TIDMESP
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 MONTHSED 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. W e have commenced two
outstanding developments and remain on track with our
refurbishments. W e are continuing to make further non-core
disposals, with nine assets sold to date for GBP44.6 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 31 December change
2021 2020
Revenue GBP56.0m GBP59.4m -6%
------------ ------------ -------
Property costs GBP23.1m GBP22.7m -2%
------------ ------------ -------
Gross margin 58.8% 61.9% -5%
------------ ------------ -------
Administrative expenses GBP10.5m GBP9.8m +7%
------------ ------------ -------
Adjusted earnings per share 1.65p 2.30p -28%
------------ ------------ -------
Gain on disposal of investment
property GBP1.7m - +100%
------------ ------------ -------
Change in fair value of investment
property GBP17.6m (GBP37.6)m +147%
------------ ------------ -------
Profit/(Loss) before taxation GBP29.2m (GBP24.0m) +222%
------------ ------------ -------
Dividends paid GBP15.1m GBP7.5m +101%
------------ ------------ -------
Property valuation GBP1,022m GBP1,005m +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 GBP56.0 million (2020: GBP59.4 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 GBP23 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 GBP10.5 million, below our GBP11 million guidance.
-- Adjusted Earnings for the year were GBP10 million (2020:
GBP13.9 million), with Adjusted earnings per share of 1.65 pence
(2020: 2.30 pence).
-- Net gain on disposal of four assets of GBP1.7 million.
-- The net profit from a change in the fair value of investment
properties was GBP17.6 million (2020: loss of GBP37.6 million).
-- Profit before tax of GBP29.2 million (2020: loss of GBP24.0
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 GBP1,022 million (2020:
GBP1,005m). 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 GBP1.5 million per
annum from September 2021 as well as increasing customer
acquisition and revenue.
-- Sold four non-core assets for GBP18.1 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 GBP26.5 million, in line with
the latest book value and our portfolio realignment strategy.
-- Acquired t he freehold post period end of a new 92-bed
purpose-built studio asset in a prime location in Bristol city
centre for GBP19 million with significant reversionary potential,
helping to build out our presence in a key target city. W e 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 GBP420
million, of which GBP375 million were drawn down. GBP277 million of
this debt is fixed and GBP98 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
07747 113 930 / 020 7379
Maitland/AMO (Communications Adviser) 5151
James Benjamin 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 .
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(R) 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
For those who wish to access the live conference call, please
contact Maitland/AMO at
empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379 5151.
The recording of the 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
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 . 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 .
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 GBP2.5 billion on UK PBSA, taking
total investment volume for the year to GBP4.4 billion. In 2020,
investment reached GBP5.9 billion, of which Blackstone's
acquisition of the IQ portfolio contributed GBP4.7 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 GBP1.1 billion, reflecting GBP277,300
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 GBP120
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 GBP291 million (4.75%) across five
assets in London, Glasgow, Coventry and Bristol and Apollo's
purchase of 1,655 from Crown Student for GBP210 million based in
Cardiff, Norwich and Portsmouth reflected a yield of 5.25%. In
2021, Asian investors committed over GBP400 million to UK PBSA.
Greystar continued a trend of portfolio deals in January, securing
the acquisition of "Project Jura" from Downing for GBP365 million.
The portfolio of 1,807 beds in London, Manchester and Coventry
traded for GBP202,120 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(R) 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(R) platform.
This platform gives us a clearly identifiable brand which helps to
offer our customers a range of options. Encouraging our people to
follow our values helps to increase ownership and pride in our
homes. This ensures that customers have the best experience
possible, helping to drive occupancy, rents and profit.
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 Strategic Associated Associated
area objective Progress in the year KPIs Key aims for 2022 risks
------------ --------------- ----------------------------------------------------------- ---------- ----------------------------------------------------------- ----------
1. Our customers A, B, C, E1, E2,
Customers are at the * Our net promoter score was +22, compared to PBSA D, E * Roll out a student app so that students can access E4, I1, I2
heart of what private hall average +20. all services in one place.
we do. We want
our customers
to have a great * Developing our 24-hour, seven-days-a-week, staff * Increase customer NPS score even further in 2022.
experience cover in all our cities and seeing the benefits which
and stay with come from this.
us year after
year and to
recommend us to * We continued to strengthen our relationship with a
their friends. number of key universities.
We aim to
achieve
customer
satisfaction by
building
welcoming
communities in
our homes and
by giving our
customers a
sense of
safety,
wellbeing and
belonging in an
environment of
high-quality
communal areas
and facilities.
We aim to
deliver a
friendly
personalised
service and be
there when our
customers need
us.
------------ --------------- ----------------------------------------------------------- ---------- ----------------------------------------------------------- ----------
2. We want to A, B, C, E1, E2,
Brand raise awareness * We have undertaken in-depth customer research to E, F * Review the design and layout of both the Hello E4, I1,
of the Hello understand what is important to our them and how we Student(R) and Empiric corporate website. I2, I4
Student(R) will shape our future brand proposition.
brand among
students, to * Launch a rebranding exercise to ensure that the Hello
support our * Begun to develop and built a new brand platform that Student(R) brand is relevant and appropriate for the
premium steers how we communicate with our customers, our coming years.
accommodation look and feel and how we deliver our customer
and service experience.
offering. We
want to become
known as a
responsible
provider.
------------ --------------- ----------------------------------------------------------- ---------- ----------------------------------------------------------- ----------
3. We are A, B, C, E1, E2,
Our People committed to * We have refreshed our Company values. D, E, F * Embed the new Operations Director who joined in E4, I1,
and making Empiric January 2022. I2, I4
Operations "a great place
to work" and * We have provided mental health first aid training to
destination of all people managers. * Open a new strategic hub in Birmingham where we will
choice for embed our support teams.
candidates
wanting to work * We received a "One to Watch" rating by the Best
in the student Companies survey on our debut rating.
accommodation
sector; through
this we will be
able to deliver
a high standard
of customer
service.
We will
continually
enhance our
in-house
functions and
performance
coach our
colleagues to
help them
provide the
best and most
efficient
customer
service
experience.
------------ --------------- ----------------------------------------------------------- ---------- ----------------------------------------------------------- ----------
4. We will A, B, C, E1, E2,
Building maximise the * We disposed of four non-core assets at a premium to D, E, J * Complete the Bristol St Mary's development providing E5, I4
value from the their book value. an additional 153 beds in the city.
asset portfolio
by actively
managing the * We completed two refurbishments in Bristol and Leeds. * To launch new redevelopment schemes and continue our
portfolio to We achieved this while students remained in residence portfolio review, looking at disposal, refurbishment
recycle capital around the refurbishment site with no disruption. and acquisition targets.
and to improve
returns and
sustainability.
This is
achieved by
maintaining
a portfolio of
investments
with attractive
yields and
rental growth
opportunities.
------------ --------------- ----------------------------------------------------------- ---------- ----------------------------------------------------------- ----------
5. We want to A, B, C, D E1, E2,
Shareholders provide our * We recommenced the payment of dividends in Q4 2021 * Continue to deliver on our five key priorities as E3, E4,
shareholders with a view to returning to quarterly dividend laid out on pages x to y. E5, I1,
with attractive payments in 2022. I2, I3, I4
sustainable
returns. This * Beyond COVID-19, we are positioned to return to full
is achieved * Completed a materiality assessment of our key ESG occupancy and optimise profitability enabling us to
through priorities and have commenced our roadmap. resume paying an attractive dividend. For 2022 we are
improving the targeting a 2.5p dividend.
profitability,
performance and * The progress achieved in all of the above strategic
size of our areas contributes to shareholder returns. * We will continue to engage closely with all
portfolio. 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 GBP30 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 GBP37 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
GBP1,022 million, an increase of 2% from prior year (31 December
2020: GBP1,005 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(R) brand. We have made good progress disposing of non-core
assets, and to date we have sold GBP45 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
GBP44 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(R) 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(R) criteria, but need investment in refurbishment or modest
reconfiguration, to upgrade them to core Hello Student(R) 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(R)
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(R)
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(R) 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(R) 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(R) 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
GBP45 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(R)
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(R)
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(R) 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(R) 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(R) 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(R) 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 GBP37 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 GBP1.5 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 NPS calculated by the Global Student Living
retain customers within the Hello Student(R) Index which also allows us to benchmark
brand, which is an indicator of the quality against
of service we provide. our peers.
--------------- --- --------------------------------------------- ---------------------------------------------
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 The number of reportable accidents throughout
demonstrates the quality and location of our the Group each year. This is a key reporting
assets, the strength of our sales process and metric to the Health & Safety Executive as
our ability to set appropriate rents. well as a measure 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 Adjusted earnings per share is the earnings
drive occupancy and to rigorously control our measure that best demonstrates our ability to
operating reward shareholders through dividends.
costs.
--------------- --- --------------------------------------------- ---------------------------------------------
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 Movement in the NAV per share reflects the
dividends out of current year earnings. Note quality of our assets and our ability to
that generate
in the past two years dividends were revenue from them.
suspended. See [page 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 GBP1.5 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 GBP56.0 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 GBP3.5
million fall in revenue.
During the period we sold four assets with a net gain on
disposal of GBP1.7 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 GBP17.6 million compared to a GBP37.6 million loss
the previous year.
Net finance expense was GBP12.4 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 GBP29.2 million,
(2020: loss GBP24.0 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 GBP18.1 million, above the
book value shown here of GBP16.3 million. After that disposal the
portfolio was valued at GBP988.8 million.
In August 2021 we indicated we would spend GBP30 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 GBP37 million. CBRE accepted management's assumption is that
GBP17.2 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 GBP2.5 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 GBP21.4 million
mainly due to CBRE's assumption of 50% occupancy for the balance of
the academic year.
We are now reporting a GBP15.2 million move in our favour as
CBRE reduced their COVID-19 deduction to GBP6.2 million. This
deduction of GBP6.2 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 GBP8.0 million on capital expenditure
and GBP7.4 million on development.
Our operational assets increased in value by GBP21.3 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 GBP0.8 million.
The valuation at the end of December, before adjusting for
assets that have been sold following the year end, was GBP1.022
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 GBP420 million,
of which GBP375 million were drawn down (2020: GBP390 million drawn
down).
Of our drawn investment debt, GBP277 million of this debt is
fixed and GBP98 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 GBP44 million of unencumbered assets
and as at the year end we had GBP82 million of undrawn investment
facilities and cash.
We have one facility which is due in less than one year. The
facility totals GBP90million of which GBP45million 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 GBP4 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 GBP30 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 GBP37 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 On a
customers inspire day-to-day * Safety in their homes * Offered refunds to students impacted by COVID-19
our brand and basis within pandemic in Q1 2021.
provide our
insightful buildings. * Customer service
feedback on how Through * Moved our student assistance programme onto a student
we can biannual app.
improve our customer * Value for money
service offering surveys.
to them and Through our * Embedded our new operational structure meaning there
better fulfil our social media was cover on sites 24 hours a day, 7 days a week.
purpose. We have presence.
a responsibility Through
to provide our building
customers with a relationships
safe place to with
live and to care universities
for their in the towns
wellbeing, which and cities
is critical to which we
the Board's operate
strategic in.
decision-making
and our review of
any operational
changes.
------------ ----------------- ------------- ------------------------------------------- -----------------------------------------------------------
People Our people are On a
vital to the day-to-day * Safety at work * Relaunched our Company values after a consultation
successful basis we use with our people.
delivery of our Workplace as
business an internal * Pay and reward
performance. We communication * Rated as "One to Watch" by the Best Companies survey.
have a tool.
responsibility Quarterly * Fair and equal treatment
to provide our townhalls are * Becoming a Real Living Wage Employer from January
people with a held where 2021.
safe place to our people * Communication
work and to care can raise
for their questions and
wellbeing to contribute.
enable Through the
them to prosper. Colleague
The tone and Forum.
culture of our
organisation
comes alive
through the
actions of our
people.
------------ ----------------- ------------- ------------------------------------------- -----------------------------------------------------------
Communities Our communities Through
help us to fulfil on-site * Job creation * Supported a number of local charities and donated
our purpose of communication items to the British Heart Foundation.
enhancing the with members
university of the public * Housing stock
experience for and local * Had filming at a number of our sites.
our communities.
customers. The We have * Supporting local charities
Board aims to membership
understand the with the
local markets in British
which we operate Property
and the key Federation
issues we face where we can
which assists its interact with
decision-making communities
around new and
opportunities government on
through which we a wider
can contribute to basis.
our local We also have
communities. interaction
with
communities
through the
property
licensing
disclosures
we have
to undertake.
------------ ----------------- ------------- ------------------------------------------- -----------------------------------------------------------
Shareholders Our shareholders Through
are key face-to-face * ESG reporting and disclosure * Undertook a materiality assessment to help develop
stakeholders in meetings with our ESG strategy.
our business. The investors.
Board has a Through our * Sustainable business
responsibility Annual and * Resumption of paying dividends to shareholders.
and Interim
desire to Report. * Financial results
communicate key At our Annual * Protecting the business and ensuring its long-term
matters relating General sustainability and going concern.
to the Group Meeting. * Dividend payments
openly and
honestly to our
shareholders.
The Group also
has a wider
responsibility to
shareholders to
enhance the value
of the business
and fulfil its
purpose
ethically.
------------ ----------------- ------------- ------------------------------------------- -----------------------------------------------------------
Environment Our environment On an annual
is fundamental to basis there * Reduction in greenhouse gas emissions * Replacing all of our diesel vans with electric vans.
our future. We is detailed
have a duty to ESG reporting
operate our within our * Sustainable business * Undertaking an energy efficiency project in
business in an Annual Manchester, the first of our five-year programme.
efficient way, Report.
giving specific We are
regard to the looking to
impact of our increase the
operations on the level of
environment and reporting and
utilising methods policies
throughout our available on
properties (both our website.
development and
operational
sites) that
mitigate the risk
of 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
a) Describe the Board's oversight of climate-related management including the consideration of
risks and opportunities. climate-related risks, though this responsibility is
b) Describe management's role in assessing and managing delegated to the Audit and Risk Committee.
climate-related risks and opportunities. b) Our ESG Committee will continue to meet regularly to
ensure Board oversight 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
a) Describe the climate-related risks and opportunities climate-related risks over the short, medium
the organisation has identified over and long-term as set out below. We will identify risks
the short, medium, and long term. and opportunities on a continual basis.
b) Describe the impact of climate-related risks and Short-term (0-5 years): We expect stricter legislation as
opportunities on the organisation's businesses, the UK Government aims to reach
strategy and financial planning. its net carbon neutral target. This includes greater
c) Describe the resilience of the organisation's disclosure requirements as well as implementation
strategy, taking into consideration different of new Minimum Energy Efficiency Standards for rented
climate-related scenarios, including a 2degC or lower property. Medium-term (5-10 years):
scenario. Customer choice will become more environmentally driven,
with higher demand for efficient
low-carbon footprint buildings.
Long-term (15+ years): Climate change in the UK will
bring more extreme 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
a) Describe the organisation's processes for identifying the Group's principal risks on
and assessing climate-related risks. a biannual basis. This includes climate-related risks,
b) Describe the organisation's processes for managing including their likelihood, impact
climate-related risks. and mitigating controls.
c) Describe how processes for identifying, assessing, and b&c) The Board recognises that climate change is an
managing climate-related risks increasingly important priority and is
are integrated into the organisation's overall risk one of our top emerging risks. Our risk matrix is
management. regularly reviewed and updated to keep track
of the changing nature of these risks.
--------------------------------------------------------- ---------------------------------------------------------
Metrics and targets a,b&c) We do not currently fully comply with this. As we
a) Disclose the metrics used by the organisation to develop our ESG strategy and our
assess climate-related risks and opportunities climate-related risk management we will publish further
in line with its strategy and risk management process. metrics in this area and announce
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope targets for these.
3 greenhouse gas ("GHG") emissions, We disclose Scope 1 and 2 greenhouse gas ("GHG")
and the related risks. emissions in our Annual Report. We are looking
c) Describe the targets used by the organisation to to include Scope 3 emissions in the future, once we
manage climate-related risks and opportunities further develop our ESG reporting. We
and performance against targets. do not believe Scope 3 emissions will have a material
impact on our figures as we should have
minimal upstream and downstream emissions.
--------------------------------------------------------- ---------------------------------------------------------
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 The Board then agreed that the sales
were focused on ensuring that the proceeds would be reinvested into the
Group's property portfolio business either
was in the best position possible to in refurbishment programmes or in
enact the Group's strategy. further purchases of standing assets
The assets sold were deemed non-core by or development opportunities.
the Group and fitted into segment D of
our segmentation
analysis.
--------------------------------- --------------------------------------- --------------------------------------
Stakeholder impact considerations Customers - The Board considered that Shareholders - The Board considered
when our customers book a Hello that our shareholders would benefit
Student(R) room then from these decisions,
they should receive a consistent as they would help to protect the
offering. Disposing of the segment D long-term viability of the Company
assets which would not through having a well
give customers a consistent stay when aligned property portfolio.
compared to our segment A or B assets Community/Environment - The Board
would help achieve considered whether there were any
this. adverse impacts on either
People - The Board considered how these the community or environment and
decisions would impact people. The main concluded that the above decision
impact would would have no adverse impact.
be that by creating a better aligned
property portfolio we 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 The Board's belief is that this
four properties to be sold in the year. principal decision taken was a
As part of positive decision for all
the sanctioning of the disposal of stakeholders.
category D assets, a further 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 Shareholders - The Board considered
by improving the data we have about that our shareholders would benefit
customers we can from these decisions;
improve all aspects of the customers' the investment into the internal
booking journey allowing our customers platform would quickly be repaid by
to have a more higher occupancy, each
tailored and seamless booking percentage point of revenue occupancy
experience. This will help to increase gained is around GBP750,000. This
customer satisfaction means there is a short
as well as customer retention. payback period for any investment
People - The Board considered that by made.
increasing our understanding of the Community/Environment - The Board
booking process, considered whether there were any
we can help train our people on what adverse impacts on either
our customers really want. This helps the community or environment and
our people ensure concluded that the above decision
that our buildings are full year after would have no adverse impact.
year and thus increases their
progression prospects
within the Group.
--------------------------------- --------------------------------------- --------------------------------------
Outcomes The outcome was that the Board approved The Board's belief is that this
the investment into our internal principal decision taken was a
revenue management positive decision for all
project. We have already started to see stakeholders.
the benefits from 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 GBP37 million in cash and
GBP45 million of undrawn investment debt facilities. During the
going concern period we have two facilities due for refinancing,
one for GBP90 million with Lloyds due to expire in November 2022
and one with First Commercial Bank for GBP20 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 GBP20 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 GBP22million 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 Potential impact Mitigation in place Trend
brief
description
------------- ------------------------------------------ ---------------------------------------------------------- ------------
E1 Revenue Risk Increase due
There is a * Loss of revenue * Executive Committee and the Board closely monitor to current
risk that the government policy, student numbers and other micro uncertainty
student and macro-economic factors. through
demand for * Erosion of asset values COVID-19.
our product
will * Monitoring all travel restrictions and ensuring
decrease, * High void costs marketing is targeted to key international markets.
e.g. changes
in student
demographic * Potential breach in bank covenants * We ensure our assets are well located serving
and travel established leading universities.
restrictions.
-
Link to * Where possible, we ensure our buildings are fit for
Strategy alternative use, such as private residential, subjec
1 2 3 4 5 t
to planning.
------------- ------------------------------------------ ---------------------------------------------------------- ------------
E2 Competition Stable as
Risk * Oversupply of student accommodation * The number of UK students demographically are PBSA market
The risk of increasing year on year from 2021 which should remains
an increased benefit all cities. stable.
level of * Pressure on student rental growth
competition
and supply in * Continuous review and analysis of which cities we
the student * Inflated asset and land prices want to target and those which we wish to diversify
sector. This from depending on this risk.
risk
varies for
each city we * We ensure our assets are well located serving
are in as the established leading universities.
market
polarises and
some * High-quality management information is provided
universities across the business.
have had
declining
student * All properties are managed in-house under the Hello
numbers year Student(R) brand which provides a strong brand
on year. identity.
-
Link to
Strategy
1 2 3 4 5
------------- ------------------------------------------ ---------------------------------------------------------- ------------
E3 Property Decrease due
Market Risk * Erosion of asset values * Our assets are in prime locations, diversifying the to the
The potential risk. CBRE classifies 92% of the portfolio as prime resilience
for a or better. shown
downturn in * Potential breach in bank covenants through
the property COVID-19.
market. * We maintain prudent levels of gearing, with an LTV
- * Lower Total Return for shareholders limit of 40% and a long-term target of 35%.
Link to
Strategy
1 2 3 4 5 * 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
accommodation market.
------------- ------------------------------------------ ---------------------------------------------------------- ------------
E4 Regulatory Stable as
Risk * Potential impact on our Total Return * Hello Student(R) is ANUK accredited, and Lynne Fenna minimal
Large levels h change to
of regulation sits on the Student Accommodation Committee of the the
being applied * Reputational damage and penalties British Property Federation. regulatory
to the environment.
student
accommodation * Higher compliance costs * Involvement with these bodies means that we are well
market. Note informed of any potential upcoming regulatory change
we have .
moved the It also provides a basis for industry lobbying if
management of required.
fire safety
regulations
to risk I4. * Our operational teams try to build close working
- relationships with local authorities to keep abreast
Link to of any changes.
Strategy
1 2 3 4 5
------------- ------------------------------------------ ---------------------------------------------------------- ------------
E5 Funding Risk Stable as
The * Stifling of future growth potential * Average maturity of debt of 4.9 years with GBP45 minimal
availability million undrawn as at 31 December 2021. change to
of debt or the funding
equity and * Forced sale of assets to repay debt environment.
ability to * We maintain prudent levels of gearing, with an LTV
raise it on limit of 40% and a long-term target of 35%.
acceptable * Reduction of profit
terms.
- * Experienced finance team with a strong track record
Link to in procuring both debt and equity.
Strategy
1 2 3 4 5
------------- ------------------------------------------ ---------------------------------------------------------- ------------
Internal Risks Table
Risk and Potential impact Mitigation in place Trend
brief
description
------------- -------------------------------------------------------- ----------------------------------------------------------- ------------
I1 Health & Stable due
Safety Risk * Injury and impact on customers, contractors, staff * Health and safety metrics are reported monthly. to minimal
The and visitors change in
occurrence of the health
a major * Policies, procedures and training for all staff. and safety
health and * Compensation costs incurred environment.
safety
incident * Ultimate Board responsibility involving regular Board
including a * Reputational impact reporting from the Executive and recruitment of a
fire or Head of Health and Safety on track for Q1 2022.
infectious
outbreak. * Loss of life in a worst-case scenario
- * Live compliance dashboard which is monitored daily.
Link to
Strategy
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 Increase due
Security Risk * Reputational damage * Developed a business continuity plan to enable Group to current
The Group operations to continue in the event of a breach. geopolitical
suffering uncertainty.
from a cyber * Deteriorated customer experience
security * Centralised our IT network across the Group and
breach, or recruited an in-house IT team.
the impact of * Higher costs and reduced profitability
a loss or
mismanagement * Deployed an updated training programme for all staff.
of personal * Financial impact due to potential fines under GDPR
customer legislation
data. * Implemented a data monitoring system to protect our
- platforms across the IT estate.
Link to
Strategy
1 2 3 4 5
------------- -------------------------------------------------------- ----------------------------------------------------------- ------------
I3 People Risk Stable as
High turnover * Higher costs due to wage inflation * We are a Living Wage Employer ensuring that we minimal
in front-line attract and retain talent where possible. change to
staff and the the
knock-on * Impact on customer service due to lack of familiar employment
impact on faces * Use of internal communications to try and increase market.
customer employee engagement.
service.
- * Loss of key business knowledge
Link to * Ongoing training and development programme designed
Strategy to upskill staff regularly and progress forward with
1 2 3 4 5 their career within the business.
* Exit interviews are used to identify any areas for
improvement within the business.
------------- -------------------------------------------------------- ----------------------------------------------------------- ------------
I4 Safe and Increase due
Sustainable * High costs for compliance * In our June 2021 Interim Report we announced a GBP30 to greater
Buildings million capital expenditure plan to ensure that our focus on
Risk buildings comply with future fire safety legislation. fire safety
How our * Reputational impact However, we are uncertain how much we will recover and
buildings from developers so we have increased this estimate to potential
will GBP37 million. upcoming
withstand * Potential challenges around insuring our buildings legislation.
increased
legislation * Regular review of fire safety regulations and checks
around fire * Compensation claims to ensure our buildings, at a minimum, remain
safety as compliant with standards.
well as
increased * Decreased liquidity of our buildings
pressure from * Continuous assessment of our buildings as well as
climate undertaking GBP4 million of capital expenditure on
change and green initiatives in the next five years.
extreme
weather
conditions.
-
Link to
Strategy
1 2 3 4 5
------------- -------------------------------------------------------- ----------------------------------------------------------- ------------
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
A geopolitical Committee which lobbies the government on issues
dispute between impacting the sector.
China or India * Increase - E3 - Property Market Risk
and the UK
could result in * The UK Government has expressed its support for
foreign * Increase - E5 - Funding Risk international students and the positive impact that
governments they have on our economy.
placing
embargoes on
their students
coming to study
in the UK. This
includes the
unfolding
crisis in
Ukraine.
--------------- --------------------------------------------------------- -----------------------------------------------------------
Increasing Use
of Online * Increase - E1 - Revenue Risk * Studies have revealed that a significant majority of
University students want to return to a campus-based experience
Courses as soon as possible.
The COVID-19 * Increase - E3 - Property Market Risk
pandemic has
forced * University experience is seen as more of a life
universities experience rather than just an educational stepping
and students to stone.
use online
teaching
methods.
The fact that
the pandemic
has shown that
this style of
teaching can be
effective to
some
degree could
result in a
long-term move
towards online
courses which
would not
require
purpose-built
student
accommodation.
--------------- --------------------------------------------------------- -----------------------------------------------------------
Climate Change
Climate change * Increase - E1 - Revenue Risk * ESG has become a key focus for the Group. Our
has the progress will be monitored by our ESG Committee; read
potential to more on [pages x to x].
impact every * Increase - E3 - Property Market Risk
business in the
world. Climate * We have announced that we will be a net zero business
change could * Increase - E5 - Funding Risk by 2035.
impact planning
legislation
restricting * Increase - I1 - Health and Safety Risk
supply of PBSA,
cause flooding,
increase * Increase - I4 - Safe and Sustainable Buildings Risk
government
legislation
across a wide
range of areas
and many other
impacts.
Our customer
base of young
students are
very attuned to
climate change,
much more so
than
generations
before them.
The increased
awareness
around this
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
The level of to cities with more than one university and which
funding, and have strong financial backing.
how * Increase - E2 - Competition Risk
universities
receive this,
has changed * Increase - E3 - Property Market Risk
significantly
over the
last 20 years. * Increase - E5 - Funding Risk
A number of
universities
are facing
significant
financial
stress as a
result
of COVID-19 and
there is a risk
that a number
of universities
fall into
administration.
This would
cause
significant
declines in
student
populations in
the cities of
the affected
institution.
--------------- --------------------------------------------------------- -----------------------------------------------------------
Introduction of
Regulation of * Increase - E1 - Revenue Risk * We act as a responsible owner of student
the Student accommodation which does the right thing. Further
Accommodation legislation within the market may have a positive
Industry * Increase - E3 - Property Market Risk impact for the Group as less scrupulous suppliers are
The COVID-19 forced out of the market.
pandemic has
drawn attention * Increase - E4 - Regulatory Risk
to the vast
range of level
of service * Increase - I4 - Safe and Sustainable Buildings Risk
within the
student
accommodation
industry. Some
providers such
as Empiric
provided a
supportive
approach
to students,
whereas other
providers took
a more hard
line approach
which raised
negative
media
attention.
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
The COVID-19 * Increase - E1 - Revenue Risk * Reviewing our marketing strategy and offering so that
pandemic is we appeal to UK nationals alongside international
constantly students.
evolving and * Increase - E3 - Property Market Risk
there is a
continued * The COVID-19 pandemic has shown that the robust and
potential * Increase - E4 - Regulatory Risk detailed protocols we have in place within our
threat that business can manage any impact.
new strains of
the virus * Increase - E5 - Funding Risk
become more
damaging.
This could * Increase - I1 - Health and Safety Risk
impact many
areas such as
travel, both * Increase - I4 - Safe and Sustainable Buildings Risk
international
and domestic,
or future
lockdowns.
There is also
the potential
risk of future
pandemics from
viruses which
are as yet
unknown.
--------------- --------------------------------------------------------- -----------------------------------------------------------
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
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'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
At At
31 December 31 December
2021 2020
Note GBP'000 GBP'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
At At
31 December 31 December
2021 2020
Note GBP'000 GBP'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 GBP8,699,000 (2020:
GBP46,198,000 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
Capital
Called up Share reduction Retained Total
share capital premium reserve earnings equity
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Capital
Called up Share reduction Retained Total
share capital premium reserve earnings equity
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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 GBP8,699,000 (2020: Profit of GBP46,198,000) 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 GBP37 million in cash and
GBP45 million of undrawn investment debt facilities. During the
going concern period we have two facilities due for refinancing,
one for GBP90 million with Lloyds due to expire in November 2022
and one with FCB for GBP20 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 GBP20 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%.
Revenue occupancy Revenue occupancy
for 2021/22 for 2022/23
Scenario 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 GBP22 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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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(R) 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(R) 238 316
------------------------------------------------------------------------------------- ------------ ------------
295 365
------------------------------------------------------------------------------------- ------------ ------------
Group
--------------------------
Year ended Year ended
31 December 31 December
2021 2020
Directors' remuneration GBP'000 GBP'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
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------ ------------
Current tax
Income tax charge/(credit) for the year - -
Adjustment in respect of prior year - -
---------------------------------------------------------------------------------------- ------------ ------------
Total current income tax charge/(credit) in the income statement - -
---------------------------------------------------------------------------------------- ------------ ------------
Deferred tax
Total deferred income tax charge/(credit) in the income statement - -
---------------------------------------------------------------------------------------- ------------ ------------
Total current income tax charge/(credit) in the income statement - -
---------------------------------------------------------------------------------------- ------------ ------------
The tax assessed for the year is lower than the standard rate of corporation tax in the
year
Profit for the year 29,197 (23,970)
---------------------------------------------------------------------------------------- ------------ ------------
Profit before tax multiplied by the rate of corporation tax in the UK of 19% (2020: 19%) 5,547 (4,554)
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 GBP2,581,000
(31 December 2020: GBP388,000) 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 GBP5,160,000 (2020: GBP3,027,000) 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 year Adjustments
to remove: - - - - 221
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
IFRS NRV NTA NDV
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'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 GBP GBP GBP GBP
-------------------------------------------------- -------- -------- -------- --------
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
-------- ----------------------------
EPRA EPRA EPRA
IFRS NRV NTA NDV
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'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 GBP GBP GBP GBP
-------------------------------------------------- -------- -------- -------- --------
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. DIVIDS PAID
Group and Company
--------------------------
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------ ------------
Interim dividend of 1.25 pence per ordinary share in respect of the quarter ended 31
December
2020 - 7,540
Interim dividend of 2.50 pence per ordinary share in respect of the quarter ended 30
September
2021 15,080 -
---------------------------------------------------------------------------------------- ------------ ------------
15,080 7,540
---------------------------------------------------------------------------------------- ------------ ------------
As at 31 December 2021 an accrual of GBP1,491,000 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
---------------------------------- ----------------------------------
Fixtures and Computer Fixtures and Computer
fittings equipment Total fittings equipment Total
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------------------------- ----------------------------------
Fixtures and Computer Fixtures and Computer
fittings equipment Total fittings equipment Total
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------------------------------- ----------------------
Hello Student(R)
website NAVision(1) NAVision(1)
development development Total development Total
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------------------------------------------------- ----------------------
Hello Student(R) Hello Student(R)
application website NAVision(1) NAVision(1)
Year ended 31 December development development development Total development Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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(R) website development
During the prior year we conducted a review of our intangible
asset relating to the Hello Student(R) 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 GBP366,000 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 GBP333,000 of costs relating to the items within
the NAVision system which were replaced by the new system.
13. INVESTMENT PROPERTY
Group
------------------------------------- -----------------------------------------------------------------
Investment
Investment properties Total Properties Total
properties long operational under investment
freehold leasehold assets development property
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
-----------------------------------------------------------------
Investment
Investment properties Total Properties Total
properties long operational under investment
freehold leasehold assets development property
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP7,981,000 (31 December 2020: GBP4,267,000) 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
GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 GBP85 per week-GBP387
per week (31 December 2020: GBP95-GBP357 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
GBP6,368,080 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 GBP30 million on
health and safety works over the next five years. CBREs assumption
is that GBP17.2 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 GBP17.2 million deduction. A 20% increase in the estimated
remaining costs would affect net valuation gains/losses on property
in the IFRS P&L by GBP3.4 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 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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: GBPnil). 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 GBP25.87 million.
16. CASH AND CASH EQUIVALENTS
Group Company
------------------------ ------------------------
31 December 31 December 31 December 31 December
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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
GBP29,862,000 (31 December 2020: GBP20,676,000) 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP32.8 million and the second with FCB for GBP10
million which was also extended to GBP20 million. In July 2020 we
extended our RCF with Lloyds Bank from GBP70 million to GBP90
million. The Group also entered into a development facility with
NatWest for GBP22.5 million during 2020 financial year. At 31
December 2021 no balance has been drawn down.
There is an undrawn RCF debt facility available of GBP45,000,000
at 31 December 2021 (31 December 2020: GBP30,000,000). 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 GBP977,148,000 at 31 December
2021 (31 December 2020: GBP952,441,000). 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 GBP20 million unsecured facility with FCB -
see above (2020: GBP20 million) repayable in more than one year,
fully drawn. The balance net of loan arrangement fees carried as at
31 December 2021 was GBP19,980,000 (31 December 2020:
GBP19,961,000).
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 GBP'000 GBP'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 GBP'000 GBP'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
GBP'000 GBP'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 GBP'000 Number GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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, GBP32,038,000 (31 December
2020: GBP17,689,000) 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: GBPnil).
24. CAPITAL COMMITMENTS
The Group had capital commitments relating to developments
totalling GBP8,567,000 at 31 December 2021 (31 December 2020:
GBP11,331,000).
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
GBP27 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 GBP19 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 GBP204,000 (2020: GBP29,000).
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 GBPnil
(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%
The volatility assumption is based on a statistical analysis of daily share prices of comparator
(g) 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
GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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(R) 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 GBP'000 GBP'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 GBP'000 GBP'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 brought
forward 4.6% (3.6%)
-------------------------------------------------------------------------------------------- ----------- -----------
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") GBP'000 GBP'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(R) 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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END
FR UPURCWUPPPPP
(END) Dow Jones Newswires
March 03, 2022 02:00 ET (07:00 GMT)
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