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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Unite Group Plc | LSE:UTG | London | Ordinary Share | GB0006928617 | ORD 25P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
5.00 | 0.52% | 958.50 | 959.00 | 960.00 | 977.50 | 952.00 | 964.00 | 580,593 | 16:35:11 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Real Estate Agents & Mgrs | 276.1M | 102.5M | 0.2546 | 37.69 | 3.86B |
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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