TIDMUTG
RNS Number : 1209E
Unite Group PLC (The)
26 February 2020
PRESS RELEASE
26 February 2020
THE UNITE GROUP PLC
("Unite Students", "Unite", the "Group", or the " Company ")
RESULTS FOR THE YEARED 31 DECEMBER 2019
Richard Smith, Chief Executive of Unite Students, commented:
"2019 was a successful and transformational year for Unite. We
made good progress against all of our key metrics and continued to
deliver meaningful growth in our recurring earnings. We also
leveraged our best-in-class operating platform to complete the
acquisition of Liberty Living's 24,000-bed portfolio. Our strong
results remain underpinned by the quality of our value-for-money
product and the strength of our long-term relationships with
Universities. These qualities differentiate Unite in a sector that
remains undersupplied and is anticipating strong growth in student
numbers over the next decade, as UK Higher Education maintains its
global standing. A UK University education is highly valued by
young people around the world.
The outlook for the business remains strong. Reservations for
the 2020/21 academic year are in line with record levels,
supporting our like-for-like rental growth guidance of 3.0-3.5%
through a combination of further utilisation enhancements and
value-driven price increases. Together with our development and
University partnership pipeline of over 5,000 beds, this provides
high visibility over sustainable earnings growth and we maintain
our positive outlook.
While Brexit negotiations and the ongoing review of Higher
Education funding provide some uncertainty, our strategy of
aligning to the best Universities and providing good-quality,
value-for-money accommodation for growing segments of the market
underpins our long-term confidence in the business."
Year ended 31 December 2019 31 December 2018 Change
======================================================================= ================= ================= =======
EPRA earnings* GBP110.6m GBP88.4m 25%
EPRA earnings per share* 39.1p 34.1p 15%
(Loss)/profit before tax GBP(101.2)m GBP245.8m
Profit before tax excluding items relating to the Liberty Living
acquisition GBP305.3m GBP245.8m 24%
Dividend per share 33.2p 29.0p 14%
Total accounting return 11.7% 13.2%
Like-for-like rental growth* 3.4% 3.2%
EBIT margin 71.7% 71.3%
As at 31 December 2019 31 December 2018
----------------------------------------------------------------------- ----------------- ----------------- -------
EPRA NAV per share* 853p 790p 8%
Net debt** GBP1,884m GBP856m 120%
Loan to value** 37% 29%
----------------------------------------------------------------------- ----------------- ----------------- -------
MSCI ESG AA rating AA rating
GRESB score 72/100 71/100
======================================================================= ================= ================= =======
HIGHLIGHTS
EPRA EPS up 15% to 39.1p (2018: 34.1p)
-- Like-for-like rental growth of 3.4% and 98% occupancy (2018: 3.2% and 98%)
-- Full year dividend increased by 14% to 33.2p, driven by earnings growth (2018: 29.0p)
-- EPRA profit includes GBP4.6 million (1.6p) from partial
recognition of the LSAV performance fee
-- Statutory loss before tax of GBP101.2 million, primarily the
result of the impairment of goodwill and intangibles of GBP384.1
million relating to the Liberty Living acquisition (2018: profit of
GBP245.8 million)
-- Total accounting return of 11.7% (2018: 13.2%)
Transformative acquisition of Liberty Living for GBP1.4 billion,
utilising Unite's best-in-class operating platform
-- Two highly complementary portfolios, creating a 74,000-bed portfolio across 27 cities
-- Progress on integration has increased 2020 cost synergies to
GBP5-6 million, rising to GBP15 million in 2021
-- Immediately earnings accretive with further growth
opportunities and operational enhancements
Reservations support rental growth outlook
-- Reservations for 2020/21 at 73%, in line with record levels in 2018
-- Like-for-like rental growth outlook for 2020/21 of 3.0-3.5%
through increases in utilisation and price
Earnings growth underpinned by University relationships,
operating platform and development pipeline
-- Nomination agreements with Universities covering 41,500 beds
with an average WAULT of 6 years (2018: 29,000 and 6 years)
-- Secured development and University partnerships pipeline of
GBP681 million for delivery over the next four years, generating an
attractive 6.8% yield on cost
-- Together with rental growth and cost synergies, these new
openings net of disposals could add 16-20p to earnings per
share
-- Further opportunities to grow development pipeline, including zone 1 and 2 London sites
Strong financial position
-- GBP298 million of disposals (Unite share GBP249 million),
reflecting strong investor appetite
-- LTV increased to 37% (2018: 29%), following acquisition of Liberty Living
-- Maintaining 35% LTV target, reflecting disposal plan for GBP150-200 million per annum
Improving performance and transparency on Sustainability
-- AA rating from MSCI and Most-Improved Award under EPRA's Sustainability BPRs
-- Sustainability report and new targets to be launched in 2020
* The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS). These financial
highlights are based on the European Public Real Estate Association
(EPRA) best practice recommendations and these performance measures
are published as they are intended to help users in the
comparability of these results across other listed real estate
companies in Europe. The metrics are also used internally to
measure and manage the business and to align to the performance
related conditions for Directors' remuneration. See glossary for
definitions.
** Excludes IFRS 16 related balances recognised in respect of
leased properties, following the adoption of IFRS 16. See glossary
for definitions.
PRESENTATION
There will be a presentation for analysts this morning at 09:30
at One Moorgate Place, London, EC2R 6EA. A live webcast will be
available at: https://brrmedia.news/9qnfk . To register for the
event or to receive dial-in details, please contact
unite@powerscourt-group.com .
For further information, please contact:
Unite Students
Richard Smith / Joe Lister / Paul Richmond Tel: +44 117 302
7005
Powerscourt
Justin Griffiths / Victoria Heslop Tel: +44 20 7250 1446
CHAIRMAN'S STATEMENT
2019 was another successful year for Unite, building on our
strong foundations for growth. Our high-quality, well-located
portfolio produced a strong year of operational performance,
delivering across all of our key metrics. In addition, we leveraged
our best-in-class operating platform to make the transformational
acquisition of Liberty Living's 24,000-bed portfolio. This is made
possible by the quality of our value-for-money product, our
customer service, highly committed people and our positive and
growing reputation with students and Universities.
Financial performance has once again been strong, with a total
accounting return of 11.7% and 15% growth in EPRA EPS to 39.1p.
This performance is underpinned by continued like-for-like rental
growth, further improvements to our operating margins and
development completions. Due to this positive performance, we are
proposing a final dividend of 22.95p, to deliver a total dividend
of 33.2p for the full year, an increase of 14% year-on-year.
Our strong performance is only possible because of the talent
and hard work of our teams across the business. On behalf of the
Board, I would like to thank them for another excellent year. I
would also like to take the opportunity to welcome our new
colleagues from Liberty Living. Our acquisition brings together two
high-performing companies with an excellent track record of
success, and I am very excited by the opportunities that lie
ahead.
I will be stepping down from the Board at the 2021 Annual
General Meeting, following completion of the integration of the
Liberty Living acquisition. Succession planning is underway and the
Nominations Committee will identify my successor within the next 12
months. Sir Tim Wilson stepped down from the Board at the end of
the year after serving nine years, and I would like to thank him
for his significant contribution to Unite. Dame Shirley Pearce DBE
was appointed to the Board in November and Professor Sir Steve
Smith will join in April 2020, both as Non-Executive Directors who
bring a wealth of experience in the Higher Education sector. In
addition, we are pleased to welcome Thomas Jackson, head of CPPIB's
UK real estate business, as a Non-Executive Director, following the
acquisition of Liberty Living.
We have a diverse and experienced Board who are committed to
promoting the long-term success of the company for the benefit of
key stakeholders. We believe in acting responsibly and sustainably
in all areas of our business and work to make a difference in areas
as diverse as environmental impact, diversity, affordability,
mental health and wellbeing. 2020 will see new sustainability
targets set for the enlarged business that recognise the challenge
of climate change and our role in helping more young people access
Higher Education and improving outcomes for students.
The success of our business is founded on a clear strategy and
we will continue to deliver on its main objectives: providing
value-for-money accommodation that our customers value; delivering
quality buildings designed around student needs; generating
high-quality recurring earnings; and maintaining a strong capital
structure.
The outlook for our business remains positive, reflecting
increasing participation rates for UK Higher Education, growing
international demand and the shortage of fit-for-purpose housing in
the UK. While Brexit negotiations and the Higher Education Funding
Review create some uncertainty, the Higher Education sector's
strong fundamentals, our high-quality portfolio and pipeline,
University relationships and market-leading operating platform,
provide the foundations for continued growth.
CHIEF EXECUTIVE'S REVIEW
I am pleased to report another strong year for Unite. We have
maintained our focus on delivering sustainable growth in recurring
profits and cash flows over the long term, and on delivering a Home
for Success for all who live with us. We do this by providing
valued customer service and operating high-quality, affordable
accommodation, designed specifically for our customers' needs. Our
investment discipline ensures we align our portfolio to the
strongest Universities, while maintaining a robust capital
structure.
Strong performance in 2019 resulted in 15% growth in EPRA EPS,
reflecting continued like-for-like rental growth, further
improvements to our operating margins and development completions.
The loss before tax of GBP101.2 million is primarily the result of
the impairment of goodwill and intangibles of GBP384.1 million
resulting from the share component of our GBP1.4 billion
acquisition of Liberty Living, which was priced on a NAV-for-NAV
basis. Excluding items relating to the Liberty Living acquisition,
profit before tax increased to GBP305.3 million (2018: GBP245.8
million), reflecting growth in EPRA earnings and higher revaluation
gains from the development pipeline. The security, quality and
visibility of our earnings provides the confidence to maintain our
dividend payout of 85% of EPRA EPS.
We also delivered another strong year of total accounting
returns. Looking forward, our acquisition of Liberty Living will
help to further enhance the income component of our total
returns.
Our key financial performance indicators are set out below:
Financial highlights 2019 2018
------------------------------------------------------------------------------ ------------ ----------
EPRA earnings GBP110.6m GBP88.4m
EPRA EPS 39.1p 34.1p
Dividend per share 33.2p 29.0p
EPRA EPS yield 4.9% 4.7%
Total accounting return 11.7% 13.2%
(Loss)/profit before tax GBP(101.2)m GBP245.8m
Profit before tax excluding items relating to the Liberty Living acquisition GBP305.3m GBP245.8m
Basic EPS (31.5)p 90.8p
EPRA NAV per share 853p 790p
See-through LTV ratio 37% 29%
A reconciliation of (loss)/profit before tax to EPRA earnings is
set out in note 8 of the financial statements
We will continue to focus on growing our earnings. This is
supported by our operational excellence and development activities.
We have a high degree of income visibility through our nomination
agreements and re-bookers, as well as growing demand from
international and postgraduate students. The more effective
utilisation of assets also underpins our ability to grow income on
an annual basis, while ensuring the ongoing affordability of our
product. We see further opportunities to enhance our operating
margins, while also continuing to invest into our service
offer.
Our PRISM operating platform, coupled with our experienced
management and leadership teams, give us a unique capability to
drive value through scale efficiencies, revenue management and
utilisation, supporting our focus on delivering sustainable growth
in income. This capability underpinned our GBP1.4 billion
acquisition of Liberty Living during the year and gives us
confidence in delivering material earnings accretion for the
combined Group.
Development remains one of the core strengths of our business
and will significantly contribute to our future earnings growth. We
continue to see significant development opportunities through
University partnerships and more traditional development activity,
driven by a positive outlook for student demand and our established
relationships in the real estate sector.
We remain focused on improving the quality of our portfolio
through our customer insight and extensive local knowledge to align
with the top performing Universities and ensure that we are meeting
our customers' needs within our markets.
Placing and acquisition of Liberty Living
In July, we announced our transformative acquisition of Liberty
Living's 24,000-bed portfolio for GBP1.4 billion in a NAV-for-NAV
deal from Canada Pension Plan Investment Board (CPPIB). The
acquisition was funded through a combination of cash and shares,
including the GBP260 million of gross proceeds raised through our
successful 9.99% equity placing in early July at a price of 985p
per share.
The acquisition utilises Unite's best-in-class operating
platform, PRISM, to create a combined portfolio of 74,000 beds and
valued at c.GBP8 billion (Unite share: GBP5.2 billion). Liberty
Living beds will be fully integrated into PRISM, delivering GBP15
million of annual cost synergies from 2021. Positive early progress
on integration has increased 2020 cost synergies to GBP5-6 million.
We expect to incur integration costs of GBP7 million in 2020 to
realise these cost synergies.
The acquisition is materially accretive to EPRA earnings per
share from 2020 onwards and is broadly NAV-per- share neutral. The
acquisition has been conservatively financed, resulting in an LTV
of 37% for the combined Group at the year end, which we intend to
reduce to 35% through disposals, development profits and valuation
growth. The acquisition completed at the end of November, following
unconditional approval from the Competition and Markets Authority
(CMA).
We have made significant progress in the first three months of
our ownership and we now expect to realise overhead cost savings
more quickly than initially expected. In addition, we see
opportunities over time for further efficiencies in areas such as
procurement and energy efficiency in the Liberty Living
portfolio.
We remain committed to combining the best of both businesses and
there have already been significant operational learnings from our
working with our new colleagues. In particular, Liberty Living has
fostered excellent operational relationships with its University
partners which will complement the strength of our existing
strategic level relationships. The Liberty Living acquisition also
offers a wide range of properties, generally at affordable price
points. This is highly complementary to our existing portfolio and
University relationships and creates the breadth of product to
pursue opportunities for customer segmentation. We may also
incorporate elements of the less-intensive operating model used by
Liberty Living in some locations, which is highly efficient while
still delivering positive student experience.
Home for Success
While Higher Education is not the only path to a fulfilling and
successful life, its capacity to improve the professional and
social outcomes of people from every walk of life remains
undiminished. This is increasingly recognised by both young people
and parents as reflected in record participation levels, with 33%
of UK 18-year-olds in 2019 choosing to make the investment in going
to University, up from 26% in 2010.
At the same time and in a highly competitive market, we
recognise that students are increasingly focused on the
value-for-money they get from this investment. This underpins our
determination to ensure Unite remains positively differentiated
from other operators by the quality of the experience we offer.
Central to this is our continued investment in our brand and our
people's commitment to our purpose.
Home for Success means providing a living environment that
enables students to get the very best out of their time at
University. With this in mind, we continue to invest in the things
that our extensive research tells us matter most to students and
the Universities we work with: the smoothest possible transition to
University life; a home that is safe and secure; and ensuring that
help is on hand when needed. Our progress in delivering our brand
promises over the last year is demonstrated by record customer
satisfaction, Higher Education trust and employee engagement as
well as our achievement of a Five Star Occupational Health &
Safety audit from the British Safety Council.
Just as important as a great day-to-day living experience is the
overall value we offer students over the course of their time with
us. As a result, our properties are located where students
consistently tell us they want to live: close to their University,
public transport and other amenities. The design of our properties
reflects a detailed insight into what students want, with common
areas where they can relax and socialise, study areas and, in most
cases, outside space. Our portfolio includes a range of different
accommodation types but 91% of our students live in shared flats
with ensuite bathrooms, a shared kitchen and common living space.
We know this is how most students prefer to live and also best
meets the requirements of our University partners. Over the last
year, to ensure our common rooms remain in step with the changing
lifestyles and preferences of students, we have involved students
and Universities in testing a number of innovations in design,
layout, specification and fit out, and rolled out these initiatives
across a number of properties.
Not all students are the same and we therefore offer a range of
different price points and tenancy lengths to meet their varied
requirements. Our rents include all utility bills and service
charges, high speed Wi-Fi, full contents insurance, a rapid
response maintenance service, round-the-clock security, a 24/7 call
centre, access to our market leading welfare service and the
MyUnite app. As well as a wealth of useful information about
student living, this bespoke digital platform provides quick and
efficient access to key services. Collectively, these services help
students avoid many of the direct and indirect costs, as well as
the administrative hassle and hidden costs, they may encounter
while living in private accommodation.
The integration of the Liberty Living business provides the
opportunity to deliver an even better Home for Success to more
students more efficiently.
Safe and secure
Safety forms a key part of how we operate as a responsible
business, underpinned by our commitment to go above and beyond
minimum standards to provide the safest and most secure environment
for our students and employees. As a result, I am delighted that we
have achieved a Five Star audit score (out of five) from the
British Safety Council (BSC) following an Occupational Health &
Safety audit in November. The audit measures our performance
against a number of key safety management indicators, providing
organisations with a worldwide benchmark of their safety management
systems against current best practice to enable continual
improvement. This result reflects significant improvement from our
last audit 18 months ago, where we were awarded a Four Star
rating.
This achievement is the culmination of hard work and investment,
including additional health and safety resource and improved
accountability and ownership of health and safety across the
business. The hard work does not stop here and we remain absolutely
committed to both understanding how we keep our students and
employees safe, and executing this to the very best of our
ability.
Fire safety is a critical part of our health and safety
strategy. Our fire safety plans involve engagement with our primary
authority, the Avon Fire & Rescue Service, and local fire
brigades as well as input from independent fire safety experts who
conduct annual assessments of our portfolio and have confirmed that
all our properties are safe for occupation.
We also work closely with the Ministry of Housing, Communities
and Local Government (MHCLG) to ensure our properties comply with
emerging guidelines. As part of this, following the tragic events
at Grenfell Tower, we have removed Aluminium Composite Materials
(ACM) cladding from our buildings where needed, in line with
Government advice. We take fire safety extremely seriously and are
at the forefront of new improvements, being one of the first to act
on ACM advice. More recently, and in accordance with the
Government's Building Safety Advice of 20 January 2020, we are
undertaking a thorough review of the use of High-Pressure Laminate
(HPL) cladding on our properties.
We have identified 19 properties with HPL across our estate, all
but three of which are greater than 18 metres in height. The
majority of buildings have minimal HPL, covering less than a
quarter of the buildings.
Tests of the materials and cladding systems are being carried
out for each property. All our buildings have been confirmed safe
for students to occupy by independent fire safety experts. In
addition, special measures have been put in place at the affected
buildings, including increased building patrols by staff and
additional alarm measures, and we will remove this cladding where
it fails to meet the new requirements.
We are committed to doing what's right, in line with our values.
We do not expect there to be any building closures related to these
works.
The cost of replacing the HPL cladding is expected to be
GBP15-20 million (Unite share), which will form part of our capex
programme for investment properties. We expect this spend to be
incurred over the next 12-24 months, with activity prioritised
according to our risk assessments. If we are successful in claims
under build contracts, the cost for Unite could be lower than this
figure.
Partner of choice for Universities
Our reputation with partner Universities is a key strategic
advantage for Unite. The results of our latest independent Higher
Education trust survey show that our reputation with Universities
across the UK is at record levels. This is leading to a broad range
of discussions about new opportunities with our University
partners. In a highly competitive environment, Universities
increasingly recognise the importance of high-quality accommodation
in their ability to attract and retain students and ensure their
satisfaction. Universities typically seek to guarantee
accommodation for all 1(st) year and international students,
recognising that housing helps students settle into University life
and forms an important part of their offer to students.
Unite is increasingly viewed as a strategic partner by
Universities in delivering their long-term accommodation
strategies, building on our best-in-class operating platform and
the commitment of 1,900 people whose understanding of students is
informed by our almost 30-year history in the Higher Education
sector.
We put these capabilities at the disposal of Universities
through a sustained engagement programme, spanning multiple levels
and functions within Universities. Our local management teams work
closely with University accommodation offices, student services and
sustainability teams to ensure we fully meet their requirements on
a day-to-day basis. A dedicated University engagement team,
meanwhile, maintains regular contact with Vice-Chancellors and
their leadership teams to ensure we fully understand - and can
contribute to - their long-term ambitions and strategy.
Following the acquisition of Liberty Living, the enlarged Group
now has nearly 41,500 beds let under nomination agreements with 45
of the UK's leading institutions. The acquisition deepens some of
our key University relationships and brings new relationships with
Russell Group institutions such as the University of Manchester,
the University of Sheffield and Cardiff University. The Liberty
Living portfolio broadens our product range, including lower price
points in some markets, helping us meet demand from Universities
for high-quality, affordable accommodation.
For the 2019/20 academic year, 56% of the combined Group's beds
are let under nomination agreements (2018/19: 60%), reflecting a
lower level of nominations in the Liberty Living portfolio. This
compares to just under 20% of beds under nominations agreements
among our peers in the corporate Purpose-Built Student
Accommodation (PBSA) sector. With an average remaining life of six
years, our multi-year nomination agreements provide us with
visibility for average annual rental growth of 3.0% over the next
five years at current levels of inflation and utilisation.
During 2019, we secured two further long-term University
partnerships with the University of Bristol and the University of
Leeds. These agreements will further enhance the alignment of our
income to high and mid-ranked Universities. We are also in active
dialogue with 11 Universities over potential partnerships, covering
nearly 24,000 existing and new beds. These discussions often cover
a range of potential solutions on a city-wide basis, including
multi-year nomination agreements for our existing operational
assets, on-campus and off-campus developments and stock transfer /
outsourcing arrangements.
Operating quality buildings
The quality, location and scale of our portfolio is a key
component of our business model and long-term strategy. We aim to
operate high-quality, affordable buildings and offer a range of
price points to meet the needs of different students. Our
properties are located in and around leading Universities where
student demand is strongest. We believe that our focus on these
institutions is the best strategy for driving continued high levels
of occupancy and rental growth. We are therefore focussing our
portfolio activity on further improving alignment to high and
mid-ranked Universities and being in the best locations. For the
2019/20 academic year, 88% of our income is generated by students
attending such Universities (2018/19: 90%). This alignment has been
modestly diluted by the acquisition of the Liberty Living portfolio
but will be enhanced by our development pipeline and planned
disposals.
During 2019, in addition to the Liberty Living acquisition, we
opened 2,390 new beds, added 456 beds to our portfolio through
acquisition and sold 1,127 beds to third parties. Taking into
account these activities and the acquisition of Liberty Living,
together with valuation movements, the value of our investment
portfolio (including our share of USAF and LSAV) is GBP4.7 billion
as at 31 December 2019 (2018: GBP2.7 billion).
We made excellent progress in our development pipeline during
the year. We delivered three buildings on time and budget for the
2019/20 academic year, with approximately 70% of the beds secured
under nomination agreements with an average life of 16 years,
supporting our quality of income. Planning consents and build
contracts are in place for all 2020 and 2021 deliveries and plans
for schemes to be delivered in 2022 and 2023 are being progressed.
We intend to maintain a development run-rate of approximately 2,000
beds or GBP150-200 million of annual capital expenditure, with
opportunities once again emerging in London following a softening
in land values. London remains our most under-supplied market, with
some of our strongest University relationships.
Disposals remain an important part of our strategy and we will
continue to recycle assets out of our portfolio to ensure that we
increase our exposure to the UK's best Universities, while
generating capital to invest in further development activity and
other investment opportunities. During the year, we completed
GBP298 million of disposals (Unite share GBP249 million) in line
with book value, across seven properties at a blended yield of
5.7%.
We intend to sell a further GBP150-200 million of assets per
annum (Unite share) in both 2020 and 2021, including some assets
acquired with Liberty Living, to help reduce our LTV from 37% at
the year end to its medium-term target of 35%. This disciplined
approach to portfolio optimisation underpins our ability to sustain
rental growth over a longer time horizon and fund the development
pipeline.
Unite as a responsible business
We believe in acting responsibly and sustainably in all areas of
our business. Our Up to uS programme works to make a difference in
areas including our environmental impact, diversity, affordability,
mental health and wellbeing. We look to engage with our multiple
stakeholders to inform our strategy and understand how we can
sustainably deliver value over the long term.
We continue to invest in our portfolio to improve our energy
efficiency, through initiatives such as smart building controls,
solar panels and air source heat pumps. In addition, there are
opportunities to roll out a range of energy efficiency measures
across the former Liberty Living estate. We are committed to
acquiring 100% renewable energy, which has contributed to
reductions in our carbon emissions, and recently signed a Power
Purchase Agreement to buy around 30% of our electricity from a
dedicated wind farm in Scotland (excluding Liberty Living
properties). In addition, we work with the National Union of
Students (NUS) through their Positive Impact Awards to encourage
environmentally friendly living habits by our customers as they
live independently for the first time in many cases.
We also believe strongly in delivering social value by
supporting Universities to widen participation into Higher
Education and helping to improve outcomes for students. The Unite
Foundation works in partnership with 27 Universities to provide
support to students from challenging backgrounds and is providing
financial support to 189 students for the 2019/20 academic year. We
accelerated the national roll out of our Leapskills programme for
school leavers in 2019 and continue to connect students to
prospective employers through our Placer app.
We want to be a great place to work and are committed to
creating diverse and engaged teams. We are an accredited Real
Living Wage Employer and hold the prestigious Investors in People
Gold Standard accreditation, reflecting our focus on recruiting,
retaining and developing the very best people. We also employ
around 160 of the students who live with us as Ambassadors,
providing meaningful employment and development opportunities for
young people each year.
Our sustainability performance is reflected in achieving the
leading GRESB performance in the listed residential sector in
Europe and a three star rating, our AA rating from MSCI and a
Most-Improved Award under EPRA's Sustainability Best Practice
Recommendations.
2020 will see the launch of a dedicated sustainability report as
we look to provide greater transparency and accountability around
our ESG initiatives. We plan to introduce stretching new carbon
targets for our enlarged business and will also adopt the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD).
Growing demand for Higher Education
The outlook for student accommodation remains positive, with
structural factors continuing to drive a demand-supply imbalance
for our product. The UK Higher Education sector is recognised
globally for the strength of its Universities and the contribution
it makes to research, innovation, talent development and the UK
economy and our society more broadly. The UK is the second most
popular destination for international students and 28 UK
Universities feature in the top 200 of the QS World University
rankings. Unite works with 21 of these institutions.
Demographic pressures, resulting in a shrinking 18-year-old
population since 2015, reverse rapidly from 2021. Participation
rates also continue to grow, reflecting the value young adults
place on a higher level of education and the financial stability it
offers. Moreover, the Government is targeting a 115,000 increase in
international student numbers by 2030, which will be aided by the
launch of a new two-year post-study visa for the 2020/21 academic
year. JLL forecasts a 335,000 increase in full-time student numbers
by 2030 on the assumption of current participation rates. Given
constraints on new supply of University-owned stock and
private-rented housing, the vast majority of this new demand will
need to be met by corporate PBSA providers.
The Government's response to the Augar Report on post-18
education and funding is expected later this year. We are
encouraged by the Government's desire to strengthen the global
standing of the UK Higher Education sector and increase and widen
participation in post-18 education.
Brexit will have a negative impact on EU student numbers from
2021/22, which accounts for 9% of our customers, due to the
potential loss of 'Home' fee status and access to a tuition fee
loan for EU students. We expect a 30% reduction in demand from EU
students, equating to just under 3% of our customer base by
2023/2024. However, we are confident in our ability to absorb this
impact thanks to the coinciding demographic growth for UK students
and the more accommodating visa policy for non-EU students.
Coronavirus
We continue to monitor the situation regarding the outbreak of
the Coronavirus, with the safety and wellbeing of our students and
employees our top priority. We have been in contact with Public
Health England since late January and are closely following their
guidance, as well as that of the World Health Organisation. We have
robust contingency plans in place and are taking steps to ensure
our students have access to the most up-to-date information and
advice.
To date, we have not seen a negative impact on reservations from
international students for the 2020/21 academic year. We are
monitoring the potential risk to our 2020 summer income and 2020/21
academic year income in the event of ongoing disruption. We will
continue to work on mitigating actions and monitor the situation.
We will provide an update if appropriate.
Outlook
The outlook for the business remains positive. Building on the
foundations of the sector's strong fundamentals and our
best-in-class operating platform, the Group is well placed to
deliver sustainable earnings growth in the years ahead. Higher
Education policy is likely to evolve during the current Parliament,
but we expect increased participation in post-18 education to
remain a key part of the Government's education strategy. Our
alignment to and relationships with the best Universities, as well
as our focus on delivering affordable, value-for-money homes for
our customers, positions us well to navigate any changes.
There are significant growth opportunities available to the
Group, created by increasing student numbers and the growing
awareness of the benefits of PBSA among non-1(st) year students. We
continue to see opportunities for new developments and University
partnerships, building on the strength of our brand in the sector
and the need of Universities to deliver on exceptional student
experience in a competitive HE environment. We are one of the
largest operators of rented residential accommodation in the UK and
our operating capabilities provide us with a real opportunity. We
see the potential to segment our existing customer proposition to
better meet student needs and extend our offer to new customer
groups.
Despite some uncertainty created by Brexit, the review of Higher
Education funding and the Coronavirus outbreak, the outlook for
demand remains strong. The early strength of applications data and
reservations for the 2020/21 academic year are supportive of rental
growth of 3.0-3.5% through a combination of value-driven price
increases and improved utilisation. We are also confident in the
medium-term outlook for earnings growth. Rental growth, together
with cost synergies from the Liberty Living acquisition and new
openings net of planned disposals, could add 16p to 20p to EPS on
completion of our secured pipeline. This supports attractive total
returns, through a balance of growing recurring income and NAV
growth.
MARKET REVIEW
Record student numbers and participation rates
Full-time student numbers reached record levels at nearly 1.9
million for the 2018/19 academic year. The number of applicants and
the number of students accepted onto courses in 2019 was 706,000
and 541,000 respectively (2018: 696,000 and 530,000). A 1.5% YoY
increase in acceptances was driven by a record participation rate
among UK 18-year-olds and a 7% increase in acceptances from non-EU
students.
The initial applications data for the 2020/21 academic year is
encouraging, with overall applications up 1.2%. A further increase
in application rates has helped to offset the lowest point in the
demographic dip for UK 18-year-olds. Growth has come from a record
number of non-EU applicants (+14.7%), primarily driven by increases
from China and India. Student demand remains strongest for
higher-tariff Universities, which have seen applications increase
by 4% YoY, in contrast with broadly stable applications for medium
and lower-tariff Universities. This is consistent with our
strategic focus on partnerships with the strongest Universities
where student numbers are growing.
The medium-term outlook for student numbers is strong.
Demographic pressures are forecast to reverse significantly from
2021, with the 18-year-old population returning to 2010's height by
2024 and continuing to grow strongly thereafter. This would imply
demand for 213,000 additional UK undergraduate places by 2030 at
current participation rates. High-tariff Universities have been the
major beneficiaries of growth in student numbers since number caps
were removed in 2012. Looking forward, we expect the return to
demographic growth to bring greatest benefits to medium-tariff
Universities, as high-tariff institutions look to strengthen or
maintain their entry requirements.
In addition, the UK Government's international education
strategy is targeting a 25% increase in the number of international
students to 600,000 by 2030. In September 2019, the Government
announced a new two-year post-study work visa for international
students to be launched for the 2020/21 student intake. The new
visa would replace the existing Tier 4 student visa, which
typically entitles international students to remain in the UK for
four months following completion of their course. The change is
expected to improve the UK's international competitiveness in the
Higher Education sector, helping to attract more students from
China and improve the UK's share of international students from
India, Hong Kong, Singapore and the Middle East.
Higher Education policy
The Augar review of post-18 education and funding was published
on 30 May 2019. The report contained a number of recommendations to
the way the Higher Education sector is funded, including: a
reduction in the maximum annual amount of tuition fees payable by
UK students from GBP9,250 per annum to GBP7,500 per annum; the
reintroduction of means-tested maintenance grants of up to GBP3,000
per annum; and an increase in the period before which student loans
are written off after graduation from 30 years to 40 years.
A student survey by the Higher Education Policy Institute (HEPI)
revealed that students' views are mixed between the current tuition
fee model and Augar's recommendation to lower headline fees: 40%
prefer the current system of GBP9,250 paid back over 30 years; 41%
prefer Augar's approach of GBP7,500 paid off over 40 years; and 18%
have no preference between the two. More significantly, 79% of
students say the level of interest charged on their tuition fee
loan is one of the most important aspects of the funding
system.
The Government has promised to carefully consider the
recommendations of the Augar Report on tuition fee levels with a
view to reducing the debt burden on students. In addition, the
Government will consider the balance of funding between
Universities, Further Education, apprenticeships and adult
learning. We also expect an increased focus on the value-for-money
delivered by Higher Education institutions and purpose-built
student accommodation. The Government recently confirmed that the
review of fees and funding will take place alongside the next
spending review later in 2020.
We remain confident that our strategy of delivering
high-quality, affordable homes for students and relationships with
the best Universities in the UK positions us to successfully
navigate future policy changes in these areas.
Awaiting clarity on Brexit
While the impact on student numbers of the UK leaving the EU is
difficult to predict, the number of EU students studying in the UK
continued to grow from 108,000 in 2014/15 to 129,000 in 2018/19,
made up by 94,000 undergraduates and 35,000 postgraduate
students.
The near-term outlook for EU students has been supported by the
Government announcement that students from the EU starting their
courses in 2020/21 will have current funding arrangements
guaranteed for the duration of their degrees, meaning that the full
impact of any new funding arrangements following the UK leaving the
EU will not take effect until 2023/24.
Following Brexit, there is a risk that tuition fees for EU
students will rise from GBP9,250 to the higher rates currently paid
by non-EU students, as well as EU students no longer having access
to a tuition fee loan. As a result, we are forecasting a 30%
decline in EU undergraduates by 2023, equating to a fall of around
2% of total students.
The terms of the EU withdrawal agreement outline that the UK
will continue to participate in the EU's current Erasmus+ and
Horizon 2020 Research and Innovation programmes. The Government has
also stated that participation in successor programmes to Horizon
2020 and Erasmus+ will be discussed during transition period
negotiations as details of the new programmes emerge. Despite the
uncertainty this creates, we are encouraged by the Government's
stated desire to maintain and strengthen the UK's global position
in Higher Education.
Sustainable rental growth
The UK PBSA market delivered rental growth of 2.6% for the
2019/20 academic year (Cushman & Wakefield), a modest reduction
on the 2.8% delivered in 2018/19. Beds under nomination or lease
agreements produced rental growth of 3.3% in 2019/20, above the
2.3% rental growth delivered by direct-let beds. This reflects
pressure on direct-let rents in some mature markets adjusting to
competition from new supply. We remain focused on providing a
cluster-led ensuite product at more affordable price points, which
aligns with the requirements of our University partners.
For the 2019/20 academic year, average weekly ensuite rents for
corporate PBSA ranged from GBP120-170 per week in major provincial
markets and GBP232 per week in London. This compares to Unite's
average ensuite rent of GBP138 in provincial markets and GBP221 in
London. The largest segment of PBSA demand remains at a price point
of between GBP100 to GBP150 per week, where there is also the
opportunity to attract more non-1(st) year students from the
private rented sector. 66% of Unite beds in provincial markets are
priced below GBP150 per week.
Current UK inflation implies a slight reduction in rental growth
from multi-year nomination agreements with fixed or
inflation-linked annual rental increases for 2020/21 to around 3%.
However, we remain confident in delivering rental growth across the
portfolio of 3.0-3.5% for 2020/21 through further utilisation
enhancements and value-driven price increases.
Increasing focus on value-for-money
The Augar Report also underlines that Universities retain a
responsibility for delivering value-for-money to students, which
includes University accommodation, and recommends that the Office
for Students should examine the cost of student accommodation more
closely to improve the quality and consistency of data. A recent
survey of 60,000 students by Knight Frank and UCAS underlined that
value-for-money is the most important factor influencing students'
decisions on where to live. Accommodation choice is not entirely
driven by cost, with students willing to pay a premium for certain
features and amenities.
We will continue to offer a range of price points to meet the
needs of different customers and demonstrate the value-for-money
that living with Unite offers by delivering the services that
students and our University partners' value. These include:
all-inclusive bills and high-speed Wi-Fi; hassle-free
administration; committed and highly trained staff on hand when
they're needed; a range of proprietary digital platforms; rapid
response maintenance; and 24/7 emergency support.
Adjusting for all-inclusive bills in Unite properties and
shorter average tenancy lengths than HMOs, the cost of our
accommodation is around 8% more expensive than the private-rented
sector in our provincial markets. This equates to GBP10 more per
week for the additional service and product features we provide.
This includes the quality of our locations, communal study spaces,
ensuite bathrooms and hassle-free offer, which can positively
impact wellbeing and allows students to focus on what is important.
We are confident in the value-for-money our service provides to
students.
The Augar Report recognised the improvement in quality of
student accommodation over the past 20 years, through a growing
proportion of ensuite and studio rooms and improved amenity space.
The average weekly cost of a new PBSA bed space delivered in
2019/20 was GBP149, according to Cushman & Wakefield, which
when adjusted for inflation is just over GBP1 higher in real terms
compared to 2016. Cushman & Wakefield analysis suggests that
the overall quality of new beds delivered in 2019 was 6% higher
than 2018 deliveries when adjusting for features such as bed size,
storage space, natural light and common space.
Strong investment appetite
The PBSA continues to perform well. Strong fundamentals and a
track record of consistent rental growth continue to attract
significant volumes of capital, despite a reduction in investment
volumes in the wider UK real estate sector due to political
uncertainties. Approximately GBP3.1 billion of assets traded in
2019 (CBRE), excluding our acquisition of Liberty Living's GBP2.2
billion UK portfolio. This is lower than the high levels seen over
recent years, due to less stock coming to market following a period
of consolidation by larger operators and Brexit-related
uncertainty.
There is still a strong appetite to deploy capital in the
sector, with investment demand principally coming from
international or institutional investors. As the sector has
matured, investors have become more focused regarding strength of
location, the health of local Universities, building amenities and
fire safety. We also see a focus on operating platforms and scale,
which continues to drive the consolidation of the sector in the UK.
New entrants to the PBSA market and institutional investors
generally lack management or development platforms. Hence, a number
of recent transactions have been structured as sale and management
agreements, incorporating a mix of operational and pipeline
assets.
Yields remain well supported
Yields in the sector have slightly reduced over the past year,
reflecting investor demand and the attractive income
characteristics of the sector. However, we have witnessed a growing
divergence in pricing between prime and secondary markets. Prime
London assets have seen further yield compression, with transaction
evidence setting a new benchmark yield of sub-4% in zone 1
locations in London. In addition, there remains significant
investor focus on prime provincial markets such as Edinburgh, Bath,
Bristol, Oxford and Manchester where student demand remains strong
and there are most competing uses for land.
Demand for secondary and tertiary assets has reduced, resulting
in yields in some provincial markets drifting higher. This reflects
a weakening demand-supply balance in some cities aligned to
lower-ranked Universities. However, we consider income performance
and asset pricing to be well supported in good-quality secondary
markets, particularly for affordably priced properties which remain
fully let and have greatest potential to attract students from the
private rented sector.
Looking forward, we see yields remaining broadly stable in 2020,
albeit with continuing polarisation between prime and secondary
markets in a competitive market for student numbers.
An indicative spread of direct-let yields by location is
outlined below:
31 Dec 2019 31 Dec 2018
London 3.75-4.25% 4.00-4.50%
Prime provincial 4.50-5.00% 4.50-5.00%
Major provincial 5.25-5.75% 5.25-5.75%
Provincial 6.25-6.75% 6.00-6.50%
New supply reliant on corporate PBSA providers
The PBSA sector now provides homes to over 650,000 students,
representing around one-third of the UK's student population. At
this level, there still remains a 243,000 shortfall in beds
compared to the numbers of 1(st) -year and international students,
before taking account of the increasing numbers of 2(nd) and 3(rd)
-year students who are choosing this type of accommodation.
2019 saw the delivery of an additional 32,000 beds across 40
different UK markets, of which 73% was delivered in the 27 cities
in which Unite operates. Some provincial markets saw high
concentrations of new completions in the year, including Sheffield,
Liverpool and Newcastle, which has depressed rental growth and
occupancy as new supply is absorbed. Studios accounted for around a
third of the new deliveries, consistent with recent years, leading
to an over-supply of more expensive product in some cities.
Around 7,000 beds left the market in 2019 driven by
obsolescence, resulting from the delivery of new product. Closures
have been concentrated in ageing University-owned stock, 50% of
which is now over 20 years' old (Cushman & Wakefield). The
majority of new deliveries now offer large common spaces and
Cushman & Wakefield reports that 95% of all new beds delivered
in 2019 offer a three-quarter double bed or larger.
The corporate PBSA sector accounted for 87% of the beds
delivered for the 2019/20 academic year, the highest proportion of
new beds on record according to Cushman & Wakefield,
underlining the corporate sector's importance in helping to meet
the growing need for student accommodation.
A number of new openings for 2019 were impacted by late
delivery, meaning that affected students were required to find
temporary accommodation for the start of their courses. All of
Unite's new openings were delivered on time for the 2019/20
academic year, continuing our long-term track record in the sector.
We work closely with our University partners and supply chain to
ensure our new developments deliver the student experience expected
by our customers. This is recognised in our success in securing
nominations agreements on around 65% of new beds delivered by the
business in the past five years.
We expect new supply will moderate to around 25,000 beds in 2020
and reduce further thereafter as certain larger provincial markets
adjust to recent new supply and planning policy becomes more
restrictive towards PBSA. The new London Plan requires new student
accommodation to secure a nomination agreement with one or more
Higher Education providers as well as the provision of at least 35%
of units at affordable student rents. Moreover, local authorities
are increasingly keen to promote new supply in the Build to Rent
(BTR) sector, which is creating increased competition for
development sites in major UK cities. We are also witnessing a
growing trend for mixed-use planning consents, incorporating BTR
residential homes and co-living alongside student accommodation.
The combination of these factors increases barriers to entry for
new PBSA supply, but plays to the strengths of our long-held
University relationships and highly experienced development
team.
Development costs relatively stable
Activity in the UK construction sector remains in modest
decline, with new orders declining in the second half of 2019.
However, optimism has rebounded following greater clarity around
Brexit and the election result, which has the potential to increase
order books through 2020. Lower activity has seen input cost
inflation ease; however, this has been offset by pressures on
labour costs, reflecting structural shortages in some skilled
trades. Overall, we anticipate build cost inflation of 1.5-2% in
2020 and 2-3% in 2021.
Land prices have remained relatively stable in regional markets
despite improvements in PBSA valuations. This reflects some caution
on the part of developers given heightened levels of recent
political uncertainty. Land price inflation has been particularly
muted for larger sites capable of delivering greater than 500 beds,
which remain the target for our land purchasing. In London, land
values have softened over the past year as a result of depressed
activity in both the office and built-for-sale residential sectors.
This has improved the viability of student accommodation in zones 1
and 2 in central London, where we once again see opportunities to
acquire sites which meet our hurdle rates for development. The
depth and duration of this opportunity is uncertain given improving
sentiment and transaction levels in other sectors following the
General Election, which may create more competition for development
sites.
OPERATIONS REVIEW
The Group continues to report on an IFRS basis and presents its
performance in line with best practices as recommended by EPRA. The
Operations and Property reviews focus on EPRA measures as these are
our key internal measures and aid comparability across the real
estate sector.
Sales, rental growth and profitability
The key strengths of our operating business are our highly
committed people, our PRISM operating platform, our brand and the
strength of our relationships with Universities. We continued to
build on these in 2019, delivering a 15% increase in EPRA EPS to
39.1p (2018: 34.1p). This growth has again been driven by high
occupancy, rental growth and the impact of capital recycling, as
well as further operational efficiencies and ongoing cost
discipline.
2019 2018
Summary income statement GBPm GBPm
-------------------------------------- ------- -------
Rental income 213.9 188.3
Property operating expenses (53.1) (48.0)
------- -------
Net operating income (NOI) 160.8 140.3
------- -------
NOI margin 75.2% 74.5%
Management fees 14.4 15.6
Operating expenses (21.8) (21.7)
Finance costs (43.9) (40.0)
Acquisition and net performance fees 6.8 -
Development and other costs (5.7) (5.8)
------- -------
EPRA earnings 110.6 88.4
------- -------
EPRA EPS 39.1p 34.1p
------- -------
EBIT margin 71.7% 71.3%
A reconciliation of profit after tax to EPRA earnings is set out
in note 2.2b to the financial statements.
Rental income has increased by GBP25.6 million, up 14%, as a
result of like-for-like rental growth, new openings and just over
one month's contribution from Liberty Living, offset by the impact
of disposals made in the year. This resulted in a 15% increase in
NOI to GBP160.8 million and an improvement in NOI margin to 75.2%
(2018: GBP140.3 million and 74.5%).
The efficiency programme implemented in 2018 helped mitigate
underlying inflation in overheads by streamlining processes and
procedures identified through our student insight and delivered
thanks to PRISM and our scale efficiencies. Management fee income
from joint ventures was GBP21.2 million (2018: GBP15.6 million), as
a result of recurring management fees of GBP14.4 million and
non-recurring fees of GBP6.8 million (2018: GBP13.2 million and
GBP2.4 million). This includes GBP4.6 million from partial
recognition of the LSAV performance fee (2018: nil) . We have
continued to make progress towards our EBIT margin target of 74% by
the end of 2021, achieving 71.7% in 2019, through scale and further
operating efficiencies. Following the acquisition of Liberty
Living, we see further opportunities to enhance the enlarged
Group's EBIT margin target over time through procurement savings,
investments in energy efficiency and customer segmentation.
Finance costs increased to GBP43.9 million (2018: GBP40.0
million). An increase in net debt during the year to GBP1,884
million (2018: GBP856 million) was caused primarily by the
acquisition of Liberty Living at the end of November and was
partially offset by a lower average cost of finance in 2019 of 3.6%
(2018: 3.8%) as we have utilised revolving credit facilities at
lower average rates. Interest capitalised into development schemes
decreased from GBP10.5 million to GBP9.1 million, driven both by
lower development spend and lower capitalisation rates. We expect
capitalised interest to remain at around this level given the
ongoing level of development activity in 2020 and 2021.
Development (pre-contract) and other costs remained broadly flat
at GBP5.7 million (2018: GBP5.8 million), reflecting site
acquisitions, the earnings impact of share-based incentives and our
contribution to our charitable trust, the Unite Foundation.
Occupancy, reservations and rental growth
Occupancy across Unite's portfolio for the 2019/20 academic year
stands at 98% and like-for-like rental growth of 3.4% was achieved.
Beds under like-for-like nomination agreements delivered 3.4%
rental growth, reflecting fixed or inflation-linked uplifts on
multi-year agreements. Direct-let beds delivered 3.8% YoY growth on
a like-for-like basis, through a combination of value-driven price
increases as well as improvements in the utilisation of our assets.
We are offering more 51-week tenancies where we see demand, in
particular from international students. In addition, we achieved a
46% increase in summer income in 2019 by changing tenancies to
support summer demand, increased focus and delivery by our teams
and through the introduction of hotel-style stays in certain
locations. We forecast utilisation of 88% for 2019/20 and continue
to see the potential to improve utilisation to the low-90%s over
the medium term.
At a fund level, LSAV delivered rental growth of 4.8% for
2019/20, reflecting the portfolio's focus and the ongoing shortage
of purpose-built accommodation in London. The wholly owned and USAF
portfolios delivered rental growth of 3.4% and 2.9% respectively,
reflecting a higher level of nomination agreements in those
portfolios and a higher weighting to more highly penetrated
provincial markets.
2019/20 rental growth % By type %
By fund
Wholly owned portfolio 3.4% Nominations 3.4%
USAF 2.9% Direct let 3.8%
LSAV 4.8% Non like-for-like** 2.9%
---- ----
Total 3.4% Total 3.4%
* Excludes sale and leaseback properties and Liberty Living
properties
** Non like-for-like properties include buildings which have
changed from nominations to direct-let, or vice versa, during the
year
We have maintained a high proportion of beds let to
Universities, with 56% of rooms under nominations agreements
(2018/19: 60%). The decrease in our weighting to nominations
agreements reflects the slightly lower level of nominations in the
legacy Liberty Living portfolio. The acquisition of Liberty Living
has deepened some of our key University relationships, and brings
new relationships with Russell Group institutions such as the
University of Manchester, University of Sheffield and Cardiff
University.
65% of these agreements, by income, are multi-year and therefore
benefit from annual fixed or inflation-linked uplifts. These
agreements secure average annual rental growth of 3.0% over the
next five years at current levels of inflation and utilisation. The
remaining agreements are single year and we again achieved a
renewal rate of 85% on these agreements. Enhanced service levels
and our extensive understanding of student needs have resulted in
longer term and more robust partnerships with Universities over
recent years. The unexpired term of our nominations agreements is
six years, in line with 2018.
We expect the proportion of beds let to Universities to remain
at or around this level in the future. This balance of nominations
and direct-let beds provides the benefit of having income secured
by Universities, as well as the ability to offer rooms to
re-bookers and postgraduates and determine market pricing on an
annual basis.
Agreement length Beds Beds 2019/20
2019/20 2018/19 % Income
------------------ --------- --------- ----------
Single year 15,264 7,543 35
2-5 years 11,214 11,672 28
6-10 years 4,579 1,675 12
11-20 years 5,224 4,026 13
20+ years 5,203 4,099 12
--------- --------- ----------
Total 41,484 29,105 100
UK students account for 60% of our customers and account for a
large proportion of the beds under nomination agreements with
Universities. In addition, 31% and 9% of our customers come from
non-EU and EU countries respectively, reflecting the relative
appeal of our hassle-free product when compared with alternatives
in the private rented sector.
Re-bookers accounted for 28% of our direct-let bookings for the
2019/20 year, increasing the proportion of our direct-let beds let
to non-1(st) years to 75%. This reduces our exposure to less
predictable 1(st) year undergraduate customers and puts less
emphasis on clearing following A-level results.
Postgraduates have increased as a share of our total customer
base over the past five years, driven by strong growth in UK
postgraduate numbers and increasing awareness of the benefits of
PBSA. In response, we are considering how to tailor our offer for
postgraduates as part of our wider review of customer
segmentation.
Reservations for the 2020/21 academic year are encouraging at
73%, in line with record levels in 2018, as a result of our
continued focus of working alongside the UK's best Universities,
the success of our online marketing strategy and further progress
through our local marketing operation in China. We continue to
monitor the situation regarding the outbreak of the Coronavirus and
its potential impact on reservations for summer 2020 and the
2020/21 academic year, and we are working on mitigation plans if
required.
We have good visibility over rental growth for the 2020/21
academic year, with the nominations agreements in place on a large
proportion of our beds. Falling UK inflation over the past 12
months will result in a slight reduction in rental growth from
multi-year nomination agreements with annual RPI-linked rental
increases. However, we still anticipate annual rental increases of
just under 3% from our nomination agreements. In addition, we also
see a positive outlook for direct-let sales through re-bookers and
growing demand from non-EU international and postgraduate students.
We expect increases in utilisation to contribute around a third of
our 3.0-3.5% rental growth target for 2020/21, through a
combination of longer tenancy lengths and new multi-year group
bookings.
Enhancing our customer proposition
Our best-in-class operating platform continues to drive both
service enhancements and operational efficiency. We remain
committed to reinvesting a significant proportion of savings in
enhanced customer services that deliver value-for-money for
students and support our purpose of creating a Home for Success.
This includes investment in our MyUnite app, our Student Ambassador
programme and staff training around student welfare. This ongoing
investment in our customer proposition is factored into our 74%
EBIT margin target.
Home for Success forms a key component of how we operate as a
responsible business, and means providing a living environment that
enables students to get the very best out of their time at
University. With this in mind, we continue to invest in the things
that our extensive research tells us matter most to them: the
smoothest possible transition to University life; a home that is
safe and secure, where they can study and socialise in the way they
want; and ensuring that help is on hand when needed.
Making sure the move to University and the process of settling
in is as smooth as possible for students enhances retention and
reduces the workload on our teams. In delivering this experience,
we bring together our expertise in design and a carefully designed
suite of traditional and digital services delivered by people who
have a long experience of welcoming students from every background
to their new life.
We continue to strengthen our relationship with our customers,
as reflected in record student satisfaction, up to 85 in 2019 from
83 last year. Our net promoter score (NPS) has also increased from
17 in 2018 to 19 in 2019, reflecting enhancements to customer
service and greater consistency across the estate. This puts us
materially ahead of the wider corporate PBSA sector (NPS of 6) and
University PBSA (NPS of -4) based on the latest National Student
Housing Survey. Our success in providing buildings and a student
offer that is valued by Universities is evidenced by our ongoing
success in delivering valuable nominations agreements and our
independently verified University Trust score that increased to a
record level of 82 in 2019 (2018: 81).
Recent service enhancements
The MyUnite app, currently used by 90% of our students, gives a
platform for students to message each other in a moderated forum
before moving in. In response to student demand, we have also
recently rolled out an online check-in service, also available
through the app and used by 75% of students to be offered the
facility in 2019. Allowing students to book check-in slots makes
for a smoother check-in day and allows our people to concentrate on
providing a hassle-free and positive experience for new students,
helping them to settle in quicker.
Once living with us, the MyUnite app allows students to log
maintenance requests and anonymous noise complaints, book and use
laundry machines and notify the security team if they are locked
out of their room so they can be let in at any hour. The logging of
maintenance requests has been improved further, allowing
auto-scheduling and monitoring of requests to help our teams
deliver fixes by the end of the working day in 80% of cases. All of
these functions put more power and choice into our students' hands,
and also increases our operating efficiencies, allowing us to
concentrate on offering unbeatable service. These digital channels
are increasing in popularity with our students, as illustrated by a
13% increase in online WebChats to our contact centre, versus a 23%
reduction in calls regarding students' accounts and a fall of 40%
in general customer service calls compared to the previous
year.
Helping students settle in
Our Student Ambassador programme typically involves 2(nd) and
3(rd) -year students, who have chosen to stay with Unite, providing
peer-to-peer support within their buildings, especially for
students arriving at University for the first time. They are on
hand to help students move into their rooms quickly on check-in
day, find the facilities they will need and to advise on the
realities and practicalities of student life. Over the coming weeks
and months, they represent a highly accessible source of support at
critical points during a student's journey through University. We
have recruited a 160-strong network of Student Ambassadors to help
our 2019 intake of students, all of whom gain valuable work
experience and personal development and are paid the National or
London Living Wage.
Before students arrive, we offer both physical and virtual
property tours and room viewings to familiarise students with their
new home. We also review and improve our welcome communications
each year to make sure the information students receive before
leaving to go to University is relevant and needed, while not
overwhelming. These communications feature local information for
the student's chosen city, linking them to local amenities, events
and services. We also guide our students to our online Common Room,
which was visited by over 180,000 people in 2019, over two-thirds
of whom were completely new users. Articles classed as Student
Living and Health & Wellbeing had the highest combined views,
and these make up a key part of our welcome communications. 80% of
customers surveyed said they found their pre-arrivals
communications useful, and pre-arrival calls to our contact centre
reduced by 7%.
Student wellbeing
During the year, we collaborated with the British Property
Foundation to create a wellbeing guide and to drive positive change
within the PBSA sector, leading by example. The guide outlines key
findings on student welfare and suggests best practice within the
sector. The guide was endorsed by the Department for Education.
We were the first in the sector to develop a professional
framework for student wellbeing and to hire student service
professionals to advise and guide our teams on difficult or
unfamiliar situations. Our customer service teams are all trained
in active listening to ensure they have the tools they need to
quickly identify potential welfare issues before they become
problematic and, if necessary, signpost students to an appropriate
professional service. We also link in with University support
networks and local wellbeing services, including the third-party
peer-to-peer advice call centre, Nightline. We operate a 24/7/365
emergency contact centre for times of need, who received around
94,000 calls during the year.
We have a clear escalation process in which all team members can
raise a concern about a student's wellbeing, and we work very
closely with our University partners to direct them to the support
they need. Each of our city teams has trained mental health first
aiders and we regularly update our staff on trends and emerging
issues in student welfare. We recognise the important part student
accommodation has to play in student welfare, and the opportunity
we have to influence a positive student experience from
transitioning to student life and throughout their journey through
University.
Improving outcomes for students
Our student insight programmes consistently tell us that
students' expectations before moving to University do not align
with the reality of student living. To tackle this disparity, we
launched Leapskills in 2018, a programme that helps to build
resilience in prospective students and address key issues they may
face on a day-to-day basis. The programme is made up of free
resources, including a digital game that lets students and their
teachers explore a virtual student accommodation block and look at
what tricky scenarios they may encounter. This evokes discussions
around living with peers, managing finances and potentially feeling
lonely, among other topic areas. The programme has been received
overwhelmingly well, with students and teachers telling us that the
courses have better prepared them for University life. The
Department of Education has also endorsed and championed
Leapskills. 64 educational institutions have now signed up for
Leapskills and over 1,700 students have already participated in the
programme to help them better prepare for University.
To deepen our student offer, we have partnered with Placer, a
work experience matching app that helps to connect students with
the best work experience opportunities available to supplement
their University course. Historically, placements have been hard to
reach for some students, but Placer levels the playing field to
offer equal opportunities to any student who signs up to the
service for free. This means socio-economic background and other
factors will not influence a student's ability to gain work
experience. So far, nine Universities are live with Placer with a
further six committed for the 2019/20 academic year. To date,
opportunities from 4,124 employers, including top graduate
employers Enterprise-Rent-A-Car, HSBC, GSK and EY, have been shown
to 7,000 students, with 25,000 saved to student shortlists and
2,000 clicks to apply. These opportunities positively supplement
the students' University course and improve future
employability.
Improving access to Higher Education
Moving to University, progressing in your subject and then
eventually graduating are huge milestones in anyone's life. These
challenges are even harder if you do not have the support of a
family. The Unite Foundation charity was founded in 2012 to work
with students who do not have family support to help them through
this process, offering care leavers and estranged students
wrap-around support as part of an accommodation scholarship with
Unite. Only 6% of care leavers under the age of 21 go to
University, with almost half dropping out from their course. The
Unite Foundation is proud that its scholars show a 92% continuation
rate from their first year of study. The Foundation currently works
with 27 University partners, has awarded over 400 scholarships
since 2012 and 130 students have already graduated; transcending
their early academic disadvantage.
University relationships
Our reputation with Universities is another of our key
performance metrics, and our latest Higher Education Trust survey
revealed our reputation is at an all-time high. This is the result
of our active engagement with our Universities at various different
levels in the business; from the day-to-day operational activity
with our city teams and liaising with University accommodation
offices and student services to strategic conversations with
Vice-Chancellors and their senior teams through our Higher
Education engagement team and senior management. We are committed
to helping our University partners to meet their own goals, such as
customer satisfaction scores, student experience, wellbeing and
retention goals. We continue to secure long-term nominations
agreements that reflect this confidence in our offer, and our
Universities increasingly view us as a strategic partner to their
long-term accommodation strategies rather than just a traditional
supplier.
Our partners are also invested in our long-term commitment to
widening participation in Higher Education, through the Unite
Foundation, and our deep insight and research programmes and
campaigns. We have also received positive feedback within the
sector for our Leapskills programme.
During the year, we launched our Higher Education website which
caters specifically to potential and current University partners.
This includes information on our Home for Success purpose and brand
promises, as well as information on how we can work to create
tailored offers for our partners. There are also links to our
student insight programmes and blogs from our thought leaders.
Our acquisition of Liberty Living positions us as an even
stronger partner for Universities, increasing our presence from 22
to 27 towns and cities across the UK. This has given us the
opportunity to connect with more of the UK's strongest Universities
and allows us to offer a wider range of accommodation options in
our existing markets to better match what our University partners
need for their students.
PROPERTY REVIEW
EPRA NAV growth
EPRA NAV per share increased by 8% to 853 pence at 31 December
2019 (31 December 2018: 790 pence). In total, EPRA net assets were
GBP3,110 million at 31 December 2019, up from GBP2,085 million a
year earlier.
The main drivers of the 63 pence per share growth in EPRA NAV
per share were:
-- The growth in the value of the Group's share of investment
assets as a result of rental growth (+20 pence) and yield
compression (+11 pence)
-- The value added to the development portfolio (+24 pence)
-- The impact of the share placing, acquisition of Liberty
Living and associated expenses (+6 pence)
-- The impact of retained profits and other items (+2 pence)
GBPm Diluted pence per share
EPRA NAV as at 31 Dec 2018 2,085.4 790
Rental growth 72.4 20
Yield movement 40.9 11
Development property gains 87.0 24
Share placing and Liberty Living acquisition 785.2 6
Retained profits/other 38.8 2
EPRA NAV at 31 Dec 2019 3,109.7 853
============================================= ======= =======================
Property portfolio
The valuation of our property portfolio at 31 December 2019,
including our share of gross assets held in USAF and LSAV, was
GBP5,225 million (31 December 2018: GBP2,967 million). The GBP2,258
million increase in portfolio value (Unite share) was attributable
to:
-- Valuation increases of GBP206 million on the investment and
development portfolios, with like-for-like rental growth of 3.4%
and yield compression of 11 basis points
-- Capital expenditure on developments of GBP224 million, including interest capitalised
-- Capital expenditure of GBP15 million on investment assets
relating to refurbishment and asset management initiatives
-- The acquisition of Liberty Living, representing GBP2,019 million of gross assets
-- Other acquisitions of GBP7 million, disposals of GBP250
million and the impact of the change in Unite's ownership stake in
USAF of GBP(74) million
-- GBP110 million due to the recognition of leased assets under IFRS 16
The see-through net initial yield of the portfolio is 5.00%,
including properties acquired from Liberty Living (December 2018:
5.00%). For investment assets held throughout the year, there has
been 11 basis points of yield compression. The Liberty Living
portfolio was valued at an average net initial yield of 5.26% at
the year end.
Our alignment to growing Universities means that our portfolio
is well placed to deliver continued rental growth.
Summary balance sheet
31 December 2019 31 December 2018
--------------------------------------- ---------------------------------------
Wholly owned Share of Fund/JV Wholly owned Share of Fund/JV
GBPm GBPm Total GBPm GBPm Total
GBPm GBPm
----------------------------- ------------ ---------------- ------- ------------ ---------------- -------
Rental properties 3,407 1,296 4,703 1,497 1,188 2,685
Rental properties (leased) 110 - 110 - - -
Properties under development 412 - 412 279 3 282
------------ ---------------- ------- ------------ ---------------- -------
Total property 3,929 1,296 5,225 1,776 1,191 2,967
------------ ---------------- ------- ------------ ---------------- -------
Net debt (1,450) (434) (1,884) (471) (385) (856)
Lease liability (99) - (99) - - -
Other assets/(liabilities) (120) (13) (133) (14) (12) (26)
EPRA net assets 2,260 849 3,109 1,291 794 2,085
============ ================ ======= ============ ================ =======
The proportion of the property portfolio that is income
generating is 92% by value, up from 90% at 31 December 2018, with
8% now under development. The portfolio is 34% weighted to London
by value on a Unite share basis, which will rise to 38% on a
built-out basis following completion of our secured development
pipeline.
Unite investment portfolio analysis at 31 December 2019
Wholly Unite
owned USAF LSAV Lease Total share
London Value (GBPm) 1,015 391 1,061 17 2,484 1,648
Beds 3,499 1,870 5,291 260 10,920 34%
Properties 11 6 12 1 30
--------------------------------- ------- ------- ------- ------ ------- -------
Prime provincial Value (GBPm) 877 641 - 29 1,547 1,047
Beds 7,042 5,342 - 618 13,002 22%
Properties 15 18 - 2 35
--------------------------------- ------- ------- ------- ------ ------- -------
Major provincial Value (GBPm) 1,198 1,527 274 29 3,028 1,701
Beds 17,324 19,506 3,067 753 40,650 35%
Properties 37 48 1 2 88
--------------------------------- ------- ------- ------- ------ ------- -------
Provincial Value (GBPm) 317 291 - 35 643 417
Beds 4,957 3,520 - 1,059 9,536 9%
Properties 11 10 - 3 24
--------------------------------- ------- ------- ------- ------ ------- -------
Total Value (GBPm) 3,407 2,850 1,335 110 7,702 4,813
Beds 32,822 30,238 8,358 2,690 74,108 100%
Properties 74 82 13 8 177
--------------------------------- ------- ------- ------- ------ ------- -------
Unite ownership (GBPm) 3,407 628 668 110 4,813
---------------------------------- ------- ------- ------- ------ ------- -------
Buildings designed for students
The focus of our property activity is to provide buildings
designed specifically around the needs of today's students, in the
best locations alongside high-performing Universities. We involve
our University partners in the design and planning process to
ensure that we are delivering buildings that meet the requirements
of their students. We also aim to provide value-for-money
accommodation and look to continually enhance the specification of
our estate, using technology to improve customer service, reduce
our environmental impact and drive efficiency savings through
energy and water savings, upgraded Wi-Fi speeds and new features to
improve the living experience.
Our development and portfolio activity is designed to support
this strategic approach, ensuring that the portfolio is best placed
to meet students' requirements and drive full occupancy and rental
growth in the medium term.
Development and University partnership activity
Development and University partnership activity continues to be
a significant driver of growth in future earnings and NAV and is
aligned to our focus on high and mid-ranked Universities. Our
pipeline of traditional development, University partnerships and
forward funds includes 5,191 beds with a total development cost of
GBP681 million, of which 1,872 beds will be delivered in London for
a total development cost of GBP375 million.
We continue to identify new development and University
partnership opportunities that deliver our target returns in both
London and the regions. In particular, we see an emerging
development opportunity in zones 1 and 2 of Central London,
following a softening in land values. We expect to add to our
pipeline during 2020 and maintain a run-rate of c.2,000 new beds
per annum.
The anticipated yield on cost of this secured pipeline is 6.8%.
Prospective returns on new direct-let schemes remain attractive at
around 8.0% in provincial markets. We have lower hurdle rates for
developments that are supported by Universities or where another
developer is undertaking the higher risk activities of planning and
construction. The new London Plan requires student accommodation to
secure a nomination agreement with one or more Universities,
meaning we expect new London developments to be delivered as
University partnerships with development yields of 6.0-6.5%.
University partnerships make up almost 60% by value of our secured
development pipeline.
We have contractually fixed our exposure to construction costs
on all schemes completing in 2020 and entered into design and build
contracts for our 2021 deliveries, which substantially de-risks our
cost risk. We have brought forward the procurement of all critical
items supplied from European countries on our 2020 completions.
2019 and 2020 completions
We completed 2,390 beds across three new schemes during 2019 in
line with budget and programme, achieving full occupancy in the
first year of operation. Around 70% of these beds are let to
Universities under nominations agreements for the 2019/20 academic
year, with an average duration of 16 years, supporting our ongoing
focus on quality of income.
The 2020 development pipeline is nearing completion on time and
to budget. We are opening 2,257 beds across three properties all in
high-ranking University cities, with over 50% of the beds already
secured under nominations agreements, with an average life of 15
years, supporting our ongoing focus on quality of income.
Development pipeline
During the year, we secured planning on our 913-bed Middlesex
Street site in London for delivery in 2021. Middlesex Street
creates new supply in a strategically important location where
there is a shortage of affordable, high-quality accommodation. The
scheme is expected to deliver a GBP86 million uplift to NAV, of
which GBP40 million is still to be recognised, and will add 2 pence
to EPRA EPS from 2021/22.
Planning has also now been secured for our 416-bed student
accommodation development at the Old BRI site in Bristol city
centre, which will be delivered for the start of the 2021/22
academic year. The consented scheme includes 62 rented residential
homes and includes 20% affordable units. Unite will deliver the
residential portion of the scheme with the option of retaining or
disposing of the homes on completion.
We have continued to add to our pipeline during the year, with
an additional two schemes expected to deliver an additional c.1,000
beds. One of the schemes is a 620-bed development site in
Nottingham, which is subject to planning consent, expected to open
in time for the 2022/23 academic year. In addition, we have
acquired a c.300-bed development site at Wyvil Road in London as
part of the Liberty Living acquisition, which has the potential to
accommodate both student and other residential uses.
University partnerships pipeline
In addition to growing the number of beds and the value of
income underpinned by long-term University-backed nomination
agreements, we have made further progress with our strategy of
delivering ongoing growth through partnerships with Universities.
We have secured two further University partnership schemes over the
past 12 months.
In October, Unite agreed commercial terms with the University of
Leeds for a 30-year nomination agreement for its White Rose View
development in Leeds.
In January 2020, we announced we were in advanced negotiations
with the University of Bristol for a University partnership
covering around 3,000 beds in Bristol. This will include a large
proportion of Unite's existing operational assets in the city
following targeted investments as well as the 416-bed Old BRI
development and the 650-bed Temple Quay development in close
proximity to the University's new Temple Quarter campus. The
long-term agreement strengthens our long-standing and valuable
relationship with the University.
At Middlesex Street in London, we were supported through
planning by King's College London and both parties are working
towards a long-term nomination agreement ahead of completion for
the start of the 2021/22 academic year.
We continue to make progress with our strategy of delivering
ongoing growth through partnerships with Universities. Through our
Higher Education Engagement team, we have a pipeline of active
discussions for new University partnerships, with 11 Universities
covering almost 24,000 beds. These discussions often cover a range
of potential solutions on a city-wide basis, reflecting each
University's specific accommodation needs. These strategic
discussions may include multi-year nomination agreements for our
existing operational assets, on-campus and off-campus developments
and stock transfer.
The nature of these discussions and the commitment required by
both parties means that some opportunities will fall away. This
often reflects changes in circumstances, strategy or personnel for
Universities or our own decision not to pursue certain
opportunities. For Universities, decisions over their accommodation
strategies are often superseded by academic matters and investment
in their own academic estates. However, there remains a compelling
rationale for Universities to work with us to deliver operational
efficiencies and provide the new accommodation required to deliver
their future growth ambitions.
Positively, we continue to track a healthy flow of new
opportunities to add to the pipeline. Our experience suggests that
we will convert 10-20% of these opportunities over time. As a
result, we expect to add one or two new deals per year as
previously outlined.
Type Beds Execution risk
------------------------ -------------------- ------- ---------------
Multi-year nominations Existing portfolio 10,200 Low/Medium
Off-campus development New 3,700 Medium
On-campus development New 5,700 High
Stock transfer New 4,000 High
-------
Total 23,600
-------
Secured development and partnerships pipeline
Target Secured Total Total Capex in Capex Forecast Forecast
delivery beds completed development period remaining NAV yield on
value costs remaining cost
No. GBPm GBPm GBPm GBPm GBPm %
--------------- ------------ ----------- ---------- ------------ ----------- ----------- ---------- ----------
Wholly owned
First Way,
London 2020 678 126 102 33 31 8 6.0%
New Wakefield,
Manchester 2020 603 85 56 20 17 11 7.8%
Derby Road,
Nottingham(1) 2022 620 64 48 1 47 16 8.0%
Wyvil Road,
London(1) 2023 281 132 87 18 69 44 6.4%
Total wholly owned 2,182 407 293 72 164 79 7.1%
University partnerships
White Rose
View, Leeds 2020 976 124 83 35 25 15 7.4%
Old BRI,
Bristol 2021 416 57 42 1 21 15 6.2%
Middlesex
Street,
London 2021 913 272 186 37 141 40 6.1%
Temple
Quarter,
Bristol(1) 2022 704 96 77 1 76 18 6.2%
----------- ---------- ------------ ----------- ----------- ---------- ----------
Total University
partnerships 3,009 549 388 74 263 88 6.6%
Total pipeline (Unite share) 5,191 956 681 146 427 167 6.8%
=========== ========== ============ =========== =========== ========== ==========
(1) Subject to obtaining planning consent
Disposal activity
We will continue to manage the quality of the portfolio and our
balance sheet leverage by recycling capital through disposals and
reinvesting into developments and acquisitions of assets aligned to
the best Universities. During the year, the Group's share of
disposals was GBP249 million, in line with book values, at a
blended net initial yield of 5.7%. This included the sale to USAF
of five properties for GBP202 million (Unite share: GBP153m),
located in Portsmouth, Leeds, Newcastle and Birmingham and
totalling 2,378 beds. In addition, in October we exchanged and
completed on the sale of two wholly owned properties in Coventry,
comprising 1,127 beds for GBP96 million to Mapletree Investments at
a price in line with book value.
Following the acquisition of Liberty Living, we intend to
dispose of approximately GBP150-200 million of assets per annum,
broadly in line with historical levels. These target disposals,
combined with rental growth, are intended to ensure that we meet
our target LTV of 35% and underpin our ability to sustain rental
growth over a longer time horizon.
FINANCIAL PERFORMANCE
Income statement
A reconciliation of Profit before tax to EPRA earnings measures
is set out in summary below and expanded in section 8 of the
financial statements.
The underlying performance of the business has shown continued
growth, but was affected by the non-recurring costs associated with
the Liberty Living acquisition.
Unite Liberty Living 2019 2018
GBPm GBPm GBPm GBPm
------------------------------------------------------------------ ------ --------------- --------- ------
EPRA earnings 103.1 7.5 110.6 88.4
Valuation gains and profit/loss on disposal 198.1 153.6
Impairment of goodwill and intangibles (384.1) -
Acquisition costs (22.8) -
Changes in valuation of interest rate swaps and debt break costs (5.4) (0.1)
Minority interest, tax and other items 2.4 3.9
------ --------------- --------- ------
(Loss)/profit before tax (101.2) 245.8
====== =============== ========= ======
EPRA earnings per share 39.1p 34.1p
Basic earnings per share (31.5)p 90.8p
The loss before tax of GBP101.2 million includes the impairment
of goodwill and intangibles of GBP384.1 million, resulting from the
acquisition of Liberty Living, which was offset by a higher level
of EPRA earnings of GBP110.6 million and a higher valuation uplift
of GBP198.1 million in 2019 (2018: GBP88.4 million and GBP153.6
million respectively). The Liberty Living acquisition was priced on
a NAV-for-NAV basis for a total consideration of GBP1.4 billion.
Goodwill was created, and subsequently impaired, in relation to the
share element of the consideration issued to CPPIB. This reflected
the premium to NAV implied by the share price at completion in late
November, following a strong appreciation post-announcement of the
transaction.
Acquisition of Liberty Living and Share Placing
On 3 July 2019, the Company announced that it had agreed to
acquire Liberty Living's UK portfolio of purpose-built student
accommodation, comprising 24,021 beds across 51 properties, for a
total consideration of GBP1.4 billion. In consideration for the
acquisition, CPPIB received approximately 72.6 million new ordinary
shares in Unite, representing a 20.0% shareholding in the enlarged
Group and total cash consideration of approximately GBP0.8 billion.
The cash consideration was split between GBP492 million payable by
Unite Group plc from the net proceeds of a share placing in July,
existing debt facilities and cash resources. Separately, USAF
acquired Liberty Living's properties in Cardiff (3,480 beds in
eight properties) for GBP253 million. The acquisition completed on
29 November 2019.
We completed a placing of 26.4 million new ordinary shares in
July 2019 at a price of 985 pence per share, raising gross proceeds
of GBP260 million. The proceeds were used to fund part of the cash
consideration for the acquisition of Liberty Living. The company
applied the principles of pre-emption when allocating new shares to
those investors that participated in the placing.
The consideration for the acquisition was calculated on a
NAV-for-NAV basis as at 31 March 2019, with certain agreed
adjustments applied to the EPRA NAVs of Unite and the Liberty
Living portfolio. This meant that Unite acquired the Liberty Living
business at its EPRA NAV on 31 March 2019. Shares were issued to
CPPIB based on Unite's EPRA NAV at the same date, which equated to
827p per share before adjustments for dividends paid before
completion. Goodwill arose based on the difference between this
issue price and the share price on completion of the transaction on
29 November 2019.
As the acquisition has been accounted for as a business
combination, the premium paid over the fair value of the net assets
acquired is treated as goodwill in the consolidated balance sheet
at the time of acquisition. Goodwill of GBP377.4 million arising in
respect of the transaction was recognised on acquisition. Goodwill
and intangible assets were subsequently assessed for impairment. An
impairment charge of GBP384.1 million for the full amount of
goodwill recognised on acquisition (GBP377.4 million) and the fair
value of the Liberty Living brand (GBP6.7 million) has been taken
to the consolidated income statement. No portfolio premium has been
recognised following the acquisition.
The Board expects the placing and associated acquisition of
Liberty Living to be materially accretive to earnings and dividends
per share from the year ending 31 December 2020.
Cash flow and net debt
The Operations business generated GBP85.4 million of net cash in
2019 (2018: GBP81.2 million) and net debt increased to GBP1,884
million (2018: GBP856 million). The key components of the movement
in see-through net debt were:
-- The acquisition of Liberty Living and associated acquisition
costs (generating a total outflow of GBP1,349 million)
-- Net proceeds from the share placing (GBP255 million)
-- The disposal programme (generating total inflows of GBP243 million)
-- Total capital expenditure of GBP240 million
-- Operational cash flow of GBP85 million
-- The impact of new units issued in USAF and our reduced
shareholding (GBP84 million reduction in net debt)
-- Dividends paid of GBP70 million
In 2020, we expect net debt to increase as planned capital
expenditure on investment and development activity will exceed
anticipated asset disposals.
Debt financing
The Group maintains a disciplined approach to managing leverage,
with see-through LTV of 37% at 31 December 2019 (31 December 2018:
29%).
The increase during the year was primarily driven by the Group's
acquisition of Liberty Living. We intend to dispose of GBP150-200
million of assets per annum to fund our development activity and
reduce LTV to a target of 35% by the end of 2021, assuming current
yields.
With greater focus on the earnings profile of the business, we
are continuing to monitor our net debt to EBITDA ratio, which we
target to return to 6-7x over the medium term.
The Unite Group plc has maintained investment grade corporate
ratings of BBB from Standard & Poor's and Baa2 from Moody's,
reflecting Unite's robust capital position, cash flows and track
record. As a result of the acquisition of Liberty Living, Standard
& Poor's and Moody's have affirmed Unite's and Liberty Living's
credit ratings and changed the outlook from stable to positive.
Interest rate hedging arrangements and cost of debt
Our average cost of debt based on current drawn amounts has
reduced to 3.3% (31 December 2018: 3.8%) and the Group has 93% of
investment debt subject to a fixed or capped interest rate (31
December 2018: 99%) for an average term of 5.4 years (31 December
2018: 5.8 years). The reduction in the average cost of debt during
the year reflected the lower-cost debt assumed through the Liberty
Living acquisition as well as the redemption of the GBP90 million
of 6.125% retail bonds in December 2019.
We will continue to proactively manage debt maturity profiles
and to lock into longer term debt at rates below our current
average cost of debt. Borrowings for the combined Group are well
diversified across lenders and maturities, with only limited
maturities before 2022.
Key debt statistics (Unite share basis) 31 Dec 2019 31 Dec 2018
--------------------------------------------- ------------ ------------
Net debt GBP1,884m GBP856m
LTV 37% 29%
Net debt:EBITDA ratio 6.8* 6.1
Interest cover ratio 3.5 3.4
Average debt maturity 5.4 years 5.8 years
Average cost of debt 3.3% 3.8%
Proportion of investment debt at fixed rate 93% 99%
* 2019 calculation based on average net debt, pro rata for
completion of Liberty Living acquisition in late November 2019
Amendments to IFRS
The new accounting standard, IFRS 16 Leases, became effective
from 1 January 2019. This standard impacts our sale and leaseback
portfolio which comprised 2,690 beds across eight properties at 31
December 2019. These properties were sold by the Group between 2004
and 2009 to institutional investors and simultaneously leased back
by the Group. The properties have income secured by nominations
agreements to offset the lease payment to the institutional owners.
The new standard creates a right-of-use asset for leased properties
based on net income forecasts and a liability for future lease
payments.
At 31 December 2019, due to the recognition of GBP110.4 million
of leased properties and a lease liability of GBP98.9 million, the
LTV of the leased properties is 90%. This causes LTV to increase by
1% on a see-through basis. As this is a result of the accounting
treatment for leased properties under the new standard, the Group
continues to monitor and present LTV on a pre-IFRS 16 adjustments
basis. EPRA Earnings has marginally benefitted from the application
of IFRS 16.
The table below shows the impact of adopting the new standard on
EPRA Earnings, EPRA NAV and LTV in 2019. Further details of the
impact on transition can be found in note 1 of the financial
statements.
FY2019 FY2019
pre-IFRS 16 IFRS 16 adjustments post-IFRS 16
GBPm GBPm GBPm
-------------------------------- ------------- -------------------- --------------
Income statement
Net operating income 160.8 - 160.8
Overheads less management fees (9.3) 1.9 (7.4)
Finance costs (45.7) 1.8 (43.9)
Development/other 1.1 - 1.1
EPRA Earnings 106.9 3.7 110.6
EPRA EPS (p) 37.8 1.3 39.1
------------- -------------------- --------------
EBIT margin 70.9% 71.7%
Balance sheet
Rental properties 4,720.4 - 4,720.4
Leased properties - 110.4 110.4
Properties under development 411.8 - 411.8
Total property portfolio/GAV 5,114.2 110.4 5,224.6
Cash 114.9 - 114.9
Debt (1,999.2) - (1,999.2)
Lease liability - (98.9) (98.9)
------------- -------------------- --------------
Net debt (1,884.3) (98.9) (1,983.2)
Other assets/(liabilities) (118.6) (13.1) (131.7)
EPRA NAV 3,111.3 (1.6) 3,109.7
EPRA NAV (p) 853 853
------------- -------------------- --------------
LTV 37% 38%
Dividend
We are proposing a final dividend payment of 22.95 pence per
share (2018: 19.5 pence), making 33.2 pence for the full year
(2018: 29.0 pence). The final dividend will be fully paid as a
Property Income Distribution (PID) of 22.95 pence.
Subject to approval at Unite's Annual General Meeting on 7 May
2020, the dividend will be paid in either cash or new ordinary
shares (a "scrip dividend alternative") on 15 May 2020 to
shareholders on the register at close of business on 14 April 2020.
The last date for receipt of scrip elections will be 23 April
2020.
Further details of the scrip scheme, the terms and conditions
and the process for election to the scrip scheme are available on
the company's website.
As a result of the quality, predictable earnings outlook for the
business, we are planning to maintain our dividend payout at 85% of
EPRA earnings.
Tax and REIT status
The Group holds REIT status and is exempt from tax on its
property business. During the year, we incurred GBP2.5 million of
corporation tax (2018: GBP4.1 million), relating primarily to
profits on our property management activities, and a GBP2.4 million
tax credit in respect of prior years.
The Finance Act 2019 has resulted in the reversal of the
deferred tax liability of GBP24.4 million on investments in USAF
units and the corresponding deferred tax asset of GBP9.9 million on
losses, resulting in a GBP14.5 million increase in net asset
value.
Funds and joint ventures
The table below summarises the key financials at 31 December
2019 for each vehicle.
Property Assets Other assets Unite share of
GBPm Net debt GBPm Net assets GBPm NAV Unite share
GBPm GBPm Maturity
------ ---------------- ----------- ------------- ----------------- ---------------- ----------- --------------
USAF 2,850 (858) (9) 1,983 437 Infinite 22%
LSAV 1,335 (490) (21) 824 412 2022/2027 50%
USAF and LSAV have performed well in the year to 31 December
2019. LSAV has delivered a strong performance based on rental
growth and yield compression in London. USAF's performance is in
line with the broader performance of the business.
In May, USAF raised GBP250 million of new equity from external
investors to fund new acquisitions. Unite did not participate in
the equity raise, meaning its stake in USAF reduced from 25% to
22%. We sold five assets to USAF for a total consideration of
GBP202 million during the year (Unite share GBP153 million),
located in Portsmouth, Leeds, Birmingham and Newcastle. In
addition, USAF acquired two properties in Newcastle in June for a
total of GBP34 million, including allowance for an extensive
refurbishment of both properties.
Furthermore, as part of the acquisition of Liberty Living, USAF
acquired Liberty Living's Cardiff properties, totalling 3,480 beds
for GBP253 million. USAF retains around GBP200 million of
acquisition capacity and will continue to monitor acquisition
opportunities to further improve the quality of the portfolio.
Fees
During the year to 31 December 2019, the Group recognised net
fees of GBP22.3 million from its fund and asset management
activities (2018: GBP15.6 million). The increase was driven by
growth in NOI and asset valuations, the acquisition fee received
from USAF in relation to the purchase of Liberty Living's Cardiff
properties and initial recognition of a net performance fee from
LSAV.
The London portion of our LSAV joint venture has a maturity in
2022. Discussions are ongoing with our joint venture partner GIC
over the future of the vehicle. The joint venture has performed
well over its life and we continue to see an opportunity to realise
value from the performance fee payable to Unite at maturity. The
2019 results recognise an initial GBP5.7 million of this fee
(GBP4.6 million net of tax) and, based on current expectations,
Unite's remaining share of the performance fee is expected to be
c.GBP15-20 million net of tax. The performance fee is payable at
the end of the life of the joint venture and is based on the cash
realised to the joint venture partners. The remaining fee will be
realised over the period until the vehicle's scheduled maturity in
2022, subject to the performance, outlook and discussions with GIC
over the future of the fund. Further detail can be found in note
2.4 to the financial statements.
2019 2018
GBPm GBPm
---------------------------------------- ------ ------
USAF asset management fee 11.2 10.2
LSAV asset and property management fee 3.2 3.0
USAF acquisition fee 2.2 -
Net performance fee 5.7
Unite disposal management fee - 2.4
------
Total fees 22.3 15.6
------ ------
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole
-- The strategic report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face
-- We consider the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
Richard Smith Joe Lister
Chief Executive Officer Chief Financial Officer
26 February 2020
Forward-looking statements
The preceding interim statement has been prepared for the
shareholders of the Company, as a body, and for no other persons.
Its purpose is to assist shareholders of the Company to assess the
strategies adopted by the Company and the potential for those
strategies to succeed and for no other purpose. The interim
statement contains forward-looking statements that are subject to
risk factors associated with, among other things, the economic,
regulatory and business circumstances occurring from time to time
in the sectors and markets in which the Group operates. It is
believed that the expectations reflected in these statements are
reasonable, but they may be affected by a wide range of variables
that could cause actual results to differ materially from those
currently anticipated. No assurances can be given that the
forward-looking statements will be realised. The forward-looking
statements reflect the knowledge and information available at the
date of preparation. Nothing in the interim statement should be
considered or construed as a profit forecast for the Group. Except
as required by law, the Group has no obligation to update
forward-looking statements or to correct any inaccuracies
therein.
INTRODUCTION AND TABLE OF CONTENTS
These financial statements are prepared in accordance with IFRS.
The Board of Directors also presents the Group's performance on the
basis recommended for real estate companies by the European Public
Real Estate Association (EPRA). The reconciliation between IFRS
performance measures and EPRA performance measures can be found in
section 2.2b for EPRA earnings and 2.3c for EPRA net asset value
(NAV). The adjustments to the IFRS results are intended to help
users in the comparability of these results across other listed
real estate companies in Europe and reflect how the Directors
monitor the business.
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in shareholders' equity
Statement of cash flows
Section 1: Basis of preparation
Section 2: Results for the year
2.1 Segmental information
2.2 Earnings
2.3 Net assets
2.4 Revenue and costs
2.5 Tax
Section 3: Asset management
3.1 Wholly owned property assets
3.2 Inventories
3.3 Investments in joint ventures
Section 4: Funding
4.1 Borrowings
4.2 Interest rate swaps
4.3 Net financing costs
4.4 Gearing
4.5 Equity
4.6 Dividends
Section 5: Working capital
5.1 Cash and cash equivalents
5.2 Credit risk
Section 6: Business combination
Section 7: Post balance sheet events
Section 8: Alternative performance measures
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
---------------------------------------------- ------ ------- ------
Rental income 2.4 134.1 112.7
Other income 22.1 15.6
---------------------------------------------- ------ ------- ------
Total revenue 2.4 156.2 128.3
Cost of sales (33.0) (40.2)
Operating expenses (26.6) (23.6)
---------------------------------------------- ------ ------- ------
Results from operating activities 96.6 64.5
Loss on disposal of property (7.3) (6.8)
Net valuation gains on property (owned) 3.1 154.8 105.8
Net valuation losses on property (leased) 3.1 (8.1) -
Impairment of goodwill and intangible asset 6 (384.1) -
Acquisition costs 6 (22.8) -
---------------------------------------------- ------ ------- ------
(Loss)/profit before net financing costs (170.9) 163.5
Loan interest and similar charges 4.3 (23.8) (14.3)
Interest on lease liability 4.3 (9.2) -
Mark to market changes on interest rate swaps 4.3 (2.7) -
Swap cancellation and loan break costs 4.3 (2.7) (0.1)
---------------------------------------------- ------ ------- ------
Finance costs 4.3 (38.4) (14.4)
Finance income 4.3 5.5 0.9
---------------------------------------------- ------ ------- ------
Net financing costs 4.3 (32.9) (13.5)
Share of joint venture profit 3.3b 102.6 95.8
---------------------------------------------- ------ ------- ------
(Loss)/profit before tax (101.2) 245.8
Current tax 2.5 (0.1) (4.1)
Deferred tax 2.5 13.7 (4.4)
---------------------------------------------- ------ ------- ------
(Loss)/profit for the year (87.6) 237.3
(Loss)/profit for the year attributable to
Owners of the parent company 2.2c (89.2) 235.7
Minority interest 1.6 1.6
---------------------------------------------- ------ ------- ------
(87.6) 237.3
---------------------------------------------- ------ ------- ------
(Loss)/earnings per share
Basic 2.2c (31.5)p 90.8p
Diluted 2.2c (31.4)p 90.6p
All results are derived from continuing activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
------------------------------------ ----- ------ -----
(Loss)/profit for the year (87.6) 237.3
Movements in effective hedges (4.8) 0.6
Share of joint venture movements in
effective hedges (0.5) 1.2
------------------------------------------- ------ -----
Other comprehensive (loss)/income
for the year (5.3) 1.8
Total comprehensive (loss)/income
for the year (92.9) 239.1
------------------------------------------- ------ -----
Attributable to
Owners of the parent company (94.5) 237.5
Minority interest 1.6 1.6
------------------------------------------- ------ -----
(92.9) 239.1
------------------------------------------ ------ -----
All other comprehensive income may be classified as profit and
loss in the future.
There are no tax effects on items of other comprehensive
income.
CONSOLIDATED BALANCE SHEET
At 31 December 2019
2019 2018
Note GBPm GBPm
-------------------------------------- ---- --------- -------
Assets
Investment property (owned) 3.1 3,406.9 1,497.1
Investment property (leased) 3.1 110.4 -
Investment property under development 3.1 411.8 278.9
Investment in joint ventures 3.3b 875.2 819.7
Other non-current assets 26.0 33.0
Right of use assets 5.5 -
Deferred tax asset 2.5 2.9 -
-------------------------------------- ---- --------- -------
Total non-current assets 4,838.7 2,628.7
Inventories 3.2 4.0 9.1
Trade and other receivables 87.1 88.1
Cash and cash equivalents 5.1 86.9 123.6
-------------------------------------- ---- --------- -------
Total current assets 178.0 220.8
-------------------------------------- ---- --------- -------
Total assets 5,016.7 2,849.5
-------------------------------------- ---- --------- -------
Liabilities
Borrowings 4.1 (1.4) (1.3)
Lease liabilities (3.9) -
Trade and other payables (234.7) (141.5)
Current tax liability (4.0) (4.6)
-------------------------------------- ---- --------- -------
Total current liabilities (244.0) (147.4)
Borrowings 4.1 (1,566.2) (591.3)
Lease liabilities (100.9) -
Interest rate swaps 4.2 (7.6) (0.1)
Deferred tax liability 2.5 - (11.9)
-------------------------------------- ---- --------- -------
Total non-current liabilities (1,674.7) (603.3)
-------------------------------------- ---- --------- -------
Total liabilities (1,918.7) (750.7)
-------------------------------------- ---- --------- -------
Net assets 3,098.0 2,098.8
-------------------------------------- ---- --------- -------
Equity
Issued share capital 4.6 90.9 65.9
Share premium 4.6 1,874.9 740.5
Merger reserve 40.2 40.2
Retained earnings 1,069.0 1,224.4
Hedging reserve (3.5) 2.0
-------------------------------------- ---- --------- -------
Equity attributable to the owners of
the parent company 3,071.5 2,073.0
Minority interest 26.5 25.8
-------------------------------------- ---- --------- -------
Total equity 3,098.0 2,098.8
-------------------------------------- ---- --------- -------
The financial statements of The Unite Group plc, registered
number 03199160, were approved and authorised for issue by the
Board of Directors on 26 February 2020 and were signed on its
behalf by:
R S Smith J J Lister
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2019
Attributable
Issued to owners of
share Share Merger Retained Hedging the Minority
capital premium reserve earnings reserve parent interest Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
At 1 January
2019 65.9 740.5 40.2 1,224.4 2.0 2,073.0 25.8 2,098.8
Effect of
initial
application
of IFRS 16 1 - - - 3.2 - 3.2 - 3.2
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
At 1 January
2019 - as
restated 65.9 740.5 40.2 1,227.6 2.0 2,076.2 25.8 2,102.0
(Loss)/profit
for the year - - - (89.2) - (89.2) 1.6 (87.6)
Other
comprehensive
loss for the
year:
Movement in
effective
hedges - - - - (4.8) (4.8) - (4.8)
Share of joint
venture
movements in
effective
hedges 3.4b - - - - (0.5) (0.5) - (0.5)
----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
Total
comprehensive
(loss)/profit
for the year - - - (89.2) (5.3) (94.5) 1.6 (92.9)
Shares issued 4.8 25.0 1,134.4 - - - 1,159.4 - 1,159.4
Deferred tax
on
share-based
payments - - - 0.2 - 0.2 - 0.2
Fair value of
share-based
payments - - - 1.9 - 1.9 - 1.9
Own shares
acquired - - - (0.8) - (0.8) - (0.8)
Unwind of
realised swap
gain - - - - (0.2) (0.2) - (0.2)
Dividends paid
to owners
of the parent
company 4.9 - - - (70.7) - (70.7) - (70.7)
Dividends to
minority
interest - - - - - - (0.9) (0.9)
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
At 31 December
2019 90.9 1,874.9 40.2 1,069.0 (3.5) 3,071.5 26.5 3,098.0
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
Attributable
Issued to owners of
share Share Merger Retained Hedging the Minority
capital premium reserve earnings reserve parent interest Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
At 1 January
2018 60.2 579.5 40.2 1,051.2 (2.1) 1,729.0 25.2 1,754.2
Profit for the
year - - - 235.7 - 235.7 1.6 237.3
Other
comprehensive
income for the
year:
Movement in
effective
hedges - - - - 0.6 0.6 - 0.6
Share of joint
venture
movements in
effective
hedges 3.4b - - - - 1.2 1.2 - 1.2
----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
Total
comprehensive
income for
the year - - - 235.7 1.8 237.5 1.6 239.1
Shares issued 4.8 5.7 161.0 - - - 166.7 - 166.7
Deferred tax
on
share-based
payments - - - 0.3 - 0.3 - 0.3
Fair value of
share-based
payments - - - 1.1 - 1.1 - 1.1
Own shares
acquired - - - (1.4) - (1.4) - (1.4)
Realised swap
gain - - - - 2.3 2.3 - 2.3
Dividends paid
to owners
of the parent
company 4.9 - - - (62.5) - (62.5) - (62.5)
Dividends to
minority
interest - - - - - - (1.0) (1.0)
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
At 31 December
2018 65.9 740.5 40.2 1,224.4 2.0 2,073.0 25.8 2,098.8
-------------- ---- ----------- ----------- ----------- ---------- ---------- ------------ ---------- -------
STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
Group
----------------------------------------------------- ---- ----------------
2019 2018
Note GBPm GBPm
----------------------------------------------------- ---- ------- -------
Net cash flows from operating activities 5.1 78.5 59.7
Investing activities
Cash consideration for acquisition Liberty Living 6 (492.0) -
Cash acquired on acquisition of Liberty Living 22.4 -
Acquisition costs (17.5) -
Redemption of units/(investment) in joint ventures - 30.9
Capital expenditure on properties (179.9) (247.9)
Acquisition of intangible assets (4.6) (6.6)
Acquisition of plant and equipment (0.4) (1.3)
Proceeds from sale of investment property 295.4 38.0
Interest received 0.9 0.9
Dividends received 32.8 37.5
----------------------------------------------------- ---- ------- -------
Net cash flows from investing activities (342.9) (148.5)
Financing activities
Proceeds from the issue of share capital 254.7 166.7
Payments to acquire own shares (0.8) (1.4)
Interest paid in respect of financing activities (32.0) (21.1)
Swap cancellation costs (2.7) (0.1)
Proceeds from non-current borrowings 175.0 375.8
Repayment of borrowings (96.0) (295.4)
Dividends paid to the owners of the parent company (69.6) (62.3)
Dividends paid to minority interest (0.9) (1.0)
----------------------------------------------------- ---- ------- -------
Net cash flows from financing activities 227.7 161.2
----------------------------------------------------- ---- ------- -------
Net increase/(decrease) in cash and cash equivalents (36.7) 72.4
Cash and cash equivalents at start of year 123.6 51.2
----------------------------------------------------- ---- ------- -------
Cash and cash equivalents at end of year 86.9 123.6
----------------------------------------------------- ---- ------- -------
NOTES TO THE FINANCIAL STATEMENTS
Section 1: Basis of preparation
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2019
or 2018 but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies, and those
for 2019 will be delivered in due course. The auditors have
reported on those accounts; their reports were (i) unqualified (ii)
did not include a reference to any matters to which the auditors
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 Companies Act 2006 in respect of the accounts for 2018 or
2019.
Going concern
In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
The Group's business activities, together with the factors
likely to affect its future development and position, are set out
in the Strategic report, which will be published in the 2019 Annual
Report and Accounts. Section 4 of these Notes to the financial
statements includes the Group's objectives, policies and processes
for managing its capital, details of its borrowings and interest
rate swaps, and in note 5.2 its exposure to credit risk. The Board
has considered the risks that could arise as a result of potential
outcomes of Britain leaving the European Union and have identified
people risk, procurement risks and demand risks. These risks have
been factored into our forecasts and projections.
The Group has prepared cash flow projections 18 months forward
to June 2021 and the Group has sufficient headroom to meet all its
commitments. The Group issued new ordinary shares in July 2019
generating gross proceeds of GBP259.6 million and this together
with existing loan facilities will be sufficient to fund the
Group's commitments over the next 18 months. The Group disposes of
assets to release capital and maintains positive relationships with
its lending banks and has historically secured new facilities
before maturity dates and remained within its covenant levels. The
Group is in full compliance with its covenants at 31 December 2019
and expects to remain so. Our debt facilities include
loan-to-value, interest cover and asset class ratios, all of which
have a high level of headroom. In order to manage future financial
commitments the Group operates a formal approval process through
its Investment Committee and Group Board to ensure that appropriate
review is undertaken before any transactions are agreed.
Accordingly, after making enquiries and having considered
forecasts and appropriate sensitivities, the Directors have formed
a judgement, at the time of approving the financial statements,
that there is a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, being at least 12 months from the date of these financial
statements.
Changes in accounting policies - IFRS 16
In the current year, the Group, for the first time, has applied
IFRS 16 Leases. The date of the initial application of IFRS 16 for
the Group is 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to lessee
accounting by removing the distinction between operating and
finance leases, requiring the recognition of a right of use asset
and a lease liability at commencement for all leases, except for
short term leases and leases of low value assets when such
recognition exemptions are adopted. In contrast to lessee
accounting, the requirements for lessor accounting have remained
largely unchanged.
Details of the Group's approach to transition to IFRS 16 is set
out below, followed by a description of the impact of adopting IFRS
16.
Approach to transition
The Group has applied IFRS 16 using the cumulative catch up
approach, without restatement of the comparative information (which
is presented under IAS 17 and IFRIC 14). In respect of those leases
the Group previously treated as operating leases, the Group has
elected to measure its right of use assets as if the lease
commencement date was the date of adoption of IFRS 16 (i.e. 1
January 2019). The cumulative effect of initially applying IFRS 16
has been recognised as an adjustment to the opening balance of
retained earnings as at 1 January 2019.
Applying IFRS 16 to sale and leaseback properties, the Group now
recognises sale and leaseback right of use assets in the
consolidated balance sheet (investment property (leased)),
initially measured at fair value using a discounted cash flow
model. Other leases previously treated as operating leases have
been measured following the approach in IFRS 16.C8(b)(ii), whereby
right of use assets are set equal to the lease liability, adjusted
for prepaid or accrued lease payments.
IFRS 16 does not change substantially how a lessor accounts for
leases. Under IFRS 16, a lessor continues to classify leases as
either finance leases or operating leases and account for those two
types of leases differently. The Group continues to account for its
tenancy contracts offered to commercial and individual tenants as
operating leases.
Practical expedients adopted
The Group has made use of the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 14 will continue to be applied to
those leases entered into or modified before 1 January 2019.
As a practical expedient, IFRS 16 permits a lessee not to
separate non-lease components, and instead account for any lease
and associated non-lease components as a single arrangement. The
Group has used this practical expedient. The Group has elected not
to recognise right of use assets and lease liabilities to leases
for which the lease term ends within 12 months of the date of
initial application.
Financial impact
The application of IFRS 16 has resulted in the recognition of
right of use assets and lease liabilities. Operating lease
incentives previously recognised as liabilities have been
derecognised and factored into the measurement of the right of use
assets and lease liabilities.
The Group has chosen to use the table below to set out the
adjustments recognised at the date of initial application of IFRS
16.
EPRA net assets on transition
Group on EPRA basis
----------------------------------------
31 Dec 2018 IFRS 16 1 Jan 2019
as reported adjustments as restated
GBPm GBPm GBPm
-------------------------------------- ------------ ------------ ------------
Investment property (owned) 2,685.9 - 2,685.9
Investment property (leased) - 128.0 128.0
Investment property under development 282.1 - 282.1
-------------------------------------- ------------ ------------ ------------
Total property portfolio 2,968.0 128.0 3,096.0
Debt on properties (1,036.4) - (1,036.4)
Lease liability - (115.8) (115.8)
Cash 179.9 - 179.9
-------------------------------------- ------------ ------------ ------------
Net debt (856.5) (115.8) (972.3)
Other assets/(liabilities) (26.1) (9.0) (35.1)
EPRA net assets 2,085.4 3.2 2,088.6
-------------------------------------- ------------ ------------ ------------
On 1 January 2019, GBP128.0 million was recognised on balance
sheet as the fair value of the sale and leaseback portfolio
(classified as investment properties (leased)) and a lease
liability of GBP115.8 million.
Other assets/(liabilities) increased by GBP9.0 million due to
leasehold improvements with a carrying value of GBP6.7 million
(GBP10.7 million cost and GBP4.0 million accumulated depreciation)
being transferred from other non-current assets to investment
properties (leased) and GBP2.3 million of prepayments being
reclassified from receivables to the lease liability.
GBP4.3 million of right of use assets were recognised in
relation to offices, vehicles and other equipment, with a
corresponding lease liability of GBP4.3 million. Both of these
balances are included within other assets/(liabilities) in the
table above.
The net difference of GBP3.2 million has been recognised in
retained earnings.
During the 12 months ended 31 December 2019 the Group recognised
the following amounts in EPRA earnings:
EPRA earnings at 31 December 2019
Group on Group on
see through see through
basis IFRS 16 basis
Total adjustments Total
Reference GBPm GBPm GBPm
---------------------------- --------- ------------ ------------ ------------
Rental income 213.9 - 213.9
Property operating expenses (53.1) - (53.1)
---------------------------- --------- ------------ ------------ ------------
Net operating income 160.8 - 160.8
Management fees 14.4 - 14.4
Operating expenses 1 (23.7) 1.9 (21.8)
Operating lease rentals 2 (11.0) 11.0 -
Lease liability interest 3 - (9.2) (9.2)
Net financing costs (34.7) - (34.7)
---------------------------- --------- ------------ ------------ ------------
Operations segment result 105.8 3.7 109.5
Property segment result (1.5) - (1.5)
Unallocated to segments 2.6 - 2.6
---------------------------- --------- ------------ ------------ ------------
EPRA earnings 106.9 3.7 110.6
---------------------------- --------- ------------ ------------ ------------
1 Disclosed within cost of sales in the consolidated income statement, under IAS 17 and IFRS 16
2 Disclosed within operating expenses in the consolidated income statement, under IAS 17
3 Disclosed within finance costs in the consolidated income statement, under IFRS 16
The application of IFRS 16 resulted in a decrease in operating
expenses of GBP1.9 million and operating lease rentals of GBP11.0
million due to lease payments no longer being recognised in the
P&L. An increased interest expense, in comparison to IAS 17,
was recognised in respect of the interest on lease liabilities of
GBP9.2 million.
Impact on profit or loss
On an IFRS basis there has also been a reduction in net property
valuation gains of GBP8.1 million, which relates to the downward
revaluation of investment properties (leased) and an increase to
loss on disposal of GBP0.4 million, following the cancellation of
two sale and leaseback arrangements.
The following table shows the operating lease commitments
relating to the sale & leaseback portfolio included in the IAS
17 disclosure at 31 December 2018, discounted using the incremental
borrowing rate at the date of initial application and the lease
liabilities recognised in the statement of financial position at
the date of initial application.
GBPm
--------------------------------------------------------- ------
Operating lease commitments at 31 December 2018 214.4
Effect of discounting the above amount (96.3)
Reclassification of amounts classified as prepayments at
31 December 2018 (2.3)
--------------------------------------------------------- ------
Lease liabilities recognised at 1 January 2019 115.8
--------------------------------------------------------- ------
The Group's weighted average incremental borrowing rate applied
to lease liabilities as at 1 January 2019 is 4.2%.
Impact of accounting standards and interpretations in issue but
not yet effective
At the balance sheet date there are a number of new standards
and amendments to existing standards in issue but not yet
effective. The Group has not early adopted the new or amended
standards in preparing these consolidated financial statements.
Section 2: Results for the year
IFRS performance measures
Note 2019 2018
-------------------------------- ---- ------------ -----------
(Loss)/profit after tax 2.2b GBP(89.2)m GBP235.7m
Basic (loss)/earnings per share 2.2c (31.5)p 90.8p
Net assets 2.3c GBP3,071.5m GBP2,073.0m
NAV per share 2.3d 845p 787p
-------------------------------- ---- ------------ -----------
EPRA performance measures
Note 2019 2018
------------------------ ---- ----------- -----------
EPRA earnings 2.2a GBP110.6m GBP88.4m
EPRA earnings per share 2.2c 39.1p 34.1p
EPRA NAV 2.3a GBP3,109.7m GBP2,085.4m
EPRA NAV per share 2.3d 853p 790p
EPRA NNNAV 2.3c GBP3,008.3m GBP2,032.7m
EPRA NNNAV per share 2.3d 826p 770p
------------------------ ---- ----------- -----------
2.1 Segmental information
The Board of Directors monitors the business along two activity
lines, Operations and Property. The reportable segments for the
years ended 31 December 2019 and 31 December 2018 are Operations
and Property.
The Group undertakes its Operations and Property activities
directly and through joint ventures with third parties. The joint
ventures are an integral part of each segment and are included in
the information used by the Board to monitor the business.
Detailed analysis of the performance of each of these reportable
segments is provided in the following sections 2.2 to 2.3. There
has been no change to the reportable segments following the
acquisition of Liberty Living.
The Group's properties are located exclusively in the United
Kingdom. The Group therefore has one geographical segment.
2.2 Earnings
EPRA earnings amends IFRS measures by removing principally the
unrealised investment property valuation gains and losses such that
users of the financials are able to see the extent to which
dividend payments (dividend per share) are underpinned by earnings
arising from purely operational activity. The reconciliation
between profit attributable to owners of the parent company and
EPRA earnings is available in note 2.2b.
The Operations segment manages rental properties, owned directly
by the Group or by joint ventures. Its revenues are derived from
rental income and asset management fees earned from joint ventures.
The Operations segment is the main contributor to EPRA earnings and
EPRA EPS and these are therefore the key indicators which are used
by the Board to monitor the Operations business.
The Board does not manage or monitor the Operations segment
through the balance sheet and therefore no segmental information
for assets and liabilities is provided for the Operations
segment.
a) EPRA earnings
2019
Share of joint ventures
-------------------------------- ------ -------- ------------------------- -----------
Group on
Liberty EPRA basis
Unite Living* USAF LSAV Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ -------- ------------- ---------- -----------
Rental income 120.3 13.8 41.5 38.3 213.9
Property operating expenses (30.1) (2.9) (12.2) (7.9) (53.1)
-------------------------------- ------ -------- ------------- ---------- -----------
Net operating income 90.2 10.9 29.3 30.4 160.8
Management fees 21.0 - (3.4) (3.2) 14.4
Operating expenses (20.1) (1.0) (0.3) (0.4) (21.8)
Interest on lease liabilities** (9.2) - - - (9.2)
Net financing costs (16.3) (2.4) (6.7) (9.3) (34.7)
-------------------------------- ------ -------- ------------- ---------- -----------
Operations segment result 65.6 7.5 18.9 17.5 109.5
Property segment result (1.5) - - - (1.5)
Unallocated to segments 8.7 - (0.2) (5.9) 2.6
-------------------------------- ------ -------- ------------- ---------- -----------
EPRA earnings 72.8 7.5 18.7 11.6 110.6
-------------------------------- ------ -------- ------------- ---------- -----------
* The 2019 results for Liberty Living represent the 33 day
period post acquisition, being 29 November to 31 December 2019.
** The Group has applied IFRS 16 Leases in the current period,
therefore the table above has been prepared on an IFRS 16 basis.
Further details of the impact of adoption of IFRS 16 can be found
in note 1.
Included in the above is rental income of GBP17.3 million and
property operating expenses of GBP7.0 million relating to sale and
leaseback properties.
The unallocated to segments balance includes the fair value of
share-based payments of (GBP2.2 million), contributions to the
Unite Foundation of (GBP1.0 million), fees received from USAF
relating to acquisitions of GBP2.2 million, LSAV performance fee of
GBP5.7 million, deferred tax charge of (GBP0.5 million) and current
tax charge of (GBP0.4 million).
2018
Share of joint ventures
------ ------------------------- -----------
Group on
EPRA basis
Unite USAF LSAV Total
GBPm GBPm GBPm GBPm
------ ------------- ---------- -----------
Rental income 112.7 39.0 36.6 188.3
Property operating expenses (28.6) (11.5) (7.9) (48.0)
---------------------------- ------ ------------- ---------- -----------
Net operating income 84.1 27.5 28.7 140.3
Management fees 21.8 (3.2) (3.0) 15.6
Operating expenses (20.9) (0.3) (0.5) (21.7)
Operating lease rentals* (11.5) - - (11.5)
Net financing costs (13.4) (6.2) (8.9) (28.5)
---------------------------- ------ ------------- ---------- -----------
Operations segment result 60.1 17.8 16.3 94.2
Property segment result (1.1) - - (1.1)
Unallocated to segments (4.3) (0.2) (0.2) (4.7)
---------------------------- ------ ------------- ---------- -----------
EPRA earnings 54.7 17.6 16.1 88.4
---------------------------- ------ ------------- ---------- -----------
* Operating lease rentals arise from properties which the Group
has sold and is now leasing back. These properties were sold to
generate financing and they now contribute to the Group's rental
income and incur property operating expenses. Therefore, the Group
considers these lease costs to be a form of financing.
Included in the above is rental income of GBP18.6 million and
property operating expenses of GBP7.0 million relating to sale and
leaseback properties.
The unallocated to segments balance includes the fair value of
share-based payments of (GBP1.1 million), contributions to the
Unite Foundation of (GBP0.9 million), deferred tax of GBP1.2
million and current tax charge of (GBP3.9 million).
b) IFRS reconciliation to EPRA earnings
EPRA earnings excludes movements relating to changes in values
of investment properties and interest rate swaps, profits from the
disposal of properties and property impairments, which are included
in the profit reported under IFRS. EPRA earnings reconcile to the
profit attributable to owners of the parent company as follows:
2019 2018
Note GBPm GBPm
------------------------------------------------------------- ---- ------- -----
EPRA earnings 2.2a 110.6 88.4
Net valuation gains on investment property (owned) 3.1 154.8 105.8
Property disposals (owned) (6.2) (6.8)
Net valuation losses on investment property (leased) 3.1 (8.1) -
Property disposals (leased) (1.1) -
Impairment of goodwill and acquired intangible asset 6 (384.1) -
Acquisition costs 6 (22.8) -
Amortisation of fair value of debt recognised on acquisition 0.4 -
Share of joint venture gains on investment property 3.4b 58.3 58.1
Share of joint venture property disposals 3.4b 0.4 (3.5)
Swap cancellation and loan break costs 4.3 (2.7) (0.1)
Mark to market changes on interest rate swaps 4.3 (2.7) -
Current tax relating to impairment of goodwill 0.5 -
Deferred tax relating to properties 2.5d 14.3 (5.5)
Minority interest share of reconciling items* (0.8) (0.7)
------------------------------------------------------------- ---- ------- -----
(Loss)/profit attributable to owners of the parent company (89.2) 235.7
------------------------------------------------------------- ---- ------- -----
* The minority interest share, or non-controlling interest,
arises as a result of the Company not owning 100% of the share
capital of one of its subsidiaries, USAF (Feeder) Guernsey Limited.
More detail is provided in note 3.4.
c) Earnings per share
The Basic EPS calculation is based on the earnings attributable
to the equity shareholders of The Unite Group plc and the weighted
average number of shares which have been in issue during the year.
Basic EPS is adjusted in line with EPRA guidelines in order to
allow users to compare the business performance of the Group with
other listed real estate companies in a consistent manner and to
reflect how the business is managed and measured on a day to day
basis.
The calculations of basic and EPRA EPS for the year ended 31
December 2019 and 2018 are as follows:
Note 2019 2018
----------------------------------- ------ ------- -------
(Loss)/earnings (GBPm)
Basic (89.2) 235.7
Diluted (89.2) 235.7
EPRA 2.2a 110.6 88.4
Weighted average number of shares
(thousands)
Basic 282,802 259,466
Dilutive potential ordinary shares
(share options) 1,156 828
----------------------------------- ------ ------- -------
Diluted 283,958 260,294
----------------------------------- ------ ------- -------
(Loss)/earnings per share (pence)
Basic (31.5)p 90.8p
Diluted (31.4)p 90.6p
EPRA EPS 39.1p 34.1p
Movements in the weighted average number of shares have resulted
from the issue of shares arising from the employee share-based
payment schemes and the equity raise.
In 2019, there were 15,545 (2018: 10,357) options excluded from
the potential dilutive shares that did not affect the diluted
weighted average number of shares.
2.3 Net assets
EPRA net asset value per share makes adjustments to IFRS
measures by principally removing some items that are not expected
to materialise in normal circumstances such as items of deferred
tax and the fair value of financial derivatives. The reconciliation
between IFRS NAV and EPRA NAV is available in note 2.3c.
The Group's Property business undertakes the acquisition and
development of properties.
a) EPRA net assets
2019
Group on
Share of joint ventures EPRA basis
---------------------------------------- ------------------------- -----------
Unite Liberty Living USAF LSAV Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------- -------------- ------------ ----------- -----------
Investment properties (owned) 1,462.2 1,944.7 628.0 667.5 4,702.4
Investment properties (leased) 110.4 - - - 110.4
Investment properties under development 393.4 18.4 - - 411.8
---------------------------------------- ------- -------------- ------------ ----------- -----------
Total property portfolio 1,966.0 1,963.1 628.0 667.5 5,224.6
Debt on properties (675.5) (861.7) (194.4) (267.6) (1,999.2)
Lease liabilities (98.9) - - - (98.9)
Cash 67.6 19.3 5.2 22.8 114.9
---------------------------------------- ------- -------------- ------------ ----------- -----------
Net debt (706.8) (842.4) (189.2) (244.8) (1,983.2)
Other assets and (liabilities) (62.5) (56.8) (1.5) (10.9) (131.7)
---------------------------------------- ------- -------------- ------------ ----------- -----------
EPRA net assets 1,196.7 1,063.9 437.3 411.8 3,109.7
---------------------------------------- ------- -------------- ------------ ----------- -----------
Loan to value* 33% 43% 30% 37% 37%
Loan to value post-IFRS 16 36% 43% 30% 37% 38%
* LTV calculated excluding investment properties (leased) and
the corresponding lease liabilities.
2018
Group on
Share of joint ventures EPRA basis
---------------------------------------- ------- ------------------------- -----------
Unite USAF LSAV Total
GBPm GBPm GBPm GBPm
---------------------------------------- ------- ------------ ----------- -----------
Investment properties 1,497.1 567.1 621.7 2,685.9
Investment properties under development 278.9 3.2 - 282.1
---------------------------------------- ------- ------------ ----------- -----------
Total property portfolio 1,776.0 570.3 621.7 2,968.0
Debt on properties (594.8) (174.6) (267.0) (1,036.4)
Cash 123.6 32.4 23.9 179.9
---------------------------------------- ------- ------------ ----------- -----------
Net debt (471.2) (142.2) (243.1) (856.5)
Other assets and (liabilities) (13.3) (4.9) (7.9) (26.1)
---------------------------------------- ------- ------------ ----------- -----------
EPRA net assets 1,291.5 423.2 370.7 2,085.4
---------------------------------------- ------- ------------ ----------- -----------
Loan to value 27% 25% 39% 29%
b) Movement in EPRA NAV during the year
Contributions to EPRA NAV by each segment during the year is as
follows:
2019
Share of joint
ventures
--------------------------------------- ------- ------- ---------------- -----------
Group on
Liberty EPRA basis
Unite Living USAF LSAV Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------- ------- ------- ------- -----------
Operations
Operations segment result 65.6 7.5 18.9 17.5 109.5
Property
Rental growth 43.6 10.6 11.7 24.6 90.5
Yield movement 20.4 - 2.3 18.3 41.0
Disposal (losses)/gains (5.5) - 0.2 - (5.3)
--------------------------------------- ------- ------- ------- ------- -----------
Investment property (owned) gains 58.5 10.6 14.2 42.9 126.2
Investment property (leased) losses (8.1) - - - (8.1)
Disposal losses investment property
(leased) (1.1) - - - (1.1)
Development property gains 80.2 - - - 80.2
Pre-contract/other development costs (1.5) - - - (1.5)
--------------------------------------- ------- ------- ------- ------- -----------
Total property 128.0 10.6 14.2 42.9 195.7
Unallocated
Shares issued 254.3 - - - 254.3
Investment in joint ventures 31.7 - (18.2) (13.5) -
Acquisition of Liberty Living (514.8) 1,045.8 - - 531.0
Dividends paid (70.7) - - - (70.7)
LSAV performance fee 11.4 - - (5.7) 5.7
Joint venture property acquisition
fee 2.8 - (0.6) - 2.2
Swap cancellation and debt break
costs (2.7) - - - (2.7)
Other (3.6) - (0.2) (0.1) (3.9)
--------------------------------------- ------- ------- ------- ------- -----------
Total unallocated (291.6) 1,045.8 (19.0) (19.3) 715.9
--------------------------------------- ------- ------- ------- ------- -----------
Total EPRA NAV movement in the year (98.0) 1,063.9 14.1 41.1 1,021.1
Total EPRA NAV brought forward as
reported 1,291.5 - 423.2 370.7 2,085.4
IFRS 16 transition 3.2 - - - 3.2
--------------------------------------- ------- ------- ------- ------- -----------
Total EPRA NAV brought forward revised 1,294.7 - 423.2 370.7 2,088.6
--------------------------------------- ------- ------- ------- ------- -----------
Total EPRA NAV carried forward 1,196.7 1,063.9 437.3 411.8 3,109.7
--------------------------------------- ------- ------- ------- ------- -----------
The GBP514.8 million acquisition of Liberty Living balance
includes cash consideration of GBP492.0 million and acquisition
costs of GBP22.8 million. The GBP1,045.8 million balance represents
the fair value of the net assets that were acquired (further
details can be found in note 6).
The GBP3.9 million other balance within the unallocated segment
includes a tax charge of GBP0.7 million, fair value of share-based
payments charge of GBP2.2 million and GBP1.0 million for
contributions to the Unite Foundation.
2018
Share of joint ventures
---------------------------------------- ------- ------------------------- -----------
Group on
EPRA basis
Unite USAF LSAV Total
GBPm GBPm GBPm GBPm
---------------------------------------- ------- ----------- ------------ -----------
Operations
Operations segment result 60.1 17.8 16.3 94.2
Property
Rental growth 38.8 6.4 19.8 65.0
Yield movement 37.4 7.9 22.3 67.6
Disposal and acquisition (losses)/gains (6.8) (3.4) 0.1 (10.1)
---------------------------------------- ------- ----------- ------------ -----------
Investment property gains 69.4 10.9 42.2 122.5
Development property gains 29.6 0.8 - 30.4
Pre-contract/other development costs (1.1) - - (1.1)
---------------------------------------- ------- ----------- ------------ -----------
Total property 97.9 11.7 42.2 151.8
Unallocated
Shares issued 166.7 - - 166.7
Investment in joint ventures 63.4 (5.3) (58.1) -
Dividends paid (62.5) - - (62.5)
Swap cancellation and debt break costs (0.1) - - (0.1)
Other (4.7) (0.2) (0.2) (5.1)
---------------------------------------- ------- ----------- ------------ -----------
Total unallocated 162.8 (5.5) (58.3) 99.0
---------------------------------------- ------- ----------- ------------ -----------
Total EPRA NAV movement in the year 320.8 24.0 0.2 345.0
Total EPRA NAV brought forward 970.7 399.2 370.5 1,740.4
---------------------------------------- ------- ----------- ------------ -----------
Total EPRA NAV carried forward 1,291.5 423.2 370.7 2,085.4
---------------------------------------- ------- ----------- ------------ -----------
The GBP5.1 million other balance within the unallocated segment
includes a tax charge of GBP2.7 million, fair value of share-based
payments charge of GBP1.1 million, purchase of own shares of GBP0.4
million and GBP0.9 million for contributions to the Unite
Foundation.
c) Reconciliation to IFRS
To determine EPRA NAV, net assets reported under IFRS are
amended to exclude the mark to market valuation of swaps, deferred
tax liabilities and to recognise all properties at market
value.
The Group also manages NAV using EPRA NNNAV, which adjusts EPRA
NAV to include the fair value of swaps and debt. Under EPRA best
practice guidelines this is considered to give stakeholders the
most relevant comparable information on the current fair value of
all the assets and liabilities in the Group.
The net assets reported under IFRS reconcile to EPRA NAV and
EPRA NNNAV as follows:
2019 2018
Note GBPm GBPm
------------------------------------------ ---- ------- -------
Net asset value reported under IFRS 3,071.5 2,073.0
Mark to market interest rate swaps 8.3 0.2
Unamortised swap gain (2.1) (2.3)
Unamortised fair value of debt recognised
on acquisition 32.4 -
Current tax (0.4) -
Deferred tax - 14.5
------------------------------------------ ---- ------- -------
EPRA NAV 2.3a 3,109.7 2,085.4
Mark to market of fixed rate debt (93.5) (38.0)
Mark to market interest rate swaps (8.3) (0.2)
Current tax 0.4 -
Deferred tax - (14.5)
------------------------------------------ ---- ------- -------
EPRA NNNAV 3,008.3 2,032.7
------------------------------------------ ---- ------- -------
d) NAV per share
Basic NAV is based on the net assets attributable to the equity
shareholders of The Unite Group plc and the number of shares in
issue at the end of the year. The Board uses EPRA NAV and EPRA
NNNAV to monitor the performance of the Property segment on a day
to day basis.
Note 2019 2018
---------------------------------- ---- ------- -------
Net assets (GBPm)
Basic 2.3c 3,071.5 2,073.0
EPRA 2.3a 3,109.7 2,085.4
EPRA diluted 3,114.0 2,088.7
EPRA NNNAV (diluted) 3,012.6 2,036.0
Number of shares (thousands)
Basic 363,618 263,541
Outstanding share options 1,309 917
---------------------------------- ---- ------- -------
Diluted 364,927 264,458
---------------------------------- ---- ------- -------
Net asset value per share (pence)
Basic 845p 787p
EPRA 855p 791p
EPRA (fully diluted) 853p 790p
EPRA NNNAV (fully diluted) 826p 770p
2.4 Revenue and costs
The Group earns revenue from the following activities:
2019 2018
Note GBPm GBPm
----------------------- -------------------- ---- ----- -----
Rental income* Operations segment 2.2a 134.1 112.7
Management fees Operations segment 2.2a 14.4 15.8
LSAV performance fee Unallocated 5.7 -
USAF acquisition fee Unallocated 2.2 -
----------------------- -------------------- ---- ----- -----
156.4 128.5
Impact of minority interest on management
fees (0.2) (0.2)
--------------------------------------------- ---- ----- -----
Total revenue 156.2 128.3
--------------------------------------------- ---- ----- -----
*EPRA earnings includes GBP213.9 million of rental income, which
is comprised of GBP134.1 million recognised on wholly owned assets
and a further GBP79.8 million from joint ventures which is included
in share of joint venture profit in the consolidated income
statement.
The cost of sales included in the consolidated income statement
includes property operating expenses of GBP33.0 million (2018:
GBP28.7 million).
2.5 Tax
As a REIT, rental profits and gains on disposal of investment
properties are exempt from corporation tax. The Group pays UK
corporation tax on the profits from its residual business,
including profits arising on construction operations and management
fees received from joint ventures, together with UK income tax on
rental income that arises from investments held by offshore
subsidiaries in which the Group holds a minority interest.
a) Tax - income statement
The total taxation (credit)/charge in the income statement is
analysed as follows:
2019 2018
GBPm GBPm
---------------------------------------------------- ------ -----
Corporation tax on residual business income arising
in UK companies 2.1 3.5
Income tax on UK rental income arising in non-UK
companies 0.4 0.4
Adjustments in respect of prior periods (2.4) 0.2
---------------------------------------------------- ------ -----
Current tax charge 0.1 4.1
Origination and reversal of temporary differences (13.9) 4.5
Adjustments in respect of prior periods 0.2 (0.1)
---------------------------------------------------- ------ -----
Deferred tax (credit)/charge (13.7) 4.4
---------------------------------------------------- ------ -----
Total tax (credit)/charge in income statement (13.6) 8.5
---------------------------------------------------- ------ -----
The movement in deferred tax provided is shown in more detail in
note 2.5d.
In the income statement, a tax credit of GBP13.6 million arises
on a loss before tax of GBP101.2 million. The taxation credit that
would arise at the standard rate of UK corporation tax is
reconciled to the actual tax credit as follows:
2019 2018
GBPm GBPm
----------------------------------------------------- ------- ------
(Loss)/profit before tax (101.2) 245.8
Income tax using the UK corporation tax rate
of 19% (2018: 19%) (19.2) 46.7
Property rental business profits exempt from
tax in the REIT Group (15.2) (13.5)
Release of deferred tax liability due to legislative
change (13.6) -
Non-taxable items relating to the acquisition
of Liberty Living 76.7 -
Property revaluations not subject to tax (40.5) (24.9)
Effect of statutory tax reliefs 0.1 (0.2)
Effect of tax deduction transferred to equity
on share schemes 0.2 0.3
Rate difference on deferred tax 0.1 -
Prior year adjustments (2.2) 0.1
----------------------------------------------------- ------- ------
Total tax (credit)/charge in income statement (13.6) 8.5
----------------------------------------------------- ------- ------
As a UK REIT, the Group is exempt from UK corporation tax on the
profits from its property rental business. Accordingly, the element
of the Group's profit before tax relating to its property rental
business has been separately identified in the reconciliation
above.
Following the enactment of the Finance Act 2019 the Group has
reversed the deferred tax liability historically recognised in
respect of its investments in unit trusts, resulting in a credit to
the income statement. The deferred tax asset in respect of losses
has also been reversed, to the extent that it was recognised
against the liability on these investments.
Deferred tax is an accounting adjustment intended to reflect tax
that the Group may have to pay in the future if certain events
occur, and is distinct from the Group's current tax charge (the
latter being the tax actually payable to HM Revenue & Customs
for the year). Accordingly, a reversal of the deferred tax
provision is an accounting only adjustment, and does not result in
the Group receiving a tax credit or refund.
Although the Group does not pay UK corporation tax on the
profits from its property rental business, it is required to
distribute 90% of the profits from its property rental business
after accounting for tax adjustments as a Property Income
Distribution (PID). PIDs are charged to tax in the same way as
property income in the hands of the recipient. For the year ended
31 December 2019, the required PID is expected to be fully paid by
May 2020.
b) Tax - other comprehensive income
Within other comprehensive income a tax charge totalling GBPnil
(2018: GBPnil) has been recognised representing deferred tax.
c) Tax - statement of changes in equity
Within the statement of changes in equity a tax credit totalling
GBP1.0 million (2018: GBP0.1 million credit) has been recognised
representing deferred tax. An analysis of this is included below in
the deferred tax movement table.
d) Tax - balance sheet
The table below outlines the deferred tax (assets)/liabilities
that are recognised in the balance sheet, together with their
movements in the year:
2019
At 31 December Charged/(credited) Charged/(credited) At 31 December
2018 in income in equity 2019
GBPm GBPm GBPm GBPm
------------------------------ -------------- ------------------ ------------------ --------------
Investments 24.4 (24.4) - -
Property, plant and machinery (0.7) 0.1 (0.3) (0.9)
Share schemes (0.6) (0.1) (0.6) (1.3)
Tax value of carried forward
losses recognised (11.2) 10.7 (0.2) (0.7)
------------------------------ -------------- ------------------ ------------------ --------------
Net tax (assets)/liabilities 11.9 (13.7)* (1.1) (2.9)
------------------------------ -------------- ------------------ ------------------ --------------
* The (GBP13.7 million) balance above includes two tax movements
(Property, plant and machinery and Share schemes) which are
included in EPRA, which is why they are not included in the IFRS
reconciliation in note 2.2b); removing them results in achieving
the GBP14.3 million movement which is excluded as per EPRA's best
practice recommendations.
2018
At 31 December Charged/ (credited) Charged/ (credited) At 31 December
2017 in income in equity 2018
GBPm GBPm GBPm GBPm
------------------------------ -------------- ------------------- ------------------- --------------
Investments 20.6 3.8 - 24.4
Property, plant and machinery (0.8) 0.1 - (0.7)
Share schemes (0.9) 0.1 0.2 (0.6)
Tax value of carried forward
losses recognised (11.3) 0.4 (0.3) (11.2)
------------------------------ -------------- ------------------- ------------------- --------------
Net tax (assets)/liabilities 7.6 4.4* (0.1) 11.9
------------------------------ -------------- ------------------- ------------------- --------------
* The GBP4.4 million balance above includes two tax movements
(Property, plant and machinery and Share schemes) which are
included in EPRA, which is why they are not included in the IFRS
reconciliation in note 2.2 b); removing them results in achieving
the GBP5.5 million movement which is excluded as per EPRA's best
practice recommendations.
Currently, the UK corporation tax rate is due to fall from 19%
to 17% with effect from 1 April 2020. This will reduce the Group's
future current tax charge accordingly. The deferred tax liability
at 31 December 2019 has been calculated based on the rate at which
it is expected to reverse.
As a REIT, disposals of investment property are exempt from tax
and as a result no deferred tax liability has been recognised in
relation to these assets.
The unit trusts in which the Group invests derive their value
from UK land. The Finance Act 2019 contains provisions that exempt
capital gains on such units from the charge to UK tax to the extent
they derive their value from UK property. As a result, the Group
reversed the deferred tax liability recognised in respect of these
investments during 2019 resulting in a credit to the income
statement. The deferred tax asset in respect of losses has also
been reversed, to the extent that it was recognised against the
liability on investments.
Section 3: Asset management
3.1 Wholly owned property assets
The Group's wholly owned property portfolio is held in three
groups on the balance sheet at the carrying values detailed
below.
In the Group's EPRA NAV, all these groups are shown at market
value.
i) Investment property (owned)
These are assets that the Group intends to hold for a long
period to earn rental income or capital appreciation. The assets
are held at fair value in the balance sheet with changes in fair
value taken to the income statement.
ii) Investment property (leased)
These are assets the Group sold to institutional investors and
simultaneously leased back. The assets are held at fair value in
the balance sheet with changes in fair value taken to the income
statement.
iii) Investment property under development
These are assets which are currently in the course of
construction and which will be transferred to Investment property
on completion. The assets are held at fair value in the balance
sheet with changes in fair value taken to the income statement.
Valuation process
The valuations of the properties are performed twice a year on
the basis of valuation reports prepared by external, independent
valuers, having an appropriate recognised professional
qualification. The fair values are based on market values as
defined in the RICS Appraisal and Valuation Manual, issued by the
Royal Institution of Chartered Surveyors. CB Richard Ellis Ltd,
Jones Lang LaSalle Ltd and Messrs Knight Frank, Chartered Surveyors
were the valuers in the years ended 31 December 2019 and 2018.
The valuations are based on:
-- Information provided by the Group such as current rents,
occupancy, operating costs, terms and conditions of leases and
nomination agreements, capital expenditure, etc. This information
is derived from the Group's financial systems and is subject to the
Group's overall control environment.
-- Assumptions and valuation models used by the valuers - the
assumptions are typically market related, such as yield and
discount rates. These are based on their professional judgement and
market observation.
The information provided to the valuers - and the assumptions
and the valuation models used by the valuers - are reviewed by the
Property Board and the CFO. This includes a review of the fair
value movements over the year.
The fair value of the Group's wholly owned properties and the
movements in the carrying value of the Group's wholly owned
property portfolio during the year ended 31 December 2019 are shown
in the table below.
The movements in the carrying value of the Group's wholly owned
property portfolio during the year ended 31 December 2019 are shown
in the table below. The fair value of the Group's wholly owned
properties at the year ended 31 December 2019 is also shown
below.
2019
Investment Investment Investment
property property property
(owned) (leased) under development Total
GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ------------------ -------
At 1 January 2019 1,497.1 - 278.9 1,776.0
IFRS 16 transition (note 1) - 128.0 - 128.0
Acquired through business combination
(note 6) 1,933.7 - 18.4 1,952.1
Cost capitalised 6.5 6.3 208.2 221.0
Interest capitalised - - 9.1 9.1
Transfer from investment property
under development 189.8 - (189.8) -
Transfer from work in progress - - 6.8 6.8
Disposals (294.8) (15.8) - (310.6)
---------- ---------- ------------------ -------
Valuation gains 88.1 - 86.1 174.2
Valuation losses (13.5) (8.1) (5.9) (27.5)
---------- ---------- ------------------ -------
Net valuation gains 74.6 (8.1) 80.2 146.7
-------------------------------------- ---------- ---------- ------------------ -------
Carrying and market value at 31
December 2019 3,406.9 110.4 411.8 3,929.1
-------------------------------------- ---------- ---------- ------------------ -------
The movements in the carrying value of the Group's wholly owned
property portfolio during the year ended 31 December 2018 are shown
in the table below. The fair value of the Group's wholly owned
properties at the year ended 31 December 2018 is also shown
below.
2018
Investment
Investment property under
property development Total
GBPm GBPm GBPm
----------------------------------------- ---------- --------------- -------
At 1 January 2018 1,261.4 205.7 1,467.1
Cost capitalised 10.5 230.7 241.2
Interest capitalised - 10.5 10.5
Transfer from investment property
under development 204.5 (204.5) -
Transfer from work in progress - 0.9 0.9
Disposals (49.5) - (49.5)
---------- --------------- -------
Valuation gains 75.6 47.4 123.0
Valuation losses (5.4) (11.8) (17.2)
---------- --------------- -------
Net valuation gains 70.2 35.6 105.8
----------------------------------------- ---------- --------------- -------
Carrying and market value at 31 December
2018 1,497.1 278.9 1,776.0
----------------------------------------- ---------- --------------- -------
Included within investment properties at 31 December 2019 are
GBP31.3 million (2018: GBP29.9 million) of assets held under a long
leasehold and GBP0.1 million (2018: GBP0.1 million) of assets held
under short leasehold.
Total interest capitalised in investment properties (owned) and
investment properties under development at 31 December 2019 was
GBP47.6 million (2018: GBP49.8 million) on a cumulative basis.
Total internal costs capitalised in investment properties (owned)
and investment properties under development was GBP63.4 million at
31 December 2019 (2018: GBP59.6 million) on a cumulative basis.
Recurring fair value measurement
All investment and development properties are classified as
Level 3 in the fair value hierarchy.
2019 2018
Class of asset GBPm GBPm
------------------------------------------ ------- -------
London - rental properties 1,015.0 499.8
Prime provincial - rental properties 876.5 298.3
Major provincial - rental properties 1,198.1 409.4
Other provincial - rental properties 317.3 289.6
London - development properties 245.1 49.1
Prime provincial - development properties 76.1 125.4
Major provincial - development properties 90.6 104.4
------------------------------------------ ------- -------
Investment property (owned) 3,818.7 1,776.0
Investment property (leased) 110.4 -
------------------------------------------ ------- -------
Market value 3,929.1 1,776.0
------------------------------------------ ------- -------
The valuation technique for investment properties is a
discounted cash flow using the following inputs: net rental income,
estimated future costs, occupancy and property management
costs.
Where the asset is leased to a University, the valuations also
reflect the length of the lease, the allocation of maintenance and
insurance responsibilities between the Group and the lessee, and
the market's general perception of the lessee's
creditworthiness.
The resulting valuations are cross-checked against the initial
yields and the capital value per bed derived from actual market
transactions.
For development properties, the fair value is usually calculated
by estimating the fair value of the completed property (using the
discounted cash flow method) less estimated costs to
completion.
Fair value using unobservable inputs (Level 3)
2019 2018
GBPm GBPm
------------------------------------------------ ------- -------
Opening fair value 1,776.0 1,467.1
IFRS 16 transition (note 1) 128.0 -
Acquired through business combination (note 6) 1,952.1 -
Gains and losses recognised in income statement 146.7 105.8
Capital expenditure 236.9 252.6
Disposals (310.6) (49.5)
------------------------------------------------ ------- -------
Closing fair value 3,929.1 1,776.0
------------------------------------------------ ------- -------
Quantitative information about fair value measurements using
unobservable inputs (Level 3)
2019
Fair value Valuation Weighted
GBPm technique Unobservable inputs Range average
------------------------- ---------- ----------- ---------------------- -------------- --------
London - 1,015.0 Discounted Net rental income GBP192 - GBP277
(GBP per week) GBP367
rental properties cash flows Estimated future 3% - 5% 4%
rent (%)
Discount rate (yield) 3.9% - 5.0% 4.0%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Prime provincial 876.5 Discounted Net rental income GBP137 - GBP163
- (GBP per week) GBP212
rental properties cash flows Estimated future 2% - 5% 3%
rent (%)
Discount rate (yield) 4.5% - 6.0% 5.0%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Major provincial 1,198.1 Discounted Net rental income GBP74 - GBP157 GBP129
- (GBP per week)
rental properties cash flows Estimated future 2% - 5% 3%
rent (%)
Discount rate (yield) 4.8% - 6.1% 5.7%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Other provincial 317.3 Discounted Net rental income GBP107 - GBP138
- (GBP per week) GBP181
rental properties cash flows Estimated future 1% - 4% 3%
rent (%)
Discount rate (yield) 5.0% - 15.5% 6.6%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
London - 245.1 Discounted Estimated cost to GBP30.8m GBP65.6m
complete (GBPm) - GBP91.4m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 4.0% 4.0%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Prime provincial 76.1 Discounted Estimated cost to GBP16.8m GBP43.2m
- complete (GBPm) - GBP76.4m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 4.8% - 5.0% 4.9%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Major provincial 90.6 Discounted Estimated cost to GBP35.1m GBP39.6m
- complete (GBPm) - GBP46.8m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 4.5% 4.5%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
3,818.7
------------------------- ---------- ----------- ---------------------- -------------- --------
Investment property 110.4 Discounted Net rental income GBP121 -
(GBP per week) GBP167
(leased) cash flows Estimated future 3%
rent (%)
Discount rate (yield) 6.8%
(%)
------------------------- ---------- ----------- ---------------------- -------------- --------
Fair value at 31
December 2019 3,929.1
------------------------- ---------- ----------- ---------------------- -------------- --------
2018
Fair value Valuation Weighted
GBPm technique Unobservable inputs Range average
------------------------- ---------- ----------- ---------------------- -------------- ---------
London - 499.8 Discounted Net rental income GBP184 - GBP267
(GBP per week) GBP355
rental properties cash flows Estimated future 2% - 7% 3%
rent (%)
Discount rate (yield) 4.0% - 5.0% 4.2%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Prime provincial 298.3 Discounted Net rental income GBP139 - GBP153
- (GBP per week) GBP166
rental properties cash flows Estimated future 2% - 6% 3%
rent (%)
Discount rate (yield) 4.5% - 6.0% 5.1%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Major provincial 409.4 Discounted Net rental income GBP99 - GBP149 GBP135
- (GBP per week)
rental properties cash flows Estimated future 1% - 5% 2%
rent (%)
Discount rate (yield) 4.8% - 6.1% 5.6%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Other provincial 289.6 Discounted Net rental income GBP100 - GBP138
- (GBP per week) GBP174
rental properties cash flows Estimated future 2% - 7% 4%
rent (%)
Discount rate (yield) 4.9% - 15.0% 5.8%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
London - 49.1 Discounted Estimated cost to GBP63.3m GBP135.4m
complete (GBPm) - GBP186.3m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 4.3% 4.3%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Prime provincial 125.4 Discounted Estimated cost to GBP15m - GBP37.7m
- complete (GBPm) GBP77.1m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 4.5% - 5.3% 4.8%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Major provincial 104.4 Discounted Estimated cost to GBP19.4m GBP37.1m
- complete (GBPm) - GBP57.8m
development properties cash flows Estimated future 3% 3%
rent (%)
Discount rate (yield) 5.3% - 5.5% 5.4%
(%)
------------------------- ---------- ----------- ---------------------- -------------- ---------
Fair value at 31
December 2018 1,776.0
------------------------- ---------- ----------- ---------------------- -------------- ---------
Fair value sensitivity analysis
A decrease in net rental income or occupancy will result in a
decrease in the fair value, whereas a decrease in the discount rate
(yield) will result in an increase in fair value. There are
inter-relationships between these rates as they are partially
determined by market rate conditions.
+25 bps -25 bps
+5% -5% change change
Fair value change change in in
at in estimated in estimated nominal nominal
31 December net rental net rental equivalent equivalent
2019 income income yield yield
Class of assets GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- ------------- ------------- ----------- -----------
Rental properties
London 1.015.0 1,062.8 962.6 953.4 1,079.9
Prime provincial 876.5 955.0 865.7 866.2 959.5
Major provincial 1,198.1 1,252.4 1,134.0 1,143.6 1,247.4
Other provincial 317.3 322.1 291.4 294.9 319.6
Development properties
London 245.1 262.2 228.0 227.2 265.2
Prime provincial 76.1 85.2 67.1 67.1 88.2
Major provincial 90.6 100.7 80.5 83.3 99.2
------------------------ ------------ ------------- ------------- ----------- -----------
Market value 3,818.7 4,040.4 3,629.3 3,635.7 4,059.0
------------------------ ------------ ------------- ------------- ----------- -----------
3.2 Inventories
2019 2018
GBPm GBPm
------------------ ----- -----
Interests in land 1.5 6.8
Other stocks 2.5 2.3
------------------ ----- -----
Inventories 4.0 9.1
------------------ ----- -----
At 31 December 2019, the Group had interests in two pieces of
land (2018: one piece of land).
3.3 Investments in joint ventures
The Group has two joint ventures:
Group's share Legal entity in
of assets/results which
Joint venture 2019 (2018) Objective Partner Group has interest
---------------------- ------------------ ---------------------- ----------------------- -------------------
The UNITE UK 23.4%* (26.9%) Invest and operate Consortium of investors UNITE UK Student
Student Accommodation student accommodation Accommodation
Fund (USAF) throughout the Fund,
UK a Jersey Unit
Trust
---------------------- ------------------ ---------------------- ----------------------- -------------------
London Student 50% (50%) Operate student GIC Real Estate LSAV Unit Trust,
Accommodation accommodation Pte, Ltd Real estate a Jersey Unit
Venture (LSAV) in London investment vehicle Trust and LSAV
of (Holdings) Ltd,
the Government incorporated in
of Singapore Jersey
---------------------- ------------------ ---------------------- ----------------------- -------------------
* Part of the Group's interest is held through a subsidiary,
USAF (Feeder) Guernsey Limited, in which there is an external
investor. A minority interest therefore occurs on consolidation of
the Group's results representing the external investor's share of
profits and assets relating to its investment in USAF. The ordinary
shareholders of The Unite Group plc are beneficially interested in
22.0% (2018: 25.3%) of USAF.
a) Net assets and results of the joint ventures
The summarised balance sheets and results for the year, and the
Group's share of these joint ventures are as follows:
2019
USAF LSAV Total
GBPm GBPm GBPm
-------------------------- ------------------------ ---------------- ------------------
Gross MI Share Gross Share Gross Share
-------------------------- ------- ------ ------- ------- ------- --------- -------
Investment property 2,849.9 39.0 628.0 1,335.0 667.5 4,184.9 1,334.5
Cash 23.7 0.3 5.2 45.6 22.8 69.3 28.3
Debt (882.1) (12.1) (194.4) (535.2) (267.6) (1,417.3) (474.1)
Swap liabilities - - - (1.2) (0.6) (1.2) (0.6)
Other current assets 151.8 2.1 33.4 2.7 1.3 154.5 36.8
Other current liabilities (160.6) (2.6) (34.9) (24.4) (12.2) (185.0) (49.7)
-------------------------- ------- ------ ------- ------- ------- --------- -------
Net assets 1,982.7 26.7 437.3 822.5 411.2 2,805.2 875.2
Minority interest - (26.7) - - - - (26.7)
Swap liabilities - - - 1.2 0.6 1.2 0.6
-------------------------- ------- ------ ------- ------- ------- --------- -------
EPRA net assets 1,982.7 - 437.3 823.7 411.8 2,806.4 849.1
-------------------------- ------- ------ ------- ------- ------- --------- -------
Profit for the year 144.0 2.1 37.1 126.9 63.4 270.9 102.6
2018
USAF LSAV Total
GBPm GBPm GBPm
-------------------------- ------------------------ ---------------- ------------------
Gross MI Share Gross Share Gross Share
-------------------------- ------- ------ ------- ------- ------- --------- -------
Investment property 2,253.7 35.4 570.2 1,243.4 621.7 3,497.1 1,227.3
Cash 127.9 2.0 32.4 47.7 23.9 175.6 58.3
Debt (690.0) (10.8) (174.6) (534.0) (267.0) (1,224.0) (452.4)
Swap assets/(liabilities) 0.4 - 0.1 (0.3) (0.2) 0.1 (0.1)
Other current assets 27.2 0.4 6.9 0.4 0.2 27.6 7.5
Other current liabilities (57.9) (1.1) (11.7) (16.1) (8.1) (74.0) (20.9)
-------------------------- ------- ------ ------- ------- ------- --------- -------
Net assets 1,661.3 25.9 423.3 741.1 370.5 2,402.4 819.7
Minority interest - (25.9) - - - - (25.9)
Swap (assets)/liabilities (0.4) - (0.1) 0.3 0.2 (0.1) 0.1
-------------------------- ------- ------ ------- ------- ------- --------- -------
EPRA net assets 1,660.9 - 423.2 741.4 370.7 2,402.3 793.9
-------------------------- ------- ------ ------- ------- ------- --------- -------
Profit for the year 124.1 1.8 32.7 122.6 61.3 246.7 95.8
Net assets and profit for the year above include the minority
interest, whereas EPRA net assets exclude the minority
interest.
b) Movement in carrying value of the Group's investments in
joint ventures
The carrying value of the Group's investment in joint ventures
increased by GBP55.5 million during the year ended 31 December 2019
(2018: GBP26.2 million), resulting in an overall carrying value of
GBP875.2 million (2018: GBP819.7 million).
The following table shows how the increase has been
achieved.
2019 2018
GBPm GBPm
------------------------------------------------ ------ ------
Recognised in the income statement:
Operations segment result 36.4 34.1
Minority interest share of Operations segment
result 1.1 1.1
Management fee adjustment related to trading
with joint venture 6.8 6.4
Net revaluation gains 58.3 58.1
Profit/(loss) on disposal of properties 0.4 (3.5)
Other (0.4) (0.4)
------------------------------------------------ ------ ------
102.6 95.8
Recognised in equity:
Movement in effective hedges (0.5) 1.2
Other adjustments to the carrying value:
Profit adjustment related to trading with joint
venture (8.1) (6.4)
Additional capital invested in USAF - 8.6
LSAV performance fee (5.7) -
Performance fee units issued in USAF - 4.0
Redemption of units invested in LSAV - (39.5)
Distributions received (32.8) (37.5)
------------------------------------------------ ------ ------
Increase in carrying value 55.5 26.2
Carrying value at 1 January 819.7 793.5
------------------------------------------------ ------ ------
Carrying value at 31 December 875.2 819.7
------------------------------------------------ ------ ------
c) Transactions with joint ventures
The Group acts as asset and property manager for the joint
ventures and receives management fees in relation to these
services.
In addition, the Group is entitled to performance fees from USAF
and LSAV if the joint ventures outperform certain benchmarks. The
Group receives either cash or an enhanced equity interest in the
joint ventures as consideration for the performance fee. The Group
has recognised the following gross fees in its results for the
year.
2019 2018
GBPm GBPm
----------------------------------- ----- -----
USAF 14.6 13.5
LSAV 6.4 5.9
Asset and property management fees 21.0 19.4
LSAV performance fee 11.4 -
USAF acquisition fee 2.8 -
----------------------------------- ----- -----
Investment management fees 14.2 -
----------------------------------- ----- -----
Total fees 35.2 19.4
----------------------------------- ----- -----
On an EPRA basis, fees from joint ventures are shown net of the
Group's share of the cost to the joint ventures.
The Group's share of the cost to the joint ventures is GBP6.6
million (2018: GBP6.2 million), which results in management fees
from joint ventures of GBP14.4 million being shown in the Operating
segment result in note 2.2a (2018: GBP13.2 million, excluding
GBP2.4 million third party management fee).
Investment management fees are included within the unallocated
to segments section in note 2.2a.
During 2019, the Group sold five properties to USAF for gross
proceeds of GBP202.3 million. All five properties had been held on
balance sheet as investment property within non-current assets. The
proceeds and carrying value of the property are therefore
recognised in profit on disposal of property and the cash flows in
investing activities. The profits relating to the sales, associated
disposal costs and related cash flows are set out below:
Profit and loss
------------------------------------------------ -----------------
2019 2018
USAF LSAV
GBPm GBPm
------------------------------------------------ -------- -------
Included in profit on disposal of property (net
of joint venture trading adjustment) 1.8 -
------------------------------------------------ -------- -------
Profit on disposal of property 1.8 -
------------------------------------------------ -------- -------
Cash flow
----------------------------------------------------- ------------
2019 2018
USAF LSAV
GBPm GBPm
----------------------------------------------------- ----- -----
Gross proceeds 202.3 1.0
----------------------------------------------------- ----- -----
Net cash flows included in cash flows from investing
activities 202.3 1.0
----------------------------------------------------- ----- -----
Section 4: Funding
4.1 Borrowings
The table below analyses the Group's borrowings which comprise
bank and other loans by when they fall due for payment:
Group - Carrying
value
--------------------------------------------------------- ------------------
2019 2018
GBPm GBPm
--------------------------------------------------------- ---------- ------
Current
In one year or less, or on demand 1.4 1.3
Non-current
In more than one year but not more than two years 1.5 85.6
In more than two years but not more than five years 964.7 110.3
In more than five years 567.6 395.4
--------------------------------------------------------- ---------- ------
1,533.8 591.3
Unamortised fair value of debt recognised on acquisition 32.4 -
--------------------------------------------------------- ---------- ------
Total borrowings 1,567.6 592.6
--------------------------------------------------------- ---------- ------
In addition to the borrowings currently drawn as shown above,
the Group has available undrawn facilities of GBP305.0 million
(2018: GBP350.0 million). A further overdraft facility of GBP10.0
million (2018: GBP10.0 million) is also available.
Properties with a carrying value of GBP604.7 million (2018:
GBP638.1 million) have been pledged as security against the Group's
drawn down borrowings. On the occurrence of certain specified
events of default, for example the Group failed to meet its payment
obligations in relation to the secured borrowings, the secured
lender would be entitled to enforce its security over the relevant
properties and sell them. The sale proceeds would then be applied
in discharge of the relevant borrowings.
The carrying value and fair value of the Group's borrowings is
analysed below:
2019 2018
---------------------------------------- -------------------- --------------------
Carrying Carrying
value Fair value value Fair value
GBPm GBPm GBPm GBPm
---------------------------------------- -------- ---------- -------- ----------
Level 1 IFRS fair value hierarchy 907.4 930.9 365.0 373.5
Level 2 IFRS fair value hierarchy 231.9 244.6 237.8 251.2
Other loans and unamortised arrangement
fees 428.3 428.3 (10.2) (10.2)
---------------------------------------- -------- ---------- -------- ----------
Total borrowings 1,567.6 1,603.8 592.6 614.5
---------------------------------------- -------- ---------- -------- ----------
The fair value of loans classified as Level 1 in the IFRS fair
value hierarchy is determined using quoted prices in active markets
for identical liabilities.
The fair value of loans classified as Level 2 in the IFRS fair
value hierarchy has been calculated by a third party expert
discounting estimated future cash flows on the basis of market
expectation of future interest rates. The fair value represents the
net present value of the difference between the contracted rate and
the valuation rate when applied to the projected balances for the
period from the reported date to the contracted expiry date. Loans
are valued using the mid-point of the yield curve prevailing on the
reporting date. The valuations do not include accrued interest from
the previous settlement date to the reporting date nor a credit
valuation adjustment.
4.2 Interest rate swaps
The Group uses interest rate swaps to manage the Group's
exposure to interest rate fluctuations. In accordance with the
Group's treasury policy, the Group does not hold or issue interest
rate swaps for trading purposes and only holds swaps which are
considered to be commercially effective.
The following table shows the fair value of interest rate
swaps:
2019 2018
GBPm GBPm
---------------------------------- ----- -----
Current - -
Non-current 7.6 0.1
---------------------------------- ----- -----
Fair value of interest rate swaps 7.6 0.1
---------------------------------- ----- -----
The fair value of interest rate swaps (a credit balance in 2019
and 2018) have been calculated by a third party expert, discounting
estimated future cash flows on the basis of market expectations of
future interest rates, representing Level 2 in the IFRS 13 fair
value hierarchy.
4.3 Net financing costs
2019 2018
Recognised in the income statement: GBPm GBPm
---------------------------------------------- ----- ------
Interest income (5.1) (0.9)
Amortisation of fair value of debt recognised
on acquisition (0.4) -
---------------------------------------------- ----- ------
Finance income (5.5) (0.9)
Gross interest expense on loans 32.9 24.8
Interest capitalised (9.1) (10.5)
---------------------------------------------- ----- ------
Loan interest and similar charges 23.8 14.3
Interest on lease liabilities 9.2 -
Mark to market changes on interest rate swaps 2.7 -
Swap cancellation and loan break costs 2.7 0.1
---------------------------------------------- ----- ------
Finance costs 38.4 14.4
---------------------------------------------- ----- ------
Net financing costs 32.9 13.5
---------------------------------------------- ----- ------
The average cost of the Group's wholly owned investment debt for
the year ended 31 December 2019 is 3.3% (2018: 3.8%). The overall
average cost of investment debt on an EPRA basis is 3.3% (2018:
3.8%).
4.4 Gearing
LTV is a key indicator that the Group uses to manage its
indebtedness. The Group also monitors gearing, which is calculated
using EPRA net asset value (NAV) and adjusted net debt. Adjusted
net debt excludes IFRS 16 lease liabilities, the unamortised fair
value of debt recognised on acquisition and mark to market of
interest rate swaps as shown below.
The Group's gearing ratios are calculated as follows:
2019 2018
Note GBPm GBPm
------------------------------------------ ---- --------- -------
Cash and cash equivalents 5.1 86.9 123.6
Current borrowings 4.1 (1.4) (1.3)
Non-current borrowings 4.1 (1,566.2) (591.3)
Lease liabilities (104.8) -
Interest rate swaps liabilities 4.2 (7.6) (0.1)
------------------------------------------ ---- --------- -------
Net debt per balance sheet (1,593.1) (469.1)
Lease liabilities 104.8 -
Unamortised fair value of debt recognised
on acquisition 32.4 -
Mark to market of interest rate swaps 7.6 0.1
Adjusted net debt (1,448.3) (469.0)
------------------------------------------ ---- --------- -------
Reported net asset value 2.3c 3,071.5 2,073.0
EPRA net asset value 2.3c 3,109.7 2,085.4
Gearing
Basic (net debt/reported net asset
value) 52% 23%
Adjusted gearing (adjusted net debt/EPRA
net asset value) 47% 22%
Loan to value 2.3a 37% 29%
4.5 Equity
The Company's issued share capital has increased during the year
as follows:
2019 2018
------------------------------- ------------------------------- ------------------------------------
Called up, allotted and
fully paid Ordinary Share Ordinary
ordinary shares of GBP0.25p No. of shares Premium No. of shares Share Premium
each shares GBPm GBPm shares GBPm GBPm
------------------------------- ----------- -------- -------- ----------- -------- -------------
At 1 January 263,515,151 65.9 740.5 240,830,281 60.2 579.5
Shares issued (placing) 26,353,664 6.6 247.6 22,128,782 5.5 160.7
Shares issued (scrip dividend) 1,017,472 0.3 (0.3) 78,090 0.1 (0.1)
Shares issued (consideration
for Liberty Living (note
6)) 72,582,286 18.1 887.0 - - -
Shares issued (options
exercised) 123,309 - 0.1 477,998 0.1 0.4
------------------------------- ----------- -------- -------- ----------- -------- -------------
At 31 December 363,591,882 90.9 1,874.9 263,515,151 65.9 740.5
------------------------------- ----------- -------- -------- ----------- -------- -------------
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All shares rank equally with
regard to the Company's residual assets.
4.6 Dividends
During the year, the Company declared and paid an interim
dividend of GBP23.2 million - 10.25p per share (2018: GBP24.3
million - 9.5p per share) and paid a GBP47.5 million final dividend
- 19.5p per share relating to the year ended 31 December 2018
(2018: GBP38.2 million - 15.4p per share relating to the year ended
31 December 2017).
After the year end, the Directors proposed a final dividend per
share of 22.95p (2018: 19.5p), bringing the total dividend per
share for the year to 33.2p (2018: 29.0p). No provision has been
made in relation to this dividend.
The Group has modelled tax adjusted property business profits
for five years and declared PIDs in respect of the May 2019 and
November 2019 distributions to ensure that the PID requirement will
be satisfied. For the year ended 31 December 2019 the required PID
is expected to be fully paid by May 2020.
Section 5: Working capital
5.1 Cash and cash equivalents
The Group's cash position at 31 December 2019 was GBP86.9
million (2018: GBP123.6 million).
The Group's cash balances include GBP2.6 million (2018: GBP2.4
million) whose use at the balance sheet date is restricted by
funding agreements to pay operating costs and loan interest
relating to specific properties.
The Group generates cash from its operating activities as
follows:
Group
------------------------------------------------------------------ ----- ----------------
Note 2019 2018
GBPm GBPm GBPm
------------------------------------------------------------------ ----- ------- -------
(Loss)/profit for the year (87.6) 237.3
Adjustments for:
Depreciation and amortisation 3.3 7.6 7.3
Impairment of goodwill and acquired intangible asset 6 384.1 -
Acquisition costs 6 22.8 -
Fair value of share-based payments 7.1 2.2 1.1
Dividends received - -
Change in value of investment property (owned) 3.1 (154.8) (105.8)
Change in value of investment property (leased) 3.1 8.1 -
Change in value of investments 3.5 - -
Net finance costs excluding interest on lease liabilities 4.3 23.7 13.5
Loss on disposal of investment property (owned) 6.2 6.8
Loss on disposal of investment property (leased) 1.1 -
Share of joint venture profit 3.4b (102.6) (95.8)
Trading with joint venture adjustment 8.1 6.4
Tax charge/(credit) 2.5a (13.6) 8.5
------------------------------------------------------------------ ----- ------- -------
Cash flows from operating activities before changes in working capital 105.3 79.2
Increase in trade and other receivables (1.6) (4.5)
Increase in inventories (1.7) (5.5)
Decrease in trade and other payables (21.3) (5.8)
------------------------------------------------------------------ ----- ------- -------
Cash flows from operating activities 80.7 63.5
Tax paid (2.2) (3.8)
------------------------------------------------------------------ ----- ------- -------
Net cash flows from operating activities 78.5 59.7
------------------------------------------------------------------ ----- ------- -------
In 2019, none of the brought forward trade and other receivables
was settled in units in USAF rather than cash (2018: GBP4.0
million).
Cash flows consist of the following segmental cash
inflows/(outflows): Operations GBP85.4 million (2018: GBP81.2
million), property GBP191.8 million (2018: (GBP138.3 million)) and
unallocated (GBP314.5 million) (2018: GBP129.5 million).
The unallocated amount includes a net cash outflow of (GBP487.1
million) in respect of the acquisition of Liberty Living (2018:
GBPnil), amounts received from shares issued GBP254.7 million
(2018: GBP166.7 million), dividends paid (GBP69.6 million) (2018:
(GBP62.5 million)), tax paid (GBP2.2 million) (2018: (GBP3.8
million)) and investment in joint ventures GBPnil (2018: GBP30.9
million).
5.2 Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. It arises principally from the Group's
cash balances, the Group's receivables from customers and joint
ventures and loans provided to the Group's joint ventures.
At the year end, the Group's maximum exposure to credit risk was
as follows:
2019 2018
Note GBPm GBPm
-------------------------------- ------ ----- -----
Cash 5.1 86.9 123.6
Trade receivables 30.5 22.8
Amounts due from joint ventures 30.1 36.7
-------------------------------- ------ ----- -----
147.5 183.1
-------------------------------- ------ ----- -----
a) Cash
The Group operates investment guidelines with respect to surplus
cash. Counterparty limits for cash deposits are largely based upon
long-term ratings published by credit rating agencies and credit
default swap rates. Deposits were placed with financial
institutions with A- or better credit ratings.
b) Trade receivables
The Group's customers can be split into two groups - (i)
students (individuals) and (ii) commercial organisations including
Universities. The Group's exposure to credit risk is influenced by
the characteristics of each customer. The Group holds customer
deposits of GBP1.0 million (2018: GBP0.9 million) as collateral
against individual customers.
c) Joint ventures
Amounts receivable from joint ventures fall into two categories
- working capital balances and investment loans. The Group has
strong working relationships with its joint venture partners and
therefore views this as a low credit risk balance.
Section 6: Business combination
On 29 November 2019, the Group completed the acquisition of
Liberty Living for total consideration of GBP1,397.1 million. This
comprised cash consideration paid of GBP492.0 million and the fair
value of new shares issued of GBP905.1 million.
The consideration for the acquisition was calculated on a
NAV-for-NAV basis as at 31 March 2019 with certain agreed
adjustments applied to the EPRA NAVs of Unite and the Liberty
Living portfolio. The share price at completion is used to
calculate the fair value of the shares issued and there was a
strong appreciation in the share price between announcement on 3
July 2019 and completion on 29 November 2019.
The acquisition of Liberty Living was accounted for as a
business combination due to the integrated set of activities
acquired in addition to the properties. Accordingly, transaction
and subsequent structuring costs incurred in relation to the
acquisition of GBP22.8 million have been expensed in the
consolidated income statement.
As the acquisition has been categorised as a business
combination, any premium paid over the fair value of the assets
acquired is treated as goodwill in the consolidated balance sheet
at the time of acquisition. Goodwill of GBP377.4 million arising in
respect of the transaction was recognised on acquisition, as
detailed below.
The fair value of the identifiable assets and liabilities of
Liberty Living acquired as at the date of acquisition were:
Provisional Fair value
fair value recognised
IFRS book value adjustment on acquisition
GBPm GBPm GBPm
--------------------------------------- --------------- ----------- ---------------
Investment property 1,952.1 - 1,952.1
PPE and intangibles assets 11.9 (2.5) 9.4
Trade and other receivables 8.4 - 8.4
Cash and cash equivalents 22.4 - 22.4
Trade and other payables (78.5) 0.4 (78.1)
Borrowings (861.7) (32.8) (894.5)
--------------------------------------- --------------- ----------- ---------------
Total identifiable net assets acquired 1,054.6 (34.9) 1,019.7
--------------------------------------- --------------- ----------- ---------------
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
Material assets
acquired Valuation technique
--------------- -------------------------------------------------------------
Investment Liberty Living's property portfolio was valued externally
property by Knight Frank, following the valuation process as set
out in note 3.1.
--------------- -------------------------------------------------------------
Borrowings Nominal amounts owed to lenders plus interest payable that
has been adjusted for the difference between the contractual
interest rate on the loans and borrowings and the market
interest rate.
--------------- -------------------------------------------------------------
Goodwill has been recognised as follows:
GBPm
----------------------------------------------- ---------
Cash consideration paid 492.0
Fair value of shares issued 905.1
Fair value of identifiable net assets acquired (1,019.7)
----------------------------------------------- ---------
Goodwill 377.4
----------------------------------------------- ---------
Goodwill recognised on acquisition of GBP377.4 million
represents the premium paid over the fair value of the net assets
acquired.
Goodwill has been subsequently assessed for impairment. As no
definitive and measurable portfolio premium can be ascribed to the
combined value of the properties an impairment charge for the full
amount of goodwill recognised on acquisition has been taken to the
consolidated income statement.
Intangible assets have subsequently been assessed for
impairment. The Liberty Living property portfolio will be rebranded
to the Unite brand, therefore an impairment charge of GBP6.7
million, representing the fair value of the Liberty Living brand
(net of deferred tax) has been taken to the consolidated income
statement.
Acquired net assets, on an EPRA basis, has been determined as
GBP1,045.8 million, being the fair value of the net assets on an
IFRS basis (GBP1,019.7 million), excluding the fair value of the
brand that was subsequently fully impaired (GBP6.7 million) and the
GBP32.8 million fair value adjustment made to borrowings.
For the period 29 November 2019 to 31 December 2019, on an IFRS
basis, Liberty Living contributed revenue of GBP13.8 million and
profit of GBP18.1 million to the Group's results (GBP13.8 million
and GBP7.5 million, respectively, on an EPRA basis). If the
acquisition had occurred on 1 January 2019, revenue would have been
GBP134.4 million and profit would have been GBP126.9 million for
the year ended 31 December 2019.
Section 7: Post balance sheet events
Fire safety is a critical part of our health and safety
strategy. In accordance with the Government's Building Safety
Advice of 20 January 2020, we have initiated a thorough review of
the use of High Pressure Laminate (HPL) on our properties. While
the review is ongoing, early indications are that the cost of
replacing the cladding could be GBP15-20 million (Unite share),
which will form part of our capex programme for investment
properties. We expect this spend to be incurred over the next 12-24
months with activity prioritised according to our risk
assessments.
Section 8: Alternative performance measures
The Group uses alternative performance measures ("APMs"), which
are not defined or specified under IFRS. These APMs, which are not
considered to be a substitute for IFRS measures, provide additional
helpful information. APMs are consistent with how business
performance is planned, reported and assessed internally by
management and the Board, and provide comparable information across
the Group. The APMs below have been calculated on a see through /
Unite share basis, as referenced to the notes to the financial
statements. Reconciliations to equivalent IFRS measures are
included in notes 2.2b and 2.2c. Definitions can also be found in
the glossary.
2019 2018
Note GBPm GBPm
-------------------------------------------------- ----- ---------- ----------
EBIT
Net operating income (NOI) 2.2a 160.8 140.3
Management fees 2.2a 14.4 15.6
Operating expenses 2.2a (21.8) (21.7)
-------------------------------------------------- ----- ---------- ----------
153.4 134.2
-------------------------------------------------- ----- ---------- ----------
EBIT margin %
Rental income 2.2a 213.9 188.3
EBIT 8 153.4 134.2
-------------------------------------------------- ----- ---------- ----------
71.7% 71.3%
-------------------------------------------------- ----- ---------- ----------
EBITDA
Net operating income (NOI) 2.2a 160.8 140.3
Management fees 2.2a 14.4 15.6
Operating expenses 2.2a (21.8) (21.7)
Depreciation and amortisation 7.6 7.3
-------------------------------------------------- ----- ---------- ----------
161.0 141.5
-------------------------------------------------- ----- ---------- ----------
Net debt
Cash 2.3a 114.9 179.9
Debt 2.3a (1,999.2) (1,036.4)
-------------------------------------------------- ----- ---------- ----------
(1,884.3) (856.5)
-------------------------------------------------- ----- ---------- ----------
Net debt (adjusted)
Cash 2.3a 114.9 179.9
Debt (adjusted)* (1,209.3) (1,036.4)
-------------------------------------------------- ----- ---------- ----------
(1,094.4) (856.5)
-------------------------------------------------- ----- ---------- ----------
* Calculated as Unite debt of GBP1,137.5 million and Liberty Living debt
of GBP71.8 million (GBP861.7 million pro-rated for 33 days of ownership).
2019 2018
Note GBPm GBPm
-------------------------------------------------- ----- ---------- ----------
EBITDA : Net debt (adjusted)
EBITDA 8 161.0 141.5
Net debt (adjusted) 8 (1,094.4) (856.5)
-------------------------------------------------- ----- ---------- ----------
Ratio 6.8 6.1
-------------------------------------------------- ----- ---------- ----------
Interest cover (Unite share)
EBIT 8 153.4 134.2
Net financing costs 2.2a (34.7) (28.5)
Interest on lease liability/operating lease
rentals 2.2a (9.2) (11.5)
-------------------------------------------------- ----- ---------- ----------
Total interest (43.9) (40.0)
-------------------------------------------------- ----- ---------- ----------
Ratio 3.5 3.4
-------------------------------------------------- ----- ---------- ----------
Reconciliation: EPRA earnings to IFRS profit before tax
2019 2018
Note GBPm GBPm
---------------------------------------------- ---- ------- ------
EPRA earnings 110.6 88.4
Net valuation gains on investment property
(owned) 2.3b 213.1 163.9
Property disposals (owned) 2.3b (5.8) (10.3)
Net valuation losses on investment property
(leased) 2.3b (8.1) -
Property disposals (leased) 2.3b (1.1) -
Impairment of goodwill 2.3b (384.1) -
Acquisition costs 2.3b (22.8) -
Amortisation of fair value of debt recognised
on acquisition 2.3b 0.4 -
Changes in valuation of interest rate
swaps 2.3b (2.7) -
Debt exit costs 2.3b (2.7) (0.1)
Minority interest and tax 2.0 3.9
---------------------------------------------- ---- ------- ------
IFRS (loss) profit before tax (101.2) 245.8
---------------------------------------------- ---- ------- ------
Reconciliation: Profit before tax excluding items relating to
the Liberty Living acquisition to IFRS loss before tax
2019
Note GBPm
---------------------------------------------- ---- -------
Profit before tax excluding items relating
to the Liberty Living acquisition 305.3
Impairment off goodwill and intangible
asset 6 (384.1)
Acquisition costs 6 (22.8)
Amortisation of fair value of debt recognised
on acquisition 0.4
---------------------------------------------- ---- -------
IFRS loss before tax (101.2)
---------------------------------------------- ---- -------
Adjusted basic EPS (IFRS)
2019
Note GBPm
------------------------------------------- ---- -------
Profit before tax excluding items relating
to the Liberty Living acquisition 8 305.3
Number of shares (thousands) 2.2c 282,802
-------
Adjusted basic EPS (IFRS) 108.0p
EPRA Performance Measures
EPRA like-for-like rental income
Properties owned
throughout the Development Acquisitions and
period property disposals Other activity Total EPRA Earnings
------------------- ------------------ ------------------- ------------------- -------------- -------------------
2019
Rental income 166.4 20.5 12.1 14.9 213.9
Property operating
expenses (42.5) (4.5) (3.6) (2.6) (53.1)
------------------- ------------------ ------------------- ------------------- -------------- -------------------
Net rental income 123.9 16.0 8.5 12.4 160.8
------------------- ------------------ ------------------- ------------------- -------------- -------------------
2018
Rental income 160.6 6.1 23.4 (1.7) 188.3
Property operating
expenses (40.2) (1.1) (7.4) 0.7 (48.0)
------------------- ------------------ ------------------- ------------------- -------------- -------------------
Net rental income 120.4 4.9 16.0 (1.0) 140.3
------------------- ------------------ ------------------- ------------------- -------------- -------------------
Like-for-like gross
rental income 3.6%
Like-for-like net
rental income 3.0%
------------------- ------------------ ------------------- ------------------- -------------- -------------------
EPRA Vacancy Rate 2019 2018
---------------------------------------------- ------ -----
Estimated rental value of vacant space 3.5 2.1
Estimated rental value of the whole portfolio 247.1 139.2
---------------------------------------------- ------ -----
EPRA Vacancy Rate 1.4% 1.5%
---------------------------------------------- ------ -----
EPRA Cost ratio 2019 2018
-------------------------------------------------------- ------ ------
Property operating expenses 33.0 28.6
Operating expenses 21.1 20.9
Development / pre contract 1.5 -1.1
Unallocated expenses 4.4 2.0
-------------------------------------------------------- ------ ------
60.0 50.4
Share of JV property operating expenses 20.1 19.4
Share of JV operating expenses 0.7 0.8
-------------------------------------------------------- ------ ------
80.8 70.6
Less: Joint venture management fees (14.4) (13.2)
-------------------------------------------------------- ------ ------
Total costs (A) 66.4 57.4
-------------------------------------------------------- ------ ------
Group vacant property costs - -
Share of JV vacant property costs - -
-------------------------------------------------------- ------ ------
Total costs excluding vacant property costs (B) 66.4 57.4
-------------------------------------------------------- ------ ------
Rental income 134.1 112.7
Share of JV rental income 79.8 75.6
-------------------------------------------------------- ------ ------
Total gross rental income (C) 213.9 188.3
-------------------------------------------------------- ------ ------
Total EPRA cost ratio (including vacant property costs)
(A)/(C) 31% 30%
-------------------------------------------------------- ------ ------
Total EPRA cost ratio (excluding vacant property costs)
(B)/(C) 31% 30%
-------------------------------------------------------- ------ ------
Unite's EBIT margin excludes non-operational expenses which are
included within the EPRA cost ratio above.
EPRA Valuation movement (Unite share)
Valuation Change
GBPm GBPm %
------------------------------------ --------- ------ ----
Wholly owned 1,267 63 5.2%
USAF 509 15 3.1%
LSAV 668 46 7.4%
------------------------------------ --------- ------ ----
Rental properties 2,444 124 4.8%
Leased properties 110
2019/20 development completions 206
Properties under development 412
------------------------------------ --------- ------ ----
Properties held throughout the year 3,172
Acquisitions 2,008
Disposals to USAF 45
------------------------------------ --------- ------ ----
Total property portfolio 5,225
------------------------------------ --------- ------ ----
EPRA Yield movement
NOI yield Yield movement (bps)
-------------------------------- --------- ------------------------
% H1 H2 FY
-------------------------------- --------- ------ ------- -------
Wholly owned 5.1% (7) (5) (12)
USAF 5.3% (1) (3) (5)
LSAV 4.4% (3) (10) (13)
--------- ------ ------- -------
Rental properties (Unite share) 5.0% (5) (6) (11)
Property related capital expenditure
2019 2018
----------------------- ----------------------------- -----------------------------
Wholly Share of Wholly Share of
owned JVs Group share owned JVs Group share
----------------------- ------ -------- ----------- ------ -------- -----------
Acquisitions - 51 51 - 7 7
Developments 208 6 215 232 6 238
Rental properties 6 9 15 10 14 25
Other 9 - 9 10 - 10
----------------------- ------ -------- ----------- ------ -------- -----------
Total property related
capex 224 66 290 253 27 280
----------------------- ------ -------- ----------- ------ -------- -----------
Glossary
Adjusted net debt Gross financing costs Net operating income (NOI)
The Group's debt, net All interest paid by the The Group's rental income
of cash and unamortised Group, including those from rental properties
debt raising costs, excluding capitalised into developments (owned and leased) less
the mark to market of and operating lease rentals. those operating costs
interest rates swaps. It includes all receipts directly related to the
and payments under interest property, therefore excluding
Basis points (BPS) rate swaps whether they central overheads.
A basis point is a term are effective or ineffective
used to describe a small under IFRS. NOI margin
percentage, usually in The Group's NOI expressed
the context of change, The Group as a percentage of rental
and equates to 0.01%. Wholly owned balances plus income.
Unite's interests relating
Direct let to USAF and LSAV. Nomination agreements
Properties where short-hold Properties where Universities
tenancy agreements are Group debt have entered into a contract
made directly between Wholly owned borrowings to guarantee occupancy.
Unite and the student. plus Unite's share of borrowings The Universities nominate
attributable to USAF and students to live in the
EBIT LSAV. building and Unite enters
The Group's NOI plus into short-hold tenancies
management fees and less Interest cover ratio (ICR) with the students.
operating expenses. Calculated as EBIT divided
by the sum of net financing Other provincial
EBITDA costs and IFRS 16 lease Properties located in
The Group's EPRA earnings liability interest costs. Bedford, Bournemouth,
before charging interest, Coventry, Exeter, Loughborough,
tax, depreciation and Lease Medway, Preston, Portsmouth,
amortisation. The profit Properties which are leased Reading, Stoke, Swindon
number is used to calculate to Universities for a number and Wolverhampton.
the ratio to net debt. of years and have no Unite
management presence. Prime provincial
EBIT margin Properties located in
The Group's EBIT expressed Like-for-like rental growth Bristol, Bath, Edinburgh,
as a percentage of rental Like-for-like rental growth Manchester and Oxford.
income. is the growth in gross
rental income on properties Rental properties
EPRA owned throughout the current Investment properties
The European Public Real and previous years under whose construction has
Estate review. been completed and are
Association, who produce used by the Operations
best practice recommendations Loan to value (LTV) segment to generate NOI.
for financial reporting. Net debt as a proportion
of the carrying value of Rental properties (leased)
EPRA earnings the total property portfolio, / Sale and leaseback
EPRA earnings exclude excluding balances recognised Properties that have been
movements relating to in respect of leased properties sold to a third party
changes in values of under IFRS 16. investor then leased back
investment properties to the Group. Unite is
and interest rate swaps LSAV also responsible for the
and the related tax effects. The London Student Accommodation management of these assets
Joint Venture (LSAV) is on behalf of the owner.
EPRA earnings per share a joint venture between
The earnings per share Unite and GIC, in which See-through (also Unite
based on EPRA earnings. both hold a 50% stake. share)
LSAV has a maturity date Wholly owned balances
EPRA NAV of September 2022. plus Unite's share of
EPRA NAV includes all balances relating to USAF
property at market value Major Provincial and LSAV.
but excludes the mark Properties located in Aberdeen,
to market of financial Birmingham, Cardiff, Durham, Total accounting return
instruments and deferred Glasgow, Leeds, Leicester, Growth in EPRA NAV per
tax. EPRA NAV provides Liverpool, Newcastle, Nottingham, share plus dividends paid,
a consistent measure Sheffield and Southampton. expressed as a percentage
of NAV on a going concern of EPRA NAV per share
basis. Net debt at the beginning of the
Group debt, net of cash period.
EPRA net asset value and unamortised debt issue Total shareholder return
per share costs, excluding IFRS 16 The growth in value of
The diluted NAV per share investment property (leased) a shareholding over a
figure based on EPRA and associated lease liabilities. specified period, assuming
NAV. dividends are reinvested
Net debt: EBITDA to purchase additional
EPRA NNNAV Net debt as a proportion shares.
EPRA NAV adjusted for of EBITDA.
the fair value of debt USAF/the fund
and financial instruments Net financing costs (EPRA) The Unite UK Student Accommodation
and deferred tax. EPRA Gross financing costs net Fund (USAF) is Europe's
NNNAV provides a 'spot' of interest capitalised largest fund focused purely
measure of NAV with all into developments and interest on income-producing student
assets and liabilities received on deposits. accommodation investment
at their fair value. assets.
Net initial yield (NIY The fund is an open- ended
ESG or yield) infinite life vehicle
Environmental, Social The net operating income with unique access to
and Governance. generated by a property Unite's development pipeline.
expressed as a percentage Unite acts as fund manager
GRESB of its value, taking into for the fund, as well
GRESB is a benchmark account notional acquisition as owning a significant
of the Environmental, costs. minority stake.
Social and Governance
(ESG) performance of WAULT
real assets. Weighted average unexpired
lease term to expiry.
Gross asset value
Rental properties, plus Wholly owned
leased properties and Balances relating to properties
development properties. that are 100% owned by
GAV is reported on a The Unite Group plc or
fair value basis. its 100% subsidiaries.
Company information
Registered office
South Quay House
Temple Back
Bristol BS1 6FL
Registered Number in England
03199160
Auditor
Deloitte LLP
1 New Street Square, London EC4 3HQ
Financial Advisers
J.P. Morgan Cazenove
25 Bank Street, London E14 5JP
Numis Securities
The London Stock Exchange Building
10 Paternoster Square, London EC4M 7LT
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Financial PR Consultants
Powerscourt
1 Tudor Street, London, EC4Y OAH
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