Empiric Student Property plc INTERIM REPORT AUGUST Stuart Beevor Acting Chairman

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Alicia Gallagher
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1 plc INTERIM REPORT AUGUST 2018 Stuart Beevor Acting Chairman The Frontage, Nottingham 162 Beds Forward Funded Completed 2017

2 The Chapel, Manchester 87 Beds Forward Funded Completed 2017 Princess Road, Leicester 110 Beds Forward Funded Completed 2018 Tim Attlee Acting Chief Executive Officer 333 Bath Street, Glasgow 70 Beds Forward Committed Completed 2015 Samuel Tuke Apartments, York 115 Beds Forward Funded Completed 2016

3 AGENDA Financial and Operational Highlights Tim Attlee Financial Headlines and Operational Improvements Lynne Fennah Portfolio Overview Tim Attlee Q&A 3

4 FINANCIAL HIGHLIGHTS H Gross Margin 62% Gross Margin +3% Growth in Gross Margin (1) Administration Costs 4.9m Administration Costs 36% Reduction in Administration Costs (1) Profit 21.7m Profit for half year +50% Increase in profit (1) Dividend Cover 2.5p Dividend per share (1) +74% Increase in Dividend Cover (1) Valuation +1.0% Growth in EPRA NAV per share (2) 3.5% Total Return for the period (1) H vs. H (2) 30 June 2018 vs. 31 December

5 OPERATIONAL HIGHLIGHTS H H Post Period End Contracted portfolio currently stands at 95 properties with 87 operational as at June % of properties managed by Hello Student as at 30 June 2018 Building and Bed Growth 9, , Bookings for AY 2018/19 are currently at 89% compared with 80% at the same time last year 6% rental income growth for AY 2018/19 The number of beds grew by 4% in H ,712 Entire portfolio managed by Hello Student from 1 September ,903 Princess Road, Leicester 8, Emily Davies Hall, Southampton The number of beds is expected to grow by 6% with three new developments opening in September Dec-17 Jun-18 AY 2018/19 AY 2019/20 AY 2020/21 Number of Buildings Number of Beds Development delivery for commencement of AY 5

6 Claremont Place, Newcastle 89 Beds Forward Committed Completed 2016 Talbot Point, Nottingham 77 Beds Forward Funded Completed 2016 Lynne Fennah Chief Financial & Operating Officer The Registry, Portsmouth 41 Beds Standing Asset Acquired 2015 Hahnemann Building, Liverpool 98 Beds Standing Asset Purchased 2017

7 FINANCIAL HEADLINES H Unaudited Six Months to 30 June 2018 Unaudited Six Months to 30 June 2017 H1 18 vs. H1 17 % Change Year Ended 31 December 2017 Adjusted Earnings (1) 9.1m 5.2m +75% 10.1m Adjusted Earnings per share 1.50p 1.05p +43% 1.86p Dividend per share 2.50p 3.05p (18%) 5.55p Dividend Cover 60.0% 34.4% +74% 33.5% Total Return (2) 3.5% 2.8% +25% 3.9% Unaudited As at 30 June 2018 Audited As at 31 December 2017 June 2018 vs. December 2017 % Change Portfolio Valuation 945.6m 890.6m +6.2% EPRA NAV per share 105.6p 104.5p +1.0% Loan to Value 34.2% 32.9% +4.0% (1) Adjusted for development licence fees, late payment rebates, rental guarantees and cumulative gains on disposal (2) Calculated as the sum of the growth in EPRA NAV and dividends paid 7

8 INCOME STATEMENT H Unaudited Six Months to 30 June Unaudited Six Months to 30 June H1 18 vs. H1 17 % Change Revenue 31,289 24, % Property Expenses (11,787) (9,688) +22% Gross Profit 19,502 14, % Gross Margin % 62.3% 60.4% +3% Administrative and other expenses (4,873) (7,627) (36%) Changes in fair value of investment properties 13,600 13,021 +4% Operating profit 28,229 20, % Net finance expense (6,527) (5,744) +14% Profit before taxation 21,702 14, % Dividends paid 15,072 15,415 (2%) Dividend Cover (1) 60.0% 34.4% +74% Earnings pence per share basic % Earnings pence per share diluted % (1) Calculated as adjusted earnings per share as a percentage of dividends declared 8

9 BALANCE SHEET H June December Property, plant and equipment Intangible assets 1,332 1,423 Investment property 945, ,582 Derivative financial assets - 1 Trade and other receivables 13,294 27,792 Cash and equivalents 26,326 52,721 Total assets 987, ,994 Trade and other payables 25,311 22,620 Borrowings 314, ,149 Derivative financial liability Deferred income 10,186 22,286 Total liabilities 350, ,736 Net assets 636, ,258 Net Asset Value per share (basic) EPRA Net Asset Value per share (basic)

10 BRINGING OPERATIONS IN-HOUSE Facilities Management Operational Management Revenue Management What We Are Doing? Why We Are Doing It? Transferring 27 properties in September 2018; 57 properties in April 2019 Planning started in October 2017 with support of leading consultants Call centre established and database set-up Rationalising contracts to achieve best pricing Operations and Sales team restructured to provide accountability and oversight IT & HR brought in-house by 1 April 2019 Full control of sales, marketing and management of our assets Improved quality of service Greater efficiency with fewer hand offs Access to own data Significant cost reduction Unified team with consistent goals, values and culture 10

11 BRINGING OPERATIONS IN-HOUSE Facilities Management Operational Management Revenue Management What We Are Doing? Why We Are Doing It? Build revenue management capability within our existing ERP platform Pilot for one asset Q Greater efficiency and fewer handoffs Real time data on occupancy, rental income and debtors If successful, full roll out Q for 2021/22 Academic Year Potential cost reduction of approximately 75% for revenue management 11

12 DELIVERING ON OUR TARGETS Income Growth Gross Margin Dividend Cover Growth in rental income of 6% in AY 2018/19 Bringing operations in-house Continued cost control Substantial proportion of cost reductions already contracted Potential revenue management savings 70% Full Cover Efficiency savings Cost control 62% 60% 57% 34% AY 2017/18 AY 2018/19 Dec-17 Jun-18 Dec-19 Dec-17 Jun-18 Dec-19 12

13 OUTLOOK FY 2018 Targeting occupancy levels of 97% for 2018/19 academic year Bookings for 2018/19 currently at 89% These occupancy levels would result in Gross Annualised Rent of approximately 72m Phased reduction in direct costs and progressive improvement in gross margin Continue to target administration costs of 10m for 2018 Targeting 2018 dividend coverage in-line with the first half 13

THE BENEFITS OF OUR STRATEGY Distinctive buildings in central locations Average

Clustering allows us to deliver a similar gross margin to larger buildings

building size lend themselves to alternative use Willowbank, Glasgow 178 Beds

14 THE BENEFITS OF OUR STRATEGY Distinctive buildings in central locations Average building size of 100 beds Communal facilities including private gyms and cinemas Clustering allows us to deliver a similar gross margin to larger buildings Provincial House, Sheffield 107 Beds Development Completed 2015 Locations and building size lend themselves to alternative use Willowbank, Glasgow 178 Beds Development Completed 2016 Metrovick House, Newcastle 63 Beds Forward Committed Completed

15 THE BENEFITS OF OUR STRATEGY ESP Tenants by Level of Study (As at 31/10/2017) Age range: Average: 22 Postgraduate (35%) Undergraduate Returner (34%) Undergraduate First Year (26%) Other (5%) Longer leases ESP average lease length AY 2018/19 is 50.5 weeks vs weeks for our peer group (1) ESP Tenants by Nationality (As at 31/10/2017) Non-EU (52%) Higher rents Average rent of 166 per week for ESP portfolio vs. 135 outside London for our peer group (1) 137 Nationalities UK (38%) EU (10%) (1) Source: CBRE 15

16 Bed Numbers PORTFOLIO OVERVIEW Beds per cities and towns Operational - 8,253 beds 3 development projects completing for the start of AY 2018/19: For academic year 2018/ beds For academic year 2019/ beds Forward Funded The Emporium, Birmingham 184 beds Forward Funded Percys Place, York 106 beds For academic year 2020/ beds Redevelopment Victoria Point, Manchester 169 beds Total 9,398 beds 459 beds

17 PERCYS PLACE York Beds 106 Beds Occupancy 100% for 2018/19 Yield on Cost 6.6% Valuation Yield 5.8% Margin on Cost 13.8% IRR 33.5% York St John University Princess Road, Leicester Percys Place, York Other ESP buildings University of York Leicester University 17

18 PRINCESS ROAD Leicester Beds 110 Beds Occupancy 100% for 2018/19 Yield on Cost 6.7% Valuation Yield 5.8% Margin on Cost 11.3% IRR 35.4% Other ESP buildings Princess Road, Leicester Leicester University 18

19 Change from 2013 HIGHER EDUCATION A Polarised Market Undergraduate Acceptances By Grades 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Bottom Tier Universities Middle Tier Universities Top Tier Universities Source: UCAS. Universities are split into three tiers depending on the grades attained by their undergraduate entrants with the bottom tier accepting the lowest grades and vice versa 19

20 CAPITAL DEPLOYED IN GOOD CITIES % of Beds in City Categories - Empiric vs. Competitors 2.6% 16.1% 73.1% 8.2% Other Top Owners (1) 14.5% 10.2% 60.3% 15.1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% City Categories (Net Initial Yields) London (4.25%) Super Prime (5.00%) Prime Regional (5.50%) Secondary (7.00%) Source: CBRE (1) Other Top Owners includes all large student operators with data available 20

HOMES NOT HALLS 8/10 45% Average answer when our students were asked how likely they are to recommend their accommodation to another student Proportion of returning students surveyed rebooked for the

Great family atmosphere especially if you re from abroad, parties, movie nights, the staff are the quintessence of what accommodation managers should be like.

21 HOMES NOT HALLS 8/10 45% Average answer when our students were asked how likely they are to recommend their accommodation to another student Proportion of returning students surveyed rebooked for the following year 2017/18 resident at Europa House, Portsmouth: Fantastic place to live. Great family atmosphere especially if you re from abroad, parties, movie nights, the staff are the quintessence of what accommodation managers should be like. Recommended 10/ How much do you agree with the following statements? 2017/18 resident at Willowbank, Glasgow: The location is perfect for anyone who wants to be right in the middle of everything Also, the accommodation managers are beyond helpful throughout... Highly recommend to anyone looking for student accommodation in Glasgow! 0 The staff have been friendly and helpful I loved my room I have been happy here My accommodation felt like home I have made some good friends by living here I enjoyed the programme of events run in my building 21

22 HOMES NOT HALLS 22

23 ON TRACK TO DELIVER OUR FINANCIAL TARGETS TARGETS Gross Margin of 70% in FY 2019 Full Dividend Cover in FY 2019 Total Return of 10% p.a. Net Asset Value Capitalised Net Rental Growth Completed Projects 100bps+ premium to stabilised yields Operating Income Covered Growing Dividend Development Profits Forward Funding and Development Projects Sales of Non-Core Assets Managed Gearing 23

24 The Frontage, Nottingham Ballet School, Glasgow Princess Road, Leicester Q&A 24

25 KEY TERMS Issuer plc, FCA registered as an AIFM Structure UK REIT Index Inclusion FTSE All-Share, FTSE SmallCap Current market capitalisation 566 million as at 20 August 2018 Listing Main Market, London Stock Exchange (Premium Listing) Target dividend 5.0 pence for the year ending 31 December 2018 Target total return 10% p.a. Gearing LTV up to 40% of gross assets; Long-term LTV target of 35% Valuation Half-yearly valuation by CBRE (June and December) Discount control Corporate Broker and Financial Adviser Board Share buy-back authority for up to 14.99% of issued share capital. Repurchased shares can be held in treasury. Return of disposal proceeds from investments to shareholders if not re-invested within 12 months Jefferies International Limited Stuart Beevor Acting Chairman; Tim Attlee Acting Chief Executive Officer and Chief Investment Officer; Lynne Fennah Chief Financial and Operating Officer; Jim Prower Senior Non Executive Director; Stephen Alston Non-Executive Director Investors should note that the figures in relation to targeted dividend, total shareholder return and target NAV growth rate set out above and in the rest of this presentation are for illustrative purposes only and are not intended to be, and should not be taken as, a profit forecast or estimate. Actual returns cannot be predicted and may differ materially from these illustrative figures. There can be no assurance that they will be met or that any dividend, NAV growth or total shareholder return will be achieved. 25

26 Important Information and Disclaimer This presentation has been prepared by plc (the "Company"). No representation or warranty (express or implied) of any nature is given nor is any responsibility or liability of any kind accepted by the Company or any of its directors, officers, employees, advisers, representatives or other agents, with respect to the truthfulness, completeness or accuracy of any information, projection, representation or warranty (expressed or implied), omissions, errors or misstatements in this presentation, or any other written or oral statement provided. In particular, no responsibility or liability is or will be accepted and no representation or warranty is or is authorised to be given as to the accuracy, reliability or reasonableness of any forward-looking statement, including any future projections, management targets, estimates or assessments of future prospects contained in this presentation, or of any assumption or estimate on the basis of which they have been given (which may be subject to significant business, economic or competitive uncertainties and contingencies beyond the control of the management of the Company). Any such forward-looking statements have not been independently audited, examined or otherwise reviewed or verified and nothing in this presentation should be construed as a profit forecast. All views expressed in this presentation are based on financial, economic, market and other conditions prevailing as of the date of this presentation. The Company does not undertake to provide access to any additional information or to update any future projections, management targets, estimates or assessment of future prospects or any other forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation, or to correct any inaccuracies in this presentation which may become apparent. Past performance is not indicative of future results and forward-looking statements are not guarantees of future performance. This presentation is for information purposes only and does not constitute an offering document or an offer of transferable securities to the public in the UK. This presentation is not intended to provide the basis for any credit or other evaluation of any securities of the Company and should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of or purchase any such securities or enter into any other transaction with the Company or any other person. The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities. This presentation is being communicated or distributed within the UK only to persons to whom itmay lawfully be communicated, and has not been approved for the purposes of section 21 of the Financial Services and Markets Act This document is being issued to and directed only at: (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Financial Promotion Order"); or (ii) persons who fall within Article 43 of the Financial Promotion Order (members and creditors of certain bodies corporate); or (iii) persons who fall within Article 49(2) of the Financial Promotion Order (including certain high net worth companies, unincorporated associations or partnerships and the trustees of high value trusts, or other respective directors, officers or employees as described in Article 49 of the Financial Promotion Order); or (iv) any other persons to whom this presentation for the purposes of Section 21 of FSMA can otherwise lawfully be made without further action; or (v) persons otherwise permitted by the laws of the jurisdiction in which they are resident to receive them; or (vi) in relation to persons in member states of the European Economic Area ("EEA"), are a professional client or an eligible counterparty within the meaning of Article 4(1)(II) and 24(2); (3) and (4), respectively, of MiFID (as MiFID is implemented into national law of the relevant EEA state). This document is not intended to be, and must not be, distributed, passed on or disclosed, directly or indirectly, to any other class of person. The condition of you receiving this document is that you fall within one of the categories of persons described above and by accepting this document you will be taken to have warranted, represented and undertaken to the Company that: (a) you fall within one of the categories of persons described above, (b) you have read, agree to and will comply with the terms of this disclaimer; and (c) you will conduct your own analyses or other verification of the data set out in this document and will bear the responsibility for all or any costs incurred in doing so. Persons who do not fall within one of the categories of persons described above should not rely on this document nor take any action upon them, but should return them immediately to the Company at its registered office. It may not be reproduced (in whole or in part), distributed or transmitted to any other person without the prior written consent of the Company. In particular this presentation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this presentation outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction, and are treated as having represented that they are able to receive this presentation without contravention of any law or regulation in the jurisdiction in which they reside or conduct business. Dated: August

Empiric Student Property plc

Premium Student Accommodation in the UK Empiric Student Property plc Interim Results Presentation September 2017 Agenda and Presentation Team Section Page Paul Hadaway, RIBA Founder and CEO Highlights