REG - Empiric Student Prop - Half Year Results
11/08/2022 07:00
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RNS Number : 6336V Empiric Student Property PLC 11 August 2022
11 August 2022
Empiric Student Property plc
("Empiric" or the "Company" or, together with its subsidiaries, the "Group")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
Good progress to date in 2022 and increasingly confident in the positive
outlook for our business and long-term strength of our market
Empiric Student Property plc (ticker: ESP), the owner and operator of premium
student accommodation serving key UK universities, today reports its interim
results for the six months ended 30 June 2022.
Duncan Garrood, Chief Executive Officer of Empiric Student Property plc, said:
"We are pleased to have grown our revenue, earnings and portfolio valuation in
the first half, and to have delivered a total accounting return, the sum of
income and capital growth, of 10.9% for the period, up from 1.1% in H1 2021.
This reflects the reduced impact of COVID on the academic year 2021/22, strong
yield compression, increased rents and our continuing work on further
improving our portfolio and business.
We are encouraged to have achieved occupancy to date for the forthcoming
academic year 2022/23 of 92%. This is ahead by 10% compared to the same time
pre-pandemic, and we expect to deliver revenue occupancy at the upper end of
our revised guidance of 90% to 95%. This has been driven not only by market
conditions normalising but also by the proactive enhancements we are making to
our business and portfolio. We remain committed to paying a minimum dividend
of 2.5 pence in 2022 and will review this in Q4 once occupancy levels are
confirmed for the new academic year.
In a rising inflationary environment, it is important to note that we have
hedged our energy costs up until Q3 2024. We have also fixed two thirds of our
total debt facilities, which gives us significant protection from rising
interest rates.
Despite the wider uncertain backdrop, we are well positioned to provide
further attractive growth. We are increasingly confident in the normalisation,
and long-term strength and resilience of our market, and of the strong,
sustainable growth and value creation potential within our business."
HIGHLIGHTS
30 June 2022 30 June 2021 change
Revenue £35.6m £25.9m +37%
Property costs £10.6m £10.9m -3%
Gross margin 70.2% 57.9% +21%
Administrative expenses £6.3m £5.3m +20%
Adjusted earnings per share 1.97p 0.59p +234%
(Loss)/Gain on disposal of investment property (£0.1)m £1.7m -109%
Change in fair value of investment property £58.6m £1.8m +3,141%
Profit before taxation £70.3m £7.0m +904%
Dividends paid £7.5m - -
Loan to value (%) 32.8% 33.1% -1%
30 June 31 December
2022 2021
Property valuation £1,087.7m £1,021.8m +6%
EPRA NTA Per share 117.8p 107.4p +10%
Total return (%) 10.9% 1.1% +890%
Delivering improving financial performance and attractive returns
· Growth in revenue of 37% to £35.6 million (H1 2021: £25.9
million), as occupancy for the first half was 86% compared to 65% for the same
period in 2021.
· Like for like rental growth for the academic year 2021/22 was
1.5%, up from 1.3% reported previously, as we focused on occupancy levels
during the year over rental growth.
· In March, we reported 84% revenue occupancy for the academic year
2021/22, which has increased to 86% since then, slightly above the upper end
of our guidance.
· Property costs of £10.6 million were 3% lower than the same
period last year.
· Gross margin has increased by 21%, from 57.9% to 70.2%, as a
result of a £9.7 million improvement in revenue.
· Administration expenses were £6.3 million and in line with
guidance.
· Adjusted Earnings for the period were £11.9 million (H1 2021:
£3.5 million), with Adjusted earnings per share of 1.97 pence (H1 2021: 0.59
pence).
· We sold five assets in the period for £26.7 million slightly
above book value and reported a net loss on disposal of investment property
(£0.1) million after deducting re-financing and sales costs.
· The net profit from a change in the fair value of investment
properties was £58.6 million (H1 2021: gain of £1.8 million).
· Profit before tax of £70.3 million (H1 2021: £7.0 million).
· Basic earnings per share of 11.65 pence (H1 2021: 1.16 pence).
· Property portfolio valued at £1,087.7 million (31 December 2021:
£1,021.8 million). On a like for like basis, the investment property
valuation increased by 7%. This was driven by strong yield compression and
like for like rental growth, CBRE's removal of the Covid-related valuation
reduction of £6.2 million and by our continuing work on further improving our
portfolio and business.
· Underlying valuation yield of 5.2% (31 December 2021: 5.3%) has
improved, reflecting both a strengthening of yields in our prime assets and
improved rental growth.
· EPRA Net Tangible Assets ("NTA") per share up 10% to 117.8 pence
(31 December 2021: 107.4 pence).
· Total accounting return, the sum of income and capital growth,
increased to 10.9% (H1 2021: 1.1%).
We have made significant progress in further improving our portfolio and
business across the following critical areas: actively managing our property
portfolio; strengthening our brand proposition; driving performance through
data analytics; delivering consistently high customer service; and developing
our people.
Strong student demand for academic year 2022/23 - ahead of pre-pandemic peak
· We are encouraged to have to date achieved occupancy for the
forthcoming academic year 2022/23 of 92%, which is ahead by 10% compared to
the same time pre-pandemic.
· We expect to deliver revenue occupancy at the upper end of our
revised guidance of 90% to 95%. This has been driven not only by market
conditions normalising but also by the proactive improvements that we are
continuing to make to our portfolio and business.
· Through our enhanced and more targeted marketing, combined with
good customer service, we have significantly increased the participation of
domestic students in our business, showing how we can successfully flex our
customer base depending on the market environment.
· Bookings achieved to date for academic year 2022/23 indicate that
half our customers are from the UK, up from pre-pandemic levels of a third.
· One third of our bookings are from China and the remainder are
other international students, though this balance may change slightly by
September as some markets, including India, tend to book very late. Asian
markets are again at the forefront of international enquiries, and we have
done considerable work to tap into these markets directly, using specific
social media and platforms.
· We have seen encouraging growth in rebookers to 23% and the
proportion of postgraduates has increased by approximately 8%. This gives us
confidence that our Postgrad product, which we are piloting in Edinburgh, will
have significant attraction.
Further enhancing our business and portfolio to provide attractive,
sustainable returns and enhanced value to all our stakeholders
· Our portfolio optimisation and recycling capital strategy is
progressing well. Since March 2021, we have sold 9 assets for £44.6 million
(£26.7 million in H1 2022), and with asset disposals worth £40 million
currently under offer at or around book value. Our disposal programme remains
on track, as we work to eliminate non-core assets.
· Disposals allow us to recycle capital and in March we announced
our first acquisition since 2018, Market Quarter in Bristol, for a cost of
£19 million with an expected unlevered IRR of 8% to 9%. It is fully let for
academic year 2022/23, with an 18% increase in rent.
o This site is close to our other assets in Bristol and creates a cluster of
four buildings run by the same management team. This enables us to maintain
our small boutique proposition whilst reducing costs and improving our margin.
o Future acquisitions will focus on continuing our cluster strategy.
· We have secured a good pipeline of potential acquisitions and
development opportunities and are under offer on a further acquisition worth
£15 million within a key growth city and clustered location.
· We are on track to complete two developments in September 2022 in
Bristol and Edinburgh, all launched rooms for the academic year 2022/23 are
fully let with waiting lists, and with yields on cost of 6.3% and 6.1% and
IRRs of 10%-11% and 12%-13%, respectively.
· Following successful pilots, we are undertaking further
refurbishments of two communal areas and 47 rooms for the academic year
2022/23, with a further three communal areas and 300 rooms for the academic
year 2023/24, with an IRR target of 9%-11%.
Strong balance sheet
· Loan to value for the Group was 32.8%, broadly in line with our
35% long-term target.
· At 30 June 2022, before deduction of loan arrangement fees, the
Group had committed investment debt facilities of £420 million, of which
£400 million were drawn down. £277 million of this debt is fixed and £123
million is floating. The aggregate cost of debt was 3.3%, with a weighted
average term of five years.
Committed to being a responsible business
· At our annual results reported in March this year, we announced
our plan to be net zero on our operations, property portfolio and energy
consumption by 2035 and we are pleased to report that we are reducing this
timeframe to 2033.
· Our Paris aligned scope 3 target is by 2050 or before, and we
will be reviewing this target regularly with the aim of achieving it faster as
more data becomes available.
· We have published our first full Net Zero Strategy report on the
sustainability section of our corporate website today, and this includes
setting out the seven KPIs that will enable us to track our progress against
this commitment.
Encouraged by the strong outlook for our business and the wider sector
· With strong occupancy to date of 92% for the forthcoming academic
year 2022/23, we expect to deliver revenue occupancy at the upper end of our
revised guidance of 90% to 95%.
· We are driving strong life for like rental growth, and we now
expect to deliver rental growth in the region of 5% to 6% for academic year
2022/23. While some of this is due to our enhanced marketing and new dynamic
pricing strategy, it is also in part a result of the recovery from Covid,
which is likely to moderate in future years.
· In a rising inflationary environment, it is important to note
that we have hedged our energy costs up until Q3 2024. We have also fixed two
thirds of our total debt facilities, which gives us significant protection
from rising interest rates.
· We are pleased to have resumed dividend payments and we remain
committed to paying a minimum of 2.5 pence in 2022, and we will review the
dividend in the fourth quarter once we have confirmed our occupancy levels for
the new academic year, in line with our policy of being fully covered and
progressive.
· Strong and resilient outlook for student demand growth expected
from:
o Sustainable demographic growth projected from domestic students over the
next 10 years.
o Significantly growth in international student numbers (non-EU), which are
projected to increase strongly through to at least 2026, according to the
latest UCAS forecasts.
· We are increasingly confident in the normalisation and long-term
strength of our market, and of the strong, sustainable growth and value
creation potential within our business.
Half year results presentation at 8.30 a.m. (UK) today
Please register below for the Company results presentation in-person briefing
and live webcast and conference call for analysts and investors at 8.30 a.m.
(UK) today.
To register to attend the in-person briefing, which is at the offices of Peel
Hunt, 7th Floor, 100 Liverpool Street, London, EC2M 2AT, 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.
To access the live webcast, please register in advance here:
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The recording of the results presentation will be available later in the day
via the Company's London Stock Exchange profile page
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and from the Company website:
https://www.empiric.co.uk/investor-information/company-documents
(https://www.empiric.co.uk/investor-information/company-documents)
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
Peel Hunt LLP 020 7418 8900
Capel Irwin
Carl Gough
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.
MANAGEMENT REPORT
Market Continues to Grow
2021 saw investment volumes in the UK student accommodation sector total just
over £4.1 billion despite the lingering effects of the COVID-19 pandemic. In
2022 so far, investment volumes have been considerable, highlighting demand
from a growing list of private equity, sovereign wealth funds, property
companies and private individuals looking to increase exposure in the sector.
GIC and Greystar's purchase of the Student Roost portfolio from Brookfield for
£3.3 billion in May, competed for by several well-funded bidders,
demonstrates continued confidence in the market. Investors have been prepared
to look beyond wider economic market sentiment to focus on the UK student
accommodation sector's strong long-term growth prospects.
Student demand figures for the upcoming year are looking positive. In the UCAS
June Deadline results the key points were:
- Total undergraduate applicants up slightly by 0.2%
- Non-EU international applicants up 9% with growth in applicants from
China and India
- Chinese applicants up 10%
- Indian applicants up 20%
- EU applicants down by 27%
- Total applicants up 6% from 2019/20 applications
We are encouraged to see the year-on-year trend of growth in students, fuelled
by the desire of international students to study in the UK, and in top quality
UK universities in particular.
UCAS are predicting that by 2026 there will be over a million applicants for
UK universities, and that at least a fifth of those will be international
students. This means overall applications are projected to grow nearly 50%
over the next 5 years.
There is also a long-term trend of growing numbers of postgraduate students.
The data for this is not as recent as UCAS, which only records undergraduate
applications, but the latest figures from the Higher Education Statistics
Agency reported 743,000 UK post graduate students in 2020/21 which was up 16%
on the previous year. This gives us confidence that our Postgrad product,
which we are piloting in Edinburgh, will have significant attraction.
Our Mix of Students
Our bookings to date for the 2022/23 academic year suggest that half our
customers are from the UK, up from pre-pandemic levels of a third. Through our
enhanced targeted marketing, combined with good customer service, we have
significantly increased the participation of domestic students in our
business, showing how we can flex our customer base depending on the current
offering to meet demand patterns.
One third of our bookings are from China in line with pre-pandemic levels with
the remainder being other international students. This balance may change
slightly by September as some markets, including India, tend to book very
late.
Asian markets are leading our international enquiries. We have done
considerable work to tap into these markets directly, using specific social
media platforms and advertising campaigns.
We have seen encouraging growth in rebookers to 23% and the proportion of
postgraduates has increased to approximately 41%. This gives us confidence
that our new Postgrad product, which we are piloting in Edinburgh, will have
significant demand.
5 Key Priorities
Within our 2021 Annual Report we highlighted five key priorities for the
Group. We have made good progress on each of these, which are summarised
below:
1 Actively Managing Our Portfolio
Clearly, our portfolio segmentation will fluctuate in size and value as we
continue to optimise the portfolio.
Segment A (65%) comprises properties which we consider our best assets. We
have grown this by 11% since March 2021, as a result of valuation uplifts,
making an acquisition, and upgrading assets from Segment B through
refurbishment.
Segment B (14%) consists of sites which fundamentally meet the Hello Student
criteria but need investment to command the rental yield we require. Our aim
is to upgrade these sites to Segment A.
Segment C (14%) originally included two sub-segments.
The first consisted of sites suitable for first years, bound by nomination
agreements. We have now reviewed whether to dispose of these assets and so
have moved them to Segment D.
Segment C now consists solely of sites ideal for postgraduates. We aim to grow
this category and are launching a pilot with the sub-brand "Post Grad by Hello
Student" in Edinburgh this autumn.
Segment D (7%) comprises assets that no longer remain core and are on our
disposal programme. The Board will review whether to formally approve
disposals on a case by case basis.
Portfolio Recycling
Since March last year, we have sold nine assets in segment D for £44.6
million. These were all sold above book value. We currently have further
assets worth £40 million under offer. Most of these consist of apartments
with shared facilities which are not in line with our core brand. We are in
discussions on all our remaining segment D sites and expect the disposal
programme to complete within the next 18 months.
In March 2022, we announced our first acquisition since 2018, Market Quarter
Studios in Bristol, for a cost of £19 million with an expected unlevered IRR
of 8 to 9%. It is fully let for the upcoming academic year with an average
uplift in rent of 18%. This site is close to our other assets in Bristol and
creates a cluster of four buildings run by the same management team. This will
enable us to maintain our small boutique proposition whilst reducing costs and
improving our margin. Future acquisitions will focus on continuing this
cluster strategy.
We have a strong pipeline of potential acquisitions and development
opportunities and are under offer on a further acquisition worth £15 million
in a key growth city which will enhance the clustered location. This is funded
through our capital recycling programme.
We have two developments which are due to complete for the forthcoming
academic year, St Mary's in Bristol and Southbridge in Edinburgh. Both
buildings are fully let for the forthcoming academic year.
We have a refurbishment plan to convert Segment B assets to Segment A and plan
to invest £4.4 million this year with a target unleveraged IRR of 9% to 11%.
Following our two successful refurbishment pilot schemes earlier in the year,
we are continuing with our programme though we have decided to delay some
refurbishments until next year when we can contract them well in advance at
better prices.
So, for this year we are focusing on a couple of communal areas and 47 rooms,
whilst next year we will have a more expansive programme covering several
communal areas and 300 beds.
We had 8,775 operating beds in the portfolio last August and will have 8,603
beds in September following:
- disposals from segment D, reducing beds by 476
- our acquisition in Bristol, Market Quarter Studios, adding 92 beds
- and the opening of 2 developments, St Mary's Bristol with 153 beds,
and Edinburgh Southbridge with 59 post graduate beds.
76% of our portfolio currently serves our target universities which include
Russell Group and other top-quality institutions, and once segment D is
eliminated, we expect this to rise to well above 80%. In other cities where we
have a strong commercial performance - for example Falmouth, Huddersfield and
Portsmouth - we will maintain our position.
2 Strengthening Our Brand
We have been carrying out work to refresh and evolve our brand, this is now
complete and launched across our digital channels, with continued rollout at
each touchpoint in the customer journey.
Our new brand proposition was created following a number of workshops and
focus groups with our students to really understand their needs and ensure
that we have a brand which they can identify with and find appealing. The
research with our students has been extremely positive and they find this an
attractive and relatable brand. Next year we will undertake a thorough
overhaul of our customers' digital journey to ensure we continue to provide
the best possible experience that further strengthens the brand proposition
and our differentiation in the market.
The strong brand position and increased differentiation will increase both new
customer acquisition and retention rates.
3 Driving Performance - Data Analytics
Now that our revenue management platform is in house and fully operational, we
have been able to maximise our revenue from our dynamic pricing model through
rigorous algorithmic analysis coupled with human judgement.
An example of this is in Glasgow, where we applied an initial increase of 3.8%
on our rents across the city. As bookings grew and certain room categories in
some sites started to fill up, our algorithms recommended further targeted
increases. As a result, overall Glasgow has achieved a total rental increase
of 7.1% and is fully booked.
We are also working on a new room categorisation which significantly
simplifies our current structure, and we will start selling on this basis in
the autumn for the 2023/24 academic year.
For the current year, our 2022/23 academic year bookings of 92% are well ahead
of the prior year and 10% ahead of the 2019/20 academic year, which was
previously our best year ever.
As such, we are increasing our guidance for 2022/23 academic year to 90% to
95%, and we expect to be toward the top of this range assuming no further
disruption.
4 Delivering Consistent Service
We have launched an app to enable students to communicate easily and quickly
with us.
The app allows customers to contact us about maintenance issues, parcel
deliveries, visitors or social plans at a time of their choosing. And we in
turn will be able to monitor our response times and customer satisfaction
levels.
The app has now been successfully piloted in seven properties. In those seven
sites we have been able to halve the amount of time it takes to deal with
almost three quarters of service and maintenance requests. So, we now plan to
roll out the app across all our sites for the forthcoming academic year
2022/23.
5 Developing Our People
We have also continued to invest in our people, as they are at the heart of a
successful service organisation.
We continue to pay the Real Living Wage which will always be above the
National Living Wage minimum, to retain and motivate our key customer service
team members.
We are very pleased that since joining the "Best Companies" scheme (the
previous Sunday Times Best Employers), we have progressed to the "Star
Employer" category and grown our positive engagement scores.
At a time when hiring is very competitive, increasing employee engagement
helps to increase our retention.
Sustainable Shareholder Returns
In summary, we continue to focus on driving improved and sustainable
shareholder returns and creating and delivering positive value and impact to
all our stakeholders.
The number of students in the 2022/23 academic year is set for continued
growth and based on our current bookings we expect revenue occupancy towards
the top end of our guidance.
We are delivering strong rental growth as the business bounces back after the
pandemic and expect a like-for-like uplift of around 5% to 6% for the 2022/23
academic year, which is helping to drive an uplift in our portfolio valuation.
We continue to actively manage our portfolio and recycle capital with good
progress on disposals, acquisitions, developments, and refurbishments.
We have defined our sustainability metrics and now plan to achieve net zero on
our own operations by 2033 rather than 2035.
We are pleased to have reinstated dividend payments and have committed to
paying a minimum of 2.5 pence this year, which we will review once occupancy
levels are confirmed in quarter four, in line with our fully covered and
progressive policy.
Finally, we are targeting a gross margin above 70% and a total return of 7% to
9% in 2023, assuming a full year of normal occupancy levels.
Financial Performance
Revenue improved 37% to £35.6 million, as occupancy for the first half was
86% compared to 65% for the same period in 2021.
Like-for-like rental growth for the 2021/22 academic year was 1.5%, up from
1.3% reported in March, as we focused on occupancy levels during the year over
rental growth.
Property expenses were marginally lower than the same period last year.
Gross margin increased from 58% to 70% as a result of a £9.7 million
improvement in revenue.
During the first half we sold five assets for £26.7 million, above book value
with a net loss on disposal of £0.1 million after costs.
The net profit from a change in the fair value of investment properties was
£58.6 million compared to £1.8 million in the previous half year.
Net finance expense was £6.9 million, 11% higher due to higher interest rates
and a higher level of borrowing.
Taking all this together, we are reporting a profit of £70.3 million with
Basic earnings per share of 11.7 pence.
Valuation Movement
Since the year end, we have sold five assets for £26.7 million, in line with
the book value shown here of £25.9 million.
We then purchased one asset in Bristol for £19 million to further our
clustering strategy.
After these disposals and acquisitions, the portfolio was valued at £1,014.9
million.
During the period we spent £6.1 million on capital expenditure as well as
£7.7 million on developments, mainly on St Mary's Bristol.
The value of developments has increased by £14 million in the first half.
At the year-end we reported a COVID-related valuation reduction of £6.2
million mainly due to CBRE's assumption of lower income for the 2021/22
academic year.
At the end of June, CBRE removed this reduction entirely, resulting in a
favourable movement of £6.2 million.
Our commercial portfolio, which comprises convenience stores and restaurants
within our sites, went up £0.3 million.
We told you last year that we will spend £37 million on health and safety
works in the five years up to 2025 related to work on external wall systems
and fire stopping.
CBRE have assumed that £17.2 million of this cost was reflected in the
year-end valuation we reported in March. And they have assumed a further
£10.8 million for the first half this year. This is due to greater certainty
around the scope of works required on buildings as well as the cost.
In addition, CBRE have assumed a £2.4 million deduction, which reflects risk
to income from the programme of work on external wall systems and fire
stopping.
And the value of our operational assets grew by £51.7 million, driven by
strong yield compression and like-for-like rental growth.
We are unlikely to experience the same level of yield compression in the
second half and whilst this valuation uplift has driven a very strong total
return in the first half, we expect this to moderate in 2023.
Overall Net Initial Yield has improved from 5.3% to 5.2% since the year-end.
Collectively, these movements resulted in a valuation at the end of June of
£1,088 million.
Financial Position at 30 June 2022
The portfolio was valued at £1,088 million as at 30 June 2022.
The cash holding was £51 million compared to £37 million at the prior year
end.
Debt now stands at £402 million after deducting loan arrangement fees, up
from £371 million as at 31 December 2021.
And the Net Asset Value of the Group was £711 million, compared to £648
million, mainly due to the improved valuation.
At the end of June, before deduction of loan arrangement fees, the Group had
committed investment debt facilities of £420 million, of which £400 million
were drawn down.
£277 million of this debt is fixed and £123 million is floating.
The aggregate cost of debt was 3.3%, with a weighted average term of 5.0
years.
And the Loan to Value for the Group was 32.8%, broadly in line with our 35%
long-term target.
As of 31 July, we had £72.5 million of undrawn facilities and cash, and we
currently have around £38 million of unencumbered assets.
In an environment with rising interest rates, it is important that three
quarters of our drawn debt is fixed.
Capital Expenditure
As stated in our December 2021 Annual Report, we have outlined our planned
capital expenditure over the five-years from 2021 to 2025. This was split into
three categories.
Refurbishment
We expect to invest £44 million in total on refurbishments. Of that we plan
to spend £2.8 million in 2022, of which £0.6 million has been spent to date,
with a more significant programme in 2023.
Green spend
Managing our assets in a sustainable way is a key focus with an estimated
total spend of £4 million on green initiatives.
We expect to invest £500,000 this year on smart panel heat network systems
and solar panels, with £50,000 spent so far.
Fire safety
The total estimated five-year spend on fire safety works is £37 million:
This year we are planning £4 million of fire stopping work with £2.3 million
incurred to date, and a further £6.5 million on external wall rectification,
with £1.3 million spent to date.
We also expect to maintain our on-going maintenance capital expenditure of
about £4 million a year.
Outlook for Full Year 2022
We are encouraged that occupancy for the next academic year 2022/23 is
currently at 92%, which is ahead by 10% compared to the same time
pre-pandemic.
With greater confidence that market conditions are normalising and progress on
further improving our business and portfolio, we are increasing our guidance
for revenue occupancy to 90% to 95% for 2022/23 academic year, and we expect
to be toward the top of this range, assuming no further disruption.
On Administration costs, we are at £6.3 million for the first half, in line
with our guidance.
Our cost forecast includes an inflationary uplift in salaries this year for
those in more junior positions and a small uplift for more senior roles.
We are benefiting from having fixed our electricity and gas costs up until Q3
2024.
And of course, two thirds of our drawn debt is fixed which gives us
significant protection from rising interest rates.
On the back of our confidence in occupancy levels for the 2022/23 academic
year, we are revising our administration cost forecast for the full year to
£13 million. This reflects our decision to accelerate investment in the
future growth of the business, as well as salary uplifts to reflect the
current competitive labour market.
Our expectation for capital expenditure in 2022 remains at £24.5 million in
total, taking into account the expenditure we detailed earlier, with a further
£13 million for development.
On the dividend we have committed to paying a minimum of 2.5 pence in 2022 and
will review this in Q4 once occupancy levels are confirmed for the new
academic year.
Environment, Social and Governance Update
In our 2021 Annual Report, we outlined four key themes that we intend to focus
on:
- Becoming a sustainable business
- Health and safety
- Mental health and wellbeing
- Providing opportunities for all
We continue to make good progress across all four areas and will provide an
update on each one in our 2022 Annual Report.
This section will focus solely on how Empiric Student Property plc will become
a sustainable business.
At the year-end, we announced our plan to be net zero on our own operations,
property portfolio and energy consumption by 2035, and we are pleased to
report that we are reducing this timeframe to 2033.
We are pleased to have established and started to mobilise our net zero
strategy, and we intend to review progress and update the pathway continuously
as we move forward.
There is still more work to do on our Paris aligned Scope 3 target of 2050
which we hope to accelerate once we have more data to provide an accurate
picture.
We have identified seven KPIs that will enable us to track our progress
against this commitment; these are listed below:
- For our first KPI, we are developing an ongoing ESG training and
development programme for our employees by 2023.
- Then for our second, a long-term programme to engage our customers
on climate objectives, by 2024.
- Our third is focused on procuring renewable electricity by 2023 in
line with RE:100 definitions of evidence. For those who are not familiar with
RE:100, this is a global initiative with over 370 corporate members committed
to using 100% renewable electricity.
- Fourth, we plan to establish a means of measuring whole life
carbon in our developments by 2025.
- Our fifth KPI tracks our progress in removing fossil fuels from
our buildings, with the aim of removing natural gas in 80% of our assets by
2030 and 100% by 2033.
- Sixth we plan to deliver on government requirements for all
buildings to be EPC B or better by 2030.
- Finally, we are reducing energy used per bed across our portfolio
from 4,813 kilowatt hours in 2019 to 2,000 by 2033 with a longer term target
of below 1.500 by 2040.
ESG Key Milestones
We have published our full Net Zero strategy and summary of our EPC ratings on
the ESG section of our corporate website as at the date of publication of this
document.
Phase I
2022 - 2024
In this phase we will:
- establish and mobilise a Net Zero Pathway,
- develop an engagement plan for colleagues and customers,
- conduct a whole life carbon assessment of new developments.
Phase II
2025 - 2028
This phase will deliver:
- updated net zero pathway targets to incorporate key learnings,
- along with upgrading EPCs and the removal of fossil fuels across
our assets.
Phase III
2029 - 2033
This phase will focus on:
- updating the pathway targets to achieve net zero,
- establishing offsetting requirements and an offsetting programme
in advance of 2032,
- and reducing operational emissions to zero.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties we face are described in detail on pages
48 to 53 of our Annual Report and Accounts for the year ended 31 December
2021.
Risk Environment
The Board is cognisant that the risk environment has heightened since the year
end, with the war in Ukraine, inflation and rising interest rates alongside a
highly competitive labour market. However, the Audit Committee, which assists
the Board with its responsibilities for managing risk, has considered the
principal risks and uncertainties and concluded that they have not changed
since the year-end report.
They did note however that all of the external risks and the people risk noted
below have increased since the year end.
Principal Risks
The principal risks and uncertainties described in the Annual Report and
Accounts are summarised below:
External Risks
- Competition Risk - The risk of an increased level of competition and
supply in the student accommodation sector.
- Property Market Risk - The potential for a downturn in the property
market.
- Regulatory Risk - Large levels of regulation being applied to the
student accommodation market.
- Funding Risk - The availability of debt or equity and ability to raise
it on acceptable terms.
- Revenue Risk - The risk of reduced revenue from various changes to
university operations and travel restrictions.
Internal Risks
- Health and Safety Risk - The occurrence of a major health and safety
incident, including a fire.
- Cyber Security Risk - The Group suffering a cyber security breach.
- People Risk - Inability to retain and attract top levels of staff.
- Safe and Sustainable Buildings Risk - How our buildings will withstand
increased legislation around fire safety as well as pressure from climate
change.
Going Concern
The Board is cognisant that the risk environment has heightened since the year
end, with the war in Ukraine, inflation and rising interest rates alongside a
highly competitive labour market. Accordingly, the Group has conducted a
detailed going concern review and considered its liquidity position and
banking covenant compliance strength. The detailed assessment we have
undertaken is set out in Note 1.2 of the financial statements.
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 half year financial
statements.
Responsibility Statement of the Directors in Respect of the Interim Report and Accounts
The Directors confirm that to the best of their knowledge this condensed set
of financial statements has been prepared in accordance with UK adopted
International Accounting Standard 34 and that the operating and financial
review herein includes a fair review of the information required by DTR 4.2.7
and DTR 4.2.8 of the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority, namely:
- an indication of important events that have occurred during the first
six months of the financial period and their impact on the condensed financial
statements and a description of the principal risks and uncertainties for the
remaining six months of the financial period; and
- material related party transactions in the first six months.
A list of the current Directors is shown further on in the Interim Report and
Accounts. Shareholder information is as disclosed on the Empiric Student
Property plc website, www.empiric.co.uk.
For and behalf of the Board
Mark Pain
Chairman
10 August 2022
INDEPENDENT REVIEW REPORT TO EMPIRIC STUDENT PROPERTY PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and related notes.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1.3, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however, future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of Our Report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, United Kingdom
10 August 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Unaudited Condensed Consolidated Statement of Comprehensive Income
Unaudited six months to 30 June 2022 Unaudited six months to 30 June 2021 Audited year
31 December 2021
Notes £'000 £'000 £'000
Continuing operations
Revenue 35,628 25,921 55,967
Property expenses (10,610) (10,925) (23,061)
Gross profit 25,018 14,996 32,906
Administrative expenses (6,289) (5,257) (10,547)
(Loss)/gain on disposal of investment property (149) 1,651 1,652
Change in fair value of investment property 6 58,564 1,807 17,567
Operating profit 77,144 13,197 41,578
Finance cost (6,871) (6,199) (12,382)
Finance income 2 1 1
Net finance cost 2 (6,869) (6,198) (12,381)
Profit before tax 70,275 6,999 29,197
Corporation tax 3 - - -
Profit for the period and Total comprehensive income 70,275 6,999 29,197
Earnings per share expressed as pence per share
Basic 4 11.65 1.16 4.84
Diluted 4 11.64 1.16 4.84
Unaudited Condensed Consolidated Statement of Financial Position
Unaudited Unaudited Audited 31 December 2021
30 June 2022
30 June 2021
Notes £'000 £'000 £'000
Non-current assets
Property, plant and equipment 1,051 177 426
Intangible assets 1,398 1,011 1,318
Right of use asset 1,476 - 1,010
Investment property - operational assets 6 1,037,315 969,355 967,194
Investment property - development assets 6 50,350 24,942 28,692
1,091,590 995,485 998,640
Current assets
Trade and other receivables 5,013 7,161 7,839
Assets classified as held for sale - - 25,870
Cash and cash equivalents 51,087 32,160 37,127
56,100 39,321 70,836
Total assets 1,147,690 1,034,806 1,069,476
Current liabilities
Trade and other payables 19,371 15,878 19,990
Borrowings 7 19,984 - 44,712
Lease liability 107 - 107
Deferred rental income 13,649 8,007 29,862
53,111 23,885 94,671
Non-current liabilities
Borrowings 7 382,422 370,508 326,244
Lease liability 1,418 - 963
383,840 370,508 327,207
Total liabilities 436,951 394,393 421,878
Total net assets 710,739 640,413 647,598
Called-up share capital 6,032 6,032 6,032
Share premium 295 295 295
Capital reduction reserve 452,418 475,038 459,958
Retained earnings 251,994 159,048 181,313
Total equity 710,739 640,413 647,598
Total equity and liabilities 1,147,690 1,034,806 1,069,476
NAV per share basic (pence) 8 117.83 106.17 107.36
NAV per share diluted (pence) 8 117.76 105.71 106.75
EPRA NTA per share basic (pence) 8 117.83 106.17 107.36
Unaudited Condensed Consolidated Statement of Changes in Equity
Period from 1 January to 30 June 2022 (unaudited)
Called up share capital Share premium Capital reduction reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 6,032 295 459,958 181,313 647,598
Changes in equity
Profit for the period - - - 70,275 70,275
Total comprehensive expense/income for the period - - - 70,275 70,275
Share-based payment - - - 406 406
Dividends - - (7,540) - (7,540)
Total contributions and distribution recognised directly in equity - - (7,540) 406 (7,134)
Balance at 30 June 2022 6,032 295 452,418 251,994 710,739
Period from 1 January to 30 June 2021 (unaudited)
Called up share capital Share premium Capital reduction reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 6,032 257 475,038 151,950 633,277
Changes in equity
Profit for the period - - - 6,999 6,999
Total comprehensive expense/income for the period - - - 6,999 6,999
Share-based payment - - - 137 137
Share options exercised - 38 - (38) -
Total contributions and distribution recognised directly in equity - 38 - 99 137
Balance at 30 June 2021 6,032 295 475,038 159,048 640,413
Year from 1 January to 31 December 2021 (audited)
Called up share capital Share premium Capital reduction reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 6,032 257 475,038 151,950 633,277
Changes in equity
Profit for the period - - - 29,197 29,197
Total comprehensive income for the period - - - 29,197 29,197
Share-based payment - - - 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
Unaudited Condensed Consolidated Statement of Cash Flows
Unaudited six months to 30 June 2022 Unaudited six months to 30 June 2021 Audited year to 31 December 2021
£'000 £'000 £'000
Cash flows from operating activities
Profit before income tax 70,275 6,999 29,197
Share-based payments 405 137 204
Depreciation charge 298 192 457
Finance income (2) (1) (1)
Finance costs 6,871 6,199 12,382
Loss/(gain) on disposal of investment property 149 (1,651) (1,652)
Change in fair value of investment property (58,564) (1,807) (17,567)
19,432 10,068 23,020
Decrease in trade and other receivables 2,826 6,025 6,670
(Decrease)/increase in trade and other payables (1,092) 539 3,532
(Decrease)/increase in deferred rental income (16,213) (12,669) 9,186
(14,479) (6,105) 19,388
Net cash flows generated from operations 4,953 3,963 42,408
Cash flows from investing activities
Purchase of tangible fixed assets (673) (108) (427)
Purchase of intangible assets (207) (83) (537)
Investment property additions (14,695) (3,907) (15,701)
Purchase of investment property (19,453) - -
Proceeds from disposal of investment property 25,731 18,020 17,982
Interest received 2 - 1
Net cash flows from investing activities (9,295) 13,922 1,318
Cash flows from financing activities
Dividends paid (7,190) - (13,589)
Bank borrowings drawn 32,752 - -
Repayments of bank borrowings - (15,000) (15,000)
Loan arrangement fees paid (1,738) (137) (168)
Finance costs (5,458) (4,515) (11,769)
Lease liability repaid (64) - -
Net cash from financing activities 18,302 (19,652) (40,526)
Increase/(decrease) in cash and cash equivalents 13,960 (1,767) 3,200
Cash and cash equivalents at beginning of period 37,127 33,927 33,927
Cash and cash equivalents at end of period 51,087 6,157 37,127
Unaudited Notes to the Financial Statements
For the period 1 January 2022 to 30 June 2022
1. Accounting Policies
1.1 Trading Period
The condensed interim financial statements of the Group reporting period is
from 1 January 2022 to 30 June 2022.
1.2 Going Concern
The Group is gaining more certainty over income as the COVID-19 pandemic
becomes part of business as usual. However, the Board is aware that with the
war in Ukraine, inflation and rising interest rates alongside a highly
competitive labour market there is still global economic uncertainty.
Accordingly, the Group has conducted a detailed going concern review for the
period to 30 September 2023 and considered its liquidity position and banking
covenant compliance strength.
As at 30 June 2022 the Group had £51 million in cash and £20 million of
undrawn investment debt facilities. The Group is well funded and has no
refinancing requirements until February 2023. We have opened discussions with
the £20 million loan due in February 2023 with a view to refinancing it.
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. 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
key variables we have used are revenue for the upcoming 2022/23 academic year,
increasing interest rates and inflation. For the 2021/22 academic year our
occupancy has been held at 86%. The list of scenarios are below, they are all
on top of our base case model which includes our current prudent forecasts on
cost inflation and interest rates.
Scenario Occupancy level for 2022/23 academic year Property cost inflation Interest rate increases
Base case scenario 95% Detailed assumptions Detailed assumptions
per internal model.
per internal model.
Scenario 1 85% As per base case As per base case
Scenario 2 85% Plus 2% above base case As per base case
in 2023 & 2024
Scenario 3 85% As per base case Plus 1.5% above base case
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 26% from June 2022 valuations before LTV covenants are
breached.
In all the scenarios above the Group continues to maintain covenant compliance
for all its interest cover covenants. It maintains adequate levels of
liquidity throughout the going concern period. In addition, no assumption is
made as to the level of additional cost-cutting measures or mitigating actions
which could potentially be undertaken if the Group needed.
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
model we kept revenue occupancy for the 2021/22 academic year at 86%. The
Directors noted that if occupancy falls below 63% then the Group would be in
breach of all ICR covenants.
As at 10 August 2022 our bookings for the 2022/23 academic year are at 92% and
we are seeing these grow on a daily basis. As such, we believe the downside
scenario is unlikely.
Having reviewed and considered three modelled scenarios, 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 interim financial statements.
1.3 Basis of Preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2022 has been prepared in accordance with the
UK adopted International Accounting Standard 34, "Interim Financial Reporting"
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
The Interim Report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this Report is to be read
in conjunction with the Annual Report for the year ended 31 December 2021,
which has been prepared in accordance with both "international accounting
standards in conformity with the requirements of the Companies Act 2006" and
"international financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union", and any public
announcements made by the Group during the interim reporting period.
These condensed interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2021 were approved by the
Board of Directors on 16 March 2022 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
These financial statements have been reviewed, not audited.
The Group's financial statements have been prepared on a historical cost
basis, except for investment property and derivative financial instruments
which have been measured at fair value. The consolidated financial statements
are presented in Sterling, which is also the Group's functional currency.
The accounting policies adopted in this Report are consistent with those
applied in the Group's statutory accounts for the year ended 31 December 2021
and are expected to be consistently applied during the year ending 31 December
2022.
1.4 Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Group's interim financial statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities, and the
disclosure of contingent liabilities, at the reporting date. However,
uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.
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 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 and the UK national supplement
2018 (the "Red Book"). Factors reflected include current market conditions,
annual rentals, lease lengths, and location. The significant methods and
assumptions used by valuers in estimating the fair value of investment
property are set out in Note 6.
For properties under development the fair value is calculated by estimating
the fair value of the completed property using the income capitalisation
technique less estimated costs to completion and an appropriate developer's
margin.
Judgements
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the consolidated interim financial statements:
a) 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.
1.5 Seasonality of Operations
The results of the Group's operating business are closely aligned to the
levels of occupancy achieved by the property portfolio in each academic year.
Empiric targets 51-week tenancies, with a one-week void period falling in
September. This results in slightly lower revenue on the existing portfolio in
the second half year combined with slightly higher costs from turning around
the rooms for the new academic year.
The Group counteracts this through the development cycle as construction is
timed to complete ready for the start of the academic year in September each
year. These new properties becoming available increases revenue in the second
half of the year.
1.6 Segmental Information
The Directors are of the opinion that the Group is engaged in a single segment
business, being the investment in student and commercial lettings, within the
United Kingdom.
2. Net Finance Cost
Unaudited six months to 30 June 2022 Unaudited six months to 30 June 2021 Audited year to 31 December 2021
£'000 £'000 £'000
Finance costs
Interest expense on bank borrowings 6,435 5,820 11,567
Amortisation of loan transaction costs 436 379 815
6,871 6,199 12,382
Finance income
Interest received on bank deposits 2 1 1
2 1 1
Net finance cost 6,869 6,198 12,381
3. Corporation Tax
Taxation on the profit or loss for the period not exempt under UK REIT
regulations comprises current and deferred tax. Taxation is recognised in the
profit and loss within the Group Consolidated Statement of Comprehensive
Income except to the extent that it relates to items recognised as direct
movement in equity, in which case it is also recognised as a direct movement
in equity.
Current tax is expected tax payable on any non-REIT taxable income for the
period, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
4. Earnings Per Share
The number of ordinary shares is based on the time-weighted average number of
shares throughout the period.
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
Diluted earnings per share is calculated using the weighted average number of
shares adjusted to assume the conversion of all dilutive potential ordinary
shares.
EPRA EPS, reported on the basis recommended for real estate companies by EPRA,
is a key measure of the Group's operating results.
Adjusted earnings per share 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. This is then
divided by the weighted average number of ordinary shares outstanding during
the period.
- The adjustment for licence fees receivable is calculated by reference
to the fraction of the total period of completed construction during the
period, multiplied by the total licence fees 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:
Unaudited six months to 30 June 2022 Calculation of basic EPS Calculation of diluted EPS Calculation of EPRA basic EPS Calculation of EPRA diluted EPS Calculation of adjusted basic EPS
£'000 £'000 £'000 £'000 £'000
Earnings 70,275 70,275 70,275 70,275 70,275
Changes in fair value of investment - - (58,564) (58,564) (58,564)
property (Note 6)
Loss on disposal of investment property - - 149 149 149
Earnings/adjusted earnings (£'000) 70,275 70,275 11,860 11,860 11,860
Weighted average number of shares ('000) 603,203 603,203 603,203 603,203 603,203
Adjustment for employee share options ('000) - 352 - 352 -
Total number of shares ('000) 603,203 603,555 603,203 603,555 603,203
Per-share amount (pence) 11.65 11.64 1.97 1.97 1.97
Unaudited six months to 30 June 2021 Calculation of basic EPS Calculation of diluted EPS Calculation of EPRA basic EPS Calculation of EPRA diluted EPS Calculation of adjusted basic EPS
£'000 £'000 £'000 £'000 £'000
Earnings 6,999 6,999 6,999 6,999 6,999
Changes in fair value of investment - - (1,807) (1,807) (1,807)
property (Note 6)
Gain on disposal of investment property - - (1,651) (1,651) (1,651)
Earnings/adjusted earnings (£'000) 6,999 6,999 3,541 3,541 3,541
Weighted average number of shares ('000) 603,168 603,168 603,168 603,168 603,168
Adjustment for employee share options ('000) - 2,593 - 2,593 -
Total number of shares ('000) 603,168 605,761 603,168 605,761 603,168
Per-share amount (pence) 1.16 1.16 0.59 0.58 0.59
Audited year to 31 December 2021
Earnings 29,197 29,197 29,197 29,197 29,197
Changes in fair value of investment properties - - (17,573) (17,573) (17,573)
(Note 6)
Gain/loss on disposal of investment property - - (1,652) (1,652) (1,652)
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 of shares ('000) 603,185 603,439 603,185 603,439 603,185
Per-share amount (pence) 4.84 4.84 1.65 1.65 1.65
5. Dividends Paid
Unaudited six months to 30 June 2022 Unaudited six months to 30 June 2021 Audited year to 31 December 2021
£'000 £'000 £'000
Interim dividend of 2.50 pence per ordinary share in respect of the quarter - - 15,080
ended 30 September 2021
Interim dividend of 0.625 pence per ordinary share in respect of the quarter 3,770 - -
ended 31 December 2021
Interim dividend of 0.625 pence per ordinary share in respect of the quarter 3,770 - -
ended 31 March 2022
7,540 - 15,080
6. Investment Property
Investment properties freehold Investment properties long leasehold Total operational assets Properties under development Total
£'000 £'000 £'000 £'000 £'000
As at 1 January 2022 835,452 131,743 967,195 28,690 995,885
Property additions 5,022 1,079 6,101 7,662 13,763
Property acquisitions 19,453 - 19,453 - 19,453
Change in fair value during the period 38,734 5,832 44,566 13,398 58,564
As at 30 June 2022 (unaudited) 898,661 138,654 1,037,315 50,350 1,087,665
As at 1 January 2021 849,220 132,149 981,369 23,751 1,005,120
Property additions 1,755 251 2,006 1,731 3,737
Property disposals (16,367) - (16,367) - (16,367)
Change in fair value during the period 3,765 (1,418) 2,347 (540) 1,807
As at 30 June 2021 (unaudited) 838,373 130,982 969,355 24,942 994,297
Investment properties freehold Investment properties long leasehold Total operational assets Properties under development Total
£'000 £'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
Property disposals (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 (audited) 835,452 131,743 967,195 28,691 995,886
While £40m of properties came under offer after the period end, the Board
considers that the properties that are part of our disposal program do not
meet the criteria for held for sale assets because management do not expect
sales to be concluded within 12 months of 30 June 2022.
In accordance with IAS 40, the carrying value of investment property is their
fair value as determined by independent external valuers. This valuation has
been conducted by CBRE Limited, as independent external valuers, and has been
prepared as at 30 June 2022, in accordance with the Appraisal and Valuation
Standards of the RICS, on the basis of market value. This value has been
incorporated into the financial statements.
The valuation of all property assets uses market evidence and also includes
assumptions regarding income expectations and yields that investors would
expect to achieve on those assets over time. Many external economic and market
factors, such as interest rate expectations, bond yields, the availability and
cost of finance and the relative attraction of property against other asset
classes, could lead to a reappraisal of the assumptions used to arrive at
current valuations. In adverse conditions, this reappraisal can lead to a
reduction in property values and a loss in NAV.
All investment property is categorised as Level 3. There have been no
transfers between Level 1 and Level 2 during any of the periods, nor have
there been any transfers between Level 2 and Level 3 during any of the
periods.
The valuations have been prepared on the basis of market value ("MV"), which
is defined in the RICS Valuation Standards as:
"The estimated amount for which a property should exchange on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion."
The table below reconciles the fair value of the investment property as per
the Consolidated Group Statement of Financial Position and the market value of
the investment property as per the independent valuation performed in respect
of each period end.
Unaudited six months to 30 June 2022 Unaudited six months to 30 June 2021 Audited year to 31 December 2021
£'000 £'000 £'000
Value per independent valuation report 1,087,197 993,828 1,021,288
Plus: long leasehold liability 468 469 468
Deduct: Assets held for sale - - (25,870)
Fair value per Group Statement of Financial Position 1,087,665 994,297 995,886
The following descriptions and definitions relate to valuation techniques and
key unobservable inputs made in determining fair values. The valuation
techniques for student properties use a discounted cash flow with the
following inputs:
a) Unobservable input: Rental values
The rent at which space could be let in the market conditions prevailing at
the date of valuation. The rent ranges per week are as follows:
30 June 2022 30 June 2021 31 December 2021
£87-420 per week £89-£339 per week £85-£387 per week
b) Unobservable input: Rental growth
The estimated average annual increase in rent based on both market estimations
and contractual arrangements. The assumed growths in valuations are as
follows:
30 June 2022 30 June 2021 31 December 2021
2.60% 1.00% (1.56%)
c) Unobservable input: Net yield
The net initial yield is defined as the initial gross income as a percentage
of the market value (or purchase price as appropriate) plus standard costs of
purchase. The ranges in net initial yields are as follows:
30 June 2022 30 June 2021 31 December 2021
4.25%-8.15% 4.45%-8.15% 4.25%-8.15%
d) Unobservable input: COVID 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. In December
2021 there was a total capital deduction totalling £6,368,080 to reflect
occupancy shortfall. This was 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. In the June 2022 valuation this deduction
has been removed.
e) Unobservable input: Physical condition of the property
We have announced we would spend £37 million on health and safety works over
the next five years. CBREs assumption is that £29.8 million of this cost
should now be reflected in the valuation at the period-end (31 December 2021:
£17.2 million) in respect of work on external wall systems and fire stopping
on buildings over 18 metres tall as well as those for which we now have a
clear programme of works for. Management has performed a sensitivity analysis
to assess the impact of a change in its estimate of total costs relating to
the £29.8 million deduction. A 20% increase in the estimated remaining costs
would affect net valuation gains/losses on property in the IFRS P&L by
£6.0 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 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 for the student properties has
been prepared by the valuer:
-3% change in rental income +3% change in rental income -0.25% change in yield +0.25% change in yield
£'000 £'000 £'000 £'000
(Decrease)/increase in the fair value of investment properties
As at 30 June 2022 (42,770) 42,840 53,670 (48,590)
As at 30 June 2021 (39,130) 39,250 41,550 (45,720)
As at 31 December 2021 (41,520) 40,710 48,480 (44,900)
7. Borrowings
The existing facilities are secured by charges over individual investment
properties held by certain asset-holding subsidiaries. These assets have a
fair value of £1,049 million at 30 June 2022. In some cases, the lenders also
hold charges over the shares of the subsidiaries and the intermediary holding
companies of those subsidiaries.
A summary of the drawn and undrawn bank borrowings in the period is shown
below:
Bank borrowings drawn 30 June Bank borrowings Total
undrawn 30 June 30 June
£'000 £'000 £'000
At 1 January 2022 (audited) 375,000 67,500 442,500
Facilities reduced during the period - (10,500) (10,500)
Bank borrowings drawn in the period 32,752 (32,752) -
At 30 June 2022 (unaudited) 407,752 24,248 432,000
At 1 January 2021 (audited) 390,000 52,500 442,500
Bank borrowings drawn in the period (15,000) 15,000 -
At 30 June 2021 (unaudited) 375,000 67,500 442,500
At 1 January 2021 (audited) 390,000 52,500 442,500
Bank borrowings repaid in the year (15,000) 15,000 -
At 31 December 2021 (audited) 375,000 67,500 442,500
Any associated fees in arranging the bank borrowings unamortised as at the
period end are offset against amounts drawn on the facilities as shown in the
table below:
Unaudited 30 June 2022 Unaudited 30 June 2021 Audited 31 December 2021
Current borrowings £'000 £'000 £'000
Balance brought forward 45,000 - -
Bank borrowings becoming current in the period 20,000 - 45,000
Less: Bank borrowings becoming non-current during the period (45,000) - -
Bank borrowings: due in less than one year 20,000 - 45,000
Less: Unamortised costs (16) - (288)
Current liabilities: Bank borrowings 19,984 - 44,712
Unaudited 30 June 2022 Unaudited 30 June 2021 Audited 31 December 2021
Non-current borrowings £'000 £'000 £'000
Balance brought forward 330,000 390,000 390,000
Total bank borrowings in the period 32,752 - -
Bank borrowings becoming non-current 45,000 - -
during the period
Less: Bank borrowings becoming current during the period (20,000) - (45,000)
Less: Bank borrowings repaid during the period - (15,000) (15,000)
Bank borrowings: due in more than one year 387,752 375,000 330,000
Less: Unamortised costs (5,330) (4,492) (3,756)
Non-current liabilities: bank borrowings 382,422 370,508 326,244
Unaudited 30 June 2022 Unaudited 30 June 2021 Audited 31 December 2021
Maturity of bank borrowings £'000 £'000 £'000
Repayable within 1 year 20,000 - 45,000
Repayable between 1 and 2 years 52,800 - 20,000
Repayable between 2 and 5 years 77,752 117,800 52,800
Repayable in over 5 years 257,200 257,200 257,200
Non-current liabilities: bank borrowings 407,752 375,000 375,000
8. NAV 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
Unaudited six months to 30 June 2022 IFRS EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000
Net assets per Statement of Financial Position 710,739 710,739 710,739 710,739
Adjustments
Fair value of fixed rate debt - - - 4,590
Purchaser's costs(1) - 38,340 - -
Net assets used in per share calculation 710,739 749,079 710,739 715,329
Number of shares in issue
Issued share capital ('000) 603,203 603,203 603,203 603,203
Issued share capital plus employee options ('000) 603,555 603,555 603,555 603,555
Net asset value per share £ £ £ £
Basic net asset value per share 1.178 1.242 1.178 1.186
Diluted net asset value per share 1.178 1.241 1.178 1.185
NAV EPRA NAV measures
Unaudited six months to 30 June 2021 IFRS EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000
Net assets per Statement of Financial Position 640,415 640,415 640,415 640,415
Adjustments
Fair value of fixed rate debt - - - (31,295)
Purchaser's costs(1) - 34,658 - -
Net assets used in per share calculation 640,415 675,073 640,415 609,120
Number of shares in issue
Issued share capital ('000) 603,203 603,203 603,203 603,203
Issued share capital plus employee options ('000) 605,796 605,796 605,796 605,796
Net asset value per share £ £ £ £
Basic net asset value per share 1.062 1.119 1.062 1.010
Diluted net asset value per share 1.057 1.114 1.057 1.005
NAV EPRA NAV measures
Year ended 31 December 2021 IFRS EPRA NRV EPRA NTA EPRA 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
(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.
9. Capital Commitments
As at 30 June 2022, the Group had total capital commitments of £5.2 million
(31 December 2021: £8.6 million) relating to forward-funded or direct
developments.
10. Related Party Disclosures
Key Management Personnel
Key management personnel are considered to comprise the Board of Directors.
Share Capital
There were no changes in the period.
Share-Based Payments
On 24 March 2022, the Company granted Duncan Garrood, Chief Executive Officer,
nil-cost options over 20,084 ordinary shares in the Company ("ordinary
shares") and Lynne Fennah, Chief Financial & Sustainability Officer,
nil-cost options over 15,877 ordinary shares relating to the deferred shares
element of the annual bonus award for the financial year to 31 December 2021
(the "Annual Bonus Award 2021").
Also on 24 March 2022, Duncan Garrood was granted nil-cost options over
701,814 ordinary shares, and Lynne Fennah was granted nil-cost options over
554,784 ordinary shares pursuant to the Empiric Long Term Incentive Plan for
the 2022 financial year (the "LTIP").
Board Change
On 23 May 2022, it was announced that Lynne Fennah will be stepping down from
her role as Chief Financial & Sustainability Officer of the Company to
pursue other interests. Lynne will remain in her position until May 2023.
Also on 23 May 2022, Stuart Beevor, Independent Non-Executive Director and
Chair of the Remuneration Committee of the Company, stepped down from the
Board.
On 14 June 2022, Clair Preston-Beer has been appointed to the Board as an
Independent Non-Executive Director, effective from 1 July 2022.
11. Subsequent Events
On 04 August 2022, it was announced that Donald Grant has been appointed as
the new Chief Financial & Sustainability Officer of the Company effective
12 September 2022.
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 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.
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 as 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.
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
Directors and Advisers
Directors Registrar
Mark Pain (Chairman) Computershare Investor Services PLC
The Pavilions
Duncan Garrood (Chief Executive Officer)
Bridgwater Road
Lynne Fennah (Chief Financial and Sustainability Officer)
Bristol BS99 6ZZ
Martin Ratchford (Non-Executive Director)
Clair Preston-Beer (Non-Executive Director) Auditor
Alice Avis (Non-Executive Director) BDO LLP
55 Baker Street
Broker and Joint Financial Adviser
London W1U 7EU
Jefferies International Ltd
100 Bishopsgate Valuer
London EC2N 4JL CBRE Limited
Henrietta House
Broker and Joint Financial Adviser
Henrietta Place
Peel Hunt LLP
London W1G 0NB
7th Floor
Administrator and Company Secretary
100 Liverpool Street, APEX Group
London 6th Floor
EC2M 2AT 140 London Wall
Legal Adviser to the Company London
Gowling WLG (UK) LLP
4 More London Riverside EC2Y 5DN
London SE1 2AU
Communications Adviser
Maitland/amo
3 Pancras Square
London N1C 4AG
Company Registration Number: 08886906 Registered Office
Incorporated in the UK (Registered in England) 1st Floor, 72 Borough High Street,
Empiric Student Property plc is a public London, SE1 1XF
company limited by shares
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