REG - Unite Group PLC - Interim Results <Origin Href="QuoteRef">UTG.L</Origin> - Part 3
26/07/2017 07:06
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segments includes the fair value of share based payments of (£1.2 million), UNITE Foundation of (£1.0 million), fees received from USAF relating to acquisitions of £0.4 million, net USAF performance fee of £6.5 million, deferred tax of (£0.3 million) and current tax charges of
(£2.0 million).
* Operating lease rentals arise from properties which the Group has sold
and is now leasing back. These properties were sold to generate financing and
they now contribute to the Group's rental income and incur property operating
expenses. Therefore the Group consider these lease costs to be a form of
financing.
b) IFRS reconciliation to EPRA earnings
EPRA earnings excludes movements relating to changes in values of investment
properties and interest rate swaps, profits from the disposal of properties
and property impairments, which are included in the profit reported under
IFRS. EPRA earnings reconcile to the profit attributable to owners of the
parent company as follows:
Note Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
EPRA earnings 2.2a 40.4 36.1 62.7
Net valuation gains on investment property 28.3 48.7 77.2
Property disposals and write downs 0.5 (0.3) 0.3
Share of joint venture gains on investment property 3.3a 11.7 35.8 58.8
Share of joint venture property disposals and write downs 1.7 - -
Swap cancellation costs - - (1.0)
Share of joint venture swap cancellation costs (0.3) - -
Deferred tax relating to properties and investments in joint ventures 0.3 (12.6) 27.6
Minority interest share of reconciling items* (0.2) (1.0) (1.6)
Profit attributable to owners of the parent company 82.4 106.7 224.0
* The minority interest share, or non-controlling interest, arises as a
result of the Group not owning 100% of the share capital of one of its
subsidiaries, USAF (Feeder) Guernsey Ltd. More detail is provided in note
3.3.
c) Earnings per share
The Basic EPS calculation is based on the earnings attributable to the equity
shareholders of UNITE Group plc and the weighted average number of shares
which have been in issue during the period. Basic EPS is adjusted in line with
EPRA guidelines in order to allow users to compare the business performance of
the Group with other listed real estate companies in a consistent manner and
to reflect how the business is managed and measured on a day to day basis.
EPRA EPS and Adjusted EPRA EPS (pre yield related USAF performance fee) are
calculated using EPRA earnings.
The calculations of basic, diluted and EPRA EPS for the 6 months ended 30 June
2017 are as follows:
Note Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016£m 2016£m
£m
Earnings
Basic 82.4 106.7 224.0
Diluted 83.9 108.3 227.7
EPRA 2.2a 40.4 36.1 62.7
Adjusted EPRA 2.2a 40.4 36.1 61.3
Weighted average number of shares (thousands)
Basic 224,416 220,941 221,013
Dilutive potential ordinary shares (share options and convertible bond) 5,563 18,849 19,315
Diluted 229,979 239,790 240,328
Earnings per share (pence)
Basic 36.7p 48.3p 101.3
Diluted 36.5p 45.2p 94.7
EPRA EPS 18.0p 16.3p 28.4
Adjusted EPRA EPS 18.0p 16.3p 27.7
2.3 Net Assets
Net Asset Value reported under IFRS includes deferred tax in relation to
investments in joint ventures and the fair value of financial derivatives.
The Group's NAV is also presented on the basis recommended for real estate
companies by the EPRA. EPRA NAV excludes these elements of deferred tax and
the fair value of financial derivatives. The reconciliation between IFRS NAV
and EPRA NAV is available in note 2.3 (c).
The Group's Property business undertakes the acquisition and development of
properties. The Property segment's revenue comprises revenue from development
management fees earned from joint ventures. The way in which the Property
segment adds value to the business is set out in the Property review on pages
34 - 39 of the 2016 Annual Report.
a) EPRA net assets
Unaudited 30 June 2017
Wholly owned Share of JV's Total
£m £m £m
Investment properties 1,051.1 1,015.1 2,066.2
Investment properties under development 263.4 13.8 277.2
Total property portfolio 1,314.5 1,028.9 2,343.4
Debt on properties (460.4) (411.0) (871.4)
Cash 35.3 140.4 175.7
Net debt (425.1) (270.6) (695.7)
Other liabilities (16.7) (14.7) (31.4)
EPRA net assets (pre convertible) 872.7 743.6 1,616.3
Convertible bond * - - -
EPRA net assets 872.7 743.6 1,616.3
Loan to value 32% 26% 30%
* During the period Unite redeemed the full principal value of £89.9 of the
convertible bond in exchange for 18,593,589 shares.
Unaudited 30 June 2016
Wholly owned Share of JV's Total
£m £m £m
Investment properties 1,062.3 869.1 1,931.4
Investment properties under development 221.6 109.6 331.2
Total property portfolio 1,283.9 978.7 2,262.6
Debt on properties (545.3) (341.2) (886.5)
Cash 31.0 28.6 59.6
Net debt (514.3) (312.6) (826.9)
Other liabilities (15.7) (12.7) (28.4)
EPRA net assets (pre convertible) 753.9 653.4 1,407.3
Convertible bond * 84.2 - 84.2
EPRA net assets 838.1 653.4 1,491.5
Loan to value 40% 32% 37%
* Under the terms of the Convertible Bond, early conversion of the debt into
equity could have been triggered if the share price trades over 1.3 times the
conversion price for a period of time.
31 December 2016
Wholly owned Share of JV's Total
£m £m £m
Investment properties 1,061.6 1,023.2 2,084.8
Investment properties under development 184.6 7.2 191.8
Total property portfolio 1,246.2 1,030.4 2,276.6
Debt on properties (474.8) (366.8) (841.6)
Cash 42.7 23.1 65.8
Net debt (432.1) (343.7) (775.8)
Other liabilities (14.6) (14.3) (28.9)
EPRA net assets (pre convertible) 799.5 672.4 1,471.9
Convertible bond* 85.4 - 85.4
EPRA net assets 884.9 672.4 1,557.3
Loan to value 35% 33% 34%
* Under the terms of the Convertible Bond, early conversion of the debt into
equity could have been triggered if the share price trades over 1.3 times the
conversion price for a period of time.
b) Movement in EPRA NAV during the period
Contributions to EPRA NAV by each segment during the period are as follows:
Unaudited 30 June 2017
UNITE Share of joint ventures Group on see through basis
Total USAF LSAV Total Total
£m £m £m £m £m
Operations
Operations segment result 23.2 11.1 8.1 19.2 42.4
Property
Rental growth 18.6 4.6 4.1 8.7 27.3
Yield movement (1.9) 0.9 1.0 1.9 -
Disposals and acquisition costs 0.5 (1.0) 2.8 1.8 2.3
Investment property gains 17.2 4.5 7.9 12.4 29.6
Development property gains 11.6 0.2 - 0.2 11.8
Pre-contract and other development costs (0.5) - - - (0.5)
Total property 28.3 4.7 7.9 12.6 40.9
Unallocated
Shares issued 87.4 - - - 87.4
Investment in joint ventures (39.9) (2.3) 42.2 39.9 --
Convertible bond (85.5) - - - (85.5)
Dividends paid (23.2) - - - (23.2)
JV acquisition fee 0.8 - - - 0.8
Swap losses & debt exit fees - - (0.3) (0.3) (0.3)
Other (3.3) (0.1) (0.1) (0.2) (3.5)
Total unallocated (63.7) (2.4) 41.8 39.4 (24.3)
Total EPRA NAV movement in the period (12.2) 13.4 57.8 71.2 59.0
Total EPRA NAV brought forward 884.9 352.1 320.3 672.4 1,557.3
Total EPRA NAV carried forward 872.7 365.5 378.1 743.6 1,616.3
The £3.5 million charge that comprises the other balance within the
unallocated segment includes a tax charge of £0.9 million, a contribution of
£0.6 million to the UNITE Foundation, fair value of share options charge of
£0.7 million and own shares acquired of £1.3 million.
Unaudited 30 June 2016
UNITE Share of joint ventures Group on see through basis
Total USAF LSAV Total Total
£m £m £m £m £m
Operations
Operations segment result 21.7 10.6 6.6 17.2 38.9
Property
Rental growth 22.3 3.8 5.7 9.5 31.8
Yield movement 15.2 11.6 3.7 15.3 30.5
Disposals and acquisition costs (0.3) - - - (0.3)
Investment property gains 37.2 15.4 9.4 24.8 62.0
Development property gains 11.2 (0.7) 10.8 10.1 21.3
Pre-contract and other development costs (0.6) - - - (0.6)
Total property 47.8 14.7 20.2 34.9 82.7
Unallocated
Shares issued 0.2 - - - 0.2
Investment in joint ventures (11.2) 16.5 (5.3) 11.2 -
Dividends paid 1.1 - - - 1.1
Swap losses and debt exit costs (21.0) - - - (21.0)
Other (4.8) - - - (4.8)
Total unallocated (35.7) 16.5 (5.3) 11.2 (24.5)
Total EPRA NAV movement in the period 33.8 41.8 21.5 63.3 97.1
Total EPRA NAV brought forward 804.3 305.3 284.8 590.1 1,394.4
Total EPRA NAV carried forward 838.1 347.1 306.3 653.4 1,491.5
The £4.8 million charge that comprises the other balance within the
unallocated segment includes a tax charge of £1.7 million, a contribution of
£0.7 million to the UNITE Foundation, fair value of share options charge of
£0.2 million and own shares acquired of £2.2 million.
31 December 2016
UNITE Share of joint ventures Group on see through basis
Total USAF LSAV Total Total
£m £m £m £m £m
Operations
Operations segment result 31.9 17.3 12.1 29.4 61.3
Property
Rental growth 35.8 14.8 12.0 26.8 62.6
Yield movement 4.9 7.2 7.5 14.7 19.6
Disposals and acquisition costs 1.0 - - - 1.0
Investment property gains 41.7 22.0 19.5 41.5 83.2
Development property gains 36.5 0.4 14.5 14.9 51.4
Pre-contract and other development costs (1.0) - - - (1.0)
Total property 77.2 22.4 34.0 56.4 133.6
Unallocated
Shares issued 0.3 - - - 0.3
Investment in joint ventures 3.5 7.1 (10.6) (3.5) -
Convertible bond 2.3 - - - 2.3
Dividends paid (34.2) - - - (34.2)
USAF performance fee 6.5 - - - 6.5
USAF property acquisition fee 0.4 - - - 0.4
Swap losses and debt exit costs (1.0) - - - (1.0)
Other (6.3) - - - (6.3)
Total unallocated (28.5) 7.1 (10.6) (3.5) (32.0)
Total EPRA NAV movement in the period 80.6 46.8 35.5 82.3 162.9
Total EPRA NAV brought forward 804.3 305.3 284.8 590.1 1,394.4
Total EPRA NAV carried forward 884.9 352.1 320.3 672.4 1,557.3
The £6.3 million charge that comprises the other balance within the
unallocated segment includes a tax charge of £2.3 million, a contribution of
£1.0 million to the UNITE Foundation and a fair value of share options charge
of £3.0 million.
c) Reconciliation to IFRS
To determine EPRA NAV, net assets reported under IFRS are amended to exclude
mark to market valuation of swaps, deferred tax liabilities and to recognise
all properties at market value.
The Group also manages NAV using EPRA NNNAV, which adjusts EPRA NAV to include
the fair value of swaps and debt. Under EPRA best practice guidelines this is
considered to give stakeholders the most relevant information on the current
fair value of all the assets and liabilities in the Group.
The Net Assets reported under IFRS reconcile to EPRA NAV and EPRA NNNAV as
follows:
Note Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
Net asset value reported under IFRS 1,598.5 1,344.2 1,451.6
Mark to market interest rate swaps 12.7 21.7 14.9
Deferred tax * 5.1 41.4 5.4
EPRA NAV (pre convertible) 1,616.3 1,407.3 1,471.9
Convertible bond - 84.2 85.4
EPRA NAV 2.3a 1,616.3 1,491.5 1,557.3
Mark to market of fixed rate debt 16.9 (9.7) (19.7)
Mark to market interest rate swaps (12.7) (21.7) (14.9)
Deferred tax (5.1) (41.4) (5.4)
EPRA NNNAV 1,615.4 1,418.7 1,517.3
* With effect from 1 January 2017, the Group converted to REIT status and
is exempt from tax on its property business. The deferred tax liability
relating to unrealised gains on joint venture investments of £17.0 million,
which are not exempt from tax, exceeds the deferred tax asset relating to tax
adjusted losses carried forward of £11.9 million. As the losses can be set
against gains as they arise, the deferred tax asset relating to the losses can
be recognised in full against deferred tax liabilities, giving the £5.1m net
liability shown above.
d) NAV per share
Basic NAV is based on the net assets attributable to the equity shareholders
of Unite Group plc and the number of shares in issue at the end of the period.
The Board uses EPRA NAV and EPRA NNNAV to monitor the performance of the
Property segment on a day to day basis.
Note Unaudited Unaudited 31 December
30 June 2017 30 June 2016£m 2016£m
£m
Net assets
Basic 2.3c 1,598.5 1,344.2 1,451.6
EPRA 2.3a 1,616.3 1,491.5 1,557.3
EPRA diluted 1,618.8 1,493.7 1,559.9
EPRA NNNAV (diluted) 1,617.9 1,420.9 1,520.0
Number of shares (thousands)
Basic 241,187 222,327 222,268
Convertible bond - 18,124 18,426
Outstanding share options 951 654 762
Diluted 242,138 241,105 241,456
Net asset value per share (pence)
Basic 663p 605p 653p
EPRA 670p 620p 647p
EPRA (fully diluted) 669p 620p 646p
EPRA NNNAV (fully diluted) 668p 589p 630p
2.4. Revenue and costs
Revenue included in the consolidated income statement is allocated to the
Group's segments as follows:
Note Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
Rental income Operations segment 2.2a 53.5 54.5 97.1
Management fees Operations segment 8.5 7.8 15.6
Development fees Property segment - 0.7 1.0
LSAV acquisition fee Unallocated 0.5 - -
USAF acquisition fee Unallocated 0.3 0.4 0.4
USAF performance fee Unallocated - - 7.0
62.8 63.4 121.1
Impact of minority interest on management fees (0.1) (0.1) (0.4)
Total revenue 62.7 63.3 120.7
Rental income in the above analysis is based on the Group's wholly owned
properties, with the rental income arising in relation to the group share of
the Joint Ventures being included within Share of joint venture profit.
The cost of sales included in the consolidated income statement includes
property operating expenses of £14.1 million (30 June 2016: £14.8 million),
operating lease rentals of £6.4 million (30 June 2016: £7.0 million), costs
associated with development fees of £0.5 million (30 June 2016: £0.8
million).
Section 3: Asset management
The Group holds its property portfolio directly and through its joint
ventures. The performance of the property portfolio whether wholly owned or in
joint ventures is the key factor that drives Net Asset Value (NAV), one of the
Group's key performance indicators.
The following pages provide disclosures about the Group's investments in
property assets and joint ventures and their performance over the period.
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.
a) Valuation process
The valuation 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 Knight Frank, Chartered Surveyors were the valuers in the
6 months ending 30 June 2017 and throughout 2016.
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 Executive
Committee. This includes a review of the fair value movements over the
period.
The movements in the carrying value of the Group's wholly owned property
portfolio during the period ended 30 June 2017 are shown in the table below.
Unaudited 30 June 2017
Investment property Investment property under development Total
£m £m £m
At 1 January 2017 1,061.6 184.6 1,246.2
Cost capitalised 1.5 62.6 64.1
Interest capitalised - 3.8 3.8
Transfer from work in progress - 0.8 0.8
Disposals (28.7) - (28.7)
Valuation gains 21.2 14.5 35.7
Valuation losses (4.5) (2.9) (7.4)
Net valuation gains 16.7 11.6 28.3
Carrying value and market value at 30 June 2017 1,051.1 263.4 1,314.5
The movements in the carrying value of the Group's wholly owned property
portfolio during the period ended 30 June 2016 and the fair value of the
Group's wholly owned property portfolio at the year ended 30 June 2016 is as
follows:
Unaudited 30 June 2016
Investment property Investment property under development Total
£m £m £m
At 1 January 2016 1,024.4 149.8 1,174.2
Cost capitalised 0.4 57.4 57.8
Interest capitalised - 3.2 3.2
Valuation gains 41.9 17.1 59.0
Valuation losses (4.4) (5.9) (10.3)
Net valuation gains 37.5 11.2 48.7
Carrying value and market value at 30 June 2016 1,062.3 221.6 1,283.9
The movements in the carrying value of the Group's wholly owned property
portfolio during the period ended 31 December 2016 and the fair value of the
Group's wholly owned property portfolio at the year ended 31 December 2016 is
as follows:
31 December 2016
Investment property Investment property under development Total
£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 and market value at 31 December 2016 1,061.6 184.6 1,246.2
b) Fair value measurement
All investment and development properties are classified as Level 3 in the
fair value hierarchy. Whilst completed property 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 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 6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
London - rental properties 431.6 420.0 424.9
Major provincial - rental properties 429.4 450.1 440.2
Other provincial - rental properties 190.1 192.2 196.5
Major provincial - development properties 220.8 132.7 158.4
Other provincial - development properties 42.6 88.9 26.2
Market value 1,314.5 1,283.9 1,246.2
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 valuation also reflects 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.
c) Fair value using unobservable inputs (Level 3)
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
Opening fair value 1,246.2 1,174.2 1,174.2
Gains and losses recognised in income statement 28.3 48.7 77.2
Acquisitions - - -
Capital expenditure 68.7 61.0 123.2
Disposals (28.7) - (128.4)
Closing fair value 1,314.5 1,283.9 1,246.2
d) Quantitative information about fair value measurements using unobservable
inputs (Level 3)
Fair value £m Valuation technique Unobservable inputs Range Weighted average
London Discounted Net rental income (£ per week) £183 - £345 £256
- rental properties 431.6 cash flows Estimated future rent (%) 1% - 6% 3%
Discount rate (yield) (%) 4.5% - 5.2% 4.7%
Major provincial Discounted Net rental income (£ per week) £106 - £157 £134
- rental properties 429.4 cash flows Estimated future rent (%) 1% - 6% 3%
Discount rate (yield) (%) 5.2% - 7.0% 5.7%
Other provincial Discounted Net rental income (£ per week) £94 - £164 £132
- rental properties 190.1 cash flows Estimated future rent (%) 0% - 8% 4%
Discount rate (yield) (%) 5.4% - 12.5% 6.2%
Major provincial Discounted Estimated cost to complete (£m) £4.1m - £61.6m £36.5m
- development properties 220.8 cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 4.7% - 6.2% 5.6%
Other provincial Discounted Estimated cost to complete (£m) £3.7m - 23.3m £15.0m
- development properties 42.6 cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.7% - 5.8% 5.7%
Fair value at 30 June 2017 1314.5
Fair value £m Valuation technique Unobservable inputs Range Weighted average
London Discounted Net rental income (£ per week) £179 - £327 £242
- rental properties 420.0 cash flows Estimated future rent (%) 2% - 4% 3%
Discount rate (yield) (%) 4.5% - 5.2% 4.7%
Major provincial Discounted Net rental income (£ per week) £102 - £149 £125
- rental properties 450.1 cash flows Estimated future rent (%) 1% - 6% 4%
Discount rate (yield) (%) 5.2% - 7.0% 5.8%
Other provincial Discounted Net rental income (£ per week) £77 - £148 £122
- rental properties 192.2 cash flows Estimated future rent (%) 2% - 6% 4%
Discount rate (yield) (%) 5.7% - 9.9% 6.2%
Major provincial Discounted Estimated cost to complete (£m) £1.9m - £59.4m £30.7m
- development properties 132.7 cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.1% - 6.3% 5.8%
Other provincial Discounted Estimated cost to complete (£m) £2.3m - 20.2m £8.3m
- development properties 88.9 cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.8% - 5.9% 5.9%
Fair value at 30 June 2016 1,283.9
Fair value £m Valuation technique Unobservable inputs Range Weighted average
London Discounted Net rental income (£ per week) £179 - £327 £249
- rental properties 424.9 cash flows 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
- rental properties 440.2 cash flows 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
- rental properties 196.5 cash flows 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
- development properties 158.4 cash flows 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
- development properties 26.2 cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.7% - 5.8% 5.7%
Fair value at 31 December 2016 1,246.2
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
Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
Interests in land 1.1 2.7 0.8
Other stocks 2.6 3.9 2.1
Inventories 3.7 6.6 2.9
3.3 Investments in joint ventures
The Group has two joint ventures:
Joint venture Group's share of Objective Partner Legal entity in which
assets/results 2017 (2016) Group has interest
The UNITE UK Student Accommodation Fund (USAF) 25.0%* (24.6%) Invest and operate Consortium of investors UNITE 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 and Edinburgh GIC Real Estate Pte, LtdReal estate LSAV Unit Trust, a Jersey Unit Trust, LSAV (Holdings) Ltd, incorporated in Jersey andLSAV (Aston Student Village) Unit Trust, a Jersey Unit Trust
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 23.5% (30 June 2016 and 31 December 2016: 23.0%) of
USAF.
a) 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 £72.3 million during the 6 months ended 30 June 2017 (30 June 2016: £61.6
million), resulting in an overall carrying value of £765.2 million (30 June
2016: £672.2 million). The following table shows how the increase has been
achieved.
Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
Recognised in the income statement:
Operations segment result 19.2 17.2 29.4
Minority interest share of Operations segment result 0.7 0.7 1.2
Management fee adjustment relating to trading with joint venture 2.8 2.5 5.4
Net revaluation gains 11.7 35.8 58.8
Loss on cancellation of interest rate swaps (0.3) - -
Profit on disposal of investment property 1.7 - -
Other (0.2) 0.2 -
35.6 56.4 94.8
Recognised in equity:
Movement in effective hedges 0.9 (2.9) (1.4)
Other adjustments to the carrying value:
Profit adjustment related to trading (3.4) (2.4) (6.3)
with joint venture
Performance fee units issued in USAF 8.1 25.6 25.6
Additional capital invested in LSAV 48.6 - (1.2)
Distributions received (17.5) (15.1) (29.2)
Increase in carrying value 72.3 61.6 82.3
Carrying value brought forward 692.9 610.6 610.6
Carrying value carried forward 765.2 672.2 692.9
b) 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 investment management fees from USAF and
LSAV, which collectively include performance fees if the joint ventures
outperform certain benchmarks, and property acquisition fees. The Group
receives an enhanced equity interest in the JV's as consideration for the
performance fee. The Group has recognised the following management fees in its
results for the year.
Unaudited Unaudited Year to
6 months to 6 months to 31 December
30 June 2017 30 June 2016 2016
£m £m £m
USAF 6.6 4.9 12.8
LSAV 4.7 2.7 8.0
Property management fees 11.3 7.6 20.8
LSAV - 0.7 1.0
Development management fees - 0.7 1.0
USAF performance fee - - 8.1
USAF acquisition fee 0.3 0.5 0.5
LSAV acquisition fee 1.0 - --
Investment management fees 1.3 0.5 8.6
Total fees 12.6 8.8 30.4
Section 4: Funding
The Group finances its development and investment activities through a mixture
of retained earnings, borrowings and equity. The Group continuously monitors
its financing arrangements to manage its gearing.
Interest rate swaps are used to manage the Group's risk to fluctuations in
interest rate movements.
The following pages provide disclosures about the Group's funding position,
including borrowings and hedging instruments.
4.1 Borrowings
The table below analyses the Group's borrowings which comprise bank and other
loans by when they fall due for payment:
Unaudited 6 month to 30 June 2017 Unaudited 6 month to 30 June 2016 Year to 31 December 2016
£m £m £m
Current
In one year or less, or on demand 1.3 1.4 1.3
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