Empiric Regulatory News (ESP)

21 March 2018

Empiric Student Property plc

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

RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2017

The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of student accommodation across the UK, today announced the Company's full year results for the 12 months ended 31 December 2017.

HEADLINES

Financial

1 The comparative figures are for the six months to 31 December 2016 and so are not directly comparable.

2 Gross Annualised rent includes commercial revenue and marketed student revenue for the academic year 2016/17 at full occupancy (the Group considers student occupancy levels of 97% and above as fully let).

Financial Performance1

· 2017 Adjusted Earnings for the year were £10.1 million.

· Adjusted Basic Earnings per share for the year were 1.86 pence.

· Revenue was £51.2 million for the year.

· Declared and paid dividends per share of 5.55 pence in respect of the year to 31 December 2017, in line with the reduced target announced in the business review and trading update on 23 November 2017.

· Portfolio valued at £890.1 million at 31 December 2017, up 23.4%.

· Targeting gross annualised rent of £72.2 million for the 2018/19 academic year.

· Occupancy of 92% for academic year 2017/18, which was affected by local property management issues and local economic conditions in some cities. Pricing review, earlier marketing and process monitoring have been put in place to support the target of 97% occupancy for the coming academic year.

· Operating margins and dividend cover reduced by a number of financial and operational inefficiencies within the Group and its supply chain. A full review of the Group was completed, the results of which were announced in November 2017 and immediately began implementing significant financial and operational improvements and cost savings.

· Operating margin of 57% for 2017.

· Administration expenses of £13.5 million for 2017, (H1 2017 £7.6 million, £5.9 million for H2 2017).

· Raised net proceeds of £107.6 million through the issue of 100,917,432 shares at 109 pence per share in July 2017.

· Agreed a new £10 million, three-year unsecured loan, which has been fully drawn down, and a £70 million, three-year secured revolving credit facility, which was undrawn at the year end.

· Dividend cover on an adjusted basis of 33%.

· Loan to value ratio ("LTV") of 33% at 31 December 2017, which is within both the long-term LTV target of 35% and our maximum LTV of 40%. The aggregate cost of debt was 3.25% with a weighted average term to maturity of 6.7 years.

Operational Performance

· 94 assets with 9,158 beds contracted at 31 December 2017, in 29 prime university cities and towns.

· 1,460 new beds in the 2017/18 academic year including 1,031 beds from nine newly completed developments.

· 85 operating or revenue-generating properties at the year end, with an average valuation yield of 5.7% and average yield on cost of 6.7%.

· Increased the number of assets on the Hello Student® platform by 26 to 62 during the year, meaning Hello Student® is marketing or managing 73% of the Company's operational buildings.

· During the year acquired four standing assets (429 beds), one forward funded asset (106 beds), one development site (153 beds) and Revcap's 50% interest in the Willowbank joint venture (178 beds).

· Sold the Forthside development site in Sterling (208 beds).

Business Review

As advised in the 23 November 2017 business review and trading update, a top to bottom review of the business has been undertaken. A summary of the scope of the review and resulting key actions taken to date are as follows:

Post Period End

· Purchased Emily Davies Halls of Residence in Southampton, adding an affordable price to complement our studio schemes, in line with our investment strategy, bringing the current number of assets to 95.

Outlook

· Revenue projections for academic year 2017/18 remain unchanged based on 92% occupancy until the start of the new academic year.

· For the 2018/19 academic year, we are targeting occupancy levels of 97% supported by an increased focus on the end to end sales process.

· Bookings for the 2018/19 academic year are currently 48% compared to 22% at the same time last year, an increase of more than double.

· A modest increase in gross margin is forecast for FY 2018, with a significant uplift in the fourth quarter as occupancy levels increase from September onwards and as the cost of third party property management and facilities management begins to fall away.

· Targeting an operating margin of 70% in 2019 with tangible progress towards that target in FY 2018.

· Reshape the investment portfolio by reinvesting the proceeds of the sale of a parcel of non-core assets into our core markets. This will involve less than 10% of the Group's property assets by value.

· Unlock the value of our development assets through joint ventures.

· Targeting administration expenses of £10 million in 2018, a reduction of 26% on FY 2017.

· Targeting a dividend of 5.0 pence per share for the year ending 31 December 2018.

· On an adjusted basis we expect to see a fully covered dividend by the year ending 31 December 20191 with significant progress towards that target in FY 2018..

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

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

"We have a very strong property portfolio which operationally underperformed in 2017. We have identified the causes of that underperformance and are implementing the changes necessary to allow the business to deliver the improvements we all want to see.

We expect these actions will deliver growth in operating margin and dividend cover during 2018 and beyond. As a result, we continue to target a total return of 10% per annum over the medium term."

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

The Company's LEI is 213800FPF38IBPRFPU87.

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

Notes:

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

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

A meeting for investors and analysts will be held at 9:00am today at:

Gowling WLG (UK) LLP

4 More London Riverside

London

SE1 2AU

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

Those wishing to attend the presentation or access the live conference call are kindly asked to contact Newgate at empiric@newgatecomms.com or by telephone on +44 (0) 20 7680 6550.

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

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

Hard copies of the Annual Report and Accounts will be sent to shareholders, along with the notice for Annual General Meeting 2018, on or around 22 March 2018.

CHAIRMAN'S STATEMENT

Dear Fellow Shareholder

The Rt Honourable the Baroness Brenda Dean of Thornton-le-Fylde was Non-Executive Chairman of the Board of Empiric from 28 May 2014 until her death on 13 March 2018.

She presided over the Company for the financial year reported on in this Annual Report and she was involved in preparing the document until 13 March when it had reached an advanced stage. It is due to this involvement that the Company has decided that the Chairman's Statement, Chairman's Introduction to Corporate Governance and the Nominations Committee Report should be published in her name.

As Acting Chairman as of 14 March 2018, I confirm that I fully support and endorse the statements made in this report.

The Board and staff of Empiric are deeply saddened by her loss, but immensely grateful for Brenda's contribution to the Company and the impact she had more widely during her illustrious career.

Brenda will be hugely missed.

Stuart Beevor

Acting Chairman

Dear Fellow Shareholder

The Board is acutely aware that performance was below expectations in what was a difficult year for Empiric. We have identified the reasons for this and have taken quick and decisive action to rectify it. The work we are doing will transform Empiric's performance and support delivery of our target total return of 10% per annum.

Performance and Business Review

The Group has grown significantly since the IPO in 2014 and particularly between June 2016 and the start of the 2017/18 academic year. During this time, we increased the number of operating beds by more than 70% and more than trebled the number of buildings on the Hello Student® operating platform. The performance of the operating portfolio this year has been affected by financial and operational inefficiencies, both in the Group and in its supply chain. In addition, while the majority of the operating portfolio is fully let1 for the current academic year, lettings at a number of our properties including in Aberdeen and Cardiff were significantly below target (see page 20 of the Annual Report for more detail), contributing to overall occupancy of 92%. Together, these factors reduced our operating margin for 2017 to 57%. This in turn affected dividend cover, requiring the Board to reduce its dividend target for the third and fourth quarters of 2017 and for 2018.

Lynne Fennah, who joined us as Chief Financial Officer ("CFO") on 26 June 2017 has led a full review of the Group. As a result, with the strengthened finance team, we have implemented significant financial and operational improvements to the Group's processes, reporting and procedures.

Since the end of the financial year, the Board has also decided to bring the remaining buildings managed by third parties onto the Hello Student® platform ahead of the 2018/19 academic year, helping us to drive occupancy and revenue. We are also bringing facilities management in-house, which will further reduce costs. (See page 18 of the Annual Report for more detail.) The Board is targeting an operating margin of above 70% and we expect to make significant progress towards this during 2018.

The Group is also rigorously focused on reducing administration expenses, which totalled £13.5 million for the year (H1: £7.6 million, H2: £5.9 million). This included a number of one-off costs, and we have also identified further savings (see page 18 of the Annual Report for more detail). The Board is now targeting administration expenses of £10 million in 2018.

The Group continued to grow its portfolio at a manageable rate during the year, through selected acquisitions and the successful completion of a number of developments.

At the year end, the property portfolio was independently valued at £890.1 million, an increase of 23.4% for the year. More information about the portfolio and the valuation can be found in the Chief Executive Officer's review.

Dividends

Our dividend target for 2017 was 6.1 pence per share. We paid interim dividends in line with this target in respect of the first two quarters of the year, totalling 3.05 pence per share. However, with dividend cover falling below our original expectations, on 23 November the Board announced a reduced target for 2017 of 5.55 pence per share. We declared dividends of 1.25 pence per share in respect of both the third and fourth quarters and therefore met this revised target.

For 2018, the Board is targeting a dividend of 5.0 pence per share. We expect to see a significant improvement in dividend cover during 2018 on an adjusted earnings basis, and for the 2019 dividend to be fully covered.

Strategy

In 2016, we set out a long-term strategy for Empiric, which is described on page 8 of the Annual Report for more detail. The Board continues to believe this is the right strategy for the Group and that it will deliver attractive returns for shareholders. However, our priority for the coming months is to maximise the returns from our existing asset base, through the operational improvements discussed above and by fine tuning the portfolio and reshaping our investment portfolio. The Chief Executive Officer's review explains more about our strategic priorities.

Board, Management and Staff

We were delighted to appoint Lynne Fennah and her experience in the real estate and hospitality sectors is already proving invaluable to the Group. Lynne replaced Michael Enright, who resigned on 14 March 2017.

On 11 December 2017, the Board gave Paul Hadaway notice to terminate his employment with the Company and he formally stepped down as Director on 12 December 2017. The Board acknowledges his contribution to the business and wishes him well.

Tim Attlee, Chief Investment Officer and co-founder of Empiric, agreed to assume the additional role of acting Chief Executive Officer. The Board firmly believes that Tim, with his in-depth knowledge of the business and sector, is the right person to lead us through this period of transformation. Following Paul Hadaway's departure, Lynne Fennah has also taken on responsibility for the Group's operations.

The new team has made a great start in bringing about the improvements arising from the review of the Group.

The Board has been deeply involved in the business in recent months and has taken difficult decisions that are in the long-term interests of Empiric and its shareholders. It is healthy for the Board to regularly review how it functions and therefore conducted an external review of the performance of the Board and its Committees, which was completed in February 2018. More information can be found on page 46 of the Annual Report.

This has been a challenging time for Empiric and our people have responded superbly. Their energy and commitment to the Group's success has been unfaltering, and I thank all of them on behalf of the Board for their contribution.

Shareholders

Since the IPO, we have worked hard to build strong relationships with our shareholders and we will continue to regularly engage with them, so they are informed about our plans and progress. On behalf of the Board, I want to thank our shareholders for their continued support. The Board has a strong sense of responsibility to our shareholders and we are determined to ensure positive outcomes for them and for all our stakeholders.

Summary

The Board is confident that the actions we are taking, coupled with Empiric's excellent portfolio, will ensure a bright future for the business. We expect these actions will deliver growth in operating margin and dividend cover during 2018 and beyond. As a result, we continue to target a total return of 10% per annum over the medium term.

The Rt Hon the Baroness

Dean of Thornton-le-Fylde

Statement made prior to her death and approved by the Acting Chairman below:

Stuart Beevor

Acting Chairman

21 March 2018

1 The Group considers occupancy levels of 97% and above as fully let.

OUR STRATEGIC OBJECTIVES

OUR BUSINESS MODEL

Physical Assets

We have a diversified and attractive portfolio of properties that offers high-quality accommodation to customers ranging from first year undergraduates to postgraduates.

Specialist Knowledge

We understand how to successfully develop, acquire and operate student accommodation assets.

Relationships

We have strong relationships with universities, developers and potential vendors of PBSA assets.

Financial Assets

We finance our business through a combination of shareholder equity and debt facilities. Our debt has a weighted average term of 6.7 years and interest costs which are predominantly fixed or capped.

Technology

We are developing fit-for-purpose systems to support our operations, booking and accounting.

Select Locations

We are highly selective about where we invest. We currently operate in 29 towns and cities, which are home to some of the most successful universities in the UK and where student numbers are rising faster than average. We select sites based on their compatibility with our operating models and proximity to universities and amenities.

Our investment policy enables us to invest in studio and small-group assets, modern townhouses and affordable apartments, as well as building unique relationships with universities. These four different accommodation niches enable us to invest more deeply in each city.

Investment

Our Investment Policy allows us to invest our capital in a variety of ways. We can acquire freehold or long leasehold interests in individual buildings and portfolios and undertake forward funded and direct developments, on our own or in joint ventures (see below). Over time, we will redevelop selected assets in our portfolio, increasing rental income and capital values. This approach allows us to be flexible, investing our capital in the way that best suits us at the time, so we can prioritise generating revenue in the near term, the delivery of longer-term returns or a balance of the two.

Whichever route we choose, we select buildings with character that fit our strategic niches and where we can create future goals. Specifications are tailored to each building, with high-quality interiors and the generous provision of communal space. Our buildings have an average of around 100 beds, making them the right size for creating cohesive communities of friends, and are usually clustered together for operational efficiency.

Manage

Our Hello Student® platform currently markets and manages most of our assets and all of our assets will be on the platform for the 2018/19 academic year. Adding assets to the platform gives us economies of scale, helps us to cross-sell as customers move between buildings and cities, and assists with recruiting experienced and dedicated staff. Empowering our property managers to feel ownership and pride helps us to drive occupancy and increase the number of students who rebook with us. The platform also gives us improved data on asset performance and insight into students' needs, so we can improve our offering.

Develop

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, have a lower risk profile as the planning, construction and time risk lies with the third-party developer, have lower staffing requirements and benefit from a forward funding coupon charged to the developer.

Direct development delivers higher yielding assets than forward funding. We have a strong track record, having completed all our direct developments to date on time or ahead of schedule.

Reinvest

We intend to hold our investments for the long term but we may sell an asset if we see an opportunity to create more value for shareholders by reinvesting the proceeds.

Stakeholders

Shareholders

Shareholders benefit from the rising capital value of our portfolio and growing rents, which support our dividends.

Employees

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

Communities

The communities around our assets benefit from reduced pressure on local housing stock.

Customers

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

CHIEF EXECUTIVE OFFICER'S REVIEW

Clear lessons have been learned from the shortfall in our operating performance in 2017. The Board has asked me to take on the additional role of Acting CEO during this challenging period and I am confident that our relentless focus on increasing revenue, cutting costs and unleashing the potential of our staff will deliver the transformation the business needs to fulfil its potential for all stakeholders.

We continued to enhance the Group's portfolio during the year, through acquisitions and completed developments, and we are now improving profitability through an investment strategy tailored to our current circumstances. Empiric has excellent assets and we are confident that our transformation programme will maximise the value we generate from them.

Strategic Priorities

In our 2025 plan, we set out our vision to be the UK's leading provider of premium student accommodation, offering exemplary locations, buildings and tenant experience, and this remains the case. In the near term, we are tailoring our investment strategy to our current circumstances, with increasing dividend cover being our absolute priority. Empiric has excellent assets, with a total asset value of £973 million, and our transformation programme will maximise the operational profitability of our standing asset portfolio and realise the value of our developments.

Our strategy targets 36 key university towns and cities in the UK. We currently have investments in 29 of these locations, and these remain our primary focus as we look to enhance our operational effectiveness. We are reviewing every asset to determine whether we could enhance returns by disposing of it and reinvesting the proceeds, bearing in mind the transaction costs of disposal and acquisition. This process considers the asset's financial performance, alongside the growth profile of the university it serves, the supply pipeline in its market and the implications for rental growth, recognising that supply in some cities is strong and this has challenged occupancy levels. The scale of this portfolio fine tuning will be modest and is likely to involve no more than 5-10% of our assets by value.

Where we dispose of assets, we will look to drive efficiencies by re-investing more deeply in existing markets and increasing our range of product and price points, as we are already doing successfully in Exeter, Leicester, York and Manchester. This will ensure we have something to offer everyone from first year undergraduates to postgraduates and help us to cross sell within the Hello Student® brand. Markets with excellent universities and constrained supply of PBSA will be prime candidates for investment. We will look to acquire standing assets rather than development opportunities where possible, to ensure any acquisitions contribute to rental income from day one.

Completing the transition of assets to the Hello Student® platform is a core goal, as it will help us to drive occupancy and efficiencies, so we maximise revenue and margins. More information about Hello Student®'s progress in 2017 can be found on page 19 of the Annual Report.

Portfolio Summary

At 31 December 2017, the Group owned, or was committed on, 94 assets representing 9,158 beds (31 December 2016: 89 assets, representing 8,504 beds). The portfolio included 85 revenue-generating assets (31 December 2016: 75 assets). This will increase to 91 for the 2018/19 academic year, with a further three for later years.

The gross annualised rent for the 85 revenue-generating properties at the year end was approximately £65.3 million (31 December 2016: £52.1 million). Of this, £1.8 million was attributable to commercial revenue, representing 2.8% of the gross annualised rent (31 December 2016: £1.8 million, representing 3.5% of the gross annualised rent). The gross annualised rent roll is expected to increase to £72.2 million for the 2018/19 academic year, following completion of the four developments and two redevelopment projects that are currently under way. In November 2017 we announced a like-for-like rental growth target of 3.2% for the 2018/19 academic year. With 44% of rooms let under assured short-hold tenancies, as at the date of publication, 3.2% is at the upper end of our expectations but we have made demonstrable progress towards that target.

Valuation

Each property in the portfolio has been independently valued by CBRE, in accordance with the RICS Valuation - Professional Standards January 2014 (the "Red Book"). At 31 December 2017, the portfolio was valued at £890.1 million, an increase of 23.4% for the year (31 December 2016: £721.3 million).

The increase in valuation has been driven by a combination of acquisitions, yield compression and rental growth in the majority of our cities, which are continuing to see strong demand, tempered by a reduction in the valuation of assets located in certain cities, including Aberdeen and Cardiff, where we have faced operational challenges (see page 20 of the Annual Report for more detail).

Asset Acquisitions

During the year, we announced the acquisition of four standing assets, one forward funded project and one development site, at a total cost of £64.5 million. These purchases added 429 operational beds to the portfolio, with the potential to add over 500 further beds once the developments are complete. Details of the acquisitions can be found in the table on page 31 of the Annual Report. In addition to these transactions, we also purchased Revcap's 50% share in the Willowbank joint venture in Glasgow.

The standing assets acquired primarily comprise our core studio accommodation, as well as a number of townhouses and apartments. The property we acquired at South Bridge, Edinburgh, is let to the University of Edinburgh until March 2020 on an internal repairing lease, guaranteeing us full occupancy for the remaining term.

The development projects will provide further studios, as well as two and three bed apartments and six bed townhouses, in line with our strategy of diversifying our product types.

Developments

The Group made significant progress with its development projects during the year, with 1,031 new beds being completed for September 2017. These included our first premium townhouses, at Clifton Place, Exeter, which we let to the University of Exeter for the 2017/18 academic year. Once we have completed the projects which are currently in progress, we will have delivered more than £250 million of assets at cost through forward funded and direct developments, showing the importance of development to the Group's growth.

In total, seven forward funded projects reached completion and became operational in 2017. An eighth forward funded project, Trippet Lane in Sheffield, was delayed and is due to be completed in April 2018. Trippet Lane was therefore subject to a rental guarantee from the developer for the 2017/18 academic year. Rental guarantees on forward funded developments give us full protection in the first year of selling, mitigating construction risk for us.

The delay to Trippet Lane highlighted the benefit of owning a number of properties in a city. We completed our development project at Provincial House in Sheffield ahead of schedule, allowing us to offer places to students who had booked a place in Trippet Lane. In addition, we were able to offer places to students on the waiting list at our other Sheffield property, Portobello House. The completion of Provincial House maintains our record of completing all direct developments on time or early.

In November 2017, we obtained planning permission at Ocean Bowl, Falmouth, for 190 beds. This development will contribute much needed student accommodation and relieve pressure on the local housing market. Falmouth has one of the fastest growing student populations in the UK, with a student to bed ratio of 2.7:1, against the national average of 2.3:1. Ocean Bowl complements our scheme next door, Maritime Studios, and will allow us to benefit from operational efficiencies. Details of completed and current development projects can be found in the tables on page 31 of the Annual Report.

Redevelopments

Victoria Point is a flagship asset in Manchester, comprising six blocks which between them contain the three direct let asset types in our portfolio. Four of the blocks are currently operational, while blocks 3 and 4 are undergoing redevelopment to provide affordable accommodation suitable for returning undergraduates. These blocks will be operational for the 2018/19 academic year.

We have identified eight other operating assets which are suitable for redevelopment, giving us the potential to enhance the properties and increase rental income and capital values. Any redevelopment would be subject to the availability of finance and would be carefully timed to minimise the impact on dividend cover.

Disposal

On 27 November 2017, we completed the disposal of the Forthside Way development site in Stirling for £2.0 million. Our focus is on building critical mass in our target cities and this was our only asset in Stirling. We sold the property with the benefit of planning permission we obtained for a 208-bed PBSA development, resulting in a substantial uplift in value above the original acquisition price.

Safety

The safety of our students is always a top priority for us. Following the devastating fire at Grenfell Tower in June 2017, we commissioned an independent building-control approved inspector and fire-risk assessor, to undertake a full fire risk review of all our operating properties, from both a construction and operational perspective. While all buildings have been physically inspected, the formal reporting process will be ongoing during Q1 2018. The initial reports indicate that all the buildings in the portfolio are physically fully fire safety compliant and the on-site operating staff are trained in fire risk awareness and fire safety procedures. Monitoring of the physical assets continues and our staff are receiving ongoing training.

People and Culture

The entire team is focused on transforming Empiric's performance, and this is at the heart of the cultural change that is now under way. Everything we do is with the aim of increasing revenue, reducing cost or helping the team to perform more effectively. Applying our energy to these three areas is a key part of successfully turning our financial and operational performance around.

We are therefore striving to build a positive, collaborative and communicative culture, where our people bring forward suggestions for improvement, take responsibility for execution and are empowered to act, with appropriate oversight. Everyone will have the opportunity to learn new things, increase their skills and develop their careers.

Our aim is to reward commitment and success, so we are putting in place measurable objectives for all our people and will appraise their performance against them. These individual objectives will align with the three main Group objectives - maximising revenue, reducing cost and building a strong team ethic - to ensure rigorous focus on what is important.

We have significantly strengthened the team this year, to ensure we have the right calibre of people, not least in finance (see page 21 of the Annual Report for more detail).

We recognise that diversity can lead to better decision making and improved business outcomes. The changes to our team this year have further improved our gender diversity, particularly at a senior level. More information can be found on page 26 of the Annual Report.

Post Balance Sheet Events

Since the end of the financial year, we have acquired Emily Davies Halls of Residence in Southampton, which diversifies our portfolio in the city and extends our ability to provide affordable accommodation and diversifies our portfolio in the city. We have also completed the land purchases of Falmouth Ocean Bowl and Edinburgh King's Stables Road.

Outlook

Our challenge for 2018 is to drive the profitability of our entire portfolio, while bringing all externally resourced operational functions in-house and completing their integration.

The strength of the underlying investment thesis coupled with the high quality of our assets will support this transformation and provide a platform for the resumption of the Empiric's growth.

Tim Attlee

Acting Chief Executive Officer

21 March 2018

OPERATIONAL AND FINANCIAL REVIEW

Operational Review

As discussed in the Chairman's Statement, we completed a full review of the Group's operations and financial performance and announced our findings on 23 November 2017. The review identified a number of inefficiencies within the Group and its supply chain, which we are rapidly rectifying. This has resulted in more focus on revenue management and on achieving the levels of revenue we expect by returning to full occupancy at 97%, alongside reviewing and reducing both our direct and administrative costs.

We have been working to rationalise costs internally, as we consolidate our lettings operations. Central buying of utilities, for instance, has now been secured and will be effective from September 2018.

The Board has also approved two key actions which will significantly improve our operational effectiveness, reduce our direct costs and contribute to margin. First, we will bring all the properties currently being managed by third-party PBSA managers onto the Hello Student® platform, ahead of the 2018/19 academic year. This will enable us to directly manage costs, give us full control over the marketing of those assets and the interactions with students, and provide us with live data on our entire portfolio, so we can respond dynamically to changes in the market and drive occupancy and revenue.

The second critical change is that we will start to in-source the facilities management services from their current outsourced service providers, and we have appointed GVA to assist us with both building in-house capability and the transition plan. Internalising of facilities management will save us the providers' profit margin and VAT, thereby generating a saving after recruiting staff and other costs to undertake this process. Cost savings will start to be delivered from the start of the 2018/19 academic year.

Administration expenses in 2017 included a number of one-offs, as explained in the Financial Review. We are also taking action to cut administration expenses further, including reducing consultancy agreements and contractor headcount. Administration costs in the second half of 2017 came in at £5.9 million, as forecast, and we are working to bring further tasks in-house to reduce this over the next year. Changes to our forecasting process during the year have resulted in much more accurate information being provided for decision making, and we will continue to evolve these forecasting models.

Hello Student®

We continued to increase the number of assets on the Hello Student® platform during the year. At 31 December 2017, 62 of our 85 revenue generating assets were on the platform, up from 36 a year earlier. With the exception of one asset in Exeter, all new assets during the year went onto the platform, rather than to third-party managers. Hello Student®'s ability to support the mobilisation of new assets was shown by the performance of Samuel Tuke Apartments and George Street, which were both full in their first year of operation.

We launched the new Hello Student® website in November 2017. This enables us to track enquiries and provides improved reporting, as well as offering us better control of the content and having a smarter, more visually engaging customer interface. We also upgraded our bookings software, which has provided greater levels of analytics.

The Hello Student® brand is building and engagement with the website is continually growing, with a 460% increase in web traffic in 2017, compared with the previous year. Social media is central to our sales platform, as we use it to engage with students, raise awareness of the Hello Student® brand and drive website traffic. In 2017, we had a total of 74,000 Facebook followers and the total reach of all our posts was 2.2 million. Facebook was also responsible for driving over 50% of referrals to the Hello Student® website.

The increasing scale of the Hello Student® platform offers rationalisation opportunities, as we look to make sure it is as efficient as possible in each city. We therefore began reviewing staffing levels towards the end of 2017. We also introduced more robust performance management for our people, as described in the Chief Executive Officer's review.

During the year, we trialled a new in-house capability to manage the back office processing of bookings and payments, and transferred our four properties in Cardiff onto the new system. However, issues with the new system were a significant contributor to low levels of occupancy in Cardiff, as discussed in more detail below, and we therefore discontinued the trial and moved the properties back to the existing Hello Student® system.

We continue to review the student booking journey, to ensure it is the best user experience it can be, and that the interface between the online processes and our physical presence is as seamless and effective as possible.

Research and Development

An important output from our operating platform is improved data on students' needs and preferences, and the performance of our assets. Our programme of student satisfaction and innovation research gives us valuable insight into how we can improve our offer. We conduct deep analyses of our cities, including the financial performance of the universities, the type of students they attract, where those students come from, the supply, quality and price of accommodation, and the niches we can successfully target there. This has benefits in honing operational reporting and acquisition insight, as well as allowing us to further develop relationships with universities.

Financial Performance

Comparative Figures

The change in our financial year end from June to December during 2016 has resulted in the comparative period for this set of results being the six months to 31 December 2016. Comparisons of amounts in the income statement between the two periods are therefore not meaningful and the discussion below focuses on performance in 2017 on a standalone basis.

Financial Results

Revenue from our assets was £51.2 million in 2017 (H2 2016: £19.2 million). Growth in the year resulted from the increase in revenue-producing assets from 75 to 85 and higher average annual rents. However, the portfolio was only 92% let for the 2017/18 academic year (2016/17: 97%). The large majority of the shortfall was the result of poor lettings in Aberdeen and Cardiff. Aberdeen was affected by local economic conditions, resulting from the oil price slump causing a mass increase in housing supply in the city. Cardiff had new supply entering the market, causing price disruption in existing buildings during their mobilisation year. In addition, Cardiff transitioned management into Hello Student® mid sales cycle, there were local management conflicts and the systems problems noted above, which have now been resolved.

There were also a number of other cities where occupancy was affected to a lesser extent. The transition of a large number of assets to the emerging Hello Student® platform was a factor, as well as operational issues in cities such as Glasgow and Newcastle. In response, we have adopted earlier and more strategic transition programmes, reduced initial listed rents in Cardiff and Aberdeen, which are offset by higher than average rents in other cities, and introduced rigorous weekly monitoring of bookings. We continue to monitor opportunities to maximise income by adjusting rents in light of demand throughout the bookings cycle.

The shortfall in occupancy and the operational inefficiencies outlined above resulted in operating profit under IFRS of £32.5 million for 2017 (H2 2016: £20.2 million). This included an aggregate revaluation uplift of £15.8 million, net of property acquisition costs, on our property portfolio at the year end (H2 2016: £14.5 million), and a gain of £1.1 million (H2 2016: £nil) on the sale of Forthside Way in Stirling. The operating margin for the year was 57%.

Administration expenses for the year were £13.5 million (H2 2016: £5.3 million), with £7.6 million incurred in first half and £5.9 million in the second half. There were a number of one-off costs in the first half, including the settlement agreement with the previous Chief Financial Officer and the cost of temporary finance staff, to support our migration to a new accounting platform. The second half of the year contained one-off costs for the settlement agreement with the previous Chief Executive Officer.

Net financing costs for the year were £11.8 million, net of money market investment income and the fair value gain on interest rate swaps of £0.1 million (H2 2016: £4.2 million and £0.3 million, respectively).

Profit before tax for 2017 was £20.8 million (H2 2016: £16.9 million). No corporation tax was charged, as the Group fulfilled all of its obligations as a REIT. Basic earnings per share were therefore 3.84 pence (3.83 pence on a diluted basis) (H2 2016: 3.38 pence and 3.35 pence (diluted)).

The Net Asset Value ("NAV") per share as at 31 December 2017 was 104.37 pence, prior to adjusting for the interim dividend for the quarter ended 31 December 2017 of 1.25 pence per share (31 December 2016: 105.9 pence, prior to adjusting for the interim dividend of 1.55 pence per share). The NAV is shown net of all property acquisition costs and dividends paid during the year.

Dividends

The dividends declared and paid in respect of the 2017 financial year are shown in the table overleaf. The changes to our dividend targets for 2017 and 2018 are covered by the Chairman on page 4 of the Annual Report.

Of the total dividends in respect of the year, 2.94 pence per share was declared as a property income distribution ("PID") and 2.61 pence per share was declared as ordinary UK dividends (H2 2016: 0.93 pence per share and 2.12 pence per share respectively).

Dividends

Our adjusted earnings per share, which we see as the most relevant measure when assessing dividend distributions, were 1.86 pence (H2 2016: 0.72 pence). Adjusted earnings per share is defined under Key Performance Indicators on page 22 of the Annual Report.

At 31 December 2017, the Company had distributable reserves of £75.6 million, which compares with the cash cost for the total dividend for 2017 of £30.6 million. We therefore have substantial headroom for the payment of future dividends.

Equity Financing

On 24 July 2017, we completed a placing, open offer and offer for subscription for 100,917,432 shares, at an issue price of 109 pence per share. This raised net proceeds of £107.6 million. At 31 December 2017, £73.8 million of the proceeds had been committed.

Debt Financing

On 6 March 2017, we agreed a new unsecured term loan facility of £10 million, which was drawn down in full. This was our first facility at the Company level, reflecting the maturity of the business. The facility has a three-year term and an all-in cost of 2.15% p.a. On 20 November 2017, we announced a new secured, three-year £70 million revolving credit facility ("RCF") with Lloyds Bank. The RCF has a margin of 1.75% above three-month LIBOR and can be extended by 12 months, by mutual consent, on each of the first and second anniversaries, to give a total term of five years. The RCF was undrawn at the year end.

During the year, we also extended the terms of two existing facilities. These were:

· the £32.8 million facility with AIB Group (UK) PLC, which is now repayable in October 2020; and

· the £30.63 million facility with Royal Bank of Scotland, which now becomes repayable in December 2018.

In addition, following our acquisition of Revcap's 50% share of the Willowbank joint venture, we repaid the joint venture's outstanding debt of £9.5 million.

As at 31 December 2017, the Group had committed debt facilities of £390 million, of which £303.8 million had been drawn down (31 December 2016: £310 million of facilities, with £243.9 million drawn down). Of our total facilities, £191.1 million is at fixed interest rates and £198.9 million is at floating rates, with a further £35.5 million of the floating rate debt subject to interest rate caps or swaps. The aggregate cost of debt is 3.25%, with a weighted average term of 6.7 years at 31 December 2017. We fully complied with our covenants during the year.

Our LTV ratio at the year end was 32.9% (31 December 2016: 31.1%). Our borrowing policy is to maintain a conservative level of aggregate borrowings, with a long-term LTV target of 35% and a maximum of 40%.

Total Shareholder Return

The total shareholder return (see page 22 of the Annual Report for definition) for the year to 31 December 2017 was -7.2%, this compared with 12.3% for the FTSE All-Share REIT Index.

Finance Team

We restructured the finance team during the year. While the size of the team is unchanged, eight of the 12 team members are new, including me as CFO. This has given the team a much greater skillset and much higher capability. I want to thank the team for their considerable efforts in recent months, which have proved invaluable as we have begun to transform the business.

Alternative Investment Fund Manager ("AIFM")

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

Lynne Fennah

Chief Financial Officer

21 March 2018

KEY PERFORMANCE INDICATORS

EPRA PERFORMANCE INDICATORS

1 As at 31 December 2016

2 For the six-month period ending 31 December 2016

PRINCIPAL RISKS AND UNCERTAINTIES

Approach to Managing Risk

The Group's risk management process is designed to identify, evaluate and mitigate (rather than eliminate) the significant risks we face. The process can therefore only provide reasonable, rather than absolute, assurance. We outsource certain services to our administrator, FIM Capital Limited (the "Administrator"), and other service providers, and rely to an extent on their systems and controls.

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

Changes to Risks During the Year

The principal risks and uncertainties we face changed during the year, as we encountered new challenges.

The Board considered that there was one new risk which presented itself this year. This is a risk around property costs, which is discussed further in Risk 13.

Risk 11 increased during 2017, due to lower occupancy in some cities, as detailed on page 20 of the Annual Report. The Board has also merged Risk 11 with the Hello Student® occupancy risk set out in the last Annual Report, as all the properties are being brought onto the Hello Student® platform in 2018.

Risk 8 increased during the year, due to the changes in the Executive Directors and their responsibilities, as explained in the Chairman's Statement.

The Board has also amalgamated some risk categories during the year, so they more accurately reflect the principal risks we face. The two development risks described in the 2016 annual report have been combined into a single risk (Risk 5), and the Health and Safety and Laws and Regulations risks are now expressed in a single operational risk (Risk 9).

Finally, the Board considers that commercial revenue is no longer a principal risk, due to its immaterial impact on the Group's financial statements and the low likelihood of occurrence.

Principal Risks

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

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 financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the 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 Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and Accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

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 United Kingdom 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 to the best of their knowledge:

· The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

· 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.

Stuart Beevor

Acting Chairman

21 March 2018

GROUP STATEMENT OF COMPREHENSIVE INCOME

GROUP STATEMENT OF FINANCIAL POSITION

These financial statements were approved by the Board of Directors on 21 March 2018 and signed on its behalf by:

Lynne FennahChief Financial Officer

COMPANY STATEMENT OF FINANCIAL POSITION

Company Registration Number: 08886906

The Company made a loss for the year of £11,296,000 (six months to December 2016 loss of: £4,619,000).

These financial statements were approved by the Board of Directors on 21 March 2018 and signed on its behalf by:

Lynne Fennah

Chief Financial Officer

GROUP STATEMENT OF CHANGES IN EQUITY

COMPANY STATEMENT OF CHANGES IN EQUITY

GROUP STATEMENT OF CASH FLOWS

COMPANY STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

1.1 Period of Account

The consolidated financial statements of the Group are in respect of the reporting period from 1 January 2017 to 31 December 2017.

1.2 Basis of Preparation

The consolidated financial statements of the Group for the year to 31 December 2017 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries (together, the "Group"). These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union.

The Group 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 £11,296,000 (six month period ended 31 December 2016: £4,619,000) 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 2017 or the six month period ended 31 December 2016 but is derived from those accounts. The Group's statutory accounts for the six month period ended 31 December 2016 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2017 and December 2016 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 Going Concern

The consolidated financial statements have been prepared on a going concern basis as discussed in the Director's Report on page 63 of the Annual Report.

1.4 Significant Accounting Judgements, Estimates and Assumptions

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

Judgements

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

(a) Fair Valuation of Investment Property

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

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

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

(b) Operating Lease Contracts - the Group as Lessor

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

(c) Fair Valuation of Interest Derivatives

In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by JCRA Limited with revaluation occurring on a six monthly basis. The financial valuation expert will use a number of assumptions in determining the fair values including estimations of future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.

(d) Business Combinations

The Group acquires subsidiaries that own investment properties. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations, rather the cost to acquire the corporate equity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

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 2017. 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 - Loans and Receivables

The Group classifies its financial assets into one of the categories required by the accounting standards, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as "held to maturity".

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently impaired if there is doubt over recovery.

The Group's loans and receivables comprise "trade and other receivables" and "cash and cash equivalents" in the Consolidated Statement of Financial Position.

"Cash and cash equivalents" includes cash in hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities of three months or less from inception.

Financial Liabilities

The Group's financial liabilities predominantly comprise 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.

Forward Funded Developments

Under the terms of certain funding agreements, the Group commits to pay the total fixed price construction cost to the developer upon entering into the agreement. As construction costs are incurred, funds are released subject to the authorisation of the Group's subsidiary that has contracted the development, along with the appropriate monitoring surveyor certification.

During the period between initial investment in a forward funded agreement and the practical completion date, the Group typically earns licence fee income. This is payable by the developer to the Group once the development is complete. Under IFRS, such licence fees are deducted from the cost of the investment and are shown as a receivable until settled. Any economic benefit of the licence fee is reflected within the Group Statement of Comprehensive Income as a movement in the fair value of investment property.

Hedge Accounting

The Group's activities expose it to the financial risks of changes in interest rates.

The use of financial derivatives (interest rate swaps and caps) is approved by the Board of Directors and is consistent with the Group's risk management strategy.

Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. Any difference between the transaction price and the initial fair value is recognised immediately in the Consolidated Statement of Comprehensive Income. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or the Group chooses to end the hedging relationship.

Cash Flow Hedges

The Group has entered into a derivative contract in order to convert its floating rate debt to a fixed rate to hedge the interest rate risk. This hedging instrument was designated as a cash flow hedge at inception. Changes in fair value of the hedging instrument are recognised in Other Comprehensive Income to the extent that they represent an effective hedge, otherwise fair value changes are recognised as financial costs in the Consolidated Statement of Comprehensive Income.

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

Investment Property

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

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

Once purchased, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the 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 results 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.

Joint Ventures

The Group was party to a joint arrangement when there was a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

The Group classifies its interests in joint arrangements as either:

· Joint ventures: where the Group has rights to only the net assets of the joint arrangement.

· Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

In assessing the classification of interests in joint arrangements, the Group considers:

· The structure of the joint arrangement.

· The legal form of joint arrangements structured through a separate vehicle.

· The contractual terms of the joint arrangement agreement.

· Any other facts and circumstances (including any other contractual arrangements).

Joint ventures are initially recognised in the Consolidated Statement of Financial Position at cost and are subsequently accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the Consolidated Statement of Comprehensive Income (except for losses in excess of the Group's investment in the joint venture unless there is an obligation to make good those losses).

Profits and losses arising on transactions between the Group and its joint venture are recognised only to the extent of unrelated investor's interests in the joint venture. The investor's share in the joint venture's profits and losses resulting from these transactions is eliminated against the carrying value of the joint venture.

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

Operating Leases

Rentals paid under operating leases are charged to the Consolidated Statement of Profit or Loss on a straight-line basis over the period of the lease.

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;

· 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 not 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.

Rent and Other Receivables

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

Segmental Information

The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in student and commercial lettings, within the 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 Real Estate Investment Trust ("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 Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movement in equity, in which case it is also recognised as a direct movement in equity.

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

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

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

1.5 Accounting Standards and Interpretations Issued but Not Yet Effective

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

IFRS 9 - Financial Instruments (effective periods beginning 1 January 2018)

The Group has assessed the impact of the new standard on the Group's results and financial position.

The Group does not expect any material impact on its financial assets. These are held at amortised cost currently and the Group does not consider a change in this basis of measurement. The Group has determined that there is no material impact on moving to the expected credit loss model on the date of transition as generally income from students is received in advance.

The Group has assessed the impact on financial liabilities under the new standard and again does not foresee a material impact.

The key impact to the Company will be the impact on amounts due from Group undertakings. These balances are interest free and repayable on demand, which are used to fund asset purchases. Under IFRS 9, an 'expected loss' impairment model applies which requires a loss allowance to be recognised based on expected credit losses. The Group does not consider that there is any material impairment as the Group undertakings would in theory be able to generate sufficient cash from the operation and/or the proceeds of a sale of their investment properties in order to repay any amounts due. As a result, no cash loss is anticipated. At the present time there is no necessity for these Group undertakings to sell any investment properties and these amounts have not been demanded.

There may however be limited changes to presentation and disclosure for both the Group and the Company.

IFRS 15 - Revenue from Contracts with Customers (effective periods beginning 1 January 2018)

The new standard combines a number of previous standards, setting out a new model for the recognition of revenue. The Group has assessed this new five-step recognition model and there will not be a material impact on the Group due to the simple structure of its rental leases.

IFRS 16 - Leases (effective periods beginning 1 January 2019)

As Lessee

The Group's lease commitment for head office space will be brought onto the statement of financial position together with the corresponding asset. The expected impact has will be less than 0.3% of gross assets and so will not be material to the Group.

As Lessor

The Group's accounting for lessors will not materially change as the Group only holds short-term operating leases.

Other Amendments

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

· IFRS 2 (amendments) 'Classification and Measurement of Share-Based Payment Transactions'

· IAS 7 (amendments) 'Disclosure Initiative'

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

· IFRS 10 and IAS 28 (amendments) 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture'

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

2. REVENUE

The Auditor has also received £80,000 (2016: £nil) in respect of providing reporting accountant services in connection with the equity issue in July 2017. The fees relating to the share issue have been treated as share issue expenses and offset against share premium account.

5. NET FINANCE COST

£nil (2016: £31,000) of wages and salaries are directly related to the costs necessary to develop the Hello Student® application and NAVision software and have therefore been capitalised within intangible assets.

A summary of the Directors' emoluments, including payments for loss of office, and including the disclosures required by the Companies Act 2006 is set out in the Directors' Remuneration Report on pages 53 to 62 of the Annual Report.

7. CORPORATION TAX

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

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

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

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

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

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

· The Group met all of the relevant REIT conditions for the year ended 31 December 2017.

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.

A deferred tax asset in respect of the tax losses generated by the residual (non-tax exempt) business of the Group of £2,271,000 (31 December 2016: £347,000) will be recognised to the extent that their utilisation is probable. On the basis that the residual business is not expected to be income generating in future periods, a deferred tax asset of £3,222,000 (2016: £951,000) has not been recognised in respect of such losses.

8. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

Reconciliations are set out below:

The ordinary number of shares is based on the time weighted average number of shares throughout the period.

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

Adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. Licence fees, development rebates, rental guarantees and cumulative gains made on disposals of assets are added to EPRA earnings on the basis noted below as the Board sees these cash-flows as supportive of dividend payments.

The adjustment for licence fee receivable is calculated by reference to the fraction of the total construction completed during the period, multiplied by the total licence fee receivable given on a forward funded asset.

The development rebate is due from developers in relation to late completion on forward funded developments as stipulated in development agreements.

The discounts on acquisition are in respect of the vendor guaranteeing a rental shortfall for the first year of operation as stipulated in the sale and purchase agreement.

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

9. NET ASSET VALUE PER SHARE (NAV)

Basic NAV per share is calculated by dividing net assets in the Consolidated Statement of Financial Position attributable to ordinary shareholders of the Parent by the number of ordinary shares outstanding at the end of the period.

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

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

Net asset values have been calculated as follows: