LIBERTY LIVING (HE) HOLDINGS LIMITED COMPANY NUMBER: Report and Consolidated Financial Statements For the period ended 31 August 2018

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1 COMPANY NUMBER: Report and Consolidated Financial Statements

2 Report and Consolidated Financial Statements Contents Directory 2 Strategic Report 3 Directors Report 10 Statement of Directors Responsibilities 12 Independent Auditor s Report 13 Consolidated and Company Financial Statements: Consolidated Profit and Loss Account 16 Consolidated Statement of Comprehensive Income 17 Consolidated Balance Sheet 18 Consolidated Statement of Changes in Equity 19 Consolidated Cash Flow Statement 20 Company Balance Sheet 21 Company Statement of Changes in Equity 22 Notes to the Financial Statements 23 1

3 DIRECTORY Directors of the Company (at the date of signing): Maximilian Biagosch Thomas Jackson Paul Mullins Michael Goldberg Gary John Thomas Singer Company Secretary Rachel Heslehurst Registered Office: Fifth floor Peninsular House Monument Street London EC3R 8NB Property Valuer: Knight Frank LLP Independent Auditor Deloitte LLP 2 New Street Square London EC4A 3BZ Bond Trustee Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Listing Agent Arthur Cox Listing Services Limited Ten Earlsfort Terrace Dublin D02 T380 Ireland Bank Details HSBC 130 New Street Birmingham B2 4JU 2

4 STRATEGIC REPORT This Strategic Report has been prepared for Liberty Living (HE) Holdings Limited ( the Company ) and its subsidiaries ( the Group, we, our ) as a whole and therefore gives greater emphasis to those matters which are significant to the Group when viewed as a whole. The Company was incorporated on 22 September PRINCIPAL ACTIVITY AND FUTURE DEVELOPMENTS The principal activity of the Group is to invest in and operate student accommodation property. The Directors do not foresee a change in principal activity in the near future. REVIEW OF THE BUSINESS UK Higher Education: Overview Full-time student numbers grew by a total of 24% from 2007 to 2017 (from 1.45 to 1.80 million) 1. This growth has been predominantly led by UK domestic students, this group growing from 1.19 to 1.39 million 2 and representing 59% of total growth. Full-time students typically show a greater predisposition to residing away from the parental / guardian home. The domestic student population is largely the result of increasing participation of year olds (41% in 2006/07 to 49% in 2015/16) 3. Underlying demographics have also boosted student numbers with the number of year olds also increasing from 1999 to This demographic trend is reversing temporarily, and we anticipate a fall of approximately 541k year olds in 2023 versus International student numbers have increased over the last 10 years 6, although growth has slowed substantially in recent years. Liberty Living The Group markets its UK accommodation under the Liberty Living brand and places high importance on providing students with quality accommodation and excellent levels of service. Current portfolio Operating under the Liberty Living brand, we have built a strong position in the Purpose Built Student Accommodation ( PBSA ) segment. We own and manage a portfolio of 23,900 beds across 51 residences in 19 major university towns and cities across the UK. The Group also has 950 beds in mainland Europe. Our portfolio was independently valued by Knight Frank LLP on 31 August 2018 at 2.1bn (31 August 2017: 2.1bn). The portfolio consists of high-quality, modern residences comprising mostly ensuite rooms offered at a mid-market price point. Most of our residences provide a high level of security and on-site management and facilities. 1 Higher Education Statistics Agency 2 Higher Education Statistics Agency 3 Department for Education 4 Office for National Statistics 5 Office for National Statistics 6 Higher Education Statistics Agency 3

5 STRATEGIC REPORT (CONTINUED) Removing ACM cladding Following the Grenfell Tower tragedy, we took immediate action to investigate the fire safety of our portfolio, appointing fire and cladding consultants with a particular focus on the presence of ACM cladding systems. Our investigation found that six properties had some form of ACM (Class 3) cladding. Following the guidelines issued by the Department for Communities and Local Government (DCLG), we consulted with the local fire brigades and determined that two specific Blocks should be kept as vacant during the whole of the cladding replacement works to these Blocks. Newcastle Block D and Wolverhampton Blocks B&C were held vacant for the 2017/18 academic year which resulted in 654 rooms being unavailable for occupancy. The remaining properties including Newcastle D and Wolverhampton A, London Plaza, Manchester Heights and Manchester SCG were assessed as being safe for occupancy whilst cladding replacement works commenced. All the work to rectify the ACM present on our buildings has now been substantially completed except Block D in Newcastle. The block remains closed for 2018/19 academic year. Financial review Key performance indicators (1) Group Turnover: 155.7m (2017: 135.4m) (2) EBITDA: 89.7m (2017: 82.3m) (3) Valuation of the Group s property portfolio at 31 August 2018: 2.1bn (2017: 2.1bn) (4) Net assets of the Group at 31 August 2018: 1,264.6m (2017: 5.8m liability) Our reconstruction On 10 May 2018, we obtained from a parent entity, interests in certain subsidiaries through a share issue and interests in three limited partnerships through a contribution for no consideration. The entities that transferred into our holding company are set out in note 18 of the financial statements. This transaction did not change the interest of the ultimate equity holder which allows the Company to adopt merger accounting when presenting our results. Although the Company was incorporated on 22 September 2017, under merger accounting the consolidated financial statements are prepared as if all the entities had always been combined. The 2018 and 2017 results are therefore presented for the year 1 September 2017 to 31 August 2018 and the purchase method of accounting has not been adopted to account for this restructure. 4

6 STRATEGIC REPORT (CONTINUED) Profit and loss account During the year we generated a profit after tax of 32.1m (2017: 106.4m loss) across the whole Group. 1 September 2017 to 31 August 1 September 2016 to 31 August m m Turnover Cost of sales (48.4) (39.5) Gross profit Administrative expenses (17.6) (13.6) EBITDA The increase in EBITDA was mainly as a result of the current year benefiting from a full year of ownership of the Union State portfolio acquired in the prior year on 31 March Administrative costs increased during the year as we further strengthened our central function and operating platform to support the growth in bed numbers and further advance our health and safety focus. Operating profit for the year was 30.5m (2017: 52.4m). This is comprised of EBITDA of 89.7m (2017: 82.3m) less depreciation, amortisation and impairments of 8.0m (2017: 12.2m) and revaluation losses on investment properties of 51.2m (2017: 13.2m). There was also a 4.5m loss on disposal of investment property in Interest payable Interest payable and similar expenses totalled 50.2m (2017: 157.2m). This is mainly comprised of interest payable on external bank and bond debt issued in November 2017 of 19.4m (2017: nil) and interest payable to our Group related undertakings of 30.0m (2017: 157.2m). No interest was charged on the loans from Group related undertakings following the issue of the external bank and bond debt in November 2017 as the loans incurring the interest charges were either repaid or capitalised. Taxation The loss before tax this financial year was 19.5m (2017: 104.8m). The tax credit for the year of 51.6m (2017: 1.6m charge) was predominantly due to the Group entering the REIT regime in May 2018, which resulted in the release of deferred tax on investment properties and accelerated capital allowances of 51.4m. Balance Sheet The Group entered into new medium to long-term external debt facilities in November 2018, borrowing 850m, discussed in the External financing section below. Prior to November 2017 the Group was predominantly funded by short-term shareholder debt totalling 2,093.3m at the time of the refinancing. The Group used the proceeds of the 850m debt facilities to partially repay the shareholder loans and 1,258.7m was capitalised into equity. These transactions were the main driver in decreasing net current liabilities from 2,060.9m at 31 August 2017 to 24.1m at 31 August Net assets also increased by 1,270.4m to 1,264.6m (2017: 5.8m liability), mainly due to the loan capitalisation. 5

7 STRATEGIC REPORT (CONTINUED) External financing On 13 November 2017, Liberty Living Finance plc, a member of our Group, entered into a 400m facilities agreement with HSBC Bank plc, the Royal Bank of Canada and the Royal Bank of Scotland plc with a five year term. The 400m facility is comprised of a 250m term loan which is fully drawn and a 150m Revolving Credit Facility (RCF) which is undrawn at the date of signing this report. The 400m facility incurs interest at LIBOR plus a margin of between 1.45% and 2.20% with the margin dependant on the gearing of our Group. To hedge the interest rate risk on the bank debt our Group separately purchased a GBP LIBOR interest rate cap with a notional amount of 250m, a cap rate of 1.75% and a term of five years. On 28 November 2017, our Group issued two 300m bond tranches with maturities of seven and 12 years respectively. The 7 and 12-year bonds carry a coupon rate of 2.625% and 3.375% respectively. This debt is listed on the Irish Stock Exchange Global Exchange Market. The Group s UK subsidiaries have irrevocably and unconditionally, jointly and severally, guaranteed to meet the obligations with respect to the amounts borrowed in the event Liberty Living Finance plc fails to meet its obligations when they fall due. The bank and bond debt are subject to financial covenants relating to the position and performance of the Group. These covenants are on gearing and interest cover which we monitor on a quarterly basis. Investment properties The value of our investment properties increased in the year from 2,055.2m to 2,080.5m, which includes the addition of a single asset in Leicester for 10.0m and a 15.3m portfolio revaluation gain. The net revaluation loss in the profit and loss account of 51.2m is as a result of incurring nonaccretive capital expenditure c 66.9m principally for cladding and passive and active fire works, increases in some asset valuations in cities having witnessed tightening of yields and year on year net income increases offset by a decrease in asset valuations in other cities due to excess supply and income pressure. Tax and REIT conversion The direct Parent of our Group, Liberty Living Group plc, converted to REIT status with effect from 11 May 2018, the primary tax consequence of conversion is that profits arising from our UK property business are exempt with the exception of certain non-core UK income streams. Most notably, this means that our Group no longer recognises deferred tax liabilities arising from revaluation gains in the investment portfolio or accelerated capital allowances on property rental business assets. During the year, deferred tax totalling 51.4m has been credited to the profit and loss account as a result of the REIT conversion. Profit from overseas jurisdictions will continue to be taxed by the relevant tax authority. Our Group must comply with certain tests and conditions to ensure we continue to qualify for REIT status. These tests and conditions are expected to be met for the foreseeable future but we will continue to monitor them on a quarterly basis. There would be a material impact on our tax charge and tax liability (and therefore financial results) if we were not able to meet the REIT tests and conditions. 6

8 STRATEGIC REPORT (CONTINUED) PRINCIPAL RISKS AND UNCERTAINTIES Our capacity to influence external risks is often limited, however we recognise the importance of operating a business model that has the potential to flex and adapt to a changing environment. For example, the consequences of the UK s decision to leave the European Union ( the EU ) may impact our business in a variety of ways, albeit that the impact is not yet fully understood or quantifiable. We acknowledge the need to be proactive and take action as implications are better understood. Accordingly, the Brexit risk profile of our business is, and will continue to be monitored. The details of our principal risks and uncertainties and the key mitigations follow in this section. We disclose those risks we believe are likely to have the greatest impact on our business at this moment in time. Our risk profile continues to evolve and, while our principal risks and uncertainties remain broadly consistent, we have refined our disclosure to ensure they remain relevant and reflect the changing landscape. Market Risks Supply and demand for student accommodation Risk and impact Mitigation Our business model is focused on the provision of student accommodation. Any adverse change to supply or demand dynamics would impact the position and performance of the Group. This The Directors actively manage the portfolio in response to changes to local and national demand for higher educational institutions and maintain a watching brief on all factors known to could be impacted by government policy, affect demand. Similarly, they maintain an competitor offerings, international student ongoing review of factors affecting supply. demand and excess supply in markets we operate in. Brexit Risk and impact At this stage, the Government has not set out its long-term plans for EU student fees or potential EU visa requirements. The effects of Brexit on demand are therefore very difficult to quantify at this stage. While the full impact of Brexit on the student accommodation market is still uncertain, we believe our reliance on EU students is in line with the industry overall. Whilst Brexit uncertainty continues, the potential impact of Brexit on demand for student accommodation from EU students is expected to be relatively limited for the Group. EU students represent only about 7% 7 of total student numbers while the acknowledged excellence of UK higher education is expected to support demand even if higher fees become payable. However, the UK exiting the EU may nevertheless reduce student numbers. There could also be immigration policy changes affecting international student numbers and behaviours from countries outside the EU. Mitigation We will continue to monitor the impact of Brexit (and other immigration policy changes) on the business. 7 Higher Education Statistics Agency 7

9 STRATEGIC REPORT (CONTINUED) Performance risk Risk and impact Our rental income and the value of our properties are dependent on the rental rates that can be achieved from our properties. Our ability to maintain or increase the rental rates for our rooms in the UK may be adversely affected by the UK s general economic condition, the disposable income of students, the overall demand for university education and multiple-year agreements with higher educational institutions. Similar constraints apply in relation to our properties outside the UK. There is also a risk that adverse movements in the market would impact the valuation of our properties Mitigation The Directors and Senior Management Team monitor and review pricing on a regular basis to ensure optimal pricing for the market conditions. The Directors regularly review the markets Liberty operates. OPERATIONAL RISKS Condition of the properties Risk and impact We need to comply with laws and regulations relating to health and safety, failure to do this would potentially lead to closure of buildings which would impact the position and performance of the Group and potential litigation. Mitigation During the year Management performed a full review of fire safety at all buildings, invested in new health and safety systems and increased health and safety headcount. Reputation and compliance risk involved in operating the properties Risk and impact Mitigation We may not be able to maintain the occupancy Policies are in place that the Group operates rates of our residences due to privacy and data under which are aimed at minimising the risk of protection failures and adverse publicity due to data protection failures and litigation. litigation. This could result in an adverse impact on the Group s performance. Acquisitions Risk and impact Through acquisitions there is a risk that an adverse financial impact may occur where failures in the due diligence process occur. Mitigation Prior to entering into an agreement to acquire any property and/or business, we perform due diligence on the proposed investment. We believe we have appropriate and adequate third party professional indemnity insurance in place. 8

10 STRATEGIC REPORT (CONTINUED) Information Security (including cyber) Risk and impact Failure to adequately prevent or respond to a data breach may result in business disruption, brand damage or loss of information for our stakeholders. Mitigation Policies and multi-layered technologies around the Group s IT infrastructure and information systems are in place to reduce the risk of business disruption, including external attacks and loss of information. Financing risk Risk and impact We are geared through borrowings undertaken by Liberty Living Finance plc, a subsidiary. If any covenant is breached, we may be required to repay the borrowings in whole or in part, together with any associated costs, including the costs of terminating any public bond debt. The covenants are linked to the profitability of the Group and the valuation of investment properties. Mitigation We monitor our covenant compliance throughout the year and for future periods. Talent and capability Risk and impact We need to attract, develop, motivate and retain the right individuals, failure to do this would impact our operational and strategic objectives to continue to uphold our brand and values. Mitigation We have continued to focus on our employees as valuable assets reviewing our employee offering to ensure it is in line with the market. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Details of the Group s financial risk exposures and its management processes for addressing risk exposures are set out in Note 16. Approved by the Board of Directors on 9 November 2018 and signed on its behalf by: Paul Mullins Director 9

11 COMPANY NUMBER: DIRECTORS REPORT The Directors present their Report and audited Consolidated Financial Statements for Liberty Living (HE) Holdings Limited ( the Company ) for the period ended 31 August The Company was incorporated on 22 September PRINCIPAL ACTIVITY AND FUTURE DEVELOPMENTS The principal activity and future developments of the Company are set out in the Strategic Report. PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties are set out in the Strategic Report. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The financial risk management objectives and policies are set out in the Strategic Report. RESULTS AND DIVIDENDS The result of the Company for the period from 22 September 2017 to 31 August 2018 was nil. The Directors do not recommend the payment of a dividend. SUBSEQUENT EVENTS Details of significant events since the year end are included in note 21 of the financial statements. DIRECTORS The Directors set out below held office during the year and to the date of this report unless otherwise stated: M Biagosch appointed 13 March 2018 T Jackson appointed 13 March 2018 G Behr appointed 22 September 2017, resigned 14 June 2018 P Mullins appointed 13 March 2018 Michael Goldberg appointed 13 March 2018 Gary John appointed 13 March 2018 Catherine Lynn appointed 13 March 2018, resigned 31 October 2018 David Shearer appointed 22 September 2017, resigned 31 July 2018 Thomas Singer appointed 18 October 2018 SECRETARY The Secretary of the Company during the period and up to the date of signing the annual report and accounts was Rachel Heslehurst. REPORTING CURRENCY AND GAAP APPLIED IN THE FINANCIAL STATEMENTS The Company and the Group s presentational currency of these financial statements is UK Pound Sterling or GBP ( ), reflecting the functional currency of the business. The Company and Group have applied United Kingdom Generally Accepted Accounting Principles ( UK GAAP ), including FRS 102 for the year ending 31 August 2018 and August EMPLOYEE CONSULTATION The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group and Company. This is achieved through formal and informal meetings, the Group Newsletter and staff representation committee. 10

12 DIRECTORS REPORT (CONTINUED) DISABLED EMPLOYEES Applications for employment by disabled persons are always fully considered, bearing in mind the abilities of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment within the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons, should, as far as possible, be identical to that of other employees. GOING CONCERN In considering the appropriateness of the going concern basis of accounting the Directors have reviewed the key risks and uncertainties to which they believe the Group is exposed, the Group s ongoing financial commitments and the availability of sufficient resources for the next twelve months and beyond. The Group s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate over the next 12 months. This view has been strengthened by the refinancing that occurred in November 2017 as the Group entered into a new 400m five year bank facility, along with two tranches of bond debt of 300m each with maturities of seven and 12 years respectively. The 400m bank facility includes a 150m RCF which is undrawn at the date of signing the accounts which is sufficient, and available if required, to cover the net current liability position of the Group. The new facilities are subject to financial covenants, interest cover ratio and loan to value, over certain guarantor subsidiaries of the Group. The Directors are comfortable that the Group will meet the covenant tests over the next 12 months. The Directors therefore have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. DIRECTORS INDEMNITY Liberty Living Holdings Inc. provides a deed of indemnity to the Directors of the Company to the extent permitted by UK law whereby Liberty Living Holdings Inc. indemnifies a Director against any liability incurred in proceedings in which the Director is successful, and against the cost of applying to the court for breach of duty where the Director acted honestly and reasonably. The indemnity has been in force for the year to 31 August 2018 and up to the date of approval of the annual report and financial statements. This indemnity has also been made for the benefit of the Directors of its associated companies during the year which remain in force at the date of this report. INDEPENDENT AUDITOR Each of the persons who is a Director at the date of approval of this report confirms that: so far as the Director is aware, there is no relevant audit information of which the Company s auditor is unaware; and the Director has taken all the steps that they ought to have taken as a Director in order to for them to be aware of any relevant audit information and to establish that the Company s auditor is aware of that information. Deloitte LLP have signified their willingness to remain in office. Approved by the Board of Directors on 9 November 2018 and signed on its behalf by: Paul Mullins Director 11

13 STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 12

14 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF LIBERTY LIVING (HE) HOLDINGS LIMITED REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion In our opinion the financial statements of Liberty Living (HE) Holdings Limited (the parent company ) and its subsidiaries (the group ): give a true and fair view of the state of the group s and of the parent company s affairs as at 31 August 2018 and of the group s profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland ; and have been prepared in accordance with the requirements of the Companies Act We have audited the financial statements which comprise: the consolidated profit and loss account; the consolidated statement of comprehensive income; the consolidated and parent company balance sheets; the consolidated and parent company statements of changes in equity; the consolidated cash flow statement; and the related notes 1 to 21. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council s (the FRC s ) Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We are required by ISAs (UK) to report in respect of the following matters where: the directors use of the going concern basis of accounting in preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group s or the parent company s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. We have nothing to report in respect of these matters. 13

15 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF LIBERTY LIVING (HE) HOLDINGS LIMITED REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in respect of these matters. Responsibilities of directors As explained more fully in the directors responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group s and the parent company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: This description forms part of our auditor s report. 14

16 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF LIBERTY LIVING (HE) HOLDINGS LIMITED REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Report on other legal and regulatory requirements Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: the information given in the strategic report and the directors report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the directors report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors report. Matters on which we are required to report by exception Under the Companies Act 2006 we are required to report in respect of the following matters if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. We have nothing to report in respect of these matters. Use of our report This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Philip Doherty, FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor London, UK 9 November

17 CONSOLIDATED PROFIT AND LOSS ACCOUNT 1 September 2017 to 31 August 1 September 2016 to 31 August Note m m Turnover Cost of Sales (48.4) (39.5) Gross profit Administrative expenses (17.6) (13.6) Depreciation, amortisation and impairment (8.0) (12.2) Revaluation of investment properties (51.2) (13.2) Loss on disposal of investment properties - (4.5) Operating profit Interest receivable and similar income Interest payable and similar expenses 6 (50.2) (157.2) Loss on ordinary activities before tax (19.5) (104.8) Tax on loss on ordinary activities (1.6) Profit/(loss) for the financial year 32.1 (106.4) All gains and losses arise from continuing activities. The accompanying notes form an integral part of these financial statements. 1. See note 1 Accounting policies for details of the merger accounting policy 16

18 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1 September 1 September 2017 to to 31 August August Note m m Profit/(Loss) for the financial year 32.1 (106.4) Translation of foreign operations (0.4) 1.2 Total comprehensive income/(expense) for the year attributable to equity shareholders of the Company 31.7 (105.2) 1. See note 1 Accounting policies for details of the merger accounting policy 17

19 CONSOLIDATED BALANCE SHEET As at 31 August Note m m Non-current assets Intangible assets Investment properties 9(i) 2, ,055.2 Tangible fixed assets 9(ii) Financial assets at fair value through profit or loss , ,136.0 Current assets Cash at bank and in hand Debtors due within one year Creditors: amounts falling due within one year 12 (80.4) (2,187.5) Net current liabilities (24.1) (2,060.9) Total assets less current liabilities 2, Creditors: amount due after more than one year Creditors: amounts falling after more than one year 12 - (26.7) Bank and Bond borrowing 13 (864.5) - Provision for liabilities 14 (2.0) (54.2) Net assets/(liabilities) 1,264.6 (5.8) Capital and reserves Called up share capital Share premium account Translation reserve Capital contribution reserve Merger Reserve 50.7 (1,208.0) Profit and loss reserve 1,213.1 (21.6) Equity shareholders funds 1,264.6 (5.8) The accompanying notes form an integral part of these financial statements. The financial statements were approved by the Board of Directors and authorised for issue on 9 November They were signed on its behalf by: Paul Mullins Director 1. See note 1 Accounting policies which sets out the application of merger accounting adopted in these financial statements 18

20 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Called up share capital Share premium account Translation reserve Capital contribution reserve Merger reserve 1 Profit and loss reserve Total m m m m m m m As at 31 August (1,222.6) Loss for the year (106.4) (106.4) Translation of foreign operations Total comprehensive expense (106.4) (105.2) Capitalisation of intercompany loans At 31 August (1,208.0) (21.6) (5.8) Profit for the year Translation of foreign operations - - (0.4) (0.4) Total comprehensive income - - (0.4) Capitalisation of intercompany loans , ,258.7 Dividends paid (19.5) (19.5) Bonus issue (759.6) Capital reduction - (1,222.6) , Other (0.5) (0.5) At 31 August , ,264.6 See note 15 for information of equity transactions that have occurred during the period. 1. See note 1 Accounting policies for details of the merger accounting policy 19

21 CONSOLIDATED CASH FLOW STATEMENT 1 September 2017 to 31 August 1 September 2016 to 31 August Note m m Operating activities Loss before tax (19.5) (104.8) Adjustments to reconcile loss before tax to cash flows from operating activities: - Revaluation of investment properties Interest payable and similar expenses Interest receivable and similar income (0.2) - - Depreciation, amortisation and impairment Loss on disposal of investment property Net cash generated from operating activities before changes in working capital Decrease/(increase) in debtors 0.8 (5.2) Increase in creditors Tax paid (2.0) (0.4) Cash flows from operating activities Investing activities Disposal of investment property Enhancement of investment properties (56.8) (35.4) Acquisition of: - investment properties (10.0) (442.8) - intangible fixed assets (0.6) (0.4) - other tangible fixed assets (0.3) (1.0) - business - (28.0) Cash flows from investing activities (67.7) (453.1) Financing activities Interest paid (4.4) - Other refinancing costs paid (9.4) - Bank debt and bond borrowing Purchase of derivative (2.5) - Funds remitted (to)/from shareholder (853.8) Cash flows from financing activities Net cash flow 27.2 (0.4) Change in cash at bank and in hand Cash at bank and in hand at beginning of year Cash at bank and in hand at end of year See note 1 Accounting policies for details of the merger accounting policy 20

22 COMPANY BALANCE SHEET COMPANY NUMBER: As at 31 August Note m Fixed assets Investments 9(iii) 1,222.6 Current assets Debtors due within one year Creditors: amounts falling due within one year 12 (0.1) Net current assets - Net assets 1,222.6 Capital and reserves Called up share capital 15 - Share premium account - Capital contribution reserve - Profit and loss reserve 1,222.6 Equity shareholders funds 1,222.6 As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account or statement of comprehensive income is presented in respect of the parent Company. The result for the period 22 September 2017 to 31 August 2018 was nil. The accompanying notes form an integral part of these financial statements. The financial statements were approved by the Board of Directors and authorised for issue on 9 November They were signed on its behalf by: Paul Mullins Director 21

23 COMPANY STATEMENT OF CHANGES IN EQUITY For the year period 31 August 2018 Called up Share capital Share premium account Capital contribution reserve Profit and loss reserve Total m m m m m At 22 September Result for the period Total comprehensive income Issue of share capital Capital contribution Bonus issue (759.6) - - Capital reduction - (1,222.6) - 1, At 31 August , ,222.6 See note 15 for information of equity transactions that have occurred during the period. Profit attributable to the Company and Company cash flow statement No separate profit and loss account, statement of comprehensive income or cash flow statement is presented in respect of the Company. 22

24 NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES These financial statements are prepared in accordance with accounting standards applicable in the United Kingdom and are denominated in pounds sterling ( ). The particular accounting policies adopted are described below. The financial statements have been prepared on a going concern basis, see note 2. General information and basis of accounting Liberty Living (HE) Holdings Limited ( the Company ) is a private company limited by shares under the Companies Act 2006 and registered in England and Wales. The address of the registered office is given on the Directory page. The nature of the Company and its subsidiaries ( the Group ) operations is to invest in and operate student accommodation property. The financial statements have been prepared under the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102 ( FRS 102 ) issued by the Financial Reporting Council. The functional currency of the Company is considered to be pounds sterling because that is the currency of the primary economic environment in which the Company operates. The consolidated financial statements are presented in pounds sterling as the Group s subsidiaries predominantly operate in the United Kingdom. The Company meets the definition of a qualifying entity under FRS 102 and therefore has taken advantage of the disclosure exemptions in relation to financial instruments, the presentation of a cash flow statement, intra-group transactions and remuneration of key management personnel. Basis of consolidation On 10 May 2018 the Company obtained from a parent entity interests in certain subsidiaries through a share issue and interests in three Limited Partnerships through a contribution for no consideration. This transaction did not change the interest of the ultimate equity holder which allows the Group to adopt merger accounting when presenting its results. Although the Company was incorporated on 22 September 2017, under merger accounting the consolidated financial statements are prepared as if all the entities had always been combined, therefore the 2018 and 2017 results are presented for the year 1 September to 31 August. Therefore the purchase method of accounting has not been adopted to account for this transaction. In performing merger accounting, the Group has reflected the issue of share capital, share premium and capital contribution from the 1 September 2016, reflecting the principles of merger accounting. The value of shares issued in the share for share exchange and contribution made was based on the equity post the capitalisation of the intercompany loans, which occurred prior to the share for share exchange in the year ended 31 August As such the capitalisation of the loans is shown as a movement in the merger reserve in the year to 31 August 2018 to reflect the related nature of the item and date of the intercompany loan capitalisation. Through the finalisation of the merger accounting process, the goodwill previously presented has been revisited. It was identified that goodwill of 29.3m was recognised in 2015 in respect of an asset acquisition and was subsequently amortised. Under FRS 102, no goodwill arises on asset acquisitions. As these financial statements represent the first set for the Company and its Group since incorporation, management has adjusted the opening balance sheet to exclude the amortised value of goodwill at this date of 25.3m and amortisation recorded in 2017 of 2.9m in preparing the prior year comparatives. The Consolidated financial statements incorporate the accounts of the Company and its subsidiary undertakings drawn up to 31 August each year. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting polices used into line with those used by the Group. All intra-group transactions balances, income and expenses are eliminated on consolidation. 23

25 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Turnover and Cost of sales Turnover, which relates to the provision of student accommodation, represents rental income which is accounted for on an accruals basis. Rental income received in advance is recognised as deferred income on the balance sheet and recognised as turnover over the rental contract term to which it relates. Turnover is stated net of VAT. Cost of sales are operating costs relating to the provision of turnover and other income associated with student accommodation and are also accounted for on an accruals basis. Interest receivable and similar income and interest payable and similar expenses Interest receivable is charged on an accruals basis. Interest payable is charged on accruals basis using the effective interest rate method. Gains and losses on the interest rate cap are also recognised through interest receivable and similar income and interest payable and similar expenses. Taxation As a REIT, profits arising from its UK property business and gains on disposal of UK investment properties are exempt from UK tax with the exception of certain non-core UK income streams. Therefore the Group will pay UK corporation tax on the profits from its non-core UK income streams and foreign tax on profits arising in overseas jurisdictions in accordance with local law. The tax charge for the year is recognised in the profit and loss account and the statement of comprehensive income, according to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax. Current tax, including UK corporation tax on the residual business and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. As a REIT, rental profits and gains on disposal of investment properties are exempt from corporation tax. As a result, no deferred tax provision has been recognised at the balance sheet date in respect of property rental assets (revaluation gains and accelerated capital allowances). A deferred tax asset is regarded as recoverable and therefore unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax liabilities are recognised for timing differences arising from investments in subsidiaries and associates, except where the group is able to control the reversal of the timing difference and it is probable that it will not reverse in the foreseeable future. Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date that are expected to apply to the reversal of the timing difference. Current tax assets and liabilities are offset only when there is a legally enforceable right to set off the amounts and the Group intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 24

26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Other tangible fixed assets Tangible fixed assets are depreciated using the following rates and bases to reduce the cost to residual value by equal amounts over their useful lives, unless the Directors consider that the realisable value is less, when they will reduce the cost to estimated realisable value: - Short leasehold and fixtures and fittings between three to ten years - Land and buildings 25 years Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree plus costs directly attributable to the business combination. Any excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets and liabilities is recognised as goodwill. Intangible assets Intangible assets are held at cost less amortisation. The amortisation period represents the value that the asset has to the business. The brand and goodwill have an amortisation period of 10 years and are amortised on a straight line basis. Investment property Investment properties are initially accounted for at cost plus directly attributable taxes and transaction costs. Investment properties for which fair value can be measured reliably without undue costs or effort on an ongoing basis are measured at fair value annually with any change recognised in the profit and loss account. Incremental costs of replacement or redevelopment incurred are capitalised and separately disclosed. Property acquisition costs Acquisition costs are treated as part of the cost of a property and have, therefore, been taken into account when calculating any gain or loss arising on the revaluation of investment properties recognised through the profit and loss account. Share premium account The premium receivable on the issue of shares is credited to the share premium account. Capital contribution reserve Represents the value of partnerships contributed to the Company from the Company s immediate parent. Merger reserve Represents the difference at the time of the group reconstruction between the carrying value of shares transferred in the Company s immediate parent and the fair value of shares issued. Movements in the merger reserve reflect changes to the immediate parent s investment in subsidiary balance prior to the reconstruction. Investments in subsidiaries Investments in Subsidiaries are stated at cost less provision for any impairment in value which is considered by the Company to be permanent. 25