Empiric Regulatory News (ESP)

Empiric Student Property plc

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

Business transformation delivering operational and valuation outperformance

Empiric Student Property plc (ticker: ESP), the owner and operator of premium, studio-led student accommodation across the UK, is pleased to report its preliminary results for the year ended 31 December 2022.

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

"2022 has been another year of razor-sharp focus on our strategic priorities, with significant progress made across all key metrics. The steps we have taken over the last five years to transform the operations of the business, improve our brand and focus on clusters of high quality accommodation are delivering tangible results, evidenced by the record revenue occupancy, significant growth in earnings and improved operating margin that the business achieved in the year."

"The business is now well positioned for growth and we continue to recycle the proceeds of non-core sales into our pipeline of developments and refurbishments. We operate in a resilient sector, and we continue to see high levels of demand for our product for the 2023/24 academic year which underpins our confidence in the outlook for the business and our commitment to our customer-first philosophy."

Financial highlights

1 Including £20.0 million secured post year end

Significant earnings growth underpins strong financial performance

Operational performance driven by record revenue occupancy

Actively managing the property portfolio

Progressing developments and refurbishments

Robust balance sheet

Delivering consistent customer service

Responsible business

Positive outlook for academic year 2023/24 supported by resilience of the PBSA sector

Results presentation at 09.00 (GMT) today

To access the live webcast, please register in advance here:

https://stream.brrmedia.co.uk/broadcast/63b7f236d908a85f58e0d796

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

The Company's LEI is 213800FPF38IBPRFPU87.

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

Notes:

Empiric Student Property plc is a leading provider and operator of modern, predominantly direct-let, premium student accommodation located in high-demand university towns and cities across the UK. Investing in both operating and development assets, Empiric is a fully integrated operational student property business focused on premium studio-led accommodation managed through its Hello Student operating platform, that is attractive to affluent growing student segments.

The Company is 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.

Disclaimer

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

Chief Executive Officer's Review

2022 has been another year of razor-sharp focus on our strategic priorities, with significant progress made across all key metrics. The steps we have taken over the last five years to transform the operations of the business, improve our brand and focus on clusters of high quality accommodation are delivering tangible results, evidenced by the record revenue occupancy, significant growth in earnings and improved operating margin that the business achieved in the year.

We have delivered a strong performance in 2022, with key metrics above pre-pandemic levels. The year saw us achieve a record level of occupancy at 99 per cent for academic year 2022/23, alongside strong like-for-like rental growth of 5.2 per cent. We recorded good growth in the portfolio valuation, up 2.4 per cent on a like-for-like basis, particularly in the first half of the year following the removal of a COVID related adjustment of £6.2 million and a combination of yield compression and rental growth. The 31 December 2022 valuations have remained materially in line with the half year, with strong rental growth offsetting marginal outward yield shift in the second half of the year. The balance sheet remains strong with property loan-to-value modest at 31.1 per cent, comfortably in line with our long-term target of 35 per cent. Including dividends paid during the year of 2.5 pence, we have delivered a total accounting return of 10.5 per cent for the year.

Operationally the business has had an active year. We have now completed the transformation of our operating platform, with all operations now internally managed, creating value through greater control, transparency, data management and agility. We continued to strengthen the Hello Student brand, launching our student app; embedded our new revenue management and dynamic pricing platform; and made significant steps towards becoming a more sustainable business. We also welcomed a number of new people into our leadership team during the year.

Driving performance through data analytics

The transformation of our operational capabilities has provided us access to richer and more timely information. We are able to react to trends and changing demands at pace and target our customer mix with much greater flexibility.

For academic year 2022/23, as a result of targeted marketing during the period of the pandemic, half of our customers were from the UK, an increase of one third from pre-pandemic levels. Although our Chinese customer base remains strong, this now represents just under 30 per cent of our students. We continue to target markets where we are underweight relative to the opportunity available, for example Indian students, where we have recently experienced strong growth.

Our revenue pricing model coupled with our direct-let model, allows us to maximise revenue relative to demand dynamics on a city by city basis but also down to site specific room types. Not only did we achieve record occupancy for the academic year 2022/23, but overall like-for-like rental growth of 5.2 per cent was comfortably ahead of base uplift pricing of 1.9 per cent.

We have used historical booking and amendment data to review and simplify our room categorisation, more than halving the categories, making the customer choice very much simpler to navigate.

Actively managing the property portfolio

In early 2021 we set out a plan to dispose of a modest portfolio of non-core assets. At the time those assets identified for disposal represented approximately 10 per cent of the portfolio, a little over £100 million by value.

Properties included in the disposal programme were typically either not of a size or configuration which could easily be converted to our brand standard, outside the catchment area of a top quality university or a single standing building in a city where the opportunity to implement our clustering strategy is challenged.

By 31 December 2022, we had disposed of or contracted to dispose of assets generating £71.3 million, of which £53.1 million was generated from the disposal of seven properties during 2022. Despite recent market disruption, we successfully disposed of two properties above book value in the final quarter of 2022, demonstrating the continued attractiveness and resilience of the purpose built student accommodation sector. More recently, discussions have advanced and a further £50 million remains under offer or in advanced discussions.

Proceeds from disposals have, to date, largely been deployed into our core portfolio investment programme. Opportunities are evaluated before proceeds are redeployed, including debt prepayment or reinvestment in new developments or acquisitions to grow our core Hello Student portfolio.

In February we announced our first acquisition since 2018, the 92 bed Market Quarter Studios scheme in Bristol which we acquired for £19.0 million. This acquisition, together with the opening of St Mary's, Bristol has more than doubled the number of beds we provide in the city to 404 beds, with four well located, high quality sites within a ten minute walk of each other and the University campus. This provides a great example of our clustering strategy in action, where we have been able to maintain our boutique proposition whilst improving our margin in the city from 69 per cent to 76 per cent.

Progressing developments and refurbishments

In September, in time for the start of the 2022/23 academic year, we opened St Mary's, Bristol. This former Victorian hospital has been thoughtfully converted into a 153 bed scheme a stone's throw from the University of Bristol. The property provides first class accommodation together with a suite of student well-being initiatives and strong sustainability credentials, with a BREEAM Excellent accreditation expected. The property has delivered an IRR in excess of 20 per cent.

In November, our first bespoke Post-Grad project was completed at Southbridge, Edinburgh. An extensive refurbishment of the property delivered this 59 bed scheme adjacent to the University of Edinburgh. Largely pre-let upon completion, we welcomed our first Post-Grad customers in late November.

Following extensive customer research our Post-Grad product aims to address the specific requirements of the more mature Post-Grad student, providing amenity-lite accommodation with fully self-contained apartments, which are typically 20 per cent larger on average than our Under-Grad apartments and command a rental premium of 20 per cent to our undergraduate offer in the City. We believe there is a significant opportunity for a tailor made proposition for post-graduates under our new brand "Post-Grad by Hello Student", since this segment makes up nearly 25 per cent of all UK University students.

Strong market fundamentals continue

Student applications continued to grow into the 2022/23 academic year, and UCAS and HESA data illustrates that demand for UK higher education remains robust with both undergraduate and post-graduate applications forecast to continue growing.

For academic year 2022/23, undergraduate applications from UK domestic students grew 1.3 per cent, while applications from non-EU students grew 13.5 per cent. UCAS predict overall undergraduate applications will increase by nearly 30 per cent over the next five years. The number of post-graduates has climbed to 820,000 for academic year 2022/23, an increase of 10.4 per cent from 2021/22, the highest annual increase experienced in the past five years.

The agency StuRents predicts the UK could have a shortfall of 450,000 student beds by 2025, exacerbated by a potential contraction in the HMO market which would drive more students towards the PBSA sector. Customer demand for purpose built student accommodation has never been so strong.

Supporting our customers and delivering consistent service

Core to our values is a customer-first philosophy. Every area of our business is encouraged, and motivated, to live these values. We are aware with rising rents that our customers expect an increasingly high quality experience and value for their money. Their experience is therefore paramount to the development of our strategic priorities.

Prior to the start of the 2022/23 academic year, we launched our new student app. The app has provided a platform for greater and more timely customer engagement and a means to further improve our service offer. Amongst other functions, the app provides students the ability to report issues and monitor progress toward resolution, receive site related information in a timely manner, be notified when parcels are available for collection and arrange social events. The app has been a resounding success with great feedback received. We currently have over 7,000 active users and numbers continue to grow.

The most substantive evidence of customer service and the benchmark we use within our business is the Global Student Living Index's Net Promoter Score ("NPS"). We are proud to report that our NPS score improved again this year, from 22 to 27. To put this in context, the latest NPS score for all private purpose built student accommodation was 14, whilst the score for university halls was 9.

Behind the data, the most important factors for students when selecting accommodation were proximity to their place of study, feeling safe and secure and the size, condition and quality of their accommodation. These are all aspects at the very heart of our studio based brand proposition. The mental health and well-being of our customers remains a priority. Of our customers responding to the survey, 71 per cent said our accommodation had a positive impact on their well-being, with 73 per cent responding to say they felt our accommodation teams cared about their well-being. This is an extremely encouraging result following the investment we have made in training our people to identify potential issues and assist students to source the professional support they may require, particularly at times of stress such as during examinations.

Developing our people

At the heart of any service business is the people that design, support and deliver great customer experience. It remains a priority to invest in and motivate talent. Through rewarding, training and developing our people we ensure our brand remains at the leading edge of customer service and experience.

At a time when hiring talent is very competitive, there is particularly strong rationale for focussing on employee retention and development. During the year we improved our retention rate to almost 80 per cent, whilst internal promotions accounted for nearly 40 per cent of all non-entry level vacancies. We invested in a number of our 'rising stars' this year, with 25 of our middle managers having been sponsored to complete an accredited leadership programme.

We are proud members of the Real Living Wage Foundation, meaning our lowest paid employees are paid above the minimum wage and received salary increases in line with inflation. During a time of increased cost-of-living pressures we were pleased to support our employees, with average compensation increases exceeding eight per cent. Employer pension contributions were also standardised this year, with all eligible employees now entitled to receive 7.5 per cent.

Having invested in a programme of well-being and engagement initiatives, we're pleased to report that our colleague engagement score of 84 per cent continues to compare favourably to the national average of 70 per cent.

Portfolio safety

Safety will always remain of paramount importance to our business. We have a responsibility to ensure that everyone who is living, working in or visiting our buildings is kept safe. This is also a key consideration for our customers. We ensure that our buildings comply with all relevant regulations and also with industry best practice. A summary of progress and key achievements this year is set out below.

Fire safety

There was considerable focus on fire safety again this year. Having allocated £37 million toward fire safety initiatives in 2021, we continued to progress our five-year programme of works, prioritised according to risk. In 2022 we invested a further £7.0 million, primarily on internal fire stopping while ensuring the appropriate solutions were investigated and permission sought, allowing works to start in the first half of 2023 on the external works.

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

During the year we employed a new fire risk assessor, established a clear and comprehensive fire risk management system and conducted fire marshal training, fire drills and student fire safety awareness campaigns across our entire business and all its sites.

Health and Safety

Key achievements in 2022 included a full review of the health and safety policy and introduction of new blueprint standards that are more user friendly and manageable. We implemented a new contractor management standard and launched SafetyNet to help us manage accident, incident and fire risk assessments. With a dedicated Health, Safety & Fire Manager in place, we have a busy period ahead with a clear focus on training and audit.

Becoming a more sustainable business

In August we published our full Net Zero strategy and set out seven key performance indicators to allow us to track our progress towards our 2033 commitment. The journey is set out in three clear phases with the first focussed on engagement and training.

I'm pleased to report that the Board has allocated significant capital to green initiatives in 2023 and 2024 which should allow us to accelerate the programme and deliver tangible benefits to all stakeholders sooner. A detailed pathway to decarbonisation is being established this year with the aim of reducing energy consumption and managing future EPC risk. Further details are set out in the ESG report which will accompany the annual report when published.

Strategy and outlook

We remain confident in the outlook for our business and the wider purpose built student accommodation sector. Our focus is on continuing to drive operational efficiencies through acquiring or developing new sites in cities that are close to well-located existing sites and top performing universities. Our clustering strategy is delivering benefits through scale, whilst enabling us to maintain the more boutique, personalised experience associated with the Hello Student proposition.

Having already secured 65 per cent revenue occupancy for the 2023/24 academic year, a level reached some ten weeks earlier than in the prior year, we are confident of achieving another successful year from an occupancy perspective. In October 2022 we issued guidance that we anticipated achieving like-for-like rental growth in excess of five per cent for academic year 2023/24, however our direct-let model and dynamic pricing capability provides management with confidence that like-for-like growth of at least six per cent can now be achieved.

Given this strong performance, the Board is increasingly confident in its progressive dividend strategy and will target a minimum dividend payment of 3.25 pence per share for the 2023 financial year, having paid and declared dividends totalling 2.75 pence per share for the 2022 financial year.

Although significant progress continues to be made, recent investment market turbulence has delayed our disposal programme aspirations and, it now looks increasingly likely that we will continue to hold a number of non-core assets beyond the original 18-month timeline set out in 2021. As demonstrated in the financial review on page 11, this will have an impact on gross margin into 2023, as non-core properties are typically less efficient and located in single asset cities where the benefits of clustering cannot be realised. Nevertheless, we expect the programme to be materially complete by the end of 2023.

The business is now well positioned for growth and we continue to recycle the proceeds of non-core asset sales into our pipeline of developments and refurbishments. We operate in a resilient sector, and we continue to see high levels of demand for our product for the 2023/24 academic year which underpins our confidence in the outlook for the business and our commitment to our customer-first philosophy.

DUNCAN GARROOD

Chief Executive Officer

16 March 2023

Operating review

Our focus on clustering premium quality properties in prime, undersupplied cities within close proximity to top-tier universities continues to deliver strong results. Our brand proposition, studio-led focus and personalised service offer continues to excel comparators.

Overview

We have continued to experience strong post-pandemic demand for our properties, with the academic year 2022/23 seeing record occupancy of 99 per cent. The Company's direct-let strategy, which allows us to capture rental growth and inflation in a more timely manner than a nomination led strategy, delivered like-for-like rental growth of 5.2 per cent. 

The broadened appeal of our brand proposition is reflected in strong feedback from our customers, allowing Hello Student to surpass all key benchmarks. A high level of customer satisfaction resulted in a re-booker rate of 18.5 per cent for academic year 2022/23, with an expectation this will exceed 20 per cent for academic year 2023/24.

Demand has continued to grow from both domestic and international students, with university applications increasing 2.1 per cent in 2022. Domestic student numbers have been fuelled by a demographic increase in 18 year olds coupled with a perception of a weakening economy and employment market, whilst post-graduate numbers increased 10 per cent between 2021 and 2022. The growth in demand for the PBSA sector may be further exacerbated by a contraction in the HMO market.

Our marketing and sales strategy has continued to target domestic students as well as international markets where our brand is underweight, for example India and Nigeria which have seen some of the strongest growth in international student numbers. Demographically, for academic year 2022/23, 50 per cent of our students were UK nationals, 29 per cent Chinese with 21 per cent other international.

Dynamic pricing has enabled demand and data led pricing decisions to be made in a manner which considers price sensitivity not only in cities but also down to exact room types. For academic year 2022/23 our average inflationary increase was 2.1 per cent, but with 3.1 per cent additional benefit captured by dynamic pricing, we were able to deliver like-for-like revenue growth in excess of 5 per cent. Although affordability remains a key concern in pricing decisions, dynamic pricing has been particularly important during the high inflationary period recently experienced.

Portfolio overview

The 2022 financial year saw continued focus on repositioning the portfolio. Notwithstanding challenging investment market conditions, particularly in the second half of the year, we disposed of or contracted to dispose of seven properties for £53.1 million. A further non-core property was sold post year end generating £2.6 million.

Proceeds from disposal have largely been directed toward an extensive refurbishment and capital programme targeting fire safety compliance alongside the elimination of Segment B and the conversion of Segment C properties, as outlined below.

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

· Segment A: Properties that are well located, appropriately configured and on-brand

· Segment B: Properties that fundamentally meet our key criteria but require extensive refurbishment to become on-brand

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

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

1 Adjusting for sales exchanged pending completion or exchanged and completed post year end, Segment D now represents 5.6 per cent of the portfolio

Adjusting for acquisitions, disposals and properties undergoing development, the like-for-like portfolio increased in value by 2.4 per cent during 2022. This is almost entirely attributable to underlying income growth assumptions which average 6 per cent. The completion of our two main developments, St Mary's, Bristol, and Southbridge, Edinburgh collectively delivered £18.4 million in valuation gain, net of capital expenditure.

Capital expenditure programme

Our programme of refurbishment, fire safety works and green initiatives continues at pace. We have allocated £8.0 million from our original refurbishment plan in favour of an acceleration of green initiatives targeting a reduction in energy consumption and managing future EPC risk. Given recent volatility in energy costs, our targeted return hurdle of 9% to 11% IRR remains appropriate.

In respect to our programme of fire safety works, all properties have now been surveyed with 61 per cent of the portfolio is now certified.

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

Commercial portfolio

We have continued to actively manage the 42-unit commercial estate that generally sits below our operational portfolio, with a number of value creating projects completed. Notable deals include a five year lease with a café operator on a long-term vacant unit in Cardiff. A five-year lease renewal was secured in Bristol and two further five year renewals were completed in Lancaster.

A number of asset management initiatives are planned for 2023 to drive value and enhance the student offering. We have agreed terms with a convenience store operator to take a lease, subject to planning, on a parade of shops in Manchester. Planning has also been submitted for the conversion of another vacant unit in Newcastle for further student accommodation, adding bedspaces and improving student amenities. In Bristol, terms have been agreed for the part letting of one vacant unit where we have an opportunity to also create a new gym amenity in the remaining space, leaving only one vacant unit in the portfolio where there are advanced discussions ongoing.

Acquisitions and developments

In February 2022 we acquired the 92 bed Market Quarter scheme in Bristol. The property was pre-let on acquisition and has been extremely well received by our customers. The property was fully occupied for the academic year 2022/23 and is in high demand from re-bookers for the recently launched 2023/24 academic year. Since acquisition, the property has delivered an IRR in excess of 20 per cent.

Also in Bristol, our 153 bed St Mary's development opened to students at the start of the 2022/23 academic year. The property, a former Victorian hospital, has been lovingly developed in to best-in-class student accommodation which is well located only a few minutes' walk from the University of Bristol. The development has delivered an IRR in excess of 20 per cent.

Together with the acquisition of Market Quarter, the Group more than doubled its bed offer in Bristol during 2022, allowing the benefits of clustering to be realised. Gross margin has improved from 69 per cent to 76 per cent, a seven percentage point increase, whilst enabling a better quality service offer for our Bristol based customers.

In late November 2022, our first post-graduate scheme at Southbridge, Edinburgh opened to students. The 59 bed property was developed to pilot a unique offer aimed exclusively at port-graduates, delivering a bespoke product aimed at a growing segment of the market. The property has delivered an yield on cost of 6.0 per cent and IRR above 12 per cent.

Refurbishment pipeline

Looking ahead to 2023, we have allocated £6.0 million from our five year refurbishment programme toward major refurbishment activity encompassing over 250 beds. Most significant of which is at our St. Mark's, Leeds property, Brook Studios in Birmingham and Summit House in Cardiff. Two of these schemes are currently within Segment B and are expected to be moved to our on-brand Segment A.

Works are typically completed over the summer, following a short selling or via rolling refurbishment programme throughout the year, with no more than 25-30 beds impacted at any one time.

For academic year 2023/24 we have taken the decision to close our 173 bed Brunswick House scheme in Southampton. This is to facilitate an extensive refurbishment of the scheme alongside fire safety works. As above, Brunswick House is currently a Segment B property, which we expect will reopen to students as a Segment A property for the start of academic year 2024/25.

We continue to target an IRR of 9-11 per cent on all refurbishment works.

Global Student Living Index

Our Hello Student brand delivered an improved net promoter score of +27 in the 2022 Global Student Living Index survey. This score, up from +22 at December 2021, compares very favourably with University Halls which scored +9 and Private Halls of +14.

Proximity to place of study, feeling safe and secure and the condition and quality of accommodation remain the most important factors for students selecting their accommodation. Overall a stronger retention intent has been received, with a significant increase in students saying they plan to stay in their accommodation.

Over 70 per cent of students responding said that their accommodation had a positive impact on their well-being and that our people care about their well-being. In 2022 Hello Student were proud winners of the Global Student Living Index's award for student well-being.

Financial review

I'm delighted to present my first financial review as successor to Lynne Fennah, who left the business in October 2022. I would like to thank her for a thorough handover, but also for her sound stewardship of the business during her tenure.

Overview of the year

The business achieved record revenue occupancy for academic year 2022/23, with 99 per cent now achieved following January letting activity. Capitalizing on strong post-pandemic demand, our brand and service proposition, coupled with the implementation of our demand-led pricing model delivered like-for-like growth in revenues of 5.2 per cent, and revenue for the financial year to 31 December 2022 of £73 million. This is a great result given the continued effects of the pandemic on academic year 2021/22, which impacted eight months of the 2022 financial year. Gross margin improved to 67 per cent, in line with guidance.

Rising interest rates and cost inflation created challenges, however, having fixed utility costs through to September 2024 we are able to mitigate this pressure on a significant cost line in our income statement. 

One third of our debt structure was exposed to rising interest rates, which exposed the income statement to some volatility, particularly in the final quarter of the year. Finance costs totalled £15.0 million, roughly 15 per cent higher than we had originally anticipated. Although the Group's weighted average cost of debt has significantly increased, long-term rates have softened providing an opportunity to secure further interest rate protection post year end. 

IFRS profit for the year was £67.7 million, including a £45.6 million valuation uplift, whilst EPRA earnings, our measure of recurring earnings, were £20.6 million, representing 3.4 pence per share.

Total accounting return, including both dividends paid in the year of 2.5 pence per share plus growth in EPRA Net Tangible Asset value being 8.7 pence, was 10.5 per cent.

Income statement

Revenue has increased 2.7 per cent like-for-like for the financial year of 2022. Revenue occupancy for the current 2022/23 academic year is strong at 99 per cent, resulting in 90.5 per cent occupancy across the financial year. 

The Group seeks to achieve a gross margin of greater than 70 per cent. For 2022 we achieved 67 per cent, in line with guidance and largely due to the poorer margins achieved on our non-core portfolio, as set out above. Pleasingly, gross margin on our core portfolio achieved 70 per cent in 2022. The delay in our disposal programme does, however, mean achieving greater than 70 per cent across the Group in 2023 will be challenging, as non-core assets are typically located in single asset cities where the benefits of clustering cannot be realized.

Administrative expenses were £13.4 million, representing 18.4 per cent of revenue. This has increased from £10.6 million in 2021. The Group has undergone a transformation of its operating capabilities, to position itself for growth and has invested in its people and processes in order to deliver this. However, most administrative cost lines are also exposed to inflationary pressures, which contributed to the increase. We expect the cost base as a percentage of revenue to decrease as the business targets growth.

Balance sheet

Strong valuation gains were recorded on development properties, most notably St Mary's, Bristol and Southbridge, Edinburgh, both of which have now completed and are operational for academic year 2022/23. The Group's net asset value increased 8.2 per cent in 2022 primarily due to an increase in the value of our properties of £45.6 million and retained current year EPRA earnings (net of dividend paid) as set out below.

Portfolio valuation

1 net of capital expenditure and head lease amortisation

In 2022, the like-for-like ("LfL") portfolio increased by £22.9 million or 2.4 per cent with non-LfL properties (most notably development properties) increasing £22.7 million. The portfolio net initial yield was 5.2 per cent, stable since June with a 10 basis point contraction on December 2021. The reversionary yield stands at 5.5 per cent. This was a strong valuation performance in a challenging year when many other sectors experienced considerable outward yield shift, particularly in the second half of 2022, demonstrating the sub-sector's resilience and strong demand led income underpin.

Market Quarter Studios, a strategically aligned high quality asset in Bristol, was acquired during the year for £19.3 million. Since acquisition its valuation has increased by £6.4 million (25.2 per cent, net of capex).

Six assets were disposed during the year. Disposal proceeds were £39.7 million, resulting in a profit of £1.5 million, after costs. Contracts were exchanged for a further property disposal, Emily Davies, Southampton, was exchanged pre year end with completion targeted for April 2023.

Capital expenditure for the year on both the LfL and development portfolio was £30.4 million.

Debt

Bank borrowings drawn at 31 December 2022 was £391.2 million, of which 71 per cent is at a fixed rate. Fixed rate debt carries a weighted average term to maturity of 5.7 years and a weighted average cost of 3.4 per cent. Floating rate debt of £114.0 million carries a weighted average cost of debt of 5.4 per cent and weighted average term to maturity of 2.5 years. Since year end, with the stabilisation of longer term interest rates, we have extended interest rate protection to cover 89 per cent of drawn debt by putting in place an interest rate cap on an additional £67.4 million of floating rate debt.

The overall weighted average cost of debt at 31 December 2022 was 4.0 per cent and average term to maturity was 4.8 years.

Property loan to value was 31.1 per cent at the year end, below our longer term target of 35 per cent, primarily due to valuation gains. Cash reserves at 31 December 2022 totalled £55.8 million, earmarked for working capital, dividend payments and capital expenditure. Undrawn committed facilities were £20.0 million at the balance sheet date, increasing to £40.0 million post year end following the refinancing of an unsecured facility which was repaid in late 2022. The Group has no further refinancing risk in 2023, with £64.0 million maturing in 2024. See note 1.4 for further information.

All loan covenants were fully compliant during the year.

Cashflow

Strategic capital recycling continued with proceeds from the disposal of non-core assets directed into acquisitions aimed at advancing our clustering strategy in key cities, or into our core portfolio development, refurbishment and remediation programme.

Cash paid in relation to dividends includes the payment of 2022 dividends and resulting withholding tax, but also the withholding tax settled in early 2022 arising on the 2021 dividend paid to shareholders in the final quarter of that year.

In respect of financing cashflows, £25.0 million was drawn from our revolving credit facility, largely to fund acquisitions and £11.2 million of development financing in relation to works at St Mary's, Bristol. £20.0 million was repaid in December 2022 towards settling a facility due to mature in March 2023, on which no early termination fees were due.

Finance costs paid have increased in line with further borrowings and increasing interest rates charged on the Group's floating rate debt.

Going concern

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

In light of the Group's liquidity position, its modest level of gearing and capital commitments, the Directors have concluded that, in reasonably possible adverse scenarios, adequate resources and mitigants remain available to continue to operate for the period to 31 December 2024. The Directors therefore concluded that it remains appropriate to adopt the going concern basis of preparation when compiling the annual report and accounts for the year ended 31 December 2022.

Attention is drawn to note 1.4 of the financial statements and to the Company's statement in respect of viability as set out within the annual report, once published, for further details surrounding the conclusion reached.

Dividends

A final interim dividend of 0.875 pence per share has been declared for the final quarter of 2022, bringing total dividends paid and payable in respect of 2022 to 2.75 pence. This represents an 81 per cent pay out on EPRA earnings per share. The dividend will be paid as a Property Income Distribution on 14 April 2023 to shareholders on the register at 31 March 2023.

DONALD GRANT

Chief Financial & Sustainability Officer

16 March 2023

EPRA and other alternative performance measures

Analysing our performance in line with industry standard measures

EPRA disclosures

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

Other alternative performance measures

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

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

Statement of Directors' responsibilities

The statement of Directors' responsibilities has been prepared in relation to the Group's Annual Report 2022. Certain parts of the Annual Report are not included in this announcement.

We confirm to the best of our knowledge:

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

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

Signed on behalf of the Board on 16 March 2023.

DONALD GRANT

Director

Group Statement of Comprehensive Income

Group Statement of Financial Position

These financial statements were approved by the Board of Directors on 16 March 2023 and signed on its behalf by:

DONALD GRANT

Director

Company Statement of Financial Position

The Company made a profit for the year of £45.9 million (2021: £8.7 million loss).

These financial statements were approved by the Board of Directors on 16 March 2023 and signed on its behalf by:

DONALD GRANT

Director

Group Statement of Changes in Equity

Company Statement of Changes in Equity

Group Statement of Cash Flows

Notes to the Financial Statements

1. ACCOUNTING POLICIES

1.1 Period of Account

The consolidated financial statements of the Group are in respect of the reporting period from 1 January 2022 to 31 December 2022.

The consolidated financial statements of the Group for the year ended 31 December 2022 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries and were approved by the Board for issue on 16 March 2023. The Company is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are admitted to the official list of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on the London Stock Exchange. The registered address of the Company is disclosed in the Company information.

1.2 Basis of Preparation

The consolidated financial statements of the Group for the year to 31 December 2022 comprise the results of Empiric Student Property plc (the "Company") and its subsidiaries (together, the "Group"). The Group and Parent Company financial statements have been prepared on a going concern basis. The Group financial statements have been prepared in accordance with UK adopted international accounting standards. The Parent Company financial statements have been prepared in accordance with FRS 101, Financial Reporting Standards Reduced Disclosure Framework.

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

The Company has applied the exemption allowed under section 408(1b) of the Companies Act 2006 and has therefore not presented its own Statement of Comprehensive Income in these financial statements. The Group profit for the year includes a profit after taxation of £45.9 million (2021: loss of £8.7 million) for the Company, which is reflected in the financial statements of the Company.

The financial information contained within this release does not constitute the Group's statutory accounts for the year ended 31 December 2022 or the year ended 31 December 2021 but is derived from those accounts. The Group's statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The Group's statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies in due course. The Auditor has reported on both the December 2022 and December 2021 accounts; the reports were unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain any statement under Section 498 of the Companies Act 2006.

1.3 Disclosure Exemptions Adopted

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

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

- a statement of cash flows;

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

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

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

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

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

1.4 Going Concern

At 31 December 2022, the Group's cash and undrawn committed facilities were £75.8 million and its capital commitments were £2.3 million. Subsequent to the year end, a further £20.0 million committed facility was secured.

Occupancy is a key driver of profitability and cash flows, and at 16 March 2023 occupancy, based on forward reservations for the upcoming 2023/24 academic year was 65 per cent, compared to 36 per cent for the 2022/23 academic year at 2 March 2022.

At the year end three facilities fell due for repayment during the going concern period:

- £20.0 million with Canada Life due to expire in March 2024

- £32.8 million with AIB due to expire in October 2024

- £11.2 million with NatWest due to expire in December 2024.

It is intended that these will be refinanced at maturity and good relationships are maintained with all lenders, discussions have been initiated and lender appetite for the sector remains strong.

In February 2023 an interest rate cap was put in place on the £70.0 million drawn Lloyds facility, capping SONIA at 5 per cent. At time of signing these financial statements the Group had £44.0 million of floating rate debt.

As part of the Group's going concern and viability modelling, certain scenarios are considered to model the impact on liquidity. All of the groups covenants are currently compliant and we envisage compliance to continue to be achieved in a reasonably severe downside scenario. The Group's portfolio could currently withstand a 25 per decline in property valuations before a breach in loan to value covenants are triggered. The Group's average interest cover ratio across all facilities is 2.0 times, whereas gross profit is currently in excess of 3.0 times total finance costs, providing a good degree of comfort. Interest cover ratios in place across the Group's debt facilities could currently withstand a 2.5 per cent increase in interest rates before a breach would occur.

Bank borrowings would be renegotiated in advance of any potential covenant breaches, insofar as factors are within the control of the Group. Facility agreements typically contain cure provisions providing for prepayment, cash deposits or security enhancement as maybe required to mitigate any potential breach. The Group's borrowings are spread across a range of lenders and maturities so as to minimise any potential concentration of risk.

The Directors have considered the Group's principal risks and severe but plausible downside scenarios in assessing the Group's and Company's going concern for the period to 31 December 2024. The Directors have considered, in particular:

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

- inflation remains high, at eight per cent;

- utilities costs increase by 1.5 times current market expectation;

- interest rates increase by 1.5 per cent over current forecasts, impacting the Group's floating rate debt;

- an immediate valuation shock of minus 15 per cent in property valuations; and

- rates at which the expiring debt facilities totalling £64.0 million in the period, could be refinanced. These were assumed to be refinanced at floating rates applicable at the point of expiry and subject to an interest rate uplift of 1.5 per cent.

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

Having made enquiries, the Directors have reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the period to 31 December 2024. In addition, having reassessed the Group and Company's principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these financial statements.

1.5 Significant Accounting Estimates and Judgements

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

Estimates

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

(a) Fair Valuation of Investment Property

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

The valuations have been prepared in accordance with the RICS Valuation - Global Standards (incorporating the International Valuation Standards) and the UK national supplement (the "Red Book"). Factors reflected include current market conditions, net underlying operational income, periodic rentals, lease lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in Note 11.

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

Judgements

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

(b) Operating Lease Contracts - the Group as Lessor

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

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

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

Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022. Subsidiaries are those investee entities where control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

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

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

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

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

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

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

(b) rights arising from other contractual arrangements; and

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

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

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

Financial Assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired.

Fair Value Through Profit or Loss

These are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Statement of Comprehensive Income in the finance income or expense line. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortised Cost

These assets are primarily from the provision of goods and services to customers (e.g. trade receivables). They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

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

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

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

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

Cash and cash equivalents includes cash held on deposit with banks.

Financial Liabilities

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

Fair Value Through Profit or Loss

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

Other Financial Liabilities

Other financial liabilities include the following items:

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

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

Intangible Assets

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

Amortisation has been charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over ten years.

Investment Property

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

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

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