Half-yearly Report

GCP STUDENT LIVING PLC HALF YEARLY REPORT AND UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 26 FEBRUARY 2013 TO 31 DECEMBER 2013 GCP Student Living plc, (the "Group" or the "Company"), the only studentaccommodation real estate investment trust ("REIT") in the UK, today announcesits half year results for the financial period since incorporation on26 February 2013 to 31 December 2013. Financial Highlights * Successful initial public offering ("IPO") of the Company raised £70.1 million through the placing and offer for subscription of ordinary shares. * Shares of the Company admitted to the Specialist Fund Market of the London Stock Exchange ("SFM") and the Channel Islands Stock Exchange ("CISX") on 20 May 2013. * Dividend payments in line with target. A distribution of 2.00 pence per share was paid for the period from IPO on 20 May 2013 to 30 September 2013, and a second interim distribution of 1.35 pence per share was declared on 29 January 2014 for the three months to 31 December 2013. * Third party valuation of investments as at 31 December 2013 of £107.5 million. * Increase in economic net asset value* ("economic NAV") per share from 97.00 pence on listing to 100.29 pence as at 31 December 2013, representing a 3.40% increase on opening economic NAV. Operational Highlights * Year-on-year rental growth of the seed asset of 3.30%. * Full occupancy of the portfolio for the 2013/14 academic year. * Second property acquisition of The Pad, Royal Holloway University of London (£13 million) made in December 2013 ahead of target. * Forward Purchase Agreement for Phase 2 of The Pad signed in December 2013 for the acquisition of 100 studio bedrooms targeted for Q4 2015. Robert Peto, Chairman, commented: "The IPO of the Company was an outstanding success with new investorssubscribing for more shares than were available. The Company has performedstrongly since launch, with full occupancy having been achieved for bothproperties along with year-on-year rental growth above 3%. Going forward, theCompany is well positioned to achieve its growth and earnings targets due to anongoing supply/demand imbalance of high quality purpose built accommodation inits core markets." For more information: Gravis Capital Partners LLP Tom Ward [email protected] 020 7518 1496 Cenkos Securities plc Dion Di Miceli [email protected] 020 7397 1921Tom Scrivens [email protected] 020 7397 1915 Buchanan Charles Ryland [email protected] 020 7466 5000Sophie McNulty [email protected] * Economic NAV excludes the fair value mark-to-market valuation of theCompany's financial derivative instrument used to manage adverse effects ofinterest rate movements on the Company's debt facility. CHAIRMAN'S INTERIM STATEMENT Overview The initial public offering was oversubscribed in May 2013, with £70.1 millionraised. The total funds raised were used to acquire the seed asset, Scape East,a recently completed, high specification student accommodation scheme locateddirectly opposite Queen Mary University of London. The property houses588 studio bedrooms and c.30,000 sq ft of teaching facilities, retail space andcommunal facilities. In September 2013, Scape East commenced its second academic year with fulloccupancy for the 2013/14 academic year. The average rental period for eachcontract was 51 weeks with year-on-year rental growth of 3.3%, leading to anincrease in asset valuation of c.1.5%. The Company built on its initialacquisition by acquiring a newly built 116 bed scheme, The Pad, adjacent toRoyal Holloway University of London, in December 2013. The property is fullyoccupied for the 2013/14 academic year and was acquired through an increase inthe Company's senior debt facility with Barclays. The Company also entered intoa Forward Purchase Agreement for the acquisition of 100 studio bedroomstargeted for Q4 2015. Student numbers in the UK remain robust, with total placed applications for the2013/14 academic year 6% up on the previous year. Student applications for the2014/15 academic year at December 2013 were at the same level as the sameperiod last year. However, the number of non-EU student applications has risenby 5%, indicating an increase in potential demand for the Company's stock ofaccommodation. Financial Results * On an International Financial Reporting Standards ("IFRS") basis, operating profit for the Group's first financial period from 26 February 2013 to 31 December 2013 of £4.5 million with total comprehensive income of £2.8 million. * Earnings per share (basic and diluted) on an IFRS basis of 5.20 pence per share. * Gains on investment properties of £1.3 million due to revaluation of Scape East as at 31 December 2013, primarily due to an increase in rents during the period. * Dividends in respect of the financial period ending 31 December 2013 of £2.3 million, including a second interim dividend due to be paid to shareholders on 5 March 2014. The tables below summarise the Group's performance for the period from26 February 2013 to 31 December 2013: Income Statement 31 December 2013 £'000 Rental income 4,611 Operating expense (590) Administration expenses (759) Gains on investment properties 1,275 Operating profit 4,537 Finance costs (888) Fair value movement on financial derivatives (868) Total comprehensive income 2,781 Dividend for the period (including second interim dividendnot yet paid) 2,346 * On an IFRS basis, the Group holds investment property with a valuation of £107.5 million and cash and cash equivalents of £4.0 million. * Since IPO the economic NAV of the Group has increased from 97.00 pence per share to 100.29 pence, representing a 3.40% increase on opening economic NAV. The table below summarises the Group's net asset value as at31 December 2013: Net asset value 31 December 2013 £'000 Assets Property 107,520 Receivables 718 Cash and cash equivalents 3,969 Total assets 112,207 Liabilities Payables (2,229) Deferred income (1,906) Senior loan (38,634) Total liabilities (42,769) Net assets 69,438 Number of shares 70,100,001 Economic NAV per share 100.29p Dividends The Company paid a first interim dividend for the period since incorporation on26 February 2013 to 30 September 2013 of 2.00 pence per share. A second interimdividend for the 3 months ended 31 December 2013 of 1.35 pence was declared on29 January 2014. Both dividends were property income distributions ("PIDs") inrespect of the Group's tax exempt property rental business. Property Portfolio The valuation of the property portfolio as at 31 December 2013 was£107.5 million as compared with a valuation of £93.0 million on IPO. The£14.5 million valuation increase is made up of the £13 million acquisition of ThePad in addition to a £1.5 million increase in the value of Scape East over theperiod. The valuation of the portfolio increased by 1.6% over the 7 month 10 day periodfrom the IPO on 20 May 2013 to 31 December 2013, driven by increasing rentalrates, yields remained stable at an average 6.39%. Property Portfolio Summary at 31 December 2013: Beds Commercial Net yield Value area (sq ft) (£ million) Scape East 588 22,208 6.41% 94.5 The Pad 116 0 6.25% 13.0 Total under management 704 22,208 6.39% 107.5 Financing and Hedging At 31 December 2013, total bank borrowings were £38.6 million, producing a debtto property value of 35.9%. The Company has an interest rate swap with anotional value of £25.1 million at a rate of 2.745%, bringing the weightedaverage cost of debt to 4.461% at 31 December 2013. Both the senior debt facility and the interest rate swap mature in July 2015.The Company continues to have significant headroom on its loan-to-value andinterest cover covenants. Outlook The Company has performed strongly since IPO and is well positioned to achieveits target income and return profiles with strong occupancy and rental growthforecasted. The demand/supply imbalance in and around London is expected to continue withlimited new stock coming on stream and an increasing number of domestic and inparticular international students forecast for the forthcoming academic year. The Company has access to a pipeline of future Scape developments in additionto a forward purchase agreement over a further 100 beds at The Pad. TheInvestment Manager continues to review and source additional opportunitieswithin the investment policy and expects the number of assets under managementto increase over the course of the next 12 months. Robert PetoChairman12 February 2014 Investment Objective The Company's investment objective is to provide shareholders with regular,sustainable, long-term dividends coupled with the potential for modest capitalappreciation over the long term and RPI inflation-linked incomecharacteristics. Investment Policy The Company meets its investment objective through owning, leasing andlicensing student residential accommodation and teaching facilities to adiversified portfolio of direct let tenants and Higher Education Institutions("HEIs"). The Company invests in modern, mostly purpose built, private studentresidential accommodation and teaching facilities located primarily in andaround London where the Investment Manager believes the Company is likely tobenefit from supply and demand imbalances for student residentialaccommodation. Rental income predominantly derives from a mix of contractual arrangementsincluding direct leases and/or licences to students ("direct let agreements"),leases and/or licences to students guaranteed by HEIs and/or leases and/orlicences directly to HEIs. The Company may enter into soft nominationsagreements (pari passu marketing arrangements with HEIs to place their studentsin private accommodation) or hard nominations agreements (longer term marketingarrangements with HEIs of between two and 30 years in duration). The Company intends to focus primarily on accommodation and teaching facilitiesfor students studying at Russell Group universities, regional universities withsatellite teaching facilities in and around London and at specialist colleges. The Company can acquire properties directly or through holdings in specialpurpose vehicles and properties may be held through limited partnerships,trusts or other vehicles with third party co-investors. Borrowing and gearing policy The Company may use gearing to enhance returns over the long term. The level ofgearing will be governed by careful consideration of the cost of borrowing andthe Company may use hedging or otherwise seek to mitigate the risk of interestrate increases. Gearing, represented by borrowings as a percentage of grossassets, 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 thelong term and to comply with the REIT condition relating to the ratio betweenthe Company's `property profits' and `property finance costs'. Use of derivatives The Company may invest through derivatives for efficient portfolio management.In particular, the Company engages in interest rate hedging or otherwise seeksto mitigate the risk of interest rate increases as part of the Company'sefficient portfolio management. Investment restrictions The Company invests and manages its assets with the objective of spreading riskthrough the following investment restrictions: * the Company will derive its rental income from a portfolio of not less than 500 units; * 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. The Directors currently intend, at all times, to conduct the affairs of theCompany so as to enable it to qualify as a REIT for the purposes of Part 12 ofthe Corporation Tax Act 2010 (and the regulations made thereunder). In the event of a breach of the investment guidelines and restrictions set outabove, the Investment Manager shall inform the Directors upon becoming aware ofthe same and if the Directors consider the breach to be material, notificationwill be made to a Regulatory Information Service. No material change will be made to the investment policy without the approvalof shareholders by ordinary resolution. The Company was incorporated on 26 February 2013. The ordinary shares wereadmitted to trading on the SFM and the CISX on 20 May 2013. The important events that have occurred during the period under review, the keyfactors influencing the consolidated financial statements and the principalrisks and uncertainties for the remaining six months of the financial periodare set out in the above Chairman's Interim Statement and below. PRINCIPAL RISKS AND UNCERTAINTIES The principal financial risks and the Company's policies for managing theserisks and the policy and practice with regard to financial instruments aresummarised in note 13 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 beachieved. The Company is a REIT which invests in student residentialaccommodation. The Company will focus primarily on accommodation and teachingfacilities for students studying at universities and specialist colleges in andaround London. The Company's investment objective includes the aim of providing shareholderswith modest capital appreciation over the long term. The amount of any capitalappreciation will depend upon, amongst other things, the Company successfullypursuing 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 thelong term. The Company has already acquired two assets which meet the investment strategy.The Investment Manager and Asset Manager have significant experience in thesector which should provide the Company with access to assets to meet itsinvestment strategy going forward. General property and investment market conditions The Company's performance depends to a significant extent on property values inthe UK. An overall downturn in the UK property market and the availability ofcredit to the UK property sector may have a materially adverse effect upon thevalue of the property owned by the Company and ultimately upon the net assetvalue and the ability of the Company to generate revenues. The Investment Manager provides the Board with quarterly updates on the stateof the student accommodation market and senior debt market to act as an earlywarning signal of any adverse market conditions ahead. Property valuation The valuation of the Company's property portfolio is inherently subjective, inpart because all property valuations are made on the basis of assumptions whichmay not prove to be accurate, and because of the individual nature of eachproperty. This is particularly so where there has been more limitedtransactional activity in the market against which the Company's propertyvaluations can be benchmarked by the Company's independent third-partyvaluation agents. Valuations of the Company's investments may not reflectactual sale prices even where any such sales occur shortly after the relevantvaluation date. The Company can invest in properties through investments in variousproperty-owning vehicles, and may in the future utilise a variety of investmentstructures for the purpose of investing in property. There can be no assurancethat the value of investments made through those structures will fully reflectthe value of the underlying property. The Company has entered into a valuation agreement with Knight Frank LLP toprovide quarterly valuations. Knight Frank is one of the largest valuers ofstudent accommodation in the United Kingdom and therefore has access to themaximum number of data points to support their valuations. In addition to this,the Board of Directors has significant experience of property valuation and itsconstituent elements. Portfolio performance Returns achieved are reliant primarily upon the performance of the propertyportfolio. The Company may experience fluctuations in its operating results dueto a number of factors, including changes in the values of investments made bythe Company, changes in the Company's operating expenses, occupancy rates, thedegree to which the Company encounters competition and general economic andmarket conditions. The Company may be subject to concentration risk on its portfolio. Whilst it isthe 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 Manager provide the Board with quarterlyreports on asset performance. The analysis provides both the Investment Managerand Board with the tools to adjust its operational strategy in order tomaximise shareholder value. Rental income and occupancy rates Rental income and property values may be adversely affected by increased supplyof student accommodation and teaching facilities, the failure to collect rents,periodic renovation costs and increased operating costs. A decrease in rentalincome and/or on property values may materially and adversely impact the netasset value and earnings of the Company. The value of the Company's properties and, to a significant degree, theCompany's turnover, is dependent on the rental rates that can be achieved fromthe properties that the Company owns. Any failure to maintain or increase therental rates for the Company's rooms and properties generally may have amaterial adverse effect on the value of the Company's properties as well as theCompany's turnover and its ability to service interest on its debts in thelonger term. The Company may not be able to maintain occupancy rates, which may have amaterial adverse impact on the Company's revenue performance, margins and assetvalues. The Investment Manager will only propose to the Board those assets which itbelieves are in the most advantageous locations and benefit from large supplyand demand imbalances that can bear the entry of new competitors into themarket. In addition, the quality of assets that the Company acquires will beamongst the best in class to minimise occupancy risk. Dividends The Company's investment objective includes the aim of providing shareholderswith regular, sustainable dividends payable over the long term. Thedeclaration, payment and amount of any future dividends by the Company aresubject to the discretion of the Directors and will depend upon, amongst otherthings, the Company successfully pursuing its investment policy and itsearnings, financial position, cash requirements, level and rate of borrowingsand availability of profit, as well the provisions of relevant laws orgenerally accepted accounting principles from time to time. There is noguarantee that any dividends will be paid in respect of any financial year orperiod. Borrowings The Company's investment strategy may involve securing borrowing facilities tofinance additions to the Company's portfolio. It is not certain that suchfacilities will be able to be secured. Lack of access to debt or theutilisation of debt on more expensive terms than anticipated may adverselyaffect the Company's investment returns. While the use of borrowings should enhance the total return on the shares wherethe return on the Company's underlying assets is rising and exceeds the cost ofborrowing, it will have the opposite effect where the return on the Company'sunderlying assets is rising at a lower rate than the cost of borrowing orfalling, further reducing the total return on the shares. As a result, the useof borrowings by the Company may increase the volatility of the NAV per shareand the Company's ability to pay dividends to shareholders. The prospectus provides for the Company to have no more than 55% gearing in theshort term and 30% in the long term, thereby reducing the volatility thatchanges in debt rates can have on the Company. In addition to this, theInvestment Manager provides the Board with a quarterly update on the state ofthe senior debt market to ensure debt facilities are renewed well in advance ofexpiration, and interest rate derivatives are used where required to hedgefluctuations in underlying interest rates. Taxation The affairs of the Company are conducted so as to satisfy the conditions ofapproval 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 theCompany's ability to achieve its investment objective or provide favourablereturns to shareholders. In particular, an increase in the rates of stamp dutyland tax could have a material impact on the price at which UK land can beacquired. If the Company fails to remain a REIT for UK tax purposes, its profits andgains will be subject to UK corporation tax. The Board has ultimate responsibility for ensuring adherence and monitors thecompliance reports provided by the Investment Manager on potential transactionsto be undertaken, the Administrator on asset levels and the Registrar onshareholdings. Compliance with laws or regulations The Company and its operations are subject to laws and regulations enacted bynational and local governments and government policy. Any change in the laws,regulations and/or government policy affecting the Company may have a materialadverse effect on the ability of the Company to successfully pursue itsinvestment policy and meet its investment objective and on the value of theCompany and the shares. The Company is subject to and will be required to comply with certainregulatory requirements that are applicable to closed-ended investmentcompanies that are admitted to trading on the SFM and the CISX and listed onthe Official List of the CISX. The Company must comply with the listing rulesof the CISX, the London Stock Exchange Admission and Disclosure Standards andthe Disclosure and Transparency Rules. Any failure in future to comply with anyfuture changes to such rules and regulations may result in the shares beingsuspended from listing on the CISX and/or trading on the SFM. The Alternative Investment Fund Managers' Directive is now in force and it islikely that there will be an increase, potentially a material increase, in theCompany's governance, administration and custodian expenses as a result of itsimplementation. The Board has appointed Lawrence Graham as legal counsel, and Capita as CompanySecretary and Administrator to ensure compliance with all laws and regulations. DIRECTORS' STATEMENT OF RESPONSIBILITIES IN RESPECT OF THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS The Directors confirm that to the best of their knowledge: * the Half Yearly Report and Unaudited Condensed set of Consolidated Financial Statements has been prepared in accordance with IAS 34 `Interim Financial Reporting' issued by the International Accounting Standards Board, except for the requirement to include prior period comparatives as this is the Company's first financial period since incorporation. * the Half Yearly Report and Unaudited Condensed Consolidated Financial Statements give a true and fair view of the assets, liabilities and financial position of the Company; and * the Half Yearly Report and Unaudited Condensed Consolidated Financial Statements includes a fair review of the information required by: a. 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first ten months of the financial year and their impact on the Unaudited Condensed set of Consolidated Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b. 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first ten months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions that could do so. The Half Yearly Report and Unaudited Condensed Consolidated FinancialStatements were approved by the Board of Directors on 12 February 2014 and theabove responsibility statement was signed on its behalf by Robert Peto,Chairman, on the same date. UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTFor the period 26 February to 31 December 2013 31 December 2013 £'000 Unaudited Continuing operations Note Revenue 4,569 Property operating expenses (590) Gross profit 3,979 Other operating income 42 Administration expenses (759) Operating profit before gains on 3,262investment properties Fair value gains on investment properties 3 1,275 Operating profit 4,537 Finance income 3 Finance costs (891) Profit before tax 3,649 Tax charge 4 - Profit for the period 3,649 Earnings per share (basic and diluted) 5.20(pps) UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the period 26 February to 31 December 2013 31 December 2013 £'000 Unaudited Profit for the period 3,649 Other comprehensive income Fair value movement in financialderivatives 9 (868) Total comprehensive income for the period 2,781 The accompanying notes form an integral part of theseUnaudited Condensed Consolidated Financial Statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENTOF FINANCIAL POSITIONAs at 31 December 2013 31 December 2013 £'000Assets Note Unaudited Non-current assets Investment property 3 107,520 Deposit account 429 107,949 Current assets Cash and cash equivalents 3,540 Trade and other receivables 718 4,258 Total assets 112,207 Liabilities Non-current liabilities Interest bearing loans and borrowings 8 (38,634) Deposit account (429) (39,063) Current liabilities Trade and other payables (932) Deferred income 2 (1,906) Derivative financial instruments 9 (868) (3,706) Total liabilities (42,769) Net assets 69,438 Equity Share capital 10 701 Hedging reserve 9 (868) Retained earnings 69,605 Total equity 69,438 Number of shares in issue 70,100,001 NAV per share including CPR* (pps) 99.06 Economic NAV per share (pps) 100.29 * Current period revenue The accompanying notes form an integral part of theseUnaudited Condensed Consolidated Financial Statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the period 26 February to 31 December 2013 Share Share Hedging Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 Profit for the period - - - 3,649 3,649 Other comprehensive income Fair value movement on - - (868) - (868)financial derivative Total comprehensive income - - (868) 3,649 2,781 Ordinary shares issued 701 69,399 - - 70,100 Share issue costs - (2,041) - - (2,041) Share premium cancelled on 31 - (67,358) - 67,358 -July 2013 Dividends - - - (1,402) (1,402) Balance at 31 December 2013 701 - (868) 69,605 69,438 The accompanying notes form an integral part of theseUnaudited Condensed Consolidated Financial Statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the period 26 February to 31 December 2013 31 December 2013 £'000 Unaudited Cash flows from operating activities Operating profit 4,538 Adjustments to reconcile profit for the period to net cashflows: Gain from change in fair value of investment properties (1,490) Increase in other receivables and prepayments (718) Increase in other payables and accrued expenses 2,362 Net cash flow generated from operating activities 4,692 Cash flows from investing activities Payments on investment properties (35,221) Acquisition of subsidiary (13,030) Net cash used in investing activities (48,251) Cash flows from financing activities Proceeds from issue of ordinary share capital 70,100 Share issue costs (2,041) Loan received for acquisition of subsidiary 13,500 Part repayment of initial loan (32,645) Net financing costs (600) Dividends paid in the period (1,215) Net cash flow generated from financing activities 47,099 Increase in cash and cash equivalents 3,540 Cash and cash equivalents at start of period - Cash and cash equivalents at end of the period 3,540 The accompanying notes form an integral part of theseUnaudited Condensed Consolidated Financial Statements. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THEPERIOD FROM 26 FEBRUARY 2013 TO 31 DECEMBER 2013 1. General information GCP Student living plc is a REIT incorporated in the UK on 26 February 2013.The registered office of the Company is located at 51 Beaufort House, New NorthRoad, Exeter EX4 4EP. The Company's shares are admitted to trading on the SFMand the CISX and are listed on the Official List of the CISX. The financial information contained in the Half Yearly Report and UnauditedCondensed Consolidated Financial Statements does not constitute statutoryfinancial statements as defined in Section 434 of the Companies Act 2006. Thefinancial statements for the period 26 February 2013 to 31 December 2013 havenot been audited or reviewed by the Company's Auditor. As this is the Company'sfirst accounting period, annual statutory financial statements have not yetbeen filed with the Registrar of Companies. Audited Initial Accounts for theperiod 26 February 2013 to 30 September 2013 have been filed with the Registrarof Companies. 2. Basis of preparation These Unaudited Condensed Consolidated Financial Statements are prepared inaccordance with IFRS and interpretations issued by the International AccountingStandards Board ("IASB") as adopted by the European Union and IAS 34 `InterimFinancial Reporting' issued by the IASB, except for the requirement to includeprior period comparatives as this is the Company's first financial period sinceincorporation. The Unaudited Condensed Consolidated Financial Statements have been preparedunder the historical cost convention, except for investment property andderivative financial instruments that have been measured at fair value. TheUnaudited Condensed Consolidated Financial Statements are presented in Sterlingand all values are rounded to the nearest thousand pounds (£'000), except whenotherwise indicated. 2.1 Changes to accounting standards and interpretations The following accounting standards and their amendments were in issue at theperiod end but will not be in effect until after this financial period. Theyare not expected to significantly impact the financial statements. IAS 27 Separate Financial Statements (as amended in 2011) - previously IAS 27Consolidated and Separate Financial Statements (effective for annual periodsbeginning on or after 1 July 2013). IAS 28 Investments in Associates and Joint Ventures (as amended in 2011) -previously IAS 28 Investments in Associates (effective for annual periodsbeginning on or after 1 July 2013). IAS 32 Financial Instruments: Presentation - amendments to application guidanceon the offsetting of financial assets and financial liabilities (effective forannual periods beginning on or after 1 January 2014). IFRS 10 Consolidated Financial Statements (effective for annual periodsbeginning on or after 1 January 2014). IFRS 11 Joint Arrangements (effective for annual periods beginning on or after1 January 2014). IFRS 12 Disclosure of Interests in Other Entities (effective for annual periodsbeginning on or after 1 January 2014). 2.2 Significant accounting judgements and estimates The preparation of these Unaudited Condensed Consolidated Financial Statementsin accordance with IFRS requires the Directors of the Company to makejudgements, estimates and assumptions that affect the reported amountsrecognised in the financial statements. However, uncertainty about theseassumptions and estimates could result in outcomes that require a materialadjustment to the carrying amount of the asset or liability in the future. Valuation of property The valuations of the Company's investment property will be at fair value asdetermined by the independent valuer on the basis of market value in accordancewith the internationally accepted Royal Institution of Chartered Surveyors("RICS") RICS Valuation - Professional Standards (incorporating the InternationalValuation Standards). Going concern The Directors have made an assessment of the Company's ability to continue as agoing concern and are satisfied that the Company has the resources to continuein business for the foreseeable future. Furthermore, the Directors are notaware of any material uncertainties that may cast significant doubt upon theCompany's ability to continue as a going concern. Therefore, the UnauditedCondensed Consolidated Financial Statements have been prepared on the goingconcern basis. 2.3 Summary of significant accounting policies The principal accounting policies applied in the preparation of these UnauditedCondensed Consolidated Financial Statements are set out below. a) Business combinations Business combinations are accounted for using the acquisition method. The costof an acquisition is measured as the aggregate of the considerationtransferred, measured at acquisition date fair value and the amount of anynon-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controllinginterest in the acquiree either at fair value or at the proportionate share ofthe acquiree's identifiable net assets. Acquisition costs are capitalised andadded to the cost of acquisition in the Unaudited Condensed ConsolidatedStatement of Financial Position. When the Group acquires a business, it assesses the financial assets andliabilities assumed for appropriate classification and designation inaccordance with the contractual terms, economic circumstances and pertinentconditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will berecognised at fair value at the acquisition date. Subsequent changes to thefair value of the contingent consideration which is deemed to be an asset orliability will be recognised in accordance with IAS 39 either in profit or lossor as a change to other comprehensive income. If the contingent considerationis classified as equity, it should not be re-measured until it is finallysettled within equity. b) Functional and presentation currency The overall objective of the Company is to generate returns in Sterling and theCompany's performance is evaluated in Sterling. Therefore, the Directorsconsider Sterling as the currency that most faithfully represents the economiceffects of the underlying transactions, events and conditions and havetherefore adopted it as the presentation currency. c) Investment property Investment property comprises property held to earn rental income or forcapital appreciation or both. Investment property is measured initially at costincluding transaction costs. Transaction costs include transfer taxes andprofessional fees to bring the property to the condition necessary for it to becapable of operating. The carrying amount also includes the cost of replacingpart of an existing investment property at the time that cost is incurred ifthe 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 theUnaudited Condensed Consolidated Income Statement in the period in which theyarise. The determination of the fair value of investment property requires the use ofestimates 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 andcondition of the property) and discount rates applicable to those assets. Gains or losses on the disposal of investment property are determined as thedifference between net disposal proceeds and the carrying value of the asset inthe previous full period financial statements. d) Cash and cash equivalents Cash and cash equivalents in the Unaudited Condensed Consolidated Statement ofFinancial Position comprise cash at bank and short-term deposits with anoriginal maturity of three months or less. e) 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 amortisedcost. Provision is made when there is objective evidence that the Company willnot be able to recover balances in full. Balances are written off when theprobability of recovery is assessed as being remote. f) Trade and other other payables Trade and other payables are initially recognised at fair value andsubsequently held at amortised cost. g) Revenue recognition i) Rental income Rental income receivable under operating leases is recognised on astraight-line basis over the term of the lease, except for contingent rentalincome which is recognised when it arises. Incentives for lessees to enter into lease agreements are spread evenly overthe lease term, even if the payments are not made on such a basis. The leaseterm is the non-cancellable period of the lease together with any further termfor which the tenant has the option to continue the lease, where, at theinception of the lease, the Directors are reasonably certain that the tenantwill exercise that option. (Premiums received to terminate or extend leases arerecognised in the capital account of the Unaudited Condensed ConsolidatedStatement of Comprehensive Income when they arise). ii) Interest income Interest income is recognised as it is received and shown within the UnauditedCondensed Consolidated Income Statement as finance income. iii) Deferred income Deferred income is rental income received in advance during the accountingperiod. The income is deferred and treated as a prepayment and is unwound torevenue on a straight line basis over the lease term. Any residual balance isshown in the Unaudited Condensed Consolidated Income Statement and shown asfinance costs. iv) Service charge income Service charges are received to cover expenditure on hard and soft facilitiesmanagement. These are paid to the landlord and then on to the FacilitiesManager and reimbursed to the Company via the Company's nominations agreement.Residual balances are shown in the Unaudited Condensed Consolidated IncomeStatement as miscellaneous income. v) Operating segments All of the Group's revenue and results are generated from student accommodationprovision operating in the UK. h) Tenant deposits Tenant deposits received which create corresponding liabilities are initiallyrecognised at fair value and subsequently measured at amortised cost wherematerial. Any difference between the initial fair value and the nominal amountis included as a component of operating lease income and recognised on astraight-line basis over the lease term. i) Taxes Corporation tax is recognised in the Unaudited Condensed Consolidated IncomeStatement except to the extent that it relates to items recognised directly inequity, in which case it is recognised in equity. In certain circumstancescorporation tax may be recognised in other comprehensive income. As a REIT, the Company is exempt from corporation tax on the profits and gainsfrom its property investment business, provided it continues to meet certainconditions 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 theexpected tax payable on the non-qualifying taxable income for the year ifapplicable, using tax rates enacted or substantively enacted at the balancesheet date. j) Interest bearing loans and borrowings All loans and borrowings are initially recognised at cost including directlyattributable transaction costs. All loans and borrowings are subsequentlymeasured at amortised cost with interest borne charged to the UnauditedCondensed Consolidated Income Statement and shown within finance costs. k) Dividends to shareholders Dividends due to the Company's shareholders are recognised when they becomepayable. For interim dividends this will be when they are paid and for finaldividends when approved by shareholders. l) Derivatives and hedging The Company uses interest rate swaps to hedge its risks associated withinterest rates. Such derivative financial instruments are initially recognisedat fair value on the date on which a derivative contract is entered into andare subsequently re-measured at fair value. Derivatives are carried as assetswhen the fair value is positive and as liabilities when the fair value isnegative. At the inception of a hedge relationship, the Company formally designates anddocuments the hedge relationship to which the Company wishes to apply hedgeaccounting and the risk management objective and strategy for undertaking thehedge. The documentation includes identification of the hedging instrument, thehedged item or transaction, the nature of the risk being hedged and how theCompany will assess the hedging instrument's effectiveness in offsetting theexposure to changes in the hedged item's fair value or cash flows attributableto the hedged risk. Such hedges are expected to be highly effective inachieving offsetting changes in fair value or cash flows and are assessed on anongoing basis to determine that they actually have been highly effectivethroughout the financial reporting periods for which they were designated. For the purpose of cash flow hedge accounting, hedges are classified as cashflow hedges when hedging exposure to variability in cash flows that is eitherattributable to a particular risk associated with a recognised asset orliability or a highly probable forecast transaction. The effective portion of the gain or loss on the hedging instrument isrecognised directly in equity, while any ineffective portion is recognisedimmediately in profit or loss. Amounts taken to equity are transferred toprofit or loss when the hedged transaction affects profit or loss, such as whenthe hedged financial income or financial expense is recognised or when aforecast sale occurs. If the forecast transaction or firm commitment is no longer expected to occur,amounts previously recognised in equity are transferred to profit or loss. Ifthe hedging instrument expires or is sold, terminated or exercised withoutreplacement or rollover, or if its designation as a hedge is revoked, amountspreviously recognised in equity remain in equity until the forecast transactionor firm commitment occurs. 3. UK investment property 31 December 2013 £'000 At incorporation - Purchases in period 106,245 Fair value gains on revaluation of property 1,275 Total 107,520 4. Taxation As a REIT, the Group's UK property rental business (both income and capitalgains) is exempt from tax. Any residual income from non-property business issubject is subject to corporation tax at a rate of 22.55%, representing thebest estimate of the average annual effective tax rate expected for the fullyear, applied to the pre-tax income for the period. No tax charge has arisen onresidual income for the period 26 February 2013 to 31 December 2013. 5. Dividends Pence 31 December 2013 per share £'000 For the year ending 30 June 2014 First interim dividend paid on 5 December 2013 2.00 1,402 Total 1,402 As a REIT, the Company is required to pay Property Income Distributions("PIDs") equal to at least 90% of the Group's exempted income after deduction ofwithholding tax at the basic rate (currently 20%). The entire £1.4 million cashdividend paid for the period from 26 February 2013 to 30 September 2013 wasattributable to PIDs. 6. Earnings per share Basic (and diluted) earnings per share amounts are calculated by dividingprofit for the period attributable to ordinary shareholders of the Company bythe weighted average number of ordinary shares during the period. Weighted average 31 December Profit number 2013 £'000 of shares Pence per share Earnings per share (basic and diluted) 3,649 70,100,001 5.2 Weighted average number of shares Shares in Days Weighted issue Issued on admission to trading onthe SFM on 20 May 2013 70,100,001 226 70,100,001 7. Business combinations The Unaudited Condensed Consolidated Financial Statements comprise thefinancial statements of the Company and its subsidiaries, GCP Scape EastLimited and Ternion Danehurst Limited, for the period from 26 February 2013 to31 December 2013. Subsidiaries are fully consolidated from the date of acquisition, being thedate on which the Group obtained control, and will continue to be consolidateduntil the date when such control ceases. The financial statements of thesubsidiaries 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 anddistributions are eliminated in full. As at 31 December 2013, the Company owns100% of all issued share capital of both subsidiaries. On 2 December 2013, the Group obtained control of Ternion Danehurst Limited, byacquiring 100% of its issued share capital. The principal activity of TernionDanehurst is the provision of student accommodation in line with the Group'sinvestment strategy. Ternion Danehurst Limited was acquired in order to provideGroup shareholders with sustained long-term distributions with the potentialfor modest capital appreciation over the long term and RPI inflation-linkedincome characteristics. The fair value of identifiable assets and liabilities of Ternion DanehurstLimited upon acquisition at 2 December 2013 were: 31 December 2013 £'000 Financial assets Investment property 13,030 Financial liabilities Deferred rental income (650) Retention account (82) Corporation tax provision (125) (857) Total identifiable net assets at fair value 12,173 Purchase consideration transferred 12,173 Analysis of cash flows on acquisition: Cash consideration 12,173 Less: cash and cash equivalents acquired - 12,173 Ternion Danehurst Limited contributed £103,000 to revenue and £87,000 to theGroup's profit for the period between the date of acquisition and the Statementof Financial Position date. Acquisition-related costs capitalised in relation to the purchase of TernionDanehurst amounted to £215,000. 8. Interest bearing loans and borrowings During the period from 26 February 2013 to 31 December 2013, a loan was drawndown under the Group's existing debt facility to the sum of £38.6 million. Theinitial loan of £25.1 million was transferred to the Company following theacquisition of Scape East on 20 May 2013 with a further £13.5 million drawndown on 2 December 2013. The facility is due to be fully repaid on 22 July2015. 9. Financial derivatives 31 December 2013 Hedged Pay fixed Receive 3M amount rate LIBOR Maturity Total £'000 £'000 Interest rate swap at 25,133 2.745% 0.51719% 22/07/2015 (868)fair value Fair value movement on financial derivatives (868) 10. Share capital 31 December 2013 £'000Issued and fully paid: 70,100,001 ordinary shares of £0.01 each 701 The share capital comprises one class of ordinary share. There are norestrictions on the size of a shareholding or the transfer of shares, exceptfor the UK REIT restrictions. 11.Share premium 31 December 2013 £'000 Issued on admission to trading on the SFM and the CISX on 69,39920 May 2013 Share issue costs (2,041) Share premium cancelled on 31 July 2013 (67,358) Balance at 31 December 2013 - 12. Fair value The fair values of the financial assets and liabilities are included as anestimate of the amount at which the instrument could be exchanged in a currenttransaction between willing parties, other than in a forced or liquidationsale. The following methods and assumptions were used to estimate the fairvalues: Cash and short-term deposits, trade receivables, trade payables, and othercurrent liabilities approximate their carrying amounts due to the short-termmaturities of these instruments. The fair values of the derivative interest rate swap contracts are estimated bydiscounting expected future cash flows using current market interest rates andyield curve over the remaining term of the instrument. Valuation of investment property is performed by Knight Frank LLP, anaccredited independent valuer with recognised and relevant professionalqualifications and recent experience of the location and category of theinvestment property being valued. The valuation of the Company's investment property at fair value is determinedby the independent valuer on the basis of market value in accordance with theinternationally accepted Royal Institution of Chartered Surveyors (RICS) RICSValuation - Professional Standards (incorporating the International ValuationStandards). The determination of the fair value of investment property requires the use ofestimates 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 andcondition of the property) and discount rates applicable to those assets. The following tables shows an analysis of the fair values of financialinstruments recognised in the balance sheet by level of the fair valuehierarchy*: 31 December 2013 Level 1 Level 2 Level 3 TotalFinancial assets at fair value £'000 £'000 £'000 £'000 Investment properties - - 107,520 107,520 - - 107,520 107,520 31 December 2013 Level 1 Level 2 Level 3 TotalFinancial liabilities at fair value £'000 £'000 £'000 £'000 Financial derivatives - (868) - (868) - (868) - (868) * Explanation of the fair value hierarchy: Level 1 - quoted prices (unadjusted) in active markets for identical assets orliabilities that the entity can access at the measurement date Level 2 - use of a model with inputs (other than quoted prices included inlevel 1) that are directly or indirectly observable market data Level 3 - use of a model with inputs that are not based on observable marketdata 13. Financial risk management objectives and policies The Company's principal financial liabilities, other than derivatives, areloans and borrowings. The main purpose of the Company's loans and borrowings isto finance the acquisition of the Company's property portfolio. The Company hastrade and other receivables, trade and other payables and cash and short-termdeposits that arise directly from its operations. The Company is exposed to interest rate risk, credit risk and liquidity risk.The Board of Directors reviews and agrees policies for managing each of theserisks which are summarised below. Interest rate risk Interest rate risk is the risk that the future cash flows of a financialinstrument will fluctuate because of changes in market interest rates. TheCompany's exposure to the risk of changes in market interest rates relatesprimarily to the Company's long-term debt obligations with floating interestrates. To manage its interest rate risk, the Group enters into interest rateswaps to hedge the exposure to floating rate movements. At 31 December 2013,65.1% of the Company's floating rate borrowings are hedged. Credit risk Credit risk is the risk that a counterparty will not meet its obligations undera financial instrument or customer contract, leading to a financial loss. TheGroup is exposed to credit risk from its leasing activities and its financingactivities, including deposits with banks and financial institutions andderivatives. Credit risk is managed by requiring tenants to pay rentals in advance. Thecredit quality of the tenant is assessed based on an extensive credit ratingscorecard at the time of entering into a lease agreement. Outstanding tenants'receivables are regularly monitored. The maximum exposure to credit risk at thereporting date is the carrying value of each class of financial asset. Liquidity risk Liquidity risk is defined as the risk that the Group will encounter difficultyin meeting obligations associated with financial liabilities that are settledby delivering cash or another financial asset. Exposure to liquidity riskarises because of the possibility that the Group could be required to pay itsliabilities earlier than expected. The Group's objective is to maintain abalance between continuity of funding and flexibility through the use of bankdeposits and loans. Market risk Market risk is the risk that the fair values of financial instruments willfluctuate because of changes in market prices. The financial instruments heldby the Company are all fixed terms at fixed rates with the floating elementshedged on 65.1% of total borrowings. The Company's exposure to market risk islimited to the remaining 34.9% which is not hedged. 14. Related party transactions As defined by IAS 24 Related Party Disclosures, parties are considered to berelated if one party has the ability to control the other party or exercisesignificant influence over the other party in making financial or operationaldecisions. Subsidiaries GCP Student Living Plc as at 31 December 2013 owns a 100% controlling stake inGCP Scape East Limited and Ternion Danehurst Limited respectively. Directors The Directors of the Company and subsidiaries are considered to be the key management personnel of the Group. Directors' remuneration for the period from26 February 2013 to 31 December 2013 totalled £38,000. Investment Manager The Company and the subsidiaries are party to an Investment ManagementAgreement with the Investment Manager, pursuant to which the Company and thesubsidiaries have appointed the Investment Manager to provide advisory servicesrelating to the respective assets on a day-to-day basis in accordance withtheir respective investment objectives and policies, subject to the overallsupervision and direction of the Boards of Directors. For its services to the Company, the Investment Manager receives an annual feeat the rate of 1.0% of the net asset value of the Company (or such lesser amountas may be demanded by the Investment Manager at its own absolute discretion).During the period from 26 February 2013 to 31 December 2013, the Group expensedincurred £439,000 in respect of investment management fees and expenses. COMPANY INFORMATION Directors Stockbrokers Robert Peto (Chairman) Cenkos Securities plcPeter Dunscombe 6.7.8 Tokenhouse YardMalcolm Naish London EC2R 7ASInvestment Manager Tel: 020 7397 1921 Gravis Capital Partners LLP53-54 Grosvenor Street SolicitorLondonW1K 3HU Lawrence Graham LLPTel: 020 7518 1490 4 More London Riverside London SE1 2AUSecretary and Registered Office Capita Company Secretarial Services Principal BankerLimitedBeaufort House Barclays Bank PLC51 New North Road 1 Churchill PlaceExeter EX4 4EP LondonTel: 01392 477500 E14 5HP Auditor Registrar Ernst & Young LLP Capita Asset Services1 More London Place The RegistryLondon 34 Beckenham RoadSE1 2AF Beckenham Kent BR3 4TUValuer Tel: 0871 664 0300 Knight Frank LLP email: [email protected] Baker Street www.capitaassetservices.comLondonW1U 8AN Corporate website www.gcpuk.com/gcp-student-living-plc‎ Sources of further information Copies of the Company's half yearly report, stock exchange announcements andfurther information on the Company can be obtained from the Company's corporatewebsite, as detailed above. Key dates February Half yearly results March Payment of second interim dividend June Company's year end Payment of third interim dividend September Annual results announced Payment of fourth interim dividend October Annual General Meeting December Payment of first interim dividend Frequency of Net Asset Value ("NAV") publication The Company's NAV is released to the London Stock Exchange and Channel IslandsStock Exchange on a quarterly basis and is published on the Company's websiteas detailed above. Neither the contents of GCP Student Living plc's website nor the contents ofany website accessible from hyperlinks on the website (or any website) isincorporated into, or forms part of this announcement.