTV target of 35%.
We have also agreed waivers or an easing of covenant requirements on all our
debt to ensure that we remain covenant compliant throughout the pandemic.
We currently have around £44 million of unencumbered assets and as at the
year end we had £82 million of undrawn investment facilities and cash.
We have one facility which is due in less than one year. The facility totals
£90million of which £45million was drawn at the end of the year. Post year
end we have signed an extension for a further three years. Once completed we
expect to have no further financing requirements until March 2023.
RESPONSIBLE BUSINESS - ESG
Responsible and sustainable approach
The Board believes that ESG must be fully embedded within all activities
within the Group for it to succeed.
Our ESG Journey and Commitment to Stakeholders
We are committed to creating and operating a responsible and sustainable
business which has a positive impact on all of our stakeholders. During 2020
we established a Board level ESG Committee tasked with providing a roadmap to
deliver a significant step change in our approach to ESG.
Our purpose is to help students make the most of their university life by
providing safe and modern living spaces with service that makes them feel at
home.
In 2021 the ESG Committee undertook our first formal materiality assessment.
The decision to undertake a materiality assessment was driven by a number of
considerations. Firstly, a materiality assessment would help inform the
Group's future sustainability strategy. It would allow the Group to identify
what organisational changes would be required and, what tools, resources or
investment would be needed to implement a robust ESG strategy. Importantly, a
materiality assessment would enable the Group to prioritise what the business
can or should do to support its key stakeholders whilst communicating this
both internally and externally. Finally, completing a materiality assessment
would allow the Group to rationalise to key stakeholders why it was
prioritising certain topics within its future sustainability strategy and
disclosure.
Materiality Matrix
The assessment, led by our Board and ESG Committee, was undertaken by an
independent third party to ensure confidentiality and impartiality. The
assessment was conducted according to the Global Reporting Initiative ("GRI")
and its reporting standards.
To ensure that we fully understood the priorities and needs of our
stakeholders, we:
- Listened to over 1,700 students to better understand our
customers' needs and expectations.
- Undertook a range of surveys and focus groups with our
colleagues.
- Conducted one-to-one interviews with other stakeholders, such as
investors, banks, professional advisers and analysts.
Following the assessments above, our external adviser analysed and assessed
qualitative information to determine the key topics identified by
stakeholders, with the output of the materiality matrix detailed opposite.
The ESG Committee reviewed the materiality matrix and decided to combine the
"energy efficiency & consumption" and "Sustainable properties" topics
under one heading. The Committee also decided to add a fourth topic around how
Empiric aims to provide opportunities for all through its business activities.
We have structured our Responsible Business section so that we have an
individual section for each of our four key topics:
- Becoming a sustainable business and achieving net zero
- Excelling in providing health and safety
- Enhancing mental health & wellbeing
- Providing opportunities for all
We are committed to improving our contribution to the environment, our social
obligations to employees, suppliers, customers and the communities in which we
operate. Our activities will be guided by setting ambitious and challenging
targets that will guide our strategy, operations and employees over the coming
years.
ESG
Management Framework
ESG Committee
The Committee will oversee…
the creation of overall ESG strategy for the Group, ensuring that there is
Board level discussion and input.
The Board
The Board has overall responsibility for…
the Group's ESG strategy and the direction which the Group will take.
Senior Leadership Team
Senior management are responsible for…
ensuring this ESG strategy is embedded throughout the business and providing
key support to communities.
Our People
The successful delivery of an ESG strategy across our business will require
the collaboration and support of all our people.
Becoming a sustainable business and achieving net zero
We intend to become net zero in our operations, property portfolio and energy
consumption by 2035 or before. We will reduce the environmental impact of the
buildings annually as part of a strategy through investment in energy and
resource efficiencies and encourage our students to increase their sustainable
behaviour. We have also set a wider target of being net zero in all our
emissions (adding scope 3) by 2050 or sooner.
Actions Undertaken During 2021
As part of our ambition to achieve net zero we have appointed CBRE to
undertake an overarching Net Zero report, this will help us to define KPIs and
also areas in which we need stronger governance. As part of this report, there
will be a section that we publish on our website under a new ESG section.
We have also commissioned our utilities adviser to build an asset-by-asset
roadmap of our existing portfolio. This will contain yearly targets and
activities and highlight to us where best to invest our capital. As part of
this project, in our June 2021 Interim Report we announced that we had
ringfenced £4 million of green expenditure over the next five years to help
achieve these goals.
In December 2021 we undertook our first pilot green initiative in Manchester
on two assets. This project involved the installation of new panel heaters in
the building which were then connected to our heating network. This project
will pay for itself in energy savings over a period of less than two years.
This pilot initiative was completed without any disturbance to our customers
and has helped design the blueprint for future initiatives.
During 2021 we also replaced all of our on-site vans with electric vehicles;
see case study for more detail. These vans can then be charged on-site where
the electricity we use in our buildings is 100% renewable. This is backed by
UK-based renewable generation certificates administered by Ofgem. This means
the electricity we use is generated in renewable ways ranging from solar and
wind turbines to anaerobic digestion and biomass plants.
Finally in 2021 we signed up to become a supporter of the TCFD. This is our
first year in complying with disclosures in line with TCFD recommendations. We
expect these disclosures to evolve as we start to define our pathway to net
zero carbon and will become fully compliant in the future.
Key Aims for 2022
- Disclosure of our EPC position across the Group and steps being
taken to improve this.
- Continue our roadmap of planned energy efficiency initiatives
across the portfolio.
- Increase the ESG disclosures on our corporate website to
increase transparency.
- Publish CBRE's Net Zero report on our website.
Electric Vans: case study
During 2021 the lease on our six diesel work vans came up for renewal and the
decision was quickly made to replace these with green electric work vans.
Although this came at a slight premium, it was an important message to make to
underline our commitment to ESG. As part of the project we installed electric
charging stations at six buildings and were able to utilise our renewable
electricity. Our people and students reacted very positively to the roll out
of the new electric vans with posts being made on Workplace, our internal
social media site.
Excelling in Providing Health and Safety
We will continue to build on our established good practice in Health and
Safety where we operate. We will do this by continuing to target zero RIDDORs
each year as defined by the HSE. We also understand the need to create
environments that make our students and employees feel safe. Needing to feel
safe always scores highly in our customer surveys and we have a duty to
address that.
Actions Undertaken During 2021
In our 2021 Interim Report we announced that we would be spending circa £30
million on fire safety works in our buildings. However, we are uncertain how
much we will recover from developers so we have increased this estimate to
£37 million.
This workstream was split into two sections. The first part includes fire
compartmentation works, where we undertook works on 29 buildings in 2021, with
a further 30 buildings planned for 2022 and 2023. The second part of the
workstream was external wall system ("EWS") surveys. We undertook EWS surveys
on our 20 buildings which were classed as high-risk due to their height being
over 18 metres. The actions are currently being worked through by our property
team.
Keeping our people and customers safe is always of paramount importance to us.
We have continued to maintain a number of initiatives within our buildings to
ensure safety during the COVID-19 pandemic, and we have also been agile and
amended these safety measures in line with government guidance.
We undertook a large training programme with the Institute of Occupational
Safety and Health during the year; see case study for detail. One outcome of
this training was the decision to review and relaunch our existing health and
safety policy to ensure it was up to date and relevant. This was relaunched in
October 2021 alongside a secondary document which gives guidance on the key
aspects of the policy document which are pertinent to each job role.
Key Aims for 2022
- We have hired a full-time in-house Health and Safety expert to
increase the resource and knowledge with the business. We also want an
internal expert to help us facilitate and embed a culture change throughout
the business.
- Define and establish KPIs for external reporting around
Colleague Engagement, Training, Incident Reporting and Student Feedback.
- Continue to undertake the capital expenditure on our fire safety
projects.
IOSH Training: case study
During the year we undertook a number of training courses with IOSH. There
were two main streams of training, firstly the frontline IOSH training
programme. This consisted of three separate courses: Managing Safely, Working
Safely and Fire Safety. This was delivered as a hybrid of in-person and online
teaching to our people. We had 120 of our front line people complete the
course and the feedback we had was overwhelmingly positive.
The second stream of training was the IOSH Leading Safely course. This was a
full day in -person course delivered to three Board members and three
Executive Committee members. Each attendee made a number of key safety
commitments which will be woven into our health and safety strategy.
Enhancing Mental Health & Wellbeing
The wellbeing and mental health of our students and employees is a top
priority for us. We also know how it can make a positive impact on our
business and the wider community.
Actions Undertaken During 2021
During 2021 we undertook a number of different actions to enhance the mental
health and wellbeing for both Colleagues and our Customers. One of the key
actions undertaken was mental health training undertaken with Mental Health
First Aid England, discussed further in our case study.
We launched a series of awareness and wellbeing weeks across the business. In
May we had our Mental Health Awareness Week with the theme of nature; we
encouraged colleagues to get outdoors and share their pictures on a new ESG
workgroup on Workplace and used the opportunity to remind everyone how to
access support to improve their wellbeing and mental health. In October we
launched a series of wellbeing weeks, where we featured a different aspect of
wellbeing each week, encouraging managers to engage their team members in
discussions that will increase awareness about the support tools we offer and
demonstrate that we care about the health and wellbeing of our people.
We also launched a "How are you Feeling?" survey undertaken by our London
office-based colleagues following extended period of remote working and an
announcement of a planned office move to London Bridge later in the year. The
survey results indicated a strong preference for "hybrid working" to become
the new norm. A working party was set up to further review and respond to the
results, combined with communication updates for the new office.
We launched a further round of refunds and discounts to help our customers who
had been impacted by the COVID-19 pandemic. One of the main considerations
around offering the refunds was the impact of stress on our customers' mental
health.
In 2021 we have continued in partnership with Endsleigh, a student assistance
programme. This programme provides our customers with unlimited access to a
24/7 mental health and confidential counselling service (BACP accredited)
through a telephone helpline. We believe supporting our customers' wellbeing
is paramount.
Key Aims for 2022
- Improve our Best Companies score as well as our student
satisfaction score.
- Define and develop how we evaluate our approach to the wellbeing
of all our stakeholders before being able to set out, define and establish
KPIs.
Mental Health & Wellbeing Training: case study
We partnered with Mental Health First Aid England ("MHFA") to deliver training
to all people managers to improve their knowledge, awareness and understanding
in supporting both team members and students. Separate shorter sessions were
also delivered for key frontline roles, Customer Service Advisers and Night
Caretakers initially. This meant that everyone from our CEO to our front-line
staff had undertaken some form of mental health first aid training to ensure
we can help protect our customers and our people as well as ourselves. We want
to continue to progress this training in future years with regular top-up
sessions and forum discussions.
Providing Opportunities For All
We believe that being inclusive improves opportunities for our students,
employees and people living in the communities we operate in. This will not
only create long-term value to our business, but also society.
Actions Undertaken During 2021
Our first action in 2021 was to become a Living Wage Employer from 1 January
2021. We are committed to ensuring that we continue to hold this accreditation
as we strongly believe our people should be fairly rewarded.
We have introduced two new KPIs around our people. Firstly, a mandatory
training KPI established for monthly tracking and reporting. This has shown a
44% increase in the year. Secondly, a new KPI to track internal promotions
into eligible roles, this is currently running at 23%, meaning that just over
one in five roles advertised are filled internally by promotion.
To help assist internal promotions we have launched a skills matrix for
maintenance operatives and day/night caretakers. This self-assessment allows
us to gauge current levels of ability and confidence to complete certain
tasks. It also highlights areas where we will develop a training plan to
increase capability and reduce external spend as well as upskilling our
people. This allows our people to work as one team and to treat others as
equals. These feed into our Values as a business which we relaunched in the
year; see the case study for more detail.
Key Aims for 2022
- Continue to support and help local causes in our communities.
- Undertake a review looking into wider diversity issues and
targets.
Gender Diversity
Board
2021: Male 4 / Female 2
2020: Male 4 / Female 2
Executive Committee
2021: Male 4 / Female 2
2020: Male 4 / Female 2
Other Employees
2021: Male 151 / Female 138
2020: Male 162 / Female 154
Total
2021: Male 155 / Female 140
2020: Male 166 / Female 158
Equality, Diversity and Inclusion
Group employees are committed to promoting an inclusive, positive and
collaborative culture. We treat everyone equally irrespective of age, sex,
sexual orientation, race, colour, nationality, ethnic origin, religion,
religious or other philosophical belief, disability, gender identity, gender
reassignment, marital or civil partner status, or pregnancy or maternity.
We continue to review our approach to diversity, equality and inclusion,
including the use of targets. Our workforce and customers are from a diverse
range of people so we need to ensure that our workplace remains inclusive and
allows our people and our customers a place where they can thrive.
Modern Slavery
Protecting human rights and preventing modern slavery is important to us. We
are fundamentally opposed to slavery and committed to understanding the risk
of it and ensuring it does not occur anywhere within our business or supply
chain.
Our most significant risk area in relation to slavery and human trafficking is
in our supply chain, particularly in connection with the sourcing by suppliers
of construction material, certain goods and the provision of manual labour in
property development and management services.
While nearly all our direct suppliers are based in the UK, some of these
suppliers source some materials from around the world.
As part of our broader initiative to identify and mitigate risk in our supply
chain, we have updated our consideration of factors such as:
- reviewing our current contractors and suppliers, particularly in
relation to supply chain, with a view to developing preferred supplier list
arrangements based on robust selection;
- centralising more contracts as a core part of our supplier
management strategy;
- strengthening our compliance review processes within procurement
practices;
- developing strong relationships with UK-based suppliers and
contractors that align to our business code of conduct expectations; and
- ensuring systems are in place to encourage the reporting of
concerns and the protection of whistle-blowers in our supply chain.
We believe there is minimal risk of slavery and human trafficking in our
colleague base. We continue to review this risk assessment and monitor our
activity as part of our broader approach to ensuring we are a responsible and
sustainable business.
For our full statement please refer to www.hellostudent.co.uk
Ethical Business
We are committed to carrying out business fairly, honestly and openly. Our
anti-bribery policy mandates a zero-tolerance approach, which all our people
must read and consent to, both during their induction and when any updates are
made to the policy. We require employees to take regular compliance training
and to certify each year that they have complied with our policies.
Our people are important to our business maintaining the highest standards of
honesty, openness and accountability. Our whistleblowing policy explains how
our people can report a whistleblowing concern and reassures them that any
such disclosure is made in full confidence. The Board monitors and reviews the
policy on at least an annual basis to ensure it complies with UK legislation.
There were no incidents of whistleblowing during the year. In 2022 we are
going to seek to develop an externally managed whistleblowing hotline as well
as reviewing the policy.
Opportunities For All: case study
We also look to provide opportunities for all in our wider community. During
the year the BBC undertook filming at one of our buildings and as payment we
requested they make a donation to a charity on our behalf. The local site team
chose Kind in Liverpool a charity which focuses on helping disadvantaged
children and families from across Liverpool and Merseyside. The image here
shows the filming outside our Hahneman Building.
Our key stakeholders and how we engage with them
This section provides more information on the various stakeholder engagement
activities and our future plans. Please refer to the section 172 ("s.172")
statement for more detail on the Board's engagement with our key stakeholders.
Stakeholder Engagement
Stakeholder Why We Engage How We Engage Material Issues Actions Taken in 2021
Customers The needs of our customers inspire our brand and provide insightful feedback On a day-to-day basis within our buildings. - Safety in their homes - Offered refunds to students impacted by COVID-19 pandemic in Q1 2021.
on how we can improve our service offering to them and better fulfil our
purpose. We have a responsibility to provide our customers with a safe place Through biannual customer surveys. - Customer service - Moved our student assistance programme onto a student app.
to live and to care for their wellbeing, which is critical to the Board's
strategic decision-making and our review of any operational changes. Through our social media presence. - Value for money - Embedded our new operational structure meaning there was cover on
sites 24 hours a day, 7 days a week.
Through building relationships with universities in the towns and cities which
we operate in.
People Our people are vital to the successful delivery of our business performance. On a day-to-day basis we use Workplace as an internal communication tool. - Safety at work - Relaunched our Company values after a consultation with our people.
We have a responsibility to provide our people with a safe place to work and
to care for their wellbeing to enable them to prosper. Quarterly townhalls are held where our people can raise questions and - Pay and reward - Rated as "One to Watch" by the Best Companies survey.
contribute.
The tone and culture of our organisation comes alive through the actions of
- Fair and equal treatment - Becoming a Real Living Wage Employer from January 2021.
our people. Through the Colleague Forum.
- Communication
Communities Our communities help us to fulfil our purpose of enhancing the university Through on-site communication with members of the public and local - Job creation - Supported a number of local charities and donated items to the British
experience for our customers. The Board aims to understand the local markets communities.
Heart Foundation.
in which we operate and the key issues we face which assists its
- Housing stock
decision-making around new opportunities through which we can contribute to We have membership with the British Property Federation where we can interact
- Had filming at a number of our sites.
our local communities. with communities and government on a wider basis. - Supporting local charities
We also have interaction with communities through the property licensing
disclosures we have to undertake.
Shareholders Our shareholders are key stakeholders in our business. The Board has a Through face-to-face meetings with investors. - ESG reporting and disclosure - Undertook a materiality assessment to help develop our ESG strategy.
responsibility and desire to communicate key matters relating to the Group
openly and honestly to our shareholders. Through our Annual and Interim Report. - Sustainable business - Resumption of paying dividends to shareholders.
The Group also has a wider responsibility to shareholders to enhance the value At our Annual General Meeting. - Financial results - Protecting the business and ensuring its long-term sustainability and
of the business and fulfil its purpose ethically.
going concern.
- Dividend payments
Environment Our environment is fundamental to our future. We have a duty to operate our On an annual basis there is detailed ESG reporting within our Annual Report. - Reduction in greenhouse gas emissions - Replacing all of our diesel vans with electric vans.
business in an efficient way, giving specific regard to the impact of our
operations on the environment and utilising methods throughout our properties We are looking to increase the level of reporting and policies available on - Sustainable business - Undertaking an energy efficiency project in Manchester, the first of
(both development and operational sites) that mitigate the risk of our website. our five-year programme.
environmental damage.
Task Force on Climate-related Financial Disclosures ("TCFD")
We're committed to implementing the recommendations of the Task Force on
Climate- related Financial Disclosures. In 2021 we signed up to become an
official supporter of the TCFD.
Area Disclosure
Governance a) The Board is ultimately responsible for risk management including the
consideration of climate-related risks, though this responsibility is
a) Describe the Board's oversight of climate-related risks and opportunities. delegated to the Audit and Risk Committee.
b) Describe management's role in assessing and managing climate-related risks b) Our ESG Committee will continue to meet regularly to ensure Board oversight
and opportunities. of ESG risks and opportunities. This includes the development of a detailed
ESG roadmap as well as KPIs and targets.
Strategy a) We have undertaken an initial review of the climate-related risks over the
short, medium and long-term as set out below. We will identify risks and
a) Describe the climate-related risks and opportunities the organisation has opportunities on a continual basis. Short-term (0-5 years): We expect stricter
identified over the short, medium, and long term. legislation as the UK Government aims to reach its net carbon neutral target.
This includes greater disclosure requirements as well as implementation of new
b) Describe the impact of climate-related risks and opportunities on the Minimum Energy Efficiency Standards for rented property. Medium-term (5-10
organisation's businesses, strategy and financial planning. years): Customer choice will become more environmentally driven, with higher
demand for efficient low-carbon footprint buildings.
c) Describe the resilience of the organisation's strategy, taking into
consideration different climate-related scenarios, including a 2°C or lower Long-term (15+ years): Climate change in the UK will bring more extreme
scenario. weather conditions which our buildings will have to be able to withstand and
thrive in.
b) The Board will ensure that climate risks and ESG factors are included as
key metrics when we undertake our portfolio reviews to see where we wish to
either divest or invest further capital in green energy efficiency
initiatives. We will also consider the climate-related risks and energy
efficiency on all acquisitions. See [page xx] for work being undertaken on
energy efficiency initiatives.
c) We do not currently comply with this. We will in the near future undertake
an analysis into the resilience of the organisation's strategy. We do not
foresee that our current strategy will change.
Risk management a) The Board and Audit and Risk Committee formally review the Group's
principal risks on a biannual basis. This includes climate-related risks,
a) Describe the organisation's processes for identifying and assessing including their likelihood, impact and mitigating controls.
climate-related risks.
b&c) The Board recognises that climate change is an increasingly important
b) Describe the organisation's processes for managing climate-related risks. priority and is one of our top emerging risks. Our risk matrix is regularly
reviewed and updated to keep track of the changing nature of these risks.
c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation's overall risk
management.
Metrics and targets a,b&c) We do not currently fully comply with this. As we develop our ESG
strategy and our climate-related risk management we will publish further
a) Disclose the metrics used by the organisation to assess climate-related metrics in this area and announce targets for these.
risks and opportunities in line with its strategy and risk management process.
We disclose Scope 1 and 2 greenhouse gas ("GHG") emissions in our Annual
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas Report. We are looking to include Scope 3 emissions in the future, once we
("GHG") emissions, and the related risks. further develop our ESG reporting. We do not believe Scope 3 emissions will
have a material impact on our figures as we should have minimal upstream and
c) Describe the targets used by the organisation to manage climate-related downstream emissions.
risks and opportunities and performance against targets.
Energy Usage Data
Energy Usage
Energy usage remains a key focus for our business, reducing usage both through
changing how our customers act and also employing capital projects. The key
headlines are:
- 8.6% reduction in like-for-like GHG emissions since 2020.
- 0.1% increase in like-for-like electricity consumption since
2020.
- COVID-19 had an impact in the reduction of
GHG and electricity consumption in 2020. Due to the various lockdowns under
government guidelines, we expect the consumption to start increasing in line
with pre COVID-19 levels going forward.
Water Usage
Our total water usage has decreased marginally since 2020. However, on a
normalised basis per bed the usage levels have increased. This is due to more
accurate data being available due to the installation of smart meters.
Methodology
We have used the EPRA Best Practices Recommendations on Sustainability
Reporting (Third Edition) and GHG Protocol Standard (revised edition), using a
financial control organisational boundary to prepare this disclosure. The UK
Government Conversion Factors for Company Reporting have been applied to
convert energy data into greenhouse gas emissions. Whole building data has
been reported and any missing data has been estimated using either direct
comparison, pro rata calculation or based on an average consumption value per
bed.
Waste Management
All sites currently have recycling facilities that are used by our customers
and people. We aim to review our overall waste management arrangement to
identify more efficient ways to manage our recycling throughout the whole
Group.
The EPRA performance data set out on this page provides the information
required for the group to comply with The Companies (Directors' Report) and
Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Direct emissions are the emissions from activities for which the company own
or control including combustion of fuel and operation of facilities (known as
Scope 1 emissions). Indirect emissions are emissions from purchase of
electricity, heat, steam and colling purchased for own use (known as Scope 2
emissions).
The tables below contain our EPRA performance data for each relevant impact
area.
Greenhouse Gas EPRA Code 2021 2020
Like-for-like:
Total direct GHG emissions (tCO(2)e) GHG-Dir-LfL 3,309 3,622
Total indirect GHG emissions (tCO(2)e) GHG-Indir-LfL 3,772 4,139
Absolute:
Total direct GHG emissions (tCO(2)e) GHG-Dir-Abs 3,309 3,622
Total indirect GHG emissions (tCO(2)e) GHG-Indir-Abs 3,772 4,139
Normalised:
GHG intensity from building energy consumption
(tCO(2)e per operating bed) GHG-Int 0.82 0..88
2021 - % of total assets included: LfL - 100% / Abs - 100%
2021 - % of data estimated: LfL - 9.1% / Abs - 9.1%
Energy EPRA Code 2021 2020
Like-for-like:
Total fuel consumption (kWh) Fuels-LfL 18,068,259 19,699,010
Total district heating & cooling consumption (kWh) DH&C-Abs 628,636 669,120
Total electricity consumption (kWh) Elec-LfL 17,763,204 17,753,011
Absolute:
Total fuel consumption (kWh) Fuels-Abs 18,068,259 19,699,010
Total district heating & cooling consumption (kWh) DH&C-Abs 628,636 669,120
Total electricity consumption (kWh) Elec-Abs 17,763,204 17,753,011
Normalised:
Building energy intensity (kWh per operating bed) Energy-Int 4,228.73 4,339.84
2021 - % of total assets included: LfL - 100% / Abs - 100%
2021 - % of data estimated: LfL - 9.1% / Abs - 9.1%
Water EPRA Code 2021 2020
Like-for-like:
Total water consumption (m3) Water-LfL 353,826 356,979
Absolute:
Total water consumption (m3) Water-Abs 353,826 356,979
Normalised:
Building water intensity (m3 per operating bed) Water-Int 41.04 40.64
2021 - % of total assets included: LfL - 100% / Abs - 100%
2021 - % of data estimated: LfL - 59% / Abs - 59%
LYNNE FENNAH
Chief Financial and Sustainability Officer
2 March 2022
SECTION 172
Section 172(1) of the Companies Act 2006 "Duty to promote the success of the
company" A director of a company must act in the way he/she considers, in good
faith, would be most likely to promote the success of the company for the
benefit of its members as a whole, and in doing so have regard (amongst other
matters) to:
The Likely Consequences of Any Decision in the Long Term
The Board provides oversight over the Company's performance and gives guidance
as to the long-term strategy of the Company. The day-to-day management and
decision-making is delegated by the Board to the Executive Committee which
provides regular updates to the Board. This allows the Board to monitor the
performance of the Company and ensure that the Company is progressing in line
with the long-term strategy. The KPIs reported on are the key metrics which
the Board reviews, which are supplemented by further detailed reporting.
The Interests of the Company's Employees
Our people are crucial to the Company's success; they provide our customers
with exceptional service to ensure they feel at home. The Board recognises how
vital our people are and as such all decisions taken by the Board consider the
interests of the Company's employees.
The Board has designated Alice Avis (Senior Independent Non-Executive
Director) to liaise with the Colleague Forum. This allows a direct conduit
between the Board and our people. This gives the Board insight into the views
and concerns of our people and allows them to ensure their decisions are
aligned with the interests of the Company's employees.
The Need to Foster the Company's Business Relationships with Suppliers,
Customers and Others
The Company has a few key suppliers and the Board is involved in reviewing and
approving any key contracts which the Company enters into. As such the Board
provides oversight and challenge to key suppliers. Day-to-day relationships
with Company suppliers are delegated to the Senior Leadership Team to ensure a
close relationship is fostered.
Without customers the Company could not exist, and as such the Board takes
great interest in fostering relationships with these customers. The Board
reviews the results of the biannual customer survey, as well as receiving and
reviewing other ad hoc reports on our customers' preferences and wishes. As
part of the CEO's Board reporting, our customers sit as a standing agenda
item. The Board believes that fostering a close relationship and a deep
understanding of our customers is key to the Company's success.
The Impact of the Company's Operations on the Community and the Environment
The community and environment in which the Company operates in is a key
priority for the Board. The Board identified that the Company's ESG strategy
was not strong enough and so set about reviewing this. The Board takes the
impact of the Group's operations on the community and environment into account
in each decision. The decisions which the Board take can have widespread
ramifications. Reviewing this impact is not a perfunctory exercise but one
which the Board believes is a key responsibility, which includes robust
challenge of all decisions.
The Desirability of the Company Maintaining a Reputation for High Standards of
Business Conduct
The Board recognises the importance of maintaining a reputation for high
standards of business conduct. The Board always seeks to make the best
decision for the Company which while taking into account the needs of all of
our stakeholders also reflects morally on our obligations as a Company.
The Board encourages this principle throughout the business and directs the
Company's ethos through the Company purpose and values. In 2021 the Board
approved the relaunched values.
The Board also encourages the Company to go above and beyond in certain areas
and one particular example is mental health welfare, where the Board pushed
for support for both our people and our customers to be set up.
The Need to Act Fairly as Between Shareholders of the Company
The Board believes transparency and accountability of the business is
paramount to encourage shareholder confidence. The Board listens to and
reviews the views across our shareholder base.
The need to act fairly between all of our shareholders underpins the Board's
decisions and the Board receives regular feedback from shareholders after our
annual and interim results release. The Board also receives and reviews
feedback from research analysts throughout the year. This helps to identify
key shareholder trends which the Board takes note of. The capital structure of
the Company as a REIT, limiting individual shareholdings to a maximum of 10%
of issued share capital, helps to ensure there are no dominant shareholders
and that all shareholders are treated equally.
Principal Decision 1 - January 2021 - Commencing the disposal programme
After a segmentation analysis of the property portfolio, a number of non-core
assets were identified. In January 2021 the Board agreed that the first four
proposed disposals should proceed and that the Group should look into the
future of our segment D assets.
Long-term success considerations The actions which the Board undertook were focused on ensuring that the The Board then agreed that the sales proceeds would be reinvested into the
Group's property portfolio was in the best position possible to enact the business either in refurbishment programmes or in further purchases of
Group's strategy. standing assets or development opportunities.
The assets sold were deemed non-core by the Group and fitted into segment D of
our segmentation analysis.
Stakeholder impact considerations Customers - The Board considered that when our customers book a Hello Shareholders - The Board considered that our shareholders would benefit from
Student(®) room then they should receive a consistent offering. Disposing of these decisions, as they would help to protect the long-term viability of the
the segment D assets which would not give customers a consistent stay when Company through having a well aligned property portfolio.
compared to our segment A or B assets would help achieve this.
Community/Environment - The Board considered whether there were any adverse
People - The Board considered how these decisions would impact people. The impacts on either the community or environment and concluded that the above
main impact would be that by creating a better aligned property portfolio we decision would have no adverse impact.
would place the Group in a stronger position, which will create a better
company to work for in the future.
Outcomes The actions taken by the Board allowed four properties to be sold in the year. The Board's belief is that this principal decision taken was a positive
As part of the sanctioning of the disposal of category D assets, a further decision for all stakeholders.
five assets were unconditionally exchanged at the year end and completed in
January 2022. The Group has successfully sold nearly 50% of its non-core
category D assets.
Principal Decision 2 - May 2021 - Further investment in our internal platform
The Board identified that through successfully in-housing our revenue
management platform, we had a significant opportunity to leverage this
platform to give us a far greater understanding of our customers through data
analytics. As such the Board agreed to embark upon a roadmap to invest further
into our internal revenue management platform.
Long-term success considerations Through gaining a better understanding of our data and getting detailed
analytics of where we had drop offs in our booking process we will be able to
improve our booking conversion rate. Ensuring that we maximise the revenue
from all of our buildings allows us to maximise returns and generate further
capital which we can reinvest in the future. In addition, having the whole
platform in-house means the investment we make can be utilised for years to
come.
Stakeholder impact considerations Customers - The Board considered that by improving the data we have about Shareholders - The Board considered that our shareholders would benefit from
customers we can improve all aspects of the customers' booking journey these decisions; the investment into the internal platform would quickly be
allowing our customers to have a more tailored and seamless booking repaid by higher occupancy, each percentage point of revenue occupancy gained
experience. This will help to increase customer satisfaction as well as is around £750,000. This means there is a short payback period for any
customer retention. investment made.
People - The Board considered that by increasing our understanding of the Community/Environment - The Board considered whether there were any adverse
booking process, we can help train our people on what our customers really impacts on either the community or environment and concluded that the above
want. This helps our people ensure that our buildings are full year after year decision would have no adverse impact.
and thus increases their progression prospects within the Group.
Outcomes The outcome was that the Board approved the investment into our internal The Board's belief is that this principal decision taken was a positive
revenue management project. We have already started to see the benefits from decision for all stakeholders.
this investment, such as introducing a new dynamic pricing model and platform
that adopts the pricing strategy and regularly adjusts pricing to take into
account occupancy and market conditions and allows us to optimise revenue
opportunity.
Principal Risks and Uncertainties
During 2021 COVID-19 has continued to have a material impact on our business.
The impact has primarily affected has been on our student demographic,
reducing the proportion of international students. Health and safety risks
around cladding and the impact of climate change continue to dominate the
environment in which we operate in, and our risks, their impact and
probability have been amended as appropriate.
The risk pertaining to Brexit has decreased materially and while there are
some impacts around supply chain and people costs, these are expected to
reduce.
The Board regularly assesses the risk appetite of the Group, with the Audit
and Risk Committee formally reviewing the effectiveness of our risk management
process and internal control systems biannually. During the year, the
Committee has not identified or been advised of any material failings or
weaknesses.
Changes to Principal Risks
The Committee decided to amalgamate two risks "Student Demand Risk" and
"Revenue Risk" under one centralised Revenue Risk (E1). The key driver of
revenue risk is the level of student demand for our product, which can be
broken down into a number of factors. Some of these factors are directly
correlated with COVID-19, such as the change in UK student demographics as the
pandemic means international students choose to stay away as a result of
travel restrictions. Other factors, such as how attractive UK tertiary
education is seen in the international marketplace and whether the high costs
of university reflect value for money.
The Committee decided to add a new internal risk, "Safe and Sustainable
Buildings Risk" (I4). This risk is made up of two components, firstly safety -
the capital expenditure to ensure our buildings comply with forthcoming
changes in fire and safety legislation. Second, sustainability of our
buildings - the physical risks to our buildings caused by climate change, i.e.
flooding, extreme change between hot summers and cold winters. These physical
risks need to be managed through ensuring our buildings are designed and
operated in the correct manner.
The Committee reviewed the emerging risks and considered whether climate
change should be added as a principal risk due to the increase in regulation
around compliance and reporting on energy efficiency, which brings added
costs. There is also the impact of transitioning to a low-carbon economy, with
the risk of rising costs meaning that some properties become unviable in their
current format. The Committee considered that some of the physical risks
around climate change had been included under I4, and so at this time would
not be including a separate climate change principal risk. The Committee will
continue to keep this under review.
The Audit and Risk Committee has reviewed and approved the above changes to
our principal risks and risk appetite. The trends relating to all the
principal risks and uncertainties are set out in the table further on in this
report.
Risk Responsibilities
The Board
The Board has overall responsibility for…
the determination of the Group's risk appetite, the setting of objectives and
policies, and has ultimate responsibility for managing risk.
Audit and Risk Committee
The Audit and Risk Committee formally reviews…
the effectiveness of our risk management processes and internal control
systems biannually.
Senior Leadership Team
Senior management are responsible for…
reviewing and monitoring the Group's key risks, and overseeing the
implementation and operation of the risk management and internal control
systems.
Our People
Everyone at Empiric has a role to play…
in identifying key risks facing the Group, and in the day-to-day management of
risk through applying the appropriate controls, policies and processes.
Adapting risk management in a changing environment
Going concern - Viability Statement
The COVID-19 pandemic has created global economic uncertainty, and in
particular an uncertainty around income for the upcoming 2022/23 academic
years. Accordingly, the Group has prepared projections to 30 September 2023
and conducted a detailed going concern review and considered its liquidity
position and banking covenant compliance strength.
As at 31 December 2021 the Group had £37 million in cash and £45 million of
undrawn investment debt facilities. During the going concern period we have
two facilities due for refinancing, one for £90 million with Lloyds due to
expire in November 2022 and one with First Commercial Bank for £20 million
due in March 2023. Subsequent to the year end the Group signed an agreement to
extend its Lloyds RCF out to November 2025. This means the Group is well
funded and has no refinancing requirements until March 2023 where we intend to
extend the £20 million facility.
The Group's debt facilities include covenants in respect of LTV and interest
cover, both projected and historic, and all debt facilities are ring fenced
with each specific lender. The Group maintains regular dialogue with all of
its lenders as part of the ordinary course of business, however during the
pandemic we have increased the frequency of this dialogue. As part of these
discussions with our lenders we have had conversations specifically around the
interest cover covenants to ensure we either temporarily restructure these or
gain the relevant waivers from the banks to ensure that no issues arise. To
date all of our banks have been supportive during this period and have
expressed commitment to the long-term relationship they wish to build with
Empiric.
Management has evaluated a number of scenarios in its going concern model. The
critical assumption is the revenue occupancy for the 2022/23 academic year.
Upside, central and downside stress cases have been constructed showing
2022/23 academic year occupancy of between 65% and 90%.
The Group continues to maintain covenant compliance for its LTV thresholds
throughout the going concern assessment period. Property values would have to
fall by more than 18% from December 2021 valuations before LTV covenants are
breached.
In Scenario 1, and 2 above the Group continues to maintain covenant compliance
for all its interest cover covenants. It maintains adequate levels of
liquidity throughout. In addition, no assumption is made as to the level of
additional cost-cutting measures or mitigating actions which could potentially
be undertaken.
In Scenario 3, under our Downside Stress Scenario, we would not meet projected
interest cover covenants at the 31 March 2022 measurement date for one lender.
We would also have further breaches on two other facilities in the going
concern period. The Group has cure rights under the lending agreements but
would need to raise an additional £22million in cash to have sufficient
liquidity to cure this ICR breach. The Board considers this scenario as
extremely unlikely and that it is a severe downside scenario.
As at 2 March 2022 booking levels for the upcoming 2022/23 academic year are
currently at 36% this compared to 20% for the 2021/22 academic year as at 16
March 2021. As such the Board is expecting that Scenario 1 is the most likely
scenario at this time.
To support the Directors' going concern assessment, the management also
evaluated the occupancy level at which all ICR covenant tests were breached
and, additionally, the impact of a "Reverse Stress Test" which was performed
to determine the level of revenue occupancy for the 2022/23 academic year at
which the Group would need to seek alternative sources of funding. For this
modelling we kept revenue occupancy for the 2021/22 academic year at 84%.
The Directors noted that if occupancy falls below 45% then the Group would be
in breach of all ICR covenants, and at 47% revenue occupancy for the 2022/23
academic year (18% lower revenue occupancy than our Downside Stress Scenario)
the Group would need to seek alternative sources of funding.
Having reviewed and considered the three modelled scenarios, the 2022/23
academic year occupancy level at which ICR covenants would be breached and the
level at which alternative sources of funding would be required, the Directors
consider that the Group has adequate resources in place for at least 12 months
from the date of these results and have therefore adopted the going concern
basis of accounting in preparing the annual financial statements.
Revenue occupancy Revenue occupancy
for 2021/22 academic for 2022/23 academic
Scenario year year
Scenario 1 - Upside Scenario 84% 90%
Scenario 2 - Central Scenario 84% 85%
Scenario 3 - Downside Stress Scenario 84% 65%
External Risks Table
Strategic Links
1. Customers
2. Brand
3. People and Operations
4. Buildings
5. Shareholder Outcomes
Risk and brief description Potential impact Mitigation in place Trend
E1 Revenue Risk - Loss of revenue - Executive Committee and the Board closely monitor government policy, Increase due to current uncertainty through COVID-19.
student numbers and other micro and macro-economic factors.
There is a risk that the student demand for our product will decrease, e.g. - Erosion of asset values
changes in student demographic and travel restrictions.
- Monitoring all travel restrictions and ensuring marketing is targeted
- High void costs to key international markets.
-
- Potential breach in bank covenants - We ensure our assets are well located serving established leading
Link to Strategy universities.
1 2 3 4 5 - Where possible, we ensure our buildings are fit for alternative use,
such as private residential, subject to planning.
E2 Competition Risk - Oversupply of student accommodation - The number of UK students demographically are increasing year on year Stable as PBSA market remains stable.
from 2021 which should benefit all cities.
The risk of an increased level of competition and supply in the student - Pressure on student rental growth
sector. This risk varies for each city we are in as the market polarises and
- Continuous review and analysis of which cities we want to target and
some universities have had declining student numbers year on year. - Inflated asset and land prices those which we wish to diversify from depending on this risk.
- - We ensure our assets are well located serving established leading
universities.
Link to Strategy
- High-quality management information is provided across the business.
1 2 3 4 5
- All properties are managed in-house under the Hello Student(®) brand
which provides a strong brand identity.
E3 Property Market Risk - Erosion of asset values - Our assets are in prime locations, diversifying the risk. CBRE Decrease due to the resilience shown through COVID-19.
classifies 92% of the portfolio as prime or better.
The potential for a downturn in the property market. - Potential breach in bank covenants
- We maintain prudent levels of gearing, with an LTV limit of 40% and a
- - Lower Total Return for shareholders long-term target of 35%.
Link to Strategy - The higher education sector is made up of a wide range of students
from the UK, EU and non-EU countries, which helps to protect the student
1 2 3 4 5 accommodation market.
E4 Regulatory Risk - Potential impact on our Total Return - Hello Student(®) is ANUK accredited, and Lynne Fennah sits on the Stable as minimal change to the regulatory environment.
Student Accommodation Committee of the British Property Federation.
Large levels of regulation being applied to the student accommodation market. - Reputational damage and penalties
Note we have moved the management of fire safety regulations to risk I4.
- Involvement with these bodies means that we are well informed of any
- Higher compliance costs potential upcoming regulatory change. It also provides a basis for industry
- lobbying if required.
Link to Strategy - Our operational teams try to build close working relationships with
local authorities to keep abreast of any changes.
1 2 3 4 5
E5 Funding Risk - Stifling of future growth potential - Average maturity of debt of 4.9 years with £45 million undrawn as at Stable as minimal change to the funding environment.
31 December 2021.
The availability of debt or equity and ability to raise it on acceptable - Forced sale of assets to repay debt
terms.
- We maintain prudent levels of gearing, with an LTV limit of 40% and a
- Reduction of profit long-term target of 35%.
-
- Experienced finance team with a strong track record in procuring both
Link to Strategy debt and equity.
1 2 3 4 5
Internal Risks Table
Risk and brief description Potential impact Mitigation in place Trend
I1 Health & Safety Risk - Injury and impact on customers, contractors, staff and visitors - Health and safety metrics are reported monthly. Stable due to minimal change in the health and safety environment.
The occurrence of a major health and safety incident including a fire or - Compensation costs incurred - Policies, procedures and training for all staff.
infectious outbreak.
- Reputational impact - Ultimate Board responsibility involving regular Board reporting from
-
the Executive and recruitment of a Head of Health and Safety on track for Q1
- Loss of life in a worst-case scenario 2022.
Link to Strategy
- Live compliance dashboard which is monitored daily.
1 2 3 4 5
- Regular review of fire safety regulations and checks to ensure our
buildings remain compliant with standards, going above and beyond fire safety
requirements.
I2 Cyber Security Risk - Reputational damage - Developed a business continuity plan to enable Group operations to Increase due to current geopolitical uncertainty.
continue in the event of a breach.
The Group suffering from a cyber security breach, or the impact of a loss or - Deteriorated customer experience
mismanagement of personal customer data.
- Centralised our IT network across the Group and recruited an in-house
- Higher costs and reduced profitability IT team.
-
- Financial impact due to potential fines under GDPR legislation - Deployed an updated training programme for all staff.
Link to Strategy
- Implemented a data monitoring system to protect our platforms across
1 2 3 4 5 the IT estate.
I3 People Risk - Higher costs due to wage inflation - We are a Living Wage Employer ensuring that we attract and retain Stable as minimal change to the employment market.
talent where possible.
High turnover in front-line staff and the knock-on impact on customer service. - Impact on customer service due to lack of familiar faces
- Use of internal communications to try and increase employee
- - Loss of key business knowledge engagement.
Link to Strategy - Ongoing training and development programme designed to upskill staff
regularly and progress forward with their career within the business.
1 2 3 4 5
- Exit interviews are used to identify any areas for improvement within
the business.
I4 Safe and Sustainable Buildings Risk - High costs for compliance - In our June 2021 Interim Report we announced a £30 million capital Increase due to greater focus on fire safety and potential upcoming
expenditure plan to ensure that our buildings comply with future fire safety legislation.
How our buildings will withstand increased legislation around fire safety as - Reputational impact legislation. However, we are uncertain how much we will recover from
well as increased pressure from climate change and extreme weather conditions.
developers so we have increased this estimate to £37 million.
- Potential challenges around insuring our buildings
-
- Regular review of fire safety regulations and checks to ensure our
- Compensation claims buildings, at a minimum, remain compliant with standards.
Link to Strategy
- Decreased liquidity of our buildings - Continuous assessment of our buildings as well as undertaking £4
1 2 3 4 5 million of capital expenditure on green initiatives in the next five years.
Emerging Risks
The Audit and Risk Committee considers emerging risks. These are new or
unforeseen risks that the Committee is conscious of, however their potential
impact is not fully known. The Committee reviews these biannually alongside
the principal risks and uncertainties. The Audit and Risk Committee has
detailed below the risks it believes are emerging and the potential impact it
may have on our principal risks:
Emerging risk Impact on principal risk probabilities Mitigating factors
Geopolitical Crisis - Increase - E1 - Revenue Risk - Involvement with the BPF Student Accommodation Committee which lobbies
the government on issues impacting the sector.
A geopolitical dispute between China or India and the UK could result in - Increase - E3 - Property Market Risk
foreign governments placing embargoes on their students coming to study in the
- The UK Government has expressed its support for international students
UK. This includes the unfolding crisis in Ukraine. - Increase - E5 - Funding Risk and the positive impact that they have on our economy.
Increasing Use of Online University Courses - Increase - E1 - Revenue Risk - Studies have revealed that a significant majority of students want to
return to a campus-based experience as soon as possible.
The COVID-19 pandemic has forced universities and students to use online - Increase - E3 - Property Market Risk
teaching methods. The fact that the pandemic has shown that this style of - University experience is seen as more of a life experience rather than
teaching can be effective to some degree could result in a long-term move just an educational stepping stone.
towards online courses which would not require purpose-built student
accommodation.
Climate Change - Increase - E1 - Revenue Risk - ESG has become a key focus for the Group. Our progress will be
monitored by our ESG Committee; read more on [pages x to x].
Climate change has the potential to impact every business in the world. - Increase - E3 - Property Market Risk
Climate change could impact planning legislation restricting supply of PBSA,
- We have announced that we will be a net zero business by 2035.
cause flooding, increase government legislation across a wide range of areas - Increase - E5 - Funding Risk
and many other impacts.
- Increase - I1 - Health and Safety Risk
Our customer base of young students are very attuned to climate change, much
more so than generations before them. The increased awareness around this - Increase - I4 - Safe and Sustainable Buildings Risk
issue is going to bring these issues and risks to the foreground.
University Funding - Increase - E1 - Revenue Risk - Reviewing our portfolio to ensure that we are aligned to cities
with more than one university and which have strong financial backing.
The level of funding, and how universities receive this, has changed - Increase - E2 - Competition Risk
significantly over the last 20 years. A number of universities are facing
significant financial stress as a result of COVID-19 and there is a risk that - Increase - E3 - Property Market Risk
a number of universities fall into administration.
- Increase - E5 - Funding Risk
This would cause significant declines in student populations in the cities of
the affected institution.
Introduction of Regulation of the Student Accommodation Industry - Increase - E1 - Revenue Risk - We act as a responsible owner of student accommodation which does the
right thing. Further legislation within the market may have a positive impact
The COVID-19 pandemic has drawn attention to the vast range of level of - Increase - E3 - Property Market Risk for the Group as less scrupulous suppliers are forced out of the market.
service within the student accommodation industry. Some providers such as
Empiric provided a supportive approach to students, whereas other providers - Increase - E4 - Regulatory Risk
took a more hard line approach which raised negative media attention.
- Increase - I4 - Safe and Sustainable Buildings Risk
The industry is one which varies from HMO owners operating a handful of beds
up to providers who operate tens of thousands of beds.
This disparity and additional attention on the industry results in a risk that
regulation may be applied to the industry.
Pandemic - Increase - E1 - Revenue Risk - Reviewing our marketing strategy and offering so that we appeal to UK
nationals alongside international students.
The COVID-19 pandemic is constantly evolving and there is a continued - Increase - E3 - Property Market Risk
potential threat that new strains of the virus become more damaging.
- The COVID-19 pandemic has shown that the robust and detailed protocols
- Increase - E4 - Regulatory Risk we have in place within our business can manage any impact.
This could impact many areas such as travel, both international and domestic,
or future lockdowns. - Increase - E5 - Funding Risk
There is also the potential risk of future pandemics from viruses which are as - Increase - I1 - Health and Safety Risk
yet unknown.
- Increase - I4 - Safe and Sustainable Buildings Risk
Approval of the Strategic Report
The Strategic Report for the year ended 31 December 2021 has been approved by
the Board and was signed off on its behalf by:
Throgmorton UK Limited
Company Secretary | 2 March 2022
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 conformity with the requirements of the
Companies Act 2006. 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
international accounting standards in conformity with the requirements of the
Companies Act 2006, 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 accounting standards in conformity with the requirements of
the Companies Act 2006 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 | 2 March 2022
GROUP STATEMENT OF COMPREHENSIVE INCOME
Note Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Continuing operations
Revenue 2 55,967 59,444
Property expenses 3 (23,061) (22,651)
Net rental income 32,906 36,793
Administrative expenses 4 (10,547) (9,841)
Change in fair value of investment property 13 17,567 (37,603)
Operating profit/(loss) 39,926 (10,651)
Finance cost (12,382) (13,341)
Finance income 1 22
Net finance costs 5 (12,381) (13,319)
Gain on disposal of investment property 1,652 -
Profit/(loss) before income tax 29,197 (23,970)
Corporation tax 7 - -
Profit/(loss) for the year and total comprehensive income/(loss) 29,197 (23,970)
Earnings/(loss) per share expressed in pence per share 8
Basic 4.84 (3.97)
Diluted 4.84 (3.97)
Gross margin 58.8% 61.9%
GROUP STATEMENT OF FINANCIAL POSITION
Note At At
31 December 31 December
2021 2020
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11 426 135
Intangible assets 12 1,318 1,054
Right of use asset 1,010 -
Investment property - Operational Assets 13 967,194 981,369
Investment property - Development Assets 13 28,692 23,751
Total non-current assets 998,640 1,006,309
Current assets
Trade and other receivables 14 7,839 14,510
Assets classified as held for sale 15 25,870 -
Cash and cash equivalents 16 37,127 33,927
Total current assets 70,836 48,437
Total assets 1,069,476 1,054,746
LIABILITIES
Current liabilities
Trade and other payables 17 19,990 15,527
Borrowings 18 44,712 -
Lease liability 107 -
Deferred income 17 29,862 20,676
Total current liabilities 94,671 36,203
Non-current liabilities
Borrowings 18 326,244 385,266
Lease liability 963 -
Total non-current liabilities 327,207 385,266
Total liabilities 421,878 421,469
Total net assets 647,598 633,277
Equity
Called up share capital 19 6,032 6,032
Share premium 20 295 257
Capital reduction reserve 21 459,958 475,038
Retained earnings 181,313 151,950
Total equity 647,598 633,277
Total equity and liabilities 1,069,476 1,054,746
Net Asset Value per share basic (pence) 9 107.36 105.00
Net Asset Value per share diluted (pence) 9 106.75 104.60
EPRA NTA per share (pence) 9 107.36 104.80
These financial statements were approved by the Board of Directors on 2 March
2022 and signed on its behalf by:
LYNNE FENNAH
Director
COMPANY STATEMENT OF FINANCIAL POSITION
Note At At
31 December 31 December
2021 2020
£'000 £'000
ASSETS
Fixed assets
Property, plant and equipment 11 338 56
Intangible assets 12 1,318 968
Right of use asset 1,010 -
Investments in subsidiaries 30 187,598 187,598
Total fixed assets 190,264 188,622
Current assets
Trade and other receivables 14 311 353
Amounts due from Group undertakings 14 369,048 350,578
Cash and cash equivalents 16 1,977 24,775
Total current assets 371,336 375,706
Total assets 561,600 564,328
CREDITORS
Current creditors
Trade and other payables 17 5,047 2,918
Amounts due to Group undertakings 17 27,177 9,548
Lease Liability 107 -
Total non-current creditors 32,331 12,466
Non-current creditors
Borrowings 18 19,980 19,961
Lease liability 963 -
Total non-current creditors 20,943 19,961
Total creditors 53,274 32,427
Total net assets 508,326 531,901
Capital and reserves
Called up share capital 19 6,032 6,032
Share premium 20 295 257
Capital reduction reserve 21 459,958 475,038
Retained earnings 42,041 50,574
Total capital and reserves 508,326 531,901
The Company made a loss for the year of £8,699,000 (2020: £46,198,000
profit).
These financial statements were approved by the Board of Directors on 2 March
2022 and signed on its behalf by:
LYNNE FENNAH
Director
GROUP STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021 Called up Share Capital Retained Total
share capital premium reduction earnings equity
£'000 £'000 reserve £'000 £'000
£'000
Balance at 1 January 2021 6,032 257 475,038 151,950 633,277
Changes in equity
Profit for the year - - - 29,197 29,197
Total comprehensive income for the year - - - 29,197 29,197
Share-based payments - - - 204 204
Share options exercised - 38 - (38) -
Dividends - - (15,080) - (15,080)
Total contributions and distribution recognised directly in equity - 38 (15,080) 166 (14,876)
Balance at 31 December 2021 6,032 295 459,958 181,313 647,598
Year ended 31 December 2020
Balance at 1 January 2020 6,032 257 482,578 175,891 664,758
Changes in equity
Loss for the year - - - (23,970) (23,970)
Total comprehensive income for the year - - - (23,970) (23,970)
Share-based payments - - - 29 29
Dividends - - (7,540) - (7,540)
Total contributions and distribution recognised directly in equity - - (7,540) 29 (7,511)
Balance at 31 December 2020 6,032 257 475,038 151,950 633,277
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021 Called up Share Capital Retained Total
share capital premium reduction earnings equity
£'000 £'000 reserve £'000 £'000
£'000
Balance at 1 January 2021 6,032 257 475,038 50,574 531,901
Changes in equity
Loss for the year - - - (8,699) (8,699)
Total comprehensive loss for the year - - - (8,699) (8,699)
Share-based payments - - - 204 204
Share options exercised - 38 - (38) -
Dividends - - (15,080) - (15,080)
Total contributions and distribution recognised directly in equity - 38 (15,080) 166 (14,876)
Balance at 31 December 2021 6,032 295 459,958 42,041 508,326
Year ended 31 December 2020
Balance at 1 January 2020 6,032 257 482,578 4,347 493,214
Changes in equity
Profit for the year - - - 46,198 46,198
Total comprehensive loss for the year - - - 46,198 46,198
Share-based payments - - - 29 29
Dividends - - (7,540) - (7,540)
Total contributions and distribution recognised directly in equity - - (7,540) 29 (7,511)
Balance at 31 December 2020 6,032 257 475,038 50,574 531,901
GROUP STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Cash flows from operating activities
Profit/(loss) before income tax 29,197 (23,970)
Share-based payments 204 29
Depreciation and amortisation 457 326
Finance income (1) (22)
Finance costs 12,382 13,341
Intangible asset impairment - 898
Gain on disposal of investment property (1,652) -
Change in fair value of investment property (17,567) 37,603
23,020 28,205
Decrease/(increase) in trade and other receivables 6,670 (3,971)
Increase in trade and other payables 3,532 1,653
Increase/(decrease) in deferred rental income 9,186 (8,528)
19,388 (10,846)
Net cash flows generated from operations 42,408 17,359
Cash flows from investing activities
Purchases of tangible fixed assets (427) (72)
Purchases of intangible assets (537) (370)
Purchase of investment property (15,701) (14,258)
Interest received 1 22
Proceeds on disposal of investment property, net of selling costs 17,982 -
Net cash flows from investing activities 1,318 (14,678)
Cash flows from financing activities
Dividends paid (13,589) (7,540)
Bank borrowings drawn - 77,800
Bank borrowings repaid (15,000) (42,800)
Loan arrangement fee paid (168) (1,009)
Finance cost (excluding fair value loss on derivatives) (11,769) (11,722)
Net cash flows from financing activities (40,526) 14,729
Increase in cash and cash equivalents 3,200 17,410
Cash and cash equivalents at beginning of year 33,927 16,517
Cash and cash equivalents at end of year 37,127 33,927
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 2021 to 31 December 2021.
The consolidated financial statements of the Group for the year ended 31
December 2021 comprise the results of Empiric Student Property plc (the
"Company") and its subsidiaries and were approved by the Board for issue on 2
March 2022. 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
2021 comprise the results of Empiric Student Property plc (the "Company") and
its subsidiaries (together, the "Group"). The Group and Parent Company
financial statements have been prepared on a going concern basis. The Group
financial statements have been prepared in accordance with UK adopted
international accounting standards. The Parent Company financial statements
have been prepared in accordance with FRS 101, Financial Reporting Standards
Reduced Disclosure Framework.
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 £8,699,000 (2020: Profit of
£46,198,000) 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 2021 or the year ended 31 December 2020 but is
derived from those accounts. The Group's statutory accounts for the year ended
31 December 2020 have been delivered to the Registrar of Companies. The
Group's statutory accounts for the year ended 31 December 2021 will be
delivered to the Registrar of Companies in due course. The Auditor has
reported on both the December 2021 and December 2020 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 Disclosure Exemptions Adopted
In preparing the financial statements of the Parent Company, advantage has
been taken of all disclosure exemptions conferred by FRS 101. The Parent
Company financial statements do not include:
- certain comparative information as otherwise required by
international accounting standards;
- a statement of cash flows;
- the effect of future accounting standards not yet adopted; and
- disclosure of related party transactions with other wholly owned
members of the Group headed by Empiric Student Property plc.
In addition, and in accordance with FRS 101, further disclosure exemptions
have been adopted because equivalent disclosures are included in the
consolidated financial statements of Empiric Student Property plc. The Parent
Company financial statements do not include certain disclosures in respect of:
- Financial instruments (other than certain disclosures required
as a result of recording financial instruments at fair value); and
- Fair value measurement (other than certain disclosures required
as a result of recording financial instruments at fair value).
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and does not present its own profit and loss account in
these financial statements.
1.4 Going Concern
The COVID-19 pandemic has created global economic uncertainty, and in
particular an uncertainty around income for the upcoming 2022/23 academic
years. Accordingly, the Group has prepared projections to 30 September 2023
and conducted a detailed going concern review and considered its liquidity
position and banking covenant compliance strength.
As at 31 December 2021 the Group had £37 million in cash and £45 million of
undrawn investment debt facilities. During the going concern period we have
two facilities due for refinancing, one for £90 million with Lloyds due to
expire in November 2022 and one with FCB for £20 million due in March 2023.
Subsequent to the year end the Group signed an agreement to extend its Lloyds
RCF out to November 2025. This means the Group is well funded and has no
refinancing requirements until March 2023 where we intend to extend the £20
million facility.
The Group's debt facilities include covenants in respect of LTV and interest
cover, both projected and historic, and all debt facilities are ring fenced
with each specific lender. The Group maintains regular dialogue with all of
its lenders as part of the ordinary course of business, however during the
pandemic we have increased the frequency of this dialogue. As part of these
discussions with our lenders we have had conversations specifically around the
interest cover covenants to ensure we either temporarily restructure these or
gain the relevant waivers from the banks to ensure that no issues arise. To
date all of our banks have been supportive during this period and have
expressed commitment to the long-term relationship they wish to build with
Empiric.
Management has evaluated a number of scenarios in its going concern model. The
critical assumption is the revenue occupancy for the 2022/23 academic year.
Upside, central and downside stress cases have been constructed showing
2022/23 academic year occupancy of between 65% and 90%.
Scenario Revenue occupancy Revenue occupancy
for 2021/22 for 2022/23
academic year academic year
Scenario 1 - Upside Scenario 84% 90%
Scenario 2 - Central Scenario 84% 85%
Scenario 3 - Downside Stress Scenario 84% 65%
The Group continues to maintain covenant compliance for its LTV thresholds
throughout the going concern assessment period. Property values would have to
fall by more than 18% from December 2021 valuations before LTV covenants are
breached.
In Scenario 1, and 2 above the Group continues to maintain covenant compliance
for all its interest cover covenants. It maintains adequate levels of
liquidity throughout. In addition, no assumption is made as to the level of
additional cost-cutting measures or mitigating actions which could potentially
be undertaken.
In Scenario 3, under our Downside Stress Scenario, we would not meet projected
interest cover covenants at the 31 March 2022 measurement date for one lender.
We would also have further breaches on two other facilities in the going
concern period. However, the Group has cure rights under the lending
agreements, however the Group would need to raise an additional £22 million
in cash to have sufficient cash headroom to cure this ICR breach. The Board
considers this scenario as extremely unlikely and that it is a severe downside
scenario.
As at 2 March 2022 booking levels for the upcoming 2022/23 academic year are
currently at 36% this compared to 20% for the 2021/22 academic year as at 16
March 2021. As such the Board is expecting that Scenario 1 is the most likely
scenario at this time.
To support the Directors' going concern assessment, the management also
evaluated the occupancy level at which all ICR covenant tests were breached
and, additionally, the impact of a "Reverse Stress Test" which was performed
to determine the level of revenue occupancy for the 2022/23 academic year at
which the Group would need to seek alternative sources of funding. For this
modelling we kept revenue occupancy for the 2021/22 academic year at 84%.
The Directors noted that if occupancy falls below 45% then the Group would be
in breach of all ICR covenants, and at 47% revenue occupancy for the 2022/23
academic year (18% lower revenue occupancy than our Downside Stress Scenario)
the Group would need to seek alternative sources of funding.
Having reviewed and considered the three modelled scenarios, the 2022/23
academic year occupancy level at which ICR covenants would be breached and the
level at which alternative sources of funding would be required, the Directors
consider that the Group has adequate resources in place for at least 12 months
from the date of these results and have therefore adopted the going concern
basis of accounting in preparing the annual financial statements.
1.5 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 estimates, 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 investment properties which have various categories of leases in
place with tenants. The judgements by lease type are detailed below:
- Student leases: As these leases all have a term of less than one
year, the Group retains all the significant risks and rewards of ownership of
these properties and so accounts for the leases as operating leases.
- Nominations and Commercial leases: The Group has determined,
based on an evaluation of the terms and conditions of the arrangements,
particularly the lease terms, insurance requirements 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 2021. 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 intercompany receivables 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.
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 either five or ten years depending on the
nature of the assets useful life.
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.
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.
Where a student requested a rent refund and they met the criteria set out,
including leaving the property, the Group recognised no further income in
relation to that let, reduced cash with the cash amount refunded, wrote off
any deferred income in relation to the refund and any difference between cash
and deferred income was debited or credited to revenue in the Statement of
Comprehensive Income.
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 a 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.
1.6 Impact of New Accounting Standards and Changes in Accounting Policies
At the date of authorisation of these financial statements, the following
accounting standards had been issued which are not yet applicable to the
Group:
- IAS 1/8 Definition of Materiality Amendment
- IFRS 3 Definition of a Business
- IBOR Reform Phase 1
- IFRS 16 Amendment for Rent Concessions
The above standards or interpretations not yet effective are expected to have
a material impact on these condensed consolidated financial statements of the
Group.
2. REVENUE
Group
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Student rental income 55,977 64,218
Student rental refunds (1,805) (6,539)
Commercial rental income 1,475 1,765
Other income 320 -
Total revenue 55,967 59,444
3. PROPERTY EXPENSES
Group
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Direct site costs 7,006 7,575
Technology services 672 671
Site office and utilities 10,428 9,371
Cleaning and service contracts 2,989 2,922
Repairs and maintenance 1,966 2,112
Total property expenses 23,061 22,651
4. ADMINISTRATIVE EXPENSES
Group
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Salaries and Directors' remuneration 5,278 4,655
Legal and professional fees 2,218 1,976
Other administrative costs 1,979 2,453
IT expenses 522 326
9,997 9,410
Auditor's fees
Fees payable for the audit of the Group's annual accounts 224 210
Fees payable for the review of the Group's interim accounts 44 40
Fees payable for the audit of the Group's subsidiaries 150 136
Total auditor's fees 418 386
Abortive acquisition costs 132 45
Total administrative expenses 10,547 9,841
5. NET FINANCE COST
Group
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Finance costs
Interest expense on bank borrowings 11,567 11,838
Amortisation of loan transaction costs 815 1,503
12,382 13,341
Finance income
Interest received on bank deposits 1 22
1 22
Net finance cost 12,381 13,319
6. EMPLOYEES AND DIRECTORS
Group
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Wages and salaries 8,766 8,021
Pension costs 350 295
Cash bonus 150 -
Share-based payments 204 29
National insurance 914 725
10,384 9,070
Less: Hello Student(®) amounts included in property expenses (5,106) (4,415)
Amounts included in administrative expenses 5,278 4,655
The average monthly number of employees of the Group during the year was as
follows:
Management 8 5
Administration - ESP 49 44
Operations - Hello Student(®) 238 316
295 365
Group
Directors' remuneration Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Salaries and fees 993 928
Pension costs 77 86
Cash bonus 54 -
Payment in lieu of notice - 351
Share-based payments 204 29
1,328 1,394
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 2021.
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
2021 2020
£'000 £'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 29,197 (23,970)
Profit before tax multiplied by the rate of corporation tax in the UK of 19% 5,547 (4,554)
(2020: 19%)
Exempt property rental profits in the year (4,160) (2,042)
Exempt property revaluations in the year (3,338) 7,144
Effects of:
Non-allowable expenses 121 70
Capital allowances (1,066) (1,006)
Gain on disposal not taxable 314 -
Unutilised current year tax losses 2,582 388
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 of £2,581,000 (31 December 2020:
£388,000) will be recognised to the extent that their utilisation is
probable. On the basis that the residual business is not expected to generate
taxable profits in future periods against which the losses will be applied, a
deferred tax asset of £5,160,000 (2020: £3,027,000) 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 Calculation Calculation
of basic of diluted of EPRA of EPRA of adjusted
EPS EPS basic EPS diluted EPS EPS
£'000 £'000 £'000 £'000 £'000
Year to 31 December 2021
Earnings per IFRS statement of comprehensive income 29,197 29,197 29,197 29,197 29,197
Adjustments to remove:
Gain/loss on disposal of investment property - - (1,652) (1,652) (1,652)
Changes in fair value of investment properties (Note 13) - - (17,573) (17,573) (17,573)
Earnings/Adjusted Earnings 29,197 29,197 9,972 9,972 9,972
Weighted average number of shares ('000) 603,185 603,185 603,185 603,185 603,185
Adjustment for employee share options ('000) - 254 - 254 -
Total number shares ('000) 603,185 603,439 603,185 604,439 603,185
Per-share amount (pence) 4.84 4.84 1.65 1.65 1.65
Year to 31 December 2020
Earnings (23,970) (23,970) (23,970) (23,970) (23,970)
Adjustment to include discounts on acquisition due to rental guarantees in the - - - - 221
year Adjustments to remove:
Changes in fair value of investment properties (Note 13) - - 37,603 37,603 37,603
Earnings/Adjusted Earnings (23,970) (23,970) 13,633 13,633 13,854
Weighted average number of shares ('000) 603,161 603,161 603,161 603,161 603,161
Adjustment for employee share options ('000) - -(1) - 551 -
Total number shares ('000) 603,161 603,161 603,161 603,712 603,161
Per-share amount (pence) (3.97) (3.97) 2.26 2.26 2.30
1 Due to the Group making a loss in the year, under IAS 33
the share options become antidilutive and thus are excluded from the above
calculation.
9. NET ASSET VALUE PER SHARE
The principles of the three measures per EPRA are below:
EPRA Net Reinstatement Value: Assumes that entities never sell assets and aims
to represent the value required to rebuild the entity.
EPRA Net Tangible Assets: Assumes that entities buy and sell assets, thereby
crystallising certain levels of unavoidable deferred tax.
EPRA Net Disposal Value: Represents the shareholders' value under a disposal
scenario, where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability, net of any
resulting tax. As the Group is a REIT, no adjustment is made for deferred tax.
The Group considers NAV to be the most relevant measure of the NAV measures
and we expect this to be our primary NAV measure going forward.
A reconciliation of the three EPRA NAV metrics from IFRS NAV is shown in the
table below.
NAV EPRA NAV measures
EPRA EPRA EPRA
Year ended 31 December 2021 IFRS NRV NTA NDV
£'000 £'000 £'000 £'000
Net assets per Statement of Financial Position 647,598 647,598 647,598 647,598
Adjustments
Fair value of fixed rate debt - - - (14,333)
Purchaser's costs(1) - 34,168 - -
Net assets used in per share calculation 647,598 681,766 647,598 633,265
Number of shares in issue
Issued share capital ('000) 603,203 603,203 603,203 603,203
Issued share capital plus employee options ('000) 606,649 606,649 606,649 606,649
Net Asset Value per share £ £ £ £
Basic Net Asset Value per share 1.074 1.130 1.074 1.050
Diluted Net Asset Value per share 1.068 1.124 1.068 1.044
NAV EPRA NAV measures
Year ended 31 December 2020 IFRS EPRA EPRA EPRA
£'000 NRV NTA NDV
£'000 £'000 £'000
Net assets per Statement of Financial Position 633,278 633,278 633,278 633,278
Adjustments
Fair value of fixed rate debt - - - (30,545)
Purchaser's costs(1) - 32,830 - -
Net assets used in per share calculation 633,278 666,108 633,278 602,733
Number of shares in issue
Issued share capital ('000) 603,161 603,161 603,161 603,161
Issued share capital plus employee options ('000) 605,475 605,475 605,475 605,475
Net Asset Value per share £ £ £ £
Basic Net Asset Value per share 1.050 1.104 1.050 0.999
Diluted Net Asset Value per share 1.046 1.100 1.046 0.995
1 EPRA NTA and EPRA NDV reflect IFRS values which are net of
purchaser's costs. Any purchaser's costs deducted from the market value are
added back when calculating EPRA NRV.
10. DIVIDENDS PAID
Group and Company
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Interim dividend of 1.25 pence per ordinary share in respect of the quarter - 7,540
ended 31 December 2020
Interim dividend of 2.50 pence per ordinary share in respect of the quarter 15,080 -
ended 30 September 2021
15,080 7,540
As at 31 December 2021 an accrual of £1,491,000 was being held relating to
witholding tax on the 2021 dividend (31 December 2020: nil) On 23 February
2022 the Company declared a 0.625 pence dividend to be paid on 25 March 2022.
11. FIXED ASSETS
Group Company
Year ended 31 December 2021 Fixtures and Computer Total Fixtures and Computer Total
fittings equipment £'000 fittings equipment £'000
£'000 £'000 £'000 £'000
Costs
As at 1 January 2021 490 338 828 490 219 709
Additions 347 82 429 347 18 365
As at 31 December 2021 837 420 1,257 837 237 1,074
Depreciation
As at 1 January 2021 471 222 693 462 191 653
Charge for the year 65 73 138 65 18 83
As at 31 December 2021 536 295 831 527 209 736
Net book value
As at 31 December 2021 301 125 426 310 28 338
Group Company
Year ended 31 December 2020 Fixtures and Computer Total Fixtures and Computer Total
fittings equipment £'000 fittings equipment £'000
£'000 £'000 £'000 £'000
Costs
As at 1 January 2020 490 266 756 490 193 683
Additions - 72 72 - 26 26
As at 31 December 2020 490 338 828 490 219 709
Depreciation
As at 1 January 2020 223 181 404 214 181 395
Charge for the year 49 41 90 49 10 59
Impairment 199 - 199 199 - 199
As at 31 December 2020 471 222 693 462 191 653
Net book value
As at 31 December 2020 19 116 135 28 28 56
12. INTANGIBLE ASSETS
Group Company
Year ended 31 December 2021 Hello Student(®) NAVision(1) Total NAVision(1) Total
website development £'000 development £'000
development £'000 £'000
£'000
Costs
As at 1 January 2021 878 1,641 2,519 1,641 1,641
Additions - 537 537 537 537
As at 31 December 2021 878 2,178 3,056 2,178 2,178
Amortisation
As at 1 January 2021 792 673 1,465 673 673
Charge for the year 86 187 273 187 187
Impairment - - - - -
As at 31 December 2021 878 860 1,738 860 860
Net book value
As at 31 December 2021 - 1,318 1,318 1,318 1,318
Group Company
Year ended 31 December 2020 Hello Student(®) Hello Student(®) NAVision(1) Total NAVision(1) Total
application website development £'000 development £'000
development development £'000 £'000
£'000 £'000
Costs
As at 1 January 2020 311 878 1,271 2,460 1,271 1,271
Additions - - 370 370 370 370
As at 31 December 2020 311 878 1,641 2,830 1,641 1,641
Amortisation
As at 1 January 2020 311 339 191 841 191 191
Charge for the year - 87 149 236 149 149
Impairment - 366 333 699 333 333
As at 31 December 2020 311 792 673 1,776 673 673
Net book value
As at 31 December 2020 - 86 968 1,054 968 968
1. Relates to the development of our accounting system which enables
us to bring our revenue management system in-house.
Impairment
Hello Student(®) website development
During the prior year we conducted a review of our intangible asset relating
to the Hello Student(®) website. As can be seen on page xx, we have
identified that overhauling our website is a priority. As such there was an
impairment during the prior year writing off £366,000 of costs relating to
the old website which have been deemed to be obsolete.
NAVision development
During the prior year we launched our new revenue management system. This new
system has provided us with a number of benefits. As a result of the launch of
this new release we conducted a review of our intangible asset relating to the
NAVision development. It was found that there were a number of costs
identified which were for parts of the system no longer in use under the new
revenue management system. As such there was an impairment during the prior
year writing off £333,000 of costs relating to the items within the NAVision
system which were replaced by the new system.
13. INVESTMENT PROPERTY
Year ended 31 December 2021 Group
Investment Investment Total Properties Total
properties properties operational under investment
freehold long assets development property
£'000 leasehold £'000 £'000 £'000
£'000
As at 1 January 2021 849,220 132,149 981,369 23,751 1,005,120
Property additions 6,173 1,808 7,981 7,418 15,399
Sale of investment property (16,330) - (16,330) - (16,330)
Transfer to held for sale asset (25,870) - (25,870) - (25,870)
Change in fair value during the year 22,259 (2,215) 20,044 (2,477) 17,567
As at 31 December 2021 835,452 131,742 967,194 28,692 995,886
Group
Year ended 31 December 2020 Investment Investment Total Properties Total
properties properties operational under investment
freehold long assets development property
£'000 leasehold £'000 £'000 £'000
£'000
As at 1 January 2020 861,639 137,741 999,380 29,700 1,029,080
Property additions 3,915 352 4,267 9,376 13,643
Transfer to/from developments 13,082 - 13,082 (13,082) -
Change in fair value during the year (29,416) (5,944) (35,360) (2,243) (37,603)
As at 31 December 2020 849,220 132,149 981,369 23,751 1,005,120
During the year £7,981,000 (31 December 2020: £4,267,000) 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 2021, 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
2021 2020
£'000 £'000
Value per independent valuation report 1,021,288 1,004,651
Add: Head lease 468 469
Deduct: Assets held for sale (25,870) -
Fair value per Group Statement of Financial Position 995,886 1,005,120
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 2021 £'000 £'000 £'000 £'000
Assets measured at fair value:
Student properties 1,002,748 - - 1,002,748
Commercial properties 19,008 - - 19,008
As at 31 December 2021 1,021,756 - - 1,021,756
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
Total (Level 1) (Level 2) (Level 3)
Date of valuation 31 December 2020 £'000 £'000 £'000 £'000
Assets measured at fair value:
Student properties 986,899 - - 986,899
Commercial properties 18,221 - - 18,221
As at 31 December 2020 1,005,120 - - 1,005,120
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 £85 per week-£387 per week (31 December 2020:
£95-£357 per week).
(b) Unobservable input: Rental growth
The estimated average increase in rent based on both market estimations and
contractual arrangements. Assumed decline of 1.56% used in valuations (31
December 2020: 1.48%).
(c) Unobservable input: Net initial yield
The net initial yield is defined as the initial net income as a percentage of
the market value (or purchase price as appropriate) plus standard costs of
purchase.
Range: 4.25%-8.15% (31 December 2020: 4.45%-8.50%).
(d) Unobservable input: COVID-19 rent deduction
The COVID-19 rent deduction which impacted the 2020 valuation has now fallen
away. See prior year annual report for basis of this deduction. We have
allowed for a total capital deduction totalling £6,368,080 to reflect
occupancy shortfall. This is based on CBRE's market perception that 2021/22 is
going to be an unaffected year and that no risk deduction in respect of
COVID-19 uncertainties is required.
(e) Unobservable input: Physical condition of the property
At the interim we indicated we would spend £30 million on health and safety
works over the next five years. CBREs assumption is that £17.2 million of
this cost should now be reflected in the valuation at the year-end in respect
of in respect of work on external wall systems and fire stopping on buildings
over 18 metres. Management have performed a sensitivity analysis to assess the
impact of a change in their estimate of total costs relating to the £17.2
million deduction. A 20% increase in the estimated remaining costs would
affect net valuation gains/losses on property in the IFRS P&L by £3.4
million and would reduce the Group's NTA by less than 0.1 pence on a per share
basis. Whilst the spend is expected to be utilised within two years, there is
uncertainty over this timing.
(f) Unobservable input: Planning consent
No planning enquiries were undertaken for any of the development properties.
(g) 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:
-3% change +3% change -0.25% +0.25%
in rental in rental change change
income income in yield in yield
As at 31 December 2021 £'000 £'000 £'000 £'000
(Decrease)/increase in the fair value of the investment properties (41,520) 40,710 48,480 (44,900)
-3% change +3% change -0.25% +0.25%
in rental in rental change change
income income in yield in yield
As at 31 December 2020 £'000 £'000 £'000 £'000
(Decrease)/increase in the fair value of the investment properties (40,020) 40,060 46,340 (42,230)
(h) 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
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Trade receivables 2,471 2,539 11 -
Other receivables 1,769 1,063 108 5
Amounts owed by property managers 8 6,505 - -
Prepayments 2,949 4,157 192 341
VAT recoverable 642 246 - 7
7,839 14,510 311 353
Amounts due from Group undertakings - - 369,048 350,578
7,839 14,510 369,359 350,931
In the Company, amounts owed from Group undertakings are classified as due
within one year due to their legal agreements with the debtor, however, could
be recovered after more than one year should the debtors' circumstance not
permit repayment on demand.
Movements on the Group provision for impairment of trade receivables were as
follows:
Group
31 December 31 December
2021 2020
£'000 £'000
At 1 January (1,449) (594)
(Increase) in provision for receivables impairment (100) (855)
At 31 December (1,549) (1,449)
Provisions for impaired receivables have been included in property expenses in
the income statement. Amounts charged to the impairment provision are
generally written off when there is no expectation of recovering additional
cash.
The maximum exposure to credit risk at the reporting date is the book value of
each class of receivable mentioned above and its cash and cash equivalents.
The Group does not hold any collateral as security, though in some instances
students provide guarantors.
Management believes that the concentration of credit risk with respect to
trade receivables is limited due to the Group's customer base being large,
unrelated and living with us. As such we have a high level of communication
with them.
At 31 December 2021, 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 Company performed a review of the expected credit
loss on the amounts due from Group undertakings; there was no provision made
during the year (2020: £nil). There are no security obligations related to
these amounts due from Group undertakings.
15. HELD FOR SALE ASSETS
Management considers that five properties meet the conditions relating to
assets held for sale, as per IFRS 5: Non-current Assets Held for Sale. The
properties are expected to be disposed of during the next 12 months. The fair
value of properties has been determined by a third-party valuer, CBRE.
All non-current assets, of these disposal assets, classified as held for sale
are disclosed at their fair value.
These assets were subsequently disposed of on 1 February 2022; see Note 26
Subsequent Events for more detail.
The fair value of these properties are £25.87 million.
16. CASH AND CASH EQUIVALENTS
Group Company
31 December 31 December 31 December 31 December
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Cash and cash equivalents 37,127 33,927 1,977 24,775
17. TRADE AND OTHER PAYABLES
Group Company
31 December 31 December 31 December 31 December
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Trade payables 5,147 3,406 3,309 848
Other payables 2,070 1,800 178 251
Accrued expenses 12,015 9,574 802 1,072
Directors' bonus accrual 758 747 758 747
19,990 15,527 5,047 2,918
Amounts owed to Group undertakings - - 27,177 9,548
19,990 15,527 32,224 12,466
At 31 December 2021, there was deferred rental income of £29,862,000 (31
December 2020: £20,676,000) 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 owed to Group undertakings are interest free and repayable on demand.
18. BANK BORROWINGS
A summary of the drawn and undrawn bank borrowings in the year is shown below:
Group
Bank Bank Bank Bank
borrowings borrowings borrowings borrowings
drawn undrawn Total drawn undrawn Total
31 December 31 December 31 December 31 December 31 December 31 December
2021 2021 2021 2020 2020 2020
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 390,000 52,500 442,500 355,000 35,000 390,000
Bank borrowings from new facilities in the year - - - 52,800 42,500 95,300
Bank borrowings drawn in the year - - - 25,000 (25,000) -
Bank borrowings repaid during the year (15,000) 15,000 - (42,800) - (42,800)
At 31 December 375,000 67,500 442,500 390,000 52,500 442,500
In the previous year the Group refinanced two facilities, one with AIB for
£32.8 million and the second with FCB for £10 million which was also
extended to £20 million. In July 2020 we extended our RCF with Lloyds Bank
from £70 million to £90 million. The Group also entered into a development
facility with NatWest for £22.5 million during 2020 financial year. At 31
December 2021 no balance has been drawn down.
There is an undrawn RCF debt facility available of £45,000,000 at 31 December
2021 (31 December 2020: £30,000,000). The weighted average term to maturity
of the Group's debt as at the year end is 4.9 years (31 December 2020: 5.9
years).
Bank borrowings are secured by charges over individual investment properties
held by certain asset-holding subsidiaries. These assets have a fair value of
£977,148,000 at 31 December 2021 (31 December 2020: £952,441,000). 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 £20 million unsecured facility with FCB - see above (2020:
£20 million) repayable in more than one year, fully drawn. The balance net of
loan arrangement fees carried as at 31 December 2021 was £19,980,000 (31
December 2020: £19,961,000).
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
2021 2020
Non-current £'000 £'000
Balance brought forward 390,000 312,200
Total bank borrowings in the year - 77,800
Less: Bank borrowings becoming current in the year (45,000) -
Less: Bank borrowings repaid during the year (15,000) -
Bank borrowings drawn: due in more than one year 330,000 390,000
Less: Unamortised costs (3,756) (4,734)
Bank borrowings due in more than one year 326,244 385,266
Group
31 December 31 December
2021 2020
Current £'000 £'000
Balance brought forward - 42,800
Less: Bank borrowings repaid during the year - (42,800)
Bank borrowings becoming current in the year 45,000 -
Bank borrowings drawn: due in less than one year 45,000 -
Less: Unamortised costs (288) -
Bank borrowings due in less than one year 44,712 -
Maturity of Bank Borrowings
Group
31 December 31 December
2021 2020
£'000 £'000
Repayable in less than one year 45,000 -
Repayable between one and two years 20,000 -
Repayable between two and five years 52,800 132,800
Repayable in over five years 257,200 257,200
Bank borrowings 375,000 390,000
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 SONIA 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 investment debt portfolio as at the year end was 3.00% (31
December 2020: 2.90%). All variable rate loans have transitioned from LIBOR +
margin to SONIA + margin, with the margin set at a rate that is intended to
give an overall return to the lender equivalent to the LIBOR linked rate.
19. SHARE CAPITAL
Group and Company Group and Company
31 December 31 December 31 December 31 December
2021 2021 2020 2020
Number £'000 Number £'000
Balance brought forward 603,160,940 6,032 603,160,940 6,032
Share options exercised 42,112 - -
Balance carried forward 603,203,052 6,032 603,160,940 6,032
During the year there was one issue of 42,112 shares, on 2 June 2021 these
related to an issue to an ex-Director under the deferred bonus scheme.
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
2021 2020
£'000 £'000
Balance brought forward 257 257
Share premium on share options exercised 38 -
Balance carried forward 295 257
21. CAPITAL REDUCTION RESERVE
Group and Company
31 December 31 December
2021 2020
£'000 £'000
Balance brought forward 475,038 482,578
Less interim dividends declared and paid per Note 10 (15,080) (7,540)
Balance carried forward 459,958 475,038
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
2021 2020
£'000 £'000
Less than one year 42,888 39,625
Between one and two years 1,353 1,169
Between two and three years 1,352 1,123
Between three and four years 1,331 1,102
Between four and five years 1,271 1,042
More than five years 7,759 6,269
Total 55,954 50,330
The above relates to commercial leases and nomination agreements with UK
universities in place as at 31 December 2021. The impact of student leases for
the forthcoming academic year signed by 31 December 2021 have not been
included as the certainty of income does not arise until the tenant takes
occupation of the accommodation. As at 31 December 2021, £32,038,000 (31
December 2020: £17,689,000) of the future minimum lease receivables have been
received as cash.
23. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2021 (31 December 2020:
£nil).
24. CAPITAL COMMITMENTS
The Group had capital commitments relating to developments totalling
£8,567,000 at 31 December 2021 (31 December 2020: £11,331,000).
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
There were no share transactions with related parties during the year ended 31
December 2021.
Share-based Payments
On 22 April 2021, the Company granted nil-cost options over a total of
1,432,400 (Duncan Garrood 800,000 and Lynne Fennah 632,400) ordinary shares
pursuant to the Empiric 2014 Long Term Incentive Plan (the "2017-2020 LTIP
Awards") for the 2021 financial year.
Details of the Director share ownership and dividends received are detailed on
page 74 of the Annual Report.
Details of the shares granted and exercised are outlined in Note 27 in the
Annual Report.
26. SUBSEQUENT EVENTS
On 1 February 2022 the Group sold five properties for a total of £27 million.
The sale price was in line with the market value as at 31 December 2021. On 7
February 2022 the Group purchased one asset in Bristol for £19 million.
27. SHARE-BASED PAYMENTS
The Company operates two equity-settled share-based remuneration schemes for
Executive Directors under the deferred annual bonus and LTIP. The details of
the schemes are included in the Remuneration Committee Report.
Issued
On 22 April 2021, the Company granted nil-cost options over a total of
1,432,400 (Duncan Garrood 800,000 and Lynne Fennah 632,400) ordinary shares
pursuant to the Empiric 2014 Long Term Incentive Plan (the "2017-2020 LTIP
Awards") for the 2021 financial year.
During the year, the Company granted nil-cost options over a total of 293,177
ordinary shares to members of the Senior Leadership Team pursuant to the
Empiric 2014 Long Term Incentive Plan (the "2017-2020 LTIP Awards") for the
2021 financial year.
Of the nil-cost options, 52,115 are currently exercisable. The weighted
average remaining contractual life of these options was 1.7 years (2020: 1.7
years).
During the year to 31 December 2021 the amount recognised relating to the
options was £204,000 (2020: £29,000).
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.
31/12/2021 31/12/2020 31/12/2019 31/12/2018 31/12/2017 31/12/2016
Outstanding number brought forward 2,314,539 1,250,045 1,051,708 1,477,817 3,913,420 2,880,391
Granted during the period 1,725,577 1,064,494 604,134 439,022 207,198 1,033,029
Vested and exercised during the period (35,779) - (129,253) (139,325) (691,237) -
Lapsed during the period (558,017) - (276,544) (725,806) (1,951,564) -
Outstanding number carried forward 3,446,320 2,314,539 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 2018-22
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 0.88
(b) Exercise price of £nil
(c) Contractual life of 3 years
(d) Expected volatility of 26.30%
(e) Expected dividend yield of 2.84%
(f) Risk-free rate of 0.09%
(g) The volatility assumption is based on a statistical analysis of daily share
prices of comparator companies over the last three years
(h) The TSR performance conditions have been considered when assessing the fair
value of the options
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:
Reconciliation of liabilities to cash flows from financing activities
31 December 31 December
2021 2020
£'000 £'000
Bank borrowings and leasehold liability at start of the year 385,266 349,771
Cash flows from financing activities
Bank borrowings drawn - 77,800
Bank borrowings repaid (15,000) (42,800)
Loan arrangement fees paid (168) (1,008)
Non-cash movements
Amortisation of loan arrangement fees 815 1,503
Recognition of lease liabilities 1,114 -
Bank borrowings and leasehold liability at end of the year 372,027 385,266
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 Baa1 Stable
Canada Life Aa3 Stable
Mass Mutual Aa3 Stable
Scottish Widows A2 Stable
Lloyds Bank Plc A2 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 3 to 12 1 to 5
On demand months months years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2021
Bank borrowings and interest - 3,182 54,379 194,206 189,087 440,854
Trade and other payables - 19,990 - - - 19,990
- 23,172 54,379 194,206 189,087 460,844
Group
Less than 3 3 to 12 1 to 5
On demand months months years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2020
Bank borrowings and interest - 3,021 9,063 199,749 283,925 495,758
Trade and other payables - 15,527 - - - 15,527
- 18,548 9,063 199,749 283,925 511,285
Company
Less than 3 3 to 12 1 to 5
On demand months months years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2021
Bank borrowings and interest - 119 357 20,076 - 20,552
Trade and other payables - 5,047 - - - 5,047
- 5,166 357 20,076 - 25,599
Company
Less than 3 3 to 12 1 to 5
On demand months months years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2020
Bank borrowings and interest - 96 289 20,447 - 20,832
Trade and other payables - 2,918 - - - 2,918
- 3,014 289 20,447 - 23,750
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 2021, with the shares issued being ordinary shares. All
subsidiaries are registered in London at the following address: 1st Floor Hop
Yard Studios, 72 Borough High Street, London, SE1 1XF.
In each case the country of incorporation is England and Wales.
Company
31 December 31 December
2021 2020
£'000 £'000
As at 1 January 187,598 81,686
Additions in the year - 106,215
Disposals - (303)
Balance at 31 December 187,598 187,598
During the 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 the plc forgave intercompany debt owned by subsidiaries in
return for the issue of further shares.
Company Status Ownership Principal 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) 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 (Edinburgh KSR) Leasing Limited Active 100% Property Leasing
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 (Falmouth Ocean Bowl) Leasing Limited Active 100% Property Leasing
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 (Southampton Emily Davies) 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
Empiric Acquisitions Limited Active 100% Immediate Holding 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
Empiric Investments (Five) Limited Active 100% Immediate Holding Company
Empiric Investments (Four) Limited Active 100% Immediate Holding Company
Empiric Investments (One) Limited Active 100% Immediate Holding Company
Empiric Investments (Six) Limited Active 100% Immediate Holding Company
Empiric Investments (Three) Limited Active 100% Immediate Holding Company
Empiric Investments (Two) Limited Active 100% Immediate Holding Company
Empiric Investments (Seven) Limited Dormant 100% Immediate Holding 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(®) Management Limited Active 100% Property Management
31. ALTERNATIVE PERFORMANCE MEASURES
The below sets out our alternative performance measures.
Gross margin - Gross profit expressed as a percentage of rental income. A key
business KPI to monitor how efficiently we are running our buildings.
Group
31 December 31 December
2021 2020
Gross Margin £'000 £'000
Revenue 55,967 59,444
Property Expenses (23,061) (22,651)
Net rental income 32,906 36,793
Gross Margin calculated as Net rental income/Revenue 58.8% 61.9%
Total Return ("TR") - The growth of NAV per share plus dividends per share
measured as a percentage, A key business KPI to monitor the level of overall
return the Group is generating.
Group
31 December 31 December
2021 2020
Total Return £'000 £'000
NAV per share brought forward 105.00 110.21
NAV per share carried forward 107.36 105.00
NAV growth per share in period 2.36 (5.21)
Dividend per share 2.50 1.25
Dividends plus NAV Growth in period per share 4.86 (3.96)
Total return calculated as Dividends plus NAV Growth in period per share/ NAV 4.6% (3.6%)
brought forward
Loan-to-value ("LTV") - A measure of borrowings used by property investment
companies calculated as total drawn borrowings, net of cash, as a percentage
of Property Value. A key business KPI to ensure we stay inline with our long
term target of 35%.
Group
31 December 31 December
2021 2020
Loan to value ("LTV") £'000 £'000
Drawn borrowings (375,000) (390,000)
Less cash held at the year end 37,127 33,927
Net borrowings 337,873 356,073
Property valuation 1,021,288 1,004,651
LTV calculated as net borrowings / property valuation 33.1% 35.4%
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).
Alternative Performance Measures ("APM") - The Group uses alternative
performance measures including the European Public Real Estate ("EPRA") Best
Practice Recommendations ("BPR") to supplement IFRS as the Board considers
that these measures give users of the Annual Report and Financial Statements
the best understanding of the underlying performance of the Group's property
portfolio. The EPRA measures are widely recognised and used by public real
estate companies and investors and seek to improve transparency, comparability
and relevance of published results in the sector. Reconciliations between EPRA
and other alternative performance measures and the IFRS financial statements
can be found in Notes 8 and 9 and in the definitions below.
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).
Colleague Engagement - KPI - Non-IFRS measure - Calculated as per the results
of our biannual colleague engagement surveys.
Company - Empiric Student Property plc.
Customer Happiness - KPI - Non-IFRS measure - Calculated per the results of
our biannual customer surveys.
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).
EPRA Net Disposal Value ("NDV") - Represents the shareholders' value under a
disposal scenario, where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability, net of any
resulting tax. As the Group is a REIT, no adjustment is made for deferred tax.
EPRA Net Reinvestment Value ("NRV") - Assumes that entities never sell assets
and aims to represent the value required to rebuild the entity.
EPRA Net Tangible Assets ("NTA") - Assumes that entities buy and sell assets,
thereby crystallising certain levels of unavoidable deferred tax.
EU - European Union.
Executive Team - The Executive Directors made up of the CEO and CFO/CSO.
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(®) platform - Our customer-facing brand and operating system
which we operate all of our buildings under.
HE - Higher education.
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, as a percentage
of Property 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.
Rebooker Rate - KPI - Non-IFRS measure - Calculated as the percentage of
students staying with us in the previous year who chose to stay living with us
for another academic year.
REIT - Real estate investment trust.
Revenue Occupancy - KPI - Non-IFRS measure - Calculated as the percentage of
our Gross Annualised Revenue we have achieved for an academic year.
RICS - Royal Institution of Chartered Surveyors.
Safety - Number of accidents - KPI - Non-IFRS measure - Calculated as the
number of RIDDOR accidents reported to the Health and Safety Executive.
Senior Leadership Team - The senior management team which sits beneath the
Executive Team and is made up of the six department heads.
SONIA - Sterling Over Night Index Average is the effective reference for
overnight indexed swaps for unsecured transactions in the Sterling market. The
SONIA itself is a risk-free rate.
The Code - UK Code of Corporate Governance, as published in 2018.
Total Return ("TR" or "TAR") - The growth of NAV per share plus dividends per
share measured as a percentage,
Total Shareholder Return - Share price growth with dividends deemed to be
reinvested on the dividend payment date.
UKLA - United Kingdom Listing Authority.
Company Information and Corporate Advisers
Company Registration Number: 08886906
Incorporated in the UK
(Registered in England)
Empiric Student Property plc is a public company limited by shares
Registered Office
1st Floor Hop Yard Studios,
72 Borough High Street,
London, SE1 1XF
DIRECTORS AND ADVISERS
Directors
Mark Pain (Chairman)
Duncan Garrood (Chief Executive Officer)
Lynne Fennah (Chief Financial and Sustainability Officer)
Martin Ratchford (Non-Executive Director)
Stuart Beevor (Non-Executive Director)
Alice Avis (Non-Executive Director)
Broker and Joint Financial Adviser
Jefferies International Ltd
100 Bishopsgate
London EC2N 4JL
Broker and Joint Financial Adviser
RBC Europe Limited
Riverbank House
2 Swan Lane
London EC4R 3BF
Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Company Secretary
Throgmorton UK Limited
6th Floor, 140 London Wall,
London, EC2Y 5DN
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Communications Adviser
Maitland/AMO
3 Pancras Square
London N1C 4AG
Valuer
CBRE Limited
Henrietta House
Henrietta Place
London W1G 0NB
Empiric Student Property plc
1st Floor Hop Yard Studios,
72 Borough High Street
London
SE1 1XF
T +44 (0)20 8078 8791
E info@empiric.co.uk
More information on
www.empiric.co.uk
Empiric Student Property plc
1st Floor Hop Yard Studios
72 Borough High Street
London
SE1 1XF
T +44 (0)20 3828 8700
E info@empiric.co.uk
More information on
www.empiric.co.uk
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