REG - Unite Group PLC - Final Results <Origin Href="QuoteRef">UTG.L</Origin> - Part 3
22/02/2017 07:06
- Part 3: For the preceding part double click ID:nRSV4866Xb
respect of REIT property
business assets is comprised of credits of £29.2m in relation to investment
properties and £11.3m in relation to accelerated capital allowances, and a
debit of £0.7m for tax adjusted losses extinguished on conversion.
The movement in deferred tax provided is shown in more detail in note 2.5 d)
below.
In the income statement, a tax credit of £25.0 million arises on a profit
before tax of £201.3 million, the taxation charge that would arise at the
standard rate of UK corporation tax is reconciled to the actual tax charge as
follows:
2016 2015
£m £m
Profit before tax 201.4 388.4
Income tax using the UK corporation tax rate of 20% (2015: 20.25%) 40.3 78.7
Release of deferred tax balances due to REIT conversion (39.8) -
Property revaluations not subject to tax (20.4) (28.4)
Effect of indexation on investments (2.1) (3.4)
Effect of statutory tax reliefs (1.5) (2.9)
Income due to Unite Foundation (1.0) -
Effect of tax deduction transferred to equity on share schemes 0.4 1.1
Rate difference on deferred tax (1.2) (4.1)
Movement on unprovided deferred tax asset - (0.6)
Recognition of previously un-recognised deferred tax asset - (7.4)
Prior years adjustments 0.3 (0.3)
Total tax charge in income statement (25.0) 32.7
The main rate of corporation tax reduced from 21% to 20% with effect from 1
April 2015. Accordingly, the reconciliation above has been calculated at a
rate of 20% (2015: 20.25%).
Following the Group's election to become a REIT (effective 1 January 2017),
deferred tax on its REIT property business assets is no longer required.
Accordingly, the Group has recognised a credit of £39.8m in the Income
Statement reversing the provision for deferred tax liabilities and assets
recognised at 31 December 2015 relating to the revaluation of investment
property, accelerated capital allowances, and property business tax losses.
Deferred tax is an accounting adjustment intended to reflect tax that the
Group may have to pay in the future if certain events occur, and is distinct
from the Group's current tax charge (the latter being the tax actually payable
to HM Revenue & Customs for the year). Accordingly, the release of the
deferred tax provision is an accounting only adjustment, and does not result
in the Group receiving a tax credit or refund. The current tax charge for the
year ended 31 December 2016 is unaffected by the election to become a REIT.
b) Tax - other comprehensive income
Within other comprehensive income a tax charge totalling £1.6 million (2015:
£0.8 million credit) has been recognised representing deferred tax. An
analysis of this is included in the deferred tax movement in note 2.5 d).
c) Tax - statement of changes in equity
Within the statement of changes in equity a tax charge totalling £0.1 million
(2015: £0.8 million credit) has been recognised representing deferred tax. An
analysis of this is included in the deferred tax movement in note 2.5 d).
d) Tax - balance sheet
The table below outlines the deferred tax liabilities/(assets) that are
recognised in the balance sheet, together with their movements in the year:
2016
At 31 December Transfers (Credited) Charged At 31 December
2015 £m in income in equity 2016
£m £m £m £m
Investments 14.7 - 2.5 - 17.2
Investment property (REIT property business assets) 41.1 - (41.1) - -
Property, plant and machinery (0.3) - 0.2 - (0.1)
Share schemes (1.6) - 0.1 0.5 (0.9)
Interest rate swaps (1.1) - 1.1 -
Interest rate swaps relating to joint ventures (0.5) - 0.5 -
Tax value of carried forward losses recognised (22.3) - 11.0 (0.4) (11.8)
Net tax (assets)/liabilities 30.0 - (27.3) 1.7 4.4
2015
At 31 December Transfers (Credited) Charged At 31 December
2014 £m in income in equity 2015
£m £m £m £m
Investment property 17.3 - 16.7 - 34.0
Property, plant and machinery (0.6) - 0.3 - (0.3)
Investments in joint ventures 10.7 - 11.1 - 21.8
Share options (1.5) - (0.2) 0.1 (1.6)
Interest rate swaps (0.3) - 0.2 (1.0) (1.1)
Interest rate swaps relating to joint ventures (0.6) - - 0.1 (0.5)
Tax value of carried forward losses recognised (24.4) - 3.0 (0.9) (22.3)
Net tax (assets)/liabilities 0.6 - 31.1 (1.7) 30.0
A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April
2020) was substantively enacted on 26 September 2016. This will reduce the
Group's future current tax charge accordingly. The deferred tax liability at
31 December 2016 has been calculated based on the rate at which it is expected
to reverse.
Following the Group's election to become a REIT, disposals of investment
property will be exempt from tax and as a result no deferred tax liability has
been recognised in relation to these assets. The movement of £41.1m in the
year is made up of a combination of in year movement and reversal of the
remaining provision. The Group's investments in property unit trusts (being
primarily its interests in joint ventures) are not exempt from tax as a REIT.
Where the interest in joint ventures remains subject to tax, a deferred tax
liability has been recognised on the excess of the market value of these
assets over their historic tax base cost. At 31 December 2016 the deferred
tax liability in relation to these investments was £17.2m.
Section 3: Asset management
3.1 Wholly owned property assets
The Group's wholly owned property portfolio is held in two groups on the
balance sheet at the carrying values detailed below. In the Group's EPRA NAV,
all these groups are shown at market value.
i) Investment property (fixed assets)
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 under development (fixed assets)
These are assets which are currently in the course of construction and which
will be transferred to 'Investment property' on completion. The assets are
held at fair value in the balance sheet with changes in fair value taken to
the income statement.
Valuation process
The valuations of the properties are performed twice a year on the basis of
valuation reports prepared by external, independent valuers, having an
appropriate recognised professional qualification. The fair values are based
on market values as defined in the RICS Appraisal and Valuation Manual, issued
by the Royal Institution of Chartered Surveyors. CB Richard Ellis Ltd, Jones
Lang LaSalle Ltd and Messrs Knight Frank, Chartered Surveyors were the valuers
in the years ending 31 December 2016 and 2015.
The valuations are based on both:
> 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 movements in the carrying value of the Group's wholly owned property
portfolio during the year ended 31 December 2016 are shown in the table below.
While completed property is held at cost on the balance sheet, the Group
manages the assets based on their market value (fair value). These properties
are included in EPRA NAV at their fair value, valued on the same basis as for
investment property and investment property under development, by external
valuers. The fair value of the Group's wholly owned properties at the year
ended 31 December 2016 are also shown below.
2016
Investment property Investment property under development Completed property Total
£m £m £m £m
At 1 January 2016 1,024.4 149.8 - 1,174.2
Cost capitalised 7.6 101.7 - 109.3
Interest capitalised - 5.9 - 5.9
Transfer from investment property under development 36.6 (36.6) - -
Transfer from work in progress - 8.0 - 8.0
Disposals (44.0) (84.4) - (128.4)
Valuation gains 44.9 41.2 - 86.1
Valuation losses (7.9) (1.0) - (8.9)
Net valuation gains 37.0 40.2 - 77.2
Carrying value at 31 December 2016 1,061.6 184.6 - 1,246.2
Valuation gains not recognised under IFRS but included in EPRA NAV - - - -
Brought forward - - - -
- - - -
Market value at 31 December 2016 1,061.6 184.6 - 1,246.2
The movements in the carrying value of the Group's wholly owned property
portfolio during the year ended 31 December 2015 and the fair value of the
Group's wholly owned property portfolio at the year ended 31 December 2015 is
as follows:
2015
Investment Investment Completed Total
property property under property £m
£m development £m
£m
At 1 January 2015 850.5 49.2 70.1 969.8
Cost capitalised 8.6 97.4 - 106.0
Interest capitalised - 2.7 - 2.7
Transfer from investment property under development 41.2 (41.2) - -
Transfer from work in progress - 1.0 - 1.0
Disposals - - (70.1) (70.1)
Valuation gains 126.4 41.0 - 167.4
Valuation losses (2.3) (0.3) - (2.6)
Net valuation gains 124.1 40.7 - 164.8
Carrying value at 31 December 2015 1,024.4 149.8 - 1,174.2
Valuation gains not recognised under IFRS but included in EPRA NAV
Brought forward - - 31.2 31.2
Disposals - - (31.2) (31.2)
- - - -
Market value at 31 December 2015 1,024.4 149.8 - 1,174.2
Included within investment properties at 31 December 2016 are £31.5 million
(2015: £41.6 million) of assets held under a long leasehold and £8.9 million
(2015: £10.5 million) of assets held under short leasehold.
Total interest capitalised in investment and development properties at 31
December 2016 was £34.9 million (2015: £35.4 million)
on a cumulative basis. Total internal costs relating to construction and
development costs of Group properties amount to £51.1 million at 31 December
2016 (2015: £49.6 million) on a cumulative basis.
Recurring fair value measurement
All investment and development properties are classified as Level 3 in the
fair value hierarchy. While completed property and property under development
are held at cost in the balance sheet, the Group discloses the fair value of
these assets and includes them at fair value in EPRA NAV. Completed property
and property under development fair value measurements are categorised as
Level 3 in the fair value hierarchy and their fair value is measured using the
same techniques as for investment properties and investment properties under
development.
Class of asset 2016 2015
£m £m
London - Rental properties 424.9 409.4
Major provincial - Rental properties 440.2 431.1
Other provincial - Rental properties 196.5 183.9
Major provincial - Development properties 158.4 94.2
Other provincial - Development properties 26.2 55.6
Market value 1,246.2 1,174.2
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 credit worthiness.
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)
2016 2015
£m £m
Opening fair value 1,174.2 1,001.0
Gains and losses recognised in income statement 77.2 164.8
Gains and losses not recognised on properties under development - -
Acquisitions - -
Capital expenditure 124.1 109.7
Disposals (129.3) (101.3)
Closing fair value 1,246.2 1,174.2
Quantitative information about fair value measurements using unobservable
inputs (Level 3)
2016
Fair value£m Valuation technique Unobservable inputs Range Weighted average
London Discounted Net rental income (£ per week) £179 - £327 £249
cash flows
- rental properties 424.9 Estimated future rent (%) 1% - 6% 4%
Discount rate (yield) (%) 4.5% - 5.2% 4.7%
Major provincial Discounted Net rental income (£ per week) £105 - £162 £129
cash flows
- rental properties 440.2 Estimated future rent (%) 1% - 7% 4%
Discount rate (yield) (%) 5.2% - 7.0% 5.7%
Other provincial Discounted Net rental income (£ per week) £95 - £153 £126
cash flows
- rental properties 196.5 Estimated future rent (%) 2% - 8% 3%
Discount rate (yield) (%) 5.5% - 12.0% 6.2%
Major provincial Discounted Estimated cost to complete (£m) £10.5m - £59.5m £36.1m
cash flows
- development properties 158.4 Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 4.8% - 5.9% 5.6%
Other provincial Discounted Estimated cost to complete (£m) £12.3m - £26.5m £20.1m
cash flows
- development properties 26.2 Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.7% - 5.8% 5.7%
Fair value at 31 December 2016 1,246.2
2015
Fair value£m Valuation technique Unobservable inputs Range Weighted average
London Discounted Net rental income (£ per week) £190 - £326 £244
cash flows
- rental properties 409.4 Estimated future rent (%) 2% - 4% 3%
Discount rate (yield) (%) 4.6% - 5.2% 4.8%
Major provincial Discounted Net rental income (£ per week) £95 - £146 £120
cash flows
- rental properties 431.1 Estimated future rent (%) 1% - 6% 4%
Discount rate (yield) (%) 5.2% - 7.0% 5.8%
Other provincial Discounted Net rental income (£ per week) £77 - £135 £117
cash flows
- rental properties 183.9 Estimated future rent (%) 2% - 6% 4%
Discount rate (yield) (%) 5.8% - 9.4% 6.3%
Major provincial Discounted Estimated cost to complete (£m) £9.4m - 47.6m £31.6m
cash flows
- development properties 94.2 Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.2% - 5.8% 5.6%
Other provincial Discounted Estimated cost to complete (£m) £8.9m - £10.5m £10.1m
cash flows
- development properties 55.6 Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.8% - 5.9% 5.9%
Fair value at 31 December 2015 1,174.2
A decrease in net rental income, estimated future rents or occupancy will
result in a decrease in the fair value, whereas a decrease in the discount
rate (yield) or the estimated costs to complete will result in an increase in
fair value. There are interrelationships between these rates as they are
partially determined by market rate conditions.
3.2 Inventories
2016 2015
£m £m
Interests in land 0.8 0.9
Other stocks 2.1 2.7
Inventories 2.9 3.6
At both 31 December 2016 and 31 December 2015 the Group only has interests in
one piece of land.
3.3 Investments in joint ventures (Group)
The Group has two joint ventures:
Joint venture Group's share Objective Partner Legal entity in which
of assets/results 2016 (2015) Group has interest
The UNITE UK Student Accommodation Fund (USAF) 24.6%* (23.0%) Invest and operate Consortium of investors UNITE UK Student Accommodation Fund,
student accommodation throughout the UK a Jersey Unit Trust
London Student Accommodation Venture (LSAV) 50% (50%) Develop and operate student accommodation in London GIC Real Estate Pte, LtdReal estate LSAV Unit Trust, a Jersey Unit Trust and LSAV (Holdings) Ltd, incorporated in Jersey
investment vehicle
of the Government
of Singapore
* Part of the Group's interest is held through a
subsidiary, USAF (Feeder) Guernsey Ltd, in which there is an external
investor. A minority interest therefore occurs on consolidation of the Group's
results representing the external investor's share of profits and assets
relating to its investment in USAF. The ordinary shareholders of The Unite
Group plc are beneficially interested in 23.0% (2015: 21.4%) of USAF.
a) Net assets and results of the joint ventures
The summarised balance sheets and results for the year, and the Group's share
of these joint ventures are as follows:
2016
USAF LSAV Total
£m £m £m
Gross Share Gross Share Gross Share
Investment property 2,287.9 562.1 1,009 504.5 3,296.9 1,066.6
Cash 41.8 10.3 27.0 13.5 68.8 23.8
Debt (755.5) (185.6) (381.4) (190.7) (1,136.9) (376.3)
Swap liabilities 0.7 0.2 (7.1) (3.5) (6.4) (3.3)
Other current assets 3.5 0.8 0.8 0.4 4.3 1.2
Other current liabilities (55.3) (11.7) (14.8) (7.4) (70.1) (19.1)
Net assets 1,523.1 376.1 633.5 316.8 2,156.6 692.9
Profit/(loss) for the year 164.7 46.3 97.0 48.5 261.7 94.8
EPRA net assets 1,567.1 352.1 640.6 320.3 2,207.7 672.4
2015
USAF LSAV Total
£m £m £m
Gross Share Gross Share Gross Share
Investment property 2,074.2 477.4 894.4 447.2 2,968.6 924.6
Cash 36.6 8.4 28.4 14.2 65.0 22.6
Debt (638.3) (146.9) (336.0) (168.0) (974.3) (314.9)
Swap liabilities - - (3.9) (2.0) (3.9) (2.0)
Other current assets 1.9 0.5 1.0 0.5 2.9 1.0
Other current liabilities (66.2) (11.6) (18.2) (9.1) (84.4) (20.7)
Net assets 1,408.2 327.8 565.7 282.8 1,973.9 610.6
Profit/(loss) for the year 234.3 63.7 236.1 118.1 470.4 181.8
EPRA net assets 1,408.2 305.3 569.6 284.8 1,977.8 590.1
Net assets and profit for the year above include the minority interest,
whereas EPRA net assets exclude the minority interest.
b) Movement in carrying value of the Group's investments in joint ventures
The carrying value of the Group's investment in joint ventures has increased
by £82.3 million during the year ended 31 December 2016 (2015: £226.8
million), resulting in an overall carrying value of £692.9 million (2015:
£610.6 million). The following table shows how the increase has been
achieved.
2016 2015
£m £m
Recognised in the income statement:
Operations segment result 29.4 23.6
Minority interest share of Operations segment result 1.2 1.2
Management fee adjustment related to trading with joint venture 5.4 4.1
Net revaluation gains 58.8 152.7
Debt exit costs - -
Loss on cancellation of interest rate swaps - (0.3)
Loss on disposal of properties - 0.3
Other - 0.2
94.8 181.8
Recognised in equity:
Movement in effective hedges (1.4) 0.6
Other adjustments to the carrying value:
Profit adjustment related to trading with joint venture (6.3) (11.9)
Increase in loan to USAF - 30.5
Additional capital invested in USAF - 29.1
Performance fee units issued in USAF 25.6 -
Additional capital invested in LSAV - 23.3
USAF performance fee (1.2) (3.7)
Distributions received (29.2) (22.9)
Increase/(decrease) in carrying value 82.3 226.8
Carrying value at 1 January 610.6 383.8
Carrying value at 31 December 692.9 610.6
In addition to its equity shares, the Group has also provided interest free
investment loans to some of the joint ventures. These were primarily provided
on the setting up of the joint venture to provide capital to acquire
investment properties. As a result of being provided interest free, the loans
were discounted on recognition to reflect the fair value, the unwinding of the
discount is reflected in the Group's finance income.
c) Transactions with joint ventures
The Group acts as asset and property manager for the joint ventures and
receives management fees in relation to these services.
In addition, the Group is entitled to performance fees from USAF and LSAV if
the joint ventures outperform certain benchmarks. The Group receives an
enhanced equity interest in the joint ventures as consideration for the
performance fee. The Group has recognised the following fees in its results
for the year.
2016 2015
£m £m
USAF 12.8 8.5
LSAV 8.0 4.7
Asset and property management fees* 20.8 13.2
LSAV 1.0 1.4
Development management fees 1.0 1.4
USAF performance fee 8.1 25.6
USAF acquisition fee 0.5 2.1
Investment management fees** 8.6 27.7
Total fees 30.3 42.3
* 2016 Asset and property management fees are shown gross. 2015
Asset and property management fees are shown as reported, net of trading with
joint ventures. The equivalent gross figures in 2015 were £10.7m for USAF and
£6.6m for LSAV.
** Included in the movement in EPRA NAV is a USAF
performance fee of £6.5 million (2015: £20.2 million). This is the gross fee
of £8.1 million (2015: £25.6 million) paid by USAF net of advisory fee costs
of £0.5 million (2015: £2.2 million) and a £1.1 million (2015: £3.2 million)
adjustment related to trading with joint ventures. The USAF performance fee
will be settled in units in The UNITE UK Student Accommodation Fund rather
than cash.
Included in share of joint venture profit in the income statement is a share
of joint venture property management fee costs of £1.6 million (2015: £1.4
million). On an EPRA basis these costs are deducted from the property
management fees shown above, plus an adjustment for the minority interest of
£0.4 million (2015: £0.2 million). This results in the net fees included in
the Operating Segment result (note 2.2a) of £14.0 million (2015: £12.0
million). Development management fees are included in the Property Segment
result (note 2.2a). Investment management fees are included within the
unallocated to segments (note 2.2a).
Included in the movement in EPRA NAV is a USAF property acquisition fee of
£0.4 million (2015: £1.7 million). This is the gross fee of £0.5 million
(2015: £2.1 million) paid by USAF net of a £0.1 million (2015: £0.4 million)
adjustment related to trading with joint ventures.
During the year the Group has paid operating lease rentals to USAF relating to
two properties under a sale and leaseback agreement amounting to £2.2 million
(2015: £2.7 million).
During the year the Group sold two properties to USAF for £88.4 million. Both
properties were held on the balance sheet as investment property under
development 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. One property was sold to LSAV in 2015. The
profits relating to sales and associated disposal costs and related cash flows
are set out below:
Profit and loss Profit and loss2015
2016
LSAV LSAV
£m £m
Included in property sales and other income (net of joint venture trading adjustment) - 77.2
Included in cost of sales - (70.1)
Profit on disposal of property - 7.1
Profit and loss Profit and loss2015
2016
USAF USAF
£m £m
Included in profit on disposal of property (net of joint venture trading adjustment) 3.2 -
Profit on disposal of property 3.2 -
Cash flow Cash flow
2016 2015
LSAV LSAV
£m £m
Proceeds - 84.3
Net cash flows included in cash flows from operating activities - 84.3
Cash flow Cash flow
2016 2015
USAF USAF
£m £m
Gross proceeds 88.4 -
Net cash flows included in cash flows from investing activities 88.4 -
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 Company
2016 2015 2016 2015
Carrying value Fair value Carrying value£m Fair value Carrying value Carrying value
£m £m £m £m £m
Current
In one year or less, or on demand 1.3 1.2 31.3 31.2 0.1 1.4
Non-current
In more than one year but not more than two years 108.1 132.2 1.5 1.4 85.3 -
In more than two years but not more than five years 126.3 125.8 202.2 240.4 90.0 83.0
In more than five years 239.1 223.0 240.1 225.5 - 90.0
473.5 481.0 443.8 467.3 175.3 173.0
Total borrowings 474.8 482.2 475.1 498.5 175.4 174.4
In addition to the borrowings currently drawn as shown above, the Group has
available undrawn facilities of £245.0 million (2015: £174.0 million). A
further overdraft facility of £10.0 million (2015: £10.0 million) is also
available.
The carrying value of borrowings is considered to be approximate to fair
value, except for the Group's fixed rate loans carried at £330.3 million
(2015: £331.4 million) and the convertible bond carried at £86.2 million
(2015: £84.3 million). The convertible bond and £90.0 million (2015: £90.0
million) of the fixed rate loans are classified as Level 1 in the IFRS 13 fair
value hierarchy and have a fair value of £212.5 million (2015: £218.4
million). The IFRS 13 Level categorisation relates to the extent the fair
value can be determined by reference to comparable market values. The
classifications range from Level 1 where instruments are quoted on an active
market through to Level 3 where the assumptions used to arrive at fair value
do not have comparable market data.
The remaining £240.3 million (2015: £241.4 million) of the fixed rate loans
are classified as Level 2 in the IFRS 13 fair value hierarchy. The fair value
of these fixed rate loans has been calculated by a third party expert
discounting estimated future cash flows on the basis of market expectations of
future interest rates. The fair value of these loans is £215.1 million (2015:
£226.4 million).
Properties with a carrying value of £998.0 million (2015: £993.6 million) have
been pledged as security against the Group's drawn down borrowings.
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:
2016 2015
£m £m
Current - -
Non-current 11.6 2.3
Fair value of interest rate swaps 11.6 2.3
The fair values of interest rate swaps have been calculated by a third party
expert, discounting estimated future cash flows on the basis of market
expectations of future interest rates, representing Level 2 in the IFRS 13
fair value hierarchy.
4.3 Net financing costs
Recognised in the income statement: 2016 2015
£m £m
Finance income
- Interest income on deposit (0.1) (0.2)
Finance income (0.1) (0.2)
Gross interest expense on loans 26.8 25.3
Interest capitalised (5.9) (2.7)
Loan interest and similar charges 20.9 22.6
Changes in mark to market of interest rate swaps not accounted for as hedges - 0.6
Swap cancellation costs 1.0 -
Finance costs 21.9 23.2
Net financing costs 21.8 23.0
The average cost of the Group's wholly owned investment debt at 31 December
2016 is 4.4% (2015: 4.7%). The overall average cost of investment debt on an
EPRA basis is 4.2% (2015: 4.5%).
4.4 Gearing
The Group's adjusted gearing ratio is a key indicator that the Group uses to
manage its indebtedness. EPRA net asset value (NAV) and adjusted net debt are
used to calculate adjusted gearing. Adjusted net debt excludes mark to market
of interest rate swaps as shown below.
The Group's gearing ratios are calculated as follows:
Note 2016 2015
£m £m
Cash and cash equivalents 5.1 42.7 27.0
Current borrowings 4.1 (1.3) (31.3)
Non-current borrowings 4.1 (473.5) (443.8)
Interest rate swaps liabilities 4.2 (11.6) (2.3)
Net debt per balance sheet (443.7) (450.4)
Mark to market of interest rate swaps 11.6 2.3
Adjusted net debt (432.1) (448.1)
Reported net asset value (attributable to owners of the parent company) 2.3c 1,451.6 1,275.1
EPRA net asset value 2.3c 1,557.3 1,394.4
Gearing
Basic (Net debt/Reported net asset value) 31% 35%
Adjusted gearing (Adjusted net debt/EPRA net asset value) 28% 32%
Gearing (EPRA net debt/EPRA net asset value) 2.3a 50% 52%
Loan to value (EPRA net debt/Total property portfolio) 2.3a 34% 35%
4.5 Covenant compliance
Many of the Group's funding facilities carry covenants. The Group monitors its
covenant position and the headroom available on an ongoing basis. At 31
December 2016, the Group was in full compliance with all of its borrowing
covenants. The Group is able to use available cash to reduce debt to increase
headroom on its loan to value (LTV) covenants. The covenant headroom position
is outlined below and assumes that the Group is able to use a mixture of
available cash and add additional property to banks' security pools.
31 December 2016 31 December 2015
Weighted covenant Weighted Weighted covenant Weighted
actual actual
Loan to value 74% 15%* 74% 29%*
Interest cover 1.5 4.04 1.47 4.47
Minimum net worth - - £250m £1,394
* Calculated on the basis that available cash is used to
reduce debt and available property can be used as additional security.
4.6 Equity
The Company's issued share capital has increased during the year as follows:
2016 2015
Called up, allotted and fully paid ordinary shares of £0.25p each No. of shares Ordinary shares£m Share Premium£m No. of shares Ordinary shares£m Share Premium£m
At start of year 221,930,911 55.5 493.3 201,541,803 50.4 385.8
Share placing - - - 20,137,326 5.0 107.3
Share options exercised 116,905 - 0.3 251,782 0.1 0.2
At end of year 222,047,816 55.5 493.6 221,930,911 55.5 493.3
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 declared and paid an interim dividend of £13.2
million - 6.0p per share (2015: £12.1 million - 5.5p per share) and paid a
£21.0 million final dividend - 9.5p per share relating to the year ended 31
December 2015 (2014: £19.8 million - 9.0p per share).
After the year end, the Directors proposed a final dividend per share of 12.0p
(2015: 9.5p), bringing the total dividend per share for the year to 18.0p
(2015: 15.0p). No provision has been made in relation to this dividend.
Section 5: Working capital
5.1 Cash and cash equivalents
The Group's cash position at 31 December 2016 was £42.7 million (2015: £27.0
million).
At 31 December 2016 the Company had an overdraft of £0.1 million (2015:
overdraft £1.4 million).
The Group's cash balances include £13.4 million (2015: £8.5 million) whose use
at the balance sheet date is restricted by funding agreements to pay operating
costs and loan interest relating to specific properties.
The Group generates cash from its operating activities as follows:
Group
Note 2016 2015
£m £m
Profit/(loss) for the year 226.4 355.7
Adjustments for:
Depreciation and amortisation 4.4 2.6
Fair value of share based payments 1.2 2.9
Dividends received - -
Change in value of investment property 3.1 (77.2) (164.8)
Net finance costs 4.3 21.8 23.0
(Profit)/loss on disposal of investment property (0.4) 0.6
Share of joint venture profit 3.3b (94.8) (181.8)
Trading with joint venture adjustment 7.5 15.5
Tax charge/(credit) 2.5a (25.0) 32.7
Cash flows from operating activities before 63.9 86.4
changes in working capital
(Increase)/decrease in trade and other receivables (20.4) (39.6)
Decrease/(increase) in completed property and property under development - 70.1
Decrease/(increase) in inventories 0.7 0.3
Increase/(decrease) in trade and other payables 26.1 3.6
Cash flows from operating activities 70.3 120.8
£25.6 million of the brought forward trade and other receivables was settled
in units in the USAF rather than cash.
Cash flows consist of the following segmental cash inflows/(outflows):
Operations £61.3 million (2015: £40.8 million), property
(£6.0 million) (2015: (£48.3 million)) and unallocated (£39.6 million) (2015:
£6.9 million). The unallocated amount includes Group dividends (£34.2 million)
(2015: (£31.9 million)), tax payable of (£2.2 million) (2015: (£0.3 million)),
investment in joint ventures (£nil) (2015: (£52.4 million)), contributions to
UNITE Foundation (£1.0 million) (2015: (£1.0 million)) and amounts received
from shares issued £0.3 million (2015: £112.6 million).
5.2 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. It arises principally from the Group's cash balances, the Group's
receivables from customers and joint ventures and loans provided to the
Group's joint ventures.
At the year end, the Group's exposure to credit risk was as follows:
Note 2016 2015
£m £m
Cash 5.1 42.7 27.0
Trade receivables 5.2 17.8 2.3
Amounts due from joint ventures (excluding loans that are capital in nature) 5.2 36.3 41.7
96.8 71.0
a) Cash
The Group operates investment guidelines with respect to surplus cash.
Counterparty limits for cash deposits are largely based upon long-term ratings
published by credit rating agencies and credit default swap rates.
b) Trade receivables
The Group's customers can be split into two groups - (i) students
(individuals) and (ii) commercial organisations including Universities. The
Group's exposure to credit risk is influenced by the characteristics of each
customer. The Group holds tenant deposits of £8.5 million (2015: £7.8 million)
as collateral against individual customers. Based on the Group's experience
and historical low level of bad debt the Group views these receivables as
recoverable balances with a low risk of default.
c) Joint ventures
Amounts receivable from joint ventures fall into two categories - working
capital balances and investment loans. The Group has strong working
relationships with its joint venture partners therefore view this as a low
credit risk balance.
This information is provided by RNS
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