Empiric Regulatory News (ESP)

10 April 2016

Empiric Student Property plc

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

RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

The Board of Empiric Student Property plc (ticker: ESP), the owner and operator of modern, premium student accommodation across the UK, today announced the Company's audited results for the six months to 31 December 2016.

Following consideration of the Group's activities, in particular, the focus of operational and development activity around the start of the academic year in September, the Board decided that it would be appropriate to change the accounting reference date to 31 December. These results have, therefore, been prepared for the shortened six month period to 31 December 2016.

HIGHLIGHTS

Financial Highlights

1The comparative figures for the 12 months to 30 June 2016 have not been provided as these would not provide a meaningful comparison

2 Gross Annualised rent includes commercial revenue and marketed student revenue for the academic year 2016/17 at full occupancy'

· Operating profit of £20.2 million

o £14.5 million revaluation gain

o £19.2 million rental income from standing assets

· £143.4 million of new debt raised through two new facilities

· As at 31 December 2016, the Loan to Value ratio ("LTV") was 31.1% (compared to a target of 35% and maximum of 40%), with a weighted average term to maturity for the debt of 7.5 years and a weighted average interest payable of 3.46%

Operational Highlights

· 14 new assets (1,142 beds) contracted in the six months to 31 December 2016

· 2,515 new beds generating revenue for 2016/17 academic year, including 1,728 beds from 13 newly completed developments

· Portfolio now consists of 89 assets (8,504 beds) in 30 prime UK cities and towns as at 31 December 2016, continued progress to the IPO target of 10,000 beds within five years

· Average valuation yield on the portfolio of operating assets at 31 December 2016 was 5.9% compared with average yield on acquisition or cost of 6.5%

· Average rental uplift of 2.5% targeted for the 2017/18 academic year

· Hello Student® managed 3,075 beds as at 31 December 2016 (30 June 2016: 1,868) and was ANUK accredited

Post balance sheet highlights

· Acquired one new standing asset (Foss Studios, 220 beds) and one forward funded asset (Percy's Lane, 106 beds)

· Acquired the remaining 50 per cent. share in joint venture asset (Glasgow, Willowbank) previously owned by an investment fund affiliated with Revcap Advisors Limited

· Agreed £10m, three year unsecured loan with First Commercial Bank which has been drawn down

The Rt Hon Baroness Dean of Thornton-le-Fylde, Chairman of Empiric Student Property plc, commented:

"The last six months has been a period of continuing growth. We invested in or committed to a further 14 buildings with 1,142 beds in eight towns and cities across the UK, of which 10 buildings were operational. The number of revenue generating assets increased from 52 at 30 June 2016 to 75 at 31 December 2016.

"In addition, a key development was the approval by shareholders of a revised Investment Policy which enables us to grow our existing studio portfolio, as well as diversifying the range of student accommodation formats, catering for a wider group of students. These changes have facilitated the implementation of our 2025 Plan - our blueprint for the future growth of the Group."

For further information on the Company, please contact:

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:

Newgate

Sky Light City Tower

50 Basinghall Street

London, EC2V 5DE

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 2016, on or around 21 April 2017.

Chairman's Statement

The six month period to 31 December 2016 has been one of continuing growth at the Company. Shareholders approved a revised Investment Policy which enables the Company to grow our existing studio portfolio, as well as a more diverse range of student accommodation formats, catering for a wider group of students.

Overview

I am pleased to introduce the financial results of Empiric Student Property plc for the six months ended 31 December 2016.

We continued to grow our portfolio of purpose-built student accommodation. During the six month period, we invested in or committed to a further 14 buildings with 1,142 beds in eight towns and cities across the UK, of which 10 buildings were operational.

At the period end, the Group owned or had committed to a portfolio of purpose-built student accommodation assets amounting to 8,504 beds across 89 buildings (including sites acquired subject to planning) across 30 cities and towns in the UK (30 June 2016: 7,396 beds across 75 buildings).

I am very pleased to report that 12 properties being developed on a forward funded or forward committed basis and one through our development joint venture with Revcap Advisors Limited ("Revcap") became income-producing for the 2016/17 academic year, with these 1,728 new beds forming part of our portfolio of standing assets. This includes our flagship development of the former Willowbank Primary School in Glasgow, which has been completed to a very high standard and complements our adjoining Ballet School property.

The Group's portfolio of assets (including the Company's share of a joint venture development asset) had an aggregate value of £721.3 million as at 31 December 2016 (30 June 2016: £523.9 million) as valued by CBRE. Of these properties, 75 (6,775 beds) were operational (or revenue generating) at the period end with gross annualised rent of £52.1 million (30 June 2016: 52 standing assets with 4,257 beds and gross annualised rent of £33.1 million) and were fully let.1

Our operating platform, Hello Student®, and its website, hellostudent.co.uk, launched in February 2016, has continued to expand. The marketing and management of more standing assets and the developments that commenced operation in September 2016 were brought in-house under Hello Student®. The number of buildings under management doubled to 36 over the six months to 31 December 2016 (3,075 beds (30 June 2016: 1,868 beds across 18 buildings)) with 4,882 beds being marketed.

The investments made over the six months were funded through existing equity capital and further debt. During the six month period to 31 December 2016, the Group secured a further £143.4 million of debt financing through two development loans secured against forward funded development assets and extensions to two existing facilities of £40 million each.

As at 31 December 2016, £243.9 million (excluding the Group's share of the debt relating to a joint venture development) was drawn down. As at 31 December 2016, the Loan to Value ratio ("LTV") was 31.1% (30 June 2016: 22.7%) (compared to a target of 35% and maximum of 40%), with a weighted average interest payable of 3.46%.

With the dividend declared for the quarter ended 31 December 2016 of 1.55p per share, we have paid out dividends in respect of the six month period equating to 3.05p per share (12 months to 30 June 2016: 6.0p per share). Of this, 0.93p per share was paid as a property income distribution ("PID") under the UK Real Estate Investment Trust ("REIT") rules.

We are targeting a dividend of 6.1p per share for the 12 months to 30 June 2017 (in line with our annual dividend growth target of not less than RPI), which we expect to be substantially covered by adjusted EPRA earnings per share for 2017.2

Future Growth

A key development for the Company was the approval by shareholders in December 2016 of the revised Investment Policy which increases the types of student accommodation investments that the Group can make, facilitating the implementation of our 2025 Plan - our blueprint for the future growth of the Group (see page 21 of the Annual Report for more detail).

The 2025 Plan is the culmination of a significant amount of research and analysis into the student accommodation market, including feedback from our own customers, which informed discussions around the Board and with our advisers. We also undertook a comprehensive consultation process with our major shareholders before proposing the necessary amendments to our Investment Policy in a General Meeting.

Another significant change to the Investment Policy was the removal of forward funded development assets from the restriction on developments. These assets enable us to develop further purpose-built student accommodation but with the advantage of reduced risk (the principal risk lies with the third party developer), together with a coupon from the developer which is accrued over the period of the development, as well as the enhanced capital returns typical of developments (these properties are usually acquired by us at a yield on cost of 7+%).

Together, these changes mean that we will be able to acquire or develop a more diverse range of student accommodation formats, catering for students from their first year as undergraduates to postgraduates, both UK and international, and from varying economic backgrounds, reducing marketing and operational costs, without losing focus on our core portfolio of premium studios. We will also look to work more closely with higher education institutions, themselves, to assist them in addressing the accommodation needs of a growing, and more demanding, student population.

Alongside these changes, shareholders approved a new Directors' Remuneration Policy to enable the introduction of a Value Delivery Plan which aligns the long term remuneration of the Executive Directors responsible for the delivery of the 2025 Plan, currently Paul Hadaway and Tim Attlee, with that of our shareholders.

Our Shareholders

Our aim, always, is to provide our shareholders with a secure and steadily growing return, with a covered dividend (increasing in line with RPI) and capital growth over the medium to long term, and we believe that the 2025 Plan will help us to deliver this.

We have gone to great lengths to engage with our shareholders regarding the 2025 Plan and its related proposals, incorporating their feedback wherever possible. As a Board, we are committed to maintaining a dialogue with all of our shareholders, with direct access to both Jim Prower, our Senior Independent Director, and me, as well as the ongoing programme of market updates, analyst presentations, site visits and one-on-one meetings between our Executive Directors and key shareholders and other potential investors.

The Board, Management and Staff

In the six months to 31 December 2016 we continued to secure financing, source and deliver investment opportunities and maintain the governance framework that our shareholders expect. We have also successfully delivered over 1,700 new beds through our development activities, significantly grown our operations capabilities, expanded our central management function to support this growth and, importantly, we have a plan in place for the future growth of the Company.

These achievements would not have been possible without the hard work and dedication of the Executive Directors and my other fellow Board members who have demonstrated outstanding commitment, as well as the Group's employees, who are key to our success. I would like to thank them all for their individual contributions.

Following the period end, in March 2017, Michael Enright tendered his resignation from the Group, for personal reasons. Michael had been Chief Financial Officer since the Company listed in June 2014 and my colleagues and I would like to thank him for his input and contribution and we wish him well for the future.

We have made good progress in seeking a permanent replacement for the role of Chief Financial Officer, further details of which are set out in my Nominations Committee Report on page 59 of the Annual Report.

Outlook

The fundamentals of the student accommodation sector remain the same: excess demand with limited supply. With our 2025 Plan, we expect to be able to address this demand in a wider context.

The UK is still in the process of determining how its exit from the EU will take place and the impact it may have on the future of the country and the economy. The UK Government has publicly committed to promoting UK higher education internationally in order to maintain the world-class reputation of our universities.

In a time of persisting uncertainty in the macro-economic backdrop, we aim to provide our shareholders with the certainty of a stable return on their investment together with the anticipation of future growth prospects.

The Rt Hon the Baroness Dean of Thornton-le-Fylde

Chairman

10 April 2017

1 The Company budgets and models on 97% occupancy.

2 Shareholders should note that the figures in relation to dividends set out above and elsewhere in this Annual Report are for illustrative purposes only and are not intended to be, and should not be taken as, a profit forecast or estimate.

Our Business

Our aim is to provide shareholders with regular, sustainable and growing long term dividends, together with the potential for capital appreciation over the medium to long term. We deliver value by investing in operating and development assets, and managing a diversified portfolio of properties to offer premium university student accommodation to a range of customers, from first year undergraduates through to postgraduates.

Our business generates value for our shareholders...

· Dividends paid in respect of the six months to 31 December 2016 of 3.05p per share, targeting 6.1p per share for the 12 months to 30 June 2017

· NAV was 105.9p per share at the end of the six month period to 31 December 2016 (30 June 2016: 105.4p per share)

Our Strategy

Deepen and widen engagement with, and understanding of, all stakeholders

Achieving positive returns for our shareholders through:

Focus on target locations and increasing our presence

Diversification of building types while retaining a focus on quality

In-house management leading to cost reductions

Brand management facilitating cross-marketing

Broadening of our customer base

Key Performance Indicators

The Company's objective is to deliver attractive returns to shareholders through the execution of its Investment Policy which is set out on page 26 of the annual report. The Key Performance Indicators on which we report each period to track the progress made are set out below in respect of the six month financial period to 31 December 2016.

Financial

EPRA Performance Measures

Our Market

The student accommodation market is now an asset class in its own right, catering for a wide variety of both first year and returning students. The development of the purpose-built student accommodation ("PBSA") market has emerged from the needs of the sector.

In the course of the development of our 2025 Plan, we have undertaken extensive analysis of the student accommodation sector. Several factors have emerged as impacting the overall sector:

· Growth in full-time student numbers and participation in higher education: Due to policy, curriculum innovation, university outreach and labour market factors such as the globalisation of high skilled labour, engagement of young people in higher education is the highest that it has even been. The Department of Education reported the 2014/15 initial participation rate for UK 18-30 year olds had risen to 48%1, rising from 42% in 2006/07.

· Competition between universities: The pressure to do well at university, alongside policy drivers to create competition between universities (including the Higher Education and Research Bill and introduction of the Teaching Excellence Framework), are contributory factors in a polarisation in the attractiveness of universities. Good universities continue to attract students from wide national and international backgrounds. Successful universities will be those that are able to adapt to external factors through solid planning, adaptable funding and attractive and relevant course portfolios.

· University investment in facilities: Accommodating growth and the need to attract high quality students are key drivers underpinning universities' investment in academic and residential space. Maintenance and the need for further expansion has led to increasing pressure on institutions to prioritise expenditure, which together with borrowing limits imposed by Higher Education Funding Councils is typically driving investment in the academic rather than residential estates.

· The emergence of residential business models, on and off campus: Higher education institutions ("HEIs") have generally come to see other providers of student accommodation as supportive to their needs - that money is available through other sources to build residential capacity with private development of accommodation (on and off campus) as a mainstream option for residential development.

· Private PBSA investment levels: Levels of investment into the development of PBSA have risen over the past decade, as have student numbers. High levels of liquidity and investment activity are driving changes in the UK student accommodation market, encouraging greater levels of competition between operators and differentiation in stock types. Those students with a larger budget have few alternatives to renting in student halls or the private rented sector (houses of multiple occupancy ("HMOs")), particularly those wishing to share. Students with a more limited budget, the fastest growing sector of the market, are competing with the wider rented residential sector.

· Constraints on housing markets: Growth in student populations in recent decades has led to pressure on housing stock near many universities with a widespread conversion of houses to HMOs around university campuses, pushing out local employees, young families and changing the balance of voting and Council Tax paying populations. There is concern over "studentification" and ensuring that student "ghettos" do not detract from the sustainable balance of communities. Rents have risen significantly in areas of high demand.

· Council activity and effects on the housing market: Local Authorities have responded to this increasing pressure on housing markets through licensing that aims to limit the irrevocable loss of houses to student and other transient populations, and to control the quality of the HMO housing stock. The tool of Article 4 Direction ("A4D") has been available for use by Councils since 2010 for C4 use class, requiring owners to obtain planning permission to convert houses to HMOs. A4D is in place in many major cities. Private businesses are entering the space, packaging houses into larger portfolios, with professional landlords and greater investment and quality. High quality houses now mimic the convenience and room types of PBSA in some cases. The blurring of lines between property types may be a further opportunity to convert audiences towards PBSA alternatives.

· The student experience vs affordability: The rise in tuition fees has had widespread effects on the sector. Students are under pressure to demonstrate good degrees, and investment in higher education has risen. They come from families with consumer lifestyles, with concerns about safety and they rely on their parents to a greater degree and for a longer duration, which has led students and parents to choose PBSA for at least some part of the student's time at university. The higher quality of PBSA over time and it being more widely available and accepted in the market have led to it being seen as mainstream for first years, and other groups are following suit. Demand for en-suite and high-end product outstrips demand for more affordable, generally older accommodation. At the same time, the National Union of Students ("NUS") and students in London are protesting the rise in costs of university accommodation, reflecting the value imbalance between private and university owned PBSA. The replacement of supplementary grants for students from lower income households with loans does not seem to have diminished the appetite of 18 year olds from lower income families for a university education. However, with the increasing number of UK students studying without additional parental financial support, the issue of affordability may well become the subject of even more attention in future.

1.Participation Rates in Higher Education: Academic Years 2006/2007 - 2014/2015 (Provisional), Department of Education

Provision of Student Accommodation

Student demand for private sector PBSA has increased significantly over recent years, with 568,000 beds, albeit serving primarily first year undergraduates, reported by Cushman & Wakefield in 2016/17. An increase in room numbers is being projected for 2017 and beyond. The increase in rooms is reflected in the rising number of students reporting to their universities that they are living in PBSA off campus.

Student preferences towards PBSA have evolved over recent years, along with an expectation of having an enjoyable and valuable student experience during their time at university. Living within walking distance of the university campus; being able to choose from a variety of room types and price points; as well as an overall contemporary interior and fit-out including modern social spaces are all regarded as important factors that students take into consideration when making accommodation choices.

In response to changing student preferences, as well as the rise in the quality of accommodation off campus, universities are improving their accommodation stock through refurbishments and the replacement of standard rooms with shared bathrooms, though they remain behind the curve in terms of quality. In 2015, Cushman & Wakefield recorded a total of c.7,000 rooms had been refurbished on campuses, with a negligible increase in the volume of rooms on campus. Some of this work is being undertaken by universities themselves, but also the joint venture market for on campus and off balance sheet projects is now seen as a more acceptable route by universities.

Although private PBSA accounted for only 27% of provision for all students in 2015/16, it was the fastest growing stock type in the sector. Within the next few years, there is likely to be a shift from majority university ownership of rooms to private provision.

Due to the increasing maturity of the student accommodation market, we considered niche markets both in terms of location as well as product design in relation to our growth prospects.

Being responsive to student preferences and finding innovative solutions for differentiation, e.g. securing development sites close to campus, designing new inventive room types such as townhouses, and the inclusion of a variety of social spaces and being sensitive to affordability, will be key factors in ensuring the future success of schemes in a more competitive marketplace. Micro market analysis will also be crucial in ensuring the sustainable attractiveness of schemes long term.

Chief Executive Officer's Q&A

Q

Q How has the Company performed this period? What were the highlights?

We have continued to build towards the achievement of our IPO goal of 10,000 beds in five years, which we are on target to complete ahead of time with 8,504 beds under contract at the six month period end. Of these, 6,775 were operational (or revenue generating) with 869 due to become operational in time for the 2017/18 academic year and 860 operational in September 2018. We are continuing to build a strong pipeline that should enable us, within 2017, to achieve the IPO aim. In the six month period to 31 December 2016, we contracted on £95.5 million of buildings (1,142 beds), funded through existing equity and further gearing.

Within the six month period, we engaged with shareholders over the development of the 2025 Plan, our strategy for the future beyond 10,000 beds. In December 2016, shareholders voted in favour of the diversification of our Investment Policy. This is hugely exciting for us, facilitating further opportunities for growth, appeal to a wider customer base and increased efficiencies across the portfolio to the benefit of our shareholders.

Hello Student®, our operating platform, was launched in early 2016. By the end of December 2016, 3,075 rooms were being operated by Hello Student®. For the 2017/18 academic year, 4,882 beds are being marketed directly by Hello Student®, out of a total of 7,644 beds currently available. This is significant progress towards the previously stated target of all of the beds currently owned or contracted being run in-house by September 2018. With the enacting of the 2025 Plan, future acquisitions will include standing assets and new developments. The standing assets are likely to be acquired with incumbent operational management which will be transitioned onto the Hello Student® platform.

As well as concluding an attractive series of purchases, the acquisition team has generated a strong pipeline of both standing assets and forward funded opportunities. I would like to thank the acquisition and development teams for their efforts; the acquisition team who have secured a further 787 operational beds for the portfolio, and the development team who have delivered the 1,728 new beds. We, therefore, achieved a balance of standing assets for income generation and forward funded developments to increase the future size of the portfolio at enhanced yields; always with a view to achieving full cover of our dividend in the near future.

In terms of acquisitions, Leicester stands out as a particular highlight. Leicester is a city of 32,600 full-time students which has seen growth of 15% between 2010/11 and 2015/16. De Montfort University grew to its largest size in 2015/16 with 17,400 full-time students, driven by impressive growth at a postgraduate level in a range of subjects. The University of Leicester is one of the Russell Group of universities, ranked 25th in The Times University Guide 2017 and attracting 15,300 full-time students. De Montfort has no accommodation of its own and there are few private operators serving the University of Leicester.

The five assets we acquired in Leicester, obtained through two deals, are the most interesting of all the properties acquired in the period. Princess Road, in the corner of De Montfort Square, is one of the finest sites in Leicester, where a 106 bed building with full Empiric studio-based specification is being developed by forward funding a local developer for delivery for the 2018/19 academic year. We also continue work on the contiguous Victorian terrace at New Walk, within sight of the University of Leicester, and we were very happy with the two warehouse conversions we acquired (The Hosiery Factory and The Shoe & Boot Factory) located in the city centre, which target returning students. Our first two buildings in Leicester, CityBlocks 1 & 2, continue to perform well and have started the letting cycle for September 2017 encouragingly.

Another highlight was the delivery of 13 of our development assets for operation in the 2016/17 academic year. Of those, there were five forward commitments (The Exchange, Bath; James House, Bath; Windsor House, Cardiff; Claremont House, Newcastle; and Metrovick House, Newcastle), one direct development (Willowbank, our flagship development in Glasgow) and seven forward funded developments (St Peter Studios, Aberdeen; William & Matthew House, Bristol; Buccleuch St, Edinburgh; Oldgate House, Huddersfield; The Frontage, Nottingham; Talbot Point, Nottingham; and Portobello House, Sheffield). These assets have added 1,728 new revenue generating beds to our portfolio, creating a significant increase to our rental income.

While this considerable growth has resulted in an increase in one-off property costs expensed in full during the period, the continued acquisition of income producing assets and the completion of the development assets, has generated a substantial uplift in revenue in the second half of the six month period. We expect this to contribute to a significant increase in the adjusted EPRA earnings per share for the financial year to 31 December 2017, with a view towards our target of a substantially covered dividend for 2017.

We paid total dividends of 3.05p for the six month period to 31 December 2016 in line with our target of 6.1p for the 12 months to 30 June 2017 - an increase in excess of RPI compared to the year ended 30 June 2016.

In December 2016, we moved our head office to Swan House, Stratford Place, London. We had outgrown our previous office at James Street and were in need of space to house additional central staff members to support the expanding business. The refurbished office is about twice the size and will allow for new staff to be recruited to support the strategy and operation of the business. The increased size of the business has significantly outpaced the growth of the head office overhead to date.

Q What was the rationale for the multi-niche diversification - the 2025 Plan?

Our IPO strategy was based on an accommodation type virtually unknown ten years ago, satisfying the needs of a wealthier, but substantial part of the student market. Whilst a good deal of development activity in recent years has focused on this, research carried out for Empiric during the last year bears out that there is still significant opportunity in this area. For that reason, as one of the four niche strategies within the 2025 Plan, we see continued expansion beyond the 10,000 beds targeted at IPO.

The IPO strategy has delivered a robust portfolio of small and medium-sized city centre buildings in the 30 leading university towns and cities in the UK. We have had good rebooker rates in these buildings but having some of the studio apartment based tenants ask whether they could share in newly formed friendship groups was one of the catalysts for the development of the 2025 Plan.

As we know from our tenant base (of 137 different countries with an age range of 17-61 this academic year) the student market is large and complex. As the numbers of both UK and international students have expanded over recent decades (reaching 1.7 million full-time students in 2015/16) and participation of young UK people in higher education is at record levels, we recognise that there is more diversity in the UK student population than there has ever been. These students have expectations of good value, quality accommodation in attractive, central locations or on campus. The growing pressures on the HMO market, and on universities which are unable to keep up with the guarantee to provide for their first years, are resulting in a huge opportunity for a specialist provider to think differently about this target market. Indeed, as the supply of purpose-built accommodation has increased, a greater proportion of students is attracted to this way of life, and we believe there is a structural shift towards PBSA. The Cushman & Wakefield Student Accommodation Annual Report 2016/17 indicated that the number of students per PBSA bed has actually increased from 2.1 to 2.3 in 2016/17, signifying that supply is not keeping up with demand.

We believe that there is a role for a multi-niche student accommodation provider to become more widely embedded in the market to meet and capitalise on these opportunities. The 2025 Plan enables us to respond in a targeted and distinctive way, opening up new channels and stock types which will add value to students, our business and our shareholders.

Q How quickly will the portfolio grow in the 2025 Plan, and what impact will it have on the mix of room types and customer demographics?

The 2025 Plan sets out four different niches which we believe cross-fertilise and do not compete with each other. By becoming engaged in a wider range of accommodation types, the business will be able to continue to grow and target different potential customers at different stages of their academic life. The four niches are described as:

· Core Studio and Premium Small Group - this is a continuation of the offer from our initial strategy and includes premium studio, two bed and three bed apartments;

· Premium Houses - accommodation in prime locations configured into townhouses with large living spaces which will appeal to customers seeking high specifications within a group environment. Shared communal facilities and a concierge desk are provided similar to the Core Studio and Premium Small Group;

· Affordable Apartments - with a focus on prime locations, new stock types which fit with the Empiric brand and service offer, but that manifest in more affordable rent levels. These are designed as tightly planned and contemporary two, three and four bedroom apartments arranged around staircases to avoid an institutional feel; and

· University Relationships - innovation in our business and operating model to work with universities to bring a range of product types and the strength of our business to bear on or near campus, through either new build or sale, refurbish and leaseback of existing stock.

Each of these niches might grow at different rates, as the pipeline of opportunities is likely to vary in each case.

Equally, operational efficiencies will be achieved differently for each niche. Working with universities might take longer to bring to fruition, but with larger numbers in each deal. In the core niche, we will seek to retain the small community feel and character of the estate by clustering smaller assets.

In the evolution of the 2025 Plan we expanded the number of towns and cities under watch from 30 to 36, expanding the IPO strategy into new locations. Across these cities we modelled an even distribution of activity. Crossed with a desire to slow the overall expansion of the business, this will result in modest investment in each niche over the next one to two years. The guiding principle for expansion is to be able to fund development without endangering cash returns to shareholders, which means that the capacity for development will grow only as the portfolio grows and consequently, income with it.

The 2025 Plan is designed to attract a wider target customer base. Some of the changes will come from purchasing different types of assets, and there is evidence that recent acquisitions are already affecting demographics in our tenancy profile. For example, the purchase of the Campbell portfolio with buildings in Exeter, Leicester and Portsmouth in late 2016 included assets that largely target returning UK undergraduates. This addition has resulted in a slightly greater proportion of UK returning undergraduates being exhibited in our tenant demographics. The tenant mix is also tending more towards female than it was last year. Equally, the new universities niche will have an impact. Working with universities will bring us into contact with more first year students due to the guarantees they offer, again opening a new channel for tenant progression through the Empiric portfolio, reducing marketing and operational costs.

Q How far can the core strategy grow?

The core strategy focuses on postgraduate and international students. If the Government's target of promoting education exports remains unchallenged, the market is set fair to grow. Transnational education has been growing at nearly 5% p.a. since the mid-1970s (source: UNESCO) and is predicted to continue at this rate. This is driven by the rising wealth and numbers of the middle classes globally, accompanied by a desire to educate their children.

Considering the overall wealth of international students in the UK (most of whom, our research shows, tend to be privately funded and a vast proportion of whom are postgraduate) as well as the propensity for students, generally, to live in purpose-built student accommodation, we believe there is still an undersupply of high quality accommodation to meet the needs of students who are willing and able to pay for the best accommodation.

Our core offer consists of studio accommodation and premium small group apartments, configured in relatively small buildings with high quality social and amenity space. They engender a sense of community, which generates loyalty from our customer base.

After our core portfolio reaches the initial 10,000 bed target, we envisage it expanding by between 500 and 1,000 beds per year on a measured opportunistic basis, responding to market demands and in-filling our existing portfolio to achieve operational efficiencies.

Q How is the Hello Student® brand and platform development progressing?

The Hello Student® platform continues to roll out its brand across the portfolio, allowing us to build a coherent presence in the market. Following the launch of the website in February 2016, we have been steadily adding buildings to the Hello Student® platform and it is now the primary marketing platform for 53 of the assets available for the 2017/18 academic year.

We are running a rolling programme of platform developments and improvements. At the end of 2016, we began a pilot of a streamlined website/booking system integration of Hello Student® in Cardiff, which has been brought in-house from the previous outsourced management. This will be a test bed of how all the assets will run in future. We see a phased transition as important to mitigating risk and to ensure that we maintain the effectiveness of the systems as Hello Student® takes on a greater proportion of the income producing assets. A parallel pilot initiative is running in Nottingham where we will deploy the full marketing, booking, allocation and communication technology of Hello Student® to our residents through the Hello Student® app. These initiatives will bring an improved customer experience, retention and income generation.

The Operations Review covers Hello Student® and our marketing initiatives in more detail (see pages 34 to 37 of the annual report).

Q What will be the financial impact of the 2025 Plan?

The diversification plan allows us to build a multi-niche portfolio appealing to students at all stages of study and across the price spectrum. Marketing and operating costs are expected to reduce over time due to variety of factors including:

· Continuing to build on Hello Student's® capacity to reduce the reliance on per room percentage fees to outsourced operators

· Consolidating within cities through acquisition in existing locations and a small number of target cities, where more stock can be added to build a city portfolio containing a diversified range of assets under the new strategy

· Continuing to exercise our buying power through the supply chain to obtain greater economies of scale

· Benefiting from re-bookers, building-switchers (moving year to year in the same city) and city-switchers (moving from one city to another within the UK) all with the Hello Student® brand

The 2025 Plan will allow the business to grow and find more opportunity from within the market, and growing income through improved net operating margins, a lower total expense ratio and lower cost bases per city or town will improve profitability and, hence returns to shareholders. The focus will remain on providing value for our shareholders through regular, sustainable income returns, capital appreciation and growing a high yielding portfolio.

Future outlook

The core strategy is one where we intend to progress with our characteristic small building, small group model, and we feel, based on first-hand research, that there is mileage in this approach to building communities.

We are very excited about the potential for the diversified strategy arising from the 2025 Plan to assist us in reaching ever more deeply into the student accommodation market, to assist universities in their aspirations and to bring the high quality and distinctive brand of Hello Student® to a wider audience of students.

As we move into the second quarter of 2017 with Article 50, a devalued currency, immigration questions, President Trump and uncertain statuses for the other members of the EU, the outlook for 2017 is tough to call. The Conservative Party policy from Summer 2015 to expand exports through education to £30 billion by 2020 remains uncontradicted and British universities go from strength to strength. Our own lettings for the 2017/18 academic year have made an excellent start since going live in November 2016, as a result of our well chosen and well managed portfolio. Our position is probably best described as cautiously optimistic.

CASE STUDY

Willowbank, Glasgow

Willowbank is an exemplar within the Empiric portfolio; an example of our latest design standards for new and refurbished buildings.

A fantastic redevelopment of a Victorian primary school, mixing new and old, it brings a dilapidated city centre building back to life. The original building was Willowbank Primary School, commissioned by the Glasgow School Board in 1900 designed by renowned Paisley born architect Alexander Petrie (c. 1836 to 1910). The iconic red sandstone building, listed in 2002, was used as a school for children aged 5-12 until 2010 when it fell into disrepair, and was added to the Buildings at Risk Register for Scotland.

Empiric acquired the site shortly after IPO in 2014 and worked with Susan Stephen Architects to redevelop and extend it, adding four modern, stone, brick and metal clad buildings. Located within the Woodlands conservation area, this project was a labour of love for all those involved and exemplifies the marriage of commercial development and restoration to great effect.

Within five minutes' walk of the University of Glasgow, and connected by local buses, the scheme contains 178 rooms including studios and 2-5 bed apartments. With great amenity spaces and preserved internal features it includes study rooms, a gym, a large cinema room and several communal areas where students can engage and socialise. Feedback from students is that they love the high ceilings, the building's history and how it has been revitalised. The old headmaster and teachers have also visited, noting how sympathetically the school has been restored, how kind to the old features, but also how modern the restoration is.

Building operational efficiencies in the West End of Glasgow by linking with Empiric's adjacent scheme, the Ballet School, it delivers an impressive product near to the leading university in Glasgow, a city of 55,000 students. Currently fully occupied and letting well for September 2017, it is marketed and managed by Hello Student®. A direct development joint venture with Revcap; Empiric's share generated a nearly 60% leveraged IRR. The Group acquired Revcap's share in the joint venture in March 2017.

Willowbank was commended in the Scottish Property Awards 2017 and is shortlisted for the forthcoming Royal Institute of Chartered Surveyors (Scotland) awards for both the Residential Development and Building Conservation categories.

Chief Investment Officer's Portfolio Review

As at 31 December 2016, our portfolio had benefitted from 2,515 new beds generating income for the 2016/17 academic year, comprising 988 beds from standing assets acquired and 1,728 beds from assets under development that reached practical completion1. We also have a strong pipeline of standing assets and new forward funding opportunities.

Overview

Over the six month period to 31 December 2016, a key feature was the impact of our assets under development becoming income generating in time for the 2016/17 academic year on our portfolio. Taking into account the operating assets acquired over the period, as at 31 December 2016, 75 assets were operational (or revenue generating) for the 2016/17 academic year, equivalent to 6,775 beds available to students in our target cities and towns across the UK.

Virtually all of the newly completed assets were developed via forward funded contracts. Forward funded projects typically are 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. In addition, as with a direct development, we are able to configure and design a property to our specifications and benefit from a greater yield on cost than standing asset investments.

In December 2016, we obtained shareholder approval to amend the Company's Investment Policy so as to remove forward funded assets from the scope of the restriction on developments undertaken by the Group. This will enable us to take advantage of the increasing number of forward funding opportunities that are being presented to us as the student accommodation market evolves.

A further change to the Investment Policy was the expansion of our investment remit, our 2025 Plan. We believe that there is still significant growth to be achieved in our core market of premium student accommodation targeting individual postgraduate and international students. However, our market research and analysis indicates that there are a number of other "niche" markets within the student accommodation sector, that are currently underserved, and which offer growth opportunities, whilst at the same time selectively consolidating, broadening and diversifying the Group's exposure across a wider spectrum of the student accommodation market.

This key change to our Investment Policy will enable the Group to evolve from a single-niche investor and developer, to a multi-niche student property company focused on, (i) providing good quality first year accommodation managed by Hello Student® 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. We have also expanded this "fresher to PhD" approach and service offering to 36 cities and towns across the UK.

Assets

During the six months to 31 December 2016, the Group invested in, or committed to, the freeholds (unless otherwise stated) of 12 new assets, comprising a mix of operating properties and forward funded assets (funding of third party developments in return for a discount on the acquisition price), with an aggregate price of £81.0 million (including acquisition costs) (12 months to 30 June 2016: 35 assets with an aggregate price of £251.2 million (including acquisition costs).

The Group had also exchanged conditional contracts on two further properties (both acquired subject to practical completion), for which the outstanding conditions had not been met as at 31 December 2016, with an aggregate price of £14.5 million (excluding acquisition costs) (12 months to 30 June 2016: three assets with an aggregate price of £72.6 million (excluding acquisition costs)).

As at 31 December 2016, the Group owned, or was committed on, a total of 84 assets (representing 7,829 beds) (30 June 2016: 68 assets representing 6,191 beds) and had exchanged conditional contracts, including on sites subject to planning permission being obtained (with the conditions or planning remaining outstanding at the period end) on a further five assets (representing 675 beds) (30 June 2016: seven assets representing 1,207 beds), in a total of 30 cities and towns.

1 This includes The Frontage in Nottingham, where practical completion has been delayed to April 2017 but for which the Group benefits from a rental guarantee for the 2016/17 academic year.

Summaries of these properties are set out in Tables 1 and 2 below.

Table 1 - Operating Assets (and those that had reached practical completion) as at 31 December 2016 (74 in total)

Notes:

(1) Reached practical completion as at the date indicated but was not operational as at 31 December 2016.

(2) 150 year lease, started in August 2010.

(3) In June 2016, the Group acquired a retail site adjacent to the Buccleuch Street building which will be converted to provide an additional two studios, resulting in a total of 88 beds for the property and increased communal facilities with an estimated total project cost of £0.74 million.

(4) 999 year lease, started in March 2014.

(5) This figure includes two studios which were acquired after 31 December 2016.

(6) Owned in a 50:50 joint venture with Revcap at 31 December 2016. On 30 March 2017, the Group acquired Revcap's 50% interest in the joint venture.

(7) 199 year lease, started in December 2014.

(8) This building (132 beds) is to be significantly refurbished and, therefore, is not operational for the 2016/17 academic year.

(9) Freehold/leasehold.

The portfolio of 75 revenue generating properties (30 June 2016: 52) is fully let for the 2016/17 academic year2. The gross annualised rent for these properties was £52.1 million (30 June 2016: £33.1 million), of which £1.8 million (representing 3.4% of the gross annualised rent) was attributable to commercial revenue (30 June 2016: £0.9 million representing 2.7% of gross annualised rent). The average uplift in annual rents was 2.78% for the 2016/17 academic year (2015/16: 3.0%).

The average net yield on acquisition of the operating properties, or on cost for those development assets that had reached practical completion, as at 31 December 2016 was 6.5% (30 June 2016: 6.4%). The average valuation yield as at 31 December 2016 was 5.9% (30 June 2016: 5.9%).

2 The Company budgets and models on the basis of 97% occupancy (previously 97.5%). Occupancy or income of the operational portfolio (being available beds) to this level and in excess is considered fully let. This letting figure, however, excludes The Frontage in Nottingham which had not reached practical completion as at 31 December 2016, notwithstanding the rental guarantee in place for the 2016/17 academic year.

Table 2 Forward Funded and Development Assets as at 31 December 2016 and Projects and Sites Acquired Subject to Planning (15 in total)

(1) Practical completion of this asset has been delayed until April 2017 but the Group benefits from a rental guarantee for the 2016/17 academic year.

(2) The Group had exchanged contracts on this site, subject to planning consent being obtained. Planning consent had not been obtained as at 31 December 2016 and, in January 2017, the Group allowed the contract to lapse.

(3) The Group had exchanged contracts on this site, subject to planning consent being obtained. Planning consent had not been obtained as at 31 December 2016.

(4) The Group had exchanged contracts on this site, subject to planning consent being obtained. While planning consent had been obtained prior to 31 December 2016, the Group had not completed the acquisition of this site by 31 December 2016.

Valuation

Each individual property in the Company's property portfolio has been valued by an external valuer, CBRE, in accordance with the RICS Valuation - Professional Standards January 2014 (the "Red Book"). CBRE now values the portfolio off 97% occupancy (previously 97.5%) which has had a slight negative impact on the valuation of the portfolio.

As at 31 December 2016, the Group's property portfolio had a market value of £721.3 million (including the Company's interest in a joint venture development asset but excluding the value of properties on which only conditional contracts had been exchanged at the year end) (30 June 2016: £523.9 million). Of this, £654.0 million was attributable to operating assets or those which had reached practical completion, an increase of 10.2% in value compared to the aggregate purchase price or cost of development of £593.7 million (30 June 2016: £443.4 million, an increase of 4.7% compared to purchase price or cost of development of £423.2 million). The aggregate valuation attributable to the forward funded and development assets that had unconditionally exchanged was £67.4 million, which is based on progress of the development of the assets to 31 December 2016.

The Group had also exchanged conditional contracts on five properties and sites for which conditions (e.g. practical completion or planning consent) remained outstanding as at 31 December 2016 and, therefore, the value of these properties has not been included in the aggregate valuation of the Group's property portfolio as at 31 December 2016.

Post Balance Sheet Events

Since the period end, we have announced the acquisition of one asset which was operational and one forward funded development property which, together, represent a further 326 beds. Details of these acquisitions are set out in Table 3 below.

In March 2017, the Group acquired Revcap's 50% share of the Willowbank joint venture for £4.65 million.

Table 3 - Assets Acquired Since 31 December 2016 to Date (2 in Total)

Our Teams

Our investment and development teams have continued to work hard over the six month period and I would like to thank them for all their efforts. We look forward to delivering further investment opportunities within the Group's expanded Investment Policy.

Tim Attlee

Chief Investment Officer

10 April 2017

CASE STUDY

Our Social Media Strategy

When it comes to connecting with students in the UK and abroad, social media is proven to be the most effective channel. Some 90% of younger millennials and Gen-Z, the two generations currently at university, use social media every day. We use social media platforms to curate a modern, unified brand presence which speaks to students, and it drives 53% of the traffic on the Hello Student® website.

Facebook has regularly been the top traffic driver to the Hello Student® website. We use it to drive sales and engage our audience with the brand. It's also a great place to grow and interact with a student audience. We are so pleased to see so many residents interacting by leaving comments, posting pictures and reviewing us. Our reach through Facebook was 4.1 million in the 1 July to 31 December 2016 period, and we gained 11,950 new followers in this time.

Meanwhile on Instagram, we are less about driving sales and more about curating the Hello Student® brand. Instagram is a key platform for millennials and Gen-Z. We post a mix of our own beautiful property pictures, and repost content from top-performing accounts. Each month we pick a new theme to guarantee consistency. January was clean living and February was interior design, for example.

Our average engagement rate (the percentage of people who liked, commented or shared) is around 4% - the industry average is 1%.

Twitter is less of a priority for Hello Student®; however, we do use it for keeping up with customer service, and for reaching out to influencers. Where students are leaving Twitter, they are joining Snapchat in droves. On this platform we run filters to showcase selected properties and campuses. These allow students to customise the photos they share with Hello Student® branding. Student photos encourage user-generated content in a mobile first format that students are connecting with every day.

Chief Executive Officer's Operations Review

Over the six months to 31 December 2016, we experienced our fastest acceleration in the number of operating (or revenue generating) buildings, from 52 buildings at the end of June 2016 to 75 buildings at the period end. Hello Student® is also making good progress, increasing the number of buildings under management over the six month period from 18 to 36.

Introduction

The six months to 31 December 2016 saw a significant ramp-up in the number of operating (or revenue generating) assets - 23 buildings in the six month period compared to 52 buildings over the previous two years. We are also making good progress in moving assets to sit within the Hello Student® marketing and operational platform, whilst continuing to grow and diversify our portfolio of properties. Hello Student® received accreditation into the Accreditation Network UK (ANUK) in December 2016.

Both the number and proportion of rooms under the Hello Student® platform increased significantly, moving us towards the aim of running most of the core portfolio by September 2018. The operational (or revenue generating) portfolio grew by 2,515 beds across 23 buildings between 1 July and 31 December 2016, including the largest handover of buildings under development to date, comprising 13 assets (totalling 1,728 beds) becoming operational in the 2016/17 academic year.

These new rooms coming into operation gave us additional capacity in several key cities including Bath, Cardiff, Glasgow and Leicester.

The operational (or revenue generating) portfolio included 6,775 beds in total by December 2016, across 75 buildings (30 June 2016: 4,257 beds across 52 buildings) of which Hello Student® operated 3,075. The beds not operated by Hello Student® were operated by third party student accommodation management companies.

Summary Beds Owned and Operated

The transition to marketing and operation by our single student branded website Hello Student® has been successful to date, and allows us greater access to information on our customer base, savings on operational costs and the potential for efficiencies and excellence in service provision.

Marketing

Hello Student's® marketing cycle for the 2017/18 academic year commenced during November 2016. 4,882 beds will be marketed directly by Hello Student®, of 7,644 beds available for the 2017/18 academic year (at period end).

In line with the strategic move of assets to Hello Student®, we have invested in additional in-house marketing capability to provide central marketing and support to the regional network.

We remain very interested in who our tenants are, and how we can add value to their experience in our residences and as part of their time at university. As at December 2016, our portfolio, fully let, comprised the following tenant diversity:

Tenant Demographics, 2016/17 and 2015/16

December 2016.

The demographic analysis highlights that over one year we have increased the number of UK students (rather than decreased the number of international students as the total number of beds has increased). One of the reasons for this is the purchase of the portfolio of assets in Exeter, Leicester and Portsmouth from Campbell Properties which, historically, has targeted returning UK students.

Given the diversification plan, these assets support the transition of the business into a multi-niche operator appealing to students at all stages of study and across the price spectrum.

Our research has told us that international students are typically funded by parents whereas UK students are funded predominantly by loans. In our latest tenant survey, more than half of our international tenants' self-reported levels of disposable income, on average, of £500 per week, once tuition fees and accommodation were paid for. Non-UK students are also more demanding in their expectations from their accommodation, valuing location, safety, technology, cleanliness and amenities more highly than UK students in general. This research reinforces the need for student accommodation to be as diverse as the student population.

We continue to look for ways to add value to our tenants, and one new but very effective service that we have been able to supply is Perkbox. This rewards-based provider was created for employees to use companies' shared discounted products and preferential deals (such as cinema tickets, Tastecard, high street store discounts etc.). We have rolled out Perkbox to every tenant (and every member of staff) on a cost-effective basis due to the large number of our twenty-something tenants. It is early days in our relationship with this company and by December, 15% of tenants had activated their accounts. However, the benefits to those 15% were substantial at £22,000 of savings in one month. This is indicative of the purchasing power of our customer base and their importance as economic drivers for their local economies.

During the period, the trial version of the Hello Student® app went live for testing in Nottingham. The app allows customers to access a range of add-on services (such as dry cleaning and room servicing) as well as creating an additional channel of communication between residents and management and maintenance teams.

The aim will be to roll out the app in phases across the cities beginning next year. We believe that there is significant potential for the app to assist operations further. As part of the IT plan, we wish to move to a three-click booking process which can be accessed from mobile devices.

Hello Student's® social media outreach has met with a huge level of engagement from prospective tenants. During the 1 July to 31 December 2016 period we gained almost 12,000 new Facebook followers and our posts reached 4.1 million users. We also ran a campaign #SayHelloStudent across a range of social media channels based around a competition to win a free room for a year. The prize was won by a student at Glasgow University for her video of international students saying "Hello Student®" in their own languages; she is now living in our Willowbank building. Facebook is used as a marketing channel for increasing influence rather than just simply sales, which is a departure from how the tool is used by other operators. However, Facebook is now the biggest driver of traffic to Hello Student's® booking website.

Booking System

The Hello Student® booking system was improved and the website booking process streamlined in November 2016. There were several reasons for the changes. We wanted to reduce the abandonment rates and implement benefits of the recent distance selling law change that could make the booking system simpler for prospective tenants.

We refined and customised the website customer journey, and took the innovative move of removing the requirement for deposits and booking fees (which were due to be prevented by law at the end of 2016). Due to the quality of the buildings and the tenants they attract, we experience little malicious damage where we claim on deposits, so the removal of them was deemed beneficial; as they can only be a significant drag on the take-up of bookings. We are showing a level of trust to our customers which we believe they appreciate. Early indications are that the level of abandonment has been reduced from the booking system as a result, and will significantly improve the efficiency of tenant recruitment over time.

A further benefit has been to create more certainty of income earlier in the booking cycle. Rather than pay a deposit, the tenant enters into the licence agreement earlier. Tenants also benefit from not having their deposits held by a tenant protection scheme (at a cost of time and expense to us); one of which suffered a major failure last year, temporarily affecting our tenants, and creating unnecessary concern within the sector.

Management

As the business grows, it remains vital that those staff who are managing the assets and engaging with tenants become integral to the operation of the Hello Student® platform.

The regional operational and management structure is being grown, with the first regional office opening soon in Glasgow. Two Heads of Operations (Northern England and Scotland) started during the period, and five City Managers were recruited with total staff of 44, together with 73 student ambassadors. Recruitment will be ongoing - and will be supported by the implementation of a structured induction plan, central training and support and creating best practice networks between buildings and cities. The positive effect of managers being brought into one operational platform is already being felt, and we believe the sense of ownership and community will result in even more positive engagement with current and prospective tenants in future. The growth of the Hello Student® platform and overhead reflects the increasing total number of beds and mirrors the reducing number of outsourced management contracts and their fee burden.

Empiric head office staff are closely engaged with the expansion of the operational platform, including those not directly involved in it or overseeing it. With so many new beds and buildings completing for the 2016/17 academic year, over move-in weekends in September, central staff assisted hands-on, working side by side with building managers to welcome tenants and their parents. This has been a great way for staff to see the business at the sharp end, saying "Hello" to customers.

As a group, central office staff were taken to Edinburgh for a weekend in August to stay in the recently completed Buccleuch Street property to experience an Empiric building first-hand. Not only did the business come to life for the more office bound of the central office employees, but the latest design and specification of our product was reviewed and discussed by a new and critical group of testers.

Our London head office moved to Swan House, Stratford Place near Bond Street Station. The additional office space will accommodate the expansion of the central team and support development and diversification of the business and the new strategy.

Direct Operational Costs

The basis of Hello Student® as an operational platform is the operational cost savings and quality improvements that can be achieved by bringing the operation in-house. One of the central elements of the operational plan was to bring in-house more of the management of the buildings, by directly employing the team of management people around the country. A core premise was that as the business enlarges, so the economies of scale of managing residences becomes a greater financial benefit. The added cost of investing in an in-house operational platform is expected to be more than offset by the savings that we are able to make through reducing percentage based per-bed fees currently paid for services which are outsourced.

A benefit of this change, and the restructured outsourcing of other functions, has been to examine the full detail of the operational costs that are involved in running the portfolio and to enable us to customise a cost plan to respond to the unique nature of our buildings and our service offer. In developing the budgeting process for Hello Student®, we built a financial model using the external valuation as a starting point; utilising industry benchmark numbers, categorised into the various operational areas. Since September 2016, we have been refining this model, moving away from narrow assumptions and thinking smartly about how operational efficiencies can be achieved with the future portfolio that the delivery of the 2025 Plan will bring.

Cost tracking and sensitivity testing are now in place to feed into the modelling, as we will be bringing newly acquired standing assets onto the operating platform on a recurring basis in all asset types described in the 2025 Plan.

The aim is to improve operating costs per bed over a period of time by moving them from external fee based management contracts to the in-house Hello Student® platform. Conducting ongoing testing of operational costs will ultimately result in efficiencies and a costing model that really reflects the business and its needs. We are running this model on an ongoing basis as a test bed which will evolve from year to year.

The preparatory work to replace the current accounting system took place and the new system is expected to go live in phases during 2017. This change allows the operational cost reporting to be more integrated and simplified than before and puts the reporting systems on a footing to accommodate future growth.

Preventative Maintenance and Reactive Repairs

We contracted with Incentive FM in the previous financial year to provide highly responsive facilities management to support us. This move to a directly employed national contractor long term will enable us to have more oversight of operational costs, greater economies of scale within the supply chain and a coordinated and consistent approach to delivery.

Overall the continuing rollout of the Hello Student® platform will enable us to achieve greater quality control and efficiencies as the portfolio continues to grow and evolve which will feed into shareholder value.

Paul Hadaway

Chief Executive Officer

10 April 2017

Financial Review

The financial results for the six months to 31 December 2016 reflect the Group's significant expansion and capital deployment over the period including the practical completion of a substantial number of development properties which became operational for the 2016/17 academic year. 

Accounting Policies

The Group changed its accounting reference date from 30 June to 31 December and the consolidated financial statements have been prepared for a shortened six month period to 31 December 2016. The comparative financial information included in this report relates to the audited consolidated financial statements for the 12 months ended 30 June 2016.

The Group's consolidated financial statements for the six months to 31 December 2016 have been prepared in accordance with IFRS.

Overview

The Group has undergone significant growth during the six month period to 31 December 2016, with the addition of 23 assets to the existing portfolio of 52 operating (or revenue generating) purpose-built accommodation assets owned at 30 June 2016. As a result, gross annualised rent as at 31 December 2016 increased to £52.1 million (30 June 2016: £33.1 million).

Of these additional assets, 13 were development properties which reached practical completion (or became revenue generating) for the 2016/17 academic year, equivalent to 1,728 beds. This has resulted in a commensurate uplift in the valuation of these assets. Development assets typically are slower to let in the first year and, while the portfolio was fully let1 at the period end, three of our 13 newly completed assets were not fully let for the start of the 2016/17 academic year. This, together with there being only three months of operations at 31 December 2016, means that the full impact of the additional rental income will only flow through to the Group's revenues for the financial year ending 31 December 2017.

However, the cost of mobilisation (one-off setup costs) of these assets, including staffing and other one-off expenses associated with setting up these properties on the Hello Student® management platform, were incurred in full during the period. Similarly, the set-up costs associated with transferring operating assets acquired previously and during the period onto the Hello Student® platform (resulting in a total of 36 buildings managed by Hello Student® at the period end (30 June 2016: 18 buildings)) were also expensed in full during the period.

Again, the benefits associated with an in-house management structure are expected to have a positive impact in the short to medium term as the Group is able to take advantage of economies of scale, with the operation and management of all currently owned operating properties moving to Hello Student® by September 2018.

1 The Company budgets and models on the basis of 97% occupancy (compared to 97.5% previously) adjusted in line with the valuation methodology. Occupancy or income of the operational portfolio (being available beds)to this level and in excess is considered fully let.

Financial Results

The operating profit for the Group for the six months to 31 December 2016 under IFRS was £20.2 million (12 months to 30 June 2016: £30.0 million), including an aggregate revaluation uplift of £14.5 million, net of property acquisition costs, on the Group's property portfolio at the period end (12 months to 30 June 2016: £21.7 million). The operating profit includes the rental income derived from the standing assets in the portfolio, which were fully let1 and produced rental income of £19.2 million in the six month period (12 months to 30 June 2016: £21.6 million).

Revenue during the six months ended 31 December 2016 was negatively impacted by slower than anticipated lettings at some properties (see above), particularly those new to the Group and/or those under construction where completion was achieved later than scheduled, adversely affecting pre-bookings during the Summer. However, the majority of these properties had achieved full occupation by the end of the period. In addition, the voids on properties acquired on 44 week tenancies (as opposed to our standard 51 week tenancy) impacted on revenue as these tenancies terminated shortly after the start of the period.

Property expenses included:

· significant non-recurring expenditure on certain properties associated with their transfer to the Hello Student® platform;

· legacy utility and other running costs inherited on the transfer of the properties concerned from their previous operators as standing investments; and

· one-off mobilisation costs on assets new to the letting market.

The impact of the factors affecting the revenue and one off expenses is magnified by the shortened reporting period.

The Group's share of results from joint ventures in the six month period was £0.7 million, which primarily related to uplift in the fair values of the property (12 months to 30 June 2016: £1.8 million).

Administrative and other expenses, which include the ongoing costs of running the business, were £5.3 million (12 months to 30 June 2016: £7.3 million). During the period, the Group expanded its head office operation, adding seven new recruits, moved to new premises, continued to establish the Hello Student® platform and negotiated several new debt facilities.

Net financing costs for the six month period were £4.0 million net of money market investment income of £0.3 million (12 months to 30 June 2016: £3.6 million and £0.9 million, respectively).

The profit before tax for the six month period was £16.9 million (12 months to 30 June 2016: £28.1 million), with basic earnings per share for the six month period of 3.38p (3.35p on a diluted basis) (12 months to 30 June 2016: 7.29p and 7.23p (diluted)).

No Corporation Tax has been charged in the period because of the Group's fulfilment of all of its obligations as a REIT.

The NAV per share as at 31 December 2016 was 105.9p prior to adjusting for the second interim dividend of 1.55p per share (30 June 2016: 105.4p prior to adjusting for the fourth interim dividend of 1.5p) and is shown net of all property acquisition costs and dividends paid during the six months.

Asset Valuation

The Group's portfolio has been independently valued by CBRE in accordance the RICS Valuation - Professional Standards January 2014 (the "Red Book"). As at 31 December 2016, the aggregate market value of property in our portfolio was £721.3 million (including the Company's interest in a joint venture development asset) (30 June 2016: £523.9 million).

CBRE now values the portfolio off 97% occupancy (previously 97.5%) which has led to a slight relative reduction in the valuation of the portfolio. In addition, we have implemented a valuation policy pursuant to which only 25% of the valuation increase related to rental uplifts for the 2016/17 academic year is recognised as at 31 December 2016. A further 50% will be recognised for the six months ending 30 June 2017 and the balance during the second half of the financial year.

Further details on the portfolio and valuation are set out in the Chief Investment Officer's Portfolio Review on pages 28 to 33 (inclusive).

Dividends

For the six month period ended 31 December 2016, the Company declared two interim dividends amounting, in aggregate, to 3.05p per share (of which 1.55p per share was declared on 11 January 2017) (12 months to 30 June 2016: 6.0p per share including 1.5p per share declared after the period end), which is in line with the target of a dividend of 6.1p per share for the 12 months ending 30 June 2017.

Of these dividends, 0.93p per share was declared as a PID in respect of the Group's tax exempt property rental business and 2.12p per share was declared as ordinary UK dividends (year to 30 June 2016: 1.45p per share and 4.55p per share, respectively).

The Group's adjusted EPRA earnings per share for the six month period was 0.61p (12 months to 30 June 2016: 1.89p per share). The adjusted EPRA earnings per share figure takes the EPRA earnings per share for the year and adds the licence fee on forward funded developments and the rental guarantee payments on two forward funded assets that were delivered late by the developer. We see this as a more relevant measure when assessing dividend distributions.

The Company is targeting a dividend of 6.1p per share for the 12 months ending 30 June 2017. This reflects the prior financial year dividend of 6p per share with an adjustment broadly in line with our dividend growth target of not less than RPI. The Directors anticipate that dividends for the year ended 31 December 2017 and going forward will be substantially covered by adjusted EPRA earnings per share.2

2 Shareholders should note that the figures in relation to prospective dividends set out above and elsewhere in this Annual Report are for illustrative purposes only and are not intended to be, and should not be taken as, a profit forecast or estimate.

Financing

In March 2016, the Company launched a share issuance programme enabling it to issue up to 165 million shares valid until 28 February 2017 (the "Share Issuance Programme"). The only tranche of the Share Issuance Programme, which closed on 16 March 2016, raised gross equity of £125 million, well above the original target of £90 million.

As a consequence, the Company had sufficient equity capital for the six month period to 31 December 2016 and sought to raise debt financing.

During the period, the Group agreed four further debt facilities, namely:

· on 15 July 2016, a new facility of £32.8 million with AIB Group (UK) PLC secured on five forward funded assets, to be drawn down in stages over the development period, with practical completion on all five assets expected by July 2017 when the facility will convert into an investment loan. The development loan interest rate is at a margin of 2.80% per annum over LIBOR. The investment loan interest rate is at a margin of 1.80% per annum over LIBOR. At 31 December 2016, £14.7 million had been drawn;

· on 6 September 2016, a new facility of £30.63 million with The Royal Bank of Scotland plc secured against a portfolio of five forward funded assets, to be drawn down in stages over each asset's development period, converting to an investment loan, separately, on practical completion of each of the developments. At 31 December 2016, £8.4 million had been drawn down;

· on 13 December 2016, a new £40 million extension facility to the existing £80 million fixed rate term facility (together, the "Amended and Restated Facility") through Barings Real Estate Advisers (a member of the Massachusetts Mutual Group), secured against 25 operating properties. The fixed all in blended interest rate for the Amended and Restated Facility is 3.37% per annum. The new £40 million facility was drawn down in full on 16 December 2016; and

· on 27 July 2016, a supplementary £40 million facility to the existing £31.1 million fixed rate term facility with Canada Life Investments became available for draw down against completion and acquisition of four forward committed purchases. By 31 December 2016, £34.2 million of the facility had been drawn down against three property acquisitions.

As at 31 December 2016, the Group had, in aggregate, £310.0 million of committed debt in place of which £243.9 million had been drawn down. The Group's aggregate LTV ratio as at 31 December 2016 was 31.1% (30 June 2016: 22.7%), compared to a target LTV of 35% and a maximum of 40%) and it was in full compliance with its covenants.

Post Balance Sheet Events

The Company has announced the acquisition of one asset which was operational and one property under development which, together, represent a further 326 beds. Details of these acquisitions are set out in Table 3 of the Chief Investment Officer's Portfolio Review.

On 3 March 2017, the Company agreed a new unsecured term loan facility of £10 million with First Commercial Bank Limited, repayable three years from the date of agreement.

On 30 March 2017, the Group acquired Revcap's 50% share of the Willowbank joint venture, Empiric (Glasgow) Limited, for £4.65 million. At the same time, the outstanding debt for the joint venture, amounting to £9.5 million, was repaid to Close Brothers.

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.

Thanks

The Board would like to thank our finance team for their hard work and dedication over this period of significant growth in the business and successfully meeting the significant challenges along the way.

Principal Risks and Uncertainties

The Board has overall responsibility for risk management and internal controls within the Group.

The Audit Committee formally reviews the effectiveness of the Company's risk management processes on behalf of the Board.

The Board recognises that the operation of a company is not without risk but that effective risk management is key to the success of an organisation.

Approach to Managing Risk

The overall risk management process is designed to identify, evaluate and mitigate (rather than eliminate) significant risks that the Group faces. Therefore, the process can only provide reasonable, rather than absolute, assurance. The Company outsources certain services to its administrator, FIM Capital Limited (the "Administrator"), and other service providers, and a certain element of reliance is placed on the Company's service providers' own systems and controls.

The Board undertakes formal risk reviews with the assistance of the Audit Committee in order to assess the effectiveness of the Company's risk management and internal control systems. During the course of such reviews, the Board has not identified, nor been advised of, any failings or weaknesses which it has determined to be of a material nature.

The principal risks and uncertainties that the Group faces are set out on pages 42 to 47 of the Annual Report.

Principal Risks

Principal risks have the potential to affect the Group's business materially - either favourably or unfavourably. Some risks may be unknown at present, and certain risks that are currently regarded as immaterial, and therefore not included here, might well become material in the future.

Financial Statements

Group Statement of Comprehensive Income

Group Statement of Financial Position

These financial statements were approved by the Board of Directors on 10 April 2017 and signed on its behalf by:

Paul Hadaway

Director

Company Statement of Financial Position

The Company made a loss for the period of £4,619,000 (12 months to 30 June 2016: £5,774,000).

These financial statements were approved by the Board of Directors on 10 April 2017 and signed on its behalf by:

Paul Hadaway

Director

Group Statement of Changes in Equity

Company Statement of Changes in Equity

Group Statement of Cash Flows