Empiric Regulatory News (ESP)

3 March 2022

Empiric Student Property plc

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

FULL YEAR RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2021

Good progress in 2021 with increasing confidence in outlook

Empiric Student Property plc (ticker: ESP), the owner and operator of premium student accommodation serving key UK universities, today reports its annual results for the 12 months ended 31 December 2021.

Duncan Garrood, Chief Executive Officer of Empiric Student Property plc, said:

"We are seeing improving trends in demand and occupancy for Academic Year 22/23 with bookings to date broadly returning to pre-Covid levels. We are increasingly encouraged by the outlook for our business and the wider sector.

Our guidance for revenue occupancy for the 2022/23 academic year is 85% to 95% and we are targeting the top end of this range, assuming no further market disruption. We have resumed dividend payments and remain committed to our policy of a minimum of 2.5p in 2022 and to pay fully covered and progressive dividends going forward.

We are progressing well with our strategy of further enhancing the quality of our portfolio and business. We have commenced two outstanding developments and remain on track with our refurbishments. We are continuing to make further non-core disposals, with nine assets sold to date for £44.6 million and above book value, and we recently made our first acquisition since 2018, all in line with our strategy of recycling capital, building clusters in key cities and driving operational performance and returns.

With our continuing support given to our students, our establishment of clear and ambitious objectives to become a sustainable and net zero carbon business, we are protecting and enhancing the Group's long-term sustainable value and profitable growth for all our stakeholders."

HIGHLIGHTS

Financial Performance

· Revenue in 2021 of £56.0 million (2020: £59.4 million), as occupancy for the first eight months in academic year 20/21 was 65% compared to 84% for the same period in 2020.

· Like for like rental growth for the academic year 20/21 was 1.3%, as we prioritised occupancy levels over rental growth.

· Started the academic year 21/22 at 81% revenue occupancy, which has increased to 84% since then, at the upper end of our guidance.

· Property costs were £23 million, up by 2%, mainly driven by having to pay council tax on empty rooms as a result of lower occupancy levels.

· The impact of reduced revenue compared to pre-COVID levels produced a gross margin for the year of 58.8% (2020: 61.9%).

· Administration expenses were £10.5 million, below our £11 million guidance.

· Adjusted Earnings for the year were £10 million (2020: £13.9 million), with Adjusted earnings per share of 1.65 pence (2020: 2.30 pence).

· Net gain on disposal of four assets of £1.7 million.

· The net profit from a change in the fair value of investment properties was £17.6 million (2020: loss of £37.6 million).

· Profit before tax of £29.2 million (2020: loss of £24.0 million), with basic earnings per share of 4.84 pence (2020: loss of 3.97 pence).

· Resumed dividend payments in Q4 2021 with a payment of 2.5p.

· Property portfolio valued at £1,022 million (2020: £1,005m). On a like for like basis, the investment property valuation increased by 3%.

· Net Initial Yield improvement to 5.3% (2020: 5.6%).

· EPRA Net Tangible Assets ("NTA") per share up 2.3% to 107.4 pence (2020: 105.0 pence).

· Total accounting return, the sum of income and capital growth, increased by 228% to 4.6% (2020: minus 3.6%).

Good progress on all key commercial priorities to further strengthen the Group's position: actively managing our property portfolio; strengthening our brand proposition; driving performance through data analytics; delivering consistently high customer service; and developing our people.

Further enhancing our business and portfolio

During the year

· Successfully launched our new revenue management system, with all bookings for the 2021/22 academic year now managed in-house. This has delivered annualised cost savings of £1.5 million per annum from September 2021 as well as increasing customer acquisition and revenue.

· Sold four non-core assets for £18.1 million, above book value.

· Pilot refurbishments successfully completed in Bristol and Leeds on time and on budget, which are on track to achieve their target IRR of 9-11%.

Following the year end

· Sold five non-core assets for £26.5 million, in line with the latest book value and our portfolio realignment strategy.

· Acquired the freehold post period end of a new 92-bed purpose-built studio asset in a prime location in Bristol city centre for £19 million with significant reversionary potential, helping to build out our presence in a key target city. We will have a total of 404 beds in the city for the academic year 2022/23.

· Two developments underway in Bristol and Edinburgh will complete in time for the forthcoming academic year and provide accommodation for an additional 212 students.

Strong balance sheet

· Loan to Value for the Group was 33.1%, broadly in line with our 35% long-term target.

· At 31 December 2021, before deduction of loan arrangement fees, the Group had committed investment debt facilities of £420 million, of which £375 million were drawn down. £277 million of this debt is fixed and £98 million is floating. The aggregate cost of debt was 3%, with a weighted average term of 4.9 years.

Responsible business

· Throughout the pandemic, we have taken a supportive approach to our students' situation, granting later check-ins, deferments, cost-free cancellations and refunds. Online reviews suggest this has helped enhance our already strong brand reputation and drive future customer acquisition.

· Our ESG Committee completed a detailed materiality assessment and have agreed clear metrics for our ESG programme including setting a target of achieving net zero in our own operations no later than 2035.

· Commitments to improving health and safety in relation to work on external wall systems and fire stopping.

Encouraged by the outlook for our business and the wider sector 

· As at 2 March 2022, bookings of 36% for the 2022/23 academic year (20% for the 2021/22 academic year as at 16 March 2021), and broadly in line with our pre-Covid bookings at this stage of the year.

· Targeting revenue occupancy for the 2022/23 academic year of 85% to 95% and expect to be towards the top of this range, assuming no further disruption.

· In 2022, we intend to start paying a minimum dividend of 2.5p per share per annum, on a covered and progressive basis, with a view to increasing this as occupancy levels normalise.

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

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® 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

Source: UCAS End of Cycle Report 2021

PBSA Development Pipeline - Constrained Supply

The demand-supply imbalance of high-quality assets in prime locations market remains. According to research combining HESA 2019/20 data and PBSA supply for 2021/22, only 58% of demand for PBSA is currently being met, 66% including consented pipeline. The UK market has seen development volume recover significantly as students return to campus. Over 30,000 beds were completed in 2021, more than double the 14,000 achieved in 2020, a year in which the pandemic disrupted construction programmes and put many developments on hold. A further 21,000 beds are estimated to be in the pipeline for delivery in time for the 2022/23 academic year. However, in the last five years planning application activity has slowed significantly. In the first seven months of 2021, less than 15,000 were submitted for approval, compared with 32,000 during the same period in 2017. This is partly due to some early adopted markets becoming saturated, reducing opportunities for developers. Some markets have been more popular as developers pre-empt emerging and increasingly restrictive local planning authority policies. These include affordable housing requirements and location-specific policies intended to control future development. Furthermore, the impacts of Brexit, COVID-19 and inflationary pressure has led to rapidly rising construction costs, raising challenges for developers over the viability of some projects. These factors may compound to restrict the supply of new PBSA beds in 2022, despite the projected demand growth.

Sector Investment - Strong Investor Appetite

Investor appetite continued to be strong throughout 2021, reflected in the year's transactional activity. In the second half of 2021, investors spent over £2.5 billion on UK PBSA, taking total investment volume for the year to £4.4 billion. In 2020, investment reached £5.9 billion, of which Blackstone's acquisition of the IQ portfolio contributed £4.7 billion. Analysis of transaction volume in 2021 shows a much more active market in 2021, with 35% more deals being struck than in 2020 and 6% more than in 2019. The year saw numerous landmark portfolio deals as an influx of overseas capital was drawn to UK PBSA. Most notably, in December 2021, Blackstone and APG acquired the GCP Student Living portfolio for £1.1 billion, reflecting £277,300 per bed across 4,100 beds in 11 assets.

In the 18 months from March 2020, when COVID-19 lockdown restrictions began, pricing held firm at pre-pandemic levels reflecting the reliance of the sector. With a greater variety and larger weight of capital targeting the sector, the deals in the markets are now reflecting record sharper yields. Subsequently, the year saw some record-breaking single asset deals such as iQ's purchase of 347 beds from Nido in West Hampstead for over £120 million reflecting a yield of 3.80%. Portfolio deals were prevalent in Super Prime Regional and Prime Regional markets at sharper yields too. Notably, in February 2021, Greystar purchased 2,163 beds from Round Hill Capital for £291 million (4.75%) across five assets in London, Glasgow, Coventry and Bristol and Apollo's purchase of 1,655 from Crown Student for £210 million based in Cardiff, Norwich and Portsmouth reflected a yield of 5.25%. In 2021, Asian investors committed over £400 million to UK PBSA. Greystar continued a trend of portfolio deals in January, securing the acquisition of "Project Jura" from Downing for £365 million. The portfolio of 1,807 beds in London, Manchester and Coventry traded for £202,120 per bed.

Market Yields - Best in Class, Direct Let

Market transactions in 2021 have supported yield compressions reported by the leading valuers. CBRE report that between Q4 December 2020 and Q4 December 2021, Best-In-Class Direct Let Central London, Super Prime Regional and Prime Regional yields compressed by 25 basis points, 10 basis points and 25 basis points respectively. After considerable softening in previous years, Secondary Regional yields have stabilised, but remain more polarised from the stronger markets with a risk of further weakening.

In the coming years, more investment is expected to be drawn to the PBSA sector as investors look for stable diversified income returns and counter-cyclical performance in the face of potential economic downturn. With the worst of COVID-19 restrictions widely accepted to be in the past, investors are looking past short-term issues to a growing demand pool. The subsequent growth in demand for high-quality PBSA will continue to outstrip the supply of beds particularly in the prime market. In addition to this undersupply, ongoing uncertainty and investment risk in other global markets is likely to be a key driver for investment into UK student assets. This also follows a wider trend as institutional investors pivot towards assets in the residential sector.

Market Yields - Best-In-Class, Direct Let

Source: CBRE Student Sector Investment Yields, December 2021.

BUSINESS MODEL

Our business model combines an attractive portfolio of high-quality student homes with an efficient in-house operational platform. Together, our operations and assets enable us to create value for all our stakeholders. This allows us to generate attractive returns for our shareholders and build a strong platform for long-term growth.

Key Strengths

Buildings

We have a diverse and attractive portfolio of properties that offer high-quality and safe accommodation to our customers.

Our People

Our people are key to our customer journey. Our passionate and committed colleagues allow us to deliver a high level of service to our customers while maintaining cost control.

Specialist Knowledge

We have the knowledge to develop, acquire and operate high-quality, sustainable student accommodation assets.

Brand

The Hello Student® brand has continued to grow, becoming a leading brand and giving us a clear identity in the student property market.

Financing

We finance our business through a combination of shareholder equity and debt facilities. We have strong liquidity and good relationships with our lenders.

Technology

We continue to leverage technology to augment business processes that drive efficiencies operationally, financially and commercially whilst also improving our user and customer experiences.

How We Add Value

Our Culture

Our people and customers are our key focus and we are here to deliver excellent seamless service and financial returns through working together.

Select Locations/Specifications

We are selective about where we invest, with a focus on the towns and cities that are home to the most successful universities and where student numbers are rising faster than average. We select sites based on their compatibility with the types of accommodation we provide and their proximity to universities and amenities.

Our buildings have on average around 100 beds, which helps to foster a more homely, collegiate feeling to living. However, through our clustering strategy we are able to yield the economies of scale which are generated from larger buildings.

Develop/Buy

Developing assets allows us to acquire them at a greater yield on cost than buying standing assets. Forward-funded projects are typically less complex than direct developments and have a lower risk profile, as the planning, construction and time risk lies with the third-party developer. These projects also have lower staffing requirements and benefit from a forward-funding coupon charged to the developer. However, direct development delivers higher-yielding assets than forward funding. We have a strong proven track record in direct development.

We also buy standing assets when a specific opportunity arises which complements our portfolio.

Operate

Our assets are marketed through our Hello Student® platform. This platform gives us a clearly identifiable brand which helps to offer our customers a range of options. Encouraging our people to follow our values helps to increase ownership and pride in our homes. This ensures that customers have the best experience possible, helping to drive occupancy, rents and profit.

We have a student welfare programme in place to ensure that we provide the support that our customers need during their stay with us.

Reinvest

We intend to hold our buildings for the long term. However, we may sell an asset if we see an opportunity to create more value for shareholders by reinvesting the proceeds. We therefore continually review the portfolio to ensure our capital is effectively allocated.

Outputs for our Stakeholders

Customers

Our customers benefit from having a great home to live in during their studies, at a rent that represents value for money.

NPS in the Global Student Living Index: +22

Higher than PBSA private hall average +20

Our People

Our people have the opportunity to develop their careers in an exciting and growing sector.

Colleague Engagement Score: 82%

Shareholders

Shareholders benefit from Total Returns which are underpinned by income and continued rental growth.

Total Return target of 7-9%

Communities

The communities around our assets benefit from increased employment, reduced pressure on local housing stock, and from the improvements we fund to social infrastructure in the surrounding area.

Net Carbon Neutral Target by 2035

OUR STRATEGY

Continuing to make progress against our strategic objectives.

KPI Links

A. Rebooker Rate

B. Net Promoter Score

C. Revenue Occupancy

D. Safety - Number of Accidents

E. Colleague Engagement

F. Gross Margin

G. Adjusted Earnings per Share

H. Dividend Cover

I. Net Asset Value per Share

J. Total Return

Risks Links

External Risks

E1. Revenue Risk

E2. Competition Risk

E3. Property Market Risk

E4. Regulatory Risk

E5. Funding Risk

Internal Risks

I1. Health and Safety Risk

I2. Cyber Security Risk

I3. People Risk

I4. Safe and Sustainable Buildings Risk

Strategy in Action

CUSTOMERS

Caring for our customers

Delivering Consistently High Customer Service

The Group undertakes a biannual survey with the Global Student Living Index. The outcome in Q4 was a Net Promoter Score ("NPS") of +22 - slightly lower than Spring 2021 (+27) but in line with Autumn last year (+21).

82% rated their accommodation positively, in line with private hall and large operator benchmarks (83%). 70% said their accommodation had a positive impact on their wellbeing, an improvement on Spring and Autumn 2020 (67%). The wellbeing impact score is an encouraging 4% points above the benchmark for UK private halls (66%). 28% said they would be staying in their current accommodation next year, higher than the average for private halls. 77% of students rated their moving-in experience as good or very good, with the highest rating score being the staff welcome. All of these scores were ahead of our peers despite the difficulty COVID-19 has brought.

"Customer service is key to retaining customers and ensuring our brand is spread by word of mouth."

OUR PEOPLE AND OPERATIONS

Supporting our people

Training Our People

Our key focus as a business is providing the best experience for our students. Our people are on the front line of providing that experience and as such any investment in our people means happy customers.

We have a dedicated in-house training resource which specialises in ensuring all our people provide great customer service. These skills stay with our people for a lifetime and so will help them through all stages of their career. Despite the challenges posed by COVID-19 we have delivered 120 hours of sales and customer training to our people.

The impact of this training is clear to see in the reviews our students leave across various platforms. We have selected two examples here out of the many we read.

"Perfect location within a short walk to town, the uni and the beaches. Incredible staff who are on-site most days, no issue is too big or small, there is always someone to help, whether that's a maintenance issue or just for someone to talk to. Best accommodation I've stayed in, this is one of the reasons why I rebooked."

Resident - Ocean View

"Moved in here three months ago and really glad I chose this place. The location couldn't have been better, given the proximity to the city centre as well as uni. The staff is super sweet and friendly, always a delight to chat with, and they've gone above and beyond their duties to ensure our comfort and safety. Barring the ongoing COVID-19 situation, they organise events and socials so I think that's cool. Overall, the facilities and everything about this place has fairly exceeded my expectations so there's no complaints so far. Oh, and the best part? Free coffee in the common room!"

Resident - York Foss Studios

Throughout the pandemic we continued to ensure our training schedule was unaffected, delivering training through video conferences.

CHIEF EXECUTIVE OFFICER'S REVIEW

Delivering our strategic priorities

"We have made good progress executing our strategy through investment in our people, customers, assets and systems, despite the challenges of the pandemic."

Throughout the year, we remained committed to supporting and doing the right thing by each student on a case-by-case basis, focusing on Health and Safety, whilst also protecting the long-term value of the Group, even though 2021 brought further challenging times as the pandemic continued to disrupt many students' education plans.

In March 2021, we identified five key priorities that would drive value for shareholders:

Driving performance to improve shareholder returns

Five Key Priorities

1.

Actively Managing the Property Portfolio

2.

Strengthening our Brand Proposition

3.

Driving Performance through Data Analytics

4.

Delivering Consistent Customer Service

5.

Developing Our People

An overriding focus that spans everything we do is the safety and wellbeing of our colleagues, customers, communities and stakeholders, and we have devoted significant resources to ensure this is the case.

I will expand on this, as we look at the progress of each of these priorities in turn:

Actively Managing the Property Portfolio

As at 31 December 2021, we owned or were committed to owning 91 assets with 9,170 beds (31 December 2020: 95 assets, representing 9,396 beds). Of these, 87 were revenue-generating assets, with 8,543 beds (31 December 2020: 91 were revenue-generating assets, with 8,887 beds).

Portfolio Safety

Safety remains our top priority as a business and to that end we ensure that our buildings comply with not only all relevant regulations but also with best practice within the industry. We have updated our fire risk and mitigation strategies throughout our estate, and where appropriate that includes undertaking detailed External Wall Surveys. Such surveys will ensure any potential risks are clearly identified and are being undertaken by highly experienced professional teams and where necessary qualified experts. Should remedial actions be identified as necessary, these are being addressed. In our interim results, we previously advised that we planned to spend £30 million on fire safety works in our buildings. However, we are uncertain how much we will recover from developers so we have increased this estimate to £37 million.

Independent Valuation

Each property in our portfolio has been independently valued by CBRE, in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Professional Standards January 2014 (the "Red Book"). At 31 December 2021, the portfolio was valued at £1,022 million, an increase of 2% from prior year (31 December 2020: £1,005 million). See valuation bridge further on which details the breakdown of the fair value movement in the year.

Property Portfolio Management

As described last year, we have undertaken a strategic review of our portfolio, with the aim of rationalising it to maximise the expertise, positive reputation, and commercial power of the Hello Student® brand. We have made good progress disposing of non-core assets, and to date we have sold £45 million of these, which on aggregate have sold above book value.

This gives us an opportunity for capital recycling, which we will undertake whilst focusing on the best interests of shareholders. This includes consideration of investment in refurbishments or reconfigurations, as we aim to bring the portfolio to a consistently high standard, where we have identified £44 million of refurbishment capex to be spent over five years. This spend will be subject to a hurdle rate of 9-11% IRR. During the year, we completed two pilot refurbishment schemes to upgrade rooms, both of which were successfully completed and achieved target IRR. As a result, we have drawn up plans to roll out the refurbishment programme and will make progress on this in 2022.

"Safety remains our top priority as a business."

Total operational beds

March 2022

8,391

AY 2022/23

8,603

"We help build futures by providing the best and safest buildings, environments and support for our students to study and flourish. We continuously focus on improving our offer."

As a refresher on the portfolio segmentation:

Segment A comprises properties we regard as core Hello Student® sites. They are in great condition, properly configured and produce our best results. Apart from a continuous programme of ensuring they remain in great condition, there are no further significant actions to take with the existing sites. This segment is targeted for growth through either acquisitions or developments, as described below.

Segment B comprises sites which fundamentally meet the Hello Student® criteria, but need investment in refurbishment or modest reconfiguration, to upgrade them to core Hello Student® brand standards, and thus command an improved rental yield. We will invest in these sites, assuming the 9-11% IRRs hurdle rate. The objective is to eliminate this segment over a five-year period.

Segment C comprises sites which are not core Hello Student® sites for various reasons, but have good commercial characteristics. This segment might also offer interesting opportunities for different ownership models which we will explore further. They can be divided into two subcategories.

The first sub-category comprises sites ideally suited to first-year UK students (who are not core Hello Student® customers). However, with nomination agreements for these sites, they represent attractive commercial propositions. Should this not be possible for any reason, they could be disposal targets, as has already been identified for one site.

The second sub-category comprises sites that do not fit our core Hello Student® criteria but are ideal for mature graduates or postgraduates who often look for accommodation in quieter locations, or in city centres, or perhaps something more suitable for couples. In 2022 or 2023 we will be trialling a sub-brand of Hello Student® aimed at more mature students, enabling us to retain, and "upgrade" existing customers as they continue their further studies, allowing us to benefit from building loyalty through their Hello Student® experiences.

Segment D comprises properties that currently represent approximately 8% of the value of our portfolio, which for various reasons no longer remain core. The disposal programme has realised £45 million in gross proceeds so far, and we remain confident that the remaining properties will be sold over the course of the next 18 months, after which segment D will no longer exist.

Proceeds from disposal are being deployed in the best interests of shareholders, and a variety of opportunities will be evaluated. This will include reinvestment in new developments, refurbishments or acquisitions to grow our Segment A core Hello Student® portfolio, especially on a cluster density increase basis.

Developments and Redevelopments

Work is progressing well at St Mary's Hospital in Bristol which will be completed in time to operate for the 2022/23 academic year.

Due to COVID-19 we paused two projects, a development in Canterbury called Franciscans, and a refurbishment in Edinburgh called Southbridge. The latter is now scheduled to begin construction in 2022.

In December 2020 we secured planning permission for the redevelopment of Francis Gardner Apartments in London. The new seven-storey development will provide 18 new bedrooms with a mix of two, three and four-bed flats with shared kitchens and living facilities.

Portfolio Growth Strategy

As we release cash through the disposal programme, reinvestment will take place in two separate ways. Firstly, there is the capex deployment as identified above to bring our existing portfolio to standard, and secondly there is the development or acquisition of new bed stock. We have undertaken a strategic review of growth locations and will invest in growing bed stock in those cities with Russell Group, or closely adjacent to Russell Group Universities, where international student participation is targeted for growth over the next ten years or longer.

Development Pipeline

"University is a time for making new friends, learning new things and having new experiences. Experiences that create memories to last a lifetime. And Hello Student is more than just a home from home, we're basecamp for your next adventure."

We will drive operational efficiencies through acquiring or developing new sites in these cities that are close to well-located existing sites. This clustering strategy delivers the benefits of scale of additional beds, whilst maintaining the personalised service and positioning requirements of being a Hello Student® property, with that key homely boutique feel.

Strengthening Our Brand Proposition (including Our Sustainability Approach)

It is critical that we enshrine data-driven customer insight into our property and service offerings, and into our designs and development. It should also drive innovation and our marketing and communications strategies. In 2021 we undertook extensive qualitative and quantitative customer research which is informing our plans, especially on executing the digital customer journey where we are working on an overhaul of our website and communications.

Our Hello Student® brand has good awareness and reputation, and we have used the customer insight to refine its proposition.

Its execution in the various media we use to communicate will be revisited to ensure we have the right reach in the right channels. Our aim is to build further on the strength of our brand within our properties and ensure the Hello Student® name becomes more prominent within the student accommodation sector.

Our customers mostly belong to the late Millennial or early Generation Z demographic groupings, and as such it is highly important for them to choose service providers who act in a sustainable and responsible way. As such, ESG is not just a corporate requirement for us, it is a customer necessity. We have covered this key area in a major section of this Annual Report on [page X]. Suffice to say it is driven by a wish to inspire colleagues, customers and investors.

Driving Performance through Data Analytics

Our Hello Hub operating platform has given us a complete in-house solution to managing our own revenues. Not only do we have the technical systems in place, with the help of experts in this field we have completely revised our revenue management processes, accountabilities and now systemised our dynamic pricing approach. Algorithms have been written, data management expertise has been brought in-house, and this is being used for the first time to take weekly pricing decisions, enabling us to improve rental yields over time.

As an example, we used our data analytics on a slow to fill city, finding that our room categorisation was too complicated, not understood by potential customers, and as a result they abandoned their search with Hello Student® and went to competitors. Changes were made to simplify room types and their digital route to market, and within two weeks this city grew their occupancy over 50% more than the average occupancy growth across the portfolio.

Dynamic pricing gives us a formalised time-bound process to maximise our revenues on sites that are in high demand, and similarly to maximise occupancy in those slower to fill. Our premium positioning and improvements in quality and customer service will enable us to command better rents. The use of data is now giving us the best possible direct control of room categorisation and price setting, informed by real-time sales and competitor data.

Delivering Consistent Customer Service

Since foundation, the Company has been on a service journey. Until relatively recently, it was largely outsourced with relatively little direct control over its nature, quality or consistency. Operations were fully brought in-house three years ago, and since then we have been building the people management expertise, and now it is time to really drive a service culture and put customer experience at the heart of what we deliver.

In 2021 we changed our working patterns and introduced 24-hour service at our sites, improving safety and security and customer engagement. Our reception desks are now manned when our customers most need to talk to us, not just "9-5". We have our own maintenance team, shared between clusters of sites, so that we can quickly and cost effectively complete repairs and only call in experts when more complex maintenance is required.

Service requirements and standards are set through researched customer insight and are measured through satisfaction surveys. In 2021 extensive customer insight has been gathered in order to determine the most important elements, and we have joined the Global Student Living Index in order to benchmark our performance against others. Through this, we get a Net Promoter Score ("NPS") twice yearly, where we can benchmark progress, areas of shortfall that need addressing, and understand our competitive position.

The most recent result gave us an NPS of +22 which has grown 1 point over the last 12 months, and compares to an all-sector average of -8 and a private halls average of +20. This means we are 2 points above the average for our comparator group competitors, which we need to be in order to earn our premium positioning.

24hr

service at our sites

NPS

+22

against PBSA Private halls average of +20

Colleague Engagement Score

82%

(2020: 83%)

Understanding our customers' growing needs is critical to maintaining competitive edge, and delivering a consistent experience remains the challenge. We also understand that knowing our residents' families, especially their parents, is a key part of reassurance that makes the Hello Student® experience different from those in halls of residence or HMOs.

Supporting Our Customers

During 2021 we have provided a Student Assistance Programme in partnership with Endsleigh and Health Assured. This scheme provides a suite of wellbeing services for our customers, offering them support to deal with physical and mental health issues or financial difficulties. The provision of this scheme has also supported some universities that have faced challenges in providing sufficient wellbeing support to their students throughout the pandemic and this will not just be in place during COVID-19 times but a permanent enhancement of our student wellbeing support.

In addition, we have invested in Mental Health First Aid training for all of our key colleagues, in partnership with MHFA England. Whilst we do not profess to be medical experts, our team are now equipped to identify potential issues and assist students to get the professional support they require, particularly at times of stress such as examinations.

Developing our People

At the heart of any service business are the people that design, support and deliver the customer experience. It has been a key priority in 2021, and will remain so, to invest in our people to ensure we remain at the competitive leading edge providing premium experiences.

Health and Safety

Health and safety is of paramount importance to the Group. We have a legal and moral responsibility to ensure that everyone who is living, working in or visiting our buildings is kept safe. Our customer insight shows it is the number one priority, by some margin, for our students.

In particular, we have focused on fire safety, ensuring that we are ahead of any legislative changes and that we have risk assessments, qualified surveys, mitigation procedures, checking processes and we invest in prevention and mitigation. To this end, we have allocated £37 million capex over the next five years, to undertake any building changes required.

Our buildings are inspected on a regular basis to ensure that we identify and eliminate hazards. To assess the buildings we have engaged with specialist consultants to undertake thorough assessments of general safety, hazards, fire risks and prevention and water systems and treatment against Legionella.

During 2021 we have undertaken extensive formal health and safety training by the Institute of Occupational Safety and Health ("IOSH") for our teams, from the Board to the front line.

We have delivered a series of Toolbox Talks which are in document and e-learning format enabling all site teams to have continual access to training.

A Health & Safety Forum has been implemented during 2021 which includes representatives from teams throughout the country.

Investments in People

In January 2020, we appointed a Training & Development Manager to design and deliver programmes to our people for their personal and professional growth, which range from mandatory training for governance to selling and practical skills. We have further enhanced this, with the engagement of an experienced performance improvement coach who is helping the leadership team to improve effectiveness.

We overhauled our e-learning platform and provided support for new learning opportunities to various roles within the business. This change in emphasis from classroom to online webinar delivery has been efficient, especially during restrictions from the pandemic, and we have continued to focus on key sessions such as sales and customer services to increase the knowledge and skills of our operational teams.

We increased focus on mandatory training with new measures to track compliance levels and ensure high standards are being achieved. In 2022 we will enhance the skills of colleagues within our maintenance teams. This will allow for cost efficiencies as a broader range of repairs and maintenance works can be conducted in-house, and will also develop the network of our regional teams so they are able to support each other across the country.

We recognised the contribution that our front-line operational teams have made to our customers and the business and in 2021, we increased pay to align with the Real Living Wage as our minimum, and we are committed to pay a fair wage for all core roles. We have accreditation from the Real Living Wage Foundation and have undertaken to uphold those standards for years to come.

As in previous years, we have undertaken a colleague engagement survey which achieved a response rate of 64% and an overall colleague engagement score of 82% against the UK all-sector average of 68% and previous year's result of 83%. These results were delivered despite the current pandemic and help to give us a better understanding of what matters to our people and to ensure we deliver improvements.

To provide a higher quality, consistent 24/7 personalised service, we need the right calibre of people, appropriately rewarded, who are trained and developed. That process is underway and we have already made changes to our site management structure and invested in quality colleagues to reduce turnover and increase our service engagement. To deliver a personalised homely service we need our front-line colleagues to be in their positions for a long time to develop those critical customer relationships, so measuring turnover and retention will be key.

We will put more focus and resources into developing our people, with an aim of significantly raising the proportion of internal promotions versus external recruitment.

STRATEGY IN ACTION

Buildings

Refurbishing our key assets

Summer Refurbishments

Leeds Pennine House & Bristol College Green

In the summer of 2021, we undertook the first stage of our refurbishment programme. This consisted of a refurbishment of 37 beds across two buildings and a refreshing of our communal areas in Leeds. These refurbishments were completed over the summer while students were still in situ within the building with no disruption. The total project cost was £1.5 million with a number of works undertaken which will ensure the second phase of renovations in these buildings can be completed at a lower cost. The studio suites have been adapted and fully upgraded to include new kitchen, study, bedspace and extended storage facilities. Bathrooms were refreshed including new shower enclosures, equipment and accessories. All works were carried out to a market-leading standard.

"All refurbished rooms are 100% occupied for the 2021/22 academic year."

28% rental uplift achieved on the newly refurbished rooms

Developing Our People

Introducing our new values

We have redefined and relaunched our values from the grassroots up.

On 1 July 2021 we relaunched our values; in developing our values we started with interactive colleague workshops, mainly as face-to-face sessions, delivered at locations across the UK.

Where this was not possible we also ran some virtual sessions meaning everyone had the opportunity to contribute their ideas. This ranged from colleagues to customers who all had an opportunity to feed into our values. The outputs were then put to the Colleague Forum who reviewed them and came up with the anacronym HOMES. The final values were then shared across the business and were met with very positive sentiment.

Our new values

Honest

We value transparency and integrity in our words and actions.

One

We work as one team to develop safe, friendly and inclusive communities for our customers and colleagues.

Memorable

We create positive experiences and lifelong memories.

Equals

We welcome individual differences and support each other with the same amount of respect and kindness.

Successful

We provide high-quality services that deliver results now and for the future.

Value in Action

One

We believe that we are all truly one equal team where we want to work hard to ensure we develop safe, friendly and inclusive communities for our customers. We ensure all people managers in the Group have undertaken mental health first aid training and that colleagues endeavour to respond to customers as soon as they can. This value stretches throughout the organisation and helps underpin everything else that we do.

Value in Action

Equal

We believe and support everyone from all backgrounds. For the first time in 2021 we started an exercise to understand the ethnicity of our workforce and how we could ensure that we continue to be a welcoming business.

We have also continued our obligations to report under the gender pay gap. For another year our gender pay gap is actually negative, which means that on average within our businesswomen are paid more than men. We want to ensure that we are always an equal employer but also always ensure we welcome people from all backgrounds in our buildings as well.

KEY PERFORMANCE INDICATORS

Monitoring our performance

Non-Financial KPIs

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

Strategic Links

1. Customers

2. Brand

3. People and Operations

4. Buildings

5. Shareholders

DUNCAN GARROOD

Chief Executive Officer

2 March 2022

CFO AND CSO STATEMENT

Driving efficiencies

"We have had a busy year, embedding new systems and change so that we have a strong platform for growth."

2021 has seen us complete what can be viewed as the first phase of our operational transformation which we started in 2018, with all activities now safely migrated in-house. The key final milestone this year was the previous external revenue management contract ending in October 2021 with the academic year 2020/21 being the final one externally managed. In November 2020 we had already started selling for the academic year 2021/22 on our in-house platform for the first time, and throughout 2021 we have now also successfully taken payments directly from students for the first time.

This first phase of the transformation journey has been a significant undertaking, and I would like to thank the entire team for their contribution in making this happen.

The next phase of our transformation will see us focus on continuing to drive performance and efficiency across the business, with the key areas of operational focus in this respect in 2021 having been:

- Completed the induction and establishment in the senior team of the CEO and Head of Property Director, who both joined towards the end of the previous financial year, and for the Sales & Marketing Director who joined in June 2021.

- Embedding the day-to-day management of the in-house revenue management platform and the related dynamic pricing model.

- Re-structuring of the IT team and the development of a small project office to assist in the further rationalisation of our IT platforms and automation of processes.

- An external review of cyber security and IT enterprise architecture.

Revenue Management System

The final work on our new revenue management system concluded in October when we brought the process for the collection of Receivables in-house. This is now a centralised function within the finance team.

This system gives us direct control of our revenue management, enabling us to make price changes more efficiently and swiftly:

· it allows us to manage the relationship with our customers directly end to end;

· it makes debt collection easier, and importantly we are delivering annualised cost savings of £1.5 million which started in September.

Financial Performance

Our performance in 2021 continued to be impacted by COVID-19 but there was an improvement as restrictions relaxed during the year and despite the Omicron surge in December we ended the year with greater confidence that market conditions are starting to normalise for academic year 2022/23.

Revenue decreased 6% to £56.0 million, as occupancy for the first eight months in 2021 was 65% compared to 84% for the same period in 2020. We started the academic year 2021/22 at 81% occupancy and this has increased to 84% since then.

Like for Like rental growth for the 2020/21 academic year was 1.3% as reported previously, as we prioritised occupancy levels over rental growth.

Property Expenses were up 2% mainly driven by having to pay council tax on empty rooms as a result of lower occupancy levels.

Gross Margin decreased from 62% to 59% as a result of a £3.5 million fall in revenue.

During the period we sold four assets with a net gain on disposal of £1.7 million.

Since the year end you will have seen that we have announced further disposals of five assets also above book value alongside one acquisition. These have been reported on as assets held for sale as at the balance sheet date.

The net profit from a change in the fair value of investment properties was £17.6 million compared to a £37.6 million loss the previous year.

Net finance expense was £12.4 million, 7% less than last year due to maintaining the RCF at a lower level and continued low interest rates.

The result of this is a profit before tax of £29.2 million, (2020: loss £24.0 million). No corporation tax was charged, as the Group fulfilled all of its obligations as a UK Real Estate Investment Trust ("REIT"). Basic earnings per share ("EPS") was therefore 4.84 pence and also 4.84 pence on a diluted basis (2020: loss (3.97) pence and (3.97) pence (diluted).

Adjusted EPS is the most relevant measure of earnings when assessing dividend distributions.

In 2021 Adjusted EPS was 1.65 pence (2020: 2.30). This shows that the underlying operating business is continuing to generate cash despite the impact of the pandemic.

The Net Asset Value ("NAV") per share as at 31 December 2021 was 107.36 pence, (31 December 2020: 105.00 pence.

The NAV is shown net of all property acquisition costs and dividends paid during the year.

Valuation Movement

During 2021 we sold four assets for £18.1 million, above the book value shown here of £16.3 million. After that disposal the portfolio was valued at £988.8 million.

In August 2021 we indicated we would spend £30 million on health and safety works over the next five years. We are uncertain how much we will recover from developers, so we have increased this to £37 million. CBRE accepted management's assumption is that £17.2 million of this cost should now be reflected in the valuation at the year-end in respect of in respect of work on fire stopping and external wall systems.

The value of developments has fallen by £2.5 million due to a delay in obtaining planning consent on Canterbury.

At the end of December 20, we reported a COVID-19 related reduction in the year end portfolio valuation of £21.4 million mainly due to CBRE's assumption of 50% occupancy for the balance of the academic year.

We are now reporting a £15.2 million move in our favour as CBRE reduced their COVID-19 deduction to £6.2 million. This deduction of £6.2 million relates to the balance of the 2021/22 academic year only, with no deduction proposed for the academic year 2022/23.

During the year we spent £8.0 million on capital expenditure and £7.4 million on development.

Our operational assets increased in value by £21.3 million, driven by improved rental growth on our super prime assets, partially offset by a reduction in secondary assets.

Our commercial portfolio, which comprises convenience stores and restaurants within our sites, went up £0.8 million.

The valuation at the end of December, before adjusting for assets that have been sold following the year end, was £1.022 billion.

Over the year Net Initial Yield has slightly improved from 5.6% to 5.3%.

Dividends

The dividends declared in respect of the 2021 financial year are shown in the table.

We are pleased to report that we resumed dividend payments in Q4 2021 with a payment of 2.5p per share. This comprises the PID distribution requirement of 1p per share for the financial year 2019 and 1.5p per share for 2020. In 2022, we plan to start paying a minimum dividend of 2.5p per share per annum, with a view to increasing this as occupancy levels normalise.

Our future dividend policy will be progressive, whilst also ensuring that dividends are paid on a fully covered basis. Driving long-term shareholder value remains top of our agenda as we drive value-enhancing changes in our business.

Debt

At the year end, before deduction of loan arrangement fees, the Group had committed investment debt facilities of £420 million, of which £375 million were drawn down (2020: £390 million drawn down).

Of our drawn investment debt, £277 million of this debt is fixed and £98 million is floating. The aggregate cost of our investment debt was 3.0%, with a weighted average term of 4.9 years.

The Loan to Value for the Group was 33.1% (2020: 35.4%), broadly in line with our long-term LTV target of 35%.

We have also agreed waivers or an easing of covenant requirements on all our debt to ensure that we remain covenant compliant throughout the pandemic.

We currently have around £44 million of unencumbered assets and as at the year end we had £82 million of undrawn investment facilities and cash.

We have one facility which is due in less than one year. The facility totals £90million of which £45million was drawn at the end of the year. Post year end we have signed an extension for a further three years. Once completed we expect to have no further financing requirements until March 2023.

RESPONSIBLE BUSINESS - ESG

Responsible and sustainable approach

The Board believes that ESG must be fully embedded within all activities within the Group for it to succeed.

Our ESG Journey and Commitment to Stakeholders

We are committed to creating and operating a responsible and sustainable business which has a positive impact on all of our stakeholders. During 2020 we established a Board level ESG Committee tasked with providing a roadmap to deliver a significant step change in our approach to ESG.

Our purpose is to help students make the most of their university life by providing safe and modern living spaces with service that makes them feel at home.

In 2021 the ESG Committee undertook our first formal materiality assessment. The decision to undertake a materiality assessment was driven by a number of considerations. Firstly, a materiality assessment would help inform the Group's future sustainability strategy. It would allow the Group to identify what organisational changes would be required and, what tools, resources or investment would be needed to implement a robust ESG strategy. Importantly, a materiality assessment would enable the Group to prioritise what the business can or should do to support its key stakeholders whilst communicating this both internally and externally. Finally, completing a materiality assessment would allow the Group to rationalise to key stakeholders why it was prioritising certain topics within its future sustainability strategy and disclosure.

Materiality Matrix

The assessment, led by our Board and ESG Committee, was undertaken by an independent third party to ensure confidentiality and impartiality. The assessment was conducted according to the Global Reporting Initiative ("GRI") and its reporting standards.

To ensure that we fully understood the priorities and needs of our stakeholders, we:

- Listened to over 1,700 students to better understand our customers' needs and expectations.

- Undertook a range of surveys and focus groups with our colleagues.

- Conducted one-to-one interviews with other stakeholders, such as investors, banks, professional advisers and analysts.

Following the assessments above, our external adviser analysed and assessed qualitative information to determine the key topics identified by stakeholders, with the output of the materiality matrix detailed opposite.

The ESG Committee reviewed the materiality matrix and decided to combine the "energy efficiency & consumption" and "Sustainable properties" topics under one heading. The Committee also decided to add a fourth topic around how Empiric aims to provide opportunities for all through its business activities.

We have structured our Responsible Business section so that we have an individual section for each of our four key topics:

- Becoming a sustainable business and achieving net zero

- Excelling in providing health and safety

- Enhancing mental health & wellbeing

- Providing opportunities for all

We are committed to improving our contribution to the environment, our social obligations to employees, suppliers, customers and the communities in which we operate. Our activities will be guided by setting ambitious and challenging targets that will guide our strategy, operations and employees over the coming years.

ESG

Management Framework

ESG Committee

The Committee will oversee…

the creation of overall ESG strategy for the Group, ensuring that there is Board level discussion and input.

The Board

The Board has overall responsibility for…

the Group's ESG strategy and the direction which the Group will take.

Senior Leadership Team

Senior management are responsible for…

ensuring this ESG strategy is embedded throughout the business and providing key support to communities.

Our People

The successful delivery of an ESG strategy across our business will require the collaboration and support of all our people.

Becoming a sustainable business and achieving net zero

We intend to become net zero in our operations, property portfolio and energy consumption by 2035 or before. We will reduce the environmental impact of the buildings annually as part of a strategy through investment in energy and resource efficiencies and encourage our students to increase their sustainable behaviour. We have also set a wider target of being net zero in all our emissions (adding scope 3) by 2050 or sooner.

Actions Undertaken During 2021

As part of our ambition to achieve net zero we have appointed CBRE to undertake an overarching Net Zero report, this will help us to define KPIs and also areas in which we need stronger governance. As part of this report, there will be a section that we publish on our website under a new ESG section.

We have also commissioned our utilities adviser to build an asset-by-asset roadmap of our existing portfolio. This will contain yearly targets and activities and highlight to us where best to invest our capital. As part of this project, in our June 2021 Interim Report we announced that we had ringfenced £4 million of green expenditure over the next five years to help achieve these goals.

In December 2021 we undertook our first pilot green initiative in Manchester on two assets. This project involved the installation of new panel heaters in the building which were then connected to our heating network. This project will pay for itself in energy savings over a period of less than two years. This pilot initiative was completed without any disturbance to our customers and has helped design the blueprint for future initiatives.

During 2021 we also replaced all of our on-site vans with electric vehicles; see case study for more detail. These vans can then be charged on-site where the electricity we use in our buildings is 100% renewable. This is backed by UK-based renewable generation certificates administered by Ofgem. This means the electricity we use is generated in renewable ways ranging from solar and wind turbines to anaerobic digestion and biomass plants.

Finally in 2021 we signed up to become a supporter of the TCFD. This is our first year in complying with disclosures in line with TCFD recommendations. We expect these disclosures to evolve as we start to define our pathway to net zero carbon and will become fully compliant in the future.

Key Aims for 2022

- Disclosure of our EPC position across the Group and steps being taken to improve this.

- Continue our roadmap of planned energy efficiency initiatives across the portfolio.

- Increase the ESG disclosures on our corporate website to increase transparency.

- Publish CBRE's Net Zero report on our website.

Electric Vans: case study

During 2021 the lease on our six diesel work vans came up for renewal and the decision was quickly made to replace these with green electric work vans. Although this came at a slight premium, it was an important message to make to underline our commitment to ESG. As part of the project we installed electric charging stations at six buildings and were able to utilise our renewable electricity. Our people and students reacted very positively to the roll out of the new electric vans with posts being made on Workplace, our internal social media site.

Excelling in Providing Health and Safety

We will continue to build on our established good practice in Health and Safety where we operate. We will do this by continuing to target zero RIDDORs each year as defined by the HSE. We also understand the need to create environments that make our students and employees feel safe. Needing to feel safe always scores highly in our customer surveys and we have a duty to address that.

Actions Undertaken During 2021

In our 2021 Interim Report we announced that we would be spending circa £30 million on fire safety works in our buildings. However, we are uncertain how much we will recover from developers so we have increased this estimate to £37 million.

This workstream was split into two sections. The first part includes fire compartmentation works, where we undertook works on 29 buildings in 2021, with a further 30 buildings planned for 2022 and 2023. The second part of the workstream was external wall system ("EWS") surveys. We undertook EWS surveys on our 20 buildings which were classed as high-risk due to their height being over 18 metres. The actions are currently being worked through by our property team.

Keeping our people and customers safe is always of paramount importance to us. We have continued to maintain a number of initiatives within our buildings to ensure safety during the COVID-19 pandemic, and we have also been agile and amended these safety measures in line with government guidance.

We undertook a large training programme with the Institute of Occupational Safety and Health during the year; see case study for detail. One outcome of this training was the decision to review and relaunch our existing health and safety policy to ensure it was up to date and relevant. This was relaunched in October 2021 alongside a secondary document which gives guidance on the key aspects of the policy document which are pertinent to each job role.

Key Aims for 2022

- We have hired a full-time in-house Health and Safety expert to increase the resource and knowledge with the business. We also want an internal expert to help us facilitate and embed a culture change throughout the business.

- Define and establish KPIs for external reporting around Colleague Engagement, Training, Incident Reporting and Student Feedback.

- Continue to undertake the capital expenditure on our fire safety projects.

IOSH Training: case study

During the year we undertook a number of training courses with IOSH. There were two main streams of training, firstly the frontline IOSH training programme. This consisted of three separate courses: Managing Safely, Working Safely and Fire Safety. This was delivered as a hybrid of in-person and online teaching to our people. We had 120 of our front line people complete the course and the feedback we had was overwhelmingly positive.

The second stream of training was the IOSH Leading Safely course. This was a full day in -person course delivered to three Board members and three Executive Committee members. Each attendee made a number of key safety commitments which will be woven into our health and safety strategy.

Enhancing Mental Health & Wellbeing

The wellbeing and mental health of our students and employees is a top priority for us. We also know how it can make a positive impact on our business and the wider community.

Actions Undertaken During 2021

During 2021 we undertook a number of different actions to enhance the mental health and wellbeing for both Colleagues and our Customers. One of the key actions undertaken was mental health training undertaken with Mental Health First Aid England, discussed further in our case study.

We launched a series of awareness and wellbeing weeks across the business. In May we had our Mental Health Awareness Week with the theme of nature; we encouraged colleagues to get outdoors and share their pictures on a new ESG workgroup on Workplace and used the opportunity to remind everyone how to access support to improve their wellbeing and mental health. In October we launched a series of wellbeing weeks, where we featured a different aspect of wellbeing each week, encouraging managers to engage their team members in discussions that will increase awareness about the support tools we offer and demonstrate that we care about the health and wellbeing of our people.

We also launched a "How are you Feeling?" survey undertaken by our London office-based colleagues following extended period of remote working and an announcement of a planned office move to London Bridge later in the year. The survey results indicated a strong preference for "hybrid working" to become the new norm. A working party was set up to further review and respond to the results, combined with communication updates for the new office.

We launched a further round of refunds and discounts to help our customers who had been impacted by the COVID-19 pandemic. One of the main considerations around offering the refunds was the impact of stress on our customers' mental health.

In 2021 we have continued in partnership with Endsleigh, a student assistance programme. This programme provides our customers with unlimited access to a 24/7 mental health and confidential counselling service (BACP accredited) through a telephone helpline. We believe supporting our customers' wellbeing is paramount.

Key Aims for 2022

- Improve our Best Companies score as well as our student satisfaction score.

- Define and develop how we evaluate our approach to the wellbeing of all our stakeholders before being able to set out, define and establish KPIs.

Mental Health & Wellbeing Training: case study

We partnered with Mental Health First Aid England ("MHFA") to deliver training to all people managers to improve their knowledge, awareness and understanding in supporting both team members and students. Separate shorter sessions were also delivered for key frontline roles, Customer Service Advisers and Night Caretakers initially. This meant that everyone from our CEO to our front-line staff had undertaken some form of mental health first aid training to ensure we can help protect our customers and our people as well as ourselves. We want to continue to progress this training in future years with regular top-up sessions and forum discussions.

Providing Opportunities For All

We believe that being inclusive improves opportunities for our students, employees and people living in the communities we operate in. This will not only create long-term value to our business, but also society.

Actions Undertaken During 2021

Our first action in 2021 was to become a Living Wage Employer from 1 January 2021. We are committed to ensuring that we continue to hold this accreditation as we strongly believe our people should be fairly rewarded.

We have introduced two new KPIs around our people. Firstly, a mandatory training KPI established for monthly tracking and reporting. This has shown a 44% increase in the year. Secondly, a new KPI to track internal promotions into eligible roles, this is currently running at 23%, meaning that just over one in five roles advertised are filled internally by promotion.

To help assist internal promotions we have launched a skills matrix for maintenance operatives and day/night caretakers. This self-assessment allows us to gauge current levels of ability and confidence to complete certain tasks. It also highlights areas where we will develop a training plan to increase capability and reduce external spend as well as upskilling our people. This allows our people to work as one team and to treat others as equals. These feed into our Values as a business which we relaunched in the year; see the case study for more detail.

Key Aims for 2022

- Continue to support and help local causes in our communities.

- Undertake a review looking into wider diversity issues and targets.

Gender Diversity

Board

2021: Male 4 / Female 2

2020: Male 4 / Female 2

Executive Committee

2021: Male 4 / Female 2

2020: Male 4 / Female 2

Other Employees

2021: Male 151 / Female 138

2020: Male 162 / Female 154

Total

2021: Male 155 / Female 140

2020: Male 166 / Female 158

Equality, Diversity and Inclusion

Group employees are committed to promoting an inclusive, positive and collaborative culture. We treat everyone equally irrespective of age, sex, sexual orientation, race, colour, nationality, ethnic origin, religion, religious or other philosophical belief, disability, gender identity, gender reassignment, marital or civil partner status, or pregnancy or maternity.

We continue to review our approach to diversity, equality and inclusion, including the use of targets. Our workforce and customers are from a diverse range of people so we need to ensure that our workplace remains inclusive and allows our people and our customers a place where they can thrive.

Modern Slavery

Protecting human rights and preventing modern slavery is important to us. We are fundamentally opposed to slavery and committed to understanding the risk of it and ensuring it does not occur anywhere within our business or supply chain.

Our most significant risk area in relation to slavery and human trafficking is in our supply chain, particularly in connection with the sourcing by suppliers of construction material, certain goods and the provision of manual labour in property development and management services.

While nearly all our direct suppliers are based in the UK, some of these suppliers source some materials from around the world.

As part of our broader initiative to identify and mitigate risk in our supply chain, we have updated our consideration of factors such as:

- reviewing our current contractors and suppliers, particularly in relation to supply chain, with a view to developing preferred supplier list arrangements based on robust selection;

- centralising more contracts as a core part of our supplier management strategy;

- strengthening our compliance review processes within procurement practices;

- developing strong relationships with UK-based suppliers and contractors that align to our business code of conduct expectations; and

- ensuring systems are in place to encourage the reporting of concerns and the protection of whistle-blowers in our supply chain.

We believe there is minimal risk of slavery and human trafficking in our colleague base. We continue to review this risk assessment and monitor our activity as part of our broader approach to ensuring we are a responsible and sustainable business.

For our full statement please refer to www.hellostudent.co.uk

Ethical Business

We are committed to carrying out business fairly, honestly and openly. Our anti-bribery policy mandates a zero-tolerance approach, which all our people must read and consent to, both during their induction and when any updates are made to the policy. We require employees to take regular compliance training and to certify each year that they have complied with our policies.

Our people are important to our business maintaining the highest standards of honesty, openness and accountability. Our whistleblowing policy explains how our people can report a whistleblowing concern and reassures them that any such disclosure is made in full confidence. The Board monitors and reviews the policy on at least an annual basis to ensure it complies with UK legislation. There were no incidents of whistleblowing during the year. In 2022 we are going to seek to develop an externally managed whistleblowing hotline as well as reviewing the policy.

Opportunities For All: case study

We also look to provide opportunities for all in our wider community. During the year the BBC undertook filming at one of our buildings and as payment we requested they make a donation to a charity on our behalf. The local site team chose Kind in Liverpool a charity which focuses on helping disadvantaged children and families from across Liverpool and Merseyside. The image here shows the filming outside our Hahneman Building.

Our key stakeholders and how we engage with them

This section provides more information on the various stakeholder engagement activities and our future plans. Please refer to the section 172 ("s.172") statement for more detail on the Board's engagement with our key stakeholders.

Stakeholder Engagement

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.

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.

2021 - % of total assets included: LfL - 100% / Abs - 100%

2021 - % of data estimated: LfL - 9.1% / Abs - 9.1%

2021 - % of total assets included: LfL - 100% / Abs - 100%

2021 - % of data estimated: LfL - 9.1% / Abs - 9.1%

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.

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.

Principal Risks and Uncertainties

During 2021 COVID-19 has continued to have a material impact on our business.

The impact has primarily affected has been on our student demographic, reducing the proportion of international students. Health and safety risks around cladding and the impact of climate change continue to dominate the environment in which we operate in, and our risks, their impact and probability have been amended as appropriate.

The risk pertaining to Brexit has decreased materially and while there are some impacts around supply chain and people costs, these are expected to reduce.

The Board regularly assesses the risk appetite of the Group, with the Audit and Risk Committee formally reviewing the effectiveness of our risk management process and internal control systems biannually. During the year, the Committee has not identified or been advised of any material failings or weaknesses.

Changes to Principal Risks

The Committee decided to amalgamate two risks "Student Demand Risk" and "Revenue Risk" under one centralised Revenue Risk (E1). The key driver of revenue risk is the level of student demand for our product, which can be broken down into a number of factors. Some of these factors are directly correlated with COVID-19, such as the change in UK student demographics as the pandemic means international students choose to stay away as a result of travel restrictions. Other factors, such as how attractive UK tertiary education is seen in the international marketplace and whether the high costs of university reflect value for money.

The Committee decided to add a new internal risk, "Safe and Sustainable Buildings Risk" (I4). This risk is made up of two components, firstly safety - the capital expenditure to ensure our buildings comply with forthcoming changes in fire and safety legislation. Second, sustainability of our buildings - the physical risks to our buildings caused by climate change, i.e. flooding, extreme change between hot summers and cold winters. These physical risks need to be managed through ensuring our buildings are designed and operated in the correct manner.

The Committee reviewed the emerging risks and considered whether climate change should be added as a principal risk due to the increase in regulation around compliance and reporting on energy efficiency, which brings added costs. There is also the impact of transitioning to a low-carbon economy, with the risk of rising costs meaning that some properties become unviable in their current format. The Committee considered that some of the physical risks around climate change had been included under I4, and so at this time would not be including a separate climate change principal risk. The Committee will continue to keep this under review.

The Audit and Risk Committee has reviewed and approved the above changes to our principal risks and risk appetite. The trends relating to all the principal risks and uncertainties are set out in the table further on in this report.

Risk Responsibilities

The Board

The Board has overall responsibility for…

the determination of the Group's risk appetite, the setting of objectives and policies, and has ultimate responsibility for managing risk.

Audit and Risk Committee

The Audit and Risk Committee formally reviews…

the effectiveness of our risk management processes and internal control systems biannually.

Senior Leadership Team

Senior management are responsible for…

reviewing and monitoring the Group's key risks, and overseeing the implementation and operation of the risk management and internal control systems.

Our People

Everyone at Empiric has a role to play…

in identifying key risks facing the Group, and in the day-to-day management of risk through applying the appropriate controls, policies and processes.

Adapting risk management in a changing environment

Going concern - Viability Statement

The COVID-19 pandemic has created global economic uncertainty, and in particular an uncertainty around income for the upcoming 2022/23 academic years. Accordingly, the Group has prepared projections to 30 September 2023 and conducted a detailed going concern review and considered its liquidity position and banking covenant compliance strength.

As at 31 December 2021 the Group had £37 million in cash and £45 million of undrawn investment debt facilities. During the going concern period we have two facilities due for refinancing, one for £90 million with Lloyds due to expire in November 2022 and one with First Commercial Bank for £20 million due in March 2023. Subsequent to the year end the Group signed an agreement to extend its Lloyds RCF out to November 2025. This means the Group is well funded and has no refinancing requirements until March 2023 where we intend to extend the £20 million facility.

The Group's debt facilities include covenants in respect of LTV and interest cover, both projected and historic, and all debt facilities are ring fenced with each specific lender. The Group maintains regular dialogue with all of its lenders as part of the ordinary course of business, however during the pandemic we have increased the frequency of this dialogue. As part of these discussions with our lenders we have had conversations specifically around the interest cover covenants to ensure we either temporarily restructure these or gain the relevant waivers from the banks to ensure that no issues arise. To date all of our banks have been supportive during this period and have expressed commitment to the long-term relationship they wish to build with Empiric.

Management has evaluated a number of scenarios in its going concern model. The critical assumption is the revenue occupancy for the 2022/23 academic year. Upside, central and downside stress cases have been constructed showing 2022/23 academic year occupancy of between 65% and 90%.

The Group continues to maintain covenant compliance for its LTV thresholds throughout the going concern assessment period. Property values would have to fall by more than 18% from December 2021 valuations before LTV covenants are breached.

In Scenario 1, and 2 above the Group continues to maintain covenant compliance for all its interest cover covenants. It maintains adequate levels of liquidity throughout. In addition, no assumption is made as to the level of additional cost-cutting measures or mitigating actions which could potentially be undertaken.

In Scenario 3, under our Downside Stress Scenario, we would not meet projected interest cover covenants at the 31 March 2022 measurement date for one lender. We would also have further breaches on two other facilities in the going concern period. The Group has cure rights under the lending agreements but would need to raise an additional £22million in cash to have sufficient liquidity to cure this ICR breach. The Board considers this scenario as extremely unlikely and that it is a severe downside scenario.

As at 2 March 2022 booking levels for the upcoming 2022/23 academic year are currently at 36% this compared to 20% for the 2021/22 academic year as at 16 March 2021. As such the Board is expecting that Scenario 1 is the most likely scenario at this time.

To support the Directors' going concern assessment, the management also evaluated the occupancy level at which all ICR covenant tests were breached and, additionally, the impact of a "Reverse Stress Test" which was performed to determine the level of revenue occupancy for the 2022/23 academic year at which the Group would need to seek alternative sources of funding. For this modelling we kept revenue occupancy for the 2021/22 academic year at 84%.

The Directors noted that if occupancy falls below 45% then the Group would be in breach of all ICR covenants, and at 47% revenue occupancy for the 2022/23 academic year (18% lower revenue occupancy than our Downside Stress Scenario) the Group would need to seek alternative sources of funding.

Having reviewed and considered the three modelled scenarios, the 2022/23 academic year occupancy level at which ICR covenants would be breached and the level at which alternative sources of funding would be required, the Directors consider that the Group has adequate resources in place for at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the annual financial statements.

External Risks Table

Strategic Links

1. Customers

2. Brand

3. People and Operations

4. Buildings

5. Shareholder Outcomes

Internal Risks Table

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:

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

GROUP STATEMENT OF FINANCIAL POSITION

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

The Company made a loss for the year of £8,699,000 (2020: £46,198,000 profit).

These financial statements were approved by the Board of Directors on 2 March 2022 and signed on its behalf by:

LYNNE FENNAH

Director

GROUP STATEMENT OF CHANGES IN EQUITY

COMPANY STATEMENT OF CHANGES IN EQUITY

GROUP 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 2021 to 31 December 2021.

The consolidated financial statements of the Group for the year ended 31 December 2021 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries and were approved by the Board for issue on 2 March 2022. The Company is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are admitted to the official list of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on the London Stock Exchange. The registered address of the Company is disclosed in the Company information.

1.2 Basis of Preparation

The consolidated financial statements of the Group for the year to 31 December 2021 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries (together, the "Group"). The Group and Parent Company financial statements have been prepared on a going concern basis. The Group financial statements have been prepared in accordance with UK adopted international accounting standards. The Parent Company financial statements have been prepared in accordance with FRS 101, Financial Reporting Standards Reduced Disclosure Framework.

The Group's financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in Sterling which is also the Company and the Group's functional currency.

The Company has applied the exemption allowed under section 408(1b) of the Companies Act 2006 and has therefore not presented its own Statement of Comprehensive Income in these financial statements. The Group profit for the year includes a loss after taxation of £8,699,000 (2020: Profit of £46,198,000) for the Company, which is reflected in the financial statements of the Company.

The financial information does not constitute the Group's statutory accounts for the year ended 31 December 2021 or the year ended 31 December 2020 but is derived from those accounts. The Group's statutory accounts for the year ended 31 December 2020 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2021 and December 2020 accounts; the reports were unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain any statement under Section 498 of the Companies Act 2006.

1.3 Disclosure Exemptions Adopted

In preparing the financial statements of the Parent Company, advantage has been taken of all disclosure exemptions conferred by FRS 101. The Parent Company financial statements do not include:

- certain comparative information as otherwise required by international accounting standards;

- a statement of cash flows;

- the effect of future accounting standards not yet adopted; and

- disclosure of related party transactions with other wholly owned members of the Group headed by Empiric Student Property plc.

In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated financial statements of Empiric Student Property plc. The Parent Company financial statements do not include certain disclosures in respect of:

- Financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value); and

- Fair value measurement (other than certain disclosures required as a result of recording financial instruments at fair value).

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and does not present its own profit and loss account in these financial statements.

1.4 Going Concern

The COVID-19 pandemic has created global economic uncertainty, and in particular an uncertainty around income for the upcoming 2022/23 academic years. Accordingly, the Group has prepared projections to 30 September 2023 and conducted a detailed going concern review and considered its liquidity position and banking covenant compliance strength.

As at 31 December 2021 the Group had £37 million in cash and £45 million of undrawn investment debt facilities. During the going concern period we have two facilities due for refinancing, one for £90 million with Lloyds due to expire in November 2022 and one with FCB for £20 million due in March 2023. Subsequent to the year end the Group signed an agreement to extend its Lloyds RCF out to November 2025. This means the Group is well funded and has no refinancing requirements until March 2023 where we intend to extend the £20 million facility.

The Group's debt facilities include covenants in respect of LTV and interest cover, both projected and historic, and all debt facilities are ring fenced with each specific lender. The Group maintains regular dialogue with all of its lenders as part of the ordinary course of business, however during the pandemic we have increased the frequency of this dialogue. As part of these discussions with our lenders we have had conversations specifically around the interest cover covenants to ensure we either temporarily restructure these or gain the relevant waivers from the banks to ensure that no issues arise. To date all of our banks have been supportive during this period and have expressed commitment to the long-term relationship they wish to build with Empiric.

Management has evaluated a number of scenarios in its going concern model. The critical assumption is the revenue occupancy for the 2022/23 academic year. Upside, central and downside stress cases have been constructed showing 2022/23 academic year occupancy of between 65% and 90%.

The Group continues to maintain covenant compliance for its LTV thresholds throughout the going concern assessment period. Property values would have to fall by more than 18% from December 2021 valuations before LTV covenants are breached.

In Scenario 1, and 2 above the Group continues to maintain covenant compliance for all its interest cover covenants. It maintains adequate levels of liquidity throughout. In addition, no assumption is made as to the level of additional cost-cutting measures or mitigating actions which could potentially be undertaken.

In Scenario 3, under our Downside Stress Scenario, we would not meet projected interest cover covenants at the 31 March 2022 measurement date for one lender. We would also have further breaches on two other facilities in the going concern period. However, the Group has cure rights under the lending agreements, however the Group would need to raise an additional £22 million in cash to have sufficient cash headroom to cure this ICR breach. The Board considers this scenario as extremely unlikely and that it is a severe downside scenario.

As at 2 March 2022 booking levels for the upcoming 2022/23 academic year are currently at 36% this compared to 20% for the 2021/22 academic year as at 16 March 2021. As such the Board is expecting that Scenario 1 is the most likely scenario at this time.

To support the Directors' going concern assessment, the management also evaluated the occupancy level at which all ICR covenant tests were breached and, additionally, the impact of a "Reverse Stress Test" which was performed to determine the level of revenue occupancy for the 2022/23 academic year at which the Group would need to seek alternative sources of funding. For this modelling we kept revenue occupancy for the 2021/22 academic year at 84%.

The Directors noted that if occupancy falls below 45% then the Group would be in breach of all ICR covenants, and at 47% revenue occupancy for the 2022/23 academic year (18% lower revenue occupancy than our Downside Stress Scenario) the Group would need to seek alternative sources of funding.

Having reviewed and considered the three modelled scenarios, the 2022/23 academic year occupancy level at which ICR covenants would be breached and the level at which alternative sources of funding would be required, the Directors consider that the Group has adequate resources in place for at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the annual financial statements.

1.5 Significant Accounting Judgements, Estimates and Assumptions

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Estimates

In the process of applying the Group's accounting policies, management has made the following estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements:

(a) Fair Valuation of Investment Property

The market value of investment property is determined, by an independent external real estate valuation expert, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.

The valuations have been prepared in accordance with the RICS Valuation - Professional Standards January 2014 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Note 13.

For properties under development, the fair value is calculated by estimating the fair value of the completed property using the income capitalisation technique less estimated costs to completion and an appropriate developer's margin.

Judgements

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:

(b) Operating Lease Contracts - the Group as Lessor

The Group has investment properties which have various categories of leases in place with tenants. The judgements by lease type are detailed below:

- Student leases: As these leases all have a term of less than one year, the Group retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

- Nominations and Commercial leases: The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the lease terms, insurance requirements and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2021. Subsidiaries are those investee entities where control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if, and only if, it has:

(a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

(b) exposure, or rights, to variable returns from its involvement with the investee; and

(c) the ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;

(b) rights arising from other contractual arrangements; and

(c) the Group's voting rights and potential voting rights.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-Group balances, transactions and unrealised gains and losses resulting from intra-Group transactions are eliminated in full.

Financial Assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Group's accounting policy for each category is as follows:

Fair Value Through Profit or Loss

This category comprises only in-the-money derivatives (see "Financial liabilities" section of out-of- money derivatives) . They are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortised Cost

These assets are primarily from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivable is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for intercompany receivables are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, 12-month expected credit losses against gross interest income are recognised. For those where the credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the Statement of Comprehensive Income (operating profit).

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the Statement of Financial Position.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and - for the purpose of the Statement of Cash Flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the Statement of Financial Position.

Financial Liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

Other than financial liabilities in a qualifying hedging relationship (see below), the Group's accounting policy for each category is as follows:

Fair Value Through Profit or Loss

This category comprises only out-of-the-money derivatives (see "Financial assets" for in-the-money derivatives). They are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income. The Group does not hold or issue derivative financial instruments for speculative purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.

Other Financial Liabilities

Other financial liabilities include the following items:

- Bank borrowing is initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

- Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Intangible Assets

Intangible assets are initially recognised at cost and then subsequently carried at cost less accumulated amortisation and impairment losses.

Amortisation has been charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over either five or ten years depending on the nature of the assets useful life.

Investment Property

Investment property comprises property that is held to earn rentals or for capital appreciation, or both, and property under development rather than for sale in the ordinary course of business or for use in production or administrative functions.

Investment property is measured initially at cost including transaction costs and is included in the financial statements on unconditional exchange. Transaction costs include transfer taxes, professional fees and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating.

Once purchased, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the period in which they arise.

Investment property is derecognised when it has been disposed of, or permanently withdrawn from use, and no future economic benefit is expected from its disposal. The investment property is derecognised upon unconditional exchange. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised in the Consolidated Statement of Comprehensive Income in the period of retirement or disposal.

Property, Plant and Equipment

All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure which is directly attributable to the acquisition of the asset.

Depreciation has been charged to the Consolidated Statement of Comprehensive Income on the following basis:

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

- Computer equipment: straight-line basis over three years.

Rental Income

The Group is the lessor in respect of operating leases. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in gross rental income in the Consolidated Statement of Comprehensive Income due to its operating nature.

Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Consolidated Statement of Comprehensive Income when the right to receive them arises.

Where a student requested a rent refund and they met the criteria set out, including leaving the property, the Group recognised no further income in relation to that let, reduced cash with the cash amount refunded, wrote off any deferred income in relation to the refund and any difference between cash and deferred income was debited or credited to revenue in the Statement of Comprehensive Income.

Segmental Information

The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in student and commercial lettings, within the United Kingdom.

Share-based Payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Consolidated Statement of Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. So long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the Consolidated Statement of Comprehensive Income over the remaining vesting period. National Insurance obligations with respect to equity-settled share-based payments awards are accrued over the vesting period.

Share Capital

Ordinary shares are classified as equity. External costs directly attributable to the issuance of shares are recognised as a deduction from equity.

Taxation

As the Group is a UK REIT, profits arising in respect of the property rental business are not subject to UK corporation tax.

Taxation in respect of profits and losses outside of the property rental business comprises current and deferred taxes. Taxation is recognised in the Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised as a direct movement in equity, in which case it is also recognised as a direct movement in equity.

Current tax is the total of the expected corporation tax payable in respect of any non-REIT taxable income for the year and any adjustment in respect of previous periods, based on tax rates applicable to the periods.

Deferred tax is calculated in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases, based on tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax liabilities are recognised in full (except to the extent that they relate to the initial recognition of assets and liabilities not acquired in a business combination). Deferred tax assets are only recognised to the extent that it is considered probable that the Group will obtain a tax benefit when the underlying temporary differences unwind.

1.6 Impact of New Accounting Standards and Changes in Accounting Policies

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

- IAS 1/8 Definition of Materiality Amendment

- IFRS 3 Definition of a Business

- IBOR Reform Phase 1

- IFRS 16 Amendment for Rent Concessions

The above standards or interpretations not yet effective are expected to have a material impact on these condensed consolidated financial statements of the Group.

2. REVENUE