Empiric Regulatory News (ESP)

Empiric Student Property plc

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023

Transformation plan delivering sector leading operating metrics & attractive returns

Empiric Student Property plc (ticker: ESP), the owner and operator of premium, studio-led student accommodation aligned to top-tier universities, is pleased to report its preliminary results for the year ended 31 December 2023.

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

"During what has been another record year for the Company, we have delivered strong rental growth and filled our rooms earlier than ever before. Customer satisfaction improved further and continues to be amongst the highest in the sector with our Hello Student brand awarded Platinum Operator certification by the industry-recognised Global Student Living. Combined with ongoing undersupply of high quality, well located student accommodation in prime cities, this dynamic continues to drive increased re-bookings and greater demand for our rooms. This momentum has continued into the new sales year, and positions us well for growth".

Financial highlights

1 Including £20.0 million secured post 31 December 2022

Earnings growth delivers 27% increase in full year dividend

· Revenue increased 10.3% to £80.5m (2022: £73.0m)

· EPRA EPS increased 17.6% to 4.0p (2022: 3.4p)

· Portfolio valuation of £1,097.9m up 3.0% like for like (net of capex)

· Net initial yield of 5.5% (2022: 5.2%)

· EPRA NTA per share increased 4.6% to 120.7p (2022: 115.4p)

· Total dividend paid and payable for the year of 3.5p, ahead of initial target

· Total accounting return of 7.6% (2022: 10.5%)

Operational performance underpinned by best ever rebooker campaign

· Like for like rental growth of 10.5% for academic year 2023/24, supported by dynamic pricing

· 99% revenue occupancy achieved for academic year 2023/24

· 99% revenue occupancy for financial year 2023 (2022: 90%)

· Clustering strategy continuing to drive improved operating margins, which increased to 68.7% (2023: 67.1%)

· Non-core disposal programme materially completed with £43.4m generated from the sale of six properties in line with book value and over £30.0m under offer

· Acquisition completed post year end of former office block in central Bristol for £5.6m anticipated to add a further 50+ beds to this key cluster city for academic year 2025/26

· 556 newly refurbished rooms and associated amenity space delivered for academic year 2023/24, with a further 350 refurbished rooms planned for academic year 2024/25

· Successful launch of second exclusive Postgrad site in Nottingham and continued progress on a potential joint venture as a means to accelerate the roll out of this product and the release of equity for growth

Robust balance sheet

· EPRA loan to value at 30.6% (2022: 32.7%), comfortably within long-term target of 35%

· Weighted average cost of debt 4.3% (2022: 4.0%), 88% with interest rate protection

· Cash and undrawn committed facilities of £82.5m

· Weighted average debt maturity to be extended from 3.9 years to 5.7 years following refinancing

Delivering outstanding customer service

· Hello Student awarded Platinum Operator certification at Global Student Living Awards 2023

· Continued improvement in Net Promoter Score from +27 to +30.5, which compares favourably against purpose built student accommodation average of +13 and +8 for university halls

Responsible business

· Implementation of net zero strategy commenced with four carbon neutral properties completing in early 2024 and ambitious plans in place for the year ahead

· Further £6.9m invested in fire safety works in 2023, with 69% of the portfolio EWS1 certified

· Over 50% of portfolio now rated EPC B or better, a level achieved a year earlier than targeted

Momentum continues for academic year 2024/25 sales cycle

· Strong bookings launch, with revenue occupancy in excess of 60% currently secured,

· Like for like rental growth in excess of 6% anticipated

· Targeting revenue occupancy >97%

Results presentation at 09.00 (GMT) today

To access the live webcast, please register here:

https://stream.brrmedia.co.uk/broadcast/65956576b012a6d30b47471d

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, was admitted to trading on the main market for listed securities of the London Stock Exchange in June 2014. The Company is classified as a commercial company listed under chapter 6 of the UK Listing rules and as such is not an alternative investment fund ("AIF") for the purposes of the Alternative Investment Fund Managers Directive ("AIFMD") and is not required to provide investors with a Key information Document ("KID") in accordance with the Packaged Retail and Insurance-based Investment Products ("PRIIPs") regulations.

Disclaimer

This release includes statements that are forward looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Empiric Student Property plc to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this release on the price at which shares or other securities in Empiric Student Property plc have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.

Chief Executive Officer's Review

Building on 2022, the business has again delivered a year of record achievements, culminating in a very strong financial and operational performance. Fuelled by the acute undersupply of well located, high quality student accommodation in key university towns and cities across the UK, we successfully filled our rooms quickly and through our dynamic pricing capability we achieved upper quartile rental growth performance.

2023 saw our best ever rebooker campaign, with 22 per cent of rooms sold to students who were already staying with us; a tangible validation of customer satisfaction and the value inherent in our service proposition. Overall, we achieved occupancy above 99 per cent for academic year 2023/24 and this momentum has continued into the start of the sales programme for the forthcoming academic year.

Outstanding like for like rental growth of 10.5 per cent was secured, surpassing expectations multiple times during the sales cycle. This is testament to our strategy of selling rooms on a direct-let basis and our now well embedded dynamic pricing system. Underpinned by strong rental growth, our portfolio valuation grew a further three per cent like for like. The balance sheet is in good shape with a prudent level of gearing, comfortably in line with our long-term target, and refinancing risk has been well managed.

We've been pleased to grow our shareholder distributions by 27 per cent year on year, and deliver a total accounting return of 7.6 per cent.

Strong market fundamentals continue

Demand and supply imbalance continues unabated. Participation rates in the UK's higher education sector remains historically high with over 2.2 million full-time students. China remains the dominant domicile of international students, but shifting demographic trends demonstrate the attractiveness of a relatively affordable UK higher education to a growing number of students from other international markets, particularly India. The UK remains a very attractive high quality, and affordable higher education destination of choice.

A clear flight to quality is continuing, with higher tariff, typically Russell Group, universities experiencing year on year growth in acceptances to the detriment of medium and lower tariff universities. This validates our strategy of focusing our portfolio on these cities, which deliver growth and encourage investment.

The take up of postgraduate studies has grown considerably, aided by the student loan system, visa changes and the desire for further qualifications, while meeting the need of UK universities to generate additional revenue. One quarter of all students now study at postgraduate level full time.

The year saw a net increase in Purpose Built Student Accommodation ("PBSA") beds of only 8,760, the lowest in a decade. This highlights the challenges faced, including planning, construction costs and increased interest rates. Legislative changes have driven more than 400,000 private rental properties from the market, contributing to a decline in HMOs, our main competitive market. This has driven more students, particularly domestic students, towards PBSA operators like ourselves.

Driving occupancy and rental growth

The investment in our operational capabilities, completed over the past couple of years, continues to deliver results.

Internalising our capabilities has allowed us to put our customers first and deliver a high quality experience, which has been paramount in the development of our strategic priorities and improved rent performance. Our key performance indicator in this regard is the Global Student Living Index's Net Promoter Score. This year our operating brand, Hello Student, successfully achieved a further improvement to +30.5 (2022: +27), significantly outperforming the benchmark All Private Halls score which scored +13. In addition, Global Student Living awarded Hello Student the accolade of Platinum Operator, only awarded to a very small number of PBSA operators, a certification standard we are extremely proud to have achieved and a reflection of our commitment to a personal, high quality, customer service proposition. We strive to help our customers make the most of their university experience by making their lives as simple and fulfilling as possible.

Great customer service drives demand for our rooms. 22 per cent of our rooms for academic year 2023/24 were sold to students who were already staying with us, helping create a sense of community and allowing us to eliminate costs associated with customer acquisition and associated costs of turnaround for a quarter of our rooms. This is a great achievement considering at least a third of students complete their higher education journey each year. 

The strategic shift in the portfolio away from secondary locations in favour of clustering premium quality properties in prime, undersupplied cities within close proximity to top-tier universities, positioned the portfolio well to capitalise on our dynamic pricing capability, maximising revenue relative to underlying demand. 

As academic year 2023/24 began, we had sold over 99 per cent of our rooms achieving like for like rental growth of 10.5 per cent, materially ahead of our base pricing uplift of seven per cent.

We continue to attract a greater proportion of UK students than in pre-Covid years. For academic year 2023/24, UK students represent 49 per cent of all bookings, the balance comprising 32 per cent Chinese and 19 per cent other international. Notwithstanding the UK governments rhetoric in respect to restricting visa applications for international students, and in particular their dependants, this demographic has changed little over the past three years underlining our focus on top-tier universities and the studio-led nature of our accommodation.

We will continue to target those international markets where we are underweight relative to the opportunity available.

Active property management

In early 2021 we set out a plan to dispose of a modest portfolio of non-core assets. At the time those assets identified for disposal represented approximately 10 per cent of the portfolio, a little over £100 million by value. In addition, 16 per cent of the portfolio was earmarked for extensive refurbishment to bring the standard of accommodation in line with what is considered to offer an on-brand customer experience.

By the end of 2023, we had disposed of properties valued at £101.2 million, of which six properties valued at £43.4 million were sold during 2023, with over £30.0 million remaining under offer. In aggregate, disposals completed to date were achieved at a four per cent premium to their respective book value at the point of sale. With this programme now materially concluded, we expect to see a more normalised churn in the portfolio going forward.

Proceeds from the disposal programme have largely been deployed into our core portfolio, either to fund the refurbishment programme, acquisitions, our ongoing programme of fire safety works or toward debt prepayment pending substitution. 

In 2021 we outlined a five year refurbishment plan with an estimated cost of £36 million. At 31 December 2023, those properties earmarked for extensive refurbishment had reduced to eight per cent of the portfolio by value, with £21.4 million invested to date. The annual refurbishment programme is ongoing, targeting the delivery of between 250 and 350 beds annually. The refurbishment cycle for 2023 was completed to plan, delivering 254 fully refurbished beds and associated amenity areas across six core locations in advance of the new academic year, with a further 220 rooms receiving a light refurbishment. In addition, our second Postgrad exclusive site at Talbot Studios in Nottingham was completed and welcomed students from September 2023.

One of our larger properties, Brunswick Apartments, Southampton has been closed for the duration of the 2023/24 academic year for refurbishment. This 173 bed property will reopen to students from September 2024 following a full room and amenity refurbishment, alongside fire safety, energy efficiency and Net Zero related works.

A variety of acquisition opportunities were at various stages of negotiation, including under offer at 31 December 2023. These acquisitions are complementary to our core strategy, in locations where we have an existing operational presence and will be accretive to earnings. In February 2024 we were pleased to complete on the acquisition of a former office building in Bristol, which is located firmly in the centre of our existing cluster within the city. This building will be reconfigured to provide high quality student accommodation which we expect to deliver for academic year 2025/26.

Acquisition properties valued at over £20.0 million remain under offer in Top Tier university cities.

Having spent considerable time in 2023 performing due diligence on the postgraduate market across our key cities and identifying an appropriately aligned seed portfolio, conversations with a small selected number of interested parties commenced in late 2023. The objective of these conversations was to establish the depth of appetite to form a joint venture as a means to accelerate the roll out of this product and in turn grow our business. These conversations continue, including visits to sites and management meetings, as we now progress toward identifying the party with whom we may enter a period of exclusive negotiation and due diligence. We will continue to keep investors informed of progress.

Supporting our customers and delivering consistent service

Every area of our business is encouraged, and motivated, to provide a customer first philosophy. We remain acutely aware that with rising rents our customers expect an increasingly high quality experience and value.

Our Student app has continued to provide a platform for greater and more timely customer engagement and a means to improve our service offer. We are able to respond to customer service requests in a more timely and structured manner. Students have the ability to monitor our progress toward resolution of issues raised, receive site related information, be notified when parcels are available for collection, when social events are arranged or to facilitate networking. In addition, this year during the annual turnaround of customers, the app was key to facilitating the check in process, removing considerable administrative time and improving overall customer experience. Pleasingly, we have been nominated for the award of Best Check-in Experience in 2024.

The most substantive evidence of customer service and the benchmark we use within our business is the Global Student Living Index's Net Promoter Score. We are proud to report that our NPS score has improved again this year, from +27 to +30.5. To put this in context, the latest NPS score for all private purpose built student accommodation was +13, whilst the score for university halls was +8. Of our customers, 85 per cent rate us good or very good, which benchmarks very well against some of the highest performing UK service providers.

The wellbeing of our customers is of paramount importance to us. Hosting young adults during what for most is a highly challenging time of their life, is a responsibility we have to both customers and their parents alike. To further support our service provision in this important area, we have appointed a Wellbeing Manager who brings expertise as an accredited Mental Health First Aid Instructor and Sexual Violence Liaison Officer and will be pivotal to embedding mental health first aid training across all our sites. We take the welfare of our team and customers extremely seriously.

We were proud to see our efforts in the area acknowledged when we were certified as a Platinum Operator by Global Student Living in June 2023.

Developing our people

At the heart of our business are the people that design, support and deliver great customer experience and buildings. By rewarding, training and developing our people we ensure our brand remains at the leading edge of customer service and experience.

There is good rationale for focussing on employee development, retention and engagement. During the year we increased our retention rate to 85 per cent, which is extremely high in the service industry, whilst internal promotions accounted for over 50 per cent of all non-entry level vacancies.

We are proud members of the Real Living Wage Foundation, meaning our lowest paid employees are paid above the minimum wage and received salary increases mitigating inflation. During a time of increased pressures on cost-of-living we were pleased to be in a position to support our employees, with average compensation increases of 4.4 per cent in 2024.

Having invested in our people, their wellbeing and various engagement initiatives, we are pleased to report that our colleague engagement score was 85 per cent, which continues to compare favourably to the national average.

Safety

We are responsible for ensuring that everyone who is living, working in or visiting our buildings is kept safe. We ensure that our buildings comply with not only all relevant regulations but also with best practice within the industry.

There has been considerable focus on fire safety again this year. Having allocated £46 million toward a five year programme of fire safety initiatives, we have continued to progress works on a risk based basis. In 2023 we invested a further £6.9 million towards attainment of the latest EWS1 certification standard, bringing total investment to date in this area to £24.5 million, an investment which is fully reflected within property valuations. By 31 December 2023, 69 per cent of the portfolio had achieved EWS1 certification and we remain on track to meet the objectives outlined in the five year plan.

Our buildings continue to be 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, prevention of fire risks and water systems.

In response to concerns surrounding the use of Reinforced Autoclaved Aerated Concrete ("RAAC"), we commissioned external surveyors and structural engineers to assist with a portfolio wide review based on construction type and building age. Onsite inspections did not identify this material at any of our medium or high risk properties.

Becoming a sustainable business

Following the 2022 publication of our full Net Zero strategy, the year has seen a number of building blocks put in place to facilitate the implementation of this plan.

The Board agreed an initial capital allocation of £12.0 million towards green initiatives, focused primarily on decarbonisation, EPC risk management and driving behavioural change. The Company tendered and appointed energy advisers during 2023 as well as appointing an energy Project Manager, who brings extensive prior experience implementing decarbonisation initiatives at operational sites. In early 2024, four further decarbonised sites were delivered with a further four in progress. Good progress has been made in the management of EPC risk, with 51 per cent of our sites now rated EPC B or better, a target achieved over a year earlier than was envisaged in our Net Zero strategic plan, showing our focus on delivery.

The business remains committed to achieving Net Zero by 2033. As part of this journey, our plan including interim targets for the next two years, will be subject to an advisory shareholder vote at the forthcoming Annual General Meeting.

Strategy and outlook

As we move forward into 2024, the outlook for our business and the wider sector looks very strong. Having already secured over 60 per cent revenue occupancy for the 2024/25 academic year, we are confident of achieving another successful year from an occupancy perspective. As inflation tempers, so would we expect rental growth, however we believe like for like rental growth in excess of six per cent can be achieved this year.

Our strategic focus now shifts to driving operational efficiencies through growth. Acquiring or developing new sites in top-tier cities that are close to well-located existing sites will enable us to exploit our clustering strategy and realise further the benefits of scale. In addition, we continue to explore opportunities to accelerate the roll out of our postgraduate product.

In line with the continuous focus on improving customer experience, we expect to invest in a new end to end ERP system and associated customer facing website upgrade in 2024. This will improve the booking experience further and make it easier for customers to secure a room with us. Further, we'll continue to invest in our people to ensure stability and engagement is retained and more time will be spent on talent mapping to underpin our future. Finally, we will continue the roll out of our brand across key locations, which helps drive down the cost of customer acquisition and improved operational margins.

Having increased the dividend target in the final quarter of 2023 to 3.5 pence per share, and today declaring a dividend in line with that plan, the Board remains confident in targeting a minimum dividend of 3.5 pence per share for the 2024 financial year.

Duncan Garrood

Chief Executive Officer

13 March 2024

Operating review

Overview

Current market conditions are the strongest we've experienced in recent years. New supply of high quality, well located accommodation, particularly in prime cities, is limited and has been unable to keep pace with increased student participation. Demand has been exacerbated recently by the decline in HMO provision, which when coupled with the ongoing pressure on the cost of living, makes our all-inclusive fixed price model increasingly attractive.

The lettings cycle for academic year 2023/24 tracked eight to ten weeks ahead of prior year during the first half of 2023, with our rooms filling quicker than we've ever experienced. Unprecedented demand, coupled with our direct-let model, enabled us to capture rental growth inflation during the entire letting period. Like for like growth of 10.5 per cent was achieved, surpassing expectations on multiple occasions during the sales cycle.

A strong rebooker programme contributed significantly to the speed at which we filled our rooms and provided the platform to benefit from dynamic pricing. At the start of the year we targeted 20 per cent for academic year 2023/24. In total, 22 per cent of our rooms were sold to students already living with us, with some of our strongest locations achieving rates in excess of 30 per cent.

Portfolio overview

A summary of the Group's portfolio is set out below, segmented in line with our valuer's view of quality. Almost 95 per cent of the portfolio is now aligned to Prime or Super Prime locations. 

Since 31 December 2022, the portfolio has grown in value by three per cent, like for like. This is as a result of the continued income growth achieved for the 2023/24 academic year, offset by a weakening of yields, primarily in secondary locations and an increased cost of fire safety works. Overall, the portfolio's net initial yield has increased by 30 basis points to 5.5 per cent. This yield movement reflects reduced investment market activity, which is mainly due to an increased cost of capital, together with the valuer taking a more cautious approach to future income growth until it is sufficiently secured. With a reversionary yield of 5.7 per cent, confidence exists that as the letting cycle advances for the new 2024/25 academic year, this risk premium should be removed.

Reflected within the like for like growth of three per cent, is a £9.0 million adjustment made during the first half of the financial year to reflect the increased cost of fire safety works. This followed an extensive tendering exercise for our larger properties where works are required to be carried out on their external wall systems ("EWS"). The increase was primarily due to high demand for specialist contractors, the rising cost of scaffolding and revisions required following further intrusive investigations. In arriving at the portfolio's market value, the valuer has applied a pound for pound deduction for the forecasted cost of these works. Like many other real estate investors, we have started compensation claims against a number of lead contractors. Given the conversion and refurbishment nature of a large number of our properties, the likelihood of success is more uncertain and no deduction has been assumed against the costs of remediation.

A portfolio segmentation review was carried out in early 2021 with each property assigned a strategic segment reflecting the Group's investment style, as follows:

· Segment A: Properties that are appropriately configured and on-brand and aligned to top-tier universities.

· Segment B: Properties that fundamentally meet our key criteria but require extensive refurbishment to become on-brand. If extensive refurbishment is not expected to deliver our IRR return hurdle of 9-11 per cent, then the property is earmarked for sale.

· Segment C: Well-located properties clustered around a Segment A property which are configured in a manner that lend themselves better to a conversion to our new brand Postgrad by Hello Student, this is typically based on room mix, size and amenity.

· Segment D: These properties are typically not of a size or configuration that lend themselves to become a core Segment A or Segment C scheme, are typically located in a single asset city whereby the benefits of clustering can not easily be realised and/or are not aligned to a top-tier university. These are therefore considered non-core, and earmarked for disposal.

We have seen activity in the investment market return following a period of disruption in the final quarter of 2022, allowing us to progress our non-core disposal programme at pace, particularly in the first half of the year.

We successfully concluded the disposal of six properties during the year, generating £43.4 million, with pricing marginally above their respective book values, in aggregate. The sales cumulatively represent 620 operational beds and have reduced by one the cities in which the Company has an operational presence.

At 31 December 2023, further properties valued at over £30.0 million remain under offer, which once complete will conclude the non-core sales programme which began in March 2021 and has generated gross proceeds of £101.2 million to date.

As we recycle capital from secondary locations or cities where we do not have sufficient scale, we aim to drive operational performance and improved returns through clustering. Progress made over the last 12 months has enabled us to improve our Gross Margin a further two percentage points this year from 67 per cent in the year to 31 December 2022 to 69 per cent.

Our annual refurbishment programme continues to target the delivery of between 250 and 350 beds annually, with the investment into the refurbished rooms typically delivering IRRs of between 9-11 per cent.

This year's annual cycle delivered 231 fully refurbished rooms and associated amenity areas across four core locations ready for the start of the 2023/24 academic year in September, with a further 325 rooms receiving a light refurbishment. Ongoing rolling refurbishments continued into the fourth quarter of 2023 at our sites in Leeds, Cardiff and Birmingham.

In September 2023, we delivered our second postgraduate exclusive site at Talbot Studios in Nottingham. This follows the success of our pilot scheme which opened in Edinburgh in November 2022.

As previously announced, we took the decision to close one of our larger properties, Brunswick Apartments, Southampton for the duration of the 2023/24 academic year. Works began in September 2023 on this 173 bed property, which will reopen to students from September 2024 following a full room refurbishment and the addition of a new amenity provision, alongside fire safety, energy efficiency and Net Zero works. The property is selling well for academic year 2024/25 with aggregate pricing currently ahead of expectations.

Capital expenditure programme

Progress against our five year programme of refurbishment, fire safety works and green initiatives is set out below. The revised plan reflects the increased cost of EWS works as announced in the first half of 2023. In respect to our programme of fire safety works, all properties have been surveyed and 69 per cent of the portfolio has been certified.

In addition to the above, ongoing capital life cycling works continue to require around £4.0 million per annum. 

Commercial portfolio

We have continued to actively manage the 35-unit commercial estate that generally sits below our operational portfolio, with a number of value-creating projects completed. Notable deals include finalising an agreement for lease with an Asian supermarket operator on a ten year term in Bristol. This deal will also facilitate the development of new gym amenity space to the rear of the unit. A five year lease renewal was secured with a national bakery chain in Liverpool, at passing rent.

Several asset management initiatives are planned for 2024 to drive value and enhance the student offering onsite. In late 2023 a 12-month lease renewal in Bristol was agreed to ensure an existing tenant could continue trading before taking occupation of a neighbouring commercial space within the estate. Upon achieving vacant possession of this larger unit, we have terms agreed with a Korean restaurant to take a 15-year lease which will facilitate the addition of a new student reception and study zone.

We will continue to seek to regear all qualifying leases where the tenant covenant is strong, namely with our national convenience store tenants.

Acquisitions and developments

A number of attractive acquisition opportunities remain under offer at 31 December 2023 in top tier university cities which are complementary to our core strategy and will be accretive to earnings.

Subsequent to the year end, we were pleased to complete on one of these opportunities, a former office block in Bristol. The extremely well located property sits firmly in the centre of our existing cluster within the city. This building will be reconfigured to provide over 50 high quality new PBSA beds which we expect to deliver for academic year 2025/26.

With the non-core disposal programme now materially completed, we expect to see further selective growth through acquisitions during the first half of 2024.

In early 2024 we plan to submit a planning application in respect to our Victoria Point, Manchester site. The city continues to suffer an acute under supply of PBSA beds and has consistently performed well for us from an occupancy and rental growth perspective. The masterplan, if approved, provides for a full refurbishment of the existing asset together with an over 200 bed extension.

Financial review

2023 was a strong year for the Group across key financial metrics. Revenue surpassed £80.0 million, supported in part by a 10.5 per cent like for like rent increase for the 2023/24 academic year, with the estate effectively full for the second academic year running. Gross margin increased to 69 per cent and administrative costs have been held within guidance levels at £14.0 million, continuing to improve as a proportion of revenue.

The balance sheet is in sound shape with EPRA LTV falling to 30.6 per cent and refinancing risk managed through to 2028.

Dividends paid and declared during the year, coupled with a growth in EPRA Net Tangible Asset value of 5.3 pence per share, delivered a total accounting return of 7.6 per cent.

Income statement

Revenues increased by £7.5 million or 10.3 per cent. Combined occupancy for 2023 was 99 per cent and the year benefited from blended like for like rental growth of 7.0 per cent. Disposal of non-core assets reduced revenue by £2.2 million.

Sound progress was made toward achieving a gross margin of 70 per cent, with a two percentage point improvement in gross margin to 69 per cent. Non-core assets did continue to adversely impact gross margin during the year, but as demonstrated above, excluding these assets, a 70 per cent gross margin was achieved.

Although cost inflation pressure has continued, utility costs remained fixed throughout 2023, mitigating volatility on a key operational cost line. Utility costs remain fully fixed until September 2024, following which we currently have price certainty across 50 per cent of assumed consumption from October 2024 until March 2026, a level we will seek to extend and increase as opportunities arise.

Administrative expenses increased by £0.6 million or 4.5 per cent, broadly in line with CPI for the year, comfortably covered by strong rental growth. 

Finance costs increased as anticipated, with floating rates closing the year some 170 basis points higher than at 31 December 2022. Of the Group's drawn debt, 12 per cent remains exposed to interest rate volatility.

Rental growth underpinned a portfolio valuation uplift of £30.1 million, a significant contributor to the IFRS profit for the year of £53.4 million.

Balance sheet

Strong rental growth underpinned a £30.1 million portfolio revaluation gain for the year. This was attributed to strong rental growth in key Russell Group aligned university cities, most notably Manchester, York, Newcastle, Bristol and Edinburgh, all of which experienced at or near double digit valuation growth. Net asset value increased by 5.3 pence per share or 4.6 per cent, primarily due to the valuation movement, with the residual attributed to earnings, net of dividends paid.

Portfolio valuation

1Net of capital expenditure and headlease amortisation

On a like for like basis, excluding disposals and capital expenditure, the portfolio increased in value by £30.6 million. The net initial yield moved outward from 5.2 per cent to 5.5 per cent with the valuer applying a more prudent approach in 2023 and not applying core yields to future income until it is sufficiently secured. The reversionary yield has moved out to 5.7 per cent, demonstrating the valuation growth potential inherent in the portfolio. Notwithstanding this, the outward yield shift was offset by the significant rental growth achieved.

In the 2024 Spring budget, the UK Government announced the abolition of Multiple Dwellings Relief ("MDR") by repealing Schedule 6B of the Finance Act 2023. The removal of MDR will increase purchaser cost assumptions applied to valuations of the Group's English property portfolio. Full purchaser cost assumptions are already in place in respect of a number of the Group's property valuations and this change does not currently apply to Scottish or Welsh properties. On the assumption that in time it will, the estimated impact of this change is a £35 million reduction in the portfolio's aggregate valuation as at 31 December 2023.

The disposal programme was materially completed during the year. In total, £43.4 million was generated from assets disposed of during 2023. After disposal costs, a net loss on disposals of £0.6 million was realised. 

Capital expenditure during the year amounted to £32.5 million, primarily related to refurbishment works and the ongoing programme to enhance fire safety.

Debt

Drawn borrowings decreased by £30.9 million during the year, primarily following the application of disposal proceeds, pending substitution. At the balance sheet date the weighted average cost of debt was 4.3 per cent and the weighted term to maturity 3.9 years.

The first of a two tranche £124.9 million refinancing completed post year end. This first tranche refinanced all near term, primarily floating rate debt maturities. The second tranche is anticipated to complete in the second quarter of 2024 extending the 2025 expiry to 2031. Once completed, the Group will be 100 per cent protected against interest rate volatility, with an anticipated weighted cost of debt of 4.6 per cent and a weighted term to maturity of 5.7 years. Refinancing risk will then be mitigated until 2028.

Property loan to value was 29.1 per cent, down from 31.1 per cent at the prior year end, reflecting the valuation performance and the application of surplus cash in prepayment of flexible debt facilities. EPRA LTV, which includes net payables, also decreased two per cent to 30.7 per cent and will be the Group's primary LTV measure going forward. 

Net debt to EBITDA was 7.6, down from 9.2 at 31 December 2022, with cash and available committed facilities of £82.5 million.

All loan covenants were fully compliant during the year.

Cashflow

The disposal programme of non-core assets continued into 2023, generating proceeds net of disposal costs of £42.6 million. These were largely reinvested into the core-portfolio refurbishment and fire safety programme, with the balance applied toward prepayment of flexible debt facilities.

Cash paid toward funding dividend payments excludes £0.5 million of withholding tax which was paid to HM Revenue & Customs in January 2024.

Cash outflows related to the settlement of finance costs have increased in line with interest rates applicable to the Group's residual floating rate debt facilities.

Going concern

The Board places particular focus on the appropriateness of adopting the going concern assumption when preparing the Group's consolidated financial statements.

In light of the Group's liquidity position, its modest level of gearing and capital commitments of £1.7 million, the Directors have concluded that, in reasonably possible adverse scenarios, there remains adequate resources and mitigants available to continue to operate until at least 31 December 2025, being a period of not less than 12 months from the date of approval of these financial statements. The Directors therefore concluded that it remains appropriate to adopt the going concern basis of preparation when compiling the Annual Report and Accounts for the year ended 31 December 2023.

Attention is drawn to Note 1.4 to the financial statements and to the Company's statement in respect to viability for further details surrounding the conclusion reached.

Dividends

A final interim dividend of 0.9375 pence per share has been declared for the final quarter of 2023, bringing total dividends paid and payable in respect of 2023 to 3.5 pence. This represents an 87.5 per cent pay-out on EPRA EPS. The dividend will be paid as a Property Income Distribution on 19 April 2024 to shareholders on the register at 5 April 2024.

Donald Grant

Chief Financial & Sustainability Officer

13 March 2024

EPRA and other alternative performance measures

Our performance in line with industry standard measures

EPRA disclosures

The following is a summary of the EPRA performance measures included in the Group's results. As defined by the EPRA Best Practice Recommendations, these are a set of standard disclosures for the property industry designed to drive consistency in reporting.

Other alternative performance measures

An alternative performance measure ("APM") is a financial measure of historical or future financial performance, financial position or cash flows of an entity which is not a financial measure defined or specified in International Financial Reporting Standards ("IFRS").

APM's are presented to provide useful information to readers and have been, or are still, consistent with industry standards. The table below sets out the additional non-EPRA derived APM's included within the Annual Report and Accounts.

EPRA capital expenditure analysis

EPRA vacancy rate

Statement of Directors' responsibilities

The statement of Directors' responsibilities has been prepared in relation to the Group's Annual Report 2023. Certain parts of the Annual Report are not included in this announcement.

We confirm to the best of our knowledge:

· the Group financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the strategic report includes a fair review of the development and performance of the business and the position of the Group.

Signed on behalf of the Board on 13 March 2024 by:

DONALD GRANT

Director

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

These financial statements were approved by the Board of Directors on 13 March 2024 and signed on its behalf by:

DONALD GRANT

Director

Company Statement of Financial Position

The Company made a loss for the year of £13.1 million (2022: profit of £45.9 million).

These financial statements were approved by the Board of Directors on 13 March 2024 and signed on its behalf by:

DONALD GRANT

Director

Consolidated Statement of Changes in Equity

Company Statement of Changes in Equity

Consolidated 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 2023 to 31 December 2023.

The consolidated financial statements comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries and were approved by the Board for issue on 13 March 2024. 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 2023 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 Pounds 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 £13.1 million (2022: profit of £45.9 million) for the Company, which is reflected in the financial statements of the Company.

The financial information contained within this release does not constitute the Group's statutory accounts for the year ended 31 December 2023 or the year ended 31 December 2022 but is derived from those accounts. The Group's statutory accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2023 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2023 and December 2022 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).

1.4 Going Concern

At 31 December 2023, the Group's cash and undrawn committed facilities were £82.5 million and its capital commitments were £1.7 million.

Occupancy is a key driver of profitability and cash flows, and at 13 March 2024 occupancy, based on forward reservations for the upcoming 2024/25 academic year was 61 per cent compared to 65 per cent for the 2023/24 academic year at 16 March 2023.

As part of the Group's going concern and viability modelling, certain scenarios are considered to model the impact on liquidity. All of the Group's covenants are currently compliant and we envisage compliance can continue to be achieved in a reasonably severe downside scenario. The Group's portfolio could currently withstand a 24 per cent decline in property valuations before a breach in any loan to value covenants are triggered. The Group's average interest cover ratio across all facilities is 2.0 times, whereas gross profit is currently 3.2 times total finance costs, providing a good degree of comfort. 

At 31 December 2023 the Group had four facilities totalling £103.1 million falling due during the going concern period. Of this amount, £57.7 million, representing three separate facilities, were due to expire in 2024 with £45.4 million due to mature in November 2025. On 7 March 2024, the Group signed a new seven year facility agreement (the "New Facility") and drew an initial £44.4 million. The proceeds from this initial utilisation together with a cash payment of £13.7 million refinanced all 2024 expiries. The New Facility makes provision for a non-binding commitment to draw down a further £80.5 million which is expected to occur in May 2024, the proceeds from which will refinance the November 2025 maturity. In the highly unlikely event the Group is unable to draw the New Facility's non-binding commitment, alternative refinancing arrangements will be made to address the November 2025 expiry closer to the time. The New Facility will be fully hedged, mitigating exposure to interest rate volatility. Once concluded, there will be no further debt maturities until April 2028.

The Group regularly models forward looking covenant tests across all its debt facilities. Any future concerns would be discussed with lenders in advance of a potential covenant breach, with facilities renegotiated insofar as factors are within the control of the Group. Facility agreements typically contain cure provisions providing for prepayment, cash deposits or security enhancement as may be required to mitigate a potential breach. The Group's borrowings remain spread across a range of lenders and maturities, so as to minimise concentration of risk.

The Directors have considered the Group's principal risks and severe but plausible downside scenarios in assessing the Group's and Company's going concern for the period to 31 December 2025. The Directors have considered, in particular:

· a material reduction in revenue, both in terms of occupancy and growth rate;

· inflation running at 5 per cent, significantly above the Bank of England target rate of 2 per cent;

· utilities costs increase by 1.5 times current market expectation (where price fixing arrangements are not in place);

· the likelihood of the New Facility concluding as planned, refinancing all expiring debt facilities in 2024 and 2025;

· floating interest rates increase by 1.0 per cent over current forecasts, in early 2024, before refinancing transactions are completed;

· an immediate valuation shock of minus 10 per cent in property valuations;

· individually, the level at which banking covenants would come under pressure; and

· temporary suspension of dividends

In addition, the Directors have considered potential mitigants to the downside scenario which include, but are not limited to, utilising existing liquidity reserves, further asset disposals, pledging as security ungeared properties and suspending non committed capital expenditure.

Having made enquiries, the Directors have reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the period to 31 December 2025. In addition, having reassessed the Group and Company's principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these financial statements.

1.5 Significant Accounting Estimates and Judgements

The preparation of the Group's financial statements requires management to make estimates and judgements 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 estimates and judgements 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 - Global Standards (incorporating the International Valuation Standards) and the UK national supplement (the "Red Book"). Factors reflected include current market conditions, net underlying operational income, periodic rentals, lease lengths and location, as well as estimated costs to be incurred as part of the Group's EWS programme. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Note 11.

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.

· 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 Material Accounting Policies

Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2023. 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.

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.Fair Value Through Profit or Loss

These 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. 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). 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 of impairment provisions, 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 held on deposit with banks.

Financial Liabilities

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

Fair Value Through Profit or Loss

These are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income.

Other Financial Liabilities

Other financial liabilities include the following items:

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

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

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 ten years.

Investment Property

Investment property comprises property that is held to generate rental income or for capital appreciation. This includes property under development rather than for sale in the ordinary course of business.

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 fair value are included in the Consolidated Statement of Comprehensive Income in the period in which they arise.

A property ceases to be recognised as investment property and is transferred at its fair value to property held for sale when it meets the criteria of IFRS 5. Under IFRS 5 the asset must be available for immediate sale in its present condition subject only to the terms that are usual and customary for sales of such assets and its sale must be highly probable.

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 net gain/(loss) on disposal of investment property 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: straight-line basis over seven years; 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 requests a rent refund and they meet the necessary criteria, including leaving the property, the Group recognise no further income in relation to that tenancy.

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 or Directors, 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.

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 comprise 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 amount 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 Classification of Liabilities as Current or Non-current

· IFRS 16 Leases: Lease Liability in a Sale and Leaseback

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

2. REVENUE

3. PROPERTY EXPENSES

4. ADMINISTRATIVE EXPENSES

1Audit and related fees for the year ended 31 December 2023 includes £0.1 million arising in respect of the audit for the year ended 31 December 2022

5. NET FINANCE COSTS

6. EMPLOYEES AND DIRECTORS

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006 is set out in the Directors' Remuneration Report.

7. CORPORATION TAX

The Group became a REIT on 1 July 2014 and as a result does not pay UK corporation tax on its profits and gains from its qualifying property rental business in the UK provided it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal.

In order to achieve and retain REIT status, several conditions have to be met on entry to the regime and on an ongoing basis, including:

· at the start of each accounting period, the assets of the property rental business (plus any cash and certain readily realisable investments) must be at least 75% of the total value of the Group's assets;

· at least 75% of the Group's total profits must arise from the tax-exempt property rental business; and

· at least 90% of the tax exempt profit of the property rental business (excluding gains) of the accounting period must be distributed.

In addition, the full UK corporation tax exemption in respect of the profits of the property rental business will not be available if the profit financing cost ratio in respect of the property rental business is less than 1.25.

The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is not required to be recognised in respect of temporary differences relating to the property rental business.

No deferred tax asset has been recognised in respect of gross tax losses of £48.8 million (2022: £34.5 million), accelerated capital allowances of £3.8 million (2022: £2.7 million) and share based payments of £2.1 million (2022: £1.5 million) on the basis that the business is not expected to generate taxable profits in future periods against which these amounts can be applied. Therefore, a deferred tax asset of £13.1 million (2022: £9.7 million) has not been recognised in respect of such timing differences.

An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021, therefore a hybrid rate of 23.5% has been used. By virtue of the Company's status as a UK REIT, this should not materially increase the Company's future current tax charge. The deferred tax at 31 December 2023 has been calculated based on these rates, reflecting the expected timing of reversal of the related temporary differences.

8. EARNINGS PER SHARE

The number of shares used in the calculation of basic earnings per share is based on the time weighted average number of shares throughout the year.

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

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

EPRA EPS, reported on the basis recommended for real estate companies by EPRA, is a key measure of the Group's operating results, and used by the Board to assess the Group's dividend payments.

The calculation of each of the measures set out below:

9. NET ASSET VALUE PER SHARE

The principles of the three EPRA measures are set out below:

EPRA Net Reinstatement Value ("NRV"): Assumes that entities never sell assets and aims to represent the value required to reinstate entity assets.

EPRA Net Tangible Assets ("NTA"): Assumes that entities buy and sell assets, which crystalises unavoidable deferred tax.

EPRA Net Disposal Value ("NDV"): Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. As the Group is a REIT, no adjustment is made for deferred tax.

The Group considers EPRA NTA to be the most relevant measure and this is used as the Group's primary NAV measure.

A reconciliation of the three EPRA NAV metrics from IFRS NAV is shown in the table below.