Empiric Student Property : Half Yearly Report 2022

EMPIRIC STUDENT PROPERTY PLC

INTERIM REPORT 10 AUGUST 2022

Interim Report 2022

EMPIRIC STUDENT PROPERTY PLC

INTERIM REPORT 10 AUGUST 2022

Contents

Financial Headlines	01
Highlights	02
Management Report	04
Principal Risks and Uncertainties	12
Responsibility Statement of the Directors	13
Independent Review Report to Empiric Student Property plc	14
Unaudited Condensed Consolidated Statement of Comprehensive Income	16
Unaudited Condensed Consolidated Statement of Financial Position	17
Unaudited Condensed Consolidated Statement of Changes in Equity	18
Unaudited Condensed Consolidated Statement of Cash Flows	20
Unaudited Notes to the Financial Statements	21
Company Information and Corporate Advisers	38

EMPIRIC STUDENT PROPERTY PLC01INTERIM REPORT 10 AUGUST 2022

Financial Headlines

Six months to 30 June 2022

Revenue	Basic Earnings Per Share
£35.6m	11.65p
(2021: £25.9m)	(2021: 1.16p)
Gross Margin1	Adjusted Earnings Per Share1
70.2%	1.97p
(2021: 57.9%)	(2021: 0.59p)
Administration Expenses	Dividends Declared Per Share
£6.3m	1.25p
(2021: £5.3m)	(2021: 0.00p)2
Profit Before Tax	Dividend Cover1
£70.3m	158%
(2021: £7.0m)	(2021: 0%)2
As at 30 June 2022
Property Valuation	EPRA NTA ("NTA") Per Share1
£1,088m	117.8p
(As at 31 December 2021: £1,022m)	(As at 31 December 2021: 107.4p)
Total Return1	Loan-to-Value ("LTV")
10.9%	32.8%
(As at 31 December 2021: 4.6%)	(As at 31 December 2021: 33.1%)

1. Denotes our financial key performance indicators ("KPIs"). Note the Group will only report on non-financial KPIs annually.
2. Reflecting the fact that dividends were suspended during the prior period due to COVID-19. We have defined our alternative performance measures and methods of calculation on page 36.

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INTERIM REPORT 10 AUGUST 2022

Highlights

We are pleased that the trends this year suggest a strong recovery after the pandemic. We have grown revenue, earnings, and portfolio valuation in the first half, and have delivered a total accounting return, of 10.9% for the period, up from 1.1% in H1 2021. This reflects the reduced impact of COVID on the academic year 2021/22, strong yield compression and our continuing work on further improving our portfolio and business. We are encouraged to have achieved occupancy for the forthcoming 2022/23 academic year of 92% to date. This is ahead by 10% compared to the same time pre-pandemic, and we are today increasing our revenue occupancy guidance to 90% to 95%, and we expect to deliver at the upper end of this. We remain committed to paying a minimum dividend of 2.5 pence in 2022 and will review this in Q4 once occupancy levels are confirmed for the new academic year.

Financial Highlights

• Growth in revenue of 37% to £35.6 million (H1 2021: £25.9 million), as occupancy for the first half was 86% compared to 65% for the same period in 2021.
• Like-for-likerental growth for the academic year 2021/22 was 1.5%, up from 1.3% reported previously, as we focused on occupancy levels during the year over rental growth.
• Property costs of £10.6 million were in line with the same period last year.
• Gross margin has increased from 57.9% to 70.2% as a result of a £9.7 million improvement in revenue.
• Administration expenses were £6.3 million and in line with guidance.
• Adjusted earnings for the year were £11.9 million (H1 2021: £3.5 million), with Adjusted earnings per share of 1.97 pence (H1 2021: 0.59 pence).
• Property portfolio valued at £1,088 million (31 December 2021: £1,022 million. This was driven by CBRE's removal of the
  COVID-related valuation reduction, by strong yield compression and like-for-like rental growth, supported by our continuing work on further improving our portfolio and business. This is offset by a fire safety deduction of £27 million, up from £17 million at 31 December 2021.
• Underlying valuation yield of 5.2% (31 December 2021: 5.3%) has improved, reflecting both a strengthening of yields in our prime assets and improved rental growth.

• EPRA Net Tangible Assets ("NTA") per share up 10% to 117.8 pence (December 2021: 107.4 pence).
• Total accounting return, increased to 10.9% (H1 2021: 1.1%). This was primarily driven through the increase in our property valuation.

Strong student demand for academic year 2022/23

• We are encouraged to have achieved 92% occupancy for the next academic year 2022/23. This is 10% ahead of the same time pre-pandemic.
• We have seen encouraging growth in rebookers to 23% and the proportion of postgraduates has increased by approximately 8%. This gives us confidence that our Postgrad product, which we are piloting in Edinburgh, will have significant attraction.

Further enhancing our portfolio

• Our portfolio optimisation and recycling capital strategy is progressing well. We sold assets worth £27 million in the first half, and we have assets worth £40 million under offer after the period end at or around book value. Our disposal programme remains on track.
• Disposals allow us to recycle capital and in March we announced our first acquisition since 2018, Market Quarter in Bristol, for a cost of £19 million with an expected unlevered IRR of 8 to 9%. It is fully let for the 2022/23 academic year, with an 18% increase in rent.

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• • This site is close to our other assets in Bristol and creates a cluster of four buildings run by the same management team. This enables us to maintain our small boutique proposition whilst reducing costs and improving our margin. Future acquisitions will focus on continuing our cluster strategy.
• We are on track to complete two developments for September, which are fully let for the forthcoming academic year, and with yields on cost of 6.3% and 6.1% and IRRs of 10-11% and 12-13%, respectively.
• Following successful pilots, we are undertaking further refurbishments of approximately 300 bedrooms that will be ready for the 2022/23 academic year and we expect to achieve significantly higher rents.

Strong balance sheet

• Loan to Value for the Group was 32.8%, broadly in line with our 35% long-term target.
• At 30 June 2022, before deduction of loan arrangement fees, the Group had committed investment debt facilities of £420 million, of which £400 million were drawn down. £277 million (66%) of this debt is fixed and £123 million (34%) is floating. The aggregate cost of debt was 3.3%, with a weighted average term of 5.0 years. With two thirds of our drawn debt fixed, this gives us significant protection from rising interest rates.

Committed to being a responsible business

• At the year-end we announced our plan to be net zero on our own operations, property portfolio and energy consumption by 2035, and we are pleased to report that we are reducing this timeframe to 2033.
• We have published our full Net Zero report on the ESG section of our corporate website today, and this includes setting out the seven KPIs that will enable us to track our progress against this commitment.

Encouraged by the outlook for our business and the wider sector

• Strong occupancy to for the 2022/23 academic year has resulted in us increasing our revenue occupancy guidance to 90% to 95%. We expect to deliver at the upper end of this range. This has been driven not only by market conditions normalising but also by the proactive measures we have taken, including the improvements we continue to make to our portfolio and business.
• Similarly, we are driving strong like-for-like rental growth, and we now expect to deliver rental growth of between 5 and 6% for the 2022/23 academic year. Whilst some of this is due to our enhanced marketing and new dynamic pricing strategy, it is also in part a result of the recovery from COVID, which is likely to moderate in future years.
• We have secured a good pipeline of potential acquisitions and development opportunities and are under offer on a further acquisition worth £15 million in a key growth city in a clustered location.
• We are pleased to have resumed dividend payments and we remain committed to paying a minimum of 2.5p in 2022. We will review the dividend in the fourth quarter once occupancy levels are confirmed for the new academic year, in line with our policy of being fully covered and progressive.
• We very much recognise the increasing pressures students and parent face from the rising cost of living, and our business offers inflationary protection. We have fixed our electricity and gas costs up until Q3 2024, insulating our students from the effects of higher utility costs.
• We are increasingly confident in the normalisation and long-term strength of the market, and of the strong, sustainable growth and value creation potential within our business.