REG - Unite Group PLC - Interim Results
27/07/2022 07:16
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RNS Number : 8376T Unite Group PLC (The) 27 July 2022
PRESS RELEASE
27 July 2022
THE UNITE GROUP PLC
("Unite Students", "Unite", the "Group", or the "Company")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
Richard Smith, Chief Executive of Unite Students, commented:
"We have seen continued momentum in the first half, as earnings and dividends
have grown strongly and reservations for the 2022/23 academic year are now
ahead of pre-pandemic levels.
"Our business model offers inflationary protection but, like others, we are
not immune from the impact of rising costs and interest rates. We are also
very conscious of the current cost of living pressures facing students and
parents. Our customer offer provides students with significant savings on
their bills, as part of a simple, fixed price all-inclusive rental payment.
"Despite increased economic uncertainty, we remain confident in our ability to
deliver significant growth over the medium to long term. Demand for Higher
Education has proven to be resilient through economic cycles and we have
significant opportunities for growth through our alignment to the strongest
universities and by leveraging our best-in-class platform."
H1 2022 H1 2021 FY2021 Change from H1 2021
Adjusted earnings(1) £96.0m £72.6m £110.1m 32%
Adjusted earnings per share(1) 24.0p 18.2p 27.6p 32%
IFRS profit before tax £334.1m £130.4m £343.1m 156%
IFRS basic EPS 82.9p 32.7p 85.9p 154%
Dividend per share 11.0p 6.5p 22.1p 69%
Total accounting return(2) 8.3% 3.9% 10.2%
As at 30 Jun 2022 30 Jun 2021 31 Dec 2021 Change from
31 Dec 2021
EPRA NTA per share(2) 940p 837p 882p 7%
IFRS NAV per share 948p 833p 880p 8%
See-through net debt(3,4) £1,727m £1,501m £1,522m 13%
Loan to value(3,4) 30% 30% 29% 1%
HIGHLIGHTS
Earnings and dividend ahead of their pre-pandemic peak
· Adjusted earnings up 32% to £96.0 million (H1 2021: £72.6
million)
· Adjusted EPS up 32% to 24.0p (H1 2021: 18.2p) (1)
· IFRS profit before tax of £334.1 million (H1 2021: £130.4
million), driven by adjusted earnings and a valuation gain of £214.9 million
in the period (H1 2021: £54.3 million)
· EPRA NTA per share of 940p, up 7% (31 December 2021: 882p)
· IFRS NAV per share up 8% to 948p (31 December 2020: 880p)
· Total accounting return of 8.3% for H1 (H1 2021: 3.9%)
· Interim dividend of 11.0p (H1 2021: 6.5p), targeting 80% payout of
adjusted EPS for full year
Strong outlook for student demand
· University applications for 2022/23 up 7% on pre-pandemic levels
· Record application rate for school leavers and significant
demographic growth over the next decade
· Reservations ahead of pre-pandemic levels at 92% (2021/22: 83%,
2020/21: 82%, 2019/20: 91%)
· Confident of achieving 97% occupancy and rental growth of 3.5-4.0%
for 2022/23 (previously 3.0-3.5%)
· Targeting rental growth of 4-5% for 2023/24
Protection against rising costs
· Annual repricing of rents through multi-year nomination agreements
and direct-let sales
· Cost protection through hedging, implemented platform efficiencies
and growing fee income
· Interest rates 85% fixed or capped, with 3.2% cost of debt (31
December 2021: 3.0%)
· Adjusted EPS guidance of 40-41p for FY2022, reflecting higher
interest costs
Growth underpinned by development pipeline
· 5.0% increase in property values in H1 for like-for-like
portfolio(5), reflecting strength of investor demand
· Secured pipeline of £1,032 million and 6,192 beds, generating a
6.0% yield on cost
· 2022 development completions fully let, adding 2p to adjusted EPS
from 2023
· £42 million of asset management schemes completing for 2022/23,
delivering 7% yield on cost, with growing pipeline of future
opportunities
Ongoing capital discipline
· LTV increased to 30% at 30 June 2022(3) (31 December 2021: 29%)
· £236 million of disposals contracted in H1 (Unite share) at a
blended yield of 5.7%
· Acquisition of £141 million of USAF units (equivalent to GAV of
£181 million) at an effective yield of 5.1%
( )(1) Adjusted earnings and adjusted EPS remove the impact of the LSAV
performance fee and abortive acquisition costs from EPRA earnings and EPRA
EPS. See glossary for definitions and note 7 for calculations and
reconciliations
(2) The financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS). These financial highlights are based on
the European Public Real Estate Association (EPRA) best practice
recommendations and these performance measures are published as they are
intended to help users in the comparability of these results across other
listed real estate companies in Europe. The metrics are also used internally
to measure and manage the business and to align to the performance related
conditions for Directors' remuneration. See glossary for definitions
(3) Excludes IFRS 16 related balances recognised in respect of leased
properties. See glossary for definitions
(4) Wholly-owned balances plus Unite's share of balances relating to USAF and
LSAV
(5) Like-for-like properties owned at both 31 December 2021 and 30 June 2022
PRESENTATION
There will be a presentation for analysts and investors this morning at 8:30
a.m. BST. A live webcast can be accessed here
(https://stream.brrmedia.co.uk/broadcast/62bc83bfe70e6b11265978a4) . To
register for the event or to receive dial-in details, please contact
unite@powerscourt-group.com (mailto: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 the first half, following
removal of the last remaining Covid-19 restrictions on Higher Education (HE),
with earnings and dividends surpassing their pre-pandemic peak. We have also
seen good progress with reservations for the 2022/23 academic year, which
underpins further growth in income in the second half and into 2023.
Adjusted earnings for the period increased by 32% to £96.0 million (H1 2021:
£72.6 million), which excludes the impact of non-recurring items relating to
performance fees received from LSAV in 2021 and abortive acquisition costs in
the first half. This increase was driven by higher occupancy for the 2021/22
academic year and the rental discounts offered to students in H1 2021 in
response to Covid-19 restrictions, as well as broadly stable costs. On a per
share basis, adjusted EPS increased 32% to 24.0p (H1 2021: 18.2p).
We are announcing an interim dividend of 11.0p (H1 2021: 6.5p), an increase of
69% on H1 2021, which reflects the growth in our earnings and a positive
outlook for reservations for the 2022/23 academic year. We plan to distribute
80% of adjusted EPS for 2022.
EPRA NTA per share increased by 7% to 940p (31 December 2021: 882p) which,
including the final dividend paid in the period, results in a total accounting
return of 8.3% in the first six months of the year (H1 2021: 3.9%). The Group
recorded an IFRS profit before tax of £334.1 million (H1 2020: £130.4
million), driven by adjusted earnings and a valuation gain on the back of our
sales performance for 2022/23 and strong valuation evidence from student
accommodation transactions during H1. IFRS NAV per share increased by 8% to
948p over the half (31 December 2021: 880p).
Our key financial performance indicators are set out below:
Financial highlights H1 2022 H1 2021 FY 2021
Adjusted earnings £96.0m £72.6m £110.1m
Adjusted EPS 24.0p 18.2p 27.6p
Dividend per share 11.0p 6.5p 22.1p
Total accounting return 8.3% 3.9% 10.2%
IFRS profit before tax £334.1m £130.4m £343.1m
IFRS basic EPS 82.9p 32.7p 85.9p
EPRA NTA per share 940p 837p 882p
IFRS NAV per share 948p 833p 880p
Loan to value 30% 30% 29%
Demand ahead of pre-pandemic levels
We are anticipating strong student numbers for the 2022/23 academic year, with
UCAS data showing a 7% increase in the number of applicants as at the 30 June
deadline compared to pre-pandemic levels in 2019/20. A record 44.1% of UK
18-year-olds have applied to university this year, reflecting growing
awareness of the opportunities and life experience it provides. Applications
from non-EU students are up 9%, including notable growth from China and India,
which has helped to substantially offset the expected decline in EU
applications (-18%) as a result of Brexit.
We expect the exceptional grade inflation of the past two years to partially
unwind for this year's A-level results, following a return to exams, which
will support a more normal distribution of students across universities and
cities. Universities have also been more selective in their offer-making,
which points to greater availability of places during the Clearing period
following A-level results in mid-August.
Positive momentum
We have continued to make good progress in sales during the first half. Across
the Group's entire property portfolio, 92% of rooms are now sold for the
2022/23 academic year, ahead of pre-pandemic reservation levels (2021/22: 83%,
2020/21: 82%, 2019/20: 91%).
We have seen healthy demand from both UK and international students. We expect
the share of international students to increase to around 35% of total
reservations for 2022/23, up from 30% for 2021/22, with particularly strong
growth from India (5% of direct-let reservations), but still modestly below
the pre-pandemic level of 40%. This reflects a return to face-to-face teaching
by universities and fewer travel restrictions than experienced over the past
two years.
Reservations under nomination agreements currently account for 51% of total
beds. We expect this figure to grow slightly by the end of the sales cycle
once universities have full visibility over student intake for 2022/23. There
remains an opportunity to deepen relationships with our existing university
partners and we have recently agreed terms for a new 30-year nomination
agreement with a Russell Group university.
Breakdown of reservations for 2022/23 by domicile and year of study
Nominations(*) Direct let
UK China EU Other Intl. Total
First year 9% 2% 0% 1%
Returning students 15% 4% 1% 3%
Postgraduate 1% 7% 0% 2%
% of reservations 55% 25% 13% 1% 6% 100%
% of portfolio 51% 21% 12% 2% 6% 92%
(*) All years and domiciles
We have also seen positive progress in both pricing and the pace of lettings,
particularly in the second half of the sales cycle, as concerns around the
impact of the Omicron Covid-19 variant have eased. This progress has been
driven by inflation-linked rental uplifts for our multi-year nomination
agreements and the strength of demand for direct-let beds.
Given the strong sales performance to date, we are increasingly confident in
delivering occupancy of 97% for the 2022/23 academic year and achieving rental
growth of 3.5-4.0% (previous guidance of 3.0-3.5%).
We continue to monitor Covid-19 cases, travel restrictions for international
students and the potential for further lockdowns, particularly in China. There
are no Covid restrictions on UK HE, and Government guidance emphasises that
universities should prioritise delivery of face-to-face teaching. Demand also
remains strong from international students across multiple markets, and we
expect that international students will be able to travel to the UK for the
start of the 2022/23 academic year in September.
Value for money
Our customer offer is built around a value-for-money, hassle-free living
experience, with support on hand when it is needed. Our pricing is inclusive
of utilities, Wi-Fi, contents insurance and on-hand maintenance teams. In
addition, we have invested over £100 million over the past year to enhance
our portfolio, service and experience to meet student needs, such as a 24/7
physical presence by staff, with a particular focus on student welfare
support.
We recognise the cost of living pressures being faced by students and are
confident our pricing will continue to offer value for money compared to
alternatives in the purpose-build student accommodation (PBSA) and houses in
multiple occupation (HMO) sectors. Our pricing is comparable in cost to HMOs
once bills are included. This is before allowing for the additional product
and service features that we provide in locations close to campus.
Given increases in energy prices, we estimate that students living in HMO will
pay around £840 per year for their utilities, Wi-Fi and contents insurance.
Thanks to our scale and forward purchasing of utilities, these same services
will cost the Company less than £600 for the 2022/23 academic year. We pass
these savings on to students through a single price, fixed at the time of
booking, giving our customers certainty over their living costs.
Inflation protection
Inflation is resulting in cost pressures in parts of our operations and
development activity. Positively, the business is well protected from these
impacts through the inflation-hedging characteristics of our income and risk
management through cost hedging.
Earnings
Our rooms are either resold each year through direct-lets and single-year
nomination agreements or repriced based on RPI, CPI or fixed rental inflators
under our multi-year nomination agreements. We also have a high degree of
visibility over our largest P&L costs - staff, utilities and interest -
which together account for around 70% of our total cost base. We will seek to
offset operational cost increases through rental growth of 4-5% for the
2023/24 academic year.
Interest costs are fixed or capped on 85% of our investment debt and we have
limited near-term refinancing requirements, with less than 10% of see-through
debt maturing before late 2024. As a result of rising interest rates on the
variable portion of our debt, our see-through borrowing cost has increased to
3.2% at the end of H1 (December 2021: 3.0%). Reflecting the impact of higher
interest costs, we are reducing our guidance for 2022 adjusted EPS to 40-41p
(previously 41-43p).
Development pipeline
We manage cost risk in our development pipeline through fixed-price contracts.
Costs are already fixed for our 2022 and 2023 schemes, which remain in line
with budget and on track for their scheduled delivery dates. However, we are
seeing cost increases for schemes yet to be procured for delivery in 2024 and
2025, totalling 2,854 beds. We can partially mitigate these cost pressures
through design efficiencies and increased rental levels but expect yields on
cost to be reduced by around 20bps compared to our initial assumptions. The
weighted average yield on cost of 6.0% on our secured pipeline continues to
offer an attractive spread compared to our funding costs and investment yields
for completed assets.
Higher Education policy
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. In addition, the
Government is focused on ensuring the sector delivers value for money for
students and the taxpayer. The Office for Students (OfS) recently closed a
consultation on student outcomes in the HE sector. This may lead to the
introduction of minimum standards for HE providers based on course completion
rates and the proportion of students going on to employment or further study.
However, we do not expect any material changes in HE policy in the short term
following changes in Government leadership.
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.
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 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.
During the period, we completed remedial works on one building and are on site
at a further eight, spending a total of £25.9 million (Unite share: £10.3
million) in the period. Our balance sheet at 30 June includes provisions and
accruals for cladding remediation costs across our estate, at a cost of £82.9
million (Unite share: £48.7 million), which will be incurred over the next
12-36 months.
The Government's Building Safety Bill, covering building standards, was passed
in April and has introduced more stringent fire safety regulations. Our
proactive approach means that we 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 £10 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
due to uncertainty over the timing of any recoveries. The Building Safety Bill
extended the limitation period for claims to up to 30 years, meaning that
nearly all of our affected buildings now have the potential to submit a claim.
Delivering our sustainability strategy
Following the publication of our net zero carbon roadmap at the end of 2021,
we have increased our investment into energy efficiency projects aimed at
improving the environmental performance of our buildings. During the first
half, we invested c.£2.7million (£1.1 million at Unite share) in capital
projects, including LED lighting, heating controls and low-carbon heating
solutions, and expect to invest a further c.£10 million (£8 million at Unite
share) during the second half of the year. 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. These measures have been
incorporated as part of the refurbishment of 1,629 beds in Manchester for the
2022/23 academic year, increasing EPC ratings from an average of D to B and
reducing energy intensity by an average of 17%.
As part our sustainability strategy, we have committed to donating 1% of
annual profits to social initiatives going forward. These initiatives will be
closely aligned to our purpose of providing a Home for Success for students
and supporting wider participation in HE. The two main initiatives in 2022 are
Leapskills and the Unite Foundation. The Leapskills programme is an
interactive set of workshops designed to prepare school leavers for
independent living at university. We have recently partnered with UCAS to
increase the reach of Leapskills and assist students in their preparations for
university. The Unite Foundation, the charitable trust founded by Unite
Students in 2012, provides free accommodation for care leavers and estranged
students while at university. To mark the Foundation's 10(th) anniversary,
Unite Students is providing financial support for 100 student scholarships for
the 2022/23 academic year and home starter kits for over 200 additional
students.
Positioned for growth
We have now completed the disposal programme set out at the time of our
acquisition of Liberty Living in 2019. We contracted £306 million of
disposals in the first half (Unite share: £236 million) at a blended yield of
5.7%. These disposals have increased the focus of our portfolio in the
strongest university cities and ensure our ability to sustain rental growth.
See-through LTV stands at 30%, which provides investment capacity to deliver
our significant development pipeline and pursue further investment
opportunities to extend our best-in-class platform.
Our development pipeline totals £1,032 million in total cost, following the
addition of £296 million of new schemes in H1, and is expected to deliver 5p
of upside to EPS on delivery. In addition, the recent increase in financing
costs is starting to create opportunities to acquire new investment or
developments at enhanced returns.
Increasing our investment in USAF
The proceeds from announced disposals have been partially redeployed to
increase our investment in USAF. During the period, we acquired £141 million
of units at a price in line with USAF's March 2022 NAV and equivalent to a
property yield of 5.1%. This investment increases Unite's exposure to USAF's
high-quality portfolio in strong regional markets. Like our wider portfolio,
the fund has positive future prospects through rental growth and investment
opportunities in asset management initiatives. We will continue to monitor
opportunities to increase our investment in USAF at attractive valuations.
Extending our platform
There is a 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.
We are currently under offer for a pilot Build-to-Rent investment in London,
located in close proximity to an existing cluster of our student properties.
The operational asset offers the potential to test our operational capability
to extend our customer offer to young professionals and retain customers as
they move on to the next stage in their lives.
Outlook
We are confident of a strong sales performance for the 2022/23 academic year,
reflecting the depth of student demand, reduced disruption from grade
inflation and fewer travel restrictions for international students. This
underpins our guidance for 97% occupancy and rental growth of 3.5-4.0% for
2022/23.
Our business model has inflationary protection through annual repricing of our
income and cost hedging but, like others, we are not immune from the impact of
rising costs and interest rates. We will seek to offset higher operating costs
through our pricing, while ensuring we continue to offer value-for-money
accommodation to students.
The outlook for the business remains strong, reflecting growing student
demand, our alignment and partnership with the strongest universities and the
capabilities of our best-in-class operating platform. We are well positioned
to benefit from the strength of HE, which has historically become more
attractive during economic downturns. Despite increased economic uncertainty,
we are well positioned to deliver sustainable earnings growth and attractive
total returns of 8.5-10% p.a. over the medium term, driven by rental growth,
delivery of our secured development pipeline and further opportunities to
deploy capital at attractive returns.
PROPERTY REVIEW
The first half has seen a strong valuation performance for our investment
portfolio, driven by our reservations progress for 2022/23 and investment
activity in the sector. We continue to improve the quality of the portfolio
and our alignment to the strongest universities by disposing of non-strategic
assets and redeploying the capital into our development pipeline and the
refurbishment of our existing estate. We will deliver 1,351 new beds this year
and have fully refurbished a further 1,629 beds, all of which are fully let
for the 2022/23 academic year.
Our development pipeline remains close to its record size at over 6,100 beds,
having added three further schemes in H1. We are seeing increases in
development costs which, although partially mitigated by fixed-price contracts
and enhanced rental levels, will slightly reduce development returns. 64% of
our development pipeline now has planning consent, but we are seeing pressure
on our delivery programme for unconsented schemes due to planning delays as a
result of the pandemic.
Valuation performance
Our property portfolio saw a 5.0% increase in valuations on a like-for-like
basis during the half (Unite share: 4.7%), reflecting the strength of investor
demand for student accommodation. Approximately two-thirds of the increase was
driven by yield compression, following strong recent transactional evidence in
the sector. In addition, the valuations reflect rental growth crystallised
through reservations for the 2022/23 academic year and the completion of asset
management initiatives driving NOI increases. Stronger rental growth in LSAV
was predominantly driven by the strength of the London market.
£m 30 June 2022 valuation Yield Asset Rental growth LfL capital growth
compression management /other
Wholly owned 3,443 81 14 37 131
LSAV 1,942 82 1 40 123
USAF 2,966 106 15 28 149
Total (Gross) 8,351 269 30 105 403
Total (Unite share) 5,249 226
Capital growth
Wholly owned 2.4% 0.4% 1.1% 4.0%
LSAV 4.5% 0.0% 2.2% 6.8%
USAF 3.7% 0.5% 1.0% 5.3%
Total (Gross) 3.4% 0.4% 1.3% 5.0%
Total (Unite share) 4.7%
Student accommodation yields
The PBSA sector has continued to deliver strong performance during the first
half. Strong sector fundamentals and a long-term track record of rental growth
continue to attract significant volumes of capital to the sector. Investment
volumes for student accommodation totalled £5.8 billion in H1, including
£0.3 billion sold by the Group and £5.5 billion of third-party transactions
(Source: CBRE). The £3.3 billion acquisition of Student Roost by GIC and
Greystar, announced in May, has particularly benefitted regional assets in our
wholly-owned portfolio and USAF.
The average net initial yield across the portfolio is 4.7% at 30 June 2022 (31
December 2021: 4.9%), a reduction of 15 basis points over the first six months
of the year. We have seen more significant yield compression in London and
stronger regional markets, continuing the trend witnessed over recent years.
An indicative spread of direct-let yields by location is outlined below:
30 Jun 2022 30 Jun 2021 31 Dec 2021
London 3.50-4.00% 3.80-4.25% 3.65-4.10%
Prime regional 4.40-4.65% 4.25-5.00% 4.50-4.75%
Major regional 5.00-5.65% 5.00-6.00% 5.00-5.75%
Provincial 6.00-7.50% 6.25-7.50% 6.00-7.50%
Development and university partnership activity
Development and university partnership activity continues to be a significant
driver of future growth in earnings and EPRA NTA and is aligned to our
strategic focus on high and mid-ranked universities. Our pipeline of
direct-let development and university partnerships includes 6,192 beds, with a
total development cost of £1,032 million. We expect to maintain a run-rate of
around £200 million p.a. of development capex, funded from property disposals
and internally generated sources.
The anticipated yield on cost of this secured pipeline is 6.0%. 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.
We have increased our yield-on-cost targets by 50-100bps in London and the
regions to reflect increased funding costs. We continue to see opportunities
for new development and university partnership schemes at attractive returns
and are starting to see land pricing adjust downwards to reflect increased
costs of funding and construction in the current environment.
2022 completions
Our schemes at Hayloft Point, London and Campbell House, Bristol are on track
for delivery on time and budget for the 2022/23 academic year. Campbell House
is let to the University of Bristol under a 15-year nomination agreement, and
we have agreed a 5-year nomination agreement at Hayloft Point with King's
College London for approximately two-thirds of beds. Both schemes are fully
let for the 2022/23 academic year, adding 2p to EPS on an annualised basis.
2023-2026 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 support 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 certain of the schemes in our
pipeline.
In January 2022, we added a further 268-bed scheme to our pipeline in
Nottingham city centre to be delivered for the 2024/25 academic year. The 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 May, we received resolution to grant planning permission for our 716-bed
development site in East London. The scheme is scheduled for delivery in the
2026/27 academic year, subject to vacant possession, 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 early March, the planning application for our development in Paddington,
London was rejected by Westminster City Council. We continue to have good
levels of engagement with the local authority, who are supportive of student
use on the site. We are currently reviewing our options for the best route to
securing planning consent for the site; however, this delay now means that we
will no longer deliver the scheme for the 2024/25 academic year.
In March, we received planning approval for our 596-bed Temple Quarter
development in Bristol. We intend to acquire the site in time for delivery
for the 2024/25 academic year. The completed development will be fully let on
a 15-year nomination agreement to the University of Bristol, further
strengthening our relationship with the university.
At the end of H1, we acquired the land for a consented 298-bed student and
66-unit Build-to-Rent development at Abbey Lane in Edinburgh. Due to delays in
securing vacant possession for the site, we now expect to deliver the project
for the 2026/27 academic year.
Development costs
We continue to see inflationary pressure on build costs, which typically
account for around 50% and 80% of our total development costs in London and
regional markets respectively, reflective of ongoing supply chain disruption
created by the pandemic as well as rising energy and materials prices, which
have been exacerbated by the war in Ukraine.
Our 2022 and 2023 schemes are secured under fixed-price build contracts and
remain in line with budget. However, we are continuing to see cost increases
for schemes yet to be procured for delivery in 2024 and 2025. As a result, we
now expect the yield on cost for our 2024 and 2025 schemes to be reduced by
20bps compared to our initial assumptions. These schemes remain attractive,
and we will seek to mitigate the impact of increasing build costs through
design efficiency and increased rental levels where possible.
Secured development and University partnerships pipeline
Target delivery Secured beds Total completed value Total development costs Capex in period Capex remaining Forecast NTA remaining Forecast yield on cost
No. £m £m £m £m £m %
Traditional development
Derby Road, Nottingham 2023 705 88 58 7 38 20 8.1%
Lower Parliament St, Nottingham 2024 268 48 35 7 28 13 7.3%
Abbey Lane, Edinburgh(2) 2026 298 47 29 8 19 16 8.8%
Total wholly owned 1,271 183 122 22 85 49 8.1%
University partnerships
Hayloft Point, London 2022 920 304 187 21 12 15 6.0%
Campbell House, Bristol(3) 2022 431 64 44 6 1 10 6.2%
Feeder Road, Bristol 2024 596 94 80 16 62 13 5.8%
Meridian Square, London(1) 2025 943 240 181 1 178 59 5.7%
Freestone Island, Bristol(1) 2025 690 103 76 0 76 27 6.0%
Paddington, London(1) 2025 625 208 157 1 152 51 5.5%
East London, London(4) 2026 716 246 185 1 184 61 5.4%
Total university partnerships 4,921 1,259 910 46 665 236 5.7%
Total development pipeline 6,192 1,442 1,032 68 750 285 6.0%
Major refurbishments (Unite share)(5) 1,629 n/m 24 7 13 9 6.9%
(1) Subject to obtaining planning consent
(2) Additional 66 BTR units
(3) Additional 74 BTR units
(4) Student element development cost £136m, forecast 6.0% yield on cost
(5) Creating 138 additional beds
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 intend to deliver our three future London schemes as university
partnerships, in line with requirements in the 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 PBSA in London and will incorporate a range of
design features to reduce 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 long-term nomination agreements.
In addition, we are in active discussions with two high-quality universities
for new partnerships, focused on delivery of new on-campus accommodation and
the potential transfer and refurbishment of their existing student
accommodation. We are looking to progress these transactions over the next 12
months, albeit there remains a high degree of execution risk given the
strategic nature of these decisions for the universities.
Asset management
In addition to our development activity, we see significant opportunities to
create value through asset management projects in our estate. 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.
This September, we will complete three asset management schemes in Manchester.
Investment across the three projects is £42 million in aggregate and will
deliver a 7% yield on cost. The projects will deliver new accommodation,
refurbish existing rooms and enhance the environmental performance of the
properties. The upgraded assets are fully let for the 2022/23 academic year
and will support our segmentation strategy, with new specification and service
tailored to the postgraduate market.
We are making good progress in growing our pipeline of future opportunities
and are increasingly confident in our ability to deliver stronger rental
growth through refurbishment and repositioning of our existing portfolio for
the 2023/24 and 2024/25 academic years.
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, investments and refurbishments aligned to the best universities.
During the period, the Group contracted £306 million of disposals (Unite
share: £236 million) to an affiliate of Lone Star Funds. Completion occurred
for £24 million of the disposals in March, with the remaining £282 million
to complete at the end of August, which are held for sale in the half-year
balance sheet. The sale completes the disposal programme set out at the time
of our acquisition of Liberty Living in 2019 and sees the Group exit less
attractive markets and certain smaller, less operationally efficient assets in
cities such as Bristol and Leeds. The disposals are priced in line with
prevailing book value, which reflects an NOI yield of 5.7%.
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. We will selectively explore opportunities to exit weaker
assets, where the proceeds can be redeployed at superior risk-adjusted
returns. We expect the pace of disposals to reduce to around £100-150 million
p.a. (Unite share).
FINANCIAL REVIEW
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
include, among others, measures based on the European Public Real Estate
Association (EPRA) best practice recommendations. The metrics are used
internally to measure and manage the business.
EPRA and adjusted earnings
We delivered a strong operating performance in H1 2022, with rental income
increasing by 16% to £177.4 million, up from £152.9 million in H1 2021,
reflecting the impact of increased occupancy for the 2021/22 academic year and
removal of pandemic-related restrictions and rental discounts.
Adjusted earnings increased by 32% to £96.0 million (H1 2021: £72.6
million), reflecting the increase in rental income and broadly stable costs
including interest when compared to the prior year. Adjusted EPS also
increased by 32% to 24.0p (H1 2021: 18.2p).
Based on a positive outlook for student demand and progress to date on
reservations, we anticipate an increase to 97% occupancy for the 2022/23
academic year (2021/22: 94%). This income visibility underpins strong growth
in adjusted EPS for the full year to 40-41p (previously 41-43p). The slight
reduction in our guidance reflects higher interest rates on our floating rate
debt and non-recurring costs incurred in the first half.
Summary income statement H1 2022 H1 2021 FY 2021
£m £m £m
Rental income 177.4 152.9 282.7
Property operating expenses (45.5) (41.8) (90.9)
Net operating income (NOI) 131.9 111.1 191.8
NOI margin 74.4% 72.7% 67.8%
Management fees 9.2 8.2 15.9
Operating expenses (13.7) (13.0) (31.5)
Finance costs (28.9) (32.6) (63.3)
Acquisition and net performance fees - 15.7 41.9
Development and other costs (4.0) (1.1) (2.8)
EPRA earnings 94.5 88.3 152.0
LSAV performance fee - (15.7) (41.9)
Abortive acquisition costs 1.5 - -
Adjusted earnings 96.0 72.6 110.1
Adjusted EPS 24.0p 18.2p 27.6p
EPRA EPS 23.6p 22.2p 38.1p
EBIT margin 71.8% 69.5% 62.3%
A reconciliation of profit/(loss) after tax to EPRA earnings is set out in
note 2.2b of the financial statements
Like-for-like rental income, excluding the impact of disposals and major
refurbishments, increased by 23% during H1. This exceeded the 15% increase in
operating expenses for like-for-like properties in the period, primarily
driven by increased utility and marketing costs linked to higher occupancy.
This improved the Group's NOI margin to 74.4% for the six months (H1 2021:
72.7%).
The increase in operating expenses in the first half was driven by the
implementation costs of a corporate restructure (£1.5 million). Our EBIT
margin improved to 71.8% in the period (H1 2021: 69.5%) or 72.7% excluding the
non-recurring restructuring costs. Our rental income is more heavily weighted
to the first half of the financial year due to lower occupancy during July and
August. As a result, we expect to deliver an EBIT margin of around 70% for
2022 as a whole.
Reflecting our cost discipline and the growth in rental income, we are
targeting an improvement in our EBIT margin to 72% over the medium term.
Operations result
H1 2022 H1 2021 YoY change
£m Wholly owned Share of Fund/JV Total Wholly owned Share of Fund/JV Total £m %
Rental income
Like-for-like properties 127.7 46.0 173.7 105.0 35.8 140.8 32.9 23.4%
New properties(1) - - - - - - -
Sold properties (to third party) - 0.2 0.2 2.1 0.6 2.7 (2.5)
Sold properties (to Fund/JV) - 3.5 3.5 7.1 - 7.1 (3.6)
Properties closed for refurbishment - - - 2.3 - 2.3 (2.3)
Total rental income 127.7 49.7 177.4 116.5 36.4 152.9 24.5 16.0%
Property operating expenses
Like-for-like properties (34.3) (10.2) (44.5) (28.4) (10.3) (38.7) (5.8) 15.0%
New properties(1) - - - - - - -
Sold properties (to third party) - - - (1.0) (0.2) (1.2) 1.2
Sold properties (to Fund/JV) - (1.0) (1.0) (1.3) - (1.3) 0.3
Properties closed for refurbishment - - - (0.6) - (0.6) 0.6
Total property operating expenses (34.3) (11.2) (45.5) (31.3) (10.5) (41.8) (3.7) 8.9%
Net operating income
Like-for-like properties 93.4 35.8 129.2 76.6 25.5 102.1 27.1 26.5%
New properties(1) - - - - - - -
Sold properties (to third party) - 0.2 0.2 1.1 0.4 1.5 (1.3)
Sold properties (to Fund/JV) - 2.5 2.5 5.8 - 5.8 (3.3)
Properties closed for refurbishment - - - 1.7 - 1.7 (1.7)
Total net operating income 93.4 38.5 131.9 85.2 25.9 111.1 20.8 18.7%
(1 Includes both development completions and acquisitions)
We are well protected but not immune from the impacts of inflation on our cost
base. We have a high degree of visibility over our two largest costs, staff
and utilities, which together account for around 60% of our combined operating
costs and overheads. Our utility costs are fully hedged through 2022 and 2023
and for a substantial portion of 2024. In addition, a recently completed
review of our operating model will deliver further efficiencies, which
partially mitigate wider cost pressures.
Finance costs decreased slightly to £28.9 million (H1 2021: £32.6 million)
due to reduced borrowings in the period versus the prior year, more than
offsetting the increase in the cost of the floating portion of our debt. £4.2
million of interest costs were capitalised in the first half, an increase from
£2.1 million in H1 2021, due to the increased level of development activity
in the period. Due to delays in certain development starts, we now expect
capitalised interest to be £5-6 million for the year (previously £7-8
million). The cost of debt increased to 3.2% over the period (31 December
2021: 3.0%), reflecting increases in the cost of our floating rate debt.
IFRS earnings
IFRS profit before tax increased to £334.1 million in the first half (H1
2021: £130.4 million), driven by the rise in adjusted earnings, a revaluation
gain net of losses on disposal of £199.7 million (H1 2021: £40.0 million)
and the positive revaluation of interest rate swaps on the back of rising
interest rates.
H1 2022 H1 2021 FY 2021
£m £m £m
Adjusted earnings 96.0 72.6 110.1
LSAV Performance fee - 15.7 41.9
Abortive acquisition costs (1.5) - -
EPRA earnings 94.5 88.3 152.0
Valuation gains and profit/(loss) on disposal 199.7 40.0 182.2
Changes in valuation of interest rate swaps and debt break costs 39.2 3.7 6.7
Minority interest and tax 0.7 (1.6) 2.2
IFRS profit before tax 334.1 130.4 343.1
EPRA earnings per share 23.6p 22.2p 38.1p
IFRS Basic earnings per share 82.9p 32.7p 85.9p
A reconciliation of profit before tax to EPRA earnings measures is expanded in
section 7 of the financial statements.
EPRA NTA growth
EPRA net tangible assets (NTA) per share, our key measure of NAV, increased by
7% to 940 pence at 30 June 2022 (31 December 2021: 882 pence). EPRA net
tangible assets were £3,771 million at 30 June 2022, up from £3,532 million
six months earlier.
The main drivers of the £239 million increase in see-through EPRA NTA and 58
pence increase in EPRA NTA per share were:
· Valuation growth (£191 million, 48 pence), reflecting sales
progress for 2022/23 and yield compression
· Development surplus (£25 million, 6 pence)
· Disposals and associated property transaction costs (£(10)
million, (3) pence)
· A further provision for fire safety capex (£(8) million, (2)
pence)
· The positive impact of retained profits (£40 million, 9 pence)
Property portfolio
The valuation of our property portfolio at 30 June 2022, including our share
of properties held in USAF and LSAV, was £5,771 million (31 December 2021:
£5,287 million). The £484 million increase in portfolio value reflects the
valuation movements outlined above, £24 million of completed disposals, a
£181 million increase in the Group's see-through share of USAF and capital
expenditure and interest capitalised on developments of £79 million.
Summary balance sheet
30 Jun 2022 30 Jun 2021 31 Dec 2021
Wholly owned Share of Fund/JV Wholly owned Share of Fund/JV Wholly owned Share of Fund/JV
£m £m Total £m £m Total £m £m Total
£m £m £m
Rental properties(1) 3,443 1,806 5,249 3,249 1,467 4,716 3,323 1,542 4,865
Rental properties (leased) 93 - 93 100 - 100 98 - 98
Properties under development 429 - 429 236 - 236 324 - 324
Total property 3,965 1,806 5,771 3,585 1,467 5,052 3,745 1,542 5,287
Net debt (1,208) (519) (1,727) (1,013) (488) (1,501) (1,030) (492) (1,522)
Lease liability (93) - (93) (95) - 95 (94) - (94)
Other assets/(liabilities) (139) (41) (180) (74) (30) (104) (107) (32) (139)
EPRA net tangible assets 2,525 1,246 3,771 2,403 949 3,352 2,514 1,018 3,532
IFRS NAV 3,806 3,339 3,528
LTV 30% 30% 29%
(1) Including properties held for sale
Cash flow and net debt
The Operations business generated £100 million of net cash in H1 2021 (H1
2021: £80 million) and net debt increased to £1,727 million (31 December
2021: £1,522 million). The key components of the movement in net debt were
the operational cash flow and net proceeds of £24 million from the sale of
investment property, offset by total capital expenditure of £111 million, the
acquisition of units in USAF for £141 million and dividend payments of £49
million.
Interest rate hedging arrangements and cost of debt
During the first half, there has been a significant increase in market
interest rates as well as a rise in credit spreads for publicly traded debt,
including our own. Together, these factors have resulted in higher costs for
new debt issuance or refinancing of existing debt facilities. The business is
partially protected from these cost pressures through its interest rate
hedging policies. Moreover, the Group's borrowings are well diversified across
lenders and maturities with less than 10% of see-through debt maturing before
late 2024.
85% of see-through investment debt is subject to a fixed or capped interest
rate (31 December 2021: 90%) for an average term of 4.5 years (31 December
2021: 5.0 years) and we have forward hedged £300 million of future debt
issuance at rates meaningfully below prevailing market levels.
As a result of rising interest rates on the variable portion of our debt, our
see-through borrowing cost has increased to 3.2% at the end of H1 (December
2021: 3.0%). Based on our hedging protection and current market interest
rates, we forecast a cost of debt of 3.4% for FY2022 as a whole, rising to
3.6% for FY2023. On this basis, yields on our investment portfolio and secured
development pipeline continue to show a healthy positive spread against our
funding costs.
Key debt statistics (Unite share basis) 30 Jun 2022 30 Jun 2021 31 Dec 2021
Net debt £1,727m £1,501m £1,522m
LTV 30% 30% 30%
Net debt:EBITDA ratio(1) 7.6 10.0 8.3
Interest cover ratio(1) 3.3 2.5 2.8
Average debt maturity 4.5 years 4.6 years 5.0 years
Average cost of debt 3.2% 3.0% 3.0%
Proportion of investment debt at fixed rate 85% 91% 90%
(1) Calculated on a 12-month look back basis
Debt financing and liquidity
As at 30 June 2022, the wholly-owned Group had £248 million of cash and debt
headroom (31 December 2021: £421 million), comprising of £48 million of
drawn cash balances and £200 million of undrawn debt (31 December 2021: £96
million and £325 million respectively). Previously announced wholly-owned
disposals of £213 million will complete in August, adding to this headroom.
The Group maintains a disciplined approach to leverage, with LTV of 30% at 30
June 2022 (31 December 2021: 29%).
During the period, LSAV raised a new £400 million loan with Bank of America
for a term of five years, using the proceeds to pay down existing facilities
approach maturity. LSAV has a further £100 million secured loan expiring in
January 2023, which we have agreed terms to refinance during the second half.
In addition, we are preparing to refinance USAF's 2023 secured bonds through a
new unsecured borrowing structure, which will provide greater operational
flexibility for the fund.
Dividend
We have declared an interim dividend payment of 11.0p per share (2021: 6.5p).
The interim dividend will be fully paid as a Property Income Distribution
(PID) on 28 October 2022 to shareholders on the register at close of business
on 16 September 2022.
We will continue to distribute 80% of adjusted EPS as this level of payout
enables the Company to retain capital to invest in growth opportunities, the
improvement of the operational portfolio and delivery of our sustainability
strategy, including our 2030 target for net zero carbon.
For those shareholders electing to the Company's scrip dividend scheme, this
interim dividend will be paid in new ordinary shares. The last date for
receipt of scrip elections for this interim dividend is 7 October 2022.
Details of the scrip scheme, terms and conditions and the process for election
to the scrip scheme are available at the Company's website.
Tax and REIT status
The Group holds REIT status and is exempt from tax on its property business.
During the first half of 2022, we recognised a current tax charge of £nil
(2021: credit of £1.7 million).
Funds and joint ventures
The table below summarises the key financials at 30 June 2022 for each
vehicle.
Property Assets Net Other assets Net Unite share of NTA Maturity Unite share
£m debt £m assets £m
£m £m
USAF 2,966 (720) (116) 2,130 600 Infinite 28%
LSAV 1,942 (632) (18) 1,292 646 2032 50%
Property valuations increased by 5.3% and 6.8% for USAF and LSAV respectively
over the first half of the year on a like-for-like basis, principally
reflecting a reduction in valuation yields of 19 basis-points in each vehicle.
During the period, Unite increased its investment in USAF through the
acquisition of £141 million of units through participation in an equity raise
and acquisition of existing units in the secondary market. In aggregate, the
purchases, which were priced in line with USAF's March 2022 NAV, increase
Unite's USAF ownership to 28.2% on a proforma basis (31 December 2021: 22.0%).
This investment equates to an increase in Unite's see-through GAV of £181
million, at an effective property yield of 5.1%.
The acquisitions increase Unite's exposure to USAF's high-quality portfolio in
strong regional markets. It also substantially redeploys the proceeds from the
disposals announced earlier in the year at attractive risk-adjusted returns.
Fees
During the six months to June 2022, the Group recognised net fees of £9.2
million from its fund and asset management activities (H1 2021: £23.9
million). The reduction reflects the recognition of a £15.7 million
non-recurring performance fee from LSAV in H1 2021. Growth in property
valuations and NOI over the past 12 months together contributed to growth in
recurring fee income received from USAF and LSAV.
H1 2022 H1 2021 FY 2021
£m £m £m
USAF asset management fee 6.9 6.5 12.0
LSAV asset and property management fee 2.3 1.7 3.9
Net performance fee - 15.7 41.9
Total fees 9.2 23.9 57.8
Principal risks and uncertainties
The principal risks of the business are set out on pages 76-88 of the 2021
Annual Report that was published in April. The Board has reviewed the
principal risks again and concluded that they have not changed since the
year-end report. Our principal risks fall into six categories and are
summarised as follows:
Category Risk
Market risk · Demand reduction: driven by macro events (such as Covid-19,
Government policy around HE or immigration and Brexit uncertainty)
· Demand reduction: value for money/affordability
· Supply increase: maturing PBSA sector and increasing supply of PBSA
beds
Operational risk · Major health and safety (H&S) incident in a property or a
development site
· Information Security and Cyber threat
Property/development risk · Inability to secure the best sites on the right terms. Failure or
delay to complete a development within budget and on time for the
scheduled academic year
· Property markets are cyclical and performance depends on general
economic conditions
Sustainability/ESG risk · ESG risk: failing to proactively address the environmental, social
and governance risks demanded of Unite Students as a responsible
business
Financing risk · Balance sheet liquidity risk/compliance with debt covenants
People risk · Unable to attract, develop and retain an appropriately skilled,
diverse and engaged workforce
Responsibility statement of the directors in respect of the interim report and
accounts
We confirm that to the best of our knowledge:
· The condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the United
Kingdom and gives a true and fair view of the assets, liabilities, financial
position and profit or loss of the issuer, or the undertakings included in the
consolidation as a whole as required by DTR 4.2.4R
The interim management report includes a fair review of the information
required by:
· DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
· DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Richard Smith Joe
Lister
Chief Executive Chief
Financial Officer
Forward-looking statements
The preceding interim statement has been prepared for the shareholders of the
Company, as a body, and for no other persons. Its purpose is to assist
shareholders of the Company to assess the strategies adopted by the Company
and the potential for those strategies to succeed and for no other purpose.
The interim statement contains forward-looking statements that are subject to
risk factors associated with, among other things, the economic, regulatory and
business circumstances occurring from time to time in the sectors and markets
in which the Group operates. It is believed that the expectations reflected in
these statements are reasonable, but they may be affected by a wide range of
variables that could cause actual results to differ materially from those
currently anticipated. No assurances can be given that the forward-looking
statements will be realised. The forward-looking statements reflect the
knowledge and information available at the date of preparation. Nothing in the
interim statement should be considered or construed as a profit forecast for
the Group. Except as required by law, the Group has no obligation to update
forward-looking statements or to correct any inaccuracies therein.
INTRODUCTION AND TABLE OF CONTENTS
These financial statements are prepared in accordance with IFRS. The 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 include measures
based on the European Public Real Estate Association (EPRA) best practice
recommendations. The metrics are used internally to measure and manage the
business. 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
Consolidated statement of cash flows
Section 1: Basis of preparation
Section 2: Results for the period
2.1 Segmental information
2.2 Earnings
2.3 Net assets
2.4 Revenue and costs
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 Dividends
Section 5: Working capital
5.1 Provisions
5.2 Cash and cash equivalents
Section 6: Post balance sheet events
Section 7: Alternative performance measures
CONSOLIDATED INCOME STATEMENT
For the 6 months to 30 June 2022
Note Unaudited Unaudited Year to 31 December
6 months to
6 months to
2021
30 June 2022
30 June 2021
£m
£m
£m
Rental income 2.4 127.7 116.8 209.0
Other income 2.4 9.1 23.8 57.9
Total revenue 136.8 140.6 266.9
Cost of sales (34.3) (30.5) (64.4)
Expected credit losses - (0.8) (3.3)
Operating expenses (16.6) (15.2) (36.3)
Results from operating activities before gains/(losses) on property 85.9 94.1 162.9
Loss on disposal of property (9.9) (11.0) (12.0)
Net valuation gains on property (owned and under development) 3.1a 128.6 32.5 116.9
Net valuation losses on property (leased) 3.1a (4.9) (2.6) (11.1)
Profit before net financing costs 199.7 113.0 256.7
Loan interest and similar charges (13.2) (18.5) (34.2)
Interest on lease liability (4.1) (4.2) (8.5)
Mark to market changes in interest rate swaps 37.1 3.0 10.9
Swap cancellation FV settlements and loan break costs - (1.5) (4.2)
Finance costs 19.8 (21.2) (36.0)
Finance income - - -
Net financing costs 19.8 (21.2) (36.0)
Share of joint venture profit 3.3a 114.6 38.6 122.4
Profit before tax 334.1 130.4 343.1
Current tax (0.4) 0.6 0.9
Deferred tax (1.0) 0.2 0.5
Profit for the period 332.7 131.2 344.5
Profit for the period attributable to
Owners of the parent company 2.2c 331.0 130.3 342.4
Non-controlling interest 1.7 0.9 2.1
332.7 131.2 344.5
Earnings per share
Basic 2.2c 82.9p 32.7p 85.9p
Diluted 2.2c 82.7p 32.6p 85.7p
All results are derived from continuing activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months to 30 June 2022
Unaudited Unaudited Year to 31 December
6 months to
6 months to
2021
30 June 2022
30 June 2021
£m
£m
£m
Profit for the period 332.7 131.2 344.5
Mark to market movements on hedging instruments - 16.2 16.2
Hedges reclassified to profit or loss - - (0.9)
Share of joint venture mark to market movements on hedging instruments 1.9 0.2 0.6
Other comprehensive income for the period 1.9 16.4 15.9
Total comprehensive income for the period 334.6 147.6 360.4
Attributable to
Owners of the parent company 332.9 146.7 358.3
Non-controlling interest 1.7 0.9 2.1
334.6 147.6 360.4
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 30 June 2022
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
Assets
Investment property (owned) 3.1a 3,226.1 3,236.3 3,095.1
Investment property (leased) 3.1a 93.5 99.7 97.7
Investment property (under development) 3.1a 428.7 235.7 324.1
Investment in joint ventures 3.3a 1,275.7 974.6 1,044.1
Other non-current assets 18.2 20.1 18.9
Right of use assets 3.1 4.2 3.6
Deferred tax asset 1.8 2.2 3.0
Total non-current assets 5,047.1 4,572.8 4,586.5
Assets classified as held for sale 3.1a 216.4 13.0 228.2
Interest rate swaps 4.2 39.6 - 6.1
Inventories 3.2 10.1 11.3 12.1
Trade and other receivables 68.6 88.1 108.8
Cash and cash equivalents 57.8 502.1 109.4
Total current assets 392.5 614.5 464.6
Total assets 5,439.6 5,187.3 5,051.1
Liabilities
Interest rate swaps - - (3.6)
Lease liabilities (4.4) (4.3) (4.9)
Trade and other payables (190.4) (152.4) (200.7)
Current tax liability (0.2) - (0.1)
Provisions 5.1 (33.6) (27.7) (33.5)
Total current liabilities (228.6) (184.4) (242.8)
Borrowings 4.1 (1,286.2) (1,539.1) (1,162.0)
Lease liabilities (91.0) (94.7) (91.9)
Interest rate swaps 4.2 - (4.4) -
Total non-current liabilities (1,377.2) (1,638.2) (1,253.9)
Total liabilities (1,605.8) (1,822.6) (1,496.7)
Net assets 3,833.8 3,364.7 3,554.4
Equity
Issued share capital 100.0 99.7 99.8
Share premium 2,161.4 2,160.8 2,161.2
Merger reserve 40.2 40.2 40.2
Retained earnings 1,501.4 1,036.4 1,225.0
Hedging reserve 3.4 2.2 1.6
Equity attributable to the owners of the parent company 3,806.4 3,339.3 3,527.8
Non-controlling interest 27.4 25.4 26.6
Total equity 3,833.8 3,364.7 3,554.4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the 6 months to 30 June 2022
Issued Share Merger Retained earnings Hedging Attributable Non-controlling Total
share capital
premium
reserve
£m
reserve
to owners
interest
£m
£m
£m
£m
£m
of the parent
£m
£m
At 1 January 2022 99.8 2,161.2 40.2 1,225.0 1.6 3,527.8 26.6 3,554.4
(Unaudited)
Profit for the period - - - 331.0 - 331.0 1.7 332.7
Other comprehensive income for the period:
Mark to market movements on hedging instruments - - - - - - - -
Share of joint venture mark to market movements on hedging instruments - - - - 1.9 1.9 - 1.9
Total comprehensive income for the period - - - 331.0 1.9 332.9 1.7 334.6
Shares issued 0.2 0.2 - - - 0.4 - 0.4
Fair value of share based payments - - - - - - - -
Deferred tax on share based payments - - - 0.1 - 0.1 - 0.1
Own shares acquired - - - (1.4) - (1.4) - (1.4)
Unwind of realised swap gain - - - - (0.1) (0.1) - (0.1)
Dividends to owners - - - (53.3) - (53.3) - (53.3)
of the parent company
Dividends to non-controlling interest - - - - - - (0.9) (0.9)
At 30 June 2022 100.0 2,161.4 40.2 1,501.4 3.4 3,806.4 27.4 3,833.8
Issued Share Merger Retained earnings Hedging Attributable Non-controlling Total
share capital
premium
reserve
£m
reserve
to owners
interest
£m
£m
£m
£m
£m
of the parent
£m
£m
At 1 January 2021 99.5 2,160.3 40.2 949.0 (14.1) 3,234.9 25.1 3,260.0
(Unaudited)
Profit for the period - - - 130.3 - 130.3 0.9 131.2
Other comprehensive income for the period:
Mark to market movements on hedging instruments - - - - 16.2 16.2 - 16.2
Share of joint venture mark to market movements on hedging instruments - - - - 0.2 0.2 - 0.2
Total comprehensive income for the period - - - 130.3 16.4 146.7 0.9 147.6
Shares issued 0.2 0.5 - - - 0.7 - 0.7
Fair value of share based payments - - - 0.9 - 0.9 - 0.9
Deferred tax on share based payments - - - - - - - -
Own shares acquired - - - (1.3) - (1.3) - (1.3)
Unwind of realised swap gain - - - - (0.1) (0.1) - (0.1)
Dividends to owners - - - (42.5) - (42.5) - (42.5)
of the parent company
Dividends to non-controlling interest - - - - - - (0.6) (0.6)
At 30 June 2021 99.7 2,160.8 40.2 1,036.4 2.2 3,339.3 25.4 3,364.7
Issued Share Merger Retained earnings Hedging Attributable Non-controlling Total
share capital
premium
reserve
£m
reserve
to owners
interest
£m
£m
£m
£m
£m
of the parent
£m
£m
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 movement on hedging 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 hedging instruments - - - - 0.6 0.6 - 0.6
Total comprehensive income for the year - - - 342.4 15.9 358.3 2.1 360.4
Shares issued 0.3 0.9 - - - 1.2 - 1.2
Fair value of share based payments - - - 2.4 - 2.4 - 2.4
Deferred tax on share based payments - - - 0.3 - 0.3 - 0.3
Own shares acquired - - - (1.3) - (1.3) - (1.3)
Unwind of realised swap gain - - - - (0.2) (0.2) - (0.2)
Dividends to owners - - - (67.8) - (67.8) - (67.8)
of the parent company
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
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months to 30 June 2022
Note Unaudited Unaudited Year to 31 December
6 months to
6 months to
2021
30 June 2022
30 June 2021
£m
£m
£m
Net cash flows from operating activities 5.2 89.9 73.0 171.3
Investing activities
Investment in joint ventures (140.9) - -
Capital expenditure on property (99.3) (38.1) (95.9)
Acquisition of intangible assets (2.6) (1.3) (3.2)
Acquisition of plant and equipment (0.1) (0.2) (0.4)
Proceeds from the sale of investment property 12.7 309.0 307.3
Dividends received 23.8 23.3 37.1
Net cash flows from investing activities (206.4) 292.7 244.9
Financing activities
Proceeds from the issue of share capital 0.4 0.5 1.1
Payments to acquire own shares (1.4) (1.3) (1.3)
Interest paid in respect of financing activities (10.0) (13.4) (47.9)
Swap cancellation FV settlements and debt exit costs - (1.5) (4.2)
Proceeds from non-current borrowings 125.0 150.0 147.0
Repayment of borrowings - (300.0) (675.0)
Dividends paid to the owners of the parent company (44.6) (35.5) (57.2)
Withholding tax paid on distributions (3.7) - (7.0)
Dividends paid to non-controlling interest (0.8) (0.7) (0.6)
Net cash flows from financing activities 64.9 (201.9) (645.1)
Net (decrease)/increase in cash and cash equivalents (51.6) 163.8 (228.9)
Cash and cash equivalents at start of period 109.4 338.3 338.3
Cash and cash equivalents at end of period 57.8 502.1 109.4
NOTES TO THE INTERIM FINANCIAL STATEMENTS
Section 1
General information
The information for the year ended 31 December 2021 does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006 but is
derived from those accounts. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditors reported on
those accounts: their report was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement under section
498(2) or (3) of the Companies Act 2006.
Basis of preparation
The annual financial statements of The Unite Group plc are prepared in
accordance with IFRSs as adopted by the United Kingdom. The condensed set of
financial statements included in this half yearly financial report has been
prepared in accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the United Kingdom.
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 at least 12 months from the date of this report.
The Directors' Base Case scenario, assuming 97% occupancy for the 2022/23 academic year, is informed by their reasoned opinion that universities are expected to welcome students for the 2022/23 academic year in September and there will be continued demand for rented student accommodation from both UK and international students. The Directors expect that international students will be able to travel to the UK for the start of the 2022/23 academic year in September, consistent with the 2021/22 year, as Covid-19 restrictions have further eased.
The Directors are satisfied that the Group has sufficient liquidity and will maintain covenant compliance over the next 12 months. To 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 lender covenants would not be breached. Within the tightest covenant, income could fall to around 60% of forecast levels before there would be a breach. The Group has capacity for valuations to fall by 37% before there would be a breach of LTV covenants in the facilities where such covenants exist. The Directors are satisfied that the possibility of these outcomes is sufficiently remote that adopting the going concern basis of preparation is appropriate. The Group recognises the challenge of climate change and has adopted an ambitious Sustainability Strategy. The worst impacts of climate change are expected to be longer term than would impact the Group's going concern assessment.
Accordingly, after making enquiries and having considered forecasts and appropriate sensitivities, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of these financial statements.
Seasonality of operations
The results of the Group's Operations segment, a separate business segment (see Section 2), are closely linked to the level of occupancy achieved in its portfolio of property. Occupancy typically falls over the summer months (particularly July and August) as students leave for the summer holidays.
Conversely, the Group's build cycle for new properties plan for construction to complete shortly before the start of the academic year in September each year. Accordingly, there will be second half-year net income benefit from two newly completing assets in 2022.
Changes in accounting policies
The Group has not adopted any new accounting standards in the period or
changed any accounting policies from those included in the 2021 Annual Report.
Critical accounting judgements and key sources of estimation uncertainty
Full details of critical accounting judgements and key sources of estimation
uncertainty are given on page 192 of the 2021 Annual Report and Accounts. This
includes detail of the Group's approach to valuation of investment property
and investment property under development, the recognition and valuation of
provisions for cladding remediation and the classification of joint venture
vehicles.
Section 2: Results for the period
This section focuses on the results and performance of the Group and provides
a reconciliation between the primary statements and EPRA performance measures.
On the following pages you will find disclosures explaining the Group's
results for the period, segmental information, earnings and net tangible asset
value (NTA) per share.
The Group uses EPRA earnings, adjusted earnings and NTA movement as key
comparable indicators across other real estate companies in Europe.
IFRS performance measures
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m pps £m pps £m pps
Profit after tax(1) 2.2c 331.0 82.9p 130.3 32.7p 342.4 85.9p
Net assets(1) 2.3d 3,806.4 948p 3,339.3 833p 3,527.8 880p
(1 Profit after tax represents profit attributable to the owners of the parent
company and net assets represents equity attributable to the owners of the
parent company.)
EPRA performance measures
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m pps £m pps £m pps
EPRA earnings 2.2c 94.5 23.6p 88.3 22.2p 152.0 38.1p
Adjusted earnings(2) 2.2c 96.0 24.0p 72.6 18.2p 110.1 27.6p
EPRA NTA 2.3d 3,770.8 940p 3,352.1 837p 3,532.2 882p
(2 Adjusted earnings are calculated as EPRA Earnings excluding abortive
acquisition costs and the LSAV performance fee, in order to reflect the
comparable performance of the Group's underlying operating activities.)
2.1 Segmental information
The Board of Directors monitor the business along two activity lines,
Operations and Property. The reportable segments for the 6 months ended 30
June 2022 and 30 June 2021 and for the year ended 31 December 2021 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 and 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 amends IFRS measures by removing
principally the unrealised investment property valuation gains and losses such
that users of the Financials are able to see the extent to which dividend
payments (dividends per share) are underpinned by earnings arising from purely
operational activity. In order to improve comparability of results
year-on-year, an alternative performance measure based on EPRA earnings,
adjusted to remove the impact of abortive acquisition costs and the LSAV
performance fee is presented. The reconciliation between profit attributable
to owners of the parent company and EPRA earnings is available in note 2.2b.
The Operations segment manages rental properties, owned directly by the Group
or by joint ventures. Its revenues are derived from rental income and asset
management fees earned from joint ventures. The way in which the Operations
segment adds value to the business is set out in the Operations review on
pages 56 - 61 of the 2021 Annual Report. The Operations segment is the main
contributor to EPRA earnings and EPRA EPS and these are therefore the key
indicators which are used by the Board to manage 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
Unaudited 30 June 2022
Share of joint ventures Group on EPRA
basis
£m Unite USAF LSAV Total
Rental income 127.7 24.0 25.7 177.4
Property operating expenses (34.3) (6.7) (4.5) (45.5)
Net operating income 93.4 17.3 21.2 131.9
Management fees 11.1 (1.9) - 9.2
Overheads (12.9) (0.4) (0.4) (13.7)
Lease liability interest (4.1) - - (4.1)
Net financing costs (15.4) (3.5) (5.9) (24.8)
Operations segment result 72.1 11.5 14.9 98.5
Property segment result (0.6) - - (0.6)
Unallocated to segments (3.2) (0.1) (0.1) (3.4)
EPRA earnings 68.3 11.4 14.8 94.5
LSAV performance fee - - - -
Abortive acquisition costs 1.5 - - 1.5
Adjusted earnings 69.8 11.4 14.8 96.0
Included in the above is rental income of £9.9 million and property operating
expenses of £4.7 million relating to sale and leaseback properties.
The unallocated to segments balance includes abortive acquisition costs of
(£1.5 million), the fair value of share-based payments of (£1.4 million),
contributions to the Unite Foundation of (£0.3 million), deferred tax credit
of £0.2 million and other costs of (£0.4 million).
Depreciation and amortisation totalling £3.8 million is included within
overheads.
Unaudited 30 June 2021
Share of joint ventures Group on EPRA
basis
£m Unite USAF LSAV Total
Rental income 116.8 19.5 16.6 152.9
Property operating expenses (31.3) (6.3) (4.2) (41.8)
Net operating income 85.5 13.2 12.4 111.1
Management fees 9.8 (1.6) - 8.2
Overheads (12.6) (0.2) (0.2) (13.0)
Lease liability interest (4.2) - - (4.2)
Net financing costs (20.7) (3.3) (4.4) (28.4)
Operations segment result 57.8 8.1 7.8 73.7
Property segment result (1.0) - - (1.0)
Unallocated to segments 31.8 (0.1) (16.1) 15.6
EPRA earnings 88.6 8.0 (8.3) 88.3
LSAV performance fee (31.4) - 15.7 (15.7)
Adjusted earnings 57.2 8.0 7.4 72.6
Included in the above is rental income of £9.1 million and property operating
expenses of £4.1 million relating to sale and leaseback properties.
The unallocated to segments balance includes the fair value of share-based
payments of (£1.0 million), contributions to the Unite Foundation of (£0.6
million), LSAV performance fee of £15.7 million, other costs of (£0.3
million), current tax credit of £1.7 million and deferred tax credit of £0.2
million.
Depreciation and amortisation totalling £3.8 million is included within
overheads.
31 December 2021
Share of joint ventures Group on EPRA
basis
£m Unite USAF LSAV Total
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 £16.3 million and property
operating expenses of £8.3 million relating to sale and leaseback
properties.
The unallocated to segments balance includes the fair value of share-based
payments of (£2.4 million), contributions to the Unite Foundation of (£1.0
million), LSAV performance fee of £41.9 million, current tax credit of £2.0
million and a deferred tax credit of £0.8 million.
Depreciation and amortisation totalling £7.8 million is included within
overheads.
2.2b IFRS reconciliation to EPRA earnings and adjusted 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 cancellation fair value settlements and debt
break costs, which are included in the profit/loss reported under IFRS. EPRA
earnings and adjusted earnings reconcile to the profit attributable to owners
of the parent company as follows:
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
Profit attributable to owners of the parent company 331.0 130.3 342.4
Net valuation gains on investment property (owned) 3.1 (128.6) (32.5) (116.9)
Property disposals (owned) 9.9 11.0 12.0
Net valuation loss on investment property (leased) 3.1 4.9 2.6 11.1
Amortisation of fair value of debt recognised on acquisition (2.1) (2.2) (4.3)
Share of joint venture gains on investment property 3.3a (86.3) (21.8) (88.7)
Share of joint venture property disposals 3.3a 0.4 0.7 0.3
Swap cancellation fair value settlements and debt break costs - 1.5 4.2
Mark to market changes on interest rate swaps (37.1) (3.0) (10.9)
Current tax relating to property disposals - 1.2 1.1
Deferred tax 0.6 - 0.3
Non-controlling interest share of reconciling items1(*) 1.8 0.5 1.4
EPRA earnings 2.2a 94.5 88.3 152.0
Net LSAV performance fee 2.4 - (15.7) (41.9)
Abortive acquisition costs 2.2a 1.5 - -
Adjusted earnings 2.2a 96.0 72.6 110.1
(*) The non-controlling 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.
2.2c Earnings per share
The Basic EPS calculation is based on the earnings attributable to the equity
shareholders of The Unite Group plc and the weighted average number of shares
which have been in issue during the 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.
The calculations of earnings and EPS on a basic, diluted, EPRA and adjusted
basis are as follows:
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m pps £m pps £m pps
Basic 331.0 82.9p 130.3 32.7p 342.4 85.9p
Diluted 331.0 82.7p 130.3 32.6p 342.4 85.7p
EPRA 2.2a 94.5 23.6p 88.3 22.2p 152.0 38.1p
Adjusted 2.2a 96.0 24.0p 72.6 18.2p 110.1 27.6p
Weighted average number of shares (thousands) Unaudited Unaudited 31 December 2021
30 June 2022 30 June 2021
Basic 399,412 398,227 398,742
Dilutive potential ordinary shares (share options) 681 863 829
Diluted 400,093 399,873 399,571
The total number of ordinary shares in issue as at 30 June 2022 is 400,110,040
(30 June 2021: 399,010,000, 31 December 2021: 399,140,000). At 30 June 2022
there were 17,939 shares excluded from the potential dilutive shares that did
not affect the diluted weighted average number of shares (30 June 2021:
16,841, 31 December 2021: none).
2.3 Net Assets
EPRA NTA per share 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.
The Group's Property business undertakes the acquisition and development of
properties. The way in which the Property segment adds value to the business
is set out in the Property review on pages 62 - 69 of the 2021 Annual Report.
In February 2022 EPRA updated their reporting guidance to include a new
loan-to-value (LTV) measure which is presented below, which includes net other
payables within the net debt value, and also includes intangibles within the
property and other eligible assets value. Further details of the calculation
is set out in note 7.
2.3a EPRA net assets
Unaudited 30 June 2022
Share of joint ventures Group on EPRA basis
Unite USAF LSAV Total
£m
£m
£m
£m
Investment properties (owned)(*) 3,442.5 835.1 971.1 5,248.7
Investment properties (leased) 93.5 - - 93.5
Investment properties (under development) 428.7 - - 428.7
Total property portfolio 3,964.7 835.1 971.1 5,770.9
Debt on properties (1,266.0) (256.8) (384.4) (1,907.2)
Lease liability (93.2) - - (93.2)
Cash 57.8 54.0 68.3 180.1
Net debt (1,301.4) (202.8) (316.1) (1,820.3)
Other assets and (liabilities) (122.7) (32.7) (8.8) (164.2)
Intangibles per IFRS balance sheet (15.6) - - (15.6)
EPRA NTA 2,525.0 599.6 646.2 3,770.8
Loan to value(**) 31% 24% 33% 30%
Loan to value post-IFRS 16 33% 24% 33% 32%
EPRA loan to value 33%
* Investment property (owned) includes assets classified as held for sale in
the IFRS balance sheet.
** LTV calculated excluding leased investment property and the corresponding
lease liability. LTV is an APM - see note 7.
Unaudited 30 June 2021
Share of joint ventures Group on EPRA basis
Unite USAF LSAV Total
£m
£m
£m
£m
Investment properties (owned)(*) 3,249.3 616.0 850.9 4,716.2
Investment properties (leased) 99.7 - - 99.7
Investment properties (under development) 235.7 - - 235.7
Total property portfolio 3,584.7 616.0 850.9 5,051.6
Debt on properties (1,514.8) (201.1) (337.8) (2,053.7)
Lease liability (95.2) - - (95.2)
Cash 502.1 21.3 30.0 553.4
Net debt (1,107.9) (179.8) (307.8) (1,595.5)
Other liabilities (57.0) (16.2) (13.5) (86.7)
Intangibles per IFRS balance sheet (17.3) - - (17.3)
EPRA NTA 2,402.5 420.0 529.6 3,352.1
Loan to value(**) 29% 29% 36% 30%
Loan to value post-IFRS 16 31% 29% 36% 32%
EPRA loan to value 32%
(*) Investment property (owned) includes assets classified as held for sale in
the IFRS balance sheet.
(**) LTV calculated excluding leased investment property and the corresponding
lease liability. LTV is an APM - see note 7.
31 December 2021
Share of joint ventures Group on EPRA basis
Unite USAF LSAV Total
£m
£m
£m
£m
Investment properties (owned)(*) 3,323.3 632.0 909.5 4,864.8
Investment properties (leased) 97.7 - - 97.7
Investment properties (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 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%
EPRA loan to value 32%
(*) Investment property (owned) includes assets classified as held for sale in
the IFRS balance sheet.
(**) LTV calculated excluding leased investment property and the corresponding
lease liability. LTV is an APM - see note 7.
2.3b Movement in EPRA NTA during the period
Contributions to EPRA NTA by each segment during the period are as follows:
Unaudited 30 June 2022
Share of joint ventures Group on see through basis
Unite USAF LSAV Total
£m
£m
£m
£m
Operations
Operations segment result 72.1 11.5 14.9 98.5
Add back amortisation of intangibles 3.1 - - 3.1
Total operations 75.2 11.5 14.9 101.6
Property
Rental growth 22.5 3.3 16.4 42.2
Yield movement 80.9 24.1 40.8 145.8
Disposal losses (owned) (9.9) (0.4) - (10.3)
Investment property gains (owned)(*) 93.5 27.0 57.2 177.7
Investment property losses (leased) (4.9) - - (4.9)
Investment property gains (under development) 25.2 - - 25.2
Pre-contract/other development costs (0.6) - - (0.6)
Total property 113.2 27.0 57.2 197.4
Unallocated
Shares issued 0.4 - - 0.4
Investment in joint ventures (117.8) 130.1 (12.3) -
Dividends paid (53.3) - - (53.3)
LSAV performance fee - - - -
Abortive acquisition fees (1.5) - - (1.5)
Swap cancellation FV settlements and debt break costs - - - -
Acquisition of intangibles (3.7) - - (3.7)
Other (1.9) (0.2) (0.2) (2.3)
Total unallocated (177.8) 129.9 (12.5) (60.4)
Total EPRA NTA movement in the period 10.6 168.4 59.6 238.6
Total EPRA NTA brought forward 2,514.4 431.2 586.6 3,532.2
Total EPRA NTA carried forward 2,525.0 599.6 646.2 3,770.8
(*) Investment property (owned) includes assets classified as held for sale in
the IFRS balance sheet.
The £2.3 million other balance within the unallocated segment includes a tax
charge of (£0.3 million), the purchase of own shares of (£1.4 million) and
contributions to the Unite Foundation of (£0.3 million).
Unaudited 30 June 2021
Share of joint ventures Group on see through basis
Unite USAF LSAV Total
£m
£m
£m
£m
Operations
Operations segment result 57.8 8.1 7.8 73.7
Add back amortisation of intangibles 3.0 - - 3.0
Total operations 60.8 8.1 7.8 76.7
Property
Lost rental income due to Covid-19 13.3 6.4 10.7 30.4
Yield movement 7.6 0.8 3.5 11.9
Disposal losses (owned) (11.0) (0.7) - (11.7)
Investment property losses (owned) 9.9 6.5 14.2 30.6
Investment property losses (leased) (2.6) - - (2.6)
Investment property losses (under development) 11.6 - - 11.6
Pre-contract/other development costs (1.0) - - (1.0)
Total property 17.9 6.5 14.2 38.6
Unallocated
Shares issued 0.7 - - 0.7
Investment in joint ventures (105.0) (12.2) 117.2 -
Dividends paid (42.5) - - (42.5)
LSAV performance fee 31.4 - (15.7) 15.7
Swap cancellation FV settlements and debt break costs (1.5) - - (1.5)
Acquisition of intangibles (1.3) - - (1.3)
Other 0.1 (0.2) (0.4) (0.5)
Total unallocated (118.1) (12.4) 101.1 (29.4)
Total EPRA NTA movement in the period (39.4) (2.2) 123.1 85.9
Total EPRA NTA brought forward 2,441.9 417.8 406.5 3,266.2
Total EPRA NTA carried forward 2,402.5 420.0 529.6 3,352.1
The £0.5 million other balance within the unallocated segment includes a tax
credit of £1.8 million, the purchase of own shares of (£1.3 million) and
contributions to the Unite Foundation of (£0.6 million).
31 December 2021
Share of joint ventures Group on see through basis
Unite USAF LSAV Total
£m
£m
£m
£m
Operations
Operations segment result 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) (11.1) - - (11.1)
Investment property gains (under development) 50.3 - - 50.3
Pre-contract/other development costs (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 (4.2) - - (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 (owned) includes assets classified as held for sale in
the IFRS balance sheet.
The £0.3 million other balance within the unallocated segment includes a tax
credit of £2.8 million, the purchase of own shares of (£1.3 million) and
contributions to the Unite Foundation of (£1.0 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:
Unaudited 30 June 2022
NTA NRV NDV
£m
£m
£m
Net asset value reported under IFRS 3,806.4 3,806.4 3,806.4
Mark to market interest rate swaps (41.4) (41.4) -
Unamortised swap gain (1.4) (1.4) (1.4)
Mark to market of fixed rate debt - - 69.4
Unamortised fair value of debt recognised on acquisition 21.6 21.6 21.6
Current tax 0.6 0.6 -
Deferred tax 0.6 0.6 -
Intangibles per IFRS balance sheet (15.6) - -
Real estate transfer tax - 300.3 -
EPRA reporting measure 3,770.8 4,086.7 3,896.0
Unaudited 30 June 2021
NTA NRV NDV
£m
£m
£m
Net asset value reported under IFRS 3,339.3 3,339.3 3,339.3
Mark to market interest rate swaps 4.9 4.9 -
Unamortised swap gain (1.7) (1.7) (1.7)
Mark to market of fixed rate debt - - (68.8)
Unamortised fair value of debt recognised on acquisition 26.0 26.0 26.0
Current tax 0.9 0.9 -
Deferred tax - - -
Intangibles per IFRS balance sheet (17.3) - -
Real estate transfer tax - 247.8 -
EPRA reporting measure 3,352.1 3,617.2 3,294.8
31 December 2021
NTA NRV NDV
£m
£m
£m
Net asset value 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
2.3d 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
period. The Board uses EPRA NTA to monitor the performance of the Property
segment on a periodic basis.
Note Unaudited Unaudited 31 December Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
30 June 2022
30 June 2021
2021
£m £m £m pps pps pps
Net assets
Basic 2.3c 3,806.4 3,339.3 3,527.8 948 833 880
EPRA NTA 2.3a 3,770.8 3,352.1 3,532.2 942 840 885
EPRA NTA (diluted) 3,774.9 3,357.0 3,536.1 940 837 882
EPRA NRV 2.3a 4,086.7 3,617.2 3,825.9 1,021 907 959
EPRA NRV (diluted) 4,090.8 3,622.1 3,829.7 1,019 904 955
EPRA NDV 2.3a 3,896.0 3,294.8 3,499.7 974 826 877
EPRA NDV (diluted) 3,900.1 3,299.7 3,503.6 972 823 874
Number of shares (thousands)
Basic 400,110 399,010 399,140
Outstanding share options 1,273 1,845 1,687
Diluted 401,383 400,855 400,827
2.4. Revenue and costs
The Group earns revenue from the following activities:
Note Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
Rental income(*) Operations segment 2.2a 127.7 116.8 209.0
Management fees Operations segment 9.2 8.2 16.2
LSAV performance fee Unallocated - 15.7 41.9
136.9 140.7 267.1
Impact of non-controlling interest on management fees (0.1) (0.1) (0.2)
Total revenue 136.8 140.6 266.9
(*) EPRA earnings includes £177.4 million of rental income (30 June 2021:
£152.9 million, 31 December 2021: £282.7 million), which is comprised of
£127.7 million recognised on wholly owned assets (30 June 2021: £116.8
million, 31 December 2021: £209.0 million) and a further £49.7 million from
joint ventures (30 June 2021: £36.1 million, 31 December 2021: £73.7
million) which is included in share of joint venture profit/loss in the
consolidated IFRS income statement.
The cost of sales included in the consolidated IFRS income statement includes
property operating expenses of £34.3 million (30 June 2021: £31.3 million,
31 December 2021: £64.4 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 EPRA Net Tangibles Asset Value
(NTA), 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 four 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, except where otherwise stated.
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 held at fair value in the balance
sheet with changes in fair value taken to the income statement.
iii) Investment property (under development)
These are assets which are currently in the course of construction and which
will be transferred to Investment property on completion. These 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.
iii) 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.
3.1a 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 6 months ending 30 June 2022 and throughout 2021.
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 Leadership
Team and the CFO. This includes a review of the fair value movements over the
period.
The fair value of the Group's wholly owned properties and the movements in the
carrying value of the Group's wholly owned properties during the period ended
30 June 2022 is shown in the table below:
Unaudited 30 June 2022
£m Investment property (owned) Investment property (leased) Investment property (under development) Total
At 1 January 2022 3,095.1 97.7 324.1 3,516.9
Cost capitalised 27.3 0.7 70.6 98.6
Interest capitalised 0.3 - 3.9 4.2
Transfer from work in progress - - 4.9 4.9
Transfer to assets held for sale - - - -
Disposals - - - -
Valuation gains 141.0 - 25.3 166.3
Valuation losses (37.6) (4.9) (0.1) (42.6)
Net valuation gains/(losses) 103.4 (4.9) 25.2 123.7
Carrying value and market value at 30 June 2022 3,226.1 93.5 428.7 3,748.3
Assets classified as Held for Sale and presented within current assets in the
IFRS Balance Sheet (30 June 2022: £216.4 million, 30 June 2021: £13.0
million, 31 December 2021: £228.2 million) are included within the total
Investment Property values for EPRA reporting purposes (note 2.3a). At 30 June
2022 the EPRA carrying value and market value totals £3,964.7 million.
The fair value of the Group's wholly owned properties and the movements in the
carrying value of the Group's wholly owned properties during the period ended
30 June 2021 is shown in the table below:
Unaudited 30 June 2021
£m Investment property (owned) Investment property (leased) Investment property (under development) Total
At 1 January 2021 3,614.7 101.8 187.2 3,903.7
Cost capitalised 14.9 0.5 34.8 50.2
Interest capitalised - - 2.1 2.1
Transfer from work in progress - - - -
Transfer to assets held for sale (13.0) - - (13.0)
Disposals (401.2) - - (401.2)
Valuation gains 60.6 - 11.8 72.4
Valuation losses (39.7) (2.6) (0.2) (42.5)
Net valuation gains/(losses) 20.9 (2.6) 11.6 29.9
Carrying value and market value at 30 June 2021 3,236.3 99.7 235.7 3,571.7
The fair value of the Group's wholly owned properties and the movements in the
carrying value of the Group's wholly owned properties during the year ended 31
December 2021 is shown in the table below:
31 December 2021
£m Investment property (owned) Investment property (leased) Investment property (under development) Total
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 gains/(losses) 66.6 (11.1) 50.3 105.8
Carrying value and market value at 31 December 2021 3,095.1 97.7 324.1 3,516.9
3.1b Fair value measurement
All investment and development properties are classified as Level 3 in the
fair value hierarchy.
Class of asset Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
London - Rental properties 906.1 812.9 849.8
Prime provincial - Rental properties 1,047.2 958.4 992.9
Major provincial - Rental properties 1,285.3 1,257.8 1,263.5
Other provincial - Rental properties 203.9 220.2 217.1
London - Development properties 291.0 199.8 249.9
Prime provincial - Development properties 96.7 33.1 48.4
Major provincial - Development properties 41.0 2.8 25.8
Other provincial - Development properties - - -
Investment property (owned) 3,871.2 3,485.0 3,647.4
Investment property (leased) 93.5 99.7 97.7
Market value (including assets classified as held for sale) 3,964.7 3,584.7 3,745.1
Investment property (classified as held for sale) (216.4) (13.0) (228.2)
Market value 3,748.3 3,571.7 3,516.9
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.
3.1c 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) £198-£391 £294
Rental properties cash flows Estimated future rent (%) 3%-5% 4%
Discount rate (yield) (%) 3.5%-4.4% 3.7%
906.1
Prime regional - Discounted cash flows Net rental income (£ per week) £148-£246 £179
Rental properties Estimated future rent (%) 3%-5% 4%
Discount rate (yield) (%) 3.9%-6.1% 4.6%
1,047.2
Major regional - Discounted Net rental income (£ per week) £70-£179 £133
Rental properties cash flows Estimated future rent (%) 0%-5% 3%
Discount rate (yield) (%) 4.4%-7.0% 5.6%
1,285.3
Provincial - Discounted Net rental income (£ per week) £105-£194 £142
Rental properties cash flows Estimated future rent (%) 0%-5% 3%
Discount rate (yield) (%) 5.1%-14.4% 7.1%
203.9
London - Discounted Estimated cost to complete (£m) £12.8m-£184.4m £127.4m
Development properties cash flows Net rental income (£ per week) £185-£382 £289
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 3.6% 3.6%
291.0
Prime regional - Discounted Estimated cost to complete (£m) £1.3m-£62.1m £32.5m
Development properties cash flows Net rental income (£ per week) £176-£260 £187
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 4.0%-4.75% 4.2%
96.7
Major regional - Discounted Estimated cost to complete (£m) £26.8m-£38.0m £35.0m
Development properties cash flows Net rental income (£ per week) £171-£228 £181
Estimated future rent (%) 3%-4% 3.3%
Discount rate (yield) (%) 4.75%-4.9% 4.9%
41.0
3,871.2
Investment property (leased) 93.5 Discounted Net rental income (£ per week) £98-£191 £151
cash flows Estimated future rent (%) 0%-4% 3%
Discount rate (yield) (%) 6.8% 6.8%
Fair value at 30 June 2022 3,964.7
Fair value £m Valuation technique Unobservable inputs Range Weighted average
London - Discounted Net rental income (£ per week) £191-£378 £289
Rental properties cash flows Estimated future rent (%) 2%-3% 3%
Discount rate (yield) (%) 3.9%-4.9% 4.0%
812.9
Prime regional - Discounted cash flows Net rental income (£ per week) £144-£235 £173
Rental properties Estimated future rent (%) 2%-3% 2%
Discount rate (yield) (%) 4.0%-6.4% 4.8%
958.4
Major regional - Discounted Net rental income (£ per week) £62-£174 £132
Rental properties cash flows Estimated future rent (%) 1%-3% 2%
Discount rate (yield) (%) 4.6%-7.0% 5.7%
1,257.8
Provincial - Discounted Net rental income (£ per week) £109-£187 £139
Rental properties cash flows Estimated future rent (%) 1%-3% 2%
Discount rate (yield) (%) 5.0%-14.0% 6.8%
220.2
London - Discounted Estimated cost to complete (£m) £56.6m-£146.6m £99.4m
Development properties cash flows Net rental income (£ per week) £185-£382 £289
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 3.9% 3.9%
199.8
Prime regional - Discounted Estimated cost to complete (£m) £12.7m-£64.8m £38.2m
Development properties cash flows Net rental income (£ per week) £171-£213 £172
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 4.3% 4.3%
33.1
Major regional - Discounted Estimated cost to complete (£m) £55.7m £55.7m
Development properties cash flows
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) - -
2.8
3,485.0
Investment property (leased) 99.7 Discounted Net rental income (£ per week) £95-£185 £144
cash flows Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 6.8% 6.8%
Fair value at 30 June 2021 3,584.7
Fair value £m Valuation technique Unobservable inputs Range Weighted average
London - 849.8 Discounted Net rental income (£ per week) £191-£373 £291
cash flows
Rental properties Estimated future rent (%) 3%-4%
Discount rate (yield) (%) 3.7%-4.9%
4%
3.9%
Prime regional - 992.9 Discounted Net rental income (£ per week) £144-£235 £191
cash flows
Rental properties Estimated future rent (%) 1%-4% 3%
Discount rate (yield) (%) 4.0%-7.0% 4.7%
Major regional - 1,263.6 Discounted Net rental income (£ per week) £62-£173 £131
cash flows
Rental properties Estimated future rent (%) 0%-4% 2%
Discount rate (yield) (%) 4.7%-7.0% 5.7%
Provincial - 217.1 Discounted Net rental income (£ per week) £109-£188 £135
cash flows
Rental properties Estimated future rent (%) 1%-4%
Discount rate (yield) (%) 5.1%-14.2%
3%
7.0%
London - 249.9 Discounted Estimated cost to complete (£m) £34.0m-£177.3m £126.5m
cash flows
Development properties Net rental income (£ per week) £185-£382 £289
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 3.6% 3.6%
Prime regional - 48.4 Discounted Estimated cost to complete (£m) £7.1m-£64.3m £35.9m
cash flows
Development properties Net rental income (£ per week) £176-£258 £181
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 4.0% 4.0%
Major regional - 25.8 Discounted Estimated cost to complete (£m) £33.9m-£45.2m £42.1m
cash flows
Development properties Net rental income (£ per week) £171-£213 £172
Estimated future rent (%) 3% 3%
Discount rate (yield) (%) 5.0% 5.0%
3,647.4
Investment property 97.7 Discounted Net rental income (£ per week) £95-£185 £144
cash flows
(leased) Estimated future rent (%) 3%
Discount rate (yield) (%) 6.8%
3%
6.8%
Fair value at 31 December 2021 3,745.1
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. These two key sources
of estimation uncertainty are considered to represent those most likely to
have a material impact on the valuation of the Group's investment property
within the next 12 months as a result of reasonably possible changes in
assumptions used. The potential effect of such reasonably possible changes has
been assessed by the Group and is set out below:
Class of assets Fair value at +5% -5% +25bps -25bps
30 June 2022
change in estimated
change in estimated
change in
change in
net rental income
net rental income
nominal equivalent yield
nominal equivalent yield
Rental properties (£m)(*) 906.1
London 951.0 861.2 849.4 971.0
Prime provincial 1,047.2 1,098.8 995.6 993.1 1,107.7
Major provincial 1,285.3 1,349.1 1,221.4 1,229.9 1,346.0
Other provincial 203.9 213.9 193.5 196.3 211.7
Development properties 291.0 308.1 264.6 269.5 316.1
London
Prime provincial 96.7 101.4 92.1 91.5 103.2
Major provincial 41.0 42.8 38.2 39.2 43.0
Market value 3,871.2 4,065.1 3,666.6 3,668.9 4,098.7
(*) Includes assets classified as held for sale in the IFRS balance sheet.
3.2 Inventories
Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
Interests in land 8.9 9.1 10.8
Other stocks 1.2 2.2 1.3
Inventories 10.1 11.3 12.1
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 2022 (December 2021)
Group has interest
The UNITE UK Student Accommodation Fund (USAF) 29.52%(*) (23.4%) 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%) Invest and operate student accommodation in London and Birmingham GIC Real Estate Pte, Ltd. Real estate LSAV Unit Trust, a Jersey Unit Trust, and LSAV (Holdings) Ltd, incorporated in
investment vehicle Jersey
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 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 28.2% of USAF (30 June 2021: 22.0%, 31 December 2021: 22.0%).
3.3a 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 £231.6 million during the 6 months ended 30 June 2022 (30 June 2021:
£125.6 million, 30 December 2021: £195.1 million), resulting in an overall
carrying value of £1,275.7 million (30 June 2021: £974.6 million, 30
December 2021: £1,044.1 million). The following table shows how the increase
has arisen.
Unaudited Unaudited Year to 31 December
6 months to
6 months to
2021
30 June 2022
30 June 2021
£m
£m
£m
Recognised in the income statement:
Operations segment result 26.4 15.8 30.2
Non-controlling interest share of Operations segment result 0.7 0.5 1.1
Management fee adjustment relating to trading with joint venture 2.0 1.8 3.0
Net valuation gains on investment property 86.3 21.8 88.7
Property disposals (0.4) (0.7) (0.3)
Other (0.4) (0.6) (0.3)
114.6 38.6 122.4
Recognised in equity:
Movement in effective hedges 1.9 0.2 0.6
Other adjustments to the carrying value:
Profit adjustment related to trading with joint venture (2.0) (1.8) (3.4)
Profit adjustment related to the sale of property to LSAV - (3.6) (1.9)
Additional capital invested in USAF 140.9 - -
Additional capital invested in LSAV - 131.2 157.6
LSAV performance fee - (15.7) (42.2)
Distributions received (23.8) (23.3) (38.0)
Increase in carrying value 231.6 125.6 195.1
Carrying value brought forward 1,044.1 849.0 849.0
Carrying value carried forward 1,275.7 974.6 1,044.1
3.3b 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
period.
Unaudited Unaudited Year to
6 months to
6 months to
31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
USAF 8.8 8.0 15.2
LSAV 2.3 1.8 3.9
Asset and property management fees 11.1 9.8 19.1
LSAV performance fee - 31.4 41.9
Investment management fees - 31.4 41.9
Total fees 11.1 41.2 61.0
On an EPRA basis, fees from joint ventures are shown net of the Group's share of the cost to the joint venture.
The Group's share of the cost to the joint ventures is £1.9 million (30 June 2021: £1.6 million, 31 December 2021: £3.2 million), which results in management fees from joint ventures of £9.2 million being shown in the Operations segment result in note 2.2a (30 June 2021: £8.2 million, 31 December 2021: £15.9 million).
Investment management fees are included within the unallocated to segments section in note 2.2a.
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 30 June 2022 Unaudited 30 June 2021 31 December 2021
£m £m £m
Current
In one year or less, or on demand - - -
Non-current
In more than one year but not more than two years - 496.8 -
In more than two years but not more than five years 572.2 297.6 419.2
In more than five years 693.8 718.7 719.0
1,266.0 1,513.1 1,138.2
Unamortised fair value of debt recognised on acquisition 20.2 26.0 23.8
Total borrowings 1,286.2 1,539.1 1,162.0
The carrying value of borrowings is considered to be approximate to fair
value, except for the Group's fixed rate loans as analysed below:
Unaudited Unaudited 31 December 2021
30 June 2022
30 June 2021
Carrying value Fair value Carrying value Fair value Carrying value Fair value
£m £m £m £m £m £m
Level 1 IFRS fair value hierarchy 875.0 832.1 901.0 952.6 898.8 936.7
Level 2 IFRS fair value hierarchy - - 150.0 141.2 - -
Other loans and unamortised arrangement fees 411.2 364.5 488.1 488.1 263.2 263.2
Total borrowings 1,286.2 1,196.6 1,539.1 1,581.9 1,162.0 1,199.9
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:
Unaudited Unaudited 31 December
30 June 2022
30 June 2021
2021
£m
£m
£m
Current (39.6) - (2.5)
Non-current - 4.4 -
Fair value of interest rate swaps liability/(asset) (39.6) 4.4 (2.5)
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 Dividends
During the 6 months to 30 June 2022, the Company declared and paid a final
gross dividend of £53.3 million, 15.6p per share (30 June 2021: final
dividend of £42.5 million (12.75p per share)).
Under the terms of the Company's scrip dividend scheme, shareholders were able
to elect to receive ordinary shares in place of the 2021 final dividend of
15.6p per ordinary share. This resulted in the issue of 764,622 new fully paid
shares.
After the period end, the Directors proposed an interim dividend of 11.0p per
share (30 June 2021: 6.5p per share). 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 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 25 properties
with HPL that needs replacing across our estate, seven of which are wholly
owned. We are continuing to carry 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
the HPL cladding is expected to be £82.9 million (Unite Share: £48.7
million), of which £33.6 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 12-36 months. The regulations continue to
evolve in this area and we will ensure that our buildings are safe for
occupation and compliant with laws and regulations.
The Government's Building Safety Bill, covering building standards, was passed
in April and has introduced 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.
The Group has recognised provisions for the costs of these cladding works as
follows:
Gross Unite share
Wholly owned USAF LSAV Total Wholly owned USAF LSAV Total
£m £m £m £m £m £m £m £m
At 1 January 2021 15.7 50.0 14.2 79.9 15.7 11.0 7.1 33.8
Additions 12.0 16.7 - 28.7 12.0 3.6 - 15.6
Utilisation - (6.8) (5.4) (12.2) - (1.5) (2.7) (4.2)
At 30 June 2021 27.7 59.9 8.8 96.4 27.7 13.1 4.4 45.2
Additions 6.0 6.7 0.5 13.2 6.0 1.5 0.3 7.8
Utilisation (0.2) (10.3) (7.1) (17.6) (0.2) (2.3) (3.6) (6.1)
At 31 December 2021 33.5 56.3 2.2 92.0 33.5 12.3 1.1 46.9
Additions 3.5 6.9 6.4 16.8 3.5 1.9 3.2 8.6
Utilisation (3.4) (20.0) (2.5) (25.9) (3.4) (5.6) (1.3) (10.3)
Change in ownership % - - - - - 3.5 - 3.5
At 30 June 2022 33.6 43.2 6.1 82.9 33.6 12.1 3.0 48.7
5.2 Cash and cash equivalents
Note Unaudited 6 months to 30 June 2022 Unaudited 6 months to 30 June 2021 £m Year to 31 December 2021
£m
£m
Profit for the period 332.7 131.2 344.6
Adjusted for:
Depreciation and amortisation 3.8 3.8 7.8
Fair value of share based payments 2.2a 1.4 1.0 2.4
Change in value of investment property 2.2b (128.6) (32.5) (116.1)
Change in value of investment property (leased) 2.2b 4.9 2.6 11.1
Net finance costs 17.3 22.8 42.7
Swap cancellation FV settlements and debt break costs 2.2b - 1.5 4.2
Mark to market changes in interest rate swaps (37.1) (3.0) (10.9)
Loss on disposal of investment property (owned) 2.2b 9.9 11.0 12.0
Share of joint venture profit (114.3) (38.9) (122.2)
Trading with joint venture adjustment 1.9 17.4 19.1
Tax charge/(credit) 1.4 (0.8) (1.5)
Cash flows from operating activities before changes in working capital 93.3 116.1 192.4
Decrease/(increase) in trade and other receivables 40.3 (28.5) (52.5)
Decrease/(increase) in inventories (2.9) (2.4) (2.9)
(Decrease)/increase in trade and other payables (40.8) (12.0) 34.2
Cash flows from operating activities 89.9 73.2 171.3
Tax paid - - -
Cash flows from operating activities 89.9 73.2 171.3
Section 6: Post balance sheet events
There were no post balance sheet events.
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
2.3c. Definitions can also be found in the glossary.
Adjusted earnings, as set out below, is an APM reflecting a more meaningful
measure of the underlying earnings of the Group, excluding the non-recurring
impact of abortive acquisition costs and the net LSAV performance fee, and
therefore improve comparability.
Non-EPRA measures may not have comparable calculation bases between companies
and therefore may not provide meaningful industry-wide comparability.
Note 6 months to 30 June 2022 6 months to 30 June 2021 Year to 31 December 2021
£m
£m £m
EBIT
Net operating income (NOI) 2.2a 131.9 111.1 191.8
Management fees 2.2a 9.2 8.2 15.9
Overheads 2.2a (13.7) (13.0) (31.5)
127.4 106.3 176.2
EBIT margin %
Rental income 2.2a 177.4 152.9 282.7
EBIT 7 127.4 106.2 176.2
71.8% 69.5% 62.3%
EBITDA
Net operating income (NOI) 2.2a 131.9 111.1 191.8
Management fees 2.2a 9.2 8.2 15.9
Overheads 2.2a (13.7) (13.0) (31.5)
Depreciation and amortisation 3.9 3.8 7.8
131.3 110.1 184.0
Note 30 June 2022 31 December 2021
£m
£m 30 June 2021
£m
Net debt
Cash 2.3a 180.1 553.4 155.5
Debt on properties 2.3a (1,907.2) (2,053.7) (1,677.3)
Net debt (1,727.1) (1,500.3) (1,521.8)
Note 12 months to 30 June 2022 12 months to 30 June 2021 £m Year to 31 December 2021
£m
£m
Net debt (adjusted)
Cash (adjusted) 261.1(1) 482.4 155.5
Debt on properties (adjusted) (1,828.9) (2) (2,150.4) (1,677.3)
Net debt (adjusted) (1,567.8) (1,668.0) (1,521.8)
(1) Calculated on a 12 month look back basis. Average of £180.1 million and
£155.5 million in respect of H1 2022 and average of £155.5 million and
£553.4 million in respect of H2 2021.
(2) Calculated on a 12 month look back basis. Average of £1,907.2 million and
£1,677.3 million in respect of H1 2022 and average of £1,677.3 million and
£2,053.7 million in respect of H2 2021.
Note 12 months to 30 June 2022 12 months to 30 June 2021 Year to 31 December 2021
£m
£m
£m
Net debt: EBITDA
Net debt (adjusted) 7 (1,567.8) (1,668.0) (1,521.8)
EBITDA 7 205.2(1) 167.2 184.0
Ratio 7.6 10.0 8.3
(1) Calculated on a 12 month look back basis. £131.3 million in respect of H1
2022 and £73.9 million in respect of H2 2021.
12 months to 30 June 2022 12 months to 30 June 2021 Year to 31 December 2021
£m
£m
£m
Interest cover (Unite share)
EBIT 7 197.3(1) 158.7 176.2
Net financing costs 2.2a (51.2) (55.4) (54.8)
Interest on lease liability 2.2a (8.4) (8.6) (8.5)
Total interest (59.6) (64.0) (63.3)
Ratio 3.3 2.5 2.8
(1) Calculated on a 12 month look back basis. £127.4 million in respect of
H1 2022 and £69.9 million in respect of H2 2021
Reconciliation: IFRS profit before tax to EPRA earnings and adjusted earnings
Note 6 months to 30 June 2022 6 months to 30 June 2021 £m Year to 31 December 2021
£m
£m
IFRS profit before tax 334.1 130.4 343.1
Net valuation gains on investment property (owned) 2.2b (214.9) (54.3) (205.6)
Property disposals (owned) 2.2b 10.3 11.7 12.3
Net valuation losses on investment property (leased) 2.2b 4.9 2.6 11.1
Amortisation of fair value of debt recognised on acquisition 2.2b (2.1) (2.2) (4.3)
Changes in valuation of interest rate swaps 2.2b (37.1) (3.0) (10.9)
Swap cancellation FV settlements and debt exit costs 2.2b - 1.5 4.2
Non-controlling interest and tax (0.7) 1.6 2.1
EPRA earnings 94.5 88.3 152.0
LSAV performance fee 2.4 - (15.7) (41.9)
Abortive acquisition costs 2.2a 1.5 - -
Adjusted earnings 96.0 72.6 110.1
Adjusted EPS yield
Note 30 June 2022 30 June 2021 £m 31 December 2021
£m
£m
Adjusted earnings (A) 2.2c 24.0p 18.2p 27.6p
Opening EPRA NTA (B) 2.3d 882p 818p 818p
Adjusted EPS yield (A/B) 2.7% 2.2% 3.4%
Total accounting return
Note 30 June 2022 30 June 2021 31 December 2021
pps
pps pps
Opening EPRA NTA (A) 2.3d 882p 818p 818p
Closing EPRA NTA 2.3d 940p 837p 882p
Movement 58p 19p 64p
H1 dividend paid 4.3 15.6p 12.75p 12.75p
H2 dividend paid 4.3 - - 6.5p
Total movement in NTA (B) 73.6p 31.75p 83.25p
Total accounting return (B/A) 8.3% 3.9% 10.2%
EPRA Performance Measures
Summary of EPRA performance measures
30 June 2022 30 June 2021 31 Dec 2021 30 June 2022 30 June 2021 31 Dec 2021
£m £m £m
EPRA earnings 94.5 88.3 152.0 23.6p 22.2p 38.1p
Adjusted earnings ((*)) 96.0 72.6 110.1 24.0p 18.2p 27.6p
EPRA NTA (diluted) 3,774.9 3,357.0 3,536.1 940p 837p 882p
EPRA NRV (diluted) 4,090.8 3,622.1 3,829.7 1,019p 904p 955p
EPRA NDV (diluted) 3,900.1 3,299.7 3,503.6 972p 823p 874p
EPRA Like-for-like gross rental income 23% (5.3%) 4.7%
EPRA Cost ratio (including vacancy costs) 30% 31% 39%
EPRA Cost ratio (excluding vacancy costs) 28% 28% 37%
EPRA Loan to value 33% 32% 32%
* Adjusted earnings calculated as EPRA earnings excluding abortive acquisition
costs and the LSAV performance fee income
EPRA like-for-like rental income (calculated based on total portfolio value of
£8.4 billion)
Properties owned throughout the period Development property Acquisitions and disposals Total EPRA
£m £m £m £m
Other
£m
6 months to 30 June 2022
Rental income 173.7 - 3.7 - 177.4
Property operating expenses (44.5) - (1.0) - (45.5)
Net rental income 129.2 - 2.7 - 131.9
6 months to 30 June 2021
Rental income 140.8 - 9.8 2.3 152.9
Property operating expenses (38.7) - (2.5) (0.6) (41.8)
Net rental income 102.1 - 7.3 1.7 111.1
Like-for-like net rental income £27.1m
Like-for-like gross rental income 23.4%
EPRA cost ratio 6 months to 30 June 2022 6 months to 30 June 2021 Year to 31 Dec 2021
£m £m £m
Property operating expenses 34.3 31.3 67.7
Overheads (*) 12.9 12.6 30.7
Development / pre contract costs 0.6 1.0 2.2
Unallocated expenses (*) 1.7 (0.4) 0.5
49.5 44.5 101.1
Share of JV property operating expenses 11.2 10.5 23.2
Share of JV overheads 0.8 0.4 0.8
Share of JV unallocated expenses ((*)) 0.2 0.5 0.4
61.7 55.9 125.5
Less: Joint venture management fees (9.2) (8.2) (15.9)
Total costs (A) 52.5 47.7 109.6
Group vacant property costs ((**)) (2.1) (3.7) (4.1)
Share of JV vacant property costs ((**)) (0.7) (1.3) (1.4)
Total costs excluding vacant property costs (B) 49.7 42.7 104.1
Rental income 127.7 116.8 209.0
Share of JV rental income 49.7 36.1 73.7
Total gross rental income (C) 177.4 152.9 282.7
Total EPRA cost ratio (including vacant property costs) (A)/(C) 30% 31% 39%
Total EPRA cost ratio (excluding vacant property costs) (B)/(C) 28% 28% 37%
* Excludes amounts in respect of abortive acquisition costs in 2022 and the
LSAV performance fee in 2021.
** 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 %
£m £m
Wholly owned 3,443 131 4.0%
USAF 654 33 5.3%
LSAV 971 62 6.8%
Rental properties 5,068 226 4.7%
Leased properties 93
22/23 development completions 332
Properties under development 97
Properties held throughout the period 5,590
Acquisitions 181
Disposals -
Total property portfolio 5,771
EPRA yield movement
NOI yield Yield movement (bps)
% H1 H2 FY
Wholly owned 4.9% (13) - (13)
USAF 4.9% (19) - (19)
LSAV 3.9% (19) - (19)
Rental properties (Unite share) 4.7% (15) - (15)
EPRA property related capital expenditure
30 June 2022 31 Dec 2021
Wholly owned Share of Group share Wholly owned Share of Group share
JVs JVs
London 1.4 2.8 4.2 4.8 3.1 7.9
Prime regional 17.4 2.7 20.1 16.7 2.9 19.6
Major regional 7.4 5.1 12.5 8.1 10.8 18.9
Provincial 1.5 0.4 1.9 2.8 0.6 3.4
Total rental properties 27.7 11.0 38.7 32.4 17.4 49.8
Increase in beds 1.5 1.1 2.6 - - -
Acquisitions - - - - - -
Developments 75.5 - 75.5 81.4 - 81.4
Capitalised interest 4.2 - 4.2 5.2 - 5.2
Total property related capex 108.9 12.1 121.0 119.0 17.4 136.4
EPRA loan to value
6 months to 30 June 2022 6 months to 30 June 2021 Year to 31 Dec 2021
£m £m £m
Investment property (owned) 5,248.7 4,716.2 4,864.8
Investment property (under development) 428.7 235.7 324.1
Intangibles 15.6 17.3 16.1
Total property value and other eligible assets 5,693.0 4,969.2 5,205.0
Cash at bank and in hand 180.1 553.4 155.5
Borrowings (1,907.2) (2,053.7) (1,677.3)
Net other payables (179.8) (104.0) (138.9)
EPRA net debt (1,906.9) (1,604.3) (1,660.6)
EPRA loan to value 33% 32% 32%
INDEPENDENT REVIEW REPORT TO THE UNITE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated cash flow
statement and related sections 1 to 7.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
27 July 2022
GLOSSARY
Adjusted earnings Diluted NTA/NAV EPRA Net Tangible Assets per share
An alternative performance measure based on EPRA earnings, adjusted to remove Where NTA/NAV per share is used, "basic" measures divide the NTA/NAV by the The diluted NTA per share figure based on EPRA NTA.
the impact of abortive acquisition costs and the LSAV performance fee which number of shares issued at the reporting date, whilst the diluted measure also
was settled in 2021. The items have been excluded from adjusted earnings to takes into account the effect of share options which have been granted and
improve the comparability of results year-on-year. which are expected to be converted into shares in the future (both for the
additional number of shares that will be issued and the value of additional EPRA Net Reinstatement Value (NRV)
consideration that will be received in issuing them).
EPRA NRV includes all property at market value but excludes the mark to market
Adjusted earnings per share / EPS of financial instruments, deferred tax and includes real estate transfer tax.
EPRA NRV assumes that entities never sell assets and represents the value
The earnings per share based on adjusted earnings and weighted average number Direct let required to rebuild the entity.
of shares in issue (basic).
Properties where short-hold tenancy agreements are made directly between Unite
and the student.
EPRA Net Disposal Value (NDV)
Adjusted EBIT
EPRA NDV includes all property at market value, excludes the mark to market of
The Group's NOI plus management fees and less overheads. In the opinion of the EBITDA financial instruments, but includes the fair value of fixed interest rate debt
Directors, adjusted EBIT is a useful measure to monitor our cost discipline
and the carrying value of intangible assets. EPRA NDV represents the
and performance of the Group. The Group's adjusted EBIT, adding back depreciation and amortisation. shareholders' value in a disposal scenario.
Adjusted EBIT margin EPRA ESG
The Group's EBIT expressed as a percentage of rental income. In the opinion of The European Public Real Estate Environmental, Social and Governance.
the Directors, adjusted EBIT margin is a useful measure to monitor our cost
discipline and performance of the Group. Association, who produce best practice recommendations for financial
reporting.
GRESB
Adjusted EPS yield
GRESB is a benchmark of the Environmental, Social and Governance (ESG)
EPRA Cost Ratio performance of real assets.
Adjusted EPS as a percentage of opening EPRA NTA (diluted).
The ratio of property operating expenses, overheads and management fees,
against rental income, calculated on an EPRA basis.
Gross asset value (GAV)
Adjusted net debt
The fair value of rental properties, leased properties and development
Net debt per the balance sheet, adjusted to remove IFRS 16 lease liabilities EPRA earnings properties.
and the unamortised fair value of debt recognised on the acquisition of
Liberty Living. EPRA earnings exclude movements relating to changes in values of
investment properties, profits/losses from the disposal of properties, The Group
swap/debt break costs and interest rate swaps and the related tax effects.
Basis points (BPS)
Wholly owned balances plus Unite's interests relating to USAF and LSAV.
A basis point is a term used to describe a small percentage, usually in the
context of change, and equates to 0.01%. EPRA earnings per share / EPS
Group debt
The earnings per share based on EPRA earnings and weighted average number of
shares in issue (basic). Wholly owned borrowings plus Unite's share of borrowings attributable to USAF
Diluted earnings / EPS
and LSAV.
Where earnings values per share are used "basic" measures divide the earnings
by the weighted average number of issued shares in issue throughout the EPRA like-for-like rental growth
period, whilst the diluted measure also takes into account the effect of share
HMO
options which have been granted and which are expected to be converted into The growth in rental income measured by reference to the part of the portfolio
shares in the future. of the Group that has been consistently in operation, and not under Houses in multiple occupation, where buildings or flats are shared by multiple
development nor subject to disposal, and which accordingly enables more tenants who rent their own rooms and the property's communal spaces on an
meaningful comparison in underlying rental income levels. individual basis.
EPRA Net Tangible Assets (NTA) Interest cover ratio (ICR)
EPRA NTA includes all property at market value but excludes the mark to market Calculated as EBIT divided by the sum of net financing costs and IFRS 16 lease
of financial instruments, deferred tax and intangible assets. EPRA NTA liability interest costs.
provides a consistent measure of NAV on a going concern basis.
Lease
Net financing costs (EPRA)
Properties which are leased to universities for a number of years.
Interest payable on borrowings less interest capitalised into developments and
finance income.
Like-for-like metrics
Net operating income (NOI)
Like-for-like is the change in metric, on a gross basis, calculated using
properties owned throughout the current and previous period. The Group's rental income less property operating expenses.
Resident ambassadors
LSAV Nomination agreements Student representatives who engage with students living in the property to
create a community and sense of belonging.
The London Student Accommodation Joint Venture (LSAV) is a joint venture Agreements at properties where universities have entered into a contract to
between Unite and GIC, in which both hold a 50% stake. LSAV has a maturity reserve rooms for their students, usually guaranteeing occupancy. The
date of September 2032. Universities usually either nominate students to live in the building and
Unite enters into short-hold tenancies with the students or the University See-through (also Unite share)
enters into a contract with Unite and makes payment directly to Unite.
Wholly owned balances plus Unite's share of balances relating to USAF and
Loan to value (LTV) LSAV.
Net debt as a proportion of the value of the rental properties, excluding PBSA
balances in respect of leased properties under IFRS 16. Prepared on a see
through basis. In the opinion of the directors, this measure enables an Purpose-built student accommodation. TCFD
appraisal of the indebtedness of the business, which closely aligns with key
covenants in the Group's lending arrangements. The Taskforce on Climate-related Financial Disclosures develops voluntary,
consistent climate-related financial risk disclosures for use by companies in
Prime regional providing information to investors, lenders, insurers, and other stakeholders.
LTV post IFRS 16 Properties located in Bristol, Bath, Edinburgh, Manchester and Oxford.
Net debt as a proportion of the value of the rental properties, including Total accounting return
balances in respect of leased properties under IFRS 16. Prepared on a
see-through basis. Property operating expenses Growth in diluted EPRA NTA per share plus dividends paid, expressed as a
percentage of diluted EPRA NTA per share at the beginning of the period. In
Operating costs directly related to rental properties, therefore excluding the opinion of the Directors, this measure enables an appraisal of the return
central overheads. generated by the business for shareholders during the year.
LTV (EPRA)
Net debt as a proportion of the value of the rental properties including
balances in respect of leased properties and all other assets and liabilities. Provincial Total shareholder return
Properties located in Bedford, Bournemouth, Coventry, Loughborough, Medway, The growth in value of a shareholding over a specified period, assuming
Portsmouth, Reading and Swindon. dividends are reinvested to purchase additional shares.
Major regional
Properties located in Aberdeen, Birmingham, Cardiff, Durham, Glasgow, Leeds,
Leicester, Liverpool, Newcastle, Nottingham, Sheffield and Southampton. Rental growth USAF/the fund
Calculated as the year-on-year change in average annual price for sold beds. The Unite UK Student Accommodation Fund (USAF) is Europe's largest fund
In the opinion of the Directors, this measure enables a more meaningful focused purely on income-producing student accommodation investment assets.
Net asset value (NAV) comparison in rental income as it excludes the impact of changes in occupancy.
The fund is an open-ended infinite life vehicle with unique access to Unite's
The total of all assets less the value of all liabilities at each reporting development pipeline. Unite acts as fund manager for the fund, as well as
date.
owning a significant minority stake.
Rental income
Income generated by the Group from rental properties.
Net debt (EPRA)
WAULT
Borrowings net of cash. IFRS 16 lease liabilities are excluded from net debt
Weighted average unexpired lease term to expiry.
on an EPRA basis. In the opinion of the Directors, net debt is a useful Rental properties
measure to monitor the overall cash position of the Group.
Investment properties (owned and leased) whose construction has been completed
and are used by the Operations segment to generate NOI. Wholly owned
Net debt per balance sheet Balances relating to properties that are 100% owned by The Unite Group plc or
its 100% subsidiaries.
Borrowings, IFRS 16 lease liabilities and the mark to market of interest rate Rental properties (leased) / Sale and leaseback
swaps, net of cash.
Properties that have been sold to a third party investor then leased back to
the Group. Unite is also responsible for the management of these assets on
behalf of the owner.
Net debt to EBITDA
Net debt as a proportion of EBITDA.
COMPANY INFORMATION
Executive Team
Richard Smith
Chief Executive
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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