TIDMUTG

RNS Number : 5048C

Unite Group PLC (The)

23 February 2022

PRESS RELEASE

23 February 2022

THE UNITE GROUP PLC

('Unite Students', 'Unite', the 'Group', or the ' Company ')

RESULTS FOR THE YEARED 31 DECEMBER 2021

Richard Smith, Chief Executive of Unite Students, commented:

"The business has seen a strong recovery in performance in 2021 and is well positioned for further growth due to our alignment to the strongest universities, an enhanced reputation thanks to our supportive actions during the pandemic and our best-in-class operating platform. We have ambitious goals for our environmental and social impact, as underlined by the recent publication of our pathway to net zero carbon by 2030.

"The outlook for the business and the UK Higher Education sector is strong, driven by rising participation rates, increased demand for our product from returning students, significant and sustained demographic growth and Government support for growth in international student numbers.

"We have our biggest ever development pipeline and the balance sheet capacity to pursue new growth opportunities through university partnerships and targeted acquisitions. We are confident in our ability to attract more of the students currently living in the HMO sector and also see potential to extend our platform to cater to the growing number of young professional renters living in major UK cities. Together this underpins significant future earnings growth and attractive total returns for shareholders."

 
 Year ended                       31 December 2021   31 December 2020   Change 
-------------------------------  -----------------  -----------------  ------- 
 Adjusted earnings(1,3)                  GBP110.1m           GBP91.6m      20% 
 Adjusted EPS(1,3)                           27.6p              24.0p      15% 
 IFRS profit/(loss) before tax           GBP343.1m        GBP(120.1)m      n/m 
 IFRS basic EPS                              85.9p            (31.8)p      n/m 
 Dividend per share                          22.1p              12.8p      73% 
 Total accounting return(1)                  10.2%             (3.4)% 
 As at                            31 December 2021   31 December 2020   Change 
-------------------------------  -----------------  -----------------  ------- 
 EPRA NTA per share(1)                        882p               818p       8% 
 IFRS net assets per share                    880p               809p       9% 
 See-through net debt(2)                 GBP1,522m          GBP1,742m    (13)% 
 Loan to value(2)                              29%                34%     (5)% 
-------------------------------  -----------------  -----------------  ------- 
 MSCI ESG                                AA rating          AA rating 
 GRESB score                                85/100             81/100       +4 
-------------------------------  -----------------  -----------------  ------- 
 

HIGHLIGHTS

Return to earnings growth

-- Adjusted earnings of GBP110.1 million, up 20% (2020: GBP91.6 million) and adjusted EPS of 27.6p, up 15% (2020: 24.0p)(3)

-- IFRS profit before tax of GBP343.1 million (2020: loss of GBP120.1 million) , driven by a valuation gain of GBP182.2 million (2020: GBP178.8 million loss)

   --      EPRA NTA up 8% to 882p (31 December 2020: 818p) 
   --      IFRS NAV up 9% to 880p (31 December 2020: 809p) 
   --      T otal accounting return of 10.2% for the year (2020: (3.4)%) 

-- Dividend of 22.1p (2020: 12.8p), reflecting a payout ratio of 80% of adjusted EPS (2020: 53%)

Recovery in 2021/22 and s trong student demand for 2022/23

-- 94% occupancy and 2.3% rental growth for 2021/22 (2020/21: 88% and (0.6)%, 2019/20: 98% and 3.4%)

-- Reservations at 67% for 2022/23, with increased customer retention (2020/21: 60%, 2019/20: 73%)

   --      University applications for 2022/23 up 7% on pre-pandemic levels 
   --      Inflation protection through multi-year nomination agreements and annual sales cycle 

Record development pipeline, funded through active capital recycling

-- Secured development and university partnerships pipeline of GBP967 million (c.6,000 beds) for delivery over the next four years, delivering 10p of upside to EPRA EPS

   --      Acquisition of GBP177 million development in East London, providing 700 beds 
   --      GBP261 million of disposals, improving portfolio quality 
   --      Further opportunities to add to university partnerships and development pipeline 

Best-in-class platform supporting attractive financial returns

-- Anticipate total accounting returns of c.10% in 2022, excluding any impact from yield movements

   --      Return to 97% occupancy and rental growth of 3.0-3.5% for 2022/23 
   --      EPRA EPS guidance of 41-43p for 2022 
   --      Targeting adjusted EBIT margin of above 72% over the medium term (2021: 62.3%) 

Balance sheet positioned for growth

   --      LTV reduced to 29% (2020: 34%), demonstrating ongoing capital discipline 

-- LSAV joint venture extended by 10 years to 2032 and receipt of GBP53 million performance fee

Committed to being a responsible and resilient business

   --      Publication of net zero carbon pathway and SBTi validated carbon reduction targets 
   --      Proactive improvements in fire safety, demonstrating leadership on removal of HPL cladding 

1. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). 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 and are based on the European Public Real Estate Association (EPRA) best practice recommendations. 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 and note 7 for calculations and reconciliations.

2. Excludes IFRS 16 related balances recognised in respect of leased properties. See glossary for definitions.

3. Adjusted earnings and adjusted EPS remove the impact of the LSAV performance fee and integration costs in relation to Liberty Living from EPRA earnings and EPRA EPS. See glossary for definitions and note 7 for calculations and reconciliations.

PRESENTATION

There will be a presentation for analysts this morning at 08:30 GMT. A live webcast will be available via this link . 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 / Michael Burt Tel: +44 117 302 7005

Unite press office Tel: +44 117 450 6300

Powerscourt

Justin Griffiths / Victoria Heslop Tel: +44 20 7250 1446

CHIEF EXECUTIVE'S REVIEW

The business has delivered a strong performance in 2021, despite the ongoing challenges presented by the Covid-19 pandemic. We have once again proven the quality and resilience of our operating platform, with all properties remaining open during national lockdowns at the start of the year, as they did throughout 2020. This reflects the commitment of our teams, as well as the value of our best-in-class operating platform, PRISM, which allowed us to quickly adapt to the changing circumstances.

As a business, we are committed to acting responsibly and 'doing what's right'. This principle has shaped our response to the pandemic and led to the further rental discounts and complimentary tenancy extensions offered to students unable to use their accommodation at the start of 2021. We have also increased the support offered to students and our employees to ensure their health, safety and wellbeing. We believe these actions have enhanced our reputation with students, parents, universities and Government and will create further opportunities in the future.

Return to growth

The business delivered a strong recovery in financial performance in 2021, with adjusted earnings of GBP110.1 million and adjusted EPS of 27.6p, up 15% year-on-year. This reflects an increase in occupancy to 94% for the 2021/22 academic year (2020/21: 88%) and a lower impact from rental discounts when compared to 2020. The profit before tax of GBP343.1 million also reflects the valuation growth of our property portfolio during the year. We have proposed a dividend of 22.1p for the full year, which represents a payout ratio of 80% of adjusted EPS, underlining our confidence in future business performance.

Total accounting returns for the year improved to 10.2%, reflecting an 8% increase in EPRA NTA to 882p. Our LTV ratio reduced to 29% during the year through revaluation gains, disposal proceeds and receipt of our LSAV performance fee. This provides the financial headroom to deliver our secured development pipeline and pursue new growth opportunities.

Our key financial performance indicators are set out below:

 
 Financial highlights (4)              2021          2020 
-------------------------------  ----------  ------------ 
 Adjusted earnings                GBP110.1m      GBP91.6m 
 Adjusted EPS                         27.6p         24.0p 
 IFRS profit/(loss) before tax    GBP343.1m   GBP(120.1)m 
 IFRS basic EPS                       85.9p       (31.8)p 
 Dividend per share                   22.1p        12.75p 
 Adjusted EPS yield                    3.4%          2.8% 
 Total accounting return              10.2%        (3.4)% 
 
 EPRA NTA per share                    882p          818p 
 IFRS net assets per share             880p          809p 
 Loan to value                          29%           34% 
 

4. See glossary for definitions and note 7 for alternative performance measure calculations and reconciliations. A reconciliation of profit/loss before tax to EPRA earnings and adjusted earnings is set out in note 7 of the financial statements.

Continued support for students and universities

Since the outbreak of Covid-19, we have strived to play our part and do the right thing for our students and university partners in a fair and proportionate way. In response to the national lockdown announced in January 2021, students not living in their accommodation were able to apply for a ten-week rental discount and four-week complimentary tenancy extension.

We have now provided over GBP100 million in financial support to students during the Covid-19 pandemic through a combination of rent waivers and flexibility offered to students. We believe this is the largest package of financial support offered in the Higher Education (HE) sector and reflects our commitment to show leadership in the sector, as well as encouraging others to act accordingly.

All our properties remained, and continue to remain, open and operational, employing a range of measures to reduce transmission of Covid-19 where possible. With the removal of the remaining Government restrictions during the first quarter of 2022, students will be able to enjoy the full experience of university life.

Positive outlook for 2022/23

We see strong demand for accommodation this autumn, with UCAS applications up 7% on pre-pandemic levels. Reservations for the 2022/23 academic year are encouraging at 67%, which is ahead of the prior year level of 60%. This is underpinned by the 50% of beds secured under nomination agreements for an average term of seven years.

We expect bookings under nomination agreements to grow as a percentage of bookings by the end of the current annual sales cycle and to increase to 55% of total beds over the next two academic years. This reflects the opportunity to deepen relationships with our existing university partners. We have recently secured new multi-year agreements to let 1,000 beds to two Russell Group universities from the 2022/23 academic year.

We expect strong student demand for 2022/23 from both domestic and international students. We have maintained our focus on retaining existing direct-let customers, which has led to an increased share of sales to re-bookers. The attractiveness of PBSA over HMO is being clearly proven.

This supports our anticipated return to 97% occupancy and 3.0-3.5% rental growth for the 2022/23 academic year.

Strategic overview

Having shown real resilience during the pandemic, the business is now well positioned for growth. Our best-in-class operating platform provides us with strong foundations to adapt to evolving student needs and deliver an enhanced customer experience. There are also significant opportunities to invest in our well located and affordable estate to drive rental growth and improve the environmental performance of our buildings.

Our strategy is focused on three key objectives, which will deliver value for our range of stakeholders:

-- Delivering for our customers and universities - Our purpose is to deliver a Home for Success for our customers by delivering a highly valued experience during their time with us. We will also support our university partners to deliver their accommodation needs and future growth ambitions

-- Attractive returns for shareholders - Delivered through a combination of growing recurring income, rental growth and value-add through our development activities, supported by a robust and flexible balance sheet

-- A responsible and resilient business - We are committed to doing what's right by raising standards for our customers, investors and employees to ensure we build on our sector-leading position in the student housing sector

Delivering for our customers and universities

We have a best-in-class operating platform in the student accommodation sector, underpinned by our PRISM technology platform, passionate front-line teams and sector-leading welfare and support. However, we recognise that student expectations are evolving, with higher expectations for rooms, social spaces, amenities and technology. In response, we are investing in the next generation of our PRISM technology platform to enable the seamless digital experience expected by students and to further improve our sector-leading efficiency.

We also see an opportunity to tailor our customer offer to better meet the needs of different segments in the student market. We are already successful in catering to undergraduate 1(st) year students, as reflected in the large number of beds let to universities under nomination agreements. We also see opportunities to tailor our customer proposition to better meet the needs of non-1(st) year students seeking greater independence, as well as postgraduate and international students who may be willing to pay a premium for a higher level of service. In 2021, we conducted successful trials of a postgraduate-focused customer offer at seven properties, which delivered increases in rental income and net promoter scores. As a result, we have increased our product and service segmentation for postgraduates for the 2022/23 sales cycle.

These initiatives will enhance student experience, increase customer retention and support higher operating margins over time. Improving our hassle-free, value-for-money offer will also help us capture market share from the one million students currently living in houses of multiple occupancy (HMOs). We are already seeing success in this area, with direct-let sales to UK students for 2021/22 up 33% on pre-pandemic levels and a meaningful increase in re-booking activity for 2022/23.

We remain convinced in the opportunity for strategic partnerships with universities to meet their long-term accommodation needs. The pandemic has increased the operational and financial challenges faced by universities and there is a growing appetite for partnerships with leading operators of student accommodation. This is reflected in over 80% of our development pipeline by value being underpinned by university partnerships. For developments completing in 2022, 78% are let under nomination agreements for an average of nine years. We also see further opportunities to capitalise on our brand and the goodwill created by our response to Covid-19 to accelerate and enhance our pipeline of university partnerships through traditional off-campus development, on-campus development or stock transfer.

Attractive returns for shareholders

The quality, location and scale of our portfolio is a key component of our business model and long-term strategy. We are focused on growing our alignment to the strongest universities seeing the greatest student number growth, reflected in 90% of our rental portfolio and 100% of our development pipeline being located in Russell Group university cities. We expect our portfolio to become more concentrated towards the strongest markets over time, with our weighting to London increasing from 35% to 44% on a Unite share basis through delivery of our development pipeline.

Over the past 12 months, we have sold GBP261 million of assets to enhance our overall portfolio quality and fund reinvestment into the improvement of our estate. These proactive sales have reduced our footprint from 27 to 25 markets and largely completes the disposals of non-strategic assets identified following our acquisition of Liberty Living in 2019.

Our development capability and track record is a major differentiator in the student accommodation sector. This, combined with our strong reputation and relationships with universities, supports our future growth through development and new university partnerships. Our new investments are focused on 8-10 cities, including London and prime regional markets with the strongest demand outlook. Our development pipeline is now at a record level, totalling c.6,000 beds and GBP967 million in total development cost. This is expected to deliver 10p of upside to EPRA EPS and generate an NTA uplift of 78p on completion. We continue to see a positive flow of development opportunities and expect to add further schemes to the pipeline during 2022.

Our portfolio activity supports our target to deliver sustainable rental growth of 3.0-3.5% p.a. and significant future growth in recurring earnings. Together with the combination made by our development activities, this underpins our target for total accounting returns of 8.5-10% p.a.

A responsible and resilient business

Our new sustainability strategy was launched in March 2021, building on our existing work to reduce our environmental impact and improve student outcomes. Reflecting the expectations of our stakeholders, our targets are now more ambitious, as reflected in our commitment to become a net zero carbon business by 2030. We recently published our net zero carbon pathway, including targets validated by the SBTi, which sets out the activities and investment required to reach net zero for both our operations and development activities.

We are increasing our investment in energy initiatives to reduce consumption, save carbon and ensure ongoing compliance with regulations, such as energy performance certificates. We invested GBP3 million in these initiatives in 2021, taking our total investment to over GBP30 million since 2014. We have identified a further c.GBP100 million of opportunities for capital investment to help us achieve our environmental targets, which equates to an annual investment of c.GBP10 million from 2022 onwards (GBP5-7 million p.a. at Unite share). As well as being the right thing to do, there is also a strong business case for this investment, with a payback of under 10 years through operating cost savings.

We have a strong track record in delivering positive social impact at Unite, with a clear link to our purpose of providing a Home for Success. Our initiatives are focused on helping young people to succeed through supporting the transition from school to university and helping to widen access to Higher Education. The Unite Foundation celebrates its 10(th) anniversary this year and, to date, our support has helped provide accommodation scholarships for over 500 care leavers and students who are estranged from their family. We are committed to delivering positive social impact for our students and communities over the long term, which is reflected in our investment of 1% of profits into these initiatives each year.

Fire safety

Fire safety is a critical part of our health and safety strategy and how we operate as a responsible business. We are committed to being leaders in fire safety standards, through a proactive risk-based approach, which is embedded across our entire business, to ensure that students and our employees are kept safe. All our buildings are independently confirmed as safe to operate and occupy by fire safety experts.

We have undertaken a thorough review of the use of high-pressure laminate (HPL) cladding on our properties. During the period, we completed remedial works on four buildings and are now on site at a further eight, spending a total of GBP38 million (Unite share: GBP18 million) in the year. Our year-end balance sheet includes provisions and accruals for cladding remediation costs across our estate at a cost of GBP107 million (Unite share: GBP55 million), which will be incurred over the next 12-36 months.

The Government has proposed a Building Safety Bill, covering building standards, which is likely to result in more stringent fire safety regulations. We will ensure we remain aligned to fire safety regulations as they evolve and will continue to make any required investment to ensure our buildings are compliant and remain safe to occupy.

We are seeking to mitigate the costs of cladding replacement through claims from contractors under build contracts, where appropriate. To date, we have recovered GBP10 million from completed claims, representing 70% of the costs of remediation on those buildings. We expect to recover 50-75% of total replacement costs over time, but this is not reflected in our balance sheet.

Well protected against inflation

Like many businesses, rising inflation is resulting in cost pressures in parts of our operations and development supply chains. Positively, the business is well protected from these impacts through the inflation-hedging characteristics of our income and risk management through cost hedging.

Our rooms are either resold each year on a direct-let basis or repriced based on RPI, CPI or fixed rental inflators under our multi-year nomination agreements. These multi-year agreements are expected to deliver contracted rental increase of c.4% for the 2022/23 academic year, supporting rental growth across the total portfolio of 3.0-3.5%. We remain focused on providing value-for-money accommodation for students and recognise that affordability is key to the sustainability of our rental growth over the long term.

Our cost base is also protected from some inflationary pressures through hedging of utility costs, interest payments and fixed-price contracts for committed development projects. At current energy prices, our utilities hedging will save the Group GBP24 million in 2022, representing around 0.5% of rental income. We remain confident in our ability to manage inflation in the short term through efficiencies across the operations business and by factoring higher build costs into our development appraisals.

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. Demographic growth will see the population of UK 18-year-olds increase by 22% by 2030. Participation rates in the UK also continue to grow and are now at their highest ever level, reflecting the value young adults place on a higher level of education and the life experience and opportunities it offers.

The Government is targeting growth in international student numbers, aided by the two-year post-study visa (three years for postgraduates). This ambition is underpinned by the UK HE sector's global standing and the strength of its universities. 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.

Brexit has had a negative impact on EU student numbers due to the loss of home fee status and access to a tuition fee loan, with student acceptances falling from 32,000 to 16,000 in 2021/22. EU customers represent 5% of occupancy in 2021/22, down from 10% in 2019/20. We anticipate a more marginal reduction in EU student numbers over the next two years, which we expect to be more than offset through increasing demand from UK and non-EU students.

The Skills for Jobs white paper, published in 2021, underlines the Government's commitment to widening participation in post-18 education and strengthening the global standing of the UK HE sector. Ahead of the Government's final response to the Augar Report on post-18 education and funding, the Office for Students (OfS) has launched a consultation on student outcomes in the HE sector. It will consider the quality of HE provision and value for money for students and the taxpayer and may lead to the introduction of minimum standards for HE providers based on course completion rates and the share of students going on to employment or further study.

We are confident that our strategic alignment to high and mid-ranked universities positions us to successfully navigate future changes to the Government's HE policy. Around half of our income comes from universities in the top quartile of the OfS's quality metrics, with only 4% coming from universities in the bottom quartile.

Opportunities to grow our platform

There remain significant opportunities to grow the business in the UK PBSA sector through our secured development pipeline, targeted acquisitions and partnerships with universities. We have also periodically considered opportunities to expand our PBSA footprint outside of the UK. However, we strongly believe that the core strengths of our best-in-class operating platform, stakeholder relationships and development expertise are best leveraged in growing the business within the UK.

Demand for student accommodation continues to grow due to rising student numbers and the increasing awareness of the benefits of PBSA among non-1(st) year students. The HMO sector, which provides homes to one million students, is increasingly expensive and not fit-for-purpose in a backdrop of rising environmental standards through EPC certification. The cost to HMO landlords of addressing this issue is substantial, which we expect to result in increased costs for students and a reduction in the availability of private rented homes. Through our ambitious sustainability commitments and leadership in the student accommodation sector, we are well positioned to attract more students over time.

There is also a potentially significant opportunity to grow our platform in the wider living sector by catering to the growing number of young professional renters living in major UK cities. There is an acute shortage of high-quality, professionally-managed and sustainable rental accommodation in the UK. We believe our operating platform and development capability would enable us to be successful in the young professional living market. We are trialling a new product for the non-student element of our development at Campbell House in Bristol and, more broadly, we are reviewing the relative attractiveness and scale of opportunities in this sector.

Outlook

The outlook for the business remains strong, reflecting the underlying strength of student demand, our alignment to the strongest universities, the capabilities of our best-in-class operating platform and our track record of delivering growth.

We are confident in our ability to deliver significant growth in earnings and attractive total accounting returns for shareholders. We expect strong demand for the 2022/23 academic year, with reduced disruption from travel restrictions and grade inflation. This supports a return to 97% occupancy, 3.0-3.5% rental growth and the delivery of total accounting returns of c.10% for 2022, excluding any impact from yield movements. We therefore remain confident in the prospects for the business.

OPERATIONS REVIEW

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. These capabilities helped to deliver a recovery in financial performance in 2021, despite the ongoing disruption created by Covid-19, delivering adjusted EPS of 27.6p (2020: 24.0p). The 15% increase in adjusted EPS reflects higher occupancy for the 2021/22 academic year (2020/21: 88%) and a lower impact from rental discounts offered to students in response to the pandemic.

Based on a positive outlook for student demand and progress-to-date on reservations, we anticipate an increase to 97% occupancy for the academic year. This supports our guidance for EPRA EPS of 41-43p for the 2022 financial year.

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.

 
                                  2021     2020 
 Summary income statement         GBPm     GBPm 
-----------------------------  -------  ------- 
 Rental income                   282.7    263.2 
 Property operating expenses    (90.9)   (82.9) 
                               -------  ------- 
 Net operating income (NOI)      191.8    180.3 
                               -------  ------- 
 NOI margin                      67.8%    68.5% 
 Management fees                  15.9     14.0 
 Overheads                      (31.5)   (30.9) 
 Finance costs                  (63.3)   (64.9) 
 Development and other costs     (2.8)    (6.9) 
 LSAV performance fee             41.9      5.7 
                               -------  ------- 
 EPRA earnings                   152.0     97.3 
                               -------  ------- 
 LSAV performance fee           (41.9)    (5.7) 
                               -------  ------- 
 Adjusted earnings               110.1     91.6 
                               -------  ------- 
 
 Adjusted EPS                    27.6p    24.0p 
 EPRA EPS                        38.1p    25.5p 
 Adjusted EBIT margin            62.3%    62.1% 
 

A reconciliation of profit/loss after tax to EPRA earnings and adjusted earnings is set out in note 2.2b to the financial statements.

Rental income increased by GBP19.5 million to GBP282.7 million, up 7%, as a result of higher occupancy and a reduced level of rental discounts. The total value of discounts offered to students in 2021 was c.GBP10 million, reflecting 40% take-up of the 10-week rental discount offered to students not staying in their accommodation between January and March 2021.

Net operating income increased by 6% to GBP191.8 million, reflecting the uplift in rental income and a 10% year-on-year increase in property operating expenses. The increase in property operating expenses reflects the resumption of certain costs not incurred during 2020 due to one-off cost saving measures, including summer cleaning costs and staff bonus payments, as well as increased utilities costs as a result of higher occupancy over the year and underlying price increases. In addition, increased investment was made into marketing to drive sales for the 2021/22 academic year.

Our electricity costs are fully hedged in 2022 and 85% hedged for 2023, and gas (which accounts for less than 0.5% of our rent) is hedged through 2023. We are exploring opportunities to fix energy costs through further power purchase agreements (PPAs) in support of new renewable energy capacity. PPAs provide competitive pricing compared to wholesale energy markets as well as cost certainty through multi-year contracts, while aligning to our commitment to source 100% renewable electricity.

 
                                            2021     2020 
 Property operating expenses breakdown      GBPm     GBPm   Change 
---------------------------------------  -------  -------  ------- 
 Staff costs                              (28.4)   (26.6)    (1.8) 
---------------------------------------  -------  -------  ------- 
 Utilities                                (21.9)   (19.8)    (2.1) 
---------------------------------------  -------  -------  ------- 
 Summer cleaning                           (3.3)    (2.4)    (0.9) 
---------------------------------------  -------  -------  ------- 
 Marketing                                 (5.8)    (3.3)    (2.5) 
---------------------------------------  -------  -------  ------- 
 Central cost allocation                   (9.7)    (7.9)    (1.8) 
---------------------------------------  -------  -------  ------- 
 Other                                    (21.8)   (22.9)      1.1 
---------------------------------------  -------  -------  ------- 
 Property operating expenses              (90.9)   (82.9)    (8.0) 
---------------------------------------  -------  -------  ------- 
 

Overheads increased by GBP0.6 million, principally reflecting increases in staff costs. Recurring management fee income from joint ventures increased to GBP15.9 million (2020: GBP14.0 million), driven by higher NOI and property valuations in USAF and LSAV.

Our adjusted EBIT margin increased to 62.3% in 2021 (2020: 62.1%), reflecting a reduction in overheads net of recurring management fees as a percentage of rental income. Reflecting our cost discipline and the anticipated recovery in rental income from 2021/22 onwards, we are targeting an improvement in our adjusted EBIT margin to around 70% in 2022 and above 72% over the medium term. This will be delivered through growth in occupancy and rents, development completions and further efficiencies over time in areas such as staff costs, procurement, utilities and the enhanced use of technology.

Finance costs reduced to GBP63.3 million (2020: GBP64.9 million), reflecting a reduction in average borrowings during the year as cash balances reduced to more typical levels on the back of an improved trading outlook. This impact was partially offset by a higher average cost of finance in 2021 of 2.9% (2020: 2.7%) as we repaid revolving credit facilities at lower average rates. Interest capitalised into development schemes increased to GBP5.2 million (2020: GBP4.6 million), driven by resumption of development activity at Middlesex Street in London and Campbell House in Bristol, as well as a development start at Derby Road in Nottingham. We expect capitalised interest to increase to around GBP7-8 million in 2022 as development activity increases ahead of deliveries in 2022, 2023 and 2024.

Development (pre-contract) and other costs were lower at GBP2.8 million (2020: GBP6.9 million), reflecting the cost of development overheads, the earnings impact of share-based incentives, deferred and current tax and our contribution to the Unite Foundation. The year-on-year reduction reflects a credit of GBP2.8 million for tax in 2021 (2020: GBP2.0 million expense).

EPRA earnings includes GBP41.9 million of performance fees in the year (2020: GBP5.7 million) in relation to the performance fee received from LSAV as well as the unwind of tax provided against the performance fee in previous years. The fee became payable on extension of the joint venture and represents out-performance compared to our expectation at the start of the year due to the strong valuation performance of LSAV's London properties. Given the quantum of the performance fee in the year, it has been excluded from adjusted earnings to improve the comparability of results year-on-year.

Improved occupancy for 2021/22

We achieved occupancy of 94% across our total portfolio for the 2021/22 academic year (2020/21: 88%, 2019/20: 98%), reflecting a meaningful improvement from the disrupted booking cycle in 2020/21. This represented significant outperformance of our PBSA peers, who delivered average occupancy of 83% for 2021/22 (JLL).

We continue to sell over half of our beds through nomination agreements with universities. This represents a key differentiator for Unite in the PBSA sector, with our nomination agreements accounting for around 40% of all beds leased by universities across the UK. Occupancy through nomination agreements has reduced slightly during the past two pandemic-affected leasing cycles, reflecting understandable caution from universities over student demand.

Occupancy by type and domicile by academic year

 
                                 Direct let 
           ------------  --------------------------  ------ 
            Nominations    UK   China   EU   Non-EU   Total 
---------  ------------  ----  ------  ---  -------  ------ 
 2019/20            57%   16%     15%   4%       6%     98% 
           ------------  ----  ------  ---  -------  ------ 
 2020/21            53%   16%     11%   4%       4%     88% 
           ------------  ----  ------  ---  -------  ------ 
 2021/22            51%   21%     13%   3%       6%     94% 
---------  ------------  ----  ------  ---  -------  ------ 
 

Student acceptances for 2021/22 were broadly stable at 562,000 (2020/21: 570,000), with a record share of UK school leavers entering universities and the highest ever admissions for non-EU students but, as expected, this was offset by a significant reduction in EU student numbers following Brexit.

The gap to pre-pandemic occupancy levels of 97-98% in 2021/22 could be principally attributed to two reasons. The first is the disruption created by higher grade attainment due to teacher-assessed grades, which has distorted the distribution of students among our cities. More students attained the entry requirements for their first-choice universities than in a normal year, reflecting the 44% of students awarded A* or A grades in this year's A levels, compared with 25% in 2019. We sold out in the majority of our markets, with significant waiting lists in a number of key cities where students struggled to find suitable accommodation. However, we have seen a concentration of voids in a small number of cities where we expect universities to have lost market share of students, or which are adjusting to new supply.

Our waiting lists for 2021/22 equated to an additional c.1-2% in potential occupancy, which we would expect to be redistributed among our other cities as disruption from higher grading unwinds. The Government has confirmed that grade boundaries will return to pre-pandemic levels over the next two years, and we do not expect the same level of disruption for the student intake in 2022. This year's strong undergraduate intake in higher-ranked cities will also support student numbers and rental growth prospects in these markets over the next three years.

The second factor is the ongoing impact of the pandemic on international travel. Despite a record level of non-EU admissions in 2021/22, this did not fully translate into bookings. In particular, we have continued to see an effect on demand from China, accounting for a two percentage-point reduction in occupancy compared to 2019/20. To mitigate the challenges posed by the pandemic, we offered international students needing to isolate on arrival in the UK the opportunity to arrive at their accommodation up to three weeks early at no extra cost. We continue to monitor international travel closely and expect an increase in the number of international students travelling to the UK for the 2022/23 academic year.

Return to rental growth

Annual rents increased by 2.3% on a like-for-like basis for 2021/22 (2020/21: (0.6)%), reflecting increases of 1.2% through nomination agreements and 3.3% average increases in direct-let rents. Occupancy was broadly consistent across our wholly owned portfolio, USAF and LSAV.

 
 2020/21 rental growth and occupancy    Rental growth(1)   Occupancy(2) 
-------------------------------------  -----------------  ------------- 
 Nomination agreements                              1.2% 
                                       -----------------  ------------- 
 Direct let                                         3.3% 
                                       -----------------  ------------- 
 Total                                              2.3%            94% 
                                       -----------------  ------------- 
 

1. Like-for-like properties based on annual value of core student tenancies

2. Beds sold

We have maintained a high proportion of income let to universities, with 37,359 beds sold (51% of total) for 2021/22 under nomination agreements (2020/21: 39,250 and 53%). The slight reduction in the number of beds under nomination agreements reflects the decision of some universities not to renew rolling single-year agreements in light of uncertainty over student numbers and occupancy created by Covid-19.

62% of our nomination agreements, by income, are multi-year and therefore benefit from annual fixed or inflation-linked uplifts based on RPI or CPI. These agreements are expected to secure average annual rental growth of 4% in 2022/23 based on current levels of inflation and contractual caps on RPI/CPI-linked rental increases. The remaining agreements are single year, and we achieved a renewal rate of 74% on these agreements for 2020/21 (2020/21: 76%).

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 nomination agreements is 6.7 years, up from 6.4 years in 2020/21. We expect the share of beds let under nomination agreements to increase to around 55% over the next two years and have recently secured new multi-year agreements to let 1,000 beds to two Russell Group universities from the 2022/23 academic year.

A balance of nomination agreements 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   % Income 
                      2021/22    2020/21    2021/22 
------------------  ---------  ---------  --------- 
 Single year           14,529     17,709        38% 
 2-5 years              7,754      5,748        22% 
 6-10 years             6,034      6,873        17% 
 11-20 years            6,608      6,724        17% 
 20+ years              2,434      2,196         6% 
                    ---------  ---------  --------- 
 Total                 37,359     39,250       100% 
 

UK students account for 70% of our customers for 2021/22 (2020/21: 66%), making up a large proportion of the beds under nomination agreements with universities. In addition, 25% and 5% of our customers come from non-EU and EU countries respectively (2020/21: 25% and 9%), reflecting the relative appeal of our hassle-free product when compared with alternatives in the private-rented sector. Our proactive decision to increase sales to UK customers has offset a reduction in demand from EU customers following Brexit.

Re-bookers accounted for 20% of our direct-let bookings for the 2021/22 year (2020/21: 25%) reducing our exposure to less predictable 1(st) year undergraduate customers. Postgraduates now make up 25% of our direct-let customer base, driven by strong growth in UK postgraduate numbers and increasing awareness of the benefits of PBSA.

Positive outlook for 2022/23

Reservations for the 2022/23 academic year are progressing positively with 67% of rooms now sold (2021/22: 60%, 2020/21: 73%). We expect strong student demand for 2022/23 from both domestic and international students, but anticipate a slightly later sales cycle for international students than in a typical year due to uncertainty relating to Covid-19. As a result, we have increased our focus on retaining existing direct-let customers, which has led to an increased share of sales to re-bookers.

Applications data for the 2022/23 academic year is encouraging, with total applications broadly in line with record levels in 2021/22 (-1%) and 7% ahead of pre-pandemic demand in 2020/21. This reflects a 5% increase in applications by UK school leavers, who represent one of our largest customer groups, driven by a record application rate of 43.4% (2020/21: 42.6%) and demographic growth. Demand is also strong from our other key customer demographic of non-EU students. Non-EU applications are 5% higher year-on-year, reflecting strong demand from China and India as well as less mature markets such as Nigeria, offsetting a further reduction in demand from EU students following Brexit.

Current reservations under nomination agreements deliver 50% occupancy (2021/22: 51%). Discussions are ongoing with universities over potential additional demand once they have greater visibility on student numbers, which we expect to increase occupancy from nomination agreements towards our target of 55%. Direct-let reservations account for the remaining 17% of reserved occupancy, which is significantly ahead of the same point last year, thanks to an increase in UK re-bookers and international sales.

This is supportive of our guidance for full occupancy and rental growth of 3.0-3.5% for the 2022/23 academic year.

Delivering for our customers

Our best-in-class operating platform continues to drive both service enhancements and operational efficiency. We are committed to investing in an enhanced student experience that delivers value-for-money for students and supports our purpose of creating a Home for Success. This includes a segmented product offering, tailoring student activities and community building alongside improvements to our MyUnite app, our Resident Ambassador programme and the provision of student welfare services.

Enhancements to our student experience

During 2021, we have focused on using data and insight to deliver an enhanced student experience across the academic year tailored to the communities in each property. Insight was drawn from both an applicant survey of 1,000 prospective students to gauge the sentiment of the new cohort and from data shared directly by our customers ahead of their arrival regarding their preferences, interests, hopes and fears.

Key themes were both a desire for, and a fear of, meeting new people and making friends, the need for support in finding part-time work, and advice and support regarding wellbeing and life skills for independent living. Peer-to-peer support and engagement was also a high priority. We responded by increasing our Resident Ambassador programme through recruitment of over 190 paid student ambassadors, who have provided support and organised events based on the community's needs.

A series of events was held for our city teams during the summer months to ensure a great welcome and arrival experience for the class of 2021/22. The teams generated over 1,900 ideas to tailor and improve the student experience during the crucial first six weeks of the new term, leading to our highest ever net promoter score in our autumn student survey (+39) and a significant improvement in reviews on Trustpilot.

As part of our evolving approach to customer segmentation, trials were conducted in seven properties to define our offer for postgraduate students for the 2021/22 academic year. The look and feel, amenity spaces and student experience were all enhanced, based on our student insight, which delivered increased occupancy, rental income and some of the highest net promoter scores in the portfolio. The postgraduate offer has been extended for the 2022/23 sales cycle, with further refinements included. Our refurbishment and extension of Kincardine Court in Manchester, due for delivery this September, is also being tailored to postgraduate students based on the smaller flat sizes available.

A number of digital experience enhancements were delivered during 2021 aimed at allowing students to increasingly self-serve and to allow our property teams to deliver service in the moment. These included a new, multilingual, dynamic FAQ tool, allowing customers to submit questions in any language.

In February 2021, we launched a new group booking tool and marketing campaign to target groups of students who might otherwise look to house share in the private-rented sector. This function generated GBP11 million of sales to domestic returning students, further supporting our capture of market share from the HMO sector.

Students often wish to book a specific room and we are in the process of rolling out a room selector tool, which enables our students to browse the available rooms in a property, review the details and select a specific room which best meets their requirements. When room selector is used, there has been a 35% increase in conversion rate compared to other web-based sales. We have also enhanced our technology and processes to facilitate easier room moves by students if they are not satisfied with their allocated rooms or flats.

Health, safety and wellbeing

All our properties have remained open and operational throughout the pandemic, and we continue to employ a range of measures in our buildings to reduce transmission of Covid-19, where possible. This includes enhanced cleaning and physical and social distancing measures, as well as offering support to those students needing to self-isolate.

We have also increased provision and access to student wellbeing and mental health support through enhanced student welfare services, including bespoke support for students who are shielding, support for those self-isolating, online welfare checks and a pilot peer-to-peer scheme. We have dedicated welfare leads in each of our cities and also provide 24/7 support through our Emergency Contact Centre and a partnership with Nightline. We also work closely with universities' student welfare and wellbeing teams to ensure students are signposted to available help and support.

PROPERTY REVIEW

EPRA NTA growth

EPRA NTA per share increased by 8 % to 882 p at 31 December 2021 (31 December 2020: 818p) with IFRS net assets per share up 9 % to 880 p (31 December 2020: 809p). In total, EPRA NTA were GBP3,532 million at 31 December 2021, up from GBP3,266 million a year earlier.

Summary balance sheet (Unite share basis)

 
                                            31 December 2021                          31 December 2020 
                                  Wholly         Share             Total    Wholly         Share            Total 
                                   owned    of Fund/JV              GBPm     owned    of Fund/JV             GBPm 
                                    GBPm          GBPm                        GBPm          GBPm 
------------------------------  --------  ------------  ----------------  --------  ------------  --------------- 
 Rental properties                 3,323         1,542             4,865     3,615         1,278            4,893 
 Rental properties (leased)           98             -                98       102             -              102 
 Properties under development        324             -               324       187             -              187 
                                --------  ------------  ----------------  --------  ------------  --------------- 
 Total property                    3,745         1,542             5,287     3,904         1.278            5,182 
 Net debt                        (1,030)         (492)           (1,522)   (1,326)         (416)          (1,742) 
 Lease liability                    (94)             -              (94)      (96)             -             (96) 
 Other assets/(liabilities)        (107)          (32)             (139)      (40)          (38)             (78) 
                                --------  ------------  ----------------  --------  ------------  --------------- 
 EPRA net tangible assets          2,514         1,018             3,532     2,442           824            3,266 
                                ========  ============  ================  ========  ============  =============== 
 IFRS NAV                          2,510         1,018             3,528     2,412           823            3,235 
                                --------  ------------  ----------------  --------  ------------  --------------- 
 LTV                                                                 29%                                      34% 
 

The main drivers of the 64 p per share increase in EPRA NTA per share were the increase in the value of the Group's share of investment assets due to rental growth, higher occupancy and modest yield compression. In addition, the EPRA NTA movement reflects development surpluses, recognition of the remaining LSAV performance fee and a further provision for the replacement of HPL cladding.

 
                                                 GBPm   Diluted pence per share 
--------------------------------------------  -------  ------------------------ 
 EPRA NTA as at 31 Dec 2020                     3,266                       818 
 Rental growth                                     72                        18 
 Yield movement                                   107                        27 
 Cladding provision                              (23)                       (6) 
 Development surplus                               50                        13 
 LSAV performance fee                              42                        10 
 Swap cancellation and debt break fees            (4)                       (1) 
 Disposals and associated transaction costs     (21 )                       (5) 
 Retained profits/other                            43                         8 
                                              -------  ------------------------ 
 EPRA NTA as at 31 Dec 2021                    3,53 2                       882 
 

IFRS net assets increased by 9% in the year to GBP3,527.8 million (31 December 2020: GBP3,234.9 million), principally driven by positive revaluation movements, further recognition of the LSAV performance fee and retained profits. On a per share basis, IFRS NAV increased by 9% to 880p.

The movement in other assets and liabilities in 2021 was due to an increase in deferred income, arising from higher occupancy, an increase in accruals and provisions for cladding remediation works and settlement of the LSAV performance fee.

Total accounting return

Growth in EPRA NTA was the key component of the 10.2% total accounting return delivered in the year (2020: (3.4)%), alongside dividends paid of 19.25p (2020: nil).

We are targeting delivery of attractive total accounting returns of 8.5-10% through a balance of recurring income and capital growth. This includes allowance for GBP1,000/bed p.a. of investment into protective capex for lifecycle maintenance, improvements in environmental performance and cladding remediation. Our balance sheet already provides for all committed spend on fire safety improvements and we will make future investments, as required, to ensure our buildings remain compliant and safe to occupy.

In 2022, we expect total accounting return to be at the top end of this range due to growth in recurring earnings, rental growth and development surpluses from a number of significant planning milestones. Our guidance does not include any impact from movements in property yields in the year.

Property portfolio

The valuation of our property portfolio at 31 December 2021, including our share of gross assets held in USAF and LSAV, was GBP 5,287 million (31 December 2020: GBP5,182 million). The GBP 105 million increase in portfolio value (Unite share) was principally attributable to a valuation surplus of GBP211 million on the investment and development portfolios, capital expenditure of GBP144 million and disposals of GBP246 million.

Our property portfolio saw a 5.2% increase in valuations on a like-for-like basis during the year (Unite share: 4.6%). Just under half of the increase was driven by yield compression, particularly in London and other prime regional markets. The remaining increase was split broadly evenly between rental growth and the unwinding of deductions relating to Covid-19 as occupancy recovered.

The see-through net initial yield of the portfolio was 4.9 % at 31 December 2021 (December 2020: 5.0%). This reflected reductions in property yields for the wholly-owned portfolio, USAF and LSAV of 9 basis points (11 basis points and 23 basis points respectively).

LSAV's predominantly London-based portfolio saw the strongest valuation performance in the year, reflecting more significant yield compression in London and partial realisation of reversion potential on certain assets approaching the end of nomination agreements.

Breakdown of like-for-like capital growth

 
 GBPm                      31 Dec 2021   Yield compression           Occupancy       Rental growth         LfL capital 
                             valuation                                recovery              /other              growth 
-------------------  -----------------  ------------------  ------------------  ------------------  ------------------ 
 Wholly owned                    3,323                  49                  39                  22                 110 
 LSAV                            1,819                  70                  17                  51                 138 
 USAF                            2,867                  58                  57                  12                 127 
                     -----------------  ------------------  ------------------  ------------------  ------------------ 
 Total (Gross)                   8,009                 177                 113                  85                 375 
 Total (Unite 
  share)                         4,865                                                                             207 
                     -----------------  ------------------  ------------------  ------------------  ------------------ 
 
 % capital growth 
 Wholly owned                                         1.5%                1.2%                0.7%                3.4% 
 LSAV                                                 5.2%                1.3%                3.9%               10.4% 
 USAF                                                 2.1%                2.1%                0.4%                4.6% 
                     -----------------  ------------------  ------------------  ------------------  ------------------ 
 Total (Gross)                                        2.4%                1.6%                1.2%                5.2% 
 Total (Unite 
  share)                                                                                                          4.6% 
                     -----------------  ------------------  ------------------  ------------------  ------------------ 
 

The proportion of the property portfolio that is income generating is 94 % by value, down from 96% at 31 December 2020. Properties under development have increased to 6 % of our property portfolio by value (31 December 2020: 4%), following resumption of development activity in the year and new commitments to deliveries in 2023. Our development pipeline carries greater operational risk than the income generating portfolio but delivers attractive risk-adjusted returns, which we expect to materially contribute to the Group's future earnings growth.

The investment portfolio is 35 % weighted to London by value on a Unite share basis, which will rise to 44 % on a built-out basis following completion of our secured development pipeline.

Unite investment portfolio analysis at 31 December 2021

 
                                   Wholly                                       Unite 
                                    owned     USAF     LSAV   Lease    Total    share 
----------------  --------------  -------  -------  -------  ------  -------  ------- 
 London            Value (GBPm)       849      425    1,545      16    2,835    1,733 
  Beds                              2,882    1,863    6,649     260   11,654      35% 
  Properties                           10        6       14       1       31 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 Prime regional    Value (GBPm)       993      692        -      24    1,709    1,169 
  Beds                              7,645    5,337        -     618   13,600      24% 
  Properties                           17       18        -       2       37 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 Major regional    Value (GBPm)     1,264    1,511      274      28    3,077    1,762 
  Beds                             17,721   19,403    3,067     753   40,944      35% 
  Properties                           36       47        1       2       86 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 Provincial        Value (GBPm)       217      239        -      30      486      299 
  Beds                              3,730    2,920        -   1,059    7,709       6% 
  Properties                            8        7        -       3       18 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 Total             Value (GBPm)     3,323    2,867    1,819      98    8,107    4,962 
  Beds                             31,978   29,523    9,716   2,690   73,907     100% 
  Properties                           71       78       15       8      172 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 Unite ownership share               100%      22%      50%    100% 
  Value (GBPm)                      3,323      632      910      98    4,962 
 -------------------------------  -------  -------  -------  ------  -------  ------- 
 

Development and university partnership activity

Development and university partnership activity continues to be a significant driver of growth in future earnings and NTA and is aligned to our strategic focus on high and mid-ranked universities. Our pipeline of traditional development and university partnerships includes 5,956 beds, with a total development cost of GBP 967 million, of which 3,661 beds or 77 % by development cost will be delivered in central London.

We continue to identify new development and university partnership opportunities that deliver our target returns in both London and the regions. We expect to add to our pipeline during 2022 and maintain a run-rate of c.1,500-2,000 new beds p.a.

The anticipated yield on cost of this secured pipeline is 6.2 %. Prospective returns on new direct-let schemes remain attractive at around 7.5-8.0% 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 London Plan requires student accommodation to secure a nomination agreement with one or more universities for the majority of rooms, meaning we expect new London developments to be delivered as university partnerships, with development yields of around 6.0%. University partnerships make up around 83 % by value of our secured development pipeline.

2022 completions

We are due to complete GBP231 million of development, representing 1,351 new beds, for the 2022/23 academic year at our schemes at Middlesex Street in London and Campbell House in Bristol. Development is on track across both sites from a programme, cost and letting perspective.

Campbell House is let to the University of Bristol under a 15-year nomination agreement. We are in advanced negotiations with a high-tariff university partner for a 5-year nomination agreement at our Middlesex Street scheme for approximately two-thirds of the total beds. Middlesex Street will be a landmark asset for the business, becoming our highest value property across the Group.

2023 completions

During the year, we received planning consent for an enlarged 700-bed development at Derby Road in Nottingham, due for completion for the 2023/24 academic year, which is located adjacent to the University of Nottingham campus. We were successful in securing additional beds for the scheme through the planning process, resulting in total development costs of GBP58 million. The scheme will deliver a development yield of 8% .

The development will target a BREEAM Excellent rating and net zero carbon in operations through optimised design, integration of solar panels at roof level and an all-electric heating solution, including high efficiency air-source heat pumps. The development will also deliver a substantial biodiversity improvement through opening and improving access to the River Leen.

Development pipeline

There remains widespread acknowledgement from local authorities of the need for new PBSA supply to address growing student numbers and relieve pressure on housing supply. Universities also remain willing to support our planning applications as a means of delivering the high-quality, affordable accommodation required to deliver their growth ambitions. However, we have experienced delays in the planning process as a result of the pandemic which have put pressure on delivery timelines for some of the schemes in our pipeline.

We continue to make progress on our London development pipeline, with two significant new schemes secured over the past 12 months. Our total secured London pipeline includes 3,661 beds and a total development cost of GBP740m. In total, we expect these schemes to contribute 63p of development surplus by completion and materially contribute to growing our quality of earnings once let.

During the year, we submitted a planning application for our 768-bed scheme at Paddington in central London, which we now expect to deliver for the 2024/25 academic year. We also exchanged contracts to acquire a c.1,000-bed development site in Stratford, East London, on a subject-to-planning basis. Total development costs are estimated to be c.GBP160 million, with the scheme targeted for delivery for the 2025/26 academic year, subject to planning approval. The development will be delivered as a university partnership, delivering a development yield in line with our targets in London, and will help to serve the growing cluster of universities with campuses in the area. Both UCL and University of the Arts London are developing new campuses in Stratford, which are due to bring a further 10,500 full-time students to the area. The site adds to our two existing operational assets in Stratford, providing opportunities to segment our customer base, including a more tailored offer for postgraduates.

In January 2022, we added a further 270-bed scheme to our pipeline in Nottingham city centre. The newly acquired site is located in a prime location on Lower Parliament Street in the heart of the city centre, close to Nottingham Trent University's campus as well as the University of Nottingham's planned city centre campus development for final year and postgraduate students.

In February 2022, we exchanged contracts to acquire a 700-bed development site in East London on a subject-to-planning basis. The scheme is targeted for delivery for the 2026/27 academic year, subject to vacant possession and planning approval, and will target a long-term nomination agreement with one of the Group's existing university partners in London. The development, which is located in a prime location close to transport links and university campuses, will increase the Group's operational scale in East London.

In addition to our secured pipeline, we continue to progress a number of further development opportunities in London and prime regional markets at attractive returns.

Development costs

We are seeing some upward pressure on build costs, which typically account for 50-70% of our total development costs, reflective of supply chain pressures in securing materials and a reduced supply of EU labour post-Brexit. We anticipate build cost inflation of 3-5% over the next 12 months.

As part of our commitment to become a net zero business, we are targeting a 48% reduction in the embodied carbon of our developments by 2030. Building to a net zero standard is expected to result in small increases in construction costs. However, we expect this cost increase to be reflected in reduced land pricing over time and ultimately rewarded through a valuation premium for more sustainable buildings.

Development costs are already fixed for our 2022 completions through design and build contracts. We have recently procured the build contracts for our 2023 delivery at Derby Road in Nottingham, which reflects recent inflation in materials and labour costs as well as incorporating low-carbon construction methods where possible. We expect that the combination of inflation and environmental enhancements will result in a reduction in our forecast yield on cost of c.10-20 basis points on deliveries in 2024 and 2025 compared to initial underwriting assumptions.

Despite current cost pressures, we continue to see opportunities to add to our development pipeline at attractive returns and will factor this expected inflation into our appraisal of future schemes.

University partnerships pipeline

We continue to make progress with our strategy of delivering growth through strategic partnerships with universities where student numbers are growing fastest. Reflecting the financial and operational constraints faced by universities, there is a growing appetite for partnerships. We see opportunities to capitalise on our brand and the goodwill created by our response to Covid-19 to accelerate and enhance our pipeline of university partnerships.

We intend to deliver our three London schemes as university partnerships, in line with requirements in the new London Plan for the majority of new beds to be leased to a HE provider. The developments will help to meet the growing need for high-quality, purpose-built student accommodation in London and will incorporate a range of design features to reduce its embodied and operational carbon. We have secured planning support for the schemes from university partners and discussions are already underway with a view to agreeing a long-term nomination agreement.

In addition, we are in active discussions with a range of high-quality universities for new partnerships, which we are looking to progress over the next 12-18 months. We also continue to make progress with a significant further pipeline of medium-term opportunities.

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            % 
-------------  ------------  -----------  -----------  ------------  -----------  -----------  ----------  ----------- 
 Direct-let development 
 Derby Road, 
  Nottingham    2023                 700           84            58           11           45          17         8.0% 
 Abbey Lane, 
  Edinburgh     2024                 298           33            24            1           21           9         8.3% 
 Wyvil Road, 
  London(1)     2024                 265           75            60            -           41          18         6.2% 
 Lower 
  Parliament 
  Street, 
  Nottingham    2024                 270           43            34            -           34           9         7.0% 
 Total Wholly Owned                1,533          235           176           12          141          53         7.2% 
 
 Long-term university 
 agreements 
 Middlesex 
  Street, 
  London        2022                 920          296           187           51           34          29         6.0% 
 Campbell 
  House, 
  Bristol       2022                 431           63            44           12            7           8         6.2% 
 Temple 
  Quarter, 
  Bristol (1)   2024                 596           85            67            1           64          18         6.2% 
 TP 
  Paddington, 
  London (1)    2024                 768          203           156            3          151          48         6.0% 
 Stratford, 
  East London 
  (1)           2025               1,008          251           160            -          158          92         6.3% 
 East London 
  (1)           2026                 700          241           177            -          177          63         5.4% 
                             -----------  -----------  ------------  -----------  -----------  ----------  ----------- 
 Total university 
  partnerships                     4,423        1,139           791           67          591         258         6.0% 
                             -----------  -----------  ------------  -----------  -----------  ----------  ----------- 
 Total pipeline                    5,956        1,374           967           79          732         311         6.2% 
                             ===========  ===========  ============  ===========  ===========  ==========  =========== 
 

(1) Subject to obtaining planning consent

Asset management

In addition to our development activity, we see significant opportunities to create value through asset management projects in our estate. Our customer base is currently dominated by 1(st) year and international students, but we see opportunities to segment our portfolio to better address the needs of returning and postgraduate students. These opportunities will be particularly focused on those cities where we have gained additional scale through our acquisition of Liberty Living. This activity will consider upgrades to the specification of our buildings and amenity spaces, as well as incorporating investments to improve energy and carbon performance.

These asset management projects typically have shorter lead times than new developments (often carried out over the summer period) and have the potential to deliver attractive risk-adjusted returns. We intend to invest GBP35-50 million p.a. into such opportunities, delivering uplifts to rental income equivalent to an additional 0.5-1.0% of annual rental growth across the Group portfolio.

During 2021, we committed to three asset management schemes in Manchester. Investment across the three projects is GBP42 million in aggregate, which is expected to deliver a 7% yield on cost. The projects will deliver new accommodation, refurbish existing rooms and enhance the environmental performance of the underlying assets. The upgraded assets will support our segmentation strategy, with new specification and service tailored to the postgraduate market.

Disposal activity

We 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 contracted GBP261 million of disposals on a Unite share basis. This included a GBP133 million (Unite share: GBP90 million) portfolio of eight assets in Coventry, Wolverhampton, Birmingham, Exeter and Manchester to Aventicum at a 6.5% yield and a 2% discount to book value. Completion occurred during the year for seven of the assets, with the sale of the remaining property in Manchester completing early in 2022. In June, we completed the sale of two London assets in Whitechapel and Wembley to LSAV for GBP342 million (Unite share: GBP171 million) at a 4.0% yield and in line with book value.

As part of our ongoing portfolio optimisation, we are in negotiations to sell a c.GBP235 million portfolio (Unite share) during the first half of 2022, which has been treated as held for sale in our year-end balance sheet.

Following these disposals, we will have largely completed the disposal programme set out at the time of our acquisition of Liberty Living in 2019. These disposals have helped to increase the alignment of our portfolio to the strongest university cities and our ability to sustain rental growth over a longer time horizon. Following our planned portfolio sale in 2022, we expect disposals to reduce to a lower level.

FINANCIAL PERFORMANCE

Income statement

The performance of the business has continued to be impacted by the Covid-19 pandemic during 2021 through lower occupancy, principally as a result of lower demand from international students, and rental discounts offered to students during national lockdowns.

A reconciliation of profit before tax to adjusted earnings and EPRA earnings is set out in summary below and expanded in section 7 of the financial statements.

 
                                                                      2021      2020 
                                                                      GBPm      GBPm 
------------------------------------------------------------------  ------  -------- 
 Adjusted earnings                                                   110.1      91.6 
 LSAV performance fee                                                 41.9       5.7 
                                                                    ------  -------- 
 EPRA earnings                                                       152.0      97.3 
 Valuation gains/(losses) and loss on disposal                       182.2   (178.8) 
 Changes in valuation of interest rate swaps and debt break costs      6.7    (35.9) 
 Non-controlling interest and other items                              2.2     (2.7) 
                                                                    ------  -------- 
 IFRS profit/(loss) before tax                                       343.1   (120.1) 
                                                                    ======  ======== 
 Adjusted earnings per share                                         27.6p     24.0p 
 IFRS basic earnings per share                                       85.9p   (31.8)p 
 

The profit before tax of GBP 343.1 million (2020: GBP120.1 million loss) includes adjusted earnings of GBP 110.1 million (2020: GBP91.6 million) and the GBP41.9 million performance fee received in respect of LSAV performance (2020: GBP5.7 million). Valuation gains and losses on disposal of GBP 182.2 million (2020: GBP178.8 million loss), reflecting recovery of the income shortfall resulting from Covid-19, as well as GBP 6.7 million of gains associated with changes in the valuation of interest rate swaps (2020: GBP35.9 million costs).

Cash flow and net debt

The Operations business generated GBP 108.1 million of net cash in 2021 (2020: GBP57.3 million) and see-through net debt reduced to GBP 1,522 million (2020: GBP1,742 million). The key components of the movement in see-through net debt were:

   --      Disposal proceeds of GBP241 million 
   --      Operational cash flow of GBP 114 million on a see-through basis 
   --      Receipt of the LSAV performance fee of GBP53 million 
   --      Total capital expenditure of GBP 101 million 
   --      Dividends paid of GBP65 million 

-- A GBP 22 million outflow for other items including lease payments and swap cancellation fees

In 2022, we expect see-through net debt to increase as planned capital expenditure on investment and development activity will exceed anticipated asset disposals.

Debt financing and liquidity

As at 31 December 2021, the wholly-owned Group had GBP421 million of cash and debt headroom (31 December 2020: GBP379 million), comprising of GBP96 million of drawn cash balances and GBP325 million of undrawn debt (2020: GBP329 million and GBP50 million respectively).

The Group maintains a disciplined approach to managing leverage, with LTV reducing to 29% at 31 December 2021 (31 December 2020: 34%). The reduction in LTV during the year was primarily driven by proceeds from property disposals, the impact of valuation gains and the receipt of the LSAV performance fee, which more than offset the impact of capital expenditure in the period. We intend to dispose of GBP200-250 million of assets in 2022 (Unite share basis) to fund our development activity and manage our LTV target to 35% on a built-out basis. The level of disposals going forward will be lower than recent years, following delivery of asset sales planned following our acquisition of Liberty Living.

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 improvement in net debt to EBITDA in the year to 8.3x (2020: 10.1x) reflects the improved operational performance of the business and the reduction in gearing during the year.

During the year, the Group refinanced and extended its GBP450 million revolving credit facility (RCF) with HSBC, NatWest and Royal Bank of Canada. The facility has an initial term of 3.5 years, which may be extended by a maximum of a further two years at Unite's request, subject to lender consent. The RCF incorporates three sustainability-linked performance targets linked to reductions in scope 1 and 2 carbon emissions, improvements in EPC certifications and investments in social impact initiatives.

The Group published its Sustainable Finance Framework during the year. The framework sets up the criteria for financing projects through sustainable bonds, loans and other debt products. Underlying projects have a positive environmental and/or social impact, thereby contributing to the United Nations Sustainable Development Goals, while supporting the company's business strategy. These include green buildings, projects aimed at improving the energy efficiency of our properties and renewable energy as well as social initiatives including the provision of affordable housing, financial support for students through the Covid-19 pandemic and projects aimed at widening participation in post-18 education.

The Unite Group 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. During the year, Moody's upgraded the Group's credit outlook from Stable to Positive, and Standard & Poor's upgraded from Negative to Stable, following recovery from the impact of Covid-19.

Interest rate hedging arrangements and cost of debt

Our average cost of debt based on current drawn amounts has reduced to 3.0% (31 December 2020: 3.1%). The Group has 90% of investment debt subject to a fixed or capped interest rates (31 December 2020: 75%), providing protection against future changes in interest rates. The repayment of amounts drawn from our RCF, as confidence in trading recovered from Covid-19, resulted in an increase in the average term and hedge ratio on our investment debt.

Our average debt maturity is 5.0 years (31 December 2020: 4.2 years) and we will continue to proactively manage our debt maturity profile, diversify our lending base and seek 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 and we are in the process of refinancing LSAV debt due to expire this year.

During the period, we published our Sustainable Finance Framework, aligned to our new Sustainability Strategy, which will enable future sustainable debt issuance and provide the opportunity to further diversify our sources of debt.

 
 Key debt statistics (Unite share basis)        31 Dec 2021   31 Dec 2020 
---------------------------------------------  ------------  ------------ 
 See-through net debt                             GBP1,522m     GBP1,742m 
 LTV                                                    29%           34% 
 Net debt:EBITDA ratio                                  8.3          10.1 
 Interest cover ratio                                   2.8           2.5 
 Average debt maturity                            5.0 years     4.2 years 
 Average cost of debt                                  3.0%          3.1% 
 Proportion of investment debt at fixed rate            90%           75% 
 

Dividend

We are proposing a final dividend payment of 15.6p per share (2020: 12.75p), making 22.1p for the full year (2020: 12.75p). The final dividend will be fully paid as a Property Income Distribution (PID) of 15.6p, which we expect to fully satisfy our PID requirement for the 2021 financial year.

This represents a payout ratio of 80% of adjusted EPS for FY2021, which will remain our target dividend payout ratio going forwards.

Subject to approval at Unite's Annual General Meeting on 12 May 2022, the dividend will be paid in either cash or new ordinary shares (a "scrip dividend alternative") on 20 May 2022 to shareholders on the register at close of business on 19 April 2022. The last date for receipt of scrip elections will be 4 May 2022.

During 2021, scrip elections were received for 17.8% and 2.4% of shares in issue for the 2020 final dividend and 2021 interim dividend respectively. 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.

Tax and REIT status

The Group holds REIT status and is exempt from tax on its property business. During the year, we recognised a corporation tax credit of GBP2.8 million (2020: GBP2.0 million charge), relating primarily to a GBP2.3 million tax credit in respect of prior years (2020: GBP0.3 million).

The Government has confirmed that it does not expect purpose-built student accommodation to be subject to the Residential Property Developer Tax, aimed at funding remediation of cladding defects.

Funds and joint ventures

The table below summarises the key financials at 31 December 2021 for our co-investment vehicles.

 
             Property   Net debt   Other assets   Net assets    Unite share   Total return      Maturity   Unite share 
               Assets       GBPm           GBPm         GBPm         of NAV 
                 GBPm                                                  GBPm 
------  -------------  ---------  -------------  -----------  -------------  -------------  ------------  ------------ 
 USAF           2,867      (806)          (105)        1,956            431           8.9%      Infinite           22% 
 LSAV           1,819      (628)           (18)        1,173            587          19.9%          2032           50% 
 

USAF and LSAV have delivered a strong performance in the year, despite the challenging environment resulting from Covid-19. USAF's total returns reflect the payment of distributions retained from 2020 which, if excluded, decrease the effective total return of the fund to 6.9%. LSAV's stronger underlying total return reflects a greater increase in property valuations over the year, due to yield compression in London.

USAF is a high-quality, large-scale portfolio of 29,500 beds in leading university cities. The fund has positive future prospects through rental growth and investment opportunities in asset management initiatives, forward funds and targeted acquisitions. Unite is currently engaging with unitholders in its role as fund manager to determine the best way to fund both USAF's ongoing capital requirements and continued growth. Unite is currently considering increasing its investment in USAF, either by way of a purchase of secondary units or subscription to new equity, subject to availability of units and pricing. This will provide an additional route for Unite to gain access to high-quality income producing assets.

USAF reinstated distributions in April, having suspended them in 2020 to preserve cash in response to Covid-19. The secondary market for USAF units continues to operate effectively, with GBP52 million of units trading in 2021 at a 2% average discount to NAV.

During the year, Unite extended the LSAV joint venture with GIC for a further 10 years to 2032. Unite will be entitled to receive a performance fee from LSAV equivalent to 12.5% of returns in excess of 8% p.a. in the period from 2021 to 2032. Unite will continue to act as property and asset manager for the duration of the new joint venture on existing terms and fee levels.

Fees

During the year, the Group recognised net fees of GBP15.9 million from its fund and asset management activities (2020: GBP14.0 million). The increase was driven by the recovery in NOI and growth in asset valuations as a result of yield compression and Covid-19 disruption unwinding.

Following the quarterly LSAV valuation at 30 September 2021, Unite received a payment of GBP53 million from GIC in full settlement of the LSAV performance fee due from 2012-2021, with GBP41.9 million being recognised in the year, representing the balancing amount not previously recognised in 2019 and 2020. The increase in the fee was due primarily to the strong performance of valuations in LSAV in 2021 and the certainty created by the extension of the joint venture.

 
                                            2021    2020 
                                            GBPm    GBPm 
----------------------------------------  ------  ------ 
 USAF asset management fee                  12.0    10.7 
 LSAV asset and property management fee      3.9     3.3 
 LSAV performance fee                       41.9     5.7 
                                          ------  ------ 
 Total fees                                 57.8    19.7 
                                          ------  ------ 
 

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 

23 February 2022

Forward-looking statements

The preceding preliminary 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 preliminary 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 preliminary 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 present 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 tangible assets (NTA). 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 Covenant compliance

4.6 Equity

4.7 Dividends

Section 5: Working capital

5.1 Cash and cash equivalents

5.2 Credit risk

5.3 Provisions

Section 6: Post balance sheet events

Section 7: Alternative performance measures

Glossary

Company information

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2021

 
                                                      2021     2020 
                                              Note    GBPm     GBPm 
------------------------------------------  ------  ------  ------- 
Rental income                                  2.4   209.0    196.1 
Other income                                   2.4    57.9     19.5 
------------------------------------------  ------  ------  ------- 
Total revenue                                        266.9    215.6 
Cost of sales                                       (64.4)   (53.3) 
Expected credit losses                               (3.3)    (8.6) 
Operating expenses                                  (36.3)   (34.7) 
------------------------------------------  ------  ------  ------- 
Results from operating activities                    162.9    119.0 
Loss on disposal of property                        (12.0)    (1.9) 
Net valuation gains/(losses) on property 
 (owned and under development)                 3.1   116.9  (124.2) 
Net valuation losses on property (leased)      3.1  (11.1)   (11.2) 
Integration costs                                        -    (9.2) 
------------------------------------------  ------  ------  ------- 
Profit/(loss) before net financing costs 
 and share of joint venture profit/(loss)            256.7   (27.5) 
Loan interest and similar charges              4.3  (34.2)   (41.9) 
Interest on lease liability                    4.3   (8.5)    (8.8) 
Mark to market changes on interest rate 
 swaps                                         4.3    10.9    (5.8) 
Swap cancellation fair value settlements 
 and loan break costs                          4.3   (4.2)   (30.1) 
------------------------------------------  ------  ------  ------- 
Finance costs                                       (36.0)   (86.6) 
Finance income                                 4.3       -      5.6 
------------------------------------------  ------  ------  ------- 
Net financing costs                                 (36.0)   (81.0) 
Share of joint venture profit/(loss)          3.3b   122.4   (11.6) 
------------------------------------------  ------  ------  ------- 
Profit/(loss) before tax                             343.1  (120.1) 
Current tax                                   2.5a     0.9    (1.2) 
Deferred tax                                  2.5a     0.5    (0.9) 
------------------------------------------  ------  ------  ------- 
Profit/(loss) for the year                           344.5  (122.2) 
Profit/(loss) for the year attributable 
 to 
Owners of the parent company                         342.4  (121.0) 
Non-controlling interest                               2.1    (1.2) 
------------------------------------------  ------  ------  ------- 
                                                     344.5  (122.2) 
------------------------------------------  ------  ------  ------- 
Profit/(loss) per share 
Basic                                         2.2c   85.9p  (31.8p) 
Diluted                                       2.2c   85.7p  (31.8p) 
 

All results are derived from continuing activities.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

 
                                               2021     2020 
                                        Note   GBPm     GBPm 
--------------------------------------  ----  -----  ------- 
Profit/(loss) for the year                    344.5  (122.2) 
Mark to market movements on hedged 
 instruments                                   16.2   (12.8) 
Hedges reclassified to profit or loss         (0.9)      2.5 
Share of joint venture mark to market 
 movements on hedged instruments        3.3b    0.6    (0.1) 
--------------------------------------  ----  -----  ------- 
Other comprehensive income/(loss) 
 for the year                                  15.9  (10.4 ) 
Total comprehensive income/(loss) 
 for the year                                 360.4  (132.6) 
--------------------------------------  ----  -----  ------- 
Attributable to 
Owners of the parent company                  358.3  (131.4) 
Non-controlling interest                        2.1    (1.2) 
--------------------------------------  ----  -----  ------- 
                                              360.4  (132.6) 
--------------------------------------  ----  -----  ------- 
 

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 2021                        Note       2021       2020 
                                                      GBPm       GBPm 
-----------------------------------------  ----  ---------  --------- 
Assets 
Investment property (owned)                 3.1    3,095.1    3,614.7 
Investment property (leased)                3.1       97.7      101.8 
Investment property ( under development)    3.1      324.1      187.2 
Investment in joint ventures               3.3b    1,044.1      849.0 
Other non-current assets                              18.9       21.9 
Right of use assets                                    3.6        4.3 
Deferred tax asset                         2.5d        3.0        1.9 
-----------------------------------------  ----  ---------  --------- 
Total non-current assets                           4,586.5    4,780.8 
Assets classified as held for sale          3.1      228.2          - 
Interest rate swaps                         4.2        6.1          - 
Inventories                                 3.2       12.1        8.8 
Trade and other receivables                          108.8      104.0 
Cash and cash equivalents                   5.1      109.4      338.3 
-----------------------------------------  ----  ---------  --------- 
Total current assets                                 464.6      451.1 
-----------------------------------------  ----  ---------  --------- 
Total assets                                       5,051.1    5,231.9 
-----------------------------------------  ----  ---------  --------- 
Liabilities 
Interest rate swaps                         4.2      (3.6)      (5.8) 
Lease liabilities                                    (4.9)      (4.4) 
Trade and other payables                           (200.7)    (141.3) 
Current tax liability                                (0.1)      (0.3) 
Provisions                                  5.3     (33.5)     (15.7) 
-----------------------------------------  ----  ---------  --------- 
Total current liabilities                          (242.8)    (167.5) 
Borrowings                                  4.1  (1,162.0)  (1,689.9) 
Lease liabilities                                   (91.9)     (96.7) 
Interest rate swaps                         4.2          -     (17.8) 
-----------------------------------------  ----  ---------  --------- 
Total non-current liabilities                    (1,253.9)  (1,804.4) 
-----------------------------------------  ----  ---------  --------- 
Total liabilities                                (1,496.7)  (1,971.9) 
-----------------------------------------  ----  ---------  --------- 
Net assets                                         3,554.4    3,260.0 
-----------------------------------------  ----  ---------  --------- 
Equity 
Issued share capital                        4.6       99.8       99.5 
Share premium                               4.6    2,161.2    2,160.3 
Merger reserve                                        40.2       40.2 
Retained earnings                                  1,225.0      949.0 
Hedging reserve                                        1.6     (14.1) 
-----------------------------------------  ----  ---------  --------- 
Equity attributable to the owners of 
 the parent company                                3,527.8    3,234.9 
Non-controlling interest                              26.6       25.1 
-----------------------------------------  ----  ---------  --------- 
Total equity                                       3,554.4    3,260.0 
-----------------------------------------  ----  ---------  --------- 
 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 December 2021

 
                                                                               Attributable 
                           Issued                                                 to owners 
                            share      Share     Merger   Retained    Hedging        of the   Non-controlling 
                          capital    premium    reserve   earnings    reserve        parent          interest    Total 
                  Note       GBPm       GBPm       GBPm       GBPm       GBPm          GBPm              GBPm     GBPm 
----------------  ----  ---------  ---------  ---------  ---------  ---------  ------------  ----------------  ------- 
At 1 January 
 2021                        99.5    2,160.3       40.2      949.0     (14.1)       3,234.9              25.1  3,260.0 
 
Profit for the 
 year                           -          -          -      342.4          -         342.4               2.1    344.5 
Other 
comprehensive 
income 
for the year: 
Mark to market 
 movements 
 on 
 hedged 
 instruments                    -          -          -          -       16.2          16.2                 -     16.2 
Hedges 
 reclassified 
 to profit or 
 loss                           -          -          -          -      (0.9)         (0.9)                 -    (0.9) 
Share of joint 
 venture 
 mark to market 
 movements 
 on hedged 
 instruments      3.3b          -          -          -          -        0.6           0.6                 -      0.6 
                        ---------  ---------  ---------  ---------  ---------  ------------  ----------------  ------- 
Total 
 comprehensive 
 income for the 
 year                           -          -          -      342.4       15.9         358.3               2.1    360.4 
Shares issued      4.6        0.3        0.9          -          -          -           1.2                 -      1.2 
Deferred tax on 
 share-based 
 payments                       -          -          -        0.3          -           0.3                 -      0.3 
Fair value of 
 share-based 
 payments                       -          -          -        2.4          -           2.4                 -      2.4 
Own shares 
 acquired                       -          -          -      (1.3)          -         (1.3)                 -    (1.3) 
Unwind of 
 realised swap 
 gain                           -          -          -          -      (0.2)         (0.2)                 -    (0.2) 
Dividends paid 
 to owners 
 of the parent 
 company           4.7          -          -          -     (67.8)          -        (67.8)                 -   (67.8) 
Dividends to 
 non-controlling 
 interest                       -          -          -          -          -             -             (0.6)    (0.6) 
----------------  ----  ---------  ---------  ---------  ---------  ---------  ------------  ----------------  ------- 
At 31 December 
 2021                        99.8    2,161.2       40.2    1,225.0        1.6       3,527.8              26.6  3,554.4 
----------------  ----  ---------  ---------  ---------  ---------  ---------  ------------  ----------------  ------- 
 
 
                                                                                Attributable 
                           Issued                                                  to owners 
                            share      Share     Merger    Retained    Hedging        of the  Non-controlling 
                          capital    premium    reserve    earnings    reserve        parent         interest    Total 
                  Note       GBPm       GBPm       GBPm        GBPm       GBPm          GBPm             GBPm     GBPm 
----------------  ----  ---------  ---------  ---------  ----------  ---------  ------------  ---------------  ------- 
At 1 January 
 2020                        90.9    1,874.9       40.2     1,069.0      (3.5)       3,071.5             26.5  3,098.0 
 
Loss for the 
 year                           -          -          -     (121.0)          -       (121.0)            (1.2)  (122.2) 
Other 
comprehensive 
loss for the 
year: 
Mark to market 
 movements 
 on 
 hedged 
 instruments                    -          -          -           -     (12.8)        (12.8)                -   (12.8) 
Hedges 
 reclassified 
 to profit or 
 loss                           -          -          -           -        2.5           2.5                -      2.5 
Share of joint 
 venture 
 mark to market 
 movements 
 on hedged 
 instruments      3.3b          -          -          -           -      (0.1)         (0.1)                -    (0.1) 
                        ---------  ---------  ---------  ----------  ---------  ------------  ---------------  ------- 
Total 
 comprehensive 
 loss for the 
 year                           -          -          -     (121.0)     (10.4)       (131.4)            (1.2)  (132.6) 
Shares issued      4.6        8.6      285.4          -           -          -         294.0                -    294.0 
Deferred tax on 
 share-based 
 payments                       -          -          -         0.1          -           0.1                -      0.1 
Fair value of 
 share-based 
 payments                       -          -          -         1.6          -           1.6                -      1.6 
Own shares 
 acquired                       -          -          -       (0.7)          -         (0.7)                -    (0.7) 
Unwind of 
 realised 
 swap gain                      -          -          -           -      (0.2)         (0.2)                -    (0.2) 
Dividends paid 
 to owners 
 of the parent 
 company           4.7          -          -          -           -          -             -                -        - 
Dividends to 
 non-controlling 
 interest                       -          -          -           -          -             -            (0.2)    (0.2) 
----------------  ----  ---------  ---------  ---------  ----------  ---------  ------------  ---------------  ------- 
At 31 December 
 2020                        99.5    2,160.3       40.2       949.0     (14.1)       3,234.9             25.1  3,260.0 
----------------  ----  ---------  ---------  ---------  ----------  ---------  ------------  ---------------  ------- 
 

STATEMENT OF CASH FLOWS

For the year ended 31 December 2021

 
                                                            2021     2020 
                                                   Note     GBPm     GBPm 
-------------------------------------------------  ----  -------  ------- 
Net cash flows from operating activities            5.1    171.3     73.3 
Investing activities 
Investment in joint ventures                                   -    (7.5) 
Capital expenditure on properties                         (95.9)  (148.5) 
Acquisition of intangible assets                           (3.2)    (2.7) 
Acquisition of plant and equipment                         (0.4)    (0.7) 
Proceeds from sale of investment property                  307.3        - 
Interest received                                              -      0.1 
Dividends received                                          37.1     10.2 
Net cash flows from investing activities                   244.9  (149.1) 
Financing activities 
Proceeds from the issue of share capital                     1.1    294.0 
Payments to acquire own shares                             (1.3)    (0.7) 
Interest paid in respect of financing activities          (47.9)   (54.2) 
Swap cancellation fair value settlements 
 and debt exit costs                                       (4.2)   (30.1) 
Proceeds from non-current borrowings                       147.0    355.1 
Repayment of borrowings                                  (675.0)  (233.3) 
Dividends paid to the owners of the parent 
 company                                                  (57.2)        - 
Withholding tax paid on distributions                      (7.0)    (3.4) 
Dividends paid to non-controlling interest                 (0.6)    (0.2) 
-------------------------------------------------  ----  -------  ------- 
Net cash flows from financing activities                 (645.1)    327.2 
-------------------------------------------------  ----  -------  ------- 
Net (decrease)/increase in cash and cash 
 equivalents                                             (228.9)    251.4 
Cash and cash equivalents at start of year                 338.3     86.9 
-------------------------------------------------  ----  -------  ------- 
Cash and cash equivalents at end of year                   109.4    338.3 
-------------------------------------------------  ----  -------  ------- 
 

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 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 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 2020 or 2021.

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 Directors have considered a range of scenarios for future performance through the remainder of the 2021/22 and 2022/23 academic years, with a focus on forecast liquidity and ICR covenant performance. This included a base case assuming cash collection and performance for the 2021/22 academic year remains in line with current trends and a return to 97% occupancy for the 2022/23 academic year; and a reasonable worst case scenario where income for the 2022/23 academic year was impacted by reduced sales broadly equivalent to the 2020/21 academic year where occupancy was 88%. Under each of these scenarios, the Directors are satisfied that the Group has sufficient liquidity and will maintain covenant compliance over the next 12 months. To further support the Directors' going concern assessment, a 'Reverse Stress Test' was performed to determine the level of performance at which adopting the going concern basis of preparation may not be appropriate. This involved assessing the minimum amount of income required to ensure financial covenants would not be breached. Within the tightest covenant, occupancy could fall to approximately 60% before there would be a breach.

As at the date of this report, whilst the global outlook as a result of Covid-19 is improving, it continues to be uncertain and the range of potential outcomes is significant. In particular, should the impact on trading conditions be more prolonged or severe than currently forecast by the Directors, namely if there is a further sustained national lockdown that results in Universities not opening physically and students either not arriving at University or returning home, the Group's going concern status may be dependent on its ability to seek interest cover covenant waivers from its lenders. The Directors are satisfied that the possibility of such an outcome is sufficiently remote that adopting the going concern basis of preparation is appropriate.

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 authorisation of these financial statements.

Section 2: Results for the year

IFRS performance measures

 
                                     2021     2020   2021     2020 
                            Note     GBPm     GBPm    pps      pps 
------------------------  ------  -------  -------  -----  ------- 
Profit/(loss) after tax     2.2c    342.4  (121.0)  85.9p  (31.8p) 
Net assets                  2.3d  3,527.8  3,234.9   880p     809p 
------------------------  ------  -------  -------  -----  ------- 
 

EPRA performance measures

 
                                   2021     2020   2021   2020 
                          Note     GBPm     GBPm    pps    pps 
----------------------  ------  -------  -------  -----  ----- 
EPRA earnings             2.2c    152.0     97.3  38.1p  25.5p 
Adjusted earnings (*)     2.2c    110.1     91.6  27.6p  24.0p 
EPRA NTA                  2.3d  3,532.2  3,266.2   882p   818p 
----------------------  ------  -------  -------  -----  ----- 
 

* See glossary for definition and note 2.2b for reconciliation to IFRS measure.

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 2021 and 31 December 2020 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.

The Group's properties are located exclusively in the United Kingdom. The Group therefore has one geographical segment.

2.2 Earnings

EPRA earnings and adjusted earnings amend 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. In 2021, an alternative performance measure based on EPRA earnings, adjusted to remove the impact of the LSAV performance fee has been presented. Given the quantum of the LSAV performance fee in the year, it has been excluded from adjusted earnings to improve the comparability of results year-on-year. In 2020, in consideration of EPRA's focus on presenting clear comparability in results from recurring operational activities, EPRA earnings excludes integration costs. The reconciliation between profit/(loss) attributable to owners of the parent company and EPRA earnings and adjusted 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 adjusted earnings and adjusted 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.

2.2a) EPRA earnings

2021

 
                                         Share of joint ventures 
------------------------------  ------                             ----------- 
                                                                      Group on 
                                                                    EPRA basis 
                                 Unite          USAF         LSAV        Total 
                                  GBPm          GBPm         GBPm         GBPm 
------------------------------  ------  ------------  -----------  ----------- 
Rental income                    209.0          37.6         36.1        282.7 
Property operating expenses     (67.7)        (13.0)       (10.2)       (90.9) 
------------------------------  ------  ------------  -----------  ----------- 
Net operating income             141.3          24.6         25.9        191.8 
Management fees                   19.1         (3.2)            -         15.9 
Overheads                       (30.7)         (0.3)        (0.5)       (31.5) 
Interest on lease liabilities    (8.5)             -            -        (8.5) 
Net financing costs             (38.5)         (6.7)        (9.6)       (54.8) 
------------------------------  ------  ------------  -----------  ----------- 
Operations segment result         82.7          14.4         15.8        112.9 
Property segment result          (2.2)             -            -        (2.2) 
Unallocated to segments           83.9         (0.2)       (42.4)         41.3 
------------------------------  ------  ------------  -----------  ----------- 
EPRA earnings                    164.4          14.2       (26.6)        152.0 
LSAV performance fee            (84.1)             -         42.2       (41.9) 
------------------------------  ------  ------------  -----------  ----------- 
Adjusted earnings                 80.3          14.2         15.6        110.1 
------------------------------  ------  ------------  -----------  ----------- 
 

Included in the above is rental income of GBP16.3 million and property operating expenses of GBP8.3 million relating to sale and leaseback properties.

The unallocated to segments balance includes the fair value of share-based payments of (GBP2.4 million), contributions to the Unite Foundation of (GBP1.0 million), LSAV performance fee of GBP41.9 million, deferred tax credit of GBP0.8 million and current tax credit of GBP2.0 million. Depreciation and amortisation totalling GBP7.8 million is included within overheads.

2020

 
                                         Share of joint ventures 
------------------------------  ------                             ----------- 
                                                                      Group on 
                                                                    EPRA basis 
                                 Unite           USAF        LSAV        Total 
                                  GBPm           GBPm        GBPm         GBPm 
------------------------------  ------  -------------  ----------  ----------- 
Rental income                    196.1           34.2        32.9        263.2 
Property operating expenses     (61.9)         (12.8)       (8.2)       (82.9) 
------------------------------  ------  -------------  ----------  ----------- 
Net operating income             134.2           21.4        24.7        180.3 
Management fees                   20.1          (2.8)       (3.3)         14.0 
Overheads                       (30.1)          (0.3)       (0.5)       (30.9) 
Interest on lease liabilities    (8.8)              -           -        (8.8) 
Net financing costs             (40.6)          (6.6)       (8.9)       (56.1) 
------------------------------  ------  -------------  ----------  ----------- 
Operations segment result         74.8           11.7        12.0         98.5 
Property segment result          (2.2)              -           -        (2.2) 
Unallocated to segments            7.1          (0.3)       (5.8)          1.0 
------------------------------  ------  -------------  ----------  ----------- 
EPRA earnings                     79.7           11.4         6.2         97.3 
LSAV performance fee            (11.4)              -         5.7        (5.7) 
------------------------------  ------  -------------  ----------  ----------- 
Adjusted earnings                 68.3           11.4        11.9         91.6 
------------------------------  ------  -------------  ----------  ----------- 
 

Included in the above is rental income of GBP14.6 million and property operating expenses of GBP7.3 million relating to sale and leaseback properties.

The unallocated to segments balance includes the fair value of share-based payments of (GBP1.7 million), contributions to the Unite Foundation of (GBP1.0 million), LSAV performance fee of GBP5.7 million, deferred tax charge of (GBP0.8 million) and current tax charge of (GBP1.2 million).

Depreciation and amortisation totalling GBP9.2 million is included within overheads. EPRA earnings excludes integrations costs following the acquisition of Liberty Living, which total GBP9.2 million in the year.

2.2b) IFRS reconciliation to EPRA earnings

EPRA earnings excludes movements relating to changes in values of investment properties (owned, leased and under development), profits/losses from the disposal of properties, swap/debt break costs, impairment of goodwill and integration costs, which are included in the profit/loss reported under IFRS. EPRA earnings and adjusted earnings reconcile to the profit/(loss) attributable to owners of the parent company as follows:

 
                                                Note     2021     2020 
                                                         GBPm     GBPm 
----------------------------------------------  ----  -------  ------- 
Profit/(loss) attributable to owners 
 of the parent company                                  342.4  (121.0) 
Net valuation (gains)/losses on investment 
 property (owned)                                3.1  (116.9)    124.2 
Property disposals (owned)                               12.0      1.9 
Net valuation losses on investment property 
 (leased)                                        3.1     11.1     11.2 
Integration costs                                           -      9.2 
Amortisation of fair value of debt recognised 
 on acquisition                                         (4.3)    (4.3) 
Share of joint venture (gains)/losses 
 on investment property                         3.3b   (88.7)     41.5 
Share of joint venture property disposals       3.3b      0.3        - 
Swap cancellation fair value settlements 
 and loan break costs                            4.3      4.2     30.1 
Mark to market changes on interest rate 
 swaps                                           4.3   (10.9)      5.8 
Current tax relating to property disposals                1.1        - 
Deferred tax                                    2.5d      0.3      0.1 
Non-controlling interest share of reconciling 
 items *                                                  1.4    (1.4) 
----------------------------------------------  ----  -------  ------- 
EPRA earnings                                   2.2a    152.0     97.3 
----------------------------------------------  ----  -------  ------- 
LSAV performance fee                                   (41.9)    (5.7) 
----------------------------------------------  ----  -------  ------- 
Adjusted earnings                               2.2a    110.1     91.6 
----------------------------------------------  ----  -------  ------- 
 

* The 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 3.3.

2.2c) Earnings per share

Basic EPS is calculated using earnings/loss 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 on a day-to-day basis.

The calculations of basic, EPRA EPS and adjusted EPS for the year ended 31 December 2021 and 2020 are as follows:

 
                                              2021     2020     2021     2020 
                                       Note   GBPm     GBPm      pps      pps 
-----------------------------------  ------  -----  -------  -------  ------- 
Earnings/(loss) 
Basic                                        342.4  (121.0)    85.9p  (31.8p) 
Diluted                                      342.4  (121.0)    85.7p  (31.8p) 
EPRA                                   2.2b  152.0     97.3    38.1p    25.5p 
Adjusted                               2.2b  110.1     91.6    27.6p    24.0p 
-----------------------------------  ------  -----  -------  -------  ------- 
                                                                2021     2020 
-----------------------------------  ------  -----  -------  -------  ------- 
Weighted average number of shares 
 (thousands) 
Basic                                                        398,742  381,379 
Dilutive potential ordinary shares 
 (share options)                                                 829      872 
-----------------------------------  ------  -----  -------  -------  ------- 
Diluted                                                      399,571  382,251 
-----------------------------------  ------  -----  -------  -------  ------- 
 

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 full year impact of the 2020 equity raise. In 2021, there were no (2020: 11,278) options excluded from the potential dilutive shares that did not affect the diluted weighted average number of shares.

2.3 Net assets

2.3a) EPRA NAV and NTA

EPRA NTA makes adjustments to IFRS measures by removing the fair value of financial instruments and the carrying value of intangibles. The reconciliation between IFRS NAV and EPRA NTA is available in note 2.3c.

 
                                                                       Share of JVs 
----------------------------------------  ---------                                   ----------- 
                                                                                         Group on 
                                              Unite             USAF            LSAV   EPRA basis 
2021                                           GBPm             GBPm            GBPm         GBPm 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Investment property (owned) *               3,323.3            632.0           909.5      4,864.8 
Investment property (leased)                   97.7                -               -         97.7 
Investment property (under development)       324.1                -               -        324.1 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Total property portfolio                    3,745.1            632.0           909.5      5,286.6 
Debt on properties                        (1,139.7)          (201.0)         (336.6)    (1,677.3) 
Lease liabilities                            (93.8)                -               -       (93.8) 
Cash                                          109.4             23.4            22.7        155.5 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Net debt                                  (1,124.1)          (177.6)         (313.9)    (1,615.6) 
Other assets and (liabilities)               (90.5)           (23.2)           (9.0)      (122.8) 
Intangibles per IFRS balance sheet           (16.1)                -               -       (16.1) 
----------------------------------------  ---------  ---------------  --------------  ----------- 
EPRA NTA                                    2,514.4            431.2           586.6      3,532.2 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Loan to value **                                28%              28%             35%          29% 
Loan to value post IFRS 16                      30%              28%             35%          31% 
 

* Investment property (owned) includes assets classified as held for sale in the IFRS balance sheet.

** LTV calculated excluding investment properties (leased) and the corresponding lease liabilities.

 
                                                                       Share of JVs 
----------------------------------------  ---------                                   ----------- 
                                                                                         Group on 
                                              Unite             USAF            LSAV   EPRA basis 
2020                                           GBPm             GBPm            GBPm         GBPm 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Investment property (owned)                 3,614.7            616.7           661.8      4,893.2 
Investment property (leased)                  101.8                -               -        101.8 
Investment property (under development)       187.2                -               -        187.2 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Total property portfolio                    3,903.7            616.7           661.8      5,182.2 
Debt on properties                        (1,663.5)          (201.1)         (268.2)    (2,132.8) 
Lease liabilities                            (96.3)                -               -       (96.3) 
Cash                                          338.3             15.4            37.3        391.0 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Net debt                                  (1,421.5)          (185.7)         (230.9)    (1,838.1) 
Other assets and (liabilities)               (21.3)           (13.2)          (24.4)       (58.9) 
Intangibles per IFRS balance sheet           (19.0)                -               -       (19.0) 
----------------------------------------  ---------  ---------------  --------------  ----------- 
EPRA NTA                                    2,441.9            417.8           406.5      3,266.2 
----------------------------------------  ---------  ---------------  --------------  ----------- 
Loan to value *                                 35%              30%             35%          34% 
Loan to value post IFRS 16                      36%              30%             35%          35% 
 

* LTV calculated excluding investment properties (leased) and the corresponding lease liabilities.

2.3b) Movement in EPRA NTA during the year

Contributions to EPRA NTA by each segment during the year is as follows:

2021

 
                                                                         Share of joint 
                                                                            ventures 
----------------------------------------------  ----  ------                              ----------- 
                                                                                             Group on 
                                                                                           EPRA basis 
                                                       Unite          USAF          LSAV        Total 
                                                Note    GBPm          GBPm          GBPm         GBPm 
----------------------------------------------  ----  ------  ------------  ------------  ----------- 
Operations 
Operations segment result                       2.2a    82.7          14.4          15.8        112.9 
Add back amortisation of intangibles                     6.1             -             -          6.1 
----------------------------------------------  ----  ------  ------------  ------------  ----------- 
Total Operations                                        88.8          14.4          15.8        119.0 
Property 
Rental growth                                           17.4           4.5          25.8         47.7 
Yield movement                                          49.2          12.7          44.6        106.5 
Disposal losses (owned)                               (12.0)         (0.3)             -       (12.3) 
----------------------------------------------  ----  ------  ------------  ------------  ----------- 
Investment property gains (owned) *                     54.6          16.9          70.4        141.9 
Investment property losses (leased)             3.1a  (11.1)             -             -       (11.1) 
Investment property gains (under development)   3.1a    50.3             -             -         50.3 
Pre-contract/other development costs            2.2a   (2.2)             -             -        (2.2) 
----------------------------------------------  ----  ------  ------------  ------------  ----------- 
Total Property                                          91.6          16.9          70.4        178.9 
 
 
Unallocated 
Shares issued                                   1.2       -       -      1.2 
Investment in joint ventures                (118.6)  (17.7)   136.3        - 
Dividends paid                               (67.8)       -       -   (67.8) 
LSAV performance fee                           84.1       -  (42.2)     41.9 
Swap cancellation FV settlements and 
 debt break costs                      4.3    (4.2)       -       -    (4.2) 
Acquisition of intangibles                    (3.3)       -       -    (3.3) 
Other                                           0.7   (0.2)   (0.2)      0.3 
-------------------------------------  ---  -------  ------  ------  ------- 
Total Unallocated                           (107.9)  (17.9)    93.9   (31.9) 
-------------------------------------  ---  -------  ------  ------  ------- 
Total EPRA NTA movement in the year            72.5    13.4   180.1    266.0 
Total EPRA NTA brought forward              2,441.9   417.8   406.5  3,266.2 
-------------------------------------  ---  -------  ------  ------  ------- 
Total EPRA NTA carried forward              2,514.4   431.2   586.6  3,532.2 
-------------------------------------  ---  -------  ------  ------  ------- 
 

* Investment property gains (owned) includes gains on assets classified as held for sale in the IFRS balance sheet.

The GBP0.3 million other balance within the unallocated segment includes a tax credit of GBP2.8 million, the purchase of own shares of (GBP1.3 million) and contributions to the Unite Foundation of (GBP1.0 million).

2020

 
                                                                           Share of joint 
                                                                              ventures 
-----------------------------------------------  ----  -------                              ----------- 
                                                                                               Group on 
                                                                                             EPRA basis 
                                                         Unite          USAF          LSAV        Total 
                                                 Note     GBPm          GBPm          GBPm         GBPm 
-----------------------------------------------  ----  -------  ------------  ------------  ----------- 
Operations 
Operations segment result                        2.2a     74.8          11.7          12.0         98.5 
Add back amortisation of intangibles                       6.4             -             -          6.4 
-----------------------------------------------  ----  -------  ------------  ------------  ----------- 
Total Operations                                          81.2          11.7          12.0        104.9 
Property 
Rental growth                                          (102.4)        (24.0)        (15.0)      (141.4) 
Yield movement                                          (17.6)         (1.1)           0.1       (18.6) 
Disposal losses (owned)                                  (1.9)             -             -        (1.9) 
-----------------------------------------------  ----  -------  ------------  ------------  ----------- 
Investment property losses (owned)                     (121.9)        (25.1)        (14.9)      (161.9) 
Investment property losses (leased)              3.1a   (11.2)             -             -       (11.2) 
Investment property losses (under development)   3.1a    (4.2)             -             -        (4.2) 
Pre-contract/other development costs             2.2a    (2.2)             -             -        (2.2) 
-----------------------------------------------  ----  -------  ------------  ------------  ----------- 
Total Property                                         (139.5)        (25.1)        (14.9)      (179.5) 
 
 
Unallocated 
Shares issued                                   294.0       -      -    294.0 
Investment in joint ventures                      2.3   (5.7)    3.4        - 
Acquisition of Liberty Living                       -       -      -        - 
Dividends paid                                      -       -      -        - 
LSAV performance fee                             11.4       -  (5.7)      5.7 
Joint venture property acquisition fee         (30.1)       -      -   (30.1) 
Swap cancellation FV settlements and 
 debt break costs                        4.3    (2.7)       -      -    (2.7) 
Acquisition of intangibles                      (9.2)       -      -    (9.2) 
Other                                           (3.4)   (0.4)  (0.1)    (3.9) 
---------------------------------------  ---  -------  ------  -----  ------- 
Total Unallocated                               262.3   (6.1)  (2.4)    253.8 
---------------------------------------  ---  -------  ------  -----  ------- 
Total EPRA NTA movement in the year             204.0  (19.5)  (5.3)    179.2 
Total EPRA NTA brought forward                2,237.9   437.3  411.8  3,087.0 
---------------------------------------  ---  -------  ------  -----  ------- 
Total EPRA NTA carried forward                2,441.9   417.8  406.5  3,266.2 
---------------------------------------  ---  -------  ------  -----  ------- 
 

The GBP3.9 million other balance within the unallocated segment includes a tax charge of (GBP2.1 million), the purchase of own shares of (GBP0.7 million) and contributions to the Unite Foundation of (GBP1.0 million).

2.3c) Reconciliation to IFRS

To determine EPRA NTA, net assets reported under IFRS are amended to exclude the fair value of financial instruments, associated tax and the carrying value of intangibles.

To determine EPRA NRV, net assets reported under IFRS are amended to exclude the fair value of financial instruments, associated tax and real estate transfer tax.

To determine EPRA NDV, net assets reported under IFRS are amended to exclude the fair value of financial instruments, but include the fair value of fixed interest rate debt and the carrying value of intangibles.

The net assets reported under IFRS reconcile to EPRA NTA, NRV and NDV as follows:

2021

 
                                                 NTA      NRV      NDV 
                                                GBPm     GBPm     GBPm 
------------------------------------------   -------  -------  ------- 
Net assets reported under IFRS               3,527.8  3,527.8  3,527.8 
Mark to market interest rate swaps             (2.4)    (2.4)        - 
Unamortised swap gain                          (1.5)    (1.5)    (1.5) 
Mark to market of fixed rate debt                  -        -   (50.3) 
Unamortised fair value of debt recognised 
 on acquisition                                 23.7     23.7     23.8 
Current tax                                      0.7      0.7        - 
Intangibles per IFRS balance sheet            (16.1)        -        - 
Real estate transfer tax                           -    277.5        - 
-------------------------------------------  -------  -------  ------- 
EPRA reporting measure                       3,532.2  3,825.8  3,499.7 
-------------------------------------------  -------  -------  ------- 
 

2020

 
                                                 NTA      NRV      NDV 
                                                GBPm     GBPm     GBPm 
------------------------------------------   -------  -------  ------- 
Net assets reported under IFRS               3,234.9  3,234.9  3,234.9 
Mark to market interest rate swaps              24.4     24.4        - 
Unamortised swap gain                          (1.8)    (1.8)    (1.8) 
Mark to market of fixed rate debt                  -        -   (85.2) 
Unamortised fair value of debt recognised 
 on acquisition                                 28.1     28.1     28.1 
Current tax                                    (0.4)    (0.4)        - 
Intangibles per IFRS balance sheet            (19.0)        -        - 
Real estate transfer tax                           -    312.0        - 
-------------------------------------------  -------  -------  ------- 
EPRA reporting measure                       3,266.2  3,597.2  3,176.0 
-------------------------------------------  -------  -------  ------- 
 

2.3d) NAV, NTA, NRV and NDV 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 NTA to monitor the performance of the Property segment on a day-to-day basis.

 
                              2021     2020  2021  2020 
                     Note     GBPm     GBPm   pps   pps 
-------------------  ----  -------  -------  ----  ---- 
Basic                      3,527.8  3,234.9  880p  809p 
EPRA NTA             2.3a  3,532.2  3,266.2  885p  820p 
EPRA NTA (diluted)         3,536.1  3,271.0  882p  818p 
EPRA NRV             2.3c  3,825.9  3,597.2  959p  903p 
EPRA NRV (diluted)         3,829.7  3,601.9  955p  901p 
EPRA NDV                   3,499.7  3,176.0  877p  798p 
EPRA NDV (diluted)         3,503.6  3,180.7  874p  796p 
-------------------  ----  -------  -------  ----  ---- 
 
 
Number of shares (thousands)      2021     2020 
-----------------------------  -------  ------- 
Basic                          399,140  398,226 
Outstanding share options        1,687    1,484 
-----------------------------  -------  ------- 
Diluted                        400,827  399,710 
-----------------------------  -------  ------- 
 

2.4 Revenue and costs

The Group earns revenue from the following activities:

 
                                                   2021   2020 
                                            Note   GBPm   GBPm 
---------------------  -------------------  ----  -----  ----- 
Rental income *        Operations segment   2.2a  209.0  196.1 
Management fees        Operations segment          16.2   14.0 
LSAV performance fee   Unallocated                 41.9    5.7 
USAF acquisition fee   Unallocated                    -      - 
---------------------  -------------------  ----  -----  ----- 
                                                  267.1  215.8 
Impact of non-controlling interest on 
 management fees                                  (0.2)  (0.2) 
------------------------------------------  ----  -----  ----- 
Total revenue                                     266.9  215.6 
------------------------------------------  ----  -----  ----- 
 

* EPRA earnings includes GBP282.7 million (2020: GBP263.2 million) of rental income, which is comprised of GBP209.0 million (2020: GBP196.1 million) recognised on wholly owned assets and a further GBP73.7 million (2020: GBP67.1 million) from joint ventures, which is included in share of joint venture (loss)/profit in the consolidated income statement.

The LSAV performance fee was constrained in earlier years due to an inability to meet the highly probable criteria that the fee would be earned. In the year to 31 December 2021, the catch-up recognised in respect of the release of this constraint represents GBP36.0 million of the total GBP41.9 million fee recognised.

The cost of sales included in the consolidated income statement includes property operating expenses of GBP64.4 million (2020: GBP53.3 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 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 non-controlling interest.

2.5a) Tax - income statement

The total taxation (credit)/charge in the income statement is analysed as follows:

 
                                                       2021   2020 
                                                       GBPm   GBPm 
----------------------------------------------------  -----  ----- 
Corporation tax on residual business income arising 
 in UK companies                                        1.0    1.2 
Income tax on UK rental income arising in non-UK 
 companies                                              0.3    0.3 
Adjustments in respect of prior periods               (2.2)  (0.3) 
----------------------------------------------------  -----  ----- 
Current tax (credit)/charge                           (0.9)    1.2 
Origination and reversal of temporary differences     (0.2)    0.9 
Effect of change in tax rate                          (0.2)  (0.1) 
Adjustments in respect of prior periods               (0.1)    0.1 
----------------------------------------------------  -----  ----- 
Deferred tax (credit)/charge                          (0.5)    0.9 
----------------------------------------------------  -----  ----- 
Total tax (credit)/charge in income statement         (1.4)    2.1 
----------------------------------------------------  -----  ----- 
 

The movement in deferred tax provided is shown in more detail in note 2.5d.

In the income statement, a tax credit of GBP1.4 million arises on a profit before tax of GBP343.1 million. The taxation credit that would arise at the standard rate of UK corporation tax is reconciled to the actual tax charge as follows:

 
                                                         2021     2020 
                                                         GBPm     GBPm 
-----------------------------------------------------  ------  ------- 
Profit/(loss) before tax                                343.1  (120.1) 
Income tax using the UK corporation tax rate of 
 19% (2020: 19%)                                         65.2   (22.8) 
Property rental business profits exempt from tax 
 in the REIT Group                                     (18.4)    (7.4) 
Release of deferred tax liability due to legislative 
 change                                                     -      0.1 
Non-taxable items relating to the acquisition of 
 Liberty Living                                             -    (0.8) 
Property revaluations not subject to tax               (43.3)     31.2 
Mark to market changes in interest rate swaps not 
 subject to tax                                         (2.9)      1.1 
Effect of indexation on investments                         -      0.7 
Effect of other permanent differences                     0.2      0.1 
Effect of tax deduction transferred to equity on 
 share schemes                                            0.3        - 
Rate difference on deferred tax                         (0.2)        - 
Prior year adjustments                                  (2.3)    (0.1) 
-----------------------------------------------------  ------  ------- 
Total tax (credit)/charge in income statement           (1.4)      2.1 
-----------------------------------------------------  ------  ------- 
 

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.

No deferred tax asset has been recognised in respect of the Group's accumulated tax losses on the basis that they are not expected to be utilised in future periods. At 31 December 2021 these losses totalled GBP14.6 million (2020: GBP24.3 million).

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 2021 the required PID is expected to be fully paid by the end of 2022.

2.5b) Tax - other comprehensive income

Within other comprehensive income a tax charge totalling GBPnil (2020: GBPnil) has been recognised representing deferred tax.

2.5c) Tax - statement of changes in equity

Within the statement of changes in equity a tax credit totalling GBP0.6 million (2020: GBP0.1 million charge) has been recognised representing deferred tax. An analysis of this is included below in the deferred tax movement table.

2.5d) 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:

2021

 
                                At 31 December  Charged/(credited)  Charged/(credited)  At 31 December 
                                          2020           in income           in equity            2021 
                                          GBPm                GBPm                GBPm            GBPm 
------------------------------  --------------  ------------------  ------------------  -------------- 
Investments                                  -                   -                   -               - 
Property, plant and machinery 
 and provisions                          (0.6)               (0.6)                   -           (1.2) 
Share schemes                            (1.3)               (0.2)               (0.3)           (1.8) 
Tax value of carried forward 
 losses recognised                           -                 0.3               (0.3)               - 
------------------------------  --------------  ------------------  ------------------  -------------- 
Net tax (assets)/liabilities             (1.9)              (0.5)*               (0.6)           (3.0) 
------------------------------  --------------  ------------------  ------------------  -------------- 
 

* The GBP0.5 million balance above includes tax movements totalling GBP0.2m in respect of Property, plant and machinery, share schemes and losses which are included in EPRA earnings and therefore not shown as a reconciling item in the IFRS reconciliation in note 2.2b. Removing them results in the GBP0.3 million movement shown in note 2.2b.

2020

 
                                At 31 December  Charged/(credited)  Charged/(credited)  At 31 December 
                                          2019           in income           in equity            2020 
                                          GBPm                GBPm                GBPm            GBPm 
------------------------------  --------------  ------------------  ------------------  -------------- 
Investments                                  -                   -                   -               - 
Property, plant and machinery 
 and provisions                          (0.9)                 0.3                   -           (0.6) 
Share schemes                            (1.3)               (0.2)                 0.2           (1.3) 
Tax value of carried forward 
 losses recognised                       (0.7)                 0.8               (0.1)               - 
------------------------------  --------------  ------------------  ------------------  -------------- 
Net tax liabilities/(assets)             (2.9)                0.9*                 0.1           (1.9) 
------------------------------  --------------  ------------------  ------------------  -------------- 
 

* The GBP0.9 million balance above includes tax movements totalling GBP0.8m in respect of Property, plant and machinery, share schemes and losses which are included in EPRA earnings and therefore not shown as a reconciling item in the IFRS reconciliation in note 2.2b. Removing them results in the GBP0.1 million movement shown in note 2.2b.

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 NTA 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. These right-of-use assets are measured 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 initially recognised at cost and are subsequently measured at fair value in the balance sheet with changes in fair value taken to the income statement.

iv) Investment property classified as held for sale

These are assets whose carrying amount will be recovered through a sale transaction rather than to hold for long-term rental income or capital appreciation. This condition is regarded as met only when the sale is highly probable and the investment property is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. The assets are measured at fair value in the balance sheet, with changes in fair value taken to the income statement. They are presented as current assets in the IFRS balance sheet.

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 LLP, Chartered Surveyors were the valuers in the years ended 31 December 2021 and 2020.

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 2021 are shown in the table below.

2021

 
                                                              Investment 
                                   Investment  Investment       property 
                                     property    property        ( under 
                                      (owned)    (leased)   development)    Total 
                                         GBPm        GBPm           GBPm     GBPm 
---------------------------------  ----------  ----------  -------------  ------- 
At 1 January 2021                     3,614.7       101.8          187.2  3,903.7 
Cost capitalised                         43.1         7.0           79.3    129.4 
Interest capitalised                        -           -            5.2      5.2 
Transfer from work in progress              -           -            2.1      2.1 
Transfer to assets classified as 
 held for sale                        (228.2)           -              -  (228.2) 
Disposals                             (401.1)           -              -  (401.1) 
                                   ----------  ----------  -------------  ------- 
Valuation gains                         125.6           -           52.3    177.9 
Valuation losses                       (59.0)      (11.1)          (2.0)   (72.1) 
                                   ----------  ----------  -------------  ------- 
Net valuation gain/(losses)              66.6      (11.1)           50.3    105.8 
---------------------------------  ----------  ----------  -------------  ------- 
Carrying and market value at 31 
 December 2021                        3,095.1        97.7          324.1  3,516.9 
---------------------------------  ----------  ----------  -------------  ------- 
 

Total assets classified as held for sale at 31 December 2021 of GBP228.2 million (2020: GBPnil) comprised entirely investment property (owned). Assets classified as held for sale are reported within the operations segment, and represents a portfolio of properties intended to be sold within the next 12 months.

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 2020 are shown in the table below.

2020

 
                                                                      Investment 
                                           Investment  Investment       property 
                                             property    property        ( under 
                                              (owned)    (leased)   development)    Total 
                                                 GBPm        GBPm           GBPm     GBPm 
-----------------------------------------  ----------  ----------  -------------  ------- 
At 1 January 2020                             3,406.9       110.4          411.8  3,929.1 
Cost capitalised                                 25.0         2.6           87.6    115.2 
Interest capitalised                                -           -            4.6      4.6 
Transfer from investment property 
 under development                              312.6           -        (312.6)        - 
Transfer from work in progress                      -           -              -        - 
Disposals                                       (9.8)           -              -    (9.8) 
                                           ----------  ----------  -------------  ------- 
Valuation gains                                  56.5           -            6.4     62.9 
Valuation losses                              (176.5)      (11.2)         (10.6)  (198.3) 
                                           ----------  ----------  -------------  ------- 
Net valuation losses                          (120.0)      (11.2)          (4.2)  (135.4) 
-----------------------------------------  ----------  ----------  -------------  ------- 
Carrying and market value at 31 December 
 2020                                         3,614.7       101.8          187.2  3,903.7 
-----------------------------------------  ----------  ----------  -------------  ------- 
 

Included within investment properties at 31 December 2021 are GBP28.8 million (2020: GBP29.7 million) of assets held under a long leasehold and GBP0.1 million (2020: GBP0.1 million) of assets held under short leasehold.

Total interest capitalised in investment properties (owned) and investment properties under development at 31 December 2021 was GBP57.4 million (2020: GBP52.2 million) on a cumulative basis. Total internal costs capitalised in investment properties (owned) and investment properties under development was GBP74.3 million at 31 December 2021 (2020: GBP66.8 million) on a cumulative basis.

Recurring fair value measurement

All investment and development properties are classified as Level 3 in the fair value hierarchy.

 
                                             2021     2020 
Class of asset                               GBPm     GBPm 
----------------------------------------  -------  ------- 
London - rental properties                  849.8  1,137.0 
Prime regional - rental properties          992.9    949.3 
Major regional - rental properties        1,263.5  1,255.8 
Provincial - rental properties              217.1    272.6 
London - development properties             249.9    158.8 
Prime regional - development properties      48.4     25.6 
Major regional - development properties      25.8      2.8 
----------------------------------------  -------  ------- 
Investment property (owned)               3,647.4  3,801.9 
 
 
Investment property (leased)                           97.7    101.8 
--------------------------------------------------  -------  ------- 
Market value (including assets classified as held 
 for sale)                                          3,745.1  3,903.7 
Investment property (classified as held for sale)   (228.2)        - 
--------------------------------------------------  -------  ------- 
Market value                                        3,516.9  3,903.7 
--------------------------------------------------  -------  ------- 
 

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)

 
                                                       2021     2020 
                                                       GBPm     GBPm 
--------------------------------------------------  -------  ------- 
Opening fair value                                  3,903.7  3,929.1 
Gains and (losses) recognised in income statement     105.8  (135.4) 
Transfer to current assets classified as held for 
 sale                                               (228.2)        - 
Capital expenditure                                   136.7    119.8 
Disposals                                           (401.1)    (9.8) 
--------------------------------------------------  -------  ------- 
Closing fair value                                  3,516.9  3,903.7 
Investment property (classified as held for sale)     228.2        - 
--------------------------------------------------  -------  ------- 
Closing fair value (including assets classified 
 as held for sale)                                  3,745.1  3,903.7 
--------------------------------------------------  -------  ------- 
 

Quantitative information about fair value measurements using unobservable inputs (Level 3)

2021

 
                           Fair value     Valuation                                                Weighted 
                                 GBPm     technique      Unobservable inputs               Range    average 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
London -                        849.8    Discounted        Net rental income       GBP191-GBP373     GBP291 
                                                              (GBP per week) 
  rental properties                      cash flows         Estimated future               3%-4%         4% 
                                                           rent increase (%) 
                                                       Discount rate (yield)           3.7%-4.9%       3.9% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Prime regional -                992.9    Discounted        Net rental income       GBP144-GBP235     GBP191 
                                                              (GBP per week) 
  rental properties                      cash flows         Estimated future               1%-4%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)           4.0%-6.3%       4.7% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Major regional -              1,263.6    Discounted        Net rental income        GBP62-GBP173     GBP131 
                                                              (GBP per week) 
  rental properties                      cash flows         Estimated future               0%-4%         2% 
                                                           rent increase (%) 
                                                       Discount rate (yield)           4.7%-7.0%       5.7% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Provincial -                    217.1    Discounted        Net rental income       GBP109-GBP188     GBP135 
                                                              (GBP per week) 
  rental properties                      cash flows         Estimated future               1%-4%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)          5.1%-14.2%       7.0% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
London -                        249.9    Discounted        Estimated cost to  GBP34.0m-GBP177.3m  GBP126.5m 
                                                             complete (GBPm) 
  development properties                 cash flows        Net rental income       GBP185-GBP382     GBP289 
                                                              (GBP per week) 
                                                            Estimated future                  3%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)                3.6%       3.6% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Prime regional -                 48.4    Discounted        Estimated cost to    GBP7.1m-GBP64.3m   GBP35.9m 
                                                             complete (GBPm) 
  development properties                 cash flows        Net rental income       GBP176-GBP258     GBP181 
                                                              (GBP per week) 
                                                            Estimated future                  3%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)                4.0%       4.0% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Major regional -                 25.8    Discounted        Estimated cost to   GBP33.9m-GBP45.2m   GBP42.1m 
                                                             complete (GBPm) 
  development properties                 cash flows        Net rental income       GBP171-GBP213     GBP172 
                                                              (GBP per week) 
                                                            Estimated future                  3%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)                5.0%       5.0% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
                              3,647.4 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Investment property              97.7    Discounted        Net rental income        GBP95-GBP185     GBP144 
                                                              (GBP per week) 
  (leased)                               cash flows         Estimated future                  3%         3% 
                                                           rent increase (%) 
                                                       Discount rate (yield)                6.8%       6.8% 
                                                                         (%) 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Fair value at 31 
 December 2021                3,745.1 
-------------------------  ----------  ------------  -----------------------  ------------------  --------- 
 

2020

 
                            Fair value     Valuation                                                Weighted 
                                  GBPm     technique      Unobservable inputs               Range    average 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
London -                       1,137.0    Discounted        Net rental income       GBP164-GBP370     GBP267 
                                                               (GBP per week) 
  rental properties                       cash flows         Estimated future               2%-3%         3% 
                                                            rent increase (%) 
                                                        Discount rate (yield)           3.9%-5.0%       4.0% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Prime regional -                 949.3    Discounted        Net rental income       GBP140-GBP229     GBP169 
                                                               (GBP per week) 
  rental properties                       cash flows         Estimated future               2%-3%         3% 
                                                            rent increase (%) 
                                                        Discount rate (yield)           4.0%-6.2%       4.8% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Major regional -               1,255.8    Discounted        Net rental income        GBP82-GBP167     GBP132 
                                                               (GBP per week) 
  rental properties                       cash flows         Estimated future               1%-3%         2% 
                                                            rent increase (%) 
                                                        Discount rate (yield)           4.7%-7.0%       5.7% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Provincial -                     272.6    Discounted        Net rental income        GBP87-GBP188     GBP136 
                                                               (GBP per week) 
  rental properties                       cash flows         Estimated future               1%-3%         2% 
                                                            rent increase (%) 
                                                        Discount rate (yield)          5.0%-13.8%       6.8% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
London -                         158.8    Discounted        Estimated cost to  GBP84.9m-GBP147.9m  GBP114.9m 
                                                              complete (GBPm) 
  development properties                  cash flows         Estimated future                  3%         3% 
                                                            rent increase (%) 
                                                        Discount rate (yield)                4.0%       4.0% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Prime regional -                  25.6    Discounted        Estimated cost to   GBP19.1m-GBP65.3m   GBP40.8m 
                                                              complete (GBPm) 
  development properties                  cash flows         Estimated future                  3%         3% 
                                                            rent increase (%) 
                                                        Discount rate (yield)                4.3%       4.3% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Major regional -                   2.8    Discounted        Estimated cost to            GBP45.5m   GBP45.5m 
 development properties                   cash flows          complete (GBPm)                  3%         3% 
                                                             Estimated future                   -          - 
                                                            rent increase (%) 
                                                        Discount rate (yield) 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
                               3,801.9 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Investment property              101.8    Discounted        Net rental income       GBP129-GBP185     GBP147 
                                                               (GBP per week) 
  (leased)                                cash flows         Estimated future                  3%         3% 
                                                            rent increase (%) 
                                                        Discount rate (yield)                6.8%       6.8% 
                                                                          (%) 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
Fair value at 31 December 
 2020                          3,903.7 
--------------------------  ----------  ------------  -----------------------  ------------------  --------- 
 

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.

 
                                                 +5%            -5%      +25 bps      -25 bps 
                           Fair value         change         change       change       change 
                                   at   in estimated   in estimated   in nominal   in nominal 
                          31 December     net rental     net rental   equivalent   equivalent 
                                 2021         income         income        yield        yield 
Class of assets                  GBPm           GBPm           GBPm         GBPm         GBPm 
-----------------------  ------------  -------------  -------------  -----------  ----------- 
Rental properties 
London                          849.8          892.0          807.9        798.9        908.0 
Prime regional                  992.9        1,046.7          949.7        948.4      1,053.8 
Major regional                1,263.5        1,335.1        1,208.8      1,218.3      1,330.7 
Provincial                      217.1          228.4          206.7        209.5        226.2 
Development properties 
London                          249.9          265.0          226.8        233.0        273.1 
Prime regional                   48.4           53.6           44.5         44.8         53.9 
Major regional                   25.8           26.9           23.9         24.7         27.0 
-----------------------  ------------  -------------  -------------  -----------  ----------- 
Market value                  3,647.4        3,847.8        3,468.3      3,477.7      3,872.7 
-----------------------  ------------  -------------  -------------  -----------  ----------- 
 

3.2 Inventories

 
                     2021   2020 
                     GBPm   GBPm 
------------------  -----  ----- 
Interests in land    10.8    6.7 
Other stocks          1.3    2.1 
------------------  -----  ----- 
Inventories          12.1    8.8 
------------------  -----  ----- 
 

At 31 December 2021, the Group had interests in two pieces of land (2020: four pieces 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                  2021 (2020)               Objective                  Partner   Group has interest 
----------------------  ------------------  ----------------------  -----------------------  ------------------- 
The UNITE UK                23.4%* (23.4%)      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 and       investment vehicle       Trust and LSAV 
                                                        Birmingham                       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 non-controlling 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% (2020: 22.0%) of USAF.

3.3a) 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:

2021

 
                                                USAF              LSAV               Total 
                                                GBPm              GBPm                GBPm 
--------------------------  ------------------------  ----------------  ------------------ 
                              Gross      MI    Share    Gross    Share      Gross    Share 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Investment property         2,867.4    39.3    631.9  1,819.0    909.5    4,686.4  1,580.7 
Cash                          106.2     1.5     23.4     45.4     22.7      151.6     47.6 
Debt                        (912.1)  (12.5)  (201.0)  (673.0)  (336.5)  (1,585.1)  (550.0) 
Swap assets/(liabilities)       0.5       -      0.1    (0.2)    (0.1)        0.3        - 
Other current assets          106.6     1.5     23.5     22.0     11.0      128.6     36.0 
Other current liabilities   (211.5)   (3.5)   (46.6)   (40.2)   (20.1)    (251.7)   (70.2) 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Net assets                  1,957.1    26.3    431.3  1,173.0    586.5    3,130.1  1,044.1 
Non-controlling interest          -  (26.3)        -        -        -          -   (26.3) 
Swap (liabilities)/assets     (0.5)       -    (0.1)      0.2      0.1      (0.3)        - 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
EPRA NTA                    1,956.6       -    431.2  1,173.2    586.6    3,129.8  1,017.8 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Profit for the year           146.9     2.1     34.2    172.2     86.1      319.1    122.4 
 

2020

 
                                                USAF              LSAV               Total 
                                                GBPm              GBPm                GBPm 
--------------------------  ------------------------  ----------------  ------------------ 
                              Gross      MI    Share    Gross    Share      Gross    Share 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Investment property         2,798.3    38.3    616.7  1,323.6    661.8    4,121.9  1,316.8 
Cash                           69.7     1.0     15.4     74.6     37.3      144.3     53.7 
Debt                        (912.7)  (12.5)  (201.1)  (536.4)  (268.2)  (1,449.1)  (481.8) 
Swap liabilities                  -       -        -    (1.2)    (0.6)      (1.2)    (0.6) 
Other current assets            1.0       -      0.2      0.4      0.2        1.4      0.4 
Other current liabilities    (61.0)   (1.5)   (13.4)   (49.2)   (24.6)    (110.2)   (39.5) 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Net assets                  1,895.3    25.3    417.8    811.8    405.9    2,707.1    849.0 
Non-controlling interest          -  (25.3)        -        -        -          -   (25.3) 
Swap liabilities                  -       -        -      1.2      0.6        1.2      0.6 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
EPRA NTA                    1,895.3       -    417.8    813.0    406.5    2,708.3    824.3 
--------------------------  -------  ------  -------  -------  -------  ---------  ------- 
Profit/(loss) for the 
 year                        (42.6)   (0.8)   (11.1)      0.6      0.3     (42.0)   (11.6) 
 

Net assets and profit/(loss) for the year above include the non-controlling interest, whereas EPRA NTA excludes the non-controlling interest.

3.3b) 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 GBP195.1 million during the year ended 31 December 2021 (2020: GBP26.2 million decrease), resulting in an overall carrying value of GBP1,044.1 million (2020: GBP849.0 million).

The following table shows how the increase has arisen.

 
                                                        2021    2020 
                                                        GBPm    GBPm 
-----------------------------------------------------  -----  ------ 
Recognised in the income statement: 
Operations segment result                               30.2    23.7 
Non-controlling interest share of Operations segment 
 result                                                  1.1     0.6 
Management fee adjustment related to trading with 
 joint venture                                           3.0     6.3 
Net valuation gains/(losses) on investment property     88.7  (41.5) 
Property disposals                                     (0.3)       - 
Other                                                  (0.3)   (0.7) 
-----------------------------------------------------  -----  ------ 
                                                       122.4  (11.6) 
 
 
Recognised in equity: 
Movement in effective hedges                             0.6   (0.1) 
Other adjustments to the carrying value: 
Profit adjustment related to trading with joint 
 venture                                               (3.4)   (6.3) 
Profit adjustment related to sale of property with 
 LSAV                                                  (1.9)       - 
Additional capital invested in LSAV                    157.6     7.5 
LSAV performance fee                                  (42.2)   (5.7) 
USAF distributions received                           (18.6)       - 
LSAV distributions received                           (19.4)  (10.0) 
---------------------------------------------------  -------  ------ 
Increase/(decrease) in carrying value                  195.1  (26.2) 
Carrying value at 1 January                            849.0   875.2 
---------------------------------------------------  -------  ------ 
Carrying value at 31 December                        1,044.1   849.0 
---------------------------------------------------  -------  ------ 
 

3.3c) 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.

 
                                      2021   2020 
                                      GBPm   GBPm 
-----------------------------------  -----  ----- 
USAF                                  15.2   13.5 
LSAV                                   3.9    6.6 
Asset and property management fees    19.1   20.1 
LSAV performance fee                  41.9   11.4 
USAF acquisition fee                     -      - 
-----------------------------------  -----  ----- 
Investment management fees            41.9   11.4 
-----------------------------------  -----  ----- 
Total fees                            61.0   31.5 
-----------------------------------  -----  ----- 
 

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 GBP3.2 million (2020: GBP6.1 million), which results in management fees from joint ventures of GBP15.9 million being shown in the Operating segment result in note 2.2a (2020: GBP14.0 million).

Investment management fees are included within the unallocated to segments section in note 2.2a.

During 2021, the Group sold two properties to LSAV for gross proceeds of GBP341.9 million. Both 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 
-------------------------------------------------  ----------------- 
                                                       2021     2020 
                                                       GBPm     GBPm 
-------------------------------------------------  --------  ------- 
Included in loss on disposal of property (net of 
 joint venture trading adjustment)                      6.6        - 
-------------------------------------------------  --------  ------- 
Loss on disposal of property                            6.6        - 
-------------------------------------------------  --------  ------- 
 
 
                                                         Cash flow 
-----------------------------------------------------  ------------- 
                                                         2021   2020 
                                                         GBPm   GBPm 
-----------------------------------------------------  ------  ----- 
Gross proceeds                                          341.9      - 
Less amounts settled by transfer of property           (99.4)      - 
-----------------------------------------------------  ------  ----- 
Net cash flows included in cash flows from investing 
 activities                                             242.5      - 
-----------------------------------------------------  ------  ----- 
 

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 
---------------------------------------------------------  ------------------ 
                                                               2021      2020 
                                                               GBPm      GBPm 
---------------------------------------------------------  --------  -------- 
Current 
In one year or less, or on demand                                 -         - 
Non-current 
In more than one year but not more than two years                 -     795.9 
In more than two years but not more than five years           419.2     297.3 
In more than five years                                       719.0     568.6 
---------------------------------------------------------  --------  -------- 
                                                            1,138.2   1,661.8 
Unamortised fair value of debt recognised on acquisition       23.8      28.1 
---------------------------------------------------------  --------  -------- 
Total borrowings                                            1,162.0   1,689.9 
---------------------------------------------------------  --------  -------- 
 

In addition to the borrowings currently drawn as shown above, the Group has available undrawn facilities of GBP325.0 million (2020: GBP50.0 million). A further overdraft facility of GBP10.0 million (2020: GBP10.0 million) is also available.

The carrying value and fair value of the Group's borrowings is analysed below:

 
                                                  2021                  2020 
----------------------------------------  --------------------  -------------------- 
                                          Carrying              Carrying 
                                             value  Fair value     value  Fair value 
                                              GBPm        GBPm      GBPm        GBPm 
----------------------------------------  --------  ----------  --------  ---------- 
Level 1 IFRS fair value hierarchy            898.8       936.7     903.1       932.2 
Other loans and unamortised arrangement 
 fees                                        263.2       263.2     786.8       786.8 
----------------------------------------  --------  ----------  --------  ---------- 
Total borrowings                           1,162.0     1,199.9   1,689.9     1,719.0 
----------------------------------------  --------  ----------  --------  ---------- 
 

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 following table shows the changes in liabilities arising from financing activities:

2021

 
                                                                                                     at 31 
                                              at 1 January    Financing    Fair Value     Other   December 
                                                      2021   cash flows   adjustments   changes       2021 
--------------------------------------------  ------------  -----------  ------------  --------  --------- 
Borrowings                                         1,689.9      (563.8)         (4.3)      40.2    1,162.0 
Lease liabilities                                    101.1       (13.2)             -       8.9       96.8 
Interest rate swaps                                   23.6        (3.1)        (23.9)       0.9      (2.5) 
--------------------------------------------  ------------  -----------  ------------  --------  --------- 
Total liabilities from financing activities        1,814.6      (580.1)        (28.2)      50.0    1,256.3 
--------------------------------------------  ------------  -----------  ------------  --------  --------- 
 

2020

 
                                                                                                       at 31 
                                              at 31 December    Financing    Fair Value     Other   December 
                                                        2019   cash flows   adjustments   changes       2020 
--------------------------------------------  --------------  -----------  ------------  --------  --------- 
Borrowings                                           1,567.6         52.1         (4.3)      74.5    1,689.9 
Lease liabilities                                      104.8       (13.1)             -       9.4      101.1 
Interest rate swaps                                      7.6        (1.5)          17.5         -       23.6 
--------------------------------------------  --------------  -----------  ------------  --------  --------- 
Total liabilities from financing activities          1,680.0        117.4          11.7       5.5    1,814.6 
--------------------------------------------  --------------  -----------  ------------  --------  --------- 
 

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:

 
                                     2021   2020 
                                     GBPm   GBPm 
----------------------------------  -----  ----- 
Current                             (2.5)    5.8 
Non-current                             -   17.8 
----------------------------------  -----  ----- 
Fair value of interest rate swaps   (2.5)   23.6 
----------------------------------  -----  ----- 
 

The fair value of interest rate swaps (a debit balance in 2021 and a credit balance in 2020) 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. At 31 December 2021 the net current asset fair value above comprises assets of GBP6.1 million offset by liabilities of GBP3.6 million (2020: all liabilities).

4.3 Net financing costs

 
                                                      2021   2020 
  Recognised in the income statement:                 GBPm   GBPm 
--------------------------------------------------  ------  ----- 
Interest income                                          -  (5.6) 
--------------------------------------------------  ------  ----- 
Finance income                                           -  (5.6) 
Gross interest expense on loans                       43.7   50.8 
Interest capitalised                                 (5.2)  (4.6) 
Amortisation of fair value of debt recognised on 
 acquisition                                         (4.3)  (4.3) 
--------------------------------------------------  ------  ----- 
Loan interest and similar charges                     34.2   41.9 
Interest on lease liabilities                          8.5    8.8 
Mark to market changes on interest rate swaps       (10.9)    5.8 
Swap cancellation fair value settlements and loan 
 break costs                                           4.2   30.1 
--------------------------------------------------  ------  ----- 
Finance costs                                         36.0   86.6 
--------------------------------------------------  ------  ----- 
Net financing costs                                   36.0   81.0 
--------------------------------------------------  ------  ----- 
 

The average cost of the Group's wholly owned investment debt for the year ended 31 December 2021 is 3.0% (2020: 3.2%). The overall average cost of investment debt on an EPRA basis is 3.0% (2020: 3.2%).

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 tangible assets (NTA) 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:

 
                                                       2021       2020 
                                            Note       GBPm       GBPm 
------------------------------------------  ----  ---------  --------- 
Cash and cash equivalents                    5.1      109.4      338.3 
Current borrowings                           4.1          -          - 
Non-current borrowings                       4.1  (1,162.0)  (1,689.9) 
Lease liabilities                           4.6a     (96.8)    (101.1) 
Interest rate swaps                          4.2        2.5     (23.6) 
------------------------------------------  ----  ---------  --------- 
Net debt per balance sheet                        (1,146.9)  (1,476.3) 
Lease liabilities                           4.6a       96.8      101.1 
Unamortised fair value of debt recognised 
 on acquisition                             2.3c       23.8       28.1 
------------------------------------------  ----  ---------  --------- 
Adjusted net debt                                 (1,026.3)  (1,347.1) 
------------------------------------------  ----  ---------  --------- 
Reported net asset value                    2.3c    3,527.8    3,234.9 
EPRA NTA                                    2.3c    3,532.2    3,266.2 
Gearing 
Basic (net debt/reported net asset value)               33%        46% 
Adjusted gearing (adjusted net debt/EPRA 
 NTA)                                                   29%        41% 
Loan to value                               2.3a        29%        34% 
------------------------------------------  ----  ---------  --------- 
 

4.5 Covenant compliance

The Group monitors its covenant position and the forecast headroom available on a monthly basis. At 31 December 2021, the Group was in full compliance with all of its borrowing covenants.

The Group's unsecured borrowings carry several covenants. The covenant regime is IFRS based and gives the Group substantial operational flexibility, allowing property acquisitions, disposals and developments to occur with relative freedom.

 
                                  2021               2020 
--------------------------  -----------------  ---------------- 
                             Covenant  Actual  Covenant  Actual 
--------------------------  ---------  ------  --------  ------ 
Gearing                        < 1.50    0.30    < 1.50    0.42 
Unencumbered assets ratio      > 1.70    3.25    > 1.70    2.81 
Secured gearing                < 0.25     0.0    < 0.25     0.0 
Development assets ratio        < 30%      7%     < 30%      4% 
Joint venture ratio             < 55%     23%     < 55%     18% 
Interest cover                 > 2.00    5.49    > 2.00     3.9 
--------------------------  ---------  ------  --------  ------ 
 

The Group also has bonds which carry several covenants which the Group was also in full compliance with as set out below.

 
                            2021                 2020 
------------------  --------------------  ------------------- 
                      Weighted  Weighted   Weighted  Weighted 
                      covenant    actual   covenant    actual 
------------------  ----------  --------  ---------  -------- 
Net gearing              < 60%       30%      < 60%       35% 
Secured gearing          < 25%        0%      < 25%        0% 
Unsecured gearing       > 1.67      3.31     > 1.67      2.87 
Interest cover          > 1.75      2.79     > 1.75      2.67 
------------------  ----------  --------  ---------  -------- 
 

4.6 Equity

The Company's issued share capital has increased during the year as follows:

 
                                                    2021                               2020 
----------------------------------  ------------------------------------  ------------------------------- 
Called up, allotted and fully 
 paid                                            Ordinary                              Ordinary     Share 
 ordinary shares of GBP0.25p             No. of    shares  Share Premium       No. of    shares   Premium 
 each                                    shares      GBPm           GBPm       shares      GBPm      GBPm 
----------------------------------  -----------  --------  -------------  -----------  --------  -------- 
At 1 January                        398,170,432      99.5        2,160.3  363,591,882      90.9   1,874.9 
Shares issued (placing)                       -         -              -   34,502,872       8.6     285.1 
Shares issued (scrip dividend)          789,927       0.2          (0.2)            -         -         - 
Shares issued (options exercised)       179,277       0.1            1.1       75,678         -       0.3 
----------------------------------  -----------  --------  -------------  -----------  --------  -------- 
At 31 December                      399,139,636      99.8        2,161.2  398,170,432      99.5   2,160.3 
----------------------------------  -----------  --------  -------------  -----------  --------  -------- 
 

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.

4.7 Dividends

During the year, the Company paid the final 2020 dividend of GBP42.4m - 12.75p per share - and an interim 2021 dividend of GBP25.4 million - 6.5p per share (2020: cancelled the proposed final 2019 dividend and paid no interim dividend).

After the year-end, the Directors proposed a final dividend per share of 15.6p - totalling GBP62.3 million (2020: 12.75p), bringing the total dividend per share for the year to 22.1p (2020: 12.75p). No provision has been made in relation to this dividend.

The Group has modelled tax adjusted property business profits for 2021 and 2022 and the PID requirement in respect of the year ended 31 December 2021 is expected to be satisfied by the end of 2022.

Section 5: Working capital

5.1 Cash and cash equivalents

The Group's cash position at 31 December 2021 was GBP109.4 million (2020: GBP338.3 million).

The Group's cash balances include GBP2.0 million (2020: GBP1.2 million) whose use at the balance sheet date is restricted by funding agreements to pay operating costs.

The Group generates cash from its operating activities as follows:

 
 
                                                                     2021     2020 
                                                            Note     GBPm     GBPm 
----------------------------------------------------------  ----  -------  ------- 
Profit/(loss) for the year                                          344.6  (122.2) 
Adjustments for: 
Depreciation and amortization                                         7.8      9.2 
Fair value of share-based payments                                    2.4      1.7 
Change in value of investment property (owned and 
 under development)                                          3.1  (116.8)    124.2 
Change in value of investment property (leased)              3.1     11.1     11.2 
Net finance costs excluding interest on lease liabilities    4.3     34.2     36.3 
Interest payments for leased assets                          4.3      8.5      8.8 
Mark to market changes in interest rate swaps                4.3   (10.9)      5.8 
Swap break fair value settlements and debt exit costs        4.3      4.2     30.1 
Loss on disposal of investment property (owned)                      12.0      1.9 
Share of joint venture (profit)/loss                        3.3b  (122.2)     11.6 
Trading with joint venture adjustment                                19.1     12.0 
Tax (credit)/charge                                         2.5a    (1.5)      2.1 
----------------------------------------------------------  ----  -------  ------- 
Cash flows from operating activities before changes in 
 working capital                                                    192.5    132.7 
(Increase) in trade and other receivables                          (52.5)    (0.3) 
(Increase) in inventories                                           (2.9)    (4.5) 
Increase/(decrease) in trade and other payables                      34.2   (53.3) 
----------------------------------------------------------  ----  -------  ------- 
Cash flows from operating activities                                171.3     74.6 
Tax paid                                                                -    (1.3) 
Net cash flows from operating activities                            171.3     73.3 
----------------------------------------------------------  ----  -------  ------- 
 

Cash flows consist of the following segmental cash inflows/(outflows): operations GBP108.1 million (2020: GBP57.3 million), property (GBP324.8 million) (2020: GBP78.2 million) and unallocated (GBP12.2 million) (2020: GBP272.3 million).

The unallocated net cash outflow is comprised of dividends paid totalling GBP64.8 million (2020: GBPnil), amounts received from shares issued of GBPnil (2020: GBP294.0 million), LSAV performance fee received of GBP53.3 million (2020: GBPnil), tax paid of GBPnil (2020: GBP1.3 million) and investment in joint venture of GBPnil (2020: GBP7.5 million).

During the year the Group acquired an additional investment in its LSAV joint venture as a non-cash transaction as part of the disposal of property to the joint venture.

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:

 
                                           2021   2020 
                                    Note   GBPm   GBPm 
--------------------------------  ------  -----  ----- 
Cash                                 5.1  109.4  338.3 
Trade receivables                          27.9   16.4 
Amounts due from joint ventures            56.8   48.0 
--------------------------------  ------  -----  ----- 
                                          194.1  402.7 
--------------------------------  ------  -----  ----- 
 

5.2a) 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.

5.2b) 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 GBP0.8 million (2020: GBP0.8 million) as collateral against individual customers.

5.2c) 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.

5.3 Provisions

During 2020, and in accordance with the Government's Building Safety Advice of 20 January 2020, we undertook a thorough review of the use of High-Pressure Laminate (HPL) cladding on our properties. We have identified 24 properties with HPL that needs replacing across our estate, seven of which are wholly owned. We are currently carrying out replacement works for properties with HPL cladding, with activity prioritised according to our risk assessments, starting with those over 18 metres in height. The remaining cost of replacing HPL cladding is expected to be GBP92.0 million (Unite Share: GBP46.9 million), of which GBP33.5 million is in respect of wholly owned properties. Whilst the overall timetable for these works is uncertain, we anticipate this will be incurred over the next 2 years.

The Government has proposed a Building Safety Bill, covering building standards, which is likely to result in more stringent fire safety regulations. We will ensure we remain aligned to fire safety regulations as they evolve and will continue to make any required investment to ensure our buildings remain safe to occupy. We have provided for the costs of remedial work where we have a legal obligation to do so. The amounts provided reflect the current best estimate of the extent and future cost of the remedial works required and are based on known costs and quotations where possible, and reflect the most likely outcome. However, these estimates may be updated as work progresses or if Government legislation and regulation changes.

We have not recognised any assets in respect of future claims.

Management have performed a sensitivity analysis to assess the impact of a change in their estimate of total costs. A 20% increase in the estimated remaining costs would affect net valuation gains/losses on property in the IFRS P&L and would reduce the Group's NTA by 2.3 pence on a Unite share basis. Whilst provisions are expected to be utilised within two years, there is uncertainty over this timing.

The Group has recognised provisions for the cost of these cladding works as follows:

 
                                     Gross                             Unite Share 
                                      GBPm                                 GBPm 
--------------------  ------------------------------------  ---------------------------------- 
                      Wholly owned    USAF    LSAV   Total  Wholly owned   USAF   LSAV   Total 
--------------------  ------------  ------  ------  ------  ------------  -----  -----  ------ 
At 31 December 2019            0.3     1.4       -     1.7           0.3    0.4      -     0.7 
Additions                     15.7    50.6    14.4    80.7          15.7   11.0    7.2    33.9 
Utilisation                  (0.3)   (2.0)   (0.2)   (2.5)         (0.3)  (0.4)  (0.1)   (0.8) 
--------------------  ------------  ------  ------  ------  ------------  -----  -----  ------ 
At 31 December 2020           15.7    50.0    14.2    79.9          15.7   11.0    7.1    33.8 
Additions                     18.0    23.4     0.5    41.9          18.0    5.1    0.3    23.4 
Utilisation                  (0.2)  (17.1)  (12.5)  (29.8)         (0.2)  (3.8)  (6.3)  (10.3) 
--------------------  ------------  ------  ------  ------  ------------  -----  -----  ------ 
At 31 December 2021           33.5    56.3     2.2    92.0          33.5   12.3    1.1    46.9 
--------------------  ------------  ------  ------  ------  ------------  -----  -----  ------ 
 

Section 6: Post balance sheet events

In February 2022 we exchanged contracts to acquire a development site in East London on a subject to planning basis. This site is anticipated to provide 700 beds, with a total development cost of GBP177 million.

Section 7: 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.

Adjusted earnings, as set out below, is a new APM reflecting a more meaningful measure of the underlying earnings of the Group, excluding the non-recurring impact of the LSAV performance fee, and therefore aiding comparability.

Non-EPRA measures may not have comparable calculation bases between companies and therefore may not provide meaningful industry-wide comparability.

 
                                     2021    2020 
                             Note    GBPm    GBPm 
---------------------------  ----  ------  ------ 
Adjusted EBIT 
Net operating income (NOI)   2.2a   191.8   180.3 
Management fees              2.2a    15.9    14.0 
Overheads                    2.2a  (31.5)  (30.9) 
---------------------------  ----  ------  ------ 
                                    176.2   163.4 
---------------------------  ----  ------  ------ 
Adjusted EBIT margin % 
Rental income                2.2a   282.7   263.2 
EBIT                            7   176.2   163.4 
---------------------------  ----  ------  ------ 
                                    62.3%   62.1% 
---------------------------  ----  ------  ------ 
 
 
EBITDA 
Net operating income (NOI)                    2.2a      191.8      180.3 
Management fees                               2.2a       15.9       14.0 
Overheads                                     2.2a     (31.5)     (30.9) 
Depreciation and amortisation                             7.8        8.4 
--------------------------------------------  ----  ---------  --------- 
                                                        184.0      171.8 
--------------------------------------------  ----  ---------  --------- 
 
Net debt 
Cash                                          2.3a      155.5      391.0 
Debt on properties                            2.3a  (1,677.3)  (2,132.8) 
--------------------------------------------  ----  ---------  --------- 
                                                    (1,521.8)  (1,741.8) 
--------------------------------------------  ----  ---------  --------- 
 
EBITDA : Net debt 
EBITDA                                           7      184.0      171.8 
Net debt                                         7  (1,521.8)  (1,741.8) 
--------------------------------------------  ----  ---------  --------- 
Ratio                                                     8.3       10.1 
--------------------------------------------  ----  ---------  --------- 
 
Interest cover (Unite share) 
Adjusted EBIT                                    7      176.2      163.4 
Net financing costs                           2.2a     (54.8)     (56.1) 
Interest on lease liability/operating lease 
 rentals                                      2.2a      (8.5)      (8.8) 
--------------------------------------------  ----  ---------  --------- 
Total interest                                         (63.3)     (64.9) 
--------------------------------------------  ----  ---------  --------- 
Ratio                                                     2.8        2.5 
--------------------------------------------  ----  ---------  --------- 
 

Reconciliation: IFRS loss before tax to EPRA earnings and Adjusted earnings

 
                                                         2021     2020 
                                                Note     GBPm     GBPm 
----------------------------------------------  ----  -------  ------- 
IFRS profit/(loss)loss before tax                       343.1  (120.1) 
Net valuation (gains)/losses on investment 
 property (owned)                               2.2b  (205.6)    165.7 
Property disposals (owned)                      2.2b     12.3      1.9 
Net valuation losses on investment property 
 (leased)                                       2.2b     11.1     11.2 
Integration costs                               2.2b        -      9.2 
Amortisation of fair value of debt recognised 
 on acquisition                                 2.2b    (4.3)    (4.3) 
Changes in valuation of interest rate swaps     2.2b   (10.9)      5.8 
Swap cancellation fair value settlements 
 and loan break costs                           2.2b      4.2     30.1 
Non-controlling interest and tax                          2.1    (2.2) 
----------------------------------------------  ----  -------  ------- 
EPRA earnings                                           152.0     97.3 
LSAV performance fee                                   (41.9)    (5.7) 
----------------------------------------------  ----  -------  ------- 
Adjusted earnings                                       110.1     91.6 
----------------------------------------------  ----  -------  ------- 
 

Adjusted EPS yield

 
                           Note   2021   2020 
-------------------------  ----  -----  ----- 
Adjusted earnings (A)      2.2c  27.6p  24.0p 
Opening EPRA NTA (B)       2.3d   818p   847p 
-------------------------  ----  -----  ----- 
Adjusted EPS yield (A/B)          3.4%   2.8% 
-------------------------  ----  -----  ----- 
 

Total accounting return

 
                                Note    2021    2020 
------------------------------  ----  ------  ------ 
Opening EPRA NTA (A)            2.3d    818p    847p 
Closing EPRA NTA                2.3d    882p    818p 
------------------------------  ----  ------  ------ 
Movement                                 64p   (29)p 
H1 dividend paid                 4.9  12.75p       - 
H2 dividend paid                 4.9    6.5p       - 
------------------------------  ----  ------  ------ 
Total movement in NTA (B)             83.25p   (29)p 
------------------------------  ----  ------  ------ 
Total accounting return (B/A)          10.2%  (3.4%) 
------------------------------  ----  ------  ------ 
 

EPRA Performance Measures

Summary of EPRA performance measures

 
                                 2021     2020 
                                 GBPm     GBPm   2021     2020 
---------------------------   -------  -------  -----  ------- 
EPRA earnings                   152.0     97.3  38.1p    25.5p 
Adjusted earnings               110.1     91.6  27.6p    24.0p 
EPRA NTA (diluted)            3,536.1  3,271.0   882p     818p 
EPRA NRV (diluted)            3,829.7  3,601.9   955p     901p 
EPRA NDV (diluted)            3,503.6  3,180.7   874p     796p 
----------------------------  -------  -------  -----  ------- 
EPRA Net initial yield                           4.0%     3.8% 
EPRA Topped-up Net initial 
 yield                                           4.0%     3.8% 
EPRA Like-for-like gross 
 rental income                                   4.7%  (12.9%) 
EPRA Vacancy rate                                5.6%    13.0% 
EPRA Cost ratio (including 
 vacancy costs)                                 38.8%    40.0% 
EPRA Cost ratio (excluding 
 vacancy costs)                                 36.8%    36.2% 
----------------------------  -------  -------  -----  ------- 
 

EPRA like-for-like rental income (calculated based on total portfolio value of GBP8 billion)

 
                                           Properties 
                                     owned throughout  Development    Acquisitions 
GBPm                                       the period     property   and disposals  Total EPRA 
----------------------------------  -----------------  -----------  --------------  ---------- 
2021 
Rental income                                   265.3         15.5             1.9       282.7 
Property operating expenses                    (86.6)        (3.4)           (0.9)      (90.9) 
----------------------------------  -----------------  -----------  --------------  ---------- 
Net rental income                               178.7         12.1             1.0       191.8 
----------------------------------  -----------------  -----------  --------------  ---------- 
2020 
Rental income                                   253.3          2.3             7.6       263.2 
Property operating expenses                    (78.7)        (0.8)           (3.4)      (82.9) 
----------------------------------  -----------------  -----------  --------------  ---------- 
Net rental income                               174.6          1.5             4.2       180.3 
----------------------------------  -----------------  -----------  --------------  ---------- 
Like-for-like net rental income                   4.1         10.6           (3.2)        11.5 
----------------------------------  -----------------  -----------  --------------  ---------- 
Like-for-like gross rental income                4.7% 
----------------------------------  -----------------  -----------  --------------  ---------- 
 

EPRA Vacancy Rate

 
                                                 2021   2020 
                                                 GBPm   GBPm 
----------------------------------------------  -----  ----- 
Estimated rental value of vacant space           13.8   31.5 
Estimated rental value of the whole portfolio   246.5  241.8 
----------------------------------------------  -----  ----- 
EPRA Vacancy Rate                                5.6%  13.0% 
----------------------------------------------  -----  ----- 
 

EPRA Net Initial Yield

 
                                            2021      2020 
---------------------------------------  -------  -------- 
Annualised net operating income (GBPm)     205.1     197.7 
Property market value (GBPm)             4,864.8   4,893.2 
Notional acquisition costs (GBPm)          254.3     256.0 
---------------------------------------  -------  -------- 
                                         5,119.1   5,149.2 
                                            4.0% 
Net initial yield (%) *                       0%      3.8% 
Unite Net initial yield (%) **              4.9%      5.0% 
---------------------------------------  -------  -------- 
 

* No lease incentives are provided by the Group and accordingly EPRA Topped Up Net Initial Yield is also 4.0% (2020: 3.8%).

** The Unite measure of Net Initial Yield assumes full occupancy on newly developed properties.

EPRA Cost ratio

 
                                                            2021    2020 
                                                            GBPm    GBPm 
--------------------------------------------------------  ------  ------ 
Property operating expenses                                 67.7    61.9 
Overheads                                                   30.7    30.1 
Development/pre contract costs                               2.2     2.2 
Unallocated expenses *                                       0.5     3.2 
--------------------------------------------------------  ------  ------ 
                                                           101.1    97.4 
Share of JV property operating expenses                     23.2    21.0 
Share of JV overheads                                        0.8     0.8 
Share of JV unallocated expenses *                           0.4     0.4 
--------------------------------------------------------  ------  ------ 
                                                           125.5   119.6 
Less: Joint venture management fees                       (15.9)  (14.0) 
--------------------------------------------------------  ------  ------ 
Total costs (A)                                            109.6   105.6 
--------------------------------------------------------  ------  ------ 
Group vacant property costs **                             (4.1)   (7.4) 
Share of JV vacant property costs **                       (1.4)   (2.5) 
--------------------------------------------------------  ------  ------ 
Total costs excluding vacant property costs (B)            104.1    95.7 
--------------------------------------------------------  ------  ------ 
Rental income                                              209.0   196.1 
Share of JV rental income                                   73.7    67.1 
--------------------------------------------------------  ------  ------ 
Total gross rental income (C)                              282.7   263.2 
--------------------------------------------------------  ------  ------ 
Total EPRA cost ratio (including vacant property costs) 
 (A)/(C)                                                     39%     40% 
--------------------------------------------------------  ------  ------ 
Total EPRA cost ratio (excluding vacant property costs) 
 (B)/(C)                                                     37%     36% 
--------------------------------------------------------  ------  ------ 
 

* Excludes amounts in respect of the LSAV performance fee.

** Vacant property costs reflect the per bed share of operating expenses allocated to vacant beds.

Unite's EBIT margin excludes non-operational expenses which are included within the EPRA cost ratio above.

The Group capitalises costs in relation to staff costs and professional fees associated with property development activity.

EPRA Valuation movement (Unite share)

 
                                      Valuation  Change 
                                           GBPm    GBPm      % 
------------------------------------  ---------  ------  ----- 
Wholly owned                            3,323.3   109.8   3.4% 
USAF                                      632.0    28.0   4.6% 
LSAV                                      730.9    69.1  10.4% 
------------------------------------  ---------  ------  ----- 
Rental properties                       4,686.2   206.9   4.6% 
Leased properties                          97.7 
2021/22 development completions               - 
Properties under development              324.1 
------------------------------------  ---------  ------  ----- 
Properties held throughout the year     5,108.0 
Disposals to LSAV                         178.6 
------------------------------------  ---------  ------  ----- 
Total property portfolio                5,286.6 
------------------------------------  ---------  ------  ----- 
 

EPRA Yield movement

 
                                  NOI yield    Yield movement (bps) 
--------------------------------  --------- 
                                          %      H1       H2       FY 
--------------------------------  ---------  ------  -------  ------- 
Wholly owned                           5.0%     (2)      (7)      (9) 
USAF                                   5.2%     (1)     (10)     (11) 
LSAV                                   4.1%     (3)     (20)     (23) 
                                  ---------  ------  -------  ------- 
Rental properties (Unite share)        4.9%     (2)     (10)     (12) 
                                  ---------  ------  -------  ------- 
 

Property related capital expenditure

 
                                            2021                                 2020 
                                           Share of                             Share of 
                             Wholly owned       JVs  Group share  Wholly owned       JVs  Group share 
    London                            4.8       3.1          7.9           0.6       1.9          2.5 
    Prime regional                   16.7       2.9         19.6           2.7       0.8          3.5 
    Major regional                    8.1      10.8         18.9           5.3       2.2          7.5 
    R egional                         2.8       0.6          3.4           2.7       0.2          2.9 
Total rental properties              32.4      17.4         49.8          11.3       5.1         16.4 
Increase in beds (lettable 
 space)                                 -         -            -             -         -            - 
Acquisitions                            -         -            -             -         -            - 
Developments                         81.4         -         81.4          87.6         -         87.6 
Capitalised interest                  5.2         -          5.2           4.6         -          4.6 
Total property related 
 capex                              119.0      17.4        136.4         103.5       5.1        108.6 
 

Glossary

 
Adjusted earnings                   Diluted NTA/NAV                      EPRA Net Disposal Value 
 An alternative performance          Where NTA/NAV per share              (NDV) 
 measure based on EPRA               is used, "basic" measures            EPRA NDV includes all 
 earnings, adjusted to               divide the NTA/NAV by                property at market value, 
 remove the impact of the            the number of shares issued          excludes the mark to market 
 LSAV performance fee which          at the reporting date,               of financial instruments 
 was settled in the year.            whilst the diluted measure           but includes the fair 
 Given the quantum of the            also takes into account              value of fixed interest 
 performance fee in the              the effect of share options          rate debt and the carrying 
 year, it has been excluded          which have been granted              value of intangible assets. 
 from adjusted earnings              and which are expected               EPRA NDV represents the 
 to improve the comparability        to be converted into shares          shareholders' value in 
 of results year-on-year.            in the future (both for              a disposal scenario. 
                                     the additional number 
 Adjusted earnings per               of shares that will be               EPRA Net Initial Yield 
 share (EPS)                         issued and the value of              (NIY) 
 EPRA earnings per share,            additional consideration             Annualised NOI generated 
 adjusted to remove the              that will be received                by the Group's rental 
 impact of the LSAV performance      in issuing them).                    properties expressed as 
 fee which was settled                                                    a percentage of their 
 in the year. Given the              Direct let                           fair value, taking into 
 quantum of the performance          Properties where short-hold          account notional acquisition 
 fee in the year, it has             tenancy agreements are               costs. 
 been excluded from adjusted         made directly between 
 earnings to improve the             Unite and the student.               EPRA Topped Up Net Initial 
 comparability of results                                                 Yield (NIY) 
 year-on-year.                       EBITDA                               EPRA Net Initial Yield 
                                     The Group's adjusted EBIT,           adjusted to include the 
 Adjusted EBIT                       adding back depreciation             effect of the expiration 
 The Group's NOI plus management     and amortisation.                    of rent free periods (or 
 fees and less overheads.                                                 other unexpired lease 
 In the opinion of the               EPRA                                 incentives such as discounted 
 Directors, adjusted EBIT            The European Public Real             rent periods or step rents). 
 is a useful measure to              Estate 
 monitor our cost discipline         Association, who produce             EPRA Vacancy Rate 
 and performance of the              best practice recommendations        The ratio of the estimated 
 Group.                              for financial reporting.             market rental value of 
                                                                          vacant spaces against 
 Adjusted EBIT margin                EPRA earnings                        the estimated market rental 
 The Group's EBIT expressed          EPRA earnings exclude                value of the entire property 
 as a percentage of rental           movements relating to                portfolio (including vacant 
 income. In the opinion              changes in values of investment      spaces). 
 of the Directors, adjusted          properties, profits/losses 
 EBIT margin is a useful             from the disposal of properties,     EPRA Cost Ratio 
 measure to monitor our              swap/debt break costs                The ratio of property 
 cost discipline and performance     and integration costs.               operating expenses, overheads 
 of the Group.                                                            and management fees, against 
                                     EPRA earnings per share              rental income, calculated 
 Adjusted EPS yield                  The earnings per share               on an EPRA basis. 
 Adjusted EPS as a percentage        based on EPRA earnings. 
 of opening EPRA NTA (diluted).                                           ESG 
                                     EPRA like-for-like rental            Environmental, Social 
 Adjusted net debt                   growth                               and Governance. 
 Net debt per the balance            The growth in rental income 
 sheet, adjusted to remove           based on properties that             GRESB 
 IFRS 16 lease liabilities           have been in operation               GRESB is a benchmark of 
 and the unamortised fair            throughout both the current          the Environmental, Social 
 value of debt recognised            and prior year, and not              and Governance (ESG) performance 
 on the acquisition of               under development nor                of real assets. 
 Liberty Living.                     subject to disposal. 
                                                                          Gross asset value (GAV) 
 Basis points (BPS)                  EPRA Net Tangible Assets             The fair value of rental 
 A basis point is a term             (NTA)                                properties, leased properties 
 used to describe a small            EPRA NTA includes all                and development properties. 
 percentage, usually in              property at market value 
 the context of change,              but excludes the mark                The Group 
 and equates to 0.01%.               to market of financial               Wholly owned balances 
                                     instruments, deferred                plus Unite's interests 
 Diluted earnings                    tax and intangible assets.           relating to USAF and LSAV. 
 Where earnings values               EPRA NTA provides a consistent 
 per share are used "basic"          measure of NAV on a going            Group debt 
 measures divide the earnings        concern basis.                       Wholly owned borrowings 
 by the weighted average                                                  plus Unite's share of 
 number of issued shares             EPRA Net Tangible Assets             borrowings attributable 
 in issue throughout the             per share                            to USAF and LSAV. 
 period, whilst the diluted          The diluted NTA per share 
 measure also takes into             figure based on EPRA NTA.            HMO 
 account the effect of                                                    Houses in multiple occupation, 
 share options which have            EPRA Net Reinstatement               where buildings or flats 
 been granted and which              Value (NRV)                          are shared by multiple 
 are expected to be converted        EPRA NRV includes all                tenants who rent their 
 into shares in the future.          property at market value             own rooms and the property's 
                                     but excludes the mark                communal spaces on an 
                                     to market of financial               individual basis. 
                                     instruments, deferred 
                                     tax and real estate transfer 
                                     tax. EPRA NRV assumes 
                                     that entities never sell 
                                     assets and represents 
                                     the value required to 
                                     rebuild the entity. 
 
 
IFRS NAV per share                   Net debt to EBITDA                 Resident ambassadors 
 IFRS equity attributable             Net debt as a proportion           Student representatives 
 to the owners of the                 of EBITDA.                         who engage with students 
 parent company from                                                     living in the property 
 the consolidated balance             Net financing costs                to create a community 
 sheet divided by the                 (EPRA)                             and sense of belonging. 
 total number of shares               Interest payable on 
 of the Parent Company                borrowings less interest           See-through (also Unite 
 in issue at the reporting            capitalised into developments      share) 
 date                                 and finance income.                Wholly owned balances 
                                                                         plus Unite's share of 
 Interest cover ratio                 Net operating income               balances relating to 
 (ICR)                                (NOI)                              USAF and LSAV. 
 Calculated as adjusted               The Group's rental income 
 EBIT divided by the                  less property operating            See-through net debt 
 sum of net financing                 expenses.                          See-through borrowings 
 costs and IFRS 16 lease                                                 net of cash. IFRS 16 
 liability interest costs.            NOI margin                         lease liabilities are 
                                      The Group's NOI expressed          excluded from net debt 
 Lease                                as a percentage of rental          on an EPRA basis. In 
 Properties which are                 income.                            the opinion of the Directors, 
 leased to universities                                                  net debt is a useful 
 for a number of years.               Nomination agreements              measure to monitor the 
                                      Agreements at properties           overall cash position 
 Like-for-like capital                where Universities have            of the Group. 
 growth                               entered into a contract 
 Like-for-like capital                to reserve rooms for               TCFD 
 growth is the growth                 their students, usually            The Taskforce on Climate-related 
 in Gross Asset Value                 guaranteeing occupancy.            Financial Disclosures 
 on properties owned                  The Universities usually           develops voluntary, 
 throughout the current               either nominate students           consistent climate-related 
 and prior year.                      to live in the building            financial risk disclosures 
                                      and Unite enters into              for use by companies 
 Loan to value (LTV)                  short-hold tenancies               in providing information 
 Net debt as a proportion             with the students or               to investors, lenders, 
 of the value of the                  the University enters              insurers and other stakeholders. 
 rental properties, excluding         into a contract with 
 balances in respect                  Unite and makes payment            Total accounting return 
 of leased properties                 directly to Unite.                 Growth in diluted EPRA 
 under IFRS 16. Prepared                                                 NTA per share plus dividends 
 on a see-through basis.              Provincial                         paid, expressed as a 
 In the opinion of the                Properties located in              percentage of diluted 
 Directors, this measure              Bedford, Bournemouth,              EPRA NTA per share at 
 enables an appraisal                 Coventry, Loughborough,            the beginning of the 
 of the indebtedness                  Medway, Portsmouth,                period. In the opinion 
 of the business, which               Reading and Swindon.               of the Directors, this 
 closely aligns with                                                     measure enables an appraisal 
 key covenants in the                 Prime regional                     of the return generated 
 Group's agreements.                  Properties located in              by the business for 
                                      Bristol, Bath, Edinburgh,          shareholders during 
 Loan to value post IFRS              Manchester and Oxford.             the year. 
 16 
 Net debt as a proportion             Property operating expenses        Total shareholder return 
 of the value of the                  Operating costs directly           The growth in value 
 rental properties, including         related to rental properties,      of a shareholding over 
 balances in respect                  therefore excluding                a specified period, 
 of leased properties                 central overheads                  assuming dividends are 
 under IFRS 16. Prepared                                                 reinvested to purchase 
 on a see-through basis.              Rental growth                      additional shares. 
                                      Calculated as the year-on-year 
 LSAV                                 change in the average              USAF/the fund 
 The London Student Accommodation     annual price for sold              The Unite UK Student 
 Joint Venture (LSAV)                 beds. In the opinion               Accommodation Fund (USAF) 
 is a joint venture between           of the Directors, this             is Europe's largest 
 Unite and GIC, in which              measure enables a more             fund focused purely 
 both hold a 50% stake.               meaningful comparison              on income-producing 
 LSAV has a maturity                  in rental income as                student accommodation 
 date of September 2032.              it excludes the impact             investment assets. 
                                      of changes in occupancy.           The fund is an open-ended 
 Major regional                                                          infinite life vehicle 
 Properties located in                Rental income                      with unique access to 
 Aberdeen, Birmingham,                Income generated by                Unite's development 
 Cardiff, Durham, Glasgow,            the Group from rental              pipeline. Unite acts 
 Leeds, Leicester, Liverpool,         properties.                        as fund manager for 
 Newcastle, Nottingham,                                                  the fund, as well as 
 Sheffield and Southampton.           Rental properties                  owning a significant 
                                      Investment properties              minority stake. 
 Net asset value (NAV)                (owned and leased) whose 
 The total of all assets              construction has been              WAULT 
 less the value of all                completed and are used             Weighted average unexpired 
 liabilities at each                  by the Operations segment          lease term to expiry. 
 reporting date.                      to generate NOI. 
                                                                         Wholly owned 
 Net debt                             Rental properties (leased)         Balances relating to 
 Borrowings, net of cash.             / Sale and leaseback               properties that are 
 IFRS 16 lease liabilities            Properties that have               100% owned by The Unite 
 are excluded.                        been sold to a third               Group PLC or its 100% 
                                      party investor then                subsidiaries. 
 Net debt per balance                 leased back to the Group. 
 sheet                                Unite is also responsible 
 Borrowings, IFRS 16                  for the management of 
 lease liabilities and                these assets on behalf 
 the mark to market of                of the owner. 
 interest rate swaps, 
 net of cash. 
 

Company information

Unite Group

Executive Team

Richard Smith

Chief Executive Officer

Joe Lister

Chief Financial Officer

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

45 Gresham Street, London EC2V 7BF

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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February 23, 2022 02:00 ET (07:00 GMT)

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