Empiric Regulatory News (ESP)

20 March 2019

Empiric Student Property plc

("Empiric" or the "Company" or, together with its subsidiaries, the "Group")

RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2018

The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of student accommodation across the UK, today announced the Company's full year results for the 12 months ended 31 December 2018.

Financial headlines

Financial Performance

· Revenue increased 25% to £64.2 million (2017: £51.2 million).

· Gross margin increased to 62% (2017: 57%), reflecting good progress in increasing occupancy levels and reducing property costs.

· Administration expenses reduced by 33% to £9.1 million (2017: £13.5 million).

· Profit for the year increased by 94% to £40.3 million.

· Basic earnings per share were 6.68 pence with adjusted earnings per share up 72% to 3.20 pence (2017: 1.86 pence).

· Dividends declared in relation to 2018 totalled 5.0 pence per share, and in line with our target, dividend cover increased to 64% (2017 :34%).

· Property portfolio valued at £970.6 million at 31 December 2018 (31 December 2017: £890.1 million) an increase of 9% (4.8% on a like for like basis).

· EPRA net asset value per share up 2% to 106.2 pence (2017: 104.5 pence).

· Net debt of £324 million at 31 December 2018 (31 December 2017: £298 million), resulting in a loan-to-value ratio of 31% (31 December 2017: 28%), below our long-term target of 35% and maximum of 40%.

Operational Performance

· Current occupancy of 96% (2017: 92%), benefiting from a rigorous focus on driving revenue, although below our target of 97%. Further robust action is continuing to be taken to enhance sales capabilities and attract short-term lets for the 2018/19 academic year.

· All operating properties brought onto the Hello Student® platform from 1 September 2018.

· Facilities management for 27 assets brought in-house ahead of the 2018/19 academic year, with the remainder to come in-house by 1 April 2019.

· Wide range of other improvements underway to enhance operational performance and reduce costs, helping to ensure our business is fit for the long term.

· 95 assets with 9,397 beds contracted as at 31 December 2018 (31 December 2017: 94 assets with 9,158 beds).

· 91 operating or revenue-generating assets at the year-end with 8,711 beds (31 December 2017: 85 assets with 7,903 beds), with an average valuation yield of 5.64%.

Post Period End

· On 1 March 2019, Alice Avis MBE joined as a Non-Executive Director of the Company, bringing over 25 years of experience in advertising, branding, marketing, e-commence and consultancy across the consumer goods and retail sectors. Her expertise is across both large FTSE 100 organisations as well as smaller, entrepreneurial businesses in the UK and internationally and in both executive and non-executive roles. On the same date, Stephen Alston notified the Board of his intention to step down from his position as a Non-Executive Director of the Company with effect from 29 March 2019.

· Resolution proposed for the Annual General Meeting on 2 May 2019 to change Empiric's listing category from a closed-ended investment fund to a commercial company, to increase strategic flexibility and reduce compliance costs.

Tim Attlee, Chief Executive Officer of Empiric Student Property plc, commented:

"We expect 2019 to be a year of further significant progress. We have taken swift action to maximise revenue for the remainder of this academic year and bookings for the 2019/20 academic year are progressing well. The benefits of the operational improvements we have made will continue to come through in 2019 and we are taking action to drive additional efficiencies.

In 2019, we are targeting a gross margin of 67% and a dividend of 5p per share1, which we expect to be around 85% covered on an adjusted basis.

While there are economic and political uncertainties, particularly regarding Brexit, we are yet to see any material adverse consequences. We have a quality portfolio of assets, which coupled with the improvements in our operations, gives us confidence in the outlook for the business."

1 The figures in relation to prospective dividends set out above are not intended to be, and should not be taken as, a profit forecast or estimate, or a dividend declaration.

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

The Company's LEI is 213800FPF38IBPRFPU87.

Further information on Empiric can be found on the Company's website at www.empiric.co.uk.

Notes:

Empiric Student Property plc is a leading provider and operator of modern, direct-let, nominated or leased student accommodation across the UK. Investing in both operating and development assets, Empiric is a multi-niche student property company focused on, (i) providing good quality first year accommodation managed through its Hello Student® operating platform in partnership with universities, (ii) offering a variety of second and third year purpose-built accommodation options for individual students and those wanting a group living environment, and (iii) continuing to expand the Group's existing premium, studio-led accommodation portfolio which is attractive to international and postgraduate students.

The Company, an internally managed real estate investment trust ("REIT") incorporated in England and Wales, listed on the premium listing segment of the Official List of the Financial Conduct Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in June 2014.

A meeting for investors and analysts will be held at 8:45am today at:

Maitland

3 Pancras Square

London

N1C 4AG

The presentation will also be accessible via a live conference call and on-demand via the Company website: https://www.empiric.co.uk/investor-information/company-documents

Those wishing to attend the presentation or access the live conference call are kindly asked to contact Maitland at empiric-maitland@maitland.co.uk or by telephone on +44 (0) 20 7379 5151.

In addition, a recorded webcast of this meeting and the presentation will also be available to download from the Company's website: www.empiric.co.uk.

The Annual Report and Accounts will today be available on the Company's website at www.empiric.co.uk. In accordance with Listing Rule 9.6.1, copies of these documents will also be submitted today to the UK Listing Authority via the National Storage Mechanism and will be available for viewing shortly at www.morningstar.co.uk/uk/NSM.

Hard copies of the Annual Report and Accounts will be sent to shareholders, along with the notice for Annual General Meeting 2019, on or around 22 March 2019.

CHAIRMAN'S STATEMENT

In last year's report, the Executive Team set out a strategic programme of change, to rectify some fundamental issues with the Group's performance. We have made solid progress with this programme, which has improved our operations and supporting infrastructure, while reducing costs and maintaining high levels of service. However, there is still much more to do and the Board remains focused on the next stage of our improvement activities as we enter 2019.

A year of progress

MARK PAIN

Non-Executive Chairman

20 March 2019

Dear Fellow Shareholder

I am pleased to report to you for the first time as Chairman of Empiric.

Performance and Business Review

To deliver the financial performance the Group is capable of, we need to maximise the occupancy of our assets. We achieved an improved level of occupancy for the 2018/19 academic year of 96%, up from 92% in the previous year. However, this was still below the 97% we consider full occupancy. As explained in the Chief Executive Officer's Review, we are taking action to generate additional bookings for this academic year.

The Group has taken big strides with efficiency improvements, in particular by bringing facilities management for 27 of our assets in-house, with the remainder coming in-house from April 2019. This will help us to deliver better service and reduce costs. Combined with our other operational efficiencies, this enabled us to achieve a gross margin of 62% for the year, up from 57% in 2017 and on the way to our target of 70%. We also applied the same rigorous focus to administrative expenses, which were significantly lower than our target of £10 million for the year. This contributed to adjusted earnings per share increasing by 72%, improving our dividend cover, as discussed below.

We continue to explore the potential disposal of non-core assets from the portfolio. Our strategy is to recycle disposal proceeds, where there are attractive opportunities to do so. The Group is financed with an LTV of 30.6%. Towards the end of 2018 we agreed a new £86.1 million ten-year debt facility, with a fixed interest rate of 3.196%. We now have £390 million of financing facilities, with an average term of 7.6 years and average interest cost of 3.26%.

Dividend

The Board has declared four quarterly dividends in respect of 2018, of 1.25 pence per share each. We therefore met our dividend target for the year of 5.0 pence per share. Adjusted earnings per share were 3.2 pence, resulting in a marked improvement in dividend cover to 64% (2017: 34%).

Board, Management and People

We were greatly saddened by the loss of Baroness Brenda Dean, who chaired Empiric from its IPO until her death in March 2018. She made an enormous contribution to the Group and more widely in her long career. In recognition, we have established the Brenda Dean Scholarship. This will run for a minimum of three years and is aimed at entrepreneurial women who need financial support to start a business. The scholarship is open to students coming through the business programmes at Nottingham University, where Brenda was a member of the University Council.

Stuart Beevor was Acting Non-Executive Chairman between March and September and I want to thank him for his considerable efforts in that position. I joined the Board on 1 September 2018, at which date Stuart resumed his former role as a Non-Executive Director and Chairman of the Remuneration Committee.

There were two other changes to Board roles during the year. In July, we appointed Lynne Fennah to the dual roles of Chief Financial Officer and Chief Operating Officer, formalising the responsibility she had already taken for our operations. In November, we appointed Tim Attlee as Chief Executive Officer. Tim was a co-founder of Empiric and our Chief Investment Officer, in addition to being Acting Chief Executive Officer since December 2017. We are delighted that Tim and Lynne are leading our Senior Leadership Team, which we have further strengthened with a number of key appointments. More information can be found in Tim's statement on page 13 in the annual report.

Since the end of the year, we have announced the appointment of Alice Avis as a Non-Executive Director. She brings a wealth of invaluable experience in driving digital transformation and operational excellence in customer-focused, multi-site businesses, which will be important for the Board as Empiric focuses on further enhancing its operations.

After nearly five years on the Board, Stephen Alston has decided not to seek re-election as a Non-Executive Director at the Annual General Meeting on 2 May 2019. On behalf of the Board, I thank him for his important contribution to the Group and wise counsel.

Bringing the running of our properties and facilities management in-house has made a considerable difference to the number of people Empiric employs. I want to welcome our new people to the Group and thank everyone for their hard work this year and their contribution to the Group's ongoing transformation.

Summary

The Group has made solid progress in 2018 but there is still more to be done to deliver the performance it is capable of. We have a strong leadership team and the right plans in place to deliver. We are also working on a longer-term strategy to grow shareholder value, so we can take advantage of the attractive opportunities that will present themselves in our market.

OUR BUSINESS MODEL

Our business model combines strong operations, delivered in-house, with a differentiated portfolio of student properties. Together, our operations and assets enable us to create value for all our stakeholders.

Our Strategic Objectives

A successful strategy

We have a well-defined strategy, which is designed to deepen and widen our engagement with, and understanding of, all our stakeholders and to deliver attractive and sustainable benefits to them for the long term.

Key Performance Indicators

To see how our strategy links to our Key Performance Indicators see page 16 in the annual report

Principal Risks & Uncertainties

To see how our strategy links to our Principal Risks see page 28 in the annual report

CHIEF EXECUTIVE OFFICER'S REVIEW

In 2018, we took tough decisions and implemented the actions required to improve our performance. We are now well over the halfway stage of our transformation programme and we are starting to see results coming through. We are confident that we will see further improvements as we continue to implement our programme in 2019.

Reinvigorating the business

TIM ATTLEE

Chief Executive Officer

20 March 2019

Enhancing Performance

Our fundamental focus is on maximising revenue from our assets and minimising the associated costs, while maintaining the high standard of personal service that distinguishes us from our competitors.

The business is now in substantially better shape than at the start of 2018 and the many improvements we have made are detailed in the Operational and Financial Review. However, we were somewhat disappointed that occupancy was slightly below our target, as a number of students signed leases with us but did not arrive. To help fill the gap, we recruited a central sales team to target semester lets. This team began work on 3 January 2019. We are also evolving our sales processes and training, which will augment our ability to deliver full occupancy in the years ahead.

With all of our assets now on the Hello Student® platform and with all facilities management to be performed in-house from April 2019, we will have full operational control over our properties for first time since Empiric was founded. This will allow us to pull every available lever that affects revenue or cost.

Maximising occupancy is critical to driving revenue. During the year, we enhanced our management information and combined it with improved data and analysis from the Hello Student® website (see Operational and Financial Review), to give us detailed insights into bookings at each asset. We also tightened our processes for converting bookings into signed leases, highlighting buildings where action is needed to increase bookings. We introduced bi-weekly sales meetings, attended by the Executive Directors, Operations Director, marketing and our internal analyst, which result in documented actions and rental rate decisions by asset, helping us to drive bookings. Optimising rents in this way has given us a more sustainable level of rents across the portfolio, increasing the potential for like-for-like rental growth for the 2019/20 academic year. We are continuing to enhance our sales capabilities, including improvements to our sales processes and training.

Protecting Shareholder Value

While we are relentlessly focused on generating income to increase our dividend cover, we also recognise that we must protect the balance sheet and long-term shareholder value. This means we must constantly analyse and evaluate the portfolio. Our market is polarising, as students are increasingly attracted to the best-performing universities and turning away from lower ranked institutions. We therefore need to focus future investments in these growing markets and recycle capital from non-core assets. Our intention is to continue to redeploy capital to add depth to our offering in existing cities, so we have a broader range of product and price points that suit everyone from first year undergraduates to postgraduate students. This will also underpin our ability to enable loyal customers to move between buildings or cities, while staying with the Hello Student® brand.

People and Culture

One effect of our transformation programme has been a significant increase in the number of people we directly employ, as we bring operations in-house. At the start of the year, we directly employed just over 130 people. This had risen to 248 by the year end, with a further 69 people scheduled to join us when we take on the remainder of the facilities management from April 2019. Importantly, we have recruited an HR Director and heads of IT, facilities management and property, who have all joined the Senior Leadership Team. This gives us both the management capacity and the specialist skills we will need to take the business forward.

We continue to build a collaborative and communicative culture and look to help our people succeed in their roles through training and development. We introduced a number of changes to the way we manage, assess and train our people in 2018, with further improvements to come as we establish our in-house HR function in 2019. More information can be found in the Corporate and Social Responsibility section on page 25 in the annual report.

Portfolio Summary

At 31 December 2018, we owned or were committed to owning 95 assets, representing 9,397 beds (31 December 2017: 94 assets, 9,158 beds). Of these, 91 were revenue generating (31 December 2017: 85 assets). The revenue-generating properties had gross rent of £73.9 million for the 2018/19 academic year (2017/18 academic year: £65.3 million). Commercial revenue was £1.7 million, representing 2.1% of gross annualised rent (31 December 2017: £1.8 million, representing 2.8% of gross annualised rent). The gross rent roll is expected to increase to £79.3 million for the 2019/20 academic year, with three development projects set to become revenue generating for that year. A further two development projects are scheduled to complete for subsequent academic years.

Like-for-like income growth for the academic year 2018/19 averaged around 2% across the portfolio. We expect further rental growth for the academic year 2019/20, while continuing to prioritise occupancy levels.

Valuation

Each property in the portfolio has been independently valued by CBRE, in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Professional Standards January 2014 (the "Red Book"). At 31 December 2018, the portfolio was valued at £970.6 million, an increase of 9% for the year (31 December 2017: £890.1 million).

The valuation benefited from the increased occupancy and income growth compared to the end of 2017 and some yield compression, particularly in the first half of 2018. The valuation also reflected the acquisition of one standing asset and the realisation of development profit on the projects which reached practical completion ahead of the 2018/19 academic year (see overleaf). The like-for-like increase in the portfolio valuation was 4.8%.

Asset Acquisition

The Group acquired one standing asset during the year, the 240-bed Emily Davies Hall in Southampton. The property comprises affordable accommodation arranged in three-and four-bed apartments and is leased to Southampton Solent University until September 2019, at which point we intend to directly let it. The purchase price was £10.6 million, excluding costs. The acquisition has broadened our offer in Southampton, where we now have 459 beds. At the year end, the asset was valued at £11.2 million, an increase of 6% on the purchase price.

Developments and Redevelopments

We made further good progress with our development and redevelopment projects during 2018. Two forward funded developments completed ahead of the 2018/19 academic year: Princess Road in Leicester (110 beds) and Percys Place in York (106 beds). Princess Road offers studio accommodation while Percys Place contains studios and apartments, as well as five- and six-bed townhouses. More information on our townhouse offering can be found in the case study on page 21 in the annual report.

Practical completion of a third forward funded development, The Emporium in Birmingham, was delayed as a result of the late delivery of the final part of the communal space. In total, 171 of the 184 beds were delivered and 155 of those are occupied. Forward funded developments have the advantage of protecting us from late completion, as the risk largely remains with the developer. We have been fully compensated by the developer for the lost return and the additional management time we have incurred. We were also able to mitigate damage to the Hello Student® brand by offering refunds to students at the developer's expense.

In addition to the forward funded developments, we completed a major refurbishment and redevelopment of Blocks 3 and 4 at Victoria Point, Manchester. The blocks contain 169 beds in total and provide affordable accommodation that suits returning undergraduates. We continue to see the potential for targeted redevelopments that increase capital values and income, although we aim to limit the impact on income and dividend cover by carefully timing these projects. We are constantly reviewing opportunities to redevelop buildings, implementing a detailed appraisal process to weigh up all risks.

Outlook

We expect 2019 to be a year of further progress. We have taken swift action to maximise revenue for the remainder of this academic year and bookings for the 2019/20 academic year are progressing in line with expectations. The benefits of the operational improvements we have made to date will continue to come through in 2019 and we are taking action to drive additional efficiencies.

For 2019, the Board is continuing to target a dividend of 5.0 pence per share. The Board is expecting the total dividend for 2019 to be around 85% covered by adjusted earnings.

While there are economic and political uncertainties, particularly regarding Brexit, we are yet to see any material adverse consequences. We have a quality portfolio of assets, which coupled with the improvements in our operations, gives us confidence in the outlook for the business.

OUR MARKET

Student accommodation is one of the largest alternative real estate sectors in the UK, sustained by strong demand for higher education from domestic and international students. However, the market is polarising as students are attracted to the best universities, meaning that we must remain highly selective about the towns and cities we choose to invest in.

Selectivity remains key

Total Annual UK Increase in Bed Numbers

Full-time students are the core customers for Purpose Built Student Accommodation ("PBSA"), since they are most likely to study away from home. There are currently around 1.8 million full-time students in the UK. Of these, 77% are from the UK, 7% are from the EU and 16% are non-EU international students (Source: HESA). There are now almost 630,000 PBSA bed spaces in the UK, which means that the majority of students still live in other forms of accommodation such as houses in multiple occupation ("HMOs"). However, the proportion living in PBSA continues to rise strongly, particularly in the private sector which now makes up almost half of the PBSA provision, reflecting the attractiveness of the buildings and the service and amenities they offer.

Demand for Higher Education Remains Strong

Applications for university places are an important leading indicator of demand for PBSA. For the 2018/19 academic year, total applications were down 0.6%. This was driven almost entirely by a fall in the number of people making the maximum of five applications to different universities through the main UCAS scheme before the 30th June deadline. The number of students applying to between one and four universities either increased or was stable, as more students chose not to include lower performing universities on their application list. The number of applications to institutions requiring lower grades fell by 6%, while those to mid-tier institutions fell by 3%. Applications to top-tier institutions increased by 1%. Empiric's portfolio is targeted at the higher performing universities, with 65% of our beds in Russell Group university cities.

UCAS data indicates that the UK continues to be an attractive place to study, with the number of applications from EU students in 2018/19 up over 2%, while non-EU international applications were up over 6%. The Migration Advisory Committee published its report on international students in September 2018. It found that international students bring a clear economic benefit to the UK, citing the 2015 Department for Education estimate of £17.6 billion of export value, as well as the 2018 Higher Education Policy Institute/Kaplan International Pathways estimate of £20.3 billion. The report suggested that there should continue to be no cap on the number of international students and although it did not recommend removing international students from the migration statistics, it did suggest a number of small policy changes to make the UK more welcoming to international students.

While trends in applications from UK, EU and international students are important, overall the number of applications remains well above the number of places available at UK universities. In 2018/19, there were 695,565 undergraduate applicants to UK universities and 533,360 acceptances, with the latter falling by just 0.1% compared to the prior year (Source: UCAS). Analysis of acceptances by tier of university also shows the polarisation of the market, with bottom-tier universities struggling to attract more students.

Early applications for the 2019/20 academic year were promising. Most medicine, dentistry and veterinary science courses, and all courses at Oxford and Cambridge universities, required students to apply by October 2018. UCAS statistics show that 65,870 people applied for these courses, up 7% on last year. Applications from UK students were up 9%, non-EU applications students increased by 6% and demand from the EU was little changed from last year.

There was an 11% rise in the number of 18-year-olds from England applying for October deadline courses, despite the population of young people decreasing by 2.1% this year. This decline is part of a long-term demographic trend which will bottom out in 2020, with the number of 18-year-olds rebounding sharply from 2021. This rebound, coupled with higher participation rates, should further increase demand for higher education and PBSA in future years.

The UCAS statistics cited above only consider undergraduate admissions. Since the introduction of postgraduate loans in the UK in 2016/17, the number of placed postgraduates has grown, with a 5.7% increase in the year after their introduction (Source: HESA). This provides an additional source of demand for PBSA.

A concern for the higher education sector is the Augar review; this is currently low on the government's list of priorities and so most likely will be implemented in the next Parliament. The consensus is that the outcome will be a reduction in fees of around 25% (to c.£6,000 per annum for UK students) which should help to bolster the number of applicants, and the reduction in revenue for universities could give them a further incentive to increase their student numbers. Overall the review should be beneficial for PBSA, but the uncertainty until the publication of its conclusions will remain unhelpful.

Supply of PBSA

The supply of PBSA has grown rapidly, with a 24% increase in rooms available nationally in the four years to academic year 2018/19, including a 127% increase in the number of studios.

However, the development pipeline for student accommodation is becoming smaller in some city markets as they mature and other land uses out-compete PBSA, such as build to rent.

Attractive development opportunities remain available but site and city selectivity are key, with the cities that are home to the best-performing universities offering the greatest potential.

In addition, the majority of university towns and cities now have Article 4 Directions in place, which prevent local housing stock being converted into HMOs. This means that in locations with rising demand for student housing, new PBSA will be required to meet it. The outlook for student accommodation in the right locations therefore remains healthy.

Investment Demand

Investment demand for PBSA continues to be strong. Large volumes of funds are available for the alternative property sectors as investors turn away from major asset classes such as retail and offices. This demand comes from both UK and international investors. Investment volumes in 2018 are expected to be around £3.2 billion. In contrast to previous high-volume years, this is the result of a larger number of smaller transactions rather than fewer but larger portfolio deals. As a result, portfolios continue to attract premiums but there is now also more liquidity for smaller transactions, as the market has matured.

Investment yields for stabilised assets compressed in the first half of 2018 and were broadly stable in the second half. The level of demand and the tightening of yields make it challenging to acquire standing assets, pointing to a maturing PBSA market.

Market Yields

Source: JLL

Note: Referenced against appropriate cash flows and applies to single "best in class" assets typically 250-500 bed assets excluding any portfolio premium. These yields are intended as a guide and we would emphasise the need to appraise individual schemes on a case-by-case basis.

KEY PERFORMANCE INDICATORS

We have made a number of changes to our key performance indicators ("KPIs"), in particular introducing non-financial metrics that show our operational performance. As a result, we have focused our financial KPIs and no longer include the LTV ratio, dividend per share or basic earnings per share. All of these metrics continue to be reported in the Operational and Financial Review on pages 18 to 23 in the annual report.

Non-Financial KPIs

Strategic Link

1. Customers

2. Brand

3. People and Operations

4. Buildings

5. Shareholder Outcomes

Definitions

For definitions see page 98 in the annual report

OPERATIONAL AND FINANCIAL REVIEW

This section of the report details our actions to improve our operating performance and our financial results in 2018.

Improving delivery

LYNNE FENNAH

Chief Financial and Operating Officer

20 March 2019

Operational Review

Facilities management ("FM") is one of our largest costs. Providing these services in-house saves us the outsourced providers' profit margin and VAT, which we are unable to reclaim as a VAT-exempt business. Ahead of the 2018/19 academic year, we brought FM in-house for 27 buildings, with the rest of the portfolio to follow from 1 April 2019. Our FM help desk is up and running and we have established a database to ensure an effective and compliant programme of maintenance. To ensure we have the in-house expertise required, we recruited a Head of Facilities Management, who joined us on 4 December 2018.

Insourcing FM also offers other efficiency benefits. It saves management time, as we no longer have to manage four separate FM providers, and allows us to consolidate contracts for ancillary services such as pest control and lift maintenance, so we can achieve better rates by procuring single contracts across the portfolio. During 2018, we also used our improved management reporting to tighten control of ad hoc expenditure by our outsourced FM providers, with a corresponding benefit to our property costs during the year.

We have also focused on reducing our other operating costs. For example, we brought the administration of utilities in‑house from 1 July 2018 and entered into fixed price contracts from 1 October 2018 onwards. Initiatives to reduce energy use, with a corresponding cost and environmental benefit, are outlined on page 26 in the annual report.

At the start of the year, we had 62 assets on our Hello Student® platform. From 1 September 2018, all of our direct let properties were branded Hello Student®. This enables us to manage costs ourselves, gives us full control over the marketing of those assets and the interaction with students, and provides us with live data on our entire portfolio, helping us to drive occupancy and revenue.

As noted above, we benefited from the improved Hello Student® website, which we had relaunched towards the end of the previous year. It has improved design, functionality and analytics, allowing us to review the number of hits for a given property and track how those translate into enquiries, viewings, bookings and signed leases. Visits to the website were up over 45% compared with 2017.

We employ a "social first" marketing approach, which uses Facebook as an important channel for driving traffic to the Hello Student® website. During the year, we refocused our marketing spend by targeting our activity and reducing wastage, helping us to cut costs and improve effectiveness. We are undertaking a review of our marketing function in order to exploit inspirational and relevant content for the Hello Student® website and social media. In addition to Facebook, we will test and engage other social media platforms.

We made good progress with streamlining our administrative costs in 2018, including reducing the number of head office roles and using fewer consultants and contractors. The restructured finance team is providing essential support and enhanced information to the Executive Team, underpinning our granular approach to business performance and cost control.

The recruitment of a Director of Human Resources, who joined us on 2 January 2019, will enable us to bring our HR function in-house in 2019. The new function will replace our current outsourced supplier, which provides purely transactional support, and we will be able to align HR to support our business objectives.

Information Technology is another important area of focus for 2019. We currently have two managed service providers for our IT systems, with one covering head office and the other for student properties. Moving to one provider will give us a single integrated system, as well as enabling us to obtain a better price for a larger contract. Our new Head of IT joined Empiric on 1 November 2018 and will have a significant role in helping us to build the commercial platforms we need to run the business in future. A key objective will be to support the development of a revenue management system, enabling us to process bookings, rent demands and rent collection in-house, with the potential for significant savings over the current outsourced provider's costs. We plan to trial this system in a single property in November 2019, with a further roll out across the portfolio from 2020.

In addition to the new senior leaders noted above, we recruited a Head of Property during the year. Our Senior Leadership Team now comprises the Executive Directors, the Group Financial Controller and the Operations Director, HR Director and Heads of IT, FM and Property. This gives us the strength, depth and breadth of leadership we need and reflects the Group's shift to an operational business that provides key functions in-house.

Financial Performance

Revenue in 2018 was £64.2 million, up 25% from £51.2 million in 2017. The increase resulted from the acquisition of Emily Davies Hall in February, the initial contribution from developments completed in 2018, a full year of the assets acquired and developments completed in 2017, as well as increased occupancy and income growth, which benefited the final four months of the year.

Operating profit under IFRS was £53.0 million, an increase of 63% compared to the £32.5 million achieved in 2017. This included an aggregate revaluation uplift on our property portfolio at the year end of £22.4 million, net of property acquisition costs (2017: £15.8 million including a £1.1 million gain on the sale of Forthside Way in Stirling). The gross margin for the year was 62% (2017: 57%).

Administration expenses were driven down to £9.1 million in 2018, lower than our guidance (2017: £13.5 million). For 2019, we continue to expect administration costs of approximately £10 million, with the additional costs of recruitment in areas such as HR and IT offset by savings elsewhere.

Net financing costs for the year were £12.7 million, net of money market investment income and the fair value gain on interest rate swaps of £0.1 million (2017: £11.8 million and £0.1 million, respectively).

Profit before tax was £40.3 million, up 94% (2017: £20.8 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") were therefore 6.68 pence (6.67 pence on a diluted basis) (2017: 3.84 pence and 3.83 pence (diluted)).

The Net Asset Value ("NAV") per share as at 31 December 2018 was 106.14 pence, prior to adjusting for the interim dividend for the quarter ended 31 December 2018 of 1.25 pence per share (31 December 2017: 104.37 pence, prior to adjusting for the interim dividend of 1.25 pence per share). The NAV is shown net of all property acquisition costs and dividends paid during the year.

Dividends

The dividends declared in respect of the 2018 financial year are shown in the table above.

Of the total dividends, 1.32 pence per share was declared as property income distributions and 3.68 pence per share was declared as ordinary UK dividends (2017: 2.94 pence per share and 2.61 pence per share respectively).

Adjusted EPS is the most relevant measure of earnings when assessing dividend distributions. It increased by 72% from 1.86 pence in 2017 to 3.2 pence in 2018, to give dividend cover of 64%. Adjusted EPS is defined on page 98 in the annual report.

At 31 December 2018, the Company had distributable reserves of £58 million. We therefore continue to have substantial headroom for the payment of dividends.

At the AGM on 2 May 2019, shareholders will be asked to vote on a resolution to cancel the Company's share premium account, which stood at £467 million at 31 December 2018. When companies issue shares at a premium to their nominal value, that premium must be recorded in the share premium account. The Companies Act restricts the use of this capital which cannot, for example, be used to declare dividends or to repurchase the Company's shares. Cancelling the share premium account will release this capital, which will then be treated as realised profit. While we have no current intention to do so, this will give us increased flexibility to declare dividends or to make other distributions to shareholders. If shareholders approve the resolution, we will promptly apply for the necessary court order to confirm the cancellation.

Debt Financing

On 20 December 2018, we announced the refinancing of £86.1 million of our debt with a new ten-year, fixed rate term loan facility with Scottish Widows Limited. The new facility is secured against a portfolio of our operating assets, held as a lending group through a wholly owned subsidiary. The new facility is interest only until final repayment in 2028 and fixed at 3.196% per annum, which reduces our cost of debt to 3.26%. The facility also extends our average debt maturity profile across all our facilities to 7.6 years.

We drew down £30.6 million of the new facility on 20 December 2018, to repay an expiring facility with NatWest. We expect to draw down the remaining £55.5 million towards the end of October 2019, to repay a second expiring NatWest facility. Drawing down funds on the expiry of these facilities ensures we do not incur any break fees.

Our loan-to-value ("LTV") ratio at the year end was 30.6% (31 December 2017: 28.2%) below our threshold of 40% and our long-term target of 35%. We have changed the way we measure LTV during the year to ensure that we are consistent with our peers. Our LTV is now calculated as total drawn borrowings net of cash held and fixed term deposits divided by gross asset value.

Alternative Investment Fund Manager ("AIFM")

The Company continues to be authorised as a full-scope AIFM and is regulated by the Financial Conduct Authority. The Company engages a specialist compliance consultancy, Portman Compliance Consulting LLP, to ensure that it adheres to all of its regulatory obligations.

Change in Listing Chapter

Under the Listing Rules, Empiric is currently categorised as a premium listed closed-ended investment fund. This requires us to follow an investment policy, which limits our operational flexibility. The Board has reviewed our listing category and concluded that given Empiric's evolution from a pure real estate company to an operating business, we would be better served by being classified as a commercial company. Rather than pursuing an investment policy, we would then be able to follow a business strategy set by the Board. We do not believe this would significantly change our strategic or operational focus but it would enhance our ability to manage the portfolio, bring us into line with the majority of internally managed REITs on the London market and reduce our compliance costs.

The change of listing category requires shareholder approval and we have included a resolution to this effect for the forthcoming AGM. If approved, we expect the change to take effect from 3 June 2019. More information on the proposal can be found in the Notice of Annual General Meeting, which is available on our website, www.empiric.co.uk.

PRINCIPAL RISKS AND UNCERTAINTIES

Robust risk culture

Empiric has a strong culture of managing risk and a well-defined risk management process. This process is designed to identify, evaluate and mitigate (rather than eliminate) the significant risks we face. The process can therefore only provide reasonable, rather than absolute, assurance. We outsource certain services to our administrator, FIM Capital Limited (the "Administrator"), and other service providers, and rely to an extent on their systems and controls.

The Audit Committee formally reviews the effectiveness of our risk management processes and internal control systems, on the Board's behalf. During the course of these reviews, the Board has not identified or been advised of any material failings or weaknesses.

Changes to Risks During the Year

The risk environment we operate in continues to evolve and this is reflected in the principal risks and uncertainties that are set out on the following pages.

We have expanded the definition of the risk that we focus exclusively on the student accommodation sector (SR1) to identify a number of macro factors that are or could influence the higher education sector. We have expanded financing risk (FR1) to cover capital raising in general, rather than specifically debt financing. We have also identified health and safety as a separate risk (OR2), rather than including it in the risk relating to legal and regulatory compliance (OR1). We have removed one principal risk, which was the risk that our operations and management of cost bases relied on third-party managers. This is no longer relevant, given the insourcing of our property management and FM services. We have also added a principal risk (OR3) relating to the need to keep our operating costs under control.

The trends relating to all the principal risks and uncertainties are set out in the table on pages 29 to 33 in the annual report.

Our Risk Appetite

The Group's risk appetite in relation to our portfolio is covered by our Investment Policy (see page 24 in the annual report). It contains a range of criteria, such as limits on the amount of development we can undertake at any one time, which ensures that the business is not exposed to excessive risk in respect of its assets. The Board also looks to ensure that the Group is conservatively financed, with a target LTV ratio of 35% in the long term and a maximum of 40%. In addition, the Board has zero tolerance to health and safety risk within our control and looks to go beyond its statutory requirements, as described on page 26 in the annual report.

Principal Risks

The principal risks and uncertainties we face have the potential to materially affect our business, either favourably or unfavourably. Some risks may be unknown to us at present, and some risks that we currently regard as immaterial, and have therefore not included here, may become material in the future.

Brexit

The Board continues to review the potential impact of Brexit on the Group's business. While we do not deem it to be a principal risk at this stage, we are monitoring developments. There are two primary ways in which Brexit may affect Empiric.

First, it could reduce student numbers coming from the EU. These students currently comprise 7% of the UK undergraduate population, so any reduction is unlikely to have a material effect on overall student numbers, particularly when taking into account excess demand for university places, as discussed in the Our Market section on page 4 in the annual report. Second, Brexit may have a wider impact on universities themselves, through the loss of research funding and academics from the EU. This could make UK universities less attractive places to study. We believe our focus on the towns and cities with the most successful universities will help to mitigate this risk.

Strategic Link

1. Customers 2. Brand 3. People and Operations 4. Buildings 5. Shareholder Outcomes

APPROVAL OF STRATEGIC REPORT

The strategic report for the year ended 31 December 2018 has been approved by the Board and was signed on its behalf by:

Tim Attlee

Chief Executive Officer | 20 March 2019

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 accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. 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 IFRSs as adopted by the European Union, 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. They 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 Financial Reporting Standards ("IFRSs") as adopted by the European Union 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 provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

Mark Pain

Chairman | 20 March 2019

GROUP STATEMENT OF COMPREHENSIVE INCOME

GROUP STATEMENT OF FINANCIAL POSITION

These financial statements were approved by the Board of Directors on 20 March 2019 and signed on its behalf by:

Lynne Fennah

Chief Financial Officer

COMPANY STATEMENT OF FINANCIAL POSITION

Company Registration Number: 08886906

The Company made a profit for the year of £37,313,000 (2017: £11,296,000 loss).

These financial statements were approved by the Board of Directors on 20 March 2019 and signed on its behalf by:

Lynne Fennah

Director

GROUP STATEMENT OF CHANGES IN EQUITY

COMPANY STATEMENT OF CHANGES IN EQUITY

GROUP STATEMENT OF CASH FLOWS

COMPANY STATEMENT OF CASH FLOWS

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 2018 to 31 December 2018.

The consolidated financial statements of the Group for the year ended 31 December 2018 comprise the results of Empiric Student Property plc ("the Company") and its subsidiaries and were approved by the Board for issue on 20 March 2019. 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 2018 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries (together, the "Group"). These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union.

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's, 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 profit after taxation of £37,313,000 (2017: loss of £11,296,000) 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 2018 or the year ended 31 December 2017 but is derived from those accounts. The Group's statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2018 and December 2017 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.

Changes in Accounting Policies

New Standards, Interpretations and Amendments Effective from 1 January 2018

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies are:

- IFRS 9 Financial Instruments (IFRS 9); and

- IFRS 15 Revenue from Contracts with Customers (IFRS 15).

Details of the impact these two standards have had are given in Note 1.5.

Details of the other new standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early are also given in Note 1.5.

1.3 Going Concern

The consolidated financial statements have been prepared on a going concern basis as discussed in the Directors' Report on page 62 in the annual report.

1.4 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.

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:

(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.

(b) Operating Lease Contracts - the Group as Lessor

The Group has acquired investment properties which have commercial property leases in place with tenants. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the lease terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

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 2018. 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 for 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 arise principally 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 receivables 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 receivables from related parties and loans to related parties 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 along with 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 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 borrowings are 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.

Hedge Accounting

Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met:

- At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge; and

- The hedge relationship meets all of the hedge effectiveness requirements, including that an economic relationship exists between the hedged item and the hedging instrument, the credit risk effect does not dominate the value changes, and the hedge ratio is designated based on actual quantities of the hedged item and hedging instrument.

Cash Flow Hedges

The effective part of forward contracts designated as a hedge of the variability in cash flows of interest rate risk arising from firm commitments, and highly probable forecast transactions, are measured at fair value with changes in fair value recognised in Other Comprehensive Income and accumulated in the cash flow hedge reserve. The Group uses such contracts to fix the cost interest payments.

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 Statement of Comprehensive Income on a straight-line basis over ten years, except for the Hello Student® Application, which is being amortised on a straight-line basis over five years due to the nature of the asset.

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 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 when control is passed to the purchaser, expected to be on legal completion. 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 Statement of Comprehensive Income in the period of retirement or disposal.

Operating Leases

Rentals paid under operating leases are charged to the Statement of Comprehensive Income on a straight-line basis over the period of the lease within administrative expenses.

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 Statement of Comprehensive Income on the following basis:

- Fixtures and fittings: 15% per annum on a reducing balance basis;

- 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 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 Statement of Comprehensive Income when the right to receive them arises.

Rent and Other Receivables

Rent and other receivables are recognised at their original invoiced value net of VAT. A provision is made when there is objective evidence that the Group will not be able to recover balances in full.

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 UK.

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 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 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 Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movement in equity, in which case it is also recognised as a direct movement in equity.

Current tax is 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.

1.5 New Standards Issued and Effective from 1 January 2018

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 January 2018:

- IFRS 9 Financial Instruments

- IFRS 15 Revenue from Contracts with Customers

- Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2

The Group had to change its accounting policies following the adoption of IFRS 9 and IFRS 15. As a result of the transition there was no requirement to make any retrospective amendments and the changes are not expected to significantly affect the current or future periods.

IFRS 9

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had the following effect on the Group.

- Management has reviewed the requirements of IFRS 9. The Group's principal financial assets comprise interest rate derivatives which will continue to be measured at fair value, and trade receivables, which will continue to be measured at amortised cost. The following change has been identified:

- The Group applied the expected credit loss model when calculating impairment losses on its financial assets measured at amortised cost (such as trade and other receivables). This resulted in greater judgement due to the need to factor in forward-looking information when estimating the appropriate amount of provisions. To measure expected credit losses the Group considered the probability of a default occurring over the contractual life of its trade receivables. This resulted in no change in impairment provisions so there is no retrospective adjustment.

1.6 Accounting Standards and Interpretations Issued But Not Yet Effective

At the date of authorisation of these financial statements, the following accounting standards had been issued which are not yet applicable to the Group:

IFRS 16 - Leases (effective year ending 31 December 2019)

As Lessee

The Group's lease commitment for head office space will be brought onto the Statement of Financial Position together with the corresponding asset. The expected impact has been quantified and will not be material to the Group.

As Lessor

The Group's accounting for lessors will not materially change as the Group only operates operating leases.

Other Amendments

Additionally, amendments to existing standards have been issued by the IASB, including:

- IFRS 2 (amendments) Classification and Measurement of Share-based Payment Transactions

- IAS 7 (amendments) Disclosure Initiative

- IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses

- IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture

The Directors consider that these amendments will not materially impact the financial statements.

2. REVENUE

3. PROPERTY EXPENSES

4. ADMINISTRATIVE EXPENSES

5. NET FINANCE COST

6. EMPLOYEES AND DIRECTORS

The average monthly number of employees of the Group during the year was as follows:

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 2018.

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.

The tax assessed for the year is lower than the standard rate of corporation tax in the year.

A deferred tax asset in respect of the tax losses generated by the residual (non-tax exempt) business of the Group amounting to £1,352,000 (31 December 2017: £2,271,000) in the current year will be recognised to the extent that their utilisation is probable. On the basis that the residual business is not expected to be income generating in future periods, a deferred tax asset totalling £3,823,000 (2017: £3,222,000) 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 period.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

EPRA EPS, reported on the basis recommended for real estate companies by EPRA, is a key measure of the Group's operating results.

Adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates, 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.

- 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.

- Gains on disposal are the cumulative gains at the point of disposal.

Reconciliations are set out below:

9. NET ASSET VALUE PER SHARE (NAV)

Basic NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary equity holders of the parent by the number of ordinary shares outstanding at the end of the year.

Diluted NAV per share is calculated using the number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for debt-related derivatives.

EPRA NNNAV is the EPRA NAV adjusted to include the fair values of financial instruments and debt.

Net asset values have been calculated as follows:

10. DIVIDENDS PAID

On 20 February 2019, the Company announced the declaration of a final interim dividend in respect of the financial year ended 31 December 2018, of 1.25 pence per ordinary share amounting to £7.536 million, to be paid on 22 March 2019 to ordinary shareholders.

11. FIXED ASSETS