Company Announcements
GCP STUDENT LIVING PLC - Annual Financial Report
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PR Newswire
London, September 16
GCP STUDENT LIVING PLC
ANNUAL FINANCIAL REPORT FOR THE PERIOD 26 FEBRUARY 2013 TO 30 JUNE 2014
GCP Student Living plc, (the "Group" or the "Company"), which was the first
student accommodation real estate investment trust ("REIT") in the UK, today
announces its results for the financial period since incorporation on
26 February 2013 to 30 June 2014, including the 13 month trading period since the
initial public offering ("IPO") on 20 May 2013.
The full annual report and financial statements can be accessed via the
Company's website at www.gcpuk.com/gcp-student-living-plc or by contacting the
Company Secretary by telephone on 01392 477500.
Highlights for the period
* Successful IPO of the Company raised £70.1 million through the placing and
offer for subscription of ordinary shares in order to acquire the Company's
seed asset, Scape East.
* Ordinary shares of the Company admitted to the Specialist Fund Market of
the London Stock Exchange ("SFM") and the Channel Islands Securities
Exchange Authority Limited ("CISEA") on 20 May 2013.
* Acquisition of The Pad, RHUL (£13 million) made in December 2013, ahead of
target.
* A further successful, oversubscribed open offer, placing and offer for
subscription raised £42 million in May 2014 in order to fund the Company's
acquisition of Scape Greenwich.
* Forward purchase agreements for Phase 2 of The Pad signed in December 2013
and Scape Guildford signed in February 2014, due for completion in Q3 2015.
* Year-on-year growth in student rental income of 3.3% in the academic year
since IPO.
* Scape East and The Pad fully occupied for the 2013/14 academic year. As at
the date of the report, Scape East, Scape Greenwich and The Pad had
achieved full occupancy for the 2014/15 academic year.
* Operating profit of £10.1 million with total profit for the period of
£7.7 million.
* Annualised total return achieved of 11.5% to 30 June 2014, exceeding the
Company's annualised target return of 8.0-10.0% per annum.
* Company's target 5.5% annualised dividend yield in respect of the period to
30 June 2014 achieved with a total dividend of 6.10 pence per share paid to
shareholders in respect of the period.
* EPRA NAV* per ordinary share of 102.64 pence as at 30 June 2014 and EPRA
NNNAV* per ordinary share of 102.68 pence at 30 June 2014.
* External valuation of investments as at 30 June 2014 of £151.6 million.
Robert Peto, Chairman, commented:
"The IPO of the Company and the secondary capital raise in May 2014 were an
outstanding success with new investors subscribing for more shares than were
available. The Company has performed strongly since launch, with full occupancy
having been achieved along with year-on-year rental growth above 3% and income
and capital performance in excess of target. Going forward, the Company is well
positioned to achieve its growth and earnings targets due to an ongoing supply/
demand imbalance of high quality purpose-built accommodation in its core
markets."
For more information:
Gravis Capital Partners LLP
Tom Ward tom.ward@gcpuk.com 020 7518 1496
Cenkos Securities plc
Dion Di Miceli ddimiceli@cenkos.com 020 7397 1921
Tom Scrivens tscrivens@cenkos.com 020 7397 1915
Buchanan
Charles Ryland charlesr@buchanan.uk.com 020 7466 5000
Sophie McNulty sophiem@buchanan.uk.com
* The Company has adopted the EPRA best practice recommendations on reporting
and accounting. EPRA NAV and EPRA NNNAV respectively are calculated on the same
basis as the `Economic NAV' and `Accounting NAV' that the Company has reported
previously.
INVESTMENT OBJECTIVES
The Company invests in UK student accommodation to meet the following key
objectives:
Dividend income
To provide shareholders with regular, sustainable and long term dividends.
The Company has achieved its annualised dividend yield target of 5.5% with
reference to the IPO issue price in respect of the period to 30 June 2014,
paying a total of 6.10 pence per ordinary share in the period since IPO.
Capital appreciation
To provide modest capital appreciation over the long term with income having
RPI inflation-linked characteristics.
The valuation of the Company's property portfolio has increased by 3.5% over
the period providing capital appreciation to shareholders. Income for the
2014/15 academic year has risen slightly in excess of RPI.
Portfolio quality
Focus on high quality, modern, purpose-built, private student residential
accommodation and teaching facilities for students studying at leading academic
institutions in and around London.
The Company has further increased its property portfolio to include The Pad and
Scape Greenwich, high specification, modern, purpose-built residential student
accommodation buildings in and around London.
Key performance highlights
* 6.10 pence - Dividends paid in 2013/14
* £5.0 million - Capital appreciation since IPO
* 100% - Occupancy for 2013/14 academic year for Scape East and The Pad
* 11.5% - Total shareholder return
* 3.3% - Year-on-year rental growth for the 2013/14 academic year
* 61 - Number of HEIs represented
CHAIRMAN'S STATEMENT
Introduction
On behalf of the Board, I am pleased to announce a successful first financial
period for the Company. The Company delivered a strong set of results over the
period, achieving the target 5.5% annualised dividend in respect of the period
to 30 June 2014 and exceeding the annualised total target return of 8.0-10.0%
per annum. The net assets of the Company have grown significantly over the
period since IPO with the acquisition of The Pad and Scape Greenwich, rising
from £70.1 million at IPO to £112.9 million at 30 June 2014. A full summary of
the Company's results is set out below.
The Company's IPO in May 2013 was oversubscribed, with £70.1 million raised.
The total funds raised were used to acquire the seed asset, Scape East, a high
specification student accommodation scheme located directly opposite QMUL. The
property houses 588 studio bedrooms and c.30,000 sq ft of teaching facilities,
retail space and communal facilities.
The Company built on its initial acquisition by acquiring a newly built 116 bed
scheme, The Pad, adjacent to RHUL, in December 2013. The property was fully
occupied during the 2013/14 academic year and was acquired through an increase
in the Company's senior debt facility with Barclays. The Company also entered
into a forward purchase agreement for the acquisition of The Pad Phase 2, a
further 100 studio bed scheme targeted for completion in Q3 2015.
The Company's growth path continued in May 2014 following a successful capital
raise of £42 million. The proceeds were used to acquire Scape Greenwich, a
purpose-built, private student accommodation residence located in a prime
London student residential location within 30 minutes of c.75% of London's HEIs
and in close proximity to Ravensbourne College, a leading specialist digital
media HEI, and the University of Greenwich.
The Company also entered into a forward purchase agreement to acquire Scape
Guildford, a high specification, purpose-built, private student accommodation
residence located adjacent to the University of Surrey in Guildford, due for
completion in Q3 2015. Once complete, the scheme will comprise 141 rooms.
Financial results
The Company generated operating profit of £10.1 million for the first financial
period to 30 June 2014, with profit for the period of £7.7 million and basic
earnings per share of 10.50 pence. The net asset value of the Company has
increased by 60.0% in the period to £112.9 million following the successful
capital raise in order to fund the acquisition of Scape Greenwich. EPRA NAV per
ordinary share has increased by 5.64 pence with reference to the EPRA NAV at
IPO of 97.00 pence per ordinary share to 102.64 pence.
Property portfolio
Since the acquisition of Scape East, the Company successfully acquired two
properties, The Pad and Scape Greenwich, and secured forward purchase
agreements on a further two sites, The Pad Phase 2 and Scape Guildford, due for
completion in Q3 2015. Capital values have performed slightly ahead of
expectations with 3.4% uplift in the period since IPO, largely driven by
increasing rental rates. The external valuation of the portfolio stood at
£151.6 million as at 30 June 2014.
Dividends
The Company paid dividends in respect of the financial period ended 30 June
2014 of 6.10 pence per ordinary share. All dividends were made as PIDs in
respect of the Group's tax exempt property rental business.
Financing and hedging
The Company's financing strategy was enhanced in the period by successfully
renegotiating a £40 million senior debt facility at a lower rate of interest
with Barclays Bank plc and by entering into a new interest rate swap with a
notional value of £20.0 million at a fixed rate of 1.4% and floating rate of
3 month LIBOR, bringing the weighted average cost of debt down from 4.4% to 3.0%
at 30 June 2014. The Company continues to have significant headroom on its
loan-to-value and interest cover covenants. At 30 June 2014, the debt facility
was fully drawn and the Company was operating with a property loan-to-value of
26.7%.
Alternative Investment Fund Managers' Directive
The Company is classed as an externally managed AIF under the AIFMD. The Board
has appointed the Investment Manager as the Company's AIFM with effect from
1 April 2014. Langham Hall LLP was appointed on 22 July 2014 to provide
depositary services in order to fully comply with the provisions of the AIFMD.
Delisting from the CISEA
The Company currently operates with a dual listing on both the SFM and the
CISEA. At the date of the Company's IPO, the SFM was not a recognised exchange
for ISA investors and therefore a dual listing on the CISEA was required to
ensure ISA eligibility of the Company's ordinary shares for investors. Since
the launch of the Company, amendments were made to the ISA regulations pursuant
to which ISA investors can now invest in shares traded on the SFM.
As announced to the market on 10 September 2014, following consultation with
the Company's legal and financial advisers, the Board has decided that it is no
longer in the interests of shareholders for the Company to retain a listing of
its ordinary shares on the CISEA, given the ongoing costs of such listing. The
Company's ordinary shares will continue to trade on the SFM. The delisting from
the CISEA is expected to take effect at 7am on 10 October 2014.
Outlook
The Company has performed strongly since IPO and has achieved its target income
and return profiles, with strong occupancy and rental growth forecasted for the
forthcoming 2014/15 academic year.
Student numbers in the UK remain robust, with total placed applications for the
2013/14 academic year 6% up on the previous year. Student applications for the
forthcoming 2014/15 academic year were up 4% on the previous year, with EU
student numbers up almost 5% and non-EU students up over 8%, indicating an
increase in potential demand for the Company's stock of accommodation.
The supply/demand imbalance in and around London is expected to continue, with
limited new stock coming on stream and an increasing number of domestic and in
particular international students forecast for the forthcoming academic year.
The providers who selectively choose strong locations and enhance their schemes
through quality design and an operational platform with strong brand values
will continue to have a competitive advantage in the market.
The Investment Manager continues to review and source additional opportunities
in line with the Company's investment policy and currently anticipates making
further investments in 2015.
Robert Peto
Chairman
16 September 2014
STRATEGIC REPORT
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the "Act"). Its purpose is to inform members of the Company
and help them assess how the Directors have performed their legal duty under
section 172 of the Act to promote the success of the Company.
Strategic Overview
Investment objective
The Company's investment objective is to provide shareholders with regular,
sustainable, long-term dividends (with RPI inflation-linked characteristics)
coupled with the potential for modest capital appreciation over the long term.
Investment policy
The Company intends to meet its investment objective through owning, leasing
and licensing student residential accommodation and teaching facilities to a
diversified portfolio of direct let tenants and HEIs. The Company will invest
in modern, mostly purpose-built, private student residential accommodation and
teaching facilities located primarily in and around London where the Investment
Manager believes the Company is likely to benefit from supply and demand
imbalances for student residential accommodation.
Rental income will predominantly derive from a mix of contractual arrangements
including direct leases and/or licences to students ("direct let agreements"),
leases and/or licences to students guaranteed by HEIs and/or leases and/or
licences directly to HEIs. The Company may enter into soft nominations
agreements (pari passu marketing arrangements with HEIs to place their students
in private accommodation) or hard nominations agreements (longer-term marketing
arrangements with HEIs of between 2 and 30 years in duration).
The Company intends to focus primarily on accommodation and teaching facilities
for students studying at Russell Group universities and other leading academic
institutions, regional universities with satellite teaching facilities in and
around London and at specialist colleges.
The Company may acquire properties directly or through holdings in special
purpose vehicles and properties may be held through limited partnerships,
trusts or other vehicles with third party co-investors.
Investment restrictions
The Company will invest and manage its assets with an objective of spreading
risk through the following investment restrictions:
* the Company will derive its rental income from a portfolio of not less than
500 studios;
* at least 90% by value of the properties directly or indirectly owned by the
Company shall be in the form of freehold or long leasehold (over 60 years
remaining at the time of acquisition) properties or the equivalent;
* the Company will not invest in development assets or assets which are
unoccupied or not producing income at the time of acquisition; and
* the Company will not invest in closed-ended investment companies.
Use of derivatives
The Company may invest through derivatives for efficient portfolio management.
In particular, the Company engages in interest rate hedging or otherwise seeks
to mitigate the risk of interest rate increases as part of the Company's
efficient portfolio management.
Borrowing and gearing policy
The Company may use gearing to enhance returns over the long term. The level of
gearing will be governed by careful consideration of the cost of borrowing and
the Company may use hedging or otherwise seek to mitigate the risk of interest
rate increases. Gearing, represented by borrowings as a percentage of gross
assets, will not exceed 55% at the time of investment. It is the Directors'
current intention to target gearing of less than 30% of gross assets in the
long term and to comply with the REIT condition relating to the ratio between
the Company's `property profits' and `property finance costs'. As at the period
end, the Company was operating with a property loan to value of 26.7%.
The Directors currently intend, at all times, to conduct the affairs of the
Company so as to enable it to qualify as the principal company of a REIT for
the purposes of Part 12 of the Corporation Tax Act 2010 (and the regulations
made thereunder).
In the event of a breach of the investment guidelines and restrictions set out
above, the Investment Manager shall inform the Directors upon becoming aware of
the same and if the Directors consider the breach to be material, notification
will be made to a Regulatory Information Service.
No material change will be made to the investment policy without the approval
of shareholders by ordinary resolution.
BUSINESS AND STATUS OF COMPANY
The Company is registered as a public limited company and is an investment
company within the terms of section 833 of the Act. The Company is a REIT for
the purposes of Part 12 of the Corporation Tax Act 2010. Notification has been
submitted to, and acknowledged by, HMRC for the Company to enter the UK REIT
regime. The Company will be treated as a REIT so long as it continues to meet
the REIT conditions in relation to any accounting period.
The Company was incorporated on 26 February 2013. The Company's shares were
admitted to trading on the SFM and were listed on the Official List of the
CISEA on 20 May 2013.
The Company's performance along with the important events that have occurred
during the period under review, the key factors influencing the financial
statements and the principal risks and uncertainties for the financial period
are set out below.
UK STUDENT ACCOMMODATION MARKET
Overview
Higher education is one of the UK's largest service exports, contributing an
estimated £17.5 billion to the UK economy in 2011/12. Its continued growth is a
mainstay of UK government policy. In the period, the UK was the most popular
destination for students studying English outside of their home country,
attracting nearly 50% of students globally. In 2011/12, there were 435,000
international students studying at publicly funded HEIs, and a further 53,000
international students studying at alternative institutions, making the UK the
second most popular destination for internationally mobile higher education
students (behind the USA).
In July 2013, the UK government published an ambitious new strategy to expand
the UK's education exports industry to ensure that British higher education
continues to stay ahead in the global education market. It aims to secure an
extra £3 billion of contracts for educational exports and attract a further
90,000 international students by 2018.
The international education sector is likely to grow partly due to demographic
change, with the total global population forecast to increase from nearly
6.9 billion in 2010 to over 7.6 billion in 2020, and partly due to the increase in
wealth and size of the middle classes in emerging economies.
In the light of this, the Directors (as advised by the Investment Manager)
expect that the rise in international student numbers will continue to increase
in line with the OECD predictions on global student mobility, from
c.3.7 million international students in 2010 to c.8 million international students
by 2025. It is expected that the long-term impact of higher domestic tuition fees
will be to increase the competitiveness of the best tertiary education
institutions in the country, particularly the Russell Group, as domestic
students become more selective over where they will study as they take on more
debt.
HEI applications
The number of students in UK HEIs has doubled since 1991. This has been driven
by government policy, demographics and global mobility, with approximately
1.7 million students studying full-time in the UK in 2012/2013, with c.22% from
outside the UK.
Student numbers for the 2013/14 academic year were c.37,000 up on the previous
year, with 677,000 applicants chasing 496,000 places. Full year applicants for
UK HEIs have historically exceeded the number of available places and this
continued trend provides comfort that student numbers will continue to grow at
a sustainable level and that demand will continue to outstrip supply.
The number of students looking to study at UK HEIs continues to increase
year-on-year. UCAS applications for 2014/15 show a 4% increase in the number of
applications in spite of the continuing fall in the population of 18-year olds
in the UK. The increase was most marked in the number of EU (excluding the UK)
and non-EU students which increased by 5% and 9% respectively.
Charts showing the full-time student numbers, UCAS full-year applicants and
university applications can be found in the full annual report and financial
statements.
Student accommodation - the importance of design and quality
Purpose-built student accommodation has evolved as a product over the past
15 years. Over this period, and in particular, following the introduction of
tuition fees, students have become consumers in their own right and are making
their investment decisions for their higher education not just on price, but
also on a mix of quality of the academia and the quality and location of
accommodation.
Increasingly, students are demanding high quality living space with clever
design, quality materials, social areas in the buildings which provide
opportunities for social groups to form and bond centred around work spaces,
play space with games and TV areas and communal kitchens. Likewise, they are
demanding services that create wider social interaction such as talks, events,
workshops and tie-ins with local businesses and educational establishments.
This is particularly the case for international students who tend to demand a
higher class of accommodation than domestic students and who have a requirement
for greater social interaction.
Student accommodation - supply/demand imbalance
There is a fundamental supply/demand imbalance in the UK student accommodation
sector which is responsible for the stability and the strong rental and capital
returns produced in this financial period.
The UK has seen a rising tide of student numbers since the early 1990s, with
the student population more than doubling over this period. Domestic student
applications have increased year-on-year despite an ageing population and
international student numbers continue to grow at a disproportionate rate, as
evidenced by the 9% increase in applications by non-EU students for the 2014/15
period.
There is a structural shortfall of purpose-built student accommodation in most
of the UK. The supply of private student accommodation has failed to keep pace
with the increasing demand owing to the following:
* the residential property market has recovered over the past 18 months,
increasing land values as well as increasing the pressure on the private
residential sector to house tenants other than students who are willing to
pay higher rent levels;
* the private rented sector has become subject to greater local authority and
government legislation for houses in multiple occupancy;
* universities are not developing new accommodation as they are becoming more
focused on their core competency of investing in education;
* development financing remains constrained; and
* the introduction of CIL which will increase the cost of developing student
accommodation.
The London market
The Company is focused on the London student accommodation market because this
is where the largest supply/demand imbalance exists in the UK market. London
has a number of important dynamics that separate it from the wider UK student
housing market:
* London has the largest number of students of any city in the UK, with over
400,000 students being educated at HEIs in the capital;
* London has the largest number of international students of any city in the
world with c.108,000 students in 2011 from over 200 countries;
* London is home to some of the leading HEIs in the world which attract a
significant number of international students - it has five of the 24
Russell Group universities, two of the top ten universities in the world
and has a large number of world-renowned specialist colleges;
* London is one of the most popular cities in the world to visit, with a huge
global profile following the London 2012 Olympic Games; and
* London universities are only able to supply accommodation to c.30% of first
year and international students.
The acute supply/demand imbalance is more pronounced in London than in any
other major UK city, as evidenced in the graph contained in the full annual
report and accounts. This graph highlights that in 2013, there were over
250,000 domestic first year undergraduates, international students and
postgraduates studying in the capital with only 60,000 purpose-built student
accommodation beds in halls of residence available in aggregate from both the
university and private sectors, indicating a structural supply shortfall of
c.190,000 beds. It is this shortfall that underpins the strong performance of
the asset class in the capital.
REVIEW OF THE FINANCIAL PERIOD
Financial results
The Company generated a strong set of results with £9.1 million of rental
income generated in the period, resulting in a total of £7.5 million in net
operating income and a NOI margin for the period of 81.8% as detailed below.
The Board anticipates as additional properties are acquired, further economies
of scale in asset and facilities management will be achieved across the
Company's portfolio.
Total administration expenses incurred of £1.6 million comprise the Investment
Manager's fee and other service provider costs in the period. Total gains on
investment properties of £5.0 million upon the revaluation of the Company's
investment portfolio as at 30 June 2014, resulting in operating profit for the
Company of £10.1 million. Finance costs of £2.4 million comprising loan and
swap interest and swap break fees associated with the Company's improved
financing arrangements, giving total profit for the period of £7.7 million.
At 30 June 2014, there were no dilutive equity instruments in issue and
therefore the Company's basic earnings per share were 10.50 pence per share.
Financial performance
For the
period ended
30 June 2014
Income statement £'000
Rental income 9,132
Operating expense (1,664)
Gross profit (net operating income) 7,468
NOI margin 81.8%
Administration expenses (1,646)
Other costs (711)
Gains on investment properties 5,010
Operating profit 10,121
Finance costs (2,412)
Profit for the period 7,709
Dividends
In order to maintain its REIT status, the Group is required to meet a minimum
distribution test for each accounting period for which it is a REIT. This test
requires the Company to distribute at least 90% of the income profits of the
property rental business for each accounting period, as adjusted for tax
purposes. In respect of the financial period ended 30 June 2014, the Company
paid dividends of 6.10 pence per share.
Capital raises
The Company's IPO in May 2013 was oversubscribed, with £70.1 million raised.
The total funds raised were used to acquire the Company's seed asset, Scape
East, a high specification student accommodation scheme located directly
opposite QMUL. In May 2014, the Company raised a further £42 million by way of
an oversubscribed open offer, placing and offer for subscription to fund the
acquisition of Scape Greenwich in accordance with the Company's investment
policy.
Cash flow generation
The Company generated cash and cash equivalents of £3.6 million at the end of
the period. A total of £5.9 million of operating cash flows were generated in
relation to the Company's student accommodation portfolio. Total capital raised
in the period amounted to £112.1 million, which was used alongside the
Company's debt facility to finance the acquisitions of Scape East and Scape
Greenwich. An additional draw down on the facility was utilised to fund the
acquisition of The Pad. The remaining cash flows relate to net financing costs
in addition to payment of dividends, resulting in a net increase in cash and
cash equivalents at the period end of £3.6 million.
Debt financing
The Company entered into significantly improved new financing arrangements with
its lender, Barclays, following the renegotiation in May 2014 of a £40 million
facility. This facility is now set to mature in May 2019 at a more favourable
rate of interest. The previous interest rate swap has been terminated and
replaced with an interest rate swap with a notional value of £20 million. The
cost of cancelling the previous swap was £0.6 million.
The new banking arrangements have reduced the Group's weighted average cost of
debt from 4.4% to 3.0%. The Company is operating with a debt to property value
of 26.7% after the issue of new shares and the acquisition of Scape Greenwich.
Banking covenants
The Company debt facility includes loan-to-value and interest cover covenants
that are measured at a Group level. The Company has maintained significant
headroom against all measures throughout the financial period and is in full
compliance with all loan covenants at 30 June 2014.
Asset performance
The Company has experienced 3.3% year-on-year rental growth for the 2013/14
academic year. The valuation of the Company's property portfolio has increased
by £5.0 million (3.4%) since the IPO or acquisition of assets.
The portfolio has been 100% occupied for the 2013/14 academic year, all on
51 week tenancies. As at the date of this report, Scape East, Scape Greenwich and
The Pad had achieved full occupancy for the 2014/15 academic year.
Net assets
Net assets attributable to equity holders at 30 June 2014 were £112.9 million.
The increase in net assets since the IPO primarily relates to the May 2014
capital raise. The acquisition of The Pad was funded by an increase in the
Company's existing debt facility and therefore had no effect on the net assets
of the Company.
At 30 June 2014, there were 109,910,428 shares in issue giving an EPRA NAV per
ordinary share of 102.64 pence. The EPRA NAV excludes the fair value
mark-to-market valuation of the Company's financial derivative instrument,
which is used to manage adverse effects of interest rate movements on the
Company's debt facility.
Accordingly, taking into account the fair value mark-to-market valuation of
this financial derivative instrument based on current gilt rates, the EPRA NAV
at 30 June 2014, adjusted to reflect the cost of fixed rate debt (EPRA NNNAV),
is 102.68 pence per ordinary share.
Financial performance
Net Assets
30 June 2014
Assets £'000
Property 151,560
Receivables 1,362
Cash and cash equivalents 4,585
Total assets 157,507
Liabilities
Payables (3,168)
Deferred income (2,028)
Senior loan (39,456)
Total liabilities (44,652)
Net assets 112,855
Number of shares 109,910,428
EPRA NAV per share 102.64p
EPRA NNNAV per share 102.68p
Net asset value and share price performance
The Company's shares have traded at a premium to NAV since IPO, with an average
premium over the period of 6.6%. The Company's share price hit an all-time high
of 108.50 pence on three occasions, in September, October and November 2013.
EPRA NAV has increased to 102.64 pence per ordinary share as at 30 June 2014
(5.8% increase in 13 months). Dividends of 6.10 pence per ordinary share were
declared and paid to shareholders, achieving the target 5.5% annualised
dividend yield in respect of the period to 30 June 2014. At the Company level,
the annualised total return to 30 June 2014 was 11.5%, which exceeds the
annualised target return of 8.0-10.0%. Historic share price and NAV performance
is set out in the charts in the full annual report and financial statements.
COMPANY PERFORMANCE
Key performance indicators
Shareholder total return 11.5%
Basic earnings per share 10.50 pence
Dividend yield 5.5%
EPRA NAV per share 102.64 pence
Loan-to-value 26.7%
Rental growth 3.3%
PROPERTY PORTFOLIO
Quality, design & brand
The property portfolio is made up of high quality, modern, purpose-built
student accommodation focusing on international students, postgraduates and
domestic students alike. The living experience forms a mainstay of each
student's university life and the Company has put the quality, design,
experience and performance of its assets at the heart of its operational
strategy. This is achieved through the Company's investment selection and its
choice of Asset Managers.
Scape is the Asset Manager for Scape East and Scape Greenwich. The vision of
the Scape brand was to create a new kind of student accommodation; one that was
affordable but with modern design based in the heart of London. By enlisting
the help of leading interior designers and top architects, Scape continues to
ensure that high standards of quality finishes and service are met. Years of
hard work and listening to student feedback has resulted in some of the best
student accommodation in London.
Alongside the striking design features, Scape also offers ample common space
for students to socialise and study. High speed internet and wi-fi are
available throughout each location. Scape constantly responds to student
feedback, which has resulted in the provision of extra facilities and
amenities, such as additional private rooms for group study, ping pong tables
and a gym.
The Pad, located in Egham, comprises the remainder of the assets in the
portfolio and provided the first private, purpose-built student accommodation
in the local vicinity for RHUL's students. CRM is the Asset Manager for The
Pad. The property provides high quality studios and en-suite accommodation to
meet the needs of the growing international and postgraduate student population
at RHUL. Approximately 90% of the residents of The Pad are international
students, who are attracted by the large spacious rooms, high specification
fixtures and fittings and sociable communal areas spread across the building
and the leafy courtyard areas.
Scape East
Scape East is a private student residence, completed in June 2012 under the
Scape brand, which seeks to provide affordable and aspirational hotel-style
student accommodation in private, purpose-built, high specification buildings.
Scape East is located in Mile End, directly opposite QMUL, which is a Russell
Group HEI and one of London's leading universities with approximately 17,000
students. Approximately 75% of all Scape East's direct let students study at
QMUL. The impressive building encompasses a double height entrance and
floor-to-ceiling glazed reception.
Spiral staircases and an open atrium at Scape East create a spacious and
welcoming entrance. Copper and bronze is a recurring theme, from the
illuminated canopy on top of the building to the cladding surrounds. The green
roof space attracts insects and birds and the ground water provides heat for
the 25,000 sq ft of educational space and the communal areas.
Residents have access to a private courtyard garden, free gym, TV and games
lounge, communal kitchen, study areas and two on-site restaurants. Most of the
studios at Scape East are the exclusively designed "Scape Studio", which
feature integrated storage and work space, fully fitted kitchenette, breakfast
bar and stunning en-suite shower room. The concept of modern student
accommodation came from the Scape partners who enlisted leading interior
designer Ab Rogers and design studio Praline to bring their vision to life. The
result has yielded a superior alternative to traditional student housing, where
striking design goes hand-in-hand with competitive prices and excellent London
locations.
Additional rental income is generated through a 30-year FRI lease with annual
RPI uplifts of teaching facilities, which has generated 6.5% of total revenues
for Scape East for the 2013/14 academic year.
As at 30 June 2014, Scape East was occupied by students from 22 different HEIs
and of 65 different nationalities, with c.90% of tenants coming from outside
the UK.
Scape Greenwich
Scape Greenwich is a private student residence which was completed in September
2013 on the Greenwich Peninsula. Designed by award-winning architects, AHMM, it
comprises 280 studios and approximately 10,000 sq ft of communal facilities,
kitchens, study areas and breakout rooms. Scape Greenwich is situated in a
prime London student residential location within 30 minutes of c.75% of
London's HEIs and in close proximity to Ravensbourne College (with
c.1,600 students), a leading specialist digital media HEI, and to the University
of Greenwich (with c.26,000 students). Scape Greenwich is a stunning white
concrete building with an expansive glazed reception and versatile communal
dining, theatre and lounge. Students also enjoy large shared balconies and
linked atria study spaces. Big picture windows provide bright, natural light as
they extend across the building. The bright white exterior is offset by the
colourful hues that cover the corridors.
Scape Greenwich boasts a campus feel with shared study spaces, striking
communal areas, designer student studio apartments and an ideal location in
London. All student rooms come with a fully-equipped kitchenette, a comfortable
double bed with built-in storage, en-suite shower room and large windows.
Communal balconies on alternate floors afford stunning views of Canary Wharf,
the City and local parks.
As at 30 June 2014, Scape Greenwich was occupied by students from 47 different
HEIs and of 48 different nationalities, with c.50% tenants coming from outside
the UK.
The Pad
The Pad is a private student residence which was completed in September 2013
under the CRM Students brand and is located adjacent to RHUL, in Egham.
RHUL is ranked in 5th place in the world (1st in the UK) in the Times Higher
Education World University Rankings category of `International Outlook'. This
category looks at diversity on campus and to what degree academics collaborate
with international colleagues on research projects, recognising it as a global
university. It is home to more than 9,000 students from over 100 countries,
with c.20% from outside the EU.
The building is a modern, purpose-built student accommodation block offering
116 rooms comprising of 15 studios and 101 en-suite rooms. The studios comprise
fully furnished rooms with kitchenette and appliances provided and en-suite
shower room. En-suites in the main building are in clusters of 3-6 bedrooms in
addition to a small "house" of 9 rooms. The clusters share a large fully-fitted
kitchen, living area and include fully-furnished study bedrooms with en-suite
shower rooms. The property opens out onto a large leafy courtyard area with
patios, outdoor seating and gardens for students to breakout in the summer
months.
The Pad is the only purpose-built private student accommodation within five
miles of RHUL.
As at 30 June 2014, The Pad was occupied exclusively by students from RHUL,
comprising of 36 different nationalities, with c.90% tenants coming from
outside the UK.
CORPORATE, SOCIAL AND ENVIRONMENTAL RESPONSIBILTY
Sustainability
The Company's aim is to operate a fully sustainable business model with a low
carbon footprint. The Company's environmental sustainability measures include
the use of highly-efficient combined heat and power systems, ground source heat
pumps and intelligent interior heating and lighting to minimise GHG emissions.
The Company's property portfolio incorporates green roof space, rain water
harvesting and sustainable waste management, including diverting waste from
landfill to generate renewable electricity and via the waste management
process. In the period to 30 June 2014, the Asset Manager converted c.80% of
property waste from Scape East and Scape Greenwich into renewable energy, with
the remaining c.20% into national recycling schemes.
Environmental impact
The Company is committed to being both socially and environmentally responsible
and recognises the impact the Company has on the environment. The Company has
delegated the day-to-day asset and facilities management to the Asset Managers
who are responsible for the provision of energy supplies, including the
procurement of renewable energy, managing the Company's waste schemes and
raising general awareness of environmental impact and waste reduction amongst
the Group's employees and residents.
Details of the Company's GHG emissions are given in the Directors' report in
the full annual report and financial statements.
Diversity and equality
The Company is committed to achieving a working environment which provides
equality of opportunity and freedom from unlawful discrimination on the grounds
of race, sex, pregnancy and maternity, marital or civil partnership status,
gender reassignment, disability, religion or beliefs, age or sexual
orientation. The Company's policy aims to remove unfair and discriminatory
practices and to encourage full contribution from its diverse community. The
Company is committed to opposing actively all forms of discrimination and
values diversity amongst its workforce.
Further information on the Company's diversity policy is included in the
Corporate governance statement in the full annual report and financial
statements.
Social and community
The Company is committed to being socially responsible and the Directors
consider community involvement to be an important part of that responsibility.
The Company is indirectly involved with a number of social and local community
initiatives via the Asset Manager, such as local employment schemes and
initiatives to give back to the local area via student bursaries, sponsorship
and local events.
Human rights
The Company respects human rights and aims to provide assurance to internal and
external stakeholders that it will carry out its affairs in accordance with the
principles of the Universal Declaration of Human Rights. No human rights
concerns have arisen within the Company's operations or its supply chain during
the period ended 30 June 2014.
Employees
On 1 April 2014, Scape took over the facilities and property management
function from the facilities manager, Grosvenor Facilities Services Limited. It
assumed the employment of those individuals providing asset and facilities
management services to Scape East and Scape Greenwich at that time, by way of a
new subsidiary of the Company, GCP Operations Limited ("GCP Operations").
Scape continues to retain overall responsibility for the supervision and
provision of asset management services through oversight and management of the
employees of GCP Operations and has taken over responsibility for the
procurement and supervision of the facilities management services in connection
with Scape East and Scape Greenwich on behalf of the Company. The Board
believes that the restructuring of the asset and facilities management services
will offer the Group higher service levels, improved brand awareness, greater
control over the service provided and cost savings.
Gender breakdown
The gender breakdown of the Group's Directors and employees as at 30 June 2014
is detailed below:
Male Female
Directors 3 0
Employees 29 14
RISK MANAGEMENT
Role of the Board
The Board of Directors has overall responsibility for risk management and
internal control within the Group. The Board recognises that risk is inherent
in the operation of the Company and that effective risk management is key to
the success of the organisation. The Board has delegated responsibility for the
assurance of the risk management process and the review of mitigating controls
to the audit committee.
The Board, when setting the risk management strategy, also determines the
nature and extent of the significant risks and its risk appetite in
implementing this strategy. A formal risk identification and assessment process
has been in place since IPO, resulting in a risk framework document which
summarises the key risks and their mitigants.
The Board undertakes a formal risk review with the assistance of the audit
committee at least twice a year in order to assess the effectiveness of the
Group's risk management and internal control systems. During the course of such
review, the Board has not identified, nor been advised of any failings or
weaknesses which it has determined to be of a material nature. The principal
risks and uncertainties the Company faces are set out below.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal financial risks, the Company's policies for managing these risks
and the policy and practice with regard to financial instruments are summarised
in note 26 to the financial statements.
The Board has also identified the following additional risks and uncertainties:
Investment and strategy
There can be no guarantee that the investment objective of the Company will be
achieved. The Company is a REIT which invests in student residential
accommodation. The Company focuses primarily on accommodation and teaching
facilities for students studying at universities and specialist colleges in and
around London.
The Company's investment objective includes the aim of providing shareholders
with modest capital appreciation over the long term. The amount of any capital
appreciation will depend upon, amongst other things, the Company successfully
pursuing its investment policy and the performance of the Company's assets.
There can be no assurance as to the level of any capital appreciation over the
long term.
The Company has already acquired three assets which meet the investment
strategy. The Investment Manager and Asset Managers have significant experience
in the sector which should provide the Company with access to assets to
continue to meet its investment strategy going forward.
General property and investment market conditions
The Company's performance depends to a significant extent on property values in
the UK. An overall downturn in the UK property market and the availability of
credit to the UK property sector may have a materially adverse effect upon the
value of the property owned by the Company and ultimately upon the net asset
value and the ability of the Company to generate revenues.
The Investment Manager provides the Board with quarterly updates on the student
accommodation market and senior debt market to act as an early warning signal
of any adverse market conditions ahead.
Property valuation
The valuation of the Company's property portfolio is inherently subjective, in
part because all property valuations are made on the basis of assumptions which
may not prove to be accurate, and because of the individual nature of each
property. This is particularly so where there has been more limited
transactional activity in the market against which the Company's property
valuations can be benchmarked by the Company's external valuation agents.
Valuations of the Company's investments may not reflect actual sale prices,
even where any such sales occur shortly after the relevant valuation date.
The Company can invest in properties through investments in various
property-owning vehicles, and may in the future utilise a variety of investment
structures for the purpose of investing in property. There can be no assurance
that the value of investments made through those structures will fully reflect
the value of the underlying property.
The Company has entered into a valuation agreement with Knight Frank LLP to
provide quarterly valuations. Knight Frank is one of the largest valuers of
student accommodation in the UK and therefore has access to the maximum number
of data points to support their valuations. In addition to this, the Board of
Directors has significant experience of property valuation and its constituent
elements.
Portfolio performance
Returns achieved are reliant primarily upon the performance of the property
portfolio. The Company may experience fluctuations in its operating results due
to a number of factors, including changes in the values of investments made by
the Company, changes in the Company's operating expenses, occupancy rates, the
degree to which the Company encounters competition and general economic and
market conditions.
The Company may be subject to concentration risk on its portfolio. Whilst it is
the Board's intention for the Company to acquire additional property assets,
there can be no certainty that it will be able to do so.
The Investment Manager and Asset Managers provide the Board with quarterly
reports on asset performance. The analysis provides both the Investment Manager
and Board with the tools to adjust the Company's operational strategy in order
to maximise shareholder value.
Rental income and occupancy rates
Rental income and property values may be adversely affected by increased supply
of student accommodation and teaching facilities, the failure to collect rents,
periodic renovation costs and increased operating costs. A decrease in rental
income and/or in property values may materially and adversely impact the net
asset value and earnings of the Company.
The value of the Company's properties and, to a significant degree, the
Company's turnover, is dependent on the rental rates that can be achieved from
the properties that the Company owns. Any failure to maintain or increase the
rental rates for the Company's rooms and properties generally may have a
material adverse effect on the value of the Company's properties as well as the
Company's turnover and its ability to service interest on its debts in the
longer term.
The Company may not be able to maintain occupancy rates, which may have a
material adverse impact on the Company's revenue performance, margins and asset
values.
The Investment Manager will only propose to the Board those assets which it
believes are in the most advantageous locations and benefit from large supply
and demand imbalances that can bear the entry of new competitors into the
market. In addition, the quality of assets that the Company acquires will be
amongst the best in class to minimise occupancy risk.
Dividends
The Company's investment objective includes the aim of providing shareholders
with regular, sustainable dividends payable over the long term. The
declaration, payment and amount of any future dividends by the Company are
subject to the discretion of the Directors and will depend upon, amongst other
things, the Company successfully pursuing its investment policy and its
earnings, financial position, cash requirements, level and rate of borrowings
and availability of profit, as well as the provisions of relevant laws or
generally accepted accounting principles from time to time. There is no
guarantee that any dividends will be paid in respect of any financial year or
period.
Borrowings
The Company's investment strategy may involve securing borrowing facilities to
finance additions to the Company's portfolio. It is not certain that the
Company will be able to secure such facilities. Lack of access to debt or the
utilisation of debt on more expensive terms than anticipated may adversely
affect the Company's investment returns.
While the use of borrowings should enhance the total return on the shares where
the return on the Company's underlying assets is rising and exceeds the cost of
borrowing, it will have the opposite effect where the return on the Company's
underlying assets is rising at a lower rate than the cost of borrowing or
falling, further reducing the total return on the shares. As a result, the use
of borrowings by the Company may increase the volatility of the NAV per share
and the Company's ability to pay dividends to shareholders.
The Company's borrowing policy provides for the Company to have no more than
55% gearing in the short term and 30% in the long term, thereby reducing the
volatility that changes in debt rates can have on the Company. In addition to
this, the Investment Manager provides the Board with a quarterly update on the
state of the senior debt market to ensure debt facilities are renewed well in
advance of expiration, and interest rate derivatives are used where required to
hedge fluctuations in underlying interest rates.
Taxation
The affairs of the Company are conducted so as to satisfy the conditions of
approval as a REIT.
Any change in the Company's tax status or in taxation legislation in the UK
(including a change in interpretation of such legislation) could affect the
Company's ability to achieve its investment objective or provide favourable
returns to shareholders. In particular, an increase in the rates of stamp duty
land tax could have a material impact on the value of assets acquired.
If the Company fails to remain a REIT for UK tax purposes, its profits and
gains will be subject to UK corporation tax.
The Board has ultimate responsibility for ensuring adherence to the UK REIT
regime and monitors the compliance reports provided by the Investment Manager
on potential transactions to be undertaken, the Administrator on asset levels
and the Registrar on shareholdings.
Compliance with laws or regulations
The Company and its operations are subject to laws and regulations enacted by
national and local governments and government policy. Any change in the laws,
regulations and/or government policy affecting the Company may have a material
adverse effect on the ability of the Company to successfully pursue its
investment policy and meet its investment objective and on the value of the
Company and its shares.
The Company is subject to and will be required to comply with certain
regulatory requirements that are applicable to closed-ended investment
companies that are admitted to trading on the SFM and the CISEA and listed on
the Official List of the CISEA. The Company must comply with the listing rules
of the CISEA, the London Stock Exchange Admission and Disclosure Standards and
the Disclosure and Transparency Rules. Any failure to comply with any future
changes to such rules and regulations may result in the shares being suspended
from listing on the CISEA and/or trading on the SFM. The Company is voluntarily
complying with certain of the Listing Rules of the UKLA; however, the UKLA does
not have the authority to monitor such voluntary compliance or impose sanctions
in respect of any failure of such compliance by the Company.
As announced by the Company on 10 September 2014, the Company has applied to be
delisted from the Official List of the CISEA. It is anticipated that the
delisting will take effect on 10 October 2014.
The Board has appointed Wragge Lawrence Graham & Co LLP as legal counsel,
Capita Company Secretarial Services Limited as Company Secretary and Capita
Sinclair Henderson Limited as Administrator to ensure compliance with all
relevant laws and regulations.
On behalf of the Board
Robert Peto
Chairman
16 September 2014
EXTRACTS FROM THE DIRECTORS' REPORT
Share capital
The Company was incorporated with a share capital of one ordinary share of one
pence in the capital of the Company ("ordinary shares") issued at £1.00 (nil
paid). On 21 March 2013, 100,001 restricted shares of 50 pence each were issued
at par (fully paid) and a further 100,000 ordinary shares were issued at
£1.00 per share (nil paid).
On 20 May 2013, 70,000,000 ordinary shares were issued at £1.00 each fully paid
pursuant to a placing and offer for subscription. Simultaneous to this issue,
the restricted shares were redeemed and cancelled in accordance with the
Company's articles of association. On 31 July 2013, the Company's share premium
account was cancelled in order to create distributable reserves for the payment
of dividends.
Following the result of an open offer, placing and offer for subscription by
the Company announced on 22 May 2014, the Company issued 39,810,427 ordinary
shares. These shares were admitted to trading on the SFM and CISEA on 28 May
2014. At the general meeting held on 21 March 2013, the Company was granted
authority to allot shares up to an aggregate nominal amount of £2,500,000 in
accordance with statutory pre-emption rights. Following the issue of new shares
in May 2014 and as at the date of this report, the Company may allot shares up
to an aggregate nominal amount of £2,101,895.73.
At 30 June 2014, and as at the date of this report, the Company's issued share
capital comprised 109,910,428 ordinary shares. No shares were held in treasury
at the period end.
At general meetings of the Company, shareholders are entitled to one vote on a
show of hands and on a poll, to one vote for every share held. The total voting
rights of the Company at 30 June 2014 were 109,910,428.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the annual report and financial
statements in accordance with applicable UK law and IFRS as adopted by the EU.
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they present fairly the financial position,
financial performance and cash flows of the Group for that year.
In preparing the financial statements, the Directors are required to:
* select suitable accounting policies in accordance with IAS 8: `Accounting
Policies, Changes in Accounting Estimates and Errors' and then apply them
consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with specific requirements
in IFRS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Group's
financial position and financial performance;
* state that the Group has complied with IFRS, subject to any material
departures disclosed and explained in the financial statements; and
* make judgements and estimates that are reasonable and prudent.
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 Group and enable
them to ensure that the consolidated financial statements comply with the
Companies Act 2006 and Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic report, Directors' report, Directors' remuneration report
and Corporate governance statement that comply with that law and those
regulations, and for ensuring that the annual report includes information
required by the Listing Rules of the CISEA and the Disclosure and Transparency
Rules of the UKLA. The Company is voluntarily complying with certain of the
listing rules of the UKLA.
The financial statements are published on the Company's website,
www.gcpuk.com/gcp–student–living–plc, which is maintained on behalf of the Company by the
Investment Manager. The work carried out by the Auditor does not involve
consideration of the maintenance and integrity of this website and accordingly,
the Auditor accepts no responsibility for any changes that have occurred to the
financial statements since they were initially presented on the website. Under
the investment management agreement, the Investment Manager is responsible for
the maintenance and integrity of the corporate and financial information
included on the Company's website. Visitors to the website need to be aware
that legislation in the UK covering the preparation and dissemination of the
financial statements may differ from legislation in their jurisdiction.
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with IFRS as adopted by
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
* this annual report includes a fair review of the development and
performance of the business and the position of the Group together with a
description of the principal risks and uncertainties that it faces; and
* the annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and
strategy.
On behalf of the Board
Robert Peto
Chairman
16 September 2014
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the period 30 June 2014 but is derived from those
accounts. Statutory accounts for the period 26 February 2013 to 30 June 2014
will be delivered to the Registrar of Companies in due course. The Auditor has
reported on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the Auditor drew attention by way
of emphasis without qualifying their report and (iii) did not contain a
statement under Section 498 (2) or (3) of the Act. The text of the Auditor's
report can be found in the Company's full annual report and financial
statements at www.gcpuk.com/gcp-student-living-plc.
CONSOLIDATED & COMPANY INCOME STATEMENT
For the period 26 February 2013 to 30 June 2014
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Continuing operations Note
Revenue 5 9,132 4,461
Property operating expenses 6 (1,664) (573)
Gross profit 7,468 3,888
Administration expenses 6 (1,646) (1,466)
Other costs (711) -
Operating profit before gains on investment
properties 5,111 2,422
Fair value gains on investment properties 3 5,010 1,040
Fair value gains on investments in
subsidiary companies 4 - 5,042
Operating profit 10,121 8,504
Finance income 7 6 2
Finance expenses 8 (2,418) (750)
Profit before tax 7,709 7,756
Tax charge on residual income 12 - -
Profit for the period 7,709 7,756
Earnings per share (basic and diluted) 15 10.50 10.56
(pps)
The accompanying notes below form an integral part of these financial
statements.
CONSOLIDATED & COMPANY STATEMENT OF COMPREHENSIVE INCOME
For the period 26 February 2013 to 30 June 2014
Consolidated Company
30 June 30 June
2014 2014
Notes £'000 £'000
Profit for the period 7,709 7,756
Other comprehensive income to be
reclassified to profit and loss in
subsequent periods 21 47 -
Net gains on cash flow hedges
Total comprehensive income for the period 7,756 7,756
The accompanying notes below form an integral part of these financial
statements.
CONSOLIDATED & COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2014
Consolidated Company
30 June 2014 30 June 2014
Assets Notes £'000 £'000
Non-current assets
Investment property 3 151,560 -
Investment in subsidiary companies 4 - 129,020
Retention account 956 -
152,516 129,020
Current assets
Cash and cash equivalents 22 3,629 149
Trade and other receivables 19 1,315 3,484
Derivative financial instruments 21 47 -
4,991 3,633
Total assets 157,507 132,653
Liabilities
Non-current liabilities
Interest bearing loans and borrowings 20 (39,456) -
Retention account (956) -
(40,412) -
Current liabilities
Trade and other payables 18 (2,212) (19,798)
Deferred income 18 (2,028) -
(4,240) (19,798)
Total liabilities (44,652) (19,798)
Net assets 112,855 112,855
Equity
Share capital 23 1,099 1,099
Share premium 24 39,937 39,937
Hedging reserve 47 -
Retained earnings 71,772 71,819
Total equity 112,855 112,855
Number of shares in issue 109,910,428 109,910,428
EPRA NNNAV per share (pps) 16 102.68 102.68
EPRA NAV per share (pps) 16 102.64 N/A
These financial statements were approved by the Board of Directors of
GCP Student Living plc on 16 September 2014 and signed on its behalf by:
Robert Peto
Chairman
Company number: 08420243
The accompanying notes below form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period 26 February 2013 to 30 June 2014
Share Share Hedging Retained
capital premium reserve earnings Total
£'000 £'000 £'000 £'000 £'000
Profit for the period - - - 7,709 7,709
Other comprehensive income
that may be reclassified
subsequently to profit and
loss
Net gains on cash flow
hedges - - 47 - 47
Total comprehensive income - - 47 7,709 7,756
Ordinary shares issued 1,099 111,001 - - 112,100
Share issue costs - (3,706) - - (3,706)
Share premium cancelled on
31 July 2013 - (67,358) - 67,358 -
Dividends - - - (3,295) (3,295)
Balance at 30 June 2014 1,099 39,937 47 71,772 112,855
The accompanying notes form an integral part of these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
For the period 26 February 2013 to 30 June 2014
Share Share Hedging Retained
capital premium reserve earnings Total
£'000 £'000 £'000 £'000 £'000
Profit for the period - - - 7,756 7,756
Total comprehensive income - - - 7,756 7,756
Ordinary shares issued 1,099 111,001 - - 112,100
Share issue costs - (3,706) - - (3,706)
Share premium cancelled on
31 July 2013 - (67,358) - 67,358 -
Dividends - - - (3,295) (3,295)
Balance at 30 June 2014 1,099 39,937 - 71,819 112,855
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED & COMPANY STATEMENT OF CASH FLOWS
For the period 26 February 2013 to 30 June 2014
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Cash flows from operating activities
Operating profit 10,121 8,504
Adjustments to reconcile profit for the period to
net cash flows:
Gain from change in fair value of investment
properties (5,010) (1,040)
Gain from change in fair value of subsidiary
companies - (5,042)
Increase in other receivables and prepayments (641) (733)
Increase in other payables and accrued expenses 1,473 287
Net cash flow generated from operating activities 5,943 1,976
Cash flows from investing activities
Acquisition of investment properties (35,221) (35,221)
Acquisition of subsidiaries, net of cash acquired (51,817) (51,817)
Net cash used in investing activities (87,038) (87,038)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 112,100 112,100
Share issue costs (3,706) (3,706)
Loan arrangement fees (655) -
Received from subsidiary companies - 13,386
Loan received for acquisition of subsidiary 14,866 -
Part repayment of initial loan (32,645) (32,645)
Finance income 6 2
Finance expenses (2,066) (750)
Dividends paid in the period (3,176) (3,176)
Net cash flow generated from financing activities 84,724 85,211
Net increase in cash and cash equivalents 3,629 149
Cash and cash equivalents at start of the period - -
Cash and cash equivalents at end of the period 3,629 149
The accompanying notes form an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 26 FEBRUARY 2013 TO
30 JUNE 2014
1. General information
GCP Student living plc is a closed-ended investment company incorporated in the
UK on 26 February 2013. The registered office of the Company is located at
Beaufort House, 51 New North Road, Exeter EX4 4EP. The Company's shares are
admitted to trading on the SFM and the CISEA and are listed on the Official
List of the CISEA.
Audited initial accounts for the period 26 February 2013 to 30 September 2013
have been filed with the registrar of companies.
2. Basis of preparation
These financial statements are prepared in accordance with International
Financial Reporting Standards ("IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union. The financial
statements have been prepared under the historical cost convention, except for
investment property, investments in subsidiaries and derivative financial
instruments that have been measured at fair value. The audited financial
statements are presented in sterling and all values are rounded to the nearest
thousand pounds (£'000), except when otherwise indicated.
The Group has chosen to adopt the EPRA best practice guidelines for calculating
key metrics such as net asset value and earnings.
2.1 Changes to accounting standards and interpretations
The following accounting standards and their amendments were in issue at the
period end but will not be in effect until after this financial period. They
are not expected to impact significantly the financial statements.
IAS 27 Separate Financial Statements (as amended in 2011) - amendments for
investment entities (effective for annual periods beginning on or after
1 January 2014).
IAS 32 Financial Instruments: Presentation - amendments to application guidance
on the offsetting of financial assets and financial liabilities (effective for
annual periods beginning on or after 1 January 2014).
IFRS 10 Consolidated Financial Statements - amendments for investment entities
(effective for annual periods beginning on or after 1 January 2014).
IFRS 12 Disclosure of Interests in Other Entities - amendments for investment
entities (effective for annual periods beginning on or after 1 January 2014).
The following new standards and amendments to existing standards have been
published and are mandatory for the Group's accounting periods beginning after
1 January 2014 or later periods, but the group has not decided not to early
adopt them.
IFRS 11 Joint Arrangements - amendments regarding the accounting for
acquisitions of an interest in a joint operation (effective for annual periods
beginning on or after 1 January 2016).
IFRS 14 Regulatory Deferral Accounts (effective for annual periods beginning on
or after 1 January 2016)
IFRS 15 Revenue from Contracts (effective for annual periods beginning on or
after 1 January 2017).
IFRS 9 Financial Instruments (effective for annual periods beginning on or
after 1 January 2018).
The Group does not expect that the adoption of new accounting standards issued
but not yet effective to have a significant impact on its financial statements
other than IFRS 10 Consolidated Financial Statements on adoption of which the
Group may be required to consolidate certain funds that are managed by the
Group.
2.2 Significant accounting judgements and estimates
The preparation of these audited financial statements in accordance with IFRS
requires the Directors of the Company to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial
statements. However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying amount of
the asset or liability in the future.
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.
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment
property portfolio. The Group has determined, based on evaluation of the terms
and conditions of the arrangements, such as the lease term not constituting a
substantial portion of the economic life of the commercial property, that it
retains all the significant risks and rewards of ownership of these properties
and accounts for the contracts as operating leases.
Valuation of property
The valuations of the Group's investment property are at fair value as
determined by the external valuer on the basis of market value in accordance
with the internationally accepted Royal Institution of Chartered Surveyors
("RICS") Valuation - Professional Standards January 2014 (incorporating the
International Valuation Standards) and in accordance with IFRS 13.
Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Company has the resources to continue
in business for the foreseeable future. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern. Therefore, the financial
statements have been prepared on the going concern basis.
2.3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial
statements are set out below.
a. Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Group and its subsidiaries as at 30 June 2014. Subsidiaries are consolidated
from the date of acquisition, being the date on which the Group obtained
control, and will continue to be consolidated until the date that such control
ceases. Control comprises the power to govern the financial and operating
policies of the investee so as to obtain benefit from its activities and is
achieved through direct or indirect ownership of voting rights. In preparing
the financial statements, intra-group balances, transactions and unrealised
gains or losses have been eliminated in full. Uniform accounting policies are
adopted in the financial statements for like transactions and events in similar
circumstances.
b. Business combinations
Where property is acquired, via corporate acquisitions or otherwise, management
considers the substance of the assets and activities of the acquired entity in
determining whether the acquisition represents the acquisition of a business.
Where such acquisitions are not judged to be an acquisition of a business, they
are not treated as business combinations. Rather, the cost to acquire the
corporate entity is allocated between the identifiable assets and liabilities
of the entity based on their relative fair values at the acquisition date.
Accordingly, no goodwill or additional deferred taxation arises. Otherwise,
acquisitions are accounted for as business combinations.
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree.
For each business combination, the acquirer measures the non-controlling
interest in the acquiree either at fair value of the proportionate share of the
acquiree's identifiable net assets. Acquisition costs (except for costs of
issue of debt or equity) are expensed in accordance with IFRS 3 Business
Combinations.
When the Group acquires a business, it assesses the financial assets and
liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
Contingent consideration is deemed to be equity or a liability in accordance
with IAS 32. If the contingent consideration is classified as equity, it is not
re-measured and its subsequent settlement shall be accounted for within equity.
If the contingent consideration is classified as a liability, subsequent
changes to the fair value are recognised either in profit or loss or as a
change to other comprehensive income.
c) Functional and presentation currency
The overall objective of the Group is to generate returns in Sterling and the
Group's performance is evaluated in Sterling. Therefore, the Directors consider
Sterling as the currency that most faithfully represents the economic effects
of the underlying transactions, events and conditions and have therefore
adopted it as the functional and presentation currency.
d) Investment property
Investment property comprises property held to earn rental income or for
capital appreciation or both. Investment property is measured initially at cost
including transaction costs. Transaction costs include transfer taxes and
professional fees to bring the property to the condition necessary for it to be
capable of operating. The carrying amount also includes the cost of replacing
part of an existing investment property at the time that cost is incurred if
the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value.
Gains or losses arising from changes in the fair values are included in the
income statement in the period in which they arise under IAS 40 Investment
property.
The determination of the fair value of investment property requires the use of
estimates such as future cash flows from assets (from lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and discount rates applicable to those assets.
Gains or losses on the disposal of investment property are determined as the
difference between net disposal proceeds and the carrying value of the asset.
e) Investment in subsidiary companies
All investments are designated upon initial recognition as held at fair value
through profit or loss, and are measured at subsequent reporting dates at fair
value. In the Company's financial statements, investments in subsidiary
companies which are 100% owned by the Company are valued at net asset value.
Changes in fair value of investments and gains on the sale of investments are
recognised as they arise in the income statement.
f) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and short-term deposits with an
original maturity of three months or less.
g) Rent and other receivables
Rent and other receivables are recognised at their original invoiced value.
Where the time value of money is material, receivables are carried at amortised
cost. Provision is made when there is objective evidence that the Group will
not be able to recover balances in full. Balances are written off when the
probability of recovery is assessed as being remote.
h) Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently held at amortised cost.
i) Revenue recognition
i) Rental income
Rental income receivable under operating leases is recognised on a
straight-line basis over the term of the lease, except for contingent rental
income which is recognised when it arises.
Incentives for lessees to enter into lease agreements are spread evenly over
the lease term, even if the payments are not made on such a basis. The lease
term is the non-cancellable period of the lease together with any further term
for which the tenant has the option to continue the lease, where, at the
inception of the lease, the Directors are reasonably certain that the tenant
will exercise that option. (Premiums received to terminate or extend leases are
recognised in the statement ofcomprehensive income when they arise).
ii) Interest income
Interest income is recognised on an effective interest rate basis and shown
within the income statement as finance income.
iii) Deferred income
Deferred income is rental income received in advance during the accounting
period. The income is deferred and is unwound to revenue on a straight line
basis over the period in which it is earned.
iv) Service charge income
Service charges are received to cover expenditure on hard and soft facilities
management. These are paid to the landlord and then on to the Asset Manager and
reimbursed to the Group via the Group's nominations agreement.
v) Operating segments
All of the Group's revenue and results are generated from student accommodation
provision operating in the UK.
j) Tenant deposits
Tenant deposits received which create corresponding liabilities are initially
recognised at fair value and subsequently measured at amortised cost where
material. Any difference between the initial fair value and the nominal amount
is included as a component of operating lease income and recognised on a
straight-line basis over the lease term.
k) Taxes
Corporation tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity. In certain circumstances corporation tax may be
recognised in other comprehensive income.
As a REIT, the Company is exempt from corporation tax on the profits and gains
from its property investment business, provided it continues to meet certain
conditions as per REIT regulations.
Non-qualifying profits and gains of the Company (the residual business)
continue to be subject to corporation tax. Therefore, current tax is the
expected tax payable on the non-qualifying taxable income for the year if
applicable, using tax rates enacted or substantively enacted at the balance
sheet date.
l) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at cost net of directly
attributable transaction costs. All loans and borrowings are subsequently
measured at amortised cost with interest charged to the income statement at the
effective interest rate, and shown within finance costs.
m) Dividends to shareholders
Dividends due to the Company's shareholders are recognised when they become
payable. For interim dividends this will be when they are paid and for final
dividends when approved by shareholders.
n) Derivatives and hedging
The Group uses interest rate swaps to hedge its risks associated with interest
rates. Such derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into and are
subsequently re-measured at fair value. Derivatives are carried as assets when
the fair value is positive and as liabilities when the fair value is negative.
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the
hedge. The documentation includes identification of the hedging instrument, the
hedged item or transaction, the nature of the risk being hedged and how the
Group will assess the hedging instrument's effectiveness in offsetting the
exposure to changes in the hedged item's fair value or cash flows attributable
to the hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in fair value or cash flows and are assessed on an
ongoing basis to determine that they actually have been highly effective
throughout the financial reporting periods for which they were designated.
For the purpose of hedge accounting, hedges are classified as cash flow hedges
when hedging exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognised asset or liability or a
highly probable forecast transaction.
The effective portion of the gain or loss on the hedging instrument is
recognised directly in other comprehensive income, while any ineffective
portion is recognised immediately in profit or loss. Amounts taken to other
comprehensive income are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when the hedged financial income or
financial expense is recognised or when a forecast sale occurs.
If the forecast transaction or firm commitment is no longer expected to occur,
amounts previously recognised in other comprehensive income are transferred to
profit or loss. If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation as a hedge is
revoked, amounts previously recognised in other comprehensive income remain in
equity until the forecast transaction or firm commitment occurs.
3. UK investment property
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Acquisitions arising from business combinations 53,550 -
Acquisition of property 93,000 93,000
Fair value gains on revaluation of investment 5,010 1,040
property
Investment property transferred to subsidiary - (94,040)
company
Valuation at the end of the period 151,560 -
The purchase of the property was financed by the payment of cash amounting to
£35,221,000 and the novation of an existing loan of £57,779,000.
4. Investments in subsidiary companies
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
At the beginning of the period - -
Value of assets transferred down to Subsidiary - 71,534
Purchases of subsidiary companies - 52,444
Total acquisitions - 123,978
Fair value gains on the revaluation of subsidiary
companies - 5,042
Fair value - 129,020
Purchases of subsidiary companies includes additional incidental purchase costs
of £711,000.
5. Revenue
The following table analyses rental income received in the period to 30 June
2014:
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Nomination rental income 2,360 1,116
Direct let rental income 6,107 2,525
Teaching space income 503 244
Retail space income 35 10
9,005 3,895
Income from subsidiary companies - 566
Sundry income 127 -
Total revenue 9,132 4,461
Rental income in the Company relates to income on the property Scape East,
received prior to the transfer of the property down to the subsidiary company.
6. Property operating and administration expenses
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Property operating expenses
Asset Managers' fees 901 389
Utilities 352 94
Insurance 39 34
Sales and marketing 118 56
Life cycle costs 91 -
Payroll 163 -
1,664 573
Administration expenses 1,646 1,466
Total 3,310 2,039
Directors' remuneration for the period to 30 June 2014 is shown in note 10 and
is included within administration expenses within the income statement.
7. Finance income
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Income from cash and short term deposits 6 2
Total 6 2
8. Finance expenses
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Bank charges 3 1
Swap interest 578 345
Loan interest 1,080 404
Loan arrangement fees amortised 111 -
Swap break fees 646 -
2,418 750
9. Auditor's remuneration
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Audit fee 26 26
Other services 138 138
Total 164 164
The Company reviews the scope and nature of all proposed non-audit services
before engagement, to ensure that the independence and objectivity of the
Auditor are safeguarded. The fee for the audit of the annual report and
financial statements for the period ended 30 June 2014 was £20,000. An
additional fee of £6,000 was paid in relation to the audit of the initial
accounts for the period ended 30 September 2013. During the period under
review, the Auditor provided non-audit services in relation to the reporting
accountant services for the prospectuses at the time of the Company's launch
and the acquisition of Scape Greenwich. The aggregate fees for these services
were £130,000. These non-audit fees are significantly higher than the statutory
audit fees due to the work involved in the Company's IPO and the second capital
raise during the period under review. Ernst & Young LLP also provides routine
tax compliance services to the Company. The fee for these services in the
period under review was £8,300.
10. Directors' remuneration
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Mr Robert Peto 28 28
Mr Malcolm Naish 20 20
Mr Peter Dunscombe 20 20
Total 68 68
11. Staff costs
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Salaries 162 -
Other benefits 1 -
163 -
With the exception of the Directors, whose remuneration is shown in the
Directors' Remuneration Report, as at 30 June 2014 the Group employed
43 members of staff, with an average of 34 employees during the period.
12. Taxation
As a REIT, the Group's UK property rental business (both income and capital
gains) is exempt from tax. Any residual income from non-property business is
subject to corporation tax at a rate of 22.55%, representing the best estimate
of the average annual effective tax rate expected for the full year, applied to
the pre-tax income for the period. No tax charge has arisen on residual income
for the period 26 February 2013 to 30 June 2014.
13. Operating leases
The Group has entered into leases on its property portfolio. Leases are
typically direct-let agreements with individual students or higher education
institutions for the academic year or a shorter period. The Group also has a
small number or commercial leases on teaching and retail spaces and a number of
nomination agreements whereby blocks of beds are rented out for a set number of
years.
Future minimum rentals receivable under non-cancellable operating leases as at
30 June 2014 are as follows:
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Within one year 7,536 -
Between one and five years 5,157 -
More than five years 10,411 -
Total 23,104 -
14. Dividends
30 June
Pence 2014
Consolidated and Company per share £'000
For the period ended 30 June 2014
First interim dividend paid on 5 December 2013 2.00 1,403
Second interim dividend paid on 5 March 2014 1.35 946
Third interim dividend paid on 5 June 2014 1.35 946
Dividends paid during the period 4.70 3,295
Fourth interim dividend paid on 5 September 2014 1.40 1,539
Total 6.10 4,834
As a REIT, the Company is required to pay PIDs equal to at least 90% of the
Group's exempted income after deduction of withholding tax at the basic rate
(currently 20%). The entire £4.8 million cash dividend payable for the period
from 26 February 2013 to 30 June 2014 was attributable to PIDs.
15. Earnings per share
Basic earnings per share ("EPS") amounts are calculated by dividing profit for
the period attributable to ordinary shareholders of the Company by the weighted
average number of ordinary shares during the period. As there are no dilutive
instruments outstanding, basic and diluted earnings per share are identical.
Weighted 30 June
average 2014
Profit number of Pence per
£'000 shares share
Earnings per share Group 7,709 73,425,688 10.50
Earnings per share Company 7,756 73,425,688 10.56
Weighted average number of shares Shares in Weighted
issue Days average
Issue on admission to trading on the SFM
on 20 May 2013 70,100,001 373 64,243,981
Following issue to trading on the SFM
on 28 May 2014 109,910,428 34 9,181,707
109,910,428 407 73,425,688
The EPRA EPS may be calculated as:
30 June
2014
£'000
Group Earnings for basic EPS 7,709
Fair value gains on investment properties (5,010)
Fair value movement on financial derivatives (47)
Associated close out fees on financial derivatives 646
Group Earnings for EPRA EPS 3,298
Pence per share
Group EPRA EPS 4.49
16. Net asset value per share (NAV)
Basic NAV per share amounts are calculated by dividing net assets in the
statement of financial position attributable to ordinary equity holders of the
Company by the number of ordinary shares outstanding during the period. As
there are no dilutive instruments outstanding, basic and diluted NAV per share
are identical. The following reflects the net asset and share data used in the
basic and diluted NAV per share computations:
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Net assets attributable to Ordinary shareholders
(for calculation of EPRA NNNAV) 112,855 112,855
Financial derivative (47) -
Adjusted net assets for calculation of EPRA NAV 112,808 112,855
Number of shares in issue 109,910,428 109,910,428
Pence per Pence per
share share
EPRA NNNAV 102.68 102.68
EPRA NAV 102.64 N/A
17. Business combinations
The financial statements comprise the financial statements of the Company and
its subsidiaries, GCP Scape East Limited, GCP Operations Limited, Ternion
Danehurst Limited and Leopard Guernsey Greenwich JV Limited, for the period
from 26 February 2013 to 30 June 2014.
All subsidiaries are domiciled in the UK except for Leopard Guernsey Greenwich
JV Limited, which is domiciled in Guernsey.
Company and Country of Number and Capital and Profit after
business registration, class of reserves at tax for the
incorporation share held 30 June period ended
and operation by the Group 2014 30 June 2014
Group holding £'000 £'000
GCP Scape East UK 2 Ordinary 100% 76,067 4,533
Limited shares
Ternion Danehurst UK 2 Ordinary 100% 12,958 1,411
Limited shares
Leopard Guernsey Guernsey 101 Ordinary 100% 40,162 603
Greenwich JV shares
Limited
GCP Operations UK 2 Ordinary 100% (167) (167)
Limited shares
Subsidiaries are fully consolidated from the date of acquisition, being the
date on which the Group obtained control, and will continue to be consolidated
until the date when such control ceases. 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,
unrealised gains and losses resulting from intra-group transactions and
distributions are eliminated in full. As at 30 June 2014, the Company owns 100%
of the issued share capital of all subsidiaries.
GCP Scape East Limited was incorporated on 15 November 2013, with 2 shares
issued to the Company at £1 per share. On 2 December 2013, the Group obtained
control of Ternion Danehurst Limited, by acquiring 100% of the issued share
capital. On 29 May 2014, the group obtained control of Leopard Guernsey
Greenwich JV Limited, by obtaining 100% of the issued share capital. The
principal activity of GCP Scape East Limited, Ternion Danehurst Limited and
Leopard Guernsey Greenwich JV Limited is the provision of student accommodation
in line with the Group's investment strategy. GCP Scape East Limited, Ternion
Danehurst Limited and Leopard Guernsey Greenwich JV Limited were acquired in
order to provide Group shareholders with sustained long-term distributions with
the potential for modest capital appreciation over the long term and RPI
inflation-linked income characteristics. GCP Operations Limited was
incorporated on 26 March 2014 and holds the employment contracts of the
employees engaged in facilities and asset management on behalf of the Company.
The fair value of identifiable assets and liabilities of Ternion Danehurst
Limited upon acquisition at 2 December 2013 and of Leopard Greenwich Guernsey
JV Limited upon acquisition at 29 May 2014 were:
Ternion Leopard Greenwich
Danehurst Guernsey JV
Limited Limited Total
£'000 £'000 £'000
Assets
Investment properties 13,030 40,520 53,550
Trade receivables - 675 675
13,030 41,195 54,225
Liabilities
Trade payables - 592 592
Deferred rental income 650 522 1,172
Retention account 82 515 597
Corporation tax provision 125 6 131
857 1,635 2,492
Total identifiable net 12,173 39,560 51,733
assets at fair value
Purchase consideration 12,173 39,560 51,733
Analysis of cash flows on
acquisition:
Cash consideration 12,173 39,560 51,733
Less: cash and cash - (1) (1)
equivalents acquired
12,173 39,559 51,732
Ternion Danehurst Limited contributed £700,000 to revenue and £545,000 to the
Group's profit for the period between the date of acquisition and the statement
of financial position date. Leopard Guernsey Greenwich JV Limited contributed
£213,000 to revenue and £154,000 to the Group's profit for the period between
the date of acquisition and the statement of financial position date. If the
combinations had taken place at the beginning of the period, the Group's profit
for the period would have been £10,558,000 and revenue (rental income) would
have been £11,786,000.
Contingent liability
As discussed in note 29, as part of the sale and purchase agreement for Leopard
Guernsey Greenwich JV Limited, an amount of contingent consideration has been
agreed. An additional cash payment is payable to the previous owners of Leopard
Guernsey Greenwich JV Limited of £301,000 provided the property achieves 97%
occupancy by 8 September 2014, being the end of the 2013/2014 academic year.
As at 30 June 2014, the key performance indicators of Leopard Guernsey
Greenwich JV Limited show that it is not probable that the target will be
achieved and therefore no liability has been included in the financial
statements.
18. Other payables and accrued expenses
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Deferred income 2,028 -
Property operating expenses payable 802 -
Finance expense payable 241 -
Amounts due to subsidiary companies - 18,756
Other expenses payable 1,169 1,042
Total 4,240 19,798
19. Trade and other receivables
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Prepayments 219 159
Landscaping cost recovery 284 -
Rent receivable 434 -
Amounts receivable from subsidiary companies - 3,325
Other receivables 378 -
Total 1,315 3,484
20. Interest bearing loans and borrowings
Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Initial loan transferred on the acquisition of Scape
East on 20 May 2013 57,779 57,779
Part repayment of initial loan (32,645) (32,645)
Loan transferred to subsidiary company - (25,134)
Further loan drawn down following acquisition of
Ternion Danehurst Limited on 2 December 2013 13,500 -
Further loan drawn down following acquisition of
Leopard Guernsey Greenwich JV Limited on 29 May 2014 1,366 -
Total loans drawn down 40,000 -
Loan arrangement fees (655) -
Loan arrangement fees amortised to date 111 -
39,456 -
During the period from 26 February 2013 to 30 June 2014, loans were drawn down
under the Group's existing debt facility to the sum of £40 million. An initial
loan of £57.7 million was transferred to the company on the acquisition of the
property Scape East on 20 May 2013 of which £32.6 million was repaid on 23 May
2013. An additional loan of £13.5 million was drawn down on 2 December 2013 to
finance the acquisition of Ternion Danehurst Limited and a further loan of
£1.4 million was drawn down on 29 May 2014 to cover the costs of acquisition in
relation to Scape Greenwich. The facility is due to be fully repaid on 20 April
2019.
At 30 June 2014, the interest rate on the loans of £25.1 million and
£13.5 million was 3.027% with the interest rate on the loan of £1.4 million being
3.004%.
The group uses gearing to enhance returns over the long term. The level of
gearing is governed by careful consideration of the cost of borrowing and the
Group uses hedging or otherwise seeks to mitigate the risk of interest rate
increases. Gearing, represented by borrowings as a percentage of gross assets,
will not exceed 55% at the time of investment. It is the Directors' current
intention to target gearing of less than 30% of gross assets in the long term
and to comply with the REIT condition relating to the ratio between the Group's
`property profits' and `property finance costs'.
The debt facility includes loan-to-value of and interest cover covenants that
are measured at a Group level and the Group has maintained significant headroom
against all measures throughout the financial period. The Group is in full
compliance with all loan covenants at 30 June 2014.
21. Financial derivatives and hedging
30 June
Hedged 2014
amount Pay fixed Receive 3M Total
Consolidated only £'000 rate LIBOR Maturity £'000
Interest rate swap at
fair value 20,000 1.440% 0.5090% 02/05/2017 47
Fair value of financial derivatives 47
Cash flow hedges
The Group has entered into interest rate swap contracts with notional amounts
of £20m whereby it pays a fixed rate of interest of 1.440% and receives a
variable rate based on 3 month LIBOR on the notional amount. The swap is used
to hedge the exposure to the variable interest rate payments on the variable
rate element of the Company's secured loans.
Cash flows are expected to occur between the reporting date and May 2017 and
will be recognised through profit or loss at that time.
The fair value of the interest rate swap at the end of the reporting period was
an asset of £47,000.
Derivatives are classified in Level 2 in the fair value hierarchy under IFRS
13.
22. Cash and cash equivalents Consolidated Company
30 June 30 June
2014 2014
£'000 £'000
Cash and cash equivalents 149 149
Subsidiary cash and cash equivalents 3,480 -
3,629 149
23. Share capital
30 June
2014
Consolidated and Company £'000
Issued and fully paid:
At 26 February 2013
1 ordinary share of £0.01 -
Issued during period
109,910,427 ordinary shares of £0.01 each 1,099
1,099
The share capital comprises one class of ordinary shares. At general meetings
of the Company, shareholders are entitled to one vote on a show of hands and on
a poll, to one vote for every share held. There are no restrictions on the size
of a shareholding or the transfer of shares, except for the UK REIT
restrictions.
24. Share premium
30 June
2014
£'000
Consolidated and Company
Issued on admission to trading on the SFM and the CISEA on
20 May 2013 69,399
Share issue costs at 20 May 2013 (1,921)
Share premium cancelled on 31 July 2013 (67,358)
Issued on 28 May 2014 41,602
Share issue costs at 28 May 2014 (1,785)
Balance at 30 June 2014 39,937
25. Fair value
IFRS 13 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The following methods and assumptions
were used to estimate the fair values.
Cash and short-term deposits, trade receivables, trade payables, and other
current liabilities approximate their carrying amounts due to the short-term
maturities of these instruments.
The fair values of the derivative interest rate swap contracts are estimated by
discounting expected future cash flows using current market interest rates
yield curves and performance risk over the remaining term of the instrument.
Valuation of investment property is performed by Knight Frank LLP, an
accredited external valuer with recognised and relevant professional
qualifications and recent experience of the location and category of the
investment property being valued, however the valuations are the ultimate
responsibility of the Directors.
The valuation of the Company's investment property at fair value is determined
by the external valuer on the basis of market value in accordance with the
internationally accepted RICS Valuation - Professional Standards (incorporating
the International Valuation Standards).
The determination of the fair value of investment property requires the use of
estimates such as future cash flows from assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and discount rates applicable to those assets.
In the Company's financial statements, investments in subsidiary companies
which are 100% owned by the Company are valued at net asset value.
The following tables shows an analysis of the fair values of financial
instruments recognised in the balance sheet by level of the fair value
hierarchy*:
Consolidated 30 June 2014
Level 1 Level 2 Level 3 Total
Assets measured at fair value £'000 £'000 £'000 £'000
Investment properties - - 151,560 151,560
Financial derivatives - 47 - 47
- 47 151,560 151,607
Company 30 June 2014
Level 1 Level 2 Level 3 Total
Financial assets at fair value £'000 £'000 £'000 £'000
Investment in subsidiaries - - 129,020 129,020
- - 129,020 129,020
* Explanation of the fair value hierarchy:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date
Level 2 - use of a model with inputs (other than quoted prices included in
level 1) that are directly or indirectly observable market data
Level 3 - use of a model with inputs that are not based on observable market
data
Sensitivity analysis to significant changes in unobservable inputs within Level
3 of the hierarchy
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the Group's portfolio
of investment property are:
* ERV
* Rental growth
* Long-term vacancy rate
* Discount rate/yield
* Specific to property under development: construction costs, lease up
period, construction period and development profit
Significant increases/(decreases) in the ERV (per sqm p.a.) and rental growth
p.a. in isolation would result in a significantly higher/(lower) fair value
measurement. Significant increases/(decreases) in the long-term vacancy rate
and discount rate (and exit or yield) in isolation would result in a
significantly lower/(higher) fair value measurement.
Generally, a change in the assumption made for the ERV (per sqm p.a.) is
accompanied by:
* a similar change in the rent growth p.a. and discount rate (and exit
yield); and
* an opposite change in the long term vacancy rate
The following table analyses:
* the fair value measurements at the end of the reporting period;
* a description of the valuation techniques applied;
* the inputs used in the fair value measurement, including the ranges of rent
charged to different units within the same building; and
* for Level 3 fair value measurements, quantitative information about
significant unobservable inputs used in the fair value measurement.
Class Fair Value Valuation Key Unobservable Range
Technique Inputs
Student £151,560,000 Income ERV £180.00-£303.75 per week
Property Capitalisation
Rental Growth 2.5%-3.0%
Tenancy Period 51 weeks
Sundry Income £100 per bed per
annum
Facilities £1,800-£1,950
Management Cost per bed per
annum
Initial Yield 5.79%-6.23%
blended
(5.34%-7.50%)
Gains and losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy amount to
£5,010,000 and are presented in the income statement in line item `fair value
gains on investment properties'.
All gains and losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy are
attributable to changes in unrealised gains or losses relating to investment
property held at the end of the reporting period.
The carrying amount of the Company's assets and liabilities, except for
investment properties, is considered to be the same as their fair value.
26. Financial risk management objectives and policies
The Company's principal financial liabilities, other than derivatives, are
loans and borrowings. The main purpose of the Company's loans and borrowings is
to finance the acquisition of the Company's property portfolio. The Company has
trade and other receivables, trade and other payables and cash and short-term
deposits that arise directly from its operations.
The Company is exposed to market risk, interest rate risk, credit risk and
liquidity risk. The Board of Directors review and agree policies for managing
each of these risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial instruments will
fluctuate because of changes in market prices. The financial instruments held
by the Company are all fixed terms at fixed rates with the floating elements
hedged on 50% of total borrowings. The Company's exposure to market risk is
limited to the remaining 50% which is not hedged.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The
Company's exposure to the risk of changes in market interest rates relates
primarily to the Company's long-term debt obligations with floating interest
rates. To manage its interest rate risk, the Group enters into interest rate
swaps to hedge the exposure to floating rate movements. At 30 June 2014, the
floating interest rate receivable on the swap was 0.5090%, whilst the swap
interest payable is fixed at a rate of 1.440%. At 30 June 2014, 50% of the
Company's floating rate borrowings were hedged.
With all other factors remaining constant, if interest rates were to increase
by 1%, profit before tax would decrease by £200,000 p.a. due to the increase in
finance costs.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under
a financial instrument or customer contract, leading to a financial loss. The
Group is exposed to credit risk from its leasing activities and its financing
activities, including deposits with banks and financial institutions and
derivatives.
Credit risk is managed by requiring tenants to pay rentals in advance. The
credit quality of the tenant is assessed based on an extensive credit rating
scorecard at the time of entering into a lease agreement. Outstanding tenants'
receivables are regularly monitored. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of financial asset.
The following table analyses the Group's exposure to credit risk for the period
ended 30 June 2014.
Consolidated Company
30 June 30 June
2014 2014
Total Total
£'000 £'000
Deposit account 956 -
Cash and cash equivalents 3,629 149
Financial derivatives 47 -
Trade and other receivables 1,315 3,484
5,947 3,633
The deposit account, cash and cash equivalents and the financial derivatives
are held with Barclays Bank plc which holds an A credit rating.
Liquidity risk
Liquidity risk is defined as the risk that the Group will encounter difficulty
in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset. Exposure to liquidity risk
arises because of the possibility that the Group could be required to pay its
liabilities earlier than expected. The Group's objective is to maintain a
balance between continuity of funding and flexibility through the use of bank
deposits and loans.
The table below summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments:
Consolidated Less
On than 3 3 to 12 1 to 5 Over
Period ended 30 June 2014 demand months months years 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Loans - 303 908 44,614 - 45,825
Deferred income - 507 1,521 - - 2,028
Trade and other payables - 1,714 498 - - 2,212
Retention account - - - 956 - 956
- 2,524 2,927 45,570 - 51,021
The disclosed amounts for financial derivatives in the above table are the net
undiscounted cash flows.
Company Less
On than 3 3 to 12 1 to 5 Over
Period ended 30 June 2014 demand months months years 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables - 1,042 - - 18,756 19,798
- 1,042 - - 18,756 19,798
27. Capital management
The primary objective of the Group's capital management is to ensure that it
remains within its quantitative banking covenants and maintains a strong credit
rating. No changes were made in the objectives, policies or processes during
the period.
The Group may use gearing to enhance returns over the long term. The level of
gearing will be governed by careful consideration of the cost of borrowing and
the group may use hedging or otherwise seek to mitigate the risk of interest
rate increases. Gearing, represented by borrowings as a percentage of gross
assets, will not exceed 55% at the time of investment. It is the Directors'
current intention to target gearing of less than 30% of gross assets in the
long term and to comply with the REIT condition relating to the ratio between
the Group's `property profits' and `property finance costs'. As at the period
end, the Group was operating with a property loan to value of 26.7%.
During the period, the Group did not breach any of its loan covenants, nor did
it default on any other of its obligations under its loan agreements.
28. Related party transactions
As defined by IAS 24 Related Party Disclosures, parties are considered to be
related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational
decisions.
Subsidiaries
GCP Student Living Plc as at 30 June 2014 owns a 100% controlling stake in
GCP Scape East Limited, Ternion Danehurst Limited, GCP Operations Limited and
Leopard Guernsey Greenwich JV Limited respectively.
The table below discloses transactions and balances between the Company and
subsidiary entities.
Company
30 June 2014
Total
Transactions during the period £'000
Assets and liabilities transferred to GCP Scape East
Limited 71,533
Income from GCP Scape East Limited 479
Income from Ternion Danehurst Limited 66
Income from Leopard Guernsey Greenwich JV Limited 22
Balances outstanding at the end of the period
Receivable from GCP Scape East Limited 479
Receivable from Ternion Danehurst Limited 1,617
Receivable from GCP Operations Limited 22
Receivable from Leopard Guernsey Greenwich JV Limited 1,607
Payable to GCP Scape East Limited (17,833)
Payable to Ternion Danehurst Limited (923)
Directors
The Directors of the Company and subsidiaries are considered to be the key
management personnel of the Group. Directors' remuneration for the period from
26 February 2013 to 30 June 2014 totalled £68,000 and at 30 June 2014, a
balance of £6,000 was outstanding. Further information is given in note 10.
Investment Manager
The Company is party to an Investment Management Agreement with the Investment
Manager, pursuant to which the Company has appointed the Investment Manager to
provide investment management services relating to the respective assets on a
day-to-day basis in accordance with their respective investment objectives and
policies, subject to the overall supervision and direction of the Board of
Directors.
For its services to the Company, the Investment Manager receives an annual fee
at the rate of 1.0% of the net asset value of the Company (or such lesser
amount as may be demanded by the Investment Manager at its own absolute
discretion). During the period from 26 February 2013 to 30 June 2014, the Group
incurred £828,550 in respect of investment management fees and expenses of
which £214,563 was outstanding at the period end.
29. Group contingent liabilities
As part of the sale and purchase agreement for Leopard Guernsey Greenwich JV
Limited, an amount of contingent consideration has been agreed. An additional
cash payment is payable to the previous owners of Leopard Guernsey Greenwich JV
Limited of £301,000 provided the property achieves 97% occupancy by 8 September
2014, being the end of the 2013/2014 academic year.
As at 30 June 2014, the key performance indicators of Leopard Guernsey
Greenwich JV Limited show that it is not probable that the target will be
achieved and therefore no liability for this item has been included in the
financial statements.
30. Events after the reporting period
There were no material events after the reporting period that require
disclosure in these financial statements.
31. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
Annual General Meeting
The Company's Annual General Meeting will be held at the offices of Wragge
Lawrence Graham & Co LLP, 4 More London Riverside, London SE1 2AU on Friday,
24 October 2014 at 12.00 noon.
The notice of this meeting can be found in the full annual report and financial
statements at www.gcpuk.com/gcp-student-living-plc.
Directors
Robert Peto (Chairman)
Peter Dunscombe
Malcolm Naish
All of the Directors are non-executive and independent of the Investment
Manager.
National Storage Mechanism
A copy of the annual report and financial statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.
GLOSSARY OF KEY TERMS
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers' Directive
Barclays Barclays Bank plc
CIL Community Infrastructure Levy
CISEA Channel Islands Securities Exchange Authority Limited
Company GCP Student Living plc
COST OF BORROWING Cost of borrowing expressed as a percentage weighted
according to period drawn down
CRM Corporate Residential Management Limited - Asset
Manager for The Pad
DEBT MATURITY Weighted average period to expiry of Group borrowings
EPRA European Public Real Estate Association
EPRA COST RATIO Total operating costs as a percentage of gross rental
income
EPRA EARNINGS PER SHARE Recurring earnings from core operational activities
excluding movements relating to revaluation of
investment properties and interest rate swaps and the
related tax effects, divided by the number of shares
in issue
EPRA NAV PER SHARE EPRA net asset value - includes all property at market
value but excludes the mark to market of interest rate
swaps
EPRA NNNAV PER SHARE As EPRA NAV but includes both debt and interest rate
swaps carried at market value
FRI Full repairing and insuring
GHG Greenhouse gas
GROUP GCP Student Living plc
HEI Higher Education Institution
HMRC HM Revenue & Customs
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO Initial public offering
LOAN-TO-VALUE Net debt expressed as a percentage of net assets
excluding net debt
NOI Margin Net operating margin expressed as a percentage and
calculated as operating profit less property operating
costs
PID Property Income Distribution
PORTFOLIO TOTAL RETURN Unleveraged weighted capital and income return of the
investment portfolio weighted by net rental income
QMUL Queen Mary University of London
REIT Real Estate Investment Trust
RHUL Royal Holloway University of London
RICS Royal Institution of Chartered Surveyors
RPI Retail price index
Scape Scape Student Living Limited - Asset Manager for Scape
East and Scape Greenwich
SFM Specialist Fund Market of the London Stock Exchange
SHAREHOLDER TOTAL Share price growth with dividend deemed to be
RETURN reinvested on the dividend date
UCAS Universities and Colleges Admissions Service
UKLA United Kingdom Listing Authority
UK Code UK Code of Corporate Governance
ENDS
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any website accessible from hyperlinks on the website (or any website) is
incorporated into, or forms part of, this announcement.
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