REG - Unite Group PLC - RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
28/02/2023 07:00
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RNS Number : 2173R Unite Group PLC (The) 28 February 2023
PRESS RELEASE
28 February 2023
THE UNITE GROUP PLC
('Unite Students', 'Unite', the 'Group', or the 'Company')
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
PERFORMANCE AHEAD OF PRE-PANDEMIC PEAK, STRONG OUTLOOK FOR 2023/24
Richard Smith, Chief Executive of Unite Students, commented:
"We delivered a strong operational performance in 2022, with earnings and
dividends surpassing their pre-pandemic level, driven by a return to full
occupancy, improving rental growth and investment into our estate.
"The outlook for the business and the UK Higher Education sector is strong
with demand underpinned by demographic growth, high application rates and
increasing international student numbers. PBSA supply cannot keep pace with
growing student demand at the same time as HMO landlords are leaving the
sector.
"We are confident that new development opportunities will emerge over the next
12 months, which we remain uniquely positioned to deliver through our
university relationships and development capability. Our strong leasing
performance also supports earnings growth in 2023 despite higher interest and
operating costs.
We recognise the cost-of-living pressures being faced by students and parents
and are confident that our fixed price all-inclusive offer, student support
programmes and balanced approach to rental increases will continue to provide
value for money."
Year ended 31 December 2022 31 December 2021 Change
Adjusted earnings(1,3) £163.4m £110.1m 48%
Adjusted EPS(1,3) 40.9p 27.6p 48%
IFRS profit before tax £358.0m £343.1m 4%
IFRS basic EPS 88.9p 85.9p 3%
Dividend per share 32.7p 22.1p 48%
Total accounting return(1) 8.1% 10.2%
As at 31 December 2022 31 December 2021 Change
EPRA NTA per share(1) 927p 882p 5%
IFRS net assets per share 945p 880p 7%
See-through net debt(2) £1,734m £1,522m 14%
Loan to value(2) 31% 29% 2ppts
HIGHLIGHTS
Return to full occupancy in 2022/23, strong demand for 2023/24
· 99% occupancy and 3.5% rental growth for the 2022/23 academic year
(2021/22: 94% and 2.3%)
· 83% reserved for 2023/24, driven by rebooking and new university
agreements (2022/23: 67%)
Best-in-class operating platform supports continued earnings growth in 2023
· Targeting 6-7% rental growth for 2023/24, supporting EBIT margin of
70% in 2023 (2022: 67.9%)
· Interest rates 97% hedged, resulting in an expected 3.6% cost of
debt in 2023 (2022: 3.4%)
· Guidance for 5-8% growth in adjusted EPS in 2023 to 43-44p
· Anticipating a total accounting return of 8-10% in 2023, before the
impact of yield movements
Successful project deliveries in 2022, four committed developments for
delivery in 2023-2026
· Completion of £229 million of university partnership developments,
fully let at a 6.0% yield on cost
· Rental portfolio enhanced through £46 million of refurbishments at
a 6.9% yield on cost
· New commitment to two further developments, taking committed
pipeline to £339 million
Shortage of quality student homes creates significant opportunities to grow
our platform
· Expect to commit to additional developments at attractive returns
during 2023
· Ongoing discussions for strategic university partnerships,
including acquisition and new development
· Acquired £71 million build-to-rent pilot in Stratford
Rental growth more than offsetting the impact of rising property yields
· Portfolio valuation of £5,690 million (Unite share), up 4.0% on a
like-for-like basis
· Net debt/EBITDA reduced to 7.3x (2021: 8.3x), with LTV of 31%
(2021: 29%)
· £256 million of disposals at a yield of 5.7%, improving portfolio
quality
· Acquisition of USAF units, equivalent to £177 million of GAV at an
effective yield of 5.1%
Sustainability strategy delivering a positive impact through people and places
· £13 million of investments in energy initiatives, supporting 2030
net zero target
· Significant improvement in EPC ratings, with 80% of portfolio now
A-C rated (2021: 57%)
· £2 million in social value investments, including the Unite
Foundation
· Launch of Financial Support to Stay pilot targeted at students most
in financial need
1. 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
2. Excludes IFRS 16 related balances recognised in respect of leased
properties. See glossary for definitions.
3. Adjusted earnings and adjusted EPS remove the impact of the LSAV
performance fee and abortive acquisition costs from EPRA earnings and EPRA
EPS. See glossary for definitions and note 7 for calculations and
reconciliations.
PRESENTATION
There will be a presentation for analysts this morning at 08:30 GMT. A live
webcast can be accessed here
(https://stream.brrmedia.co.uk/broadcast/63c80004777efd4a8b4f5775) . 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 / Mike 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 performed strongly in 2022, delivering an increase in
earnings and dividends to above their pre-pandemic peak. This reflects the
strength of our best-in-class operating platform, the commitment of our teams
and the appeal of our affordable, well-located portfolio.
Earnings and dividend ahead of their pre-pandemic peak
The business delivered a strong recovery in financial performance in 2022,
with adjusted earnings of £163.4 million and adjusted EPS of 40.9p, both up
48% year-on-year. This reflects an increase in occupancy to 99% and rental
growth of 3.5% for the 2022/23 academic year (2020/21: 94% and 2.3%,
respectively). IFRS profit before tax of £358.0 million and EPS of 88.9p also
reflects the valuation growth of our property portfolio during the year. We
have proposed a final dividend of 21.7p which, if approved, makes 32.7p for
the full year, representing a payout ratio of 80% of adjusted EPS, underlining
our confidence in future business performance.
Total accounting returns for the year were 8.1%, underpinned by a 5% increase
in EPRA NTA per share to 927p. Our LTV ratio increased to 31% during the year,
reflecting the positive impact of rental growth in our property valuations and
the increase in net debt to fund our investment activity. This provides the
financial headroom to deliver our committed development pipeline and pursue
new growth opportunities.
Our key financial performance indicators are set out below:
Financial highlights(4) 2022 2021
Adjusted earnings £163.4m £110.1m
Adjusted EPS 40.9p 27.6p
IFRS profit before tax £358.0m £343.1m
IFRS basic EPS 88.9p 85.9p
Dividend per share 32.7p 22.1p
Adjusted EPS yield 4.6% 3.4%
Total accounting return 8.1% 10.2%
EPRA NTA per share 927p 882p
IFRS net assets per share 945p 880p
Loan to value 31% 29%
4. See glossary for definitions and note 7 for alternative performance measure
calculations and reconciliations. A reconciliation of profit before tax to
EPRA earnings and adjusted earnings is set out in note 7 of the financial
statements.
Positive outlook for 2023/24
We see strong demand for student accommodation, which is reflected in our
excellent progress with reservations for the 2023/24 academic year. Across the
Group's entire property portfolio, 83% of rooms are now sold for the 2023/24
academic year, significantly ahead of the prior year as well as pre-pandemic
levels (2022/23: 67%).
In our strongest markets, we have seen an increasing number of students
looking to secure accommodation earlier in the sales cycle than previous
years. This early customer interest reflects the appeal of our all-inclusive,
fixed-price offer and lower availability in the houses in multiple occupation
(HMO) sector as some landlords choose to leave the market in response to
rising costs and increasing regulation. We have also seen increased demand
from universities, following more cautious behaviour during the pandemic, who
see quality accommodation as a key part of their proposition to prospective
students.
As a result of this strong demand and the need to offset cost pressures in our
business, we now expect to deliver rental growth of 6-7% for 2023/24
(previously at least 5%).
Value for money
We recognise the cost-of-living pressures faced by students and parents and
are confident that our fixed price, all-inclusive offer will continue to
provide value for money compared to alternative options in the purpose-built
student accommodation (PBSA) and HMO sectors. Our pricing is comparable in
cost to HMOs once bills are included. This is before allowing for the price
certainty on utilities and additional product and service features that we
provide, such as on-hand maintenance teams and 24/7 security, in locations
close to campus.
Given increases in energy prices, we estimate that students living in HMO will
pay over £900 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. These
savings equate to around two weeks' rent, which we pass on to students through
a single price, fixed at the time of booking, giving our customers certainty
over their living costs.
We also recently launched our Financial Support to Stay pilot in partnership
with Aldi supermarket, which will see food vouchers distributed to students
most in need of financial support, as decided by their university. This pilot
scheme will collaborate with universities, including Liverpool John Moores
University, Middlesex University, Birmingham City University and the
University of Westminster.
Inflation protection
Like many businesses, inflation is creating cost pressures in parts of our
operations and development supply chains. Yet, the business is well protected
from these impacts through the inflation-hedging characteristics of our income
and risk management through cost hedging.
Our rooms are either resold each year on a direct-let basis or repriced based
on RPI, CPI or fixed rental inflators under our multi-year nomination
agreements. The combination of these open market and contractual rental
increases supports rental growth of 6-7% across our total portfolio for the
2023/24 academic year.
Our utility costs are fully hedged through 2023 and 65% for 2024, but costs
are increasing as the benefit of cheaper hedges pre-dating the war in Ukraine
expire. We are also seeing increased pressure on staffing costs for our
frontline teams, driven by competition for staff in similar service sectors,
as well as our commitment to being a Real Living Wage employer. We have
honoured the 10% increase in the Real Living Wage for 2023 and provided an
additional £500 in financial support to our frontline property teams during
2022 in recognition of the cost-of-living challenges facing our staff. These
cost pressures have been partially mitigated by the restructuring of the
Group's operational business during the first half of the year, which
delivered an annualised £2 million saving in staff costs.
Despite these cost increases, we have delivered an improvement in our EBIT
margin to 67.9% in 2022 (2021: 62.3%) thanks to our strong income performance.
We are targeting further margin growth to 70% in 2023, driven by the increase
in occupancy secured for the 2022/23 academic year and a positive outlook for
rental growth for 2023/24.
Strategic overview
Our best-in-class operating platform provides us with strong foundations to
adapt to evolving student needs and deliver an enhanced customer experience.
There are also significant opportunities to invest in our well-located and
affordable estate to drive rental growth and improve the environmental
performance of our buildings.
Our strategy is focused on three key objectives, which will deliver value for
our range of stakeholders:
· Delivering for our customers and universities
· Attractive returns for shareholders
· Being a responsible and resilient business
Delivering for our customers and universities
We have a best-in-class operating platform in the student accommodation
sector, underpinned by our PRISM operating platform, passionate frontline
teams and sector-leading student support. We introduced a new operating model
during the year, meaning all our properties are now staffed 24/7, 365 days a
year, so that students can access in-person support when they need it. We have
also made various service enhancements, including further improvements to
student support in collaboration with our Higher Education partners as well as
digital upgrades to better enable our customers to self-serve the services
they need. In addition, we are investing to upgrade PRISM over the next 12-18
months, which will deliver an improved customer experience alongside cost
savings through greater efficiency.
The success of our customer initiatives is reflected in an increase in our Net
Promoter Score to +38 for the class of 2022 (2021: +35). For those buildings
where we delivered major refurbishments during the year, NPS scores improved
by an average of more than 50 points. We have also seen a significant increase
in our retention of direct-let customers for 2023/24 and have secured demand
from universities for an additional 5,000 beds under nomination agreements
compared to the same stage in the prior year.
Our long-term university relationships remain a key differentiator for Unite
and a source of potential growth opportunities. This is reflected in over 60%
of our development pipeline by cost being underpinned by university
partnerships. For developments completing in 2022, 78% were let under
nomination agreements for an average of nine years with the University of
Bristol and King's College London.
We continue to evolve the customer offer in our properties to better appeal to
the different customer segments who live with us. There is a significant
opportunity to attract more non-first year students who have historically
chosen to stay in the HMO sector given their desire for greater independence.
We successfully extended our postgraduate trials in six buildings for the
2022/23 academic year and also deliberately tailored our three major
refurbishments in Manchester to different segments: UK undergraduates,
postgraduates and international students.
Attractive returns for shareholders
We achieved a return to full occupancy for the 2022/23 academic year, as
market conditions normalised following the disruption of the previous two
years during the Covid-19 pandemic. This supported rental growth of 3.5% for
the 2022/23 academic year and an improvement in our EBIT margin to 67.9%
(2021: 62.3%). We also delivered total accounting returns of 8.1% for the
year, driven by our recurring earnings and the positive impact of rental
growth on our property valuations (2021: 10.2%).
The quality, location and scale of our portfolio is key to delivering
attractive, sustainable returns for our shareholders. During the year, we made
disposals totalling £339 million (Unite share: £256 million) at a blended
yield of 5.7% to enhance our overall portfolio quality and fund reinvestment
into the improvement of our estate. These proactive sales have reduced our
footprint from 25 to 23 markets and completes the disposals of non-strategic
assets identified following our acquisition of Liberty Living in 2019.
The proceeds were partially redeployed to increase our investment in USAF,
which increased our share of the fund's portfolio by £177 million at an
effective acquisition yield of 5.1% and takes our ownership share to 28%. The
Group also successfully delivered £275 million in developments and major
asset management projects in the year at a blended yield of 6.2%. The schemes
were delivered in line with budget and all are fully let for the 2022/23
academic year.
We are committed to four development projects, requiring £200 million in
future capex and expected to deliver a yield on cost of 6.7%. We are also
reviewing future development starts to ensure projects deliver earnings
accretion in an environment of higher funding costs. However, given the
strength of demand from students and universities, we expect to commit to
further developments during 2023.
Being a responsible and resilient business
Our sustainability strategy is focused on delivering a positive impact through
our People and Places initiative. This is driven by the social contribution we
make to the students who live with us, our employees and local communities as
well as our progress in minimising our impact on the environment.
We continue to make progress towards our objective of becoming a net zero
carbon business by 2030. During the year, we invested £13 million in energy
initiatives to reduce consumption, save carbon and ensure ongoing compliance
with regulations, up from £3 million in 2021. This contributed to a further
improvement in the EPC ratings of our portfolio during the year, with 80% of
the portfolio now A-C rated (2021: 57%).
We are committed to donating 1% of our annual adjusted earnings to social
initiatives. These initiatives will be closely aligned to our purpose of
providing a Home for Success for students and supporting wider participation
in Higher Education. This includes the Unite Foundation, the charitable trust
founded by Unite to provide free accommodation for care leavers and estranged
students while at university. The Foundation marked its tenth anniversary this
year and, to mark the milestone, Unite provided financial support for 100 new
student scholarships for the 2022/23 academic as well as home starter kits for
over 200 additional students. Over 600 students have now benefited from
scholarships during the Foundation's 10-year history.
Higher Education policy
The Government concluded its consultation on Higher Education policy in 2022,
which emphasised a focus on investing in the UK's world-class universities,
enabling high-quality outcomes for graduates and making sure that Higher
Education remains accessible to all. Going forwards, the Office for Students
(OfS) will be responsible for monitoring minimum standards for Higher
Education providers based on continuation and completion of courses as well as
graduate progression. Application of these standards is in its early days and
the OfS will initially work with providers to understand the context for any
underperformance. We are confident that our strategic alignment to high- and
mid-ranked universities positions us to successfully navigate any risks from
restrictions on low-value courses.
International students contribute an estimated £29 billion to the UK economy
each year and provide a vital source of funding for universities. However,
international students and their impact on migration remains topical, with
attention currently focused on the number of dependents coming to the UK with
students. Given our product is focused on single-occupancy bedrooms, we see
relatively limited risk in the event of more restrictive visa rules for
dependents.
Opportunities for growth
The outlook for student accommodation remains positive, with structural
factors continuing to drive a demand/supply imbalance for our product.
Demographic growth will see the population of UK 18-year-olds increase by
140,000 (19%) by 2030. Application rates to university have also grown
steadily over recent years, reflecting the value young adults place on a
higher level of education and the life experience and opportunities it offers.
This backdrop creates significant opportunities to grow the business in the UK
student accommodation sector through development and targeted acquisitions in
our strongest markets and partnerships with universities.
The HMO sector, which provides homes to over one million students, is
increasingly expensive due to rising mortgage costs for landlords and utility
costs for tenants. We expect these cost pressures to only grow for private
landlords given increasing regulation around the quality of homes and
environmental performance standards through EPC certification. We expect this
to further reduce the availability of private rented homes over time,
increasing demand for the purpose-built, sustainable accommodation we provide.
We believe that there is also an exciting 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 already serve this market
through the 9,000 postgraduate students who live with us each year. In
September, we acquired a pilot build-to-rent (BTR) property in Stratford, East
London for £71 million. The pilot offers the opportunity to test our
operational capability in the sector and understand the potential synergies
with our core student business through increased customer retention and cost
efficiencies in areas such as maintenance and procurement. Early signs are
positive, with new lettings and renewals achieving average rental uplifts of
11%. The property is set to be fully integrated into our operating platform
from Q2 2023 and our initial review suggests we have the capabilities to
operate effectively and efficiently in the BTR sector.
Positive outlook
We are confident in the outlook for the business, which remains positive,
reflecting the underlying strength of student demand, our alignment to
high-quality universities and the capabilities of our best-in-class operating
platform.
We have seen a strong start to the 2023/24 sales cycle, reflecting the appeal
of our high-quality portfolio and fixed-price, all-inclusive offer, which
provides students with significant savings and certainty on their bills. We
now expect to deliver rental growth of 6-7% for the 2023/24 academic year,
enabling us to offset cost pressures and improve our EBIT margin to 70% for
2023. Growing income also offers support to our property valuations as the
market adjusts to an environment of higher funding costs. As a result, we
expect to deliver 5-8% growth in adjusted EPS in 2023 and a total accounting
return of 8-10% before the impact of property yield movements.
There remains a clear need for new high-quality, affordable student
accommodation to support the growth of our university partners. We are
exploring a variety of routes to fund new growth, while ensuring we maintain a
robust and resilient balance sheet. Despite pressures from higher funding and
operating costs, we remain confident in our ability to grow earnings and
deliver attractive total accounting returns for shareholders.
OPERATIONS REVIEW
Improved occupancy for 2022/23
We achieved occupancy of 99% across our total portfolio for the 2022/23
academic year (2021/22: 94%, 2020/21: 88%), reflecting strong student demand
and significantly less disruption from the Covid-19 pandemic than the previous
two academic years.
Undergraduate student intake for 2022/23 was flat at 563,000 (2021/22:
562,000), although significantly up from the last pre-pandemic year in 2019/20
(541,000), as universities adjusted their offer making after two years of
teacher assessed grades. We saw the highest ever admissions for UK students
and non-EU students, up 1% and 15% from the previous year. However, this was
offset by the continued reduction in EU student numbers following Brexit and
the loss of home fee status for students from the EU.
The recovery to pre-pandemic occupancy levels for the 2022/23 academic year
was helped by the return to examinations for UK school leavers, which led to a
more normal distribution of grades and therefore students between
universities. The normalisation of travel conditions during 2022 has allowed
international students to return to studying in the UK despite some localised
travel restrictions in China.
Occupancy by type and domicile by academic year
Direct let
Nominations UK China EU Non-EU Total
2019/20 57% 16% 15% 4% 6% 98%
2020/21 53% 16% 11% 4% 4% 88%
2021/22 51% 21% 13% 3% 6% 94%
2022/23 52% 24% 14% 2% 7% 99%
Strong rental growth
Annual rents increased by 3.5% on a like-for-like basis for 2022/23 (2021/22:
2.3%), reflecting average increases of 4.0% through nomination agreements and
3.1% average increases in direct-let rents. On a like-for-like basis, for beds
sold in both 2021/22 and 2022/23, rental growth was 4.5%. Occupancy was
broadly consistent across our wholly-owned portfolio, USAF and LSAV.
We started the 2022/23 sales cycle cautiously in late 2021, with the Omicron
variant and 'Plan B' Covid-19 restrictions in place, and initially prioritised
securing occupancy over rental growth. During the second half of the sales
cycle, we saw the pace and pricing of lettings strengthen as concerns around
the Omicron variant eased and associated restrictions were gradually lifted.
2022/23 rental growth and occupancy Rental growth(1) Occupancy(2)
Nomination agreements 4.0%
Direct let 3.1%
Total 3.5% 99%
1. Like-for-like properties based on annual value of core student tenancies
2. Beds sold
We have maintained a high proportion of income let to universities, with
36,611 beds sold (52% of total) for 2022/23 under nomination agreements
(2021/22: 37,359 and 51%). The slight increase in the percentage of beds under
nomination agreements reflects greater confidence from universities, as demand
for accommodation has normalised following the pandemic and the disposal of a
number of primarily direct-let properties during 2022.
The unexpired term of our nomination agreements is 6.3 years, slightly down
from 6.7 years in 2021/22. A balance of nomination agreements and direct-let
beds provides the benefit of having income secured by universities, as well as
the ability to offer rooms to re-bookers and postgraduates and determine
market pricing on an annual basis. We expect to maintain nomination agreements
at around 50-55% of beds going forward.
63% of our nomination agreements, by income, are multi-year and therefore
benefit from annual fixed or inflation-linked uplifts based on RPI or CPI. The
remaining agreements are single year, and we achieved a renewal rate of 75% on
these agreements for 2022/23 (2021/22: 74%). Together, nomination agreements
delivered rental uplifts of 4.0% for 2022/23 and are expected to support
overall rental growth of 6-7% for 2023/24.
Agreement length Beds % Income
2022/23 2022/23
Single year 14,210 39%
2-5 years 9,107 27%
6-10 years 5,491 14%
11-20 years 6,003 15%
20+ years 1,800 5%
Total 36,611 100%
UK students account for 72% of our customers for 2022/23 (2021/22: 70%),
making up a large proportion of the beds under nomination agreements with
universities. This represents a significant increase in our weighting to UK
students, which stood at only 60% immediately prior to the pandemic, and
reflects our success in attracting students from the HMO sector. In addition,
25% and 3% of our customers come from non-EU and EU countries respectively
(2021/22: 25% and 5%), reflecting the relative appeal of our all-inclusive,
hassle-free product when compared with alternatives in the private-rented
sector.
Postgraduates continue to make up around 25% of our direct-let customer base
and re-bookers accounted for 23% of our direct-let bookings for the 2022/23
academic year (2021/22: 20%), reflecting the proactive retention campaign in
our properties. The growing share of postgraduate and non-first year
undergraduate students in our properties supports our strategy of increasing
segmentation of our customer offer.
Positive outlook for 2023/24
Applications data for the 2023/24 academic year is encouraging, with total
applications down 2% on 2022/23 but still 5% ahead of pre-pandemic levels. We
continue to see strongest demand for the high and mid-tariff universities to
which we align our portfolio. Application rates remain strong for UK
18-year-olds at 41.5% and there continues to be significant unmet demand for
university places, as demonstrated by the nearly 200,000 unplaced students in
2022/23. Applications from international students are 3% higher for 2023/24,
with 4% growth from non-EU markets more than offsetting a 2% reduction in EU
applicants.
Demand for the Group's accommodation has continued to be strong through the
sales cycle to date. Across the Group's entire property portfolio 83% of rooms
are now sold for the 2023/24 academic year, significantly ahead of the prior
year and pre-pandemic levels (2022/23: 67%). We have seen increased early
demand from universities who see quality accommodation as a key part of their
proposition to prospective students. Current reservations under nomination
agreements account for 54% of available beds for 2023/24, up 6 percentage
points versus the same stage in the 2022/23 sales cycle.
In our strongest markets, we have also seen an increasing number of students
looking to secure accommodation earlier in the sales cycle than previous years
and a significant increase in the level of re-bookers who now make up 28% of
direct-let reservations (2022/23: 23%). This is supportive of our guidance for
full occupancy and rental growth of 6-7% for the 2023/24 academic year.
Operating costs
The war in Ukraine and other macro-economic factors contributed to
inflationary cost pressures during the year. We are partially protected but
not immune from the effects of inflation on our cost base, thanks to our
hedging policies and proactive steps to deliver efficiencies through
technology and a review of our operating model. Inflationary pressures,
combined with higher marginal costs from increased occupancy, resulted in a 9%
increase in property operating costs during 2022.
Staff costs increased by £1.2 million due to underlying wage increases and
the cost-of-living payment made to employees, partially offset by savings
following the implementation of our new 24/7 operating model during the year.
Our new operating model was implemented in July, with all properties now
staffed 24/7 so that students can access in-person support when they need it.
Each property now has a general manager, responsible for all aspects of
safety, performance and student experience in their property.
We hedge our utility costs in advance of letting rooms, providing visibility
over our cost base at the point of sale. This policy helped limit utility cost
increases to 4% or £0.9 million during the year. Our utility costs are fully
hedged through 2023 and 65% for 2024.
Summer cleaning costs increased by £1.8 million as we returned to a full
summer lettings cycle, which delivered incremental income of £10.3 million.
Around 15% of the incremental summer income and costs were attributable to the
Commonwealth Games in Birmingham where we provided accommodation to support
services, including the police. Reflecting the increased summer activity and
overall occupancy, marketing costs increased by £0.9 million during the year.
Central and other costs increased by £3.0 million due to inflationary cost
increases in respect of buildings insurance, reactive maintenance, broadband
and council tax/HMO licences, as well as targeted investment in learning and
development to support our new operating model.
Property operating expenses breakdown 2022 2021 Change
£m £m
Staff costs (29.6) (28.4) 5%
Utilities (22.8) (21.9) 4%
Summer cleaning (5.1) (3.3) 55%
Marketing (6.7) (5.8) 16%
Central costs (11.3) (9.7) 15%
Other (23.2) (21.8) 7%
Property operating expenses (98.7) (90.9) 9%
PROPERTY REVIEW
Our property portfolio saw a 4.4% increase in valuations on a like-for-like
basis during the year (Unite share: 4.0%), driven principally by rental
growth. The see-through net initial yield of the portfolio was 4.7% at 31
December 2022 (December 2021: 4.9%). After disposals and new openings, this
reflects like-for-like yield compression of 2 basis points in the year. LSAV
reported the largest valuation growth (+5.6%) within the Group, reflecting the
strength of rental growth from its predominantly London-based portfolio.
Breakdown of like-for-like capital growth(1)
£m Valuation Rental growth Yield movement Other(2) Total
31 Dec 2022
Wholly-owned 3,623 111 (6) 1 106
LSAV 1,921 101 (4) 5 102
USAF 2,888 117 29 (19) 127
Total (Gross) 8,432 329 19 (13) 335
Total (Unite share) 5,397 185
% capital growth
Wholly-owned 3.6% (0.2)% 0.0% 3.4%
LSAV 5.6% (0.2)% 0.2% 5.6%
USAF 4.2% 1.1% (0.7)% 4.6%
Total (Gross) 4.3% 0.3% (0.2)% 4.4%
Total (Unite share) 4.0%
1. Excludes leased properties and losses on disposals
2. Other includes changes to operating cost assumptions and income adjustments
on reversionary assets
The proportion of the property portfolio that is income generating is 96% by
value, up from 94% at 31 December 2021. Properties under development have
decreased to 4% of our property portfolio by value (31 December 2021: 6%),
following the completion of our developments at Hayloft Point in London and
Campbell House in Bristol during the year.
The PBSA investment portfolio is 40% weighted to London by value on a Unite
share basis, which is expected to rise to 45% on a built-out basis following
completion of our secured development pipeline.
Development and university partnership activity
The combination of growing student demand, slowing supply of new purpose-built
student accommodation and a shrinking HMO sector creates significant
opportunities for new development. There is widespread acknowledgement from
universities and local authorities of the need for new student accommodation
to relieve pressure on housing supply. As a result, the current market
environment offers the strongest opportunity for new development in recent
years.
Our current development pipeline includes 4,863 beds, with a total development
cost of £850 million, of which 2,239 beds or 63% by development cost will be
delivered in central London.
We reviewed our development activity during the year in light of interest rate
increases and higher build cost inflation. We have deferred starts on some
developments, enabling us to improve returns through reductions in land prices
in some cases and greater certainty over build costs. The improvement in
funding markets in recent months also supports greater earnings accretion from
our pipeline.
Reflecting this improved outlook, we have recently committed to complete our
Lower Parliament Street and Abbey Lane schemes in time for the 2025/26
academic year. We are now committed to four development schemes, totalling
2,123 beds and £339 million in total development costs. The £200 million of
costs to complete these projects is fully funded from the Group's cash and
available credit facilities, which totalled £397 million at 31 December 2022.
We also expect to commit to further development activity during 2023 through a
combination of schemes in our secured pipeline and new opportunities at
attractive returns.
Completed schemes
During the year, we completed our developments of Hayloft Point and Campbell
House, together comprising 1,351 beds at a cost of £229 million and a
development yield of 6.0%. Both schemes are fully let for the 2022/23 academic
year. Campbell House is fully let to the University of Bristol under a 15-year
nomination agreement and two-thirds of the total beds at Hayloft Point are let
to King's College London under a 5-year nomination agreement. Both schemes
have achieved BREEAM Excellent ratings and EPC A ratings and are fully
electric, with no gas reliance, supporting our commitment to net zero carbon
by 2030.
Committed schemes
The Group is committed to four development schemes: Derby Road and Lower
Parliament Street in Nottingham, Abbey Lane in Edinburgh and Jubilee House in
Stratford. The schemes have a total development cost of £339 million,
delivering a blended yield on cost of 7.0% for the PBSA elements.
Our £60 million Derby Road development, offering 705 new beds, will complete
for the 2023/24 academic year and is located adjacent to the University
of Nottingham campus. We are trialling an enhanced design for the common
areas, which we expect to improve customer experience and our ability to offer
a Home for Success.
In January 2022, we added Lower Parliament Street, a 271-bed direct-let scheme
in Nottingham city centre, to our pipeline. We expect to deliver the
fully-consented scheme for the 2025/26 academic year.
At Abbey Lane in Edinburgh, we are planning to deliver a segmented development
offering 298 beds in cluster-flats as well as 66 two- and three-bed clusters
in a separate block. These smaller flats will be available for postgraduate
students, university staff and other young professionals. We are targeting
completion for the 2025/26 academic year.
In December 2022, the Group acquired the land for our Jubilee House scheme for
£73 million. The student accommodation element of the fully-consented scheme
is expected to be delivered in time for the 2026/27 academic year, with
construction due to start in the second quarter of 2023. The development will
be delivered as a university partnership, with over half of the beds let under
a nomination agreement. The mixed-use scheme will also deliver 65,000 square
feet of academic space, let for an initial 35-year term to the Secretary of
State for Levelling Up, Housing and Communities.
Secured pipeline
The remaining 2,740 beds in our secured pipeline are uncommitted schemes with
negligible future capital commitments. We are reviewing the expected returns
from these schemes, and will commit to them only where there is a meaningful
spread between development yields and funding costs to adequately compensate
for the risk of new development. Where planning has not been secured, we have
been working with land vendors and our contractors to re-visit development
costs to improve returns in response to higher funding costs. Given positive
progress with this activity, we expect to commit to further schemes at
attractive returns during the course of 2023.
New development opportunities
In addition to our uncommitted pipeline, we continue to progress a number of
further development opportunities in London and prime regional markets at
attractive returns.
Reflecting increased funding costs, we are seeking higher prospective returns
on new direct-let schemes at around 7.5-8.0% in provincial markets and
6.5-7.0% in London. 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. For new schemes,
increasing rental growth in our strongest markets is supporting development
viability. We also expect moderating build-cost inflation and the opportunity
to renegotiate land prices to further enhance returns.
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. Universities increasingly view the availability of high-quality and
affordable accommodation as a barrier to their recruitment and an important
factor for students when considering where to study. Reflecting the financial
and operational constraints faced by universities, there is a growing appetite
for strategic partnerships to address this need.
We have agreed to provide a temporary college for Durham University at our
348-bed Rushford Court site in Durham, while an existing college is
redeveloped by the university. Subject to planning, there will be additional
welfare and common areas to support college living. Following completion of
the redevelopment works at Hild Bede college, it is expected that Rushford
Court will become Durham's eighteenth college for a 30-year period, further
strengthening our partnership with the university.
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 Higher Education provider. Our two Bristol schemes
will be delivered as partnerships with the University of Bristol, building on
our existing city-wide agreement with the university, and helping to address
an acute shortage of student accommodation in Bristol.
In addition, we are in active discussions with a range of high-quality
universities for new partnerships which we are looking to progress over the
next 12-18 months. These include discussions around stock transfer and
refurbishment of existing university accommodation as well as new development
both on- and off-campus. Our existing university relationships through
nomination agreements, best-in-class operating platform and development
capability, as well as access to capital, provide us with a unique opportunity
to deepen these partnerships.
Secured development and partnerships pipeline
Type(1) Secured beds/ Total completed value Total devel. costs Capex in period Forecast NTA remaining Forecast yield on cost
Target delivery units Capex
remaining
no. £m £m £m £m £m %
Committed development
Derby Road, Nottingham DL 2023 705 88 60 28 18 14 8.2%
Lower Parliament Street, Nottingham DL 2025 271 44 36 8 28 9 7.3%
Abbey Lane, Edinburgh DL 2025 431 73 51 8 40 19 7.0%
Jubilee House, East London(3) UPT 2026 716 237 192 78 114 39 6.1%
Total Committed 2,123 442 339 122 200 81 6.7%
Uncommitted development
Temple Quarter, Bristol UPT 2025 595 85 19 63 7.3%
Freestone Island, Bristol(2) UPT 2026 622 79 1 78 7.0%
Meridian Square, East London(2) UPT 2027 951 194 3 191 6.4%
TP Paddington, London(2) UPT 2027 572 153 2 147 6.3%
Total Uncommitted 2,740 511 25 479 6.6%
Total pipeline 4,863 850 147 679 6.7%
1. Direct-let (DL), University partnership (UPT)
2. Subject to obtaining planning consent
3. Yield on cost assumes the sale of academic space for c.£65 million
Asset management
In addition to our development activity, we see significant opportunities to
create value through asset management projects in our estate. These projects
typically have shorter lead times than new developments, often carried out
over the summer period, and deliver attractive risk-adjusted returns.
In September, we completed three asset management schemes in Manchester.
Investment across the three projects totalled £46 million in aggregate and
delivered a 7% yield on cost. The projects delivered new accommodation,
refurbished existing rooms and enhanced the environmental performance of the
properties. The upgraded assets are fully let for the 2022/23 academic year
and support our segmentation strategy, with the three buildings targeted at
different market segments according to their designs.
We have a pipeline of further asset management opportunities which support
£35-50 million p.a. of future investment activity (Unite share).
Disposals
We continue to manage the quality of the portfolio and our balance sheet
leverage by recycling capital through disposals. During the year, the Group
completed £339 million of disposals (Unite share: £256 million) at a blended
5.7% yield, which completed the disposal programme set out at the time of our
acquisition of Liberty Living in 2019. The disposals saw the Group exit less
attractive markets in Reading and Bedford and certain smaller, less
operationally efficient assets. The disposals were priced in line with
prevailing book value after deductions for associated transaction costs and
required fire safety works.
We will continue to recycle capital from disposals to maintain LTV around our
30-35% target range. The level of planned disposals will adjust to reflect
capital requirements for our development and asset management activity as well
as market pricing.
Acquisitions
During the first half of the year, Unite increased its investment in USAF with
the acquisition of £141 million of units through participation in an equity
raise and the acquisition of existing units in the secondary market,
increasing our stake to 28.2% (31 December 2021: 22.0%). This investment
equated to an increase in Unite's see-through GAV of £177 million at an
effective property yield of 5.1%, supporting the earnings growth delivered
during the year.
We continue to review potential acquisition opportunities alongside our other
uses of capital. We are focused on opportunities in our strongest markets
aligned to high-quality universities, where we see the ability to deliver
attractive and sustainable rental growth over the long term.
Build-to-rent
In October, the Group acquired 180 Stratford, a 178-unit (319 bed) purpose
build-to-rent (BTR) asset in Stratford, East London for £71 million. The
acquisition enables us to test our operational capability to extend our
accommodation offer to young professionals and retain them as customers as
they move on to the next stage in their lives. The property adds to our
significant existing presence in the Stratford market, where we already
operate 1,700 student beds and have two further student developments in our
secured pipeline.
Since acquiring the asset, we have begun transferring operational management
onto our platform and have significantly advanced our understanding of BTR
operations. There are opportunities to leverage our existing operating
platform to deliver cost efficiencies and use our BTR product to retain
student customers seeking a more independent living experience. Rental growth
to date has been significantly ahead of our acquisition assumptions, with new
lettings and renewals 11% above previous rental levels. We plan to complete a
rolling refurbishment of the building, including new common space and the
creation of new units, during 2023 and 2024, which will provide further rental
upside.
We do not expect to increase our capital commitment to BTR in the short term.
Instead, we are considering opportunities to increase the scale of our BTR
operations through co-investment with institutional investors, where Unite
would act as asset manager. Subject to identifying suitable opportunities,
such a structure would enhance returns for the Group while limiting capital
requirements as we develop our understanding of the opportunity in the BTR
sector.
Fire safety
The Government has proposed a Building Safety Bill, covering building
standards, which is likely to result in more stringent fire safety
regulations. Fire safety remains a critical part of our health and safety
strategy, and we have a proven track record of leading the sector on fire
safety standards through our proactive approach. Our buildings are all safe to
operate and we will continue to make future investments in fire safety, as
required, to comply with Government regulations.
We have identified 37 properties with High-Pressure Laminate (HPL) cladding,
or requiring other fire safety improvements across our estate. We have
completed the remediation works for 10 properties (six of which completed
during the year) and are currently carrying out the remaining replacement
works with activity prioritised according to our risk assessments. We spent
£50.5 million (Unite share: £19.4 million) on fire safety capex during the
year and have made a further provision for £71.8 million (Unite share: £28.2
million) of future remediation works. At the year end, the total outstanding
provision for cladding remediation works was £113.3 million (Unite Share:
£59.2 million), the costs for which will be incurred over the next two years.
We are seeking to mitigate the costs of cladding replacement through claims
from contractors under build contracts, where appropriate. We have already
recovered £28 million (Unite share: £20 million) through successful claims
and ultimately expect to recover 50-75% of total replacement costs over time.
This is not reflected in our balance sheet due to uncertainty over the timing
of any recoveries.
FINANCIAL PERFORMANCE
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 2022, with adjusted earnings
increasing by 48% to £163.4 million (2021: £110.1 million), reflecting an
increase in rental income and broadly stable costs, including interest, when
compared to the prior year. Adjusted EPS also increased by 48% to 40.9p (2021:
27.6p).
2022 2021
£m £m
Rental income 339.7 282.7
Property operating expenses (98.7) (90.9)
Net operating income (NOI) 241.0 191.8
NOI margin 70.9% 67.8%
Management fees 17.4 15.9
Overheads (27.7) (31.5)
Finance costs (63.0) (63.3)
Development and other costs (5.8) (2.8)
LSAV performance fee - 41.9
EPRA earnings 161.9 152.0
LSAV performance fee - (41.9)
Abortive acquisition costs 1.5 -
Adjusted earnings 163.4 110.1
Adjusted EPS 40.9p 27.6p
EPRA EPS 40.5p 38.1p
EBIT margin 67.9% 62.3%
A reconciliation of profit after tax to EPRA earnings and adjusted earnings is
set out in note 2.2b to the financial statements.
Sales, rental growth and profitability
Rental income increased by £57.0 million to £339.7 million, up 20%, as a
result of higher occupancy, rental growth and the removal of pandemic-related
restrictions and rental discounts. Like-for-like rental income, excluding the
impact of acquisitions, disposals and development completions, increased by
23% during the year.
This exceeded the 14% increase in operating expenses for like-for-like
properties, primarily driven by increased utility costs as a result of higher
occupancy, increased staff costs and greater investment into marketing to
drive sales for the 2022/23 academic year.
Total net operating income increased by 26% to £241.0 million, translating to
an increase in NOI margin to 70.9% (2021: 67.8%).
FY 2022 FY 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 223.6 87.3 310.9 184.7 68.1 252.8 58.1 23.0%
Non-like-for-like properties 18.1 10.7 28.8 24.1 5.8 29.9 (1.1)
Total rental income 241.7 98.0 339.7 208.8 73.9 282.7 57.0 20.2%
Property operating expenses
Like-for-like properties (66.0) (24.6) (90.6) (58.6) (21.1) (79.7) (10.9) 13.7%
Non-like-for-like properties (6.0) (2.1) (8.1) (9.1) (2.1) (11.2) 3.1
Total property operating expenses (72.0) (26.7) (98.7) (67.7) (23.2) (90.9) (7.8) 8.6%
Net operating income
Like-for-like properties 157.6 62.7 220.3 126.1 46.9 173.1 47.2 27.3%
Non-like-for-like properties 12.1 8.6 20.7 15.0 3.8 18.7 2.0
Total net operating income 169.7 71.3 241.0 141.1 50.7 191.8 49.2 25.7%
Overheads decreased by £3.8 million, reflecting underlying cost control and
lower performance-related pay. Recurring management fee income from joint
ventures increased to £17.4 million (2021: £15.9 million), driven by higher
NOI and property valuations in USAF and LSAV. Our EBIT margin improved to
67.9% (2021: 62.3%), reflecting the increase in rental income and lower growth
in operating costs and overheads.
We are targeting an improvement in our EBIT margin to 70% in 2023, driven by
higher occupancy, rental growth and further efficiencies in areas such as
staff costs, procurement and the enhanced use of technology.
Finance costs were held broadly flat at £63.0 million in 2022 (2021: £63.3
million), with reduced borrowings offsetting the increase in our average cost
of debt to 3.4% (2021: 3.0%). £6.4 million of interest costs were capitalised
during the year (2021: £5.2 million) in relation to our development pipeline.
Development (pre-contract) and other costs increased to £5.8 million (2021:
£2.8 million), reflecting a non-recurring tax credit of £2.8 million in the
prior year and non-recurring abortive acquisition costs of £1.5 million in
respect of a corporate transaction.
IFRS earnings
IFRS profit before tax increased to £358.0 million in the year (2021: £343.1
million), driven by the increase in adjusted earnings of £53.3 million, a
revaluation gain net of losses on disposal of £119.2 million (2021: £182.2
million) and £70.7 million from the positive revaluation of interest rate
swaps on the back of rising interest rates (2021: £6.7 million).
2022 2021
£m £m
Adjusted earnings 163.4 110.1
LSAV performance fee - 41.9
Abortive acquisition costs (1.5) -
EPRA earnings 161.9 152.0
Valuation gains/(losses) and loss on disposal 119.2 182.2
Changes in valuation of interest rate swaps and debt break costs 70.7 6.7
Non-controlling interest and other items 6.2 2.2
IFRS profit before tax 358.0 343.1
Adjusted earnings per share 40.9p 27.6p
IFRS basic earnings per share 88.9p 85.9p
A reconciliation of profit before tax to adjusted earnings and EPRA earnings
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
5% to 927p at 31 December 2022 (31 December 2021: 882p). EPRA net tangible
assets were £3,715 million at 31 December 2022, up £183 million from £3,532
million a year earlier.
The main drivers of the £183 million increase in EPRA NTA and 45 pence
increase in EPRA NTA per share were revaluation gains on investment properties
driven by rental growth and higher occupancy, development surpluses and
retained profits, which more than offset the impact of losses on disposals and
a further provision for fire safety capex.
£m Diluted pence per share
EPRA NTA as at 31 December 2021 3,532 882
Rental growth 123 31
Yield movement (12) (3)
Fire safety capex (20) (5)
Development surplus 46 11
Disposals and associated transaction costs (17) (4)
Retained profits/other 63 15
EPRA NTA as at 31 December 2022 3,715 927
IFRS net assets increased by 7% in the year to £3,792.1 million (31 December
2021: £3,527.8 million), principally driven by positive revaluation movements
and retained profits. On a per share basis, IFRS NAV increased by 7% to 945p.
Property portfolio
The valuation of our property portfolio at 31 December 2022, including our
share of property assets held in USAF and LSAV, was £5,690 million (31
December 2021: £5,287 million). The £403 million increase in portfolio value
reflects the valuation movements outlined above, a £177 million increase in
the Group's share of USAF, acquisition of a BTR investment property for £71
million, £256 million of completed disposals, and capital expenditure and
interest capitalised on developments of £284 million.
Summary balance sheet
31 December 2022 31 December 2021
Wholly- owned £m Share of fund/JV £m Total £m Wholly- owned £m Share of fund/JV £m Total £m
Rental properties 3,623 1,773 5,396 3,323 1,542 4,865
Rental properties (leased) 90 - 90 98 - 98
Properties under development 204 - 204 324 - 324
Total property 3,917 1,773 5,690 3,745 1,542 5,287
Net debt (1,210) (524) (1,734) (1,030) (492) (1,522)
Lease liability (90) - (90) (94) - (94)
Other assets/(liabilities) (97) (54) (151) (107) (32) (139)
EPRA net tangible assets 2,520 1,195 3,715 2,514 1,018 3,532
IFRS NAV 2,597 1,195 3,792 2,510 1,018 3,528
LTV 31% 29%
Total accounting return
Growth in EPRA NTA was the key component of the 8.1% total accounting return
delivered in the year (2021: 10.2%), alongside dividends paid of 26.6p (2021:
19.25p). Our adjusted EPS yield (measured against opening EPRA NTA) increased
to 4.6% in the year (2021: 3.4%), reflecting the growth in recurring earnings.
We expect to deliver a total accounting return of 8-10% in 2023 before the
impact of any property yield movements. This reflects our guidance for growing
recurring earnings and strong rental growth for the 2023/24 academic year.
Cash flow and net debt
The Operations business generated £134.1 million of net cash in 2022 (2021:
£108.1 million) and net debt increased to £1,734 million (2021: £1,522
million). The key components of the movement in net debt were:
· Disposal proceeds of £256 million
· Operational cash flow of £141 million on a see-through basis
· The acquisition of units in USAF for £141 million
· Total capital expenditure of £355 million
· Dividends paid of £94 million
· A £19 million outflow for other items
In 2023, we expect see-through net debt to increase as planned capital
expenditure on investment and development activity will exceed anticipated
asset disposals.
Debt financing and liquidity
During the year, we witnessed a significant increase in Government bond
yields, as well as credit spreads for publicly traded debt, as markets reacted
to higher inflation and a tightening of monetary policy by central banks. In
the period immediately following the UK's mini-budget in September 2022, new
borrowing costs rose to prohibitive levels for new investment activity.
Encouragingly, there has been a significant easing in funding market
conditions over recent months and lenders remain supportive of the Group and
the student accommodation sector.
We are well protected from significant increases in borrowing costs through
our well-laddered debt maturity profile and forward hedging of interest rates,
but still expect to see our borrowing costs increase over time as we refinance
our relatively inexpensive in-place debt.
We are focused on maintaining a robust and flexible balance sheet and will
continue to use leverage to support our growth and enhance risk-adjusted
returns. However, higher borrowing costs mean we are likely to slightly reduce
debt over time. We will seek to manage our LTV to 30-35% on a built-out basis
(previously 35%), through disposals and other forms of funding, such as new
co-investment vehicles where appropriate.
Key debt statistics (Unite share basis) 31 Dec 2022 31 Dec 2021
See-through net debt £1,734m £1,522m
LTV 31% 29%
Net debt: EBITDA ratio 7.3 8.3
Interest cover ratio 3.7 2.8
Average debt maturity 4.1 years 5.0 years
Average cost of debt 3.4% 3.0%
Proportion of investment debt at fixed rate 97% 90%
LTV increased to 31% at 31 December 2022 (31 December 2021: 29%), primarily
driven by expenditure on our development pipeline, the acquisition of £141
million of units in USAF and capital expenditure on the investment portfolio,
which more than offset the impact of disposals and valuation increases in the
period.
With greater focus on the earnings profile of the business, we continue to
monitor our interest cover and net debt to EBITDA ratios. In 2022, interest
cover improved to 3.7x (2021: 2.8x) and net debt to EBITDA reduced to 7.3x
(2021: 8.3x), reflecting the improved operational performance of the business.
We are targeting to maintain an ICR ratio of >3.0x and improve our net debt
to EBITDA ratio to 6-7x.
The Unite Group has maintained investment grade corporate ratings of BBB
(Stable outlook) from Standard & Poor's and Baa2 (Positive outlook) from
Moody's, reflecting Unite's robust capital position, cash flows and track
record.
Funding activity
As at 31 December 2022, the wholly-owned Group had £397 million of cash and
debt headroom (31 December 2021: £421 million), comprising of £29 million of
drawn cash balances and £368 million of undrawn debt (2021: £96 million and
£325 million respectively).
During the year, the Group extended its sustainability-linked revolving credit
facility by £150 million to £600 million, on terms in line with the existing
facility. The facility maturity has been extended by a year to March 2026,
which may be extended by a further year at Unite's request, subject to lender
consent.
During the year, LSAV raised a new £400 million syndicated loan for a term of
five years, using the proceeds to pay down existing facilities approaching
maturity. The £100 million L&G loan facility in LSAV matured in January
2023 and was fully repaid from existing reserves.
USAF has agreed terms for a new £400 million secured loan to refinance its
existing £380 million bond maturity in June 2023. We expect to complete the
refinancing in the second quarter of 2023 at significantly improved pricing
levels compared to those inferred in the second half of 2022.
Interest rate hedging arrangements and cost of debt
Our average cost of debt based on current drawn amounts has increased to 3.4%
(31 December 2021: 3.0%). At the year end, 97% of the Group's debt was subject
to a fixed or capped interest rates (31 December 2021: 90%), providing
protection against future changes in interest rates. Based on our hedging
position and market interest rates, we currently expect a cost of debt of 3.6%
for FY2023 and 3.8% for FY2024.
Our average debt maturity is 4.1 years (31 December 2021: 5.0 years) and we
will continue to proactively manage our debt maturity profile and diversify
our lending base. In addition, the Group has £300 million of forward starting
interest rate swaps at rates meaningfully below prevailing market levels with
a weighted average maturity of just under 11 years.
Dividend
We are proposing a final dividend payment of 21.7p per share (2021: 15.6p),
making 32.7p for the full year (2021: 22.1p) and representing a 48% increase
compared to 2021. The final dividend will be fully paid as a Property Income
Distribution (PID) of 21.7p, which we expect to fully satisfy our PID
requirement for the 2022 financial year.
Subject to approval at Unite's Annual General Meeting on 18 May 2023, the
dividend will be paid in either cash or new ordinary shares (a 'scrip dividend
alternative') on 26 May 2023 to shareholders on the register at close of
business on 14 April 2023. The last date for receipt of scrip elections will
be 4 May 2023.
During 2022, scrip elections were received for 15.4% and 2.8% of shares in
issue for the 2021 final dividend and 2022 interim dividend respectively.
Further details of the scrip scheme, the terms and conditions and the process
for election to the scrip scheme are available on the Company's website.
We plan to distribute 80% of adjusted EPS as dividends for the 2023 financial
year.
Tax and REIT status
The Group holds REIT status and is exempt from tax on its property business.
During the year, we recognised a corporation tax charge of £0.9 million
(2021: £2.8 million credit).
Funds and joint ventures
The table below summarises the key financials at 31 December 2022 for our
co-investment vehicles.
Property assets Net debt Other assets Net assets Unite share of NTA Total return Maturity Unite share
£m £m £m £m £m
USAF 2,888 (725) (120) 2,043 575 4.7% Infinite 28%
LSAV 1,921 (639) (41) 1,241 620 8.9% 2032 50%
Property valuations increased by 4.6% and 5.6% for USAF and LSAV respectively
over the year, on a like-for-like basis, reflecting positive rental growth and
broadly stable property yields.
USAF is a high-quality, large-scale portfolio of 28,000 beds in leading
university cities. The fund has positive future prospects through rental
growth and investment opportunities in asset management initiatives in its
existing portfolio. Unite is currently engaging with unitholders in its role
as fund manager to determine the best way to fund both USAF's ongoing capital
requirements and continued growth.
Fees
During the year, the Group recognised net fees of £17.4 million from its fund
and asset management activities (2021: £57.8 million). The reduction reflects
the recognition of a £41.9 million non-recurring performance fee from LSAV in
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.
2022 2021
£m £m
USAF asset management fee 12.6 12.0
LSAV asset and property management fee 4.8 3.9
LSAV performance fee - 41.9
Total fees 17.4 57.8
Responsibility statement of the directors in respect of the annual financial
report
We confirm that to the best of our knowledge:
· The financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole
· The strategic report includes a fair review of the development and
performance of the business and the position of the company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face
· The annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
Richard Smith
Joe Lister
Chief Executive Chief
Financial Officer
28 February 2023
Forward-looking statements
The preceding preliminary statement has been prepared for the shareholders of
the Company, as a body, and for no other persons. Its purpose is to assist
shareholders of the Company to assess the strategies adopted by the Company
and the potential for those strategies to succeed and for no other purpose.
The preliminary statement contains forward-looking statements that are subject
to risk factors associated with, among other things, the economic, regulatory
and business circumstances occurring from time to time in the sectors and
markets in which the Group operates. It is believed that the expectations
reflected in these statements are reasonable, but they may be affected by a
wide range of variables that could cause actual results to differ materially
from those currently anticipated. No assurances can be given that the
forward-looking statements will be realised. The forward-looking statements
reflect the knowledge and information available at the date of preparation.
Nothing in the preliminary statement should be considered or construed as a
profit forecast for the Group. Except as required by law, the Group has no
obligation to update forward-looking statements or to correct any inaccuracies
therein.
INTRODUCTION AND TABLE OF CONTENTS
These financial statements are prepared in accordance with IFRS. The Group
uses alternative performance measures (APMs), which are not defined or
specified under IFRS. These APMs, which are not considered 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
Statement of cash flows
Section 1: Basis of preparation
Section 2: Results for the year
2.1 Segmental information
2.2 Earnings
2.3 Net assets
2.4 Revenue and costs
2.5 Tax
Section 3: Asset management
3.1 Wholly owned property assets
3.2 Inventories
3.3 Investments in joint ventures
Section 4: Funding
4.1 Borrowings
4.2 Interest rate swaps
4.3 Net financing costs
4.4 Gearing
4.5 Covenant compliance
4.6 Equity
4.7 Dividends
Section 5: Working capital
5.1 Cash and cash equivalents
5.2 Credit risk
5.3 Provisions
Section 6: Post balance sheet events
Section 7: Alternative performance measures
Glossary
Company information
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
2022 2021
Note £m £m
Rental income 2.4 241.7 209.0
Other income 2.4 17.6 57.9
Total revenue 259.3 266.9
Cost of sales (70.3) (64.4)
Expected credit losses (1.7) (3.3)
Operating expenses (31.0) (36.3)
Results from operating activities before gains/(losses) on property 156.3 162.9
Loss on disposal of property (15.6) (12.0)
Net valuation gains/(losses) on property (owned and under development) 3.1 112.7 116.9
Net valuation losses on property (leased) 3.1 (9.3) (11.1)
Profit before net financing gains/(costs) and share of joint venture profit 244.1 256.7
Loan interest and similar charges 4.3 (29.3) (34.2)
Interest on lease liability 4.3 (8.1) (8.5)
Mark to market changes on interest rate swaps 4.3 70.7 10.9
Swap cancellation fair value settlements and loan break costs 4.3 - (4.2)
Finance gains/(costs) 33.3 (36.0)
Finance income 4.3 0.2 -
Net financing gains/(costs) 33.5 (36.0)
Share of joint venture profit 3.3b 80.4 122.4
Profit before tax 358.0 343.1
Current tax 2.5a (0.7) 0.9
Deferred tax 2.5a (0.9) 0.5
Profit for the year 356.4 344.5
Profit for the year attributable to
Owners of the Parent Company 355.1 342.4
Non-controlling interest 1.3 2.1
356.4 344.5
Earnings per share
Basic 2.2c 88.9p 85.9p
Diluted 2.2c 88.7p 85.7p
All results are derived from continuing activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Note 2022 2021
£m £m
Profit for the year 356.4 344.5
Mark to market movements on hedged instruments - 16.2
Hedges reclassified to profit or loss - (0.9)
Share of joint venture mark to market movements on hedged instruments 3.3b 4.7 0.6
Other comprehensive income for the year 4.7 15.9
Total comprehensive income for the year 361.1 360.4
Attributable to
Owners of the Parent Company 359.8 358.3
Non-controlling interest 1.3 2.1
361.1 360.4
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 31 December 2022 Note 2022 2021
£m £m
Assets
Investment property (owned) 3.1 3,623.4 3,095.1
Investment property (leased) 3.1 90.3 97.7
Investment property (under development) 3.1 202.7 324.1
Investment in joint ventures 3.3b 1,226.6 1,044.1
Other non-current assets 21.5 18.9
Interest rate swaps 4.2 73.2 -
Right of use assets 2.7 3.6
Deferred tax asset 2.5d 2.1 3.0
Total non-current assets 5,242.5 4,586.5
Assets classified as held for sale 3.1 - 228.2
Interest rate swaps 4.2 - 6.1
Inventories 3.2 12.8 12.1
Trade and other receivables 105.2 108.8
Cash and cash equivalents 5.1 38.0 109.4
Total current assets 156.0 464.6
Total assets 5,398.5 5,051.1
Liabilities
Interest rate swaps 4.2 - (3.6)
Lease liabilities (4.8) (4.9)
Trade and other payables (191.5) (200.7)
Current tax liability (0.8) (0.1)
Provisions 5.3 (29.5) (33.5)
Total current liabilities (226.6) (242.8)
Borrowings 4.1 (1,265.9) (1,162.0)
Lease liabilities (87.5) (91.9)
Total non-current liabilities (1,353.4) (1,253.9)
Total liabilities (1,580.0) (1,496.7)
Net assets 3,818.5 3,554.4
Equity
Issued share capital 4.6 100.1 99.8
Share premium 4.6 2,162.0 2,161.2
Merger reserve 40.2 40.2
Retained earnings 1,483.6 1,225.0
Hedging reserve 6.2 1.6
Equity attributable to the owners of the Parent Company 3,792.1 3,527.8
Non-controlling interest 26.4 26.6
Total equity 3,818.5 3,554.4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2022
Note Attributable to owners of the
Issued share Share premium Merger reserve Retained earnings Hedging reserve Parent Non-controlling interest
capital £m £m £m £m £m £m Total
£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
Profit for the year - - - 355.1 - 355.1 1.3 356.4
Other comprehensive income
for the year:
Share of joint venture mark to market movements on hedged instruments 3.3b - - - - 4.7 4.7 - 4.7
Total comprehensive income - - - 355.1 4.7 359.8 1.3 361.1
for the year
Shares issued 4.6 0.3 0.8 - - - 1.1 - 1.1
Deferred tax on share-based payments - - - 0.3 - 0.3 - 0.3
Fair value of share-based payments - - - 1.3 - 1.3 - 1.3
Own shares acquired - - - (1.7) - (1.7) - (1.7)
Unwind of realised swap gain - - - - (0.1) (0.1) - (0.1)
Dividends paid to owners 4.7 - - - (96.4) - (96.4) - (96.4)
of the parent company
Dividends to non-controlling interest - - - - - - (1.5) (1.5)
At 31 December 2022 100.1 2,162.0 40.2 1,483.6 6.2 3,792.1 26.4 3,818.5
Note Attributable to owners of the
Issued share Share premium Merger reserve Retained earnings Hedging reserve parent Non-controlling interest
capital £m £m £m £m £m £m Total
£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 movements on - - - - 16.2 16.2 - 16.2
hedged instruments
Hedges reclassified to profit or loss - - - - (0.9) (0.9) - (0.9)
Share of joint venture mark to market movements on hedged instruments 3.3b - - - - 0.6 0.6 - 0.6
Total comprehensive income - - - 342.4 15.9 358.3 2.1 360.4
for the year
Shares issued 4.6 0.3 0.9 - - - 1.2 - 1.2
Deferred tax on share-based payments - - - 0.3 - 0.3 - 0.3
Fair value of share-based payments - - - 2.4 - 2.4 - 2.4
Own shares acquired - - - (1.3) - (1.3) - (1.3)
Unwind of realised swap gain - - - - (0.2) (0.2) - (0.2)
Dividends paid to owners 4.7 - - - (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
STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Note 2022 2021
£m £m
Net cash flows from operating activities 5.1 160.2 171.3
Investing activities
Investment in joint ventures (144.6) -
Capital expenditure on properties (316.5) (95.9)
Acquisition of intangible assets (8.4) (3.2)
Acquisition of plant and equipment (1.3) (0.4)
Proceeds from sale of investment property 234.1 307.3
Interest received 0.2 -
Dividends received 38.5 37.1
Net cash flows from investing activities (198.0) 244.9
Financing activities
Proceeds from the issue of share capital 1.1 1.1
Payments to acquire own shares (1.7) (1.3)
Interest paid in respect of financing activities (43.6) (47.9)
Swap cancellation fair value settlements and debt exit costs - (4.2)
Proceeds from non-current borrowings 105.7 147.0
Repayment of borrowings - (675.0)
Dividends paid to the owners of the parent company (85.1) (57.2)
Withholding tax paid on distributions (8.7) (7.0)
Dividends paid to non-controlling interest (1.3) (0.6)
Net cash flows from financing activities (33.6) (645.1)
Net decrease in cash and cash equivalents (71.4) (228.9)
Cash and cash equivalents at start of year 109.4 338.3
Cash and cash equivalents at end of year 38.0 109.4
NOTES TO THE FINANCIAL STATEMENTS
Section 1: Basis of preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Registrar of Companies, and those for 2022 will be delivered in due
course. The auditors have reported on those accounts; their reports were (i)
unqualified (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006 in respect of the accounts for 2022 or 2021.
Going concern
In determining the appropriate basis of preparation of the financial
statements, the Directors are required to consider
whether the Group can continue in operational existence for the foreseeable
future.
The Directors have considered a range of scenarios for future performance
through the 2022/23 and 2023/24 academic
years. The impact of our ESG asset transition plans are included within the
cash flows which have been modelled. The
assessment includes a base case assuming cash collection and performance for
the 2022/23 academic year remains in line with current expectations and sales
performance for the 2023/24 academic year consistent with published guidance;
and a reasonable worst case scenario where income for the 2023/24 academic
year is impacted by reduced sales, equivalent to occupancy of around 90%.
Under each of these scenarios, the Directors are satisfied that the Group has
sufficient liquidity and will maintain covenant compliance over the next 12
months. To further support the Directors' going concern assessment, a "Reverse
Stress Test" was performed to determine the level of performance at which
adopting the going concern basis of preparation may not be appropriate. This
involved assessing the minimum amount of income required to ensure financial
covenants would not be breached. Within the tightest covenant, occupancy could
fall to approximately 70% before there would be a breach. The Group has
capacity for property valuations to fall by 35% before there would be a breach
of the tightest LTV and gearing covenants. Were income or asset values to fall
beyond these levels, the Group has certain cure rights, such that an immediate
default could be avoided.
The Directors are satisfied that the possibility of such an outcome is
sufficiently remote that adopting the going concern basis of preparation is
appropriate.
Accordingly, after making enquiries and having considered forecasts and
appropriate sensitivities, the Directors have formed a judgement, at the time
of approving the financial statements, that there is a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the foreseeable future, being at least 12 months from the date of these
financial statements.
Section 2: Results for the year
IFRS performance measures
2022 2021 2022 2021
£m
£m
pps
pps
Note
Profit after tax 2.2c 355.1 342,2 88.9p 85.9p
Net assets 2.3d 3,792.1 3,527.8 945p 880p
EPRA performance measures
2022 2021 2022 2021
£m
£m
pps
pps
Note
EPRA earnings 2.2c 161.9 152.0 40.5p 38.1p
Adjusted earnings* 2.2c 163.4 110.1 40.9p 27.6p
EPRA NTA 2.3d 3,715.2 3,532.2 927p 882p
* See glossary for definition and note 2.2b for reconciliation to IFRS
measure.
2.1 Segmental information
The Board of Directors monitors the business along two activity lines,
Operations and Property. The reportable segments for the years ended 31
December 2022 and 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 to 2.3.
The Group's properties are located exclusively in the United Kingdom. The
Group therefore has one geographical segment.
2.2 Earnings
EPRA earnings and adjusted earnings amend IFRS measures by removing
principally the unrealised investment property valuation gains and losses such
that users of the financials are able to see the extent to which dividend
payments (dividend per share) are underpinned by earnings arising from purely
operational activity. In 2022, in consideration of EPRA's focus on presenting
clear comparability in results from recurring operational activities, EPRA
earnings excludes abortive costs. In 2021, EPRA earnings was adjusted to
remove the impact of the LSAV performance fee. Given the quantum of the LSAV
performance fee in the year, it was excluded from adjusted earnings to improve
the comparability of results year-on-year. The reconciliation between profit
attributable to owners of the parent company and EPRA earnings and adjusted
earnings is available in note 2.2b.
The Operations segment manages rental properties, owned directly by the Group
or by joint ventures. Its revenues are derived from rental income and asset
management fees earned from joint ventures. The Operations segment is the main
contributor to adjusted earnings and adjusted EPS and these are therefore the
key indicators which are used by the Board to monitor the Operations business.
The Board does not manage or monitor the Operations segment through the
balance sheet and therefore no segmental information for assets and
liabilities is provided for the Operations segment.
2.2a) EPRA earnings
2022
Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Rental income 241.7 48.8 49.2 339.7
Property operating expenses (72.0) (15.9) (10.8) (98.7)
Net operating income 169.7 32.9 38.4 241.0
Management fees 21.4 (4.0) - 17.4
Overheads (26.4) (0.7) (0.6) (27.7)
Interest on lease liabilities (8.1) - - (8.1)
Net financing costs (33.4) (7.7) (13.8) (54.9)
Operations segment result 123.2 20.5 24.0 167.7
Property segment result (1.2) - - (1.2)
Unallocated to segments (4.3) (0.2) (0.1) (4.6)
EPRA earnings 117.7 20.3 23.9 161.9
Abortive costs 1.5 - - 1.5
Adjusted earnings 119.2 20.3 23.9 163.4
Included in the above is rental income of £18.1 million and property
operating expenses of (£9.7 million) relating to sale and leaseback
properties. Included in the above is rental income of £0.7 million and
property operating expenses of (£0.2 million), relating to a build-to-rent
property.
The unallocated to segments balance includes abortive costs of (£1.5
million), the fair value of share-based payments of (£1.6 million),
contributions to the Unite Foundation of (£0.6 million), deferred tax credit
of £0.2 million and current tax credit of £0.7 million. Depreciation and
amortisation totalling (£7.8 million) is included within overheads.
2021
Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
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, deferred tax credit of £0.8
million and current tax credit of £2.0 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/debt break costs, which are included in the
profit reported under IFRS. EPRA earnings and adjusted earnings reconcile to
the profit attributable to owners of the parent company as follows:
Note 2022 2021
£m £m
Profit attributable to owners of the parent company 355.1 342.4
Net valuation (gains)/losses on investment property (owned) 3.1 (112.7) (116.9)
Property disposals (owned) 15.6 12.0
Net valuation losses on investment property (leased) 3.1 9.3 11.1
Amortisation of fair value of debt recognised on acquisition (4.3) (4.3)
Share of joint venture (gains)/losses on investment property 3.3b (32.3) (88.7)
Share of joint venture property disposals 3.3b 0.9 0.3
Swap cancellation fair value settlements and loan break costs 4.3 - 4.2
Mark to market changes on interest rate swaps 4.3 (70.7) (10.9)
Current tax relating to property disposals (0.2) 1.1
Deferred tax 2.5d 0.7 0.3
Non-controlling interest share of reconciling items* 0.5 1.4
EPRA earnings 2.2a 161.9 152.0
Net LSAV performance fee - (41.9)
Abortive costs 1.5 -
Adjusted earnings 2.2a 163.4 110.1
* The non-controlling interest arises as a result of the Company not owning
100% of the share capital of one of its subsidiaries, USAF (Feeder) Guernsey
Limited. More detail is provided in note 3.3.
2.2c) Earnings per share
Basic EPS is calculated using earnings attributable to the equity shareholders
of The Unite Group PLC and the weighted average number of shares which have
been in issue during the year. Basic EPS is adjusted in line with EPRA
guidelines in order to allow users to compare the business performance of the
Group with other listed real estate companies in a consistent manner and to
reflect how the business is managed on a day-to-day basis.
The calculations of basic, EPRA EPS and adjusted EPS for the year ended 31
December 2022 and 2021 are as follows:
2022 2021 2022 2021
£m
£m
pps
pps
Note
Earnings
Basic 355.1 342.4 88.9p 85.9p
Diluted 355.1 342.4 88.7p 85.7p
EPRA 2.2b 161.9 152.0 40.5p 38.1p
Adjusted 2.2b 163.4 110.1 40.9p 27.6p
Weighted average number of shares (thousands)
Basic 399,581 398,742
Dilutive potential ordinary shares (share options) 584 829
Diluted 400,615 399,571
Movements in the weighted average number of shares have resulted from the
issue of shares arising from the employee share-based payment schemes. In
2022, there were 19,015 options excluded from the potential dilutive shares
that did not affect the diluted weighted average number of shares (2021:
none).
2.3 Net assets
2.3a) EPRA NTA
EPRA NTA makes adjustments to IFRS measures by removing the fair value of
financial instruments and the carrying value of intangibles. The
reconciliation between IFRS NAV and EPRA NTA is available in note 2.3c.
2022 Unite Share of JVs Group on
EPRA basis
£m
£m
USAF LSAV
£m £m
Investment property (owned) 3,623.4 813.0 960.4 5,396.8
Investment property (leased) 90.3 - - 90.3
Investment property (under development) 202.7 - - 202.7
Total property portfolio 3,916.4 813.0 960.4 5,689.8
Debt on properties (1,247.8) (239.8) (385.2) (1,872.8)
Lease liabilities (90.4) - - (90.4)
Cash 38.0 35.6 65.6 139.2
Net debt (1,300.2) (204.2) (319.6) (1,824.0)
Other assets and (liabilities) (78.3) (33.6) (20.4) (132.3)
Intangibles per IFRS balance sheet (18.3) - - (18.3)
EPRA NTA 2,519.6 575.2 620.4 3,715.2
Loan to value* 32% 25% 33% 31%
Loan to value post IFRS 16 33% 25% 33% 32%
* LTV calculated excluding investment properties (leased) and the
corresponding lease liabilities.
2021 Unite Share of JVs Group on
EPRA basis
£m
£m
USAF LSAV
£m £m
Investment property (owned)* 3,323.3 632.0 909.5 4,864.8
Investment property (leased) 97.7 - - 97.7
Investment property (under development) 324.1 - - 324.1
Total property portfolio 3,745.1 632.0 909.5 5,286.6
Debt on properties (1,139.7) (201.0) (336.6) (1,677.3)
Lease liabilities (93.8) - - (93.8)
Cash 109.4 23.4 22.7 155.5
Net debt (1,124.1) (177.6) (313.9) (1,615.6)
Other assets and (liabilities) (90.5) (23.2) (9.0) (122.8)
Intangibles per IFRS balance sheet (16.1) - - (16.1)
EPRA NTA 2,514.4 431.2 586.6 3,532.2
Loan to value** 28% 28% 35% 29%
Loan to value post IFRS 16 30% 28% 35% 31%
* Investment property (owned) includes assets classified as held for sale in
the IFRS balance sheet.
** LTV calculated excluding investment properties (leased) and the
corresponding lease liabilities.
Unite investment portfolio analysis at 31 December 2022
Wholly- owned USAF Lease Total Unite share
LSAV
London Value (£m) 1,213 438 1,652 15 3,317 2,177
Beds 3,802 1,863 6,649 260 12,574 40%
Properties 11 6 14 1 32
Prime regional Value (£m) 1,106 741 - 22 1,869 1,336
Beds 7,982 5,351 - 618 13,951 24%
Properties 17 17 - 2 36
Major regional Value (£m) 1,130 1,482 269 26 2,907 1,708
Beds 15,014 17,889 3,067 753 36,723 31%
Properties 28 42 1 2 73
Provincial Value (£m) 104 227 - 27 357 195
Beds 2,609 2,821 - 1,059 6,489 4%
Properties 6 6 - 3 15
Total PBSA Value (£m) 3.552 2,888 1,921 90 8,451 5,416
Beds 29,407 27,924 9,716 2,690 69,737 99%
Properties 62 71 15 8 156
Build-to-rent Value (£m) 71 - - - 71 71
Units 178 - - - 178 1%
Properties 1 - - - 1
Total Value (£m) 3,623 2,888 1,921 90 8,522 5,487
Beds/Units 29,585 27,924 9,716 2,690 69,915 100%
Properties 63 71 15 8 157
Unite ownership share 100% 28% 50% 100%
Value (£m) 3,623 813 960 90 5,487
2.3b) Movement in EPRA NTA during the year
Contributions to EPRA NTA by each segment during the year is as follows:
2022
Note Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Operations
Operations segment result 2.2a 123.2 20.5 24.0 167.7
Add back amortisation of intangibles 5.9 - - 5.9
Total Operations 129.1 20.5 24.0 173.6
Property
Rental growth 117.1 0.5 32.6 150.2
Yield movement (11.0) 2.2 (3.0) (11.8)
Disposal losses (owned) (15.6) (0.9) - (16.5)
Investment property gains (owned) 90.5 1.8 29.6 121.9
Investment property losses (leased) 3.1a (9.3) - - (9.3)
Investment property gains (under development) 3.1a 6.6 - - 6.6
Pre-contract/other development costs 2.2a (1.2) - - (1.2)
Total Property 86.6 1.8 29.6 118.0
Unallocated
Shares issued 1.1 - - 1.1
Investment in joint ventures (102.4) 122.0 (19.6) -
Dividends paid (96.4) - - (96.4)
Abortive costs (1.5) - - (1.5)
Acquisition of intangibles (8.0) - - (8.0)
Other (3.3) (0.3) (0.2) (3.6)
Total Unallocated (210.5) 121.7 (19.8) (108.6)
Total EPRA NTA movement in the year 5.2 144.0 33.8 183.0
Total EPRA NTA brought forward 2,514.4 431.2 586.6 3,532.2
Total EPRA NTA carried forward 2,519.6 575.2 620.4 3,715.2
The £3.3 million other balance within the unallocated segment includes the
purchase of own shares of (£1.7 million), contributions to the Unite
Foundation of (£0.6 million) and tax credits of £0.9 million.
2021
Note Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Operations
Operations segment result 2.2a 82.7 14.4 15.8 112.9
Add back amortisation of intangibles 6.1 - - 6.1
Total Operations 88.8 14.4 15.8 119.0
Property
Rental growth 17.4 4.5 25.8 47.7
Yield movement 49.2 12.7 44.6 106.5
Disposal losses (owned) (12.0) (0.3) - (12.3)
Investment property losses (owned)* 54.6 16.9 70.4 141.9
Investment property losses (leased) 3.1a (11.1) - - (11.1)
Investment property losses (under development) 3.1a 50.3 - - 50.3
Pre-contract/other development costs 2.2a (2.2) - - (2.2)
Total Property 91.6 16.9 70.4 178.9
Unallocated
Shares issued 1.2 - - 1.2
Investment in joint ventures (118.6) (17.7) 136.3 -
Dividends paid (67.8) - - (67.8)
LSAV performance fee 84.1 - (42.2) 41.9
Swap cancellation FV settlements and debt break costs 4.3 (4.2) - - (4.2)
Acquisition of intangibles (3.3) - - (3.3)
Other 0.7 (0.2) (0.2) 0.3
Total Unallocated (107.9) (17.9) 93.9 (31.9)
Total EPRA NTA movement in the year 72.5 13.4 180.1 266.0
Total EPRA NTA brought forward 2,441.9 417.8 406.5 3,266.2
Total EPRA NTA carried forward 2,514.4 431.2 586.6 3,532.2
* Investment property gains (owned) includes gains on assets classified as
held for sale in the IFRS balance sheet.
The £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:
2022
NTA NRV NDV
£m
£m
£m
Net assets reported under IFRS 3,792.1 3,792.1 3,792.1
Mark to market interest rate swaps (77.4) (77.4) -
Unamortised swap gain (1.4) (1.4) (1.4)
Mark to market of fixed rate debt - - (154.7)
Unamortised fair value of debt recognised on acquisition 19.5 19.5 19.5
Current tax 0.7 0.7 -
Intangibles per IFRS balance sheet (18.3) - -
Real estate transfer tax - 300.7 -
EPRA reporting measure 3,715.2 4,034.2 3,655.5
2021
NTA NRV NDV
£m
£m
£m
Net assets reported under IFRS 3,527.8 3,527.8 3,527.8
Mark to market interest rate swaps (2.4) (2.4) -
Unamortised swap gain (1.5) (1.5) (1.5)
Mark to market of fixed rate debt - - (50.3)
Unamortised fair value of debt recognised on acquisition 23.7 23.7 23.8
Current tax 0.7 0.7 -
Intangibles per IFRS balance sheet (16.1) - -
Real estate transfer tax - 277.5 -
EPRA reporting measure 3,532.2 3,825.8 3,499.7
2.3d) NAV, NTA, NRV and NDV per share
Basic NAV is based on the net assets attributable to the equity shareholders
of The Unite Group PLC and the number of shares in issue at the end of the
year. The Board uses EPRA NTA to monitor the performance of the Property
segment on a day-to-day basis.
Note 2022 2021 2022 2021
£m
£m
pps
pps
Basic 3,792.1 3,527.8 945p 880p
EPRA NTA 2.3a 3,715.2 3,532.2 928p 885p
EPRA NTA (diluted) 3,718.3 3,536.1 927p 882p
EPRA NRV 2.3c 4,034.2 3,825.9 1,008p 959p
EPRA NRV (diluted) 4,037.3 3,829.7 1,006p 955p
EPRA NDV 3,655.5 3,499.7 913p 877p
EPRA NDV (diluted) 3,658.5 3,503.6 912p 874p
Number of shares (thousands) 2022 2021
Basic 400,292 399,140
Outstanding share options 895 1,687
Diluted 401,187 400,827
2.4 Revenue and costs
The Group earns revenue from the following activities:
Note 2022 2021
£m £m
Rental income* Operations segment 2.2a 241.7 209.0
Management fees Operations segment 17.6 16.2
LSAV performance fee Unallocated - 41.9
259.3 267.1
Impact of non-controlling interest on management fees (0.2) (0.2)
Total revenue 259.1 266.9
* EPRA earnings includes £339.7 million (2021: £282.7 million) of rental
income, which is comprised of £241.7 million (2021: £209.0 million)
recognised on wholly owned assets and a further £98.0 million (2021: £73.7
million) from joint ventures, which is included in share of joint venture
profit in the consolidated income statement.
The LSAV and USAF performances are constrained this year due to an inability
to meet the highly probable criteria that the fees would be earned. In the
year to 31 December 2021, the LSAV performance fee under the previous
agreement crystalised and a total fee of £41.9 million was recognised.
The cost of sales included in the consolidated income statement includes
property operating expenses of £70.3 million (2021: £64.4 million).
2.5 Tax
As a REIT, rental profits and gains on disposal of investment properties are
exempt from corporation tax. The Group pays UK corporation tax on the profits
from its residual business, including management fees received from joint
ventures, together with UK income tax on rental income that arises from
investments held by offshore subsidiaries in which the Group holds a
non-controlling interest.
2.5a) Tax - income statement
The total taxation charge/(credit) in the income statement is analysed as
follows:
2022 2021
£m £m
Corporation tax on residual business income arising in UK companies 0.5 1.0
Income tax on UK rental income arising in non-UK companies 0.4 0.3
Adjustments in respect of prior periods (0.2) (2.2)
Current tax charge/(credit) 0.7 (0.9)
Origination and reversal of temporary differences 0.5 (0.2)
Effect of change in tax rate - (0.2)
Adjustments in respect of prior periods 0.4 (0.1)
Deferred tax charge/(credit) 0.9 (0.5)
Total tax charge/(credit) in income statement 1.6 (1.4)
The movement in deferred tax is shown in more detail in note 2.5d.
In the income statement, a tax charge of £1.6 million arises on a profit
before tax of £358.0 million. The taxation credit that would arise at the
standard rate of UK corporation tax is reconciled to the actual tax charge as
follows:
2022 2021
£m £m
Profit before tax 358.0 343.1
Income tax using the UK corporation tax rate of 19% (2021: 19%) 67.2 65.2
Property rental business profits exempt from tax in the REIT Group (27.5) (18.4)
Property revaluations not subject to tax (25.8) (43.3)
Mark to market changes in interest rate swaps not subject to tax (13.4) (2.9)
Effect of indexation on investments 0.1 -
Effect of other permanent differences 0.5 0.2
Effect of tax deduction transferred to equity on share schemes 0.3 0.3
Rate difference on deferred tax - (0.2)
Prior year adjustments 0.2 (2.3)
Total tax charge/(credit) in income statement 1.6 (1.4)
As a UK REIT, the Group is exempt from UK corporation tax on the profits from
its property rental business. Accordingly, the element of the Group's profit
before tax relating to its property rental business has been separately
identified in the reconciliation above.
No deferred tax asset has been recognised in respect of the Group's
accumulated tax losses on the basis that they are not expected to be utilised
in future periods. At 31 December 2022 these losses totalled £15.3 million
(2021: £14.6 million).
Although the Group does not pay UK corporation tax on the profits from its
property rental business, it is required to distribute 90% of the profits from
its property rental business after accounting for tax adjustments as a
Property Income Distribution (PID). PIDs are charged to tax in the same way as
property income in the hands of the recipient. For the year ended 31 December
2022 the required PID is expected to be fully paid by the end of 2023.
2.5b) Tax - other comprehensive income
Within other comprehensive income a tax charge totalling £nil (2021: £nil)
has been recognised representing deferred tax.
2.5c) Tax - statement of changes in equity
Within the statement of changes in equity a tax charge totalling £0.2 million
(2021: £0.6 million credit) has been recognised representing deferred tax. An
analysis of this is included below in the deferred tax movement table.
2.5d) Tax - balance sheet
The table below outlines the deferred tax (assets)/liabilities that are
recognised in the balance sheet, together with their movements in the year:
2022
At 31 December 2021 Charged/(credited) Charged/(credited) At 31 December 2022
in income
in equity
£m
£m
£m £m
Investments - 0.4 - 0.4
Property, plant and machinery and provisions (1.2) (0.1) - (1.3)
Share schemes (1.8) 0.3 0.3 (1.2)
Tax value of carried forward losses recognised - 0.3 (0.3) -
Net tax (assets)/liabilities (3.0) 0.9* - (2.1)
* The £0.9 million balance above includes tax movements totaling £0.2m in
respect of property, plant and machinery, share schemes and losses which are
included in EPRA earnings and therefore not shown as a reconciling item in the
IFRS reconciliation in note 2.2b. Removing them results in the £0.7 million
movement shown in note 2.2b.
2021
At 31 December 2020 Charged/(credited) Charged/(credited) At 31 December 2021
in income
in equity
£m
£m
£m £m
Investments - - - -
Property, plant and machinery and provisions (0.6) (0.6) - (1.2)
Share schemes (1.3) (0.2) (0.3) (1.8)
Tax value of carried forward losses recognised - 0.3 (0.3) -
Net tax (assets) (1.9) (0.5)* (0.6) (3.0)
* The £0.5 million balance above includes tax movements totaling £0.2m in
respect of property, plant and machinery, share schemes and losses which are
included in EPRA earnings and therefore not shown as a reconciling item in the
IFRS reconciliation in note 2.2b. Removing them results in the £0.3 million
movement shown in note 2.2b.
Section 3: Asset management
3.1 Wholly owned property assets
The Group's wholly owned property portfolio is held in three groups on the
balance sheet at the carrying values detailed below.
In the Group's EPRA NTA all these groups are shown at market value.
i) Investment property (owned)
These are assets that the Group intends to hold for a long period to earn
rental income or capital appreciation. The assets are held at fair value in
the balance sheet with changes in fair value taken to the income statement.
ii) Investment property (leased)
These are assets the Group sold to institutional investors and simultaneously
leased back. These right-of-use assets are measured at fair value in the
balance sheet with changes in fair value taken to the income statement.
iii) Investment property (under development)
These are assets which are currently in the course of construction and which
will be transferred to Investment property on completion. The assets are
initially recognised at cost and are subsequently measured at fair value in
the balance sheet with changes in fair value taken to the income statement.
iv) Investment property classified as held for sale
These are assets whose carrying amount will be recovered through a sale
transaction rather than to hold for long-term rental income or capital
appreciation. This condition is regarded as met only when the sale is highly
probable and the investment property is available for immediate sale in its
present condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one year from
the date of classification. The assets are measured at fair value in the
balance sheet, with changes in fair value taken to the income statement. They
are presented as current assets in the IFRS balance sheet.
Valuation process
The valuations of the properties are performed twice a year on the basis of
valuation reports prepared by external, independent valuers, having an
appropriate recognised professional qualification. The fair values are based
on market values as defined in the RICS Appraisal and Valuation Manual, issued
by the Royal Institution of Chartered Surveyors. CB Richard Ellis Ltd, Jones
Lang LaSalle Ltd and Messrs Knight Frank LLP, Chartered Surveyors were the
valuers in the years ended 31 December 2022 and 2021.
The valuations are based on:
· Information provided by the Group such as current rents, occupancy,
operating costs, terms and conditions of leases and nomination agreements,
capital expenditure, etc. This information is derived from the Group's
financial systems and is subject to the Group's overall control environment.
· Assumptions and valuation models used by the valuers - the
assumptions are typically market related, such as yield and discount rates.
These are based on their professional judgement and market observation.
The information provided to the valuers - and the assumptions and the
valuation models used by the valuers - are reviewed by the Property Leadership
Team and the CFO. This includes a review of the fair value movements over the
year.
The fair value of the Group's wholly owned properties and the movements in the
carrying value of the Group's wholly owned property portfolio during the year
ended 31 December 2022 are shown in the table below.
2022
Investment Investment Investment property (under development) Total
property property £m £m
(owned) (leased)
£m £m
At 1 January 2022 3,095.1 97.7 324.1 3,516.9
Additions 71.1 - - 71.1
Cost capitalised 38.6 1.9 187.7 228.2
Interest capitalised 0.5 - 5.9 6.4
Transfer from investment property under development 326.5 - (326.5) -
Transfer from work in progress - - 4.9 4.9
Disposals (14.5) - - (14.5)
Valuation gains 168.6 - 19.4 188.0
Valuation losses (62.5) (9.3) (12.8) (84.6)
Net valuation gains/(losses) 106.1 (9.3) 6.6 103.4
Carrying and market value at 31 December 2022 3,623.4 90.3 202.7 3,916.4
The fair value of the Group's wholly owned properties and the movements in the
carrying value of the Group's wholly owned property portfolio during the year
ended 31 December 2021 are shown in the table below.
2021
Investment Investment Investment property (under development) Total
property property £m £m
(owned) (leased)
£m £m
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 investment property under development - - 2.1 2.1
Transfer from work in progress (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 and market value at 31 December 2021 3,095.1 97.7 324.1 3,516.9
Total assets classified as held for sale at 31 December 2021 of £228.2
million are comprised entirely of investment property (owned). Assets
classified as held for sale are reported within the operations segment, and
represents a portfolio of properties intended to be sold within the next 12
months.
Included within investment properties at 31 December 2022 are £28.4 million
(2021: £28.8 million) of assets held under a long leasehold and £0.1 million
(2021: £0.1 million) of assets held under short leasehold.
Total interest capitalised in investment properties (owned) and investment
properties under development at 31 December 2022 was £63.5 million (2021:
£57.4 million) on a cumulative basis. Total internal costs capitalised in
investment properties (owned) and investment properties under development was
£81.7 million at 31 December 2022 (2021: £74.3 million) on a cumulative
basis.
Recurring fair value measurement
All investment and development properties are classified as Level 3 in the
fair value hierarchy.
Class of asset 2022 2021
£m £m
London - rental properties 1,212.8 849.8
Prime regional - rental properties 1,105.6 992.9
Major regional - rental properties 1,130.0 1,263.5
Provincial - rental properties 103.9 217.1
London - development properties 91.9 249.9
Prime regional - development properties 32.4 48.4
Major regional - development properties 64.1 25.8
London build-to-rent - rental properties 71.1 -
Prime regional build-to-rent - development properties 14.3 -
Investment property (owned) 3,826.1 3,647.4
Investment property (leased) 90.3 97.7
Market value (including assets classified as held for sale) 3,916.4 3,745.1
Investment property (classified as held for sale) - (228.2)
Market value 3,916.4 3,516.9
The valuations have been prepared in accordance with the latest version of the
RICS Valuation - Global Standards (incorporating the International Valuation
Standards) and the UK national supplement (the "Red Book") based on net rental
income, estimated future costs, occupancy, property management costs and the
net initial yield or discount rate.
Where the asset is leased to a university, the valuations also reflect the
length of the lease, the allocation of maintenance and insurance
responsibilities between the Group and the lessee, and the market's general
perception of the lessee's creditworthiness.
The resulting valuations are cross-checked against comparable market
transactions.
For development properties, the fair value is usually calculated by estimating
the fair value of the completed property (using the discounted cash flow
method) less estimated costs to completion.
Fair value using unobservable inputs (Level 3)
2022 2021
£m £m
Opening fair value 3,516.9 3,903.7
Gains and (losses) recognised in income statement 103.4 105.8
Transfer to current assets classified as held for sale - (228.2)
Capital expenditure 310.6 136.7
Disposals (14.5) (401.1)
Closing fair value 3,916.4 3,516.9
Investment property (classified as held for sale) - 228.2
Closing fair value (including assets classified as held for sale) 3,916.4 3,745.1
Quantitative information about fair value measurements using unobservable
inputs (Level 3)
2022
Fair value Valuation Unobservable inputs Range Weighted average
technique
£m
London - 1,212.8 RICS Red Book Net rental income (£ per week) £208 - £392 £308
rental properties
Estimated future rent increase (%)
2.0% - 4.0%
3.0%
Net initial yield/discount rate (%)
3.7% - 4.5%
3.9%
Prime regional - 1,105.6 RICS Red Book Net rental income (£ per week) £148 - £243 £163
rental properties
Estimated future rent increase (%)
2.0% - 5.0%
3.0%
Net initial yield/discount rate (%)
4.1% - 6.2%
4.7%
Major regional - 1,130.0 RICS Red Book Net rental income (£ per week) £99 - £178 £128
rental properties
Estimated future rent increase (%)
2.0% - 3.0%
3.0%
Net initial yield/discount rate (%)
4.5% - 7.0%
5.7%
Provincial - 103.9 RICS Red Book Net rental income (£ per week) £107 - £156 £123
rental properties
Estimated future rent increase (%)
2.0% - 3.0%
3.0%
Net initial yield/discount rate (%)
6.8% - 21.5%
8.6%
London - 91.9 RICS Red Book Estimated cost to complete (£m) £111.4m-£177.1m £150.2m
development properties
£248
Net rental income (£ per week) £183 - £366
3.0% 3.0%
Estimated future rent increase (%)
3.7%
3.7%
Net initial yield/discount rate (%)
Prime regional - 32.4 RICS Red Book Estimated cost to complete (£m) £17.5m - £58.3m £44.7m
development properties
Net rental income (£ per week) £171 - £235 £184
2.5% - 3.0%
3.0%
Estimated future rent increase (%)
4.25% - 5.0%
4.5%
Net initial yield/discount rate (%)
Major regional - 64.1 RICS Red Book Estimated cost to complete (£m) £18.2m - £28.4m £21.1m
development properties
Net rental income (£ per week) £185 - £287 £198
3.0%
3.0%
Estimated future rent increase (%)
4.9% - 4.95%
4.9%
Net initial yield/discount rate (%)
3,740.7
Investment property - 71.1 RICS Red Book Net rental income (£ per week) £359 £359
Estimated future rent increase (%)
build-to-rent
Net initial yield/discount rate (%) 3.0% 3.0%
3.9% 3.9%
Development property - 14.3 RICS Red Book Estimated cost to complete (£m) £12.8m - £20.4m £15.6m
build-to-rent Net rental income (£ per week) £170 - £614 £312
Estimated future rent increase (%)
Net initial yield/discount rate (%) 3.0% 3.0%
3.9%- 4.3% 4.03%
3,826.1
Investment property 90.3 Discounted Net rental income (£ per week) £99 - £191 £154
(leased)
cash flows
Estimated future rent increase (%)
1.0% - 3.0%
2.0%
Discount rate (yield) (%)
6.3%
6.3%
Fair value at 31 December 2022 3,916.4
2021
Fair value Valuation Unobservable inputs Range Weighted average
technique
£m
London - 849.8 RICS Red Book Net rental income (£ per week) £191 - £373 £291
rental properties
Estimated future rent increase (%)
3% - 4%
4%
Net initial yield/discount rate (%)
3.7% - 4.9%
3.9%
Prime regional - 992.9 RICS Red Book Net rental income (£ per week) £144 - £235 £191
rental properties
Estimated future rent increase (%)
1% - 4%
3%
Net initial yield/discount rate (%)
4.0% - 6.3%
4.7%
Major regional - 1,263.6 RICS Red Book Net rental income (£ per week) £62 - £173 £131
rental properties
Estimated future rent increase (%)
0% - 4%
2%
Net initial yield/discount rate (%)
4.7% - 7.0%
5.7%
Provincial - 217.1 RICS Red Book Net rental income (£ per week) £109 - £188 £135
rental properties
Estimated future rent increase (%)
1% - 4%
3%
Net initial yield/discount rate (%)
5.1% - 14.2%
7.0%
London - 249.9 RICS Red Book Estimated cost to complete (£m) £34.0m - £177.3m £126.5m
development properties
Net rental income (£ per week)
£185 - £382
£289
Estimated future rent increase (%) 3% 3%
Net initial yield/discount rate (%)
3.6%
3.6%
Prime regional - 48.4 RICS Red Book Estimated cost to complete (£m) £7.1m - £64.3m £35.9m
development properties
Net rental income (£ per week)
£176 - £258
£181
Estimated future rent increase (%) 3% 3%
Net initial yield/discount rate (%)
4.0%
4.0%
Major regional - 25.8 RICS Red Book Estimated cost to complete (£m) £33.9m - £45.2m £42.1m
development properties
Net rental income (£ per week)
£171 - £213
£172
Estimated future rent increase (%) 3% 3%
Net initial yield/discount rate (%)
5.0%
5.0%
3,647.4
Investment property 97.7 Discounted Net rental income (£ per week) £95 - £185 £144
(leased)
cash flows
Estimated future rent increase (%)
3%
3%
Discount rate (yield) (%)
6.8%
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.
Class of assets Fair value at +5% -5% +25 bps -25 bps
31 December 2022
change in estimated net rental income
change in estimated net rental income
change in nominal equivalent yield
change in nominal equivalent yield
£m
£m
£m
£m
£m
Rental properties
London 1,212.8 1,272.9 1,152.7 1,138.9 1,297.1
Prime regional 1,105.6 1,160.5 1,051.2 1,049.4 1,168.9
Major regional 1,130.0 1,186.6 1,073.7 1,081.7 1,183.1
Provincial 103.9 109.2 98.7 100.9 107.2
Development properties
London 91.9 95.9 86.6 85.6 97.6
Prime regional 32.4 38.5 35.1 35.0 38.8
Major regional 64.1 67.2 61.0 61.0 67.3
Build-to-rent properties
London 71.1 76.0 68.8 68.1 77.3
Prime regional 14.3 15.1 13.7 13.6 15.4
Market value 3,826.1 4,021.9 3,641.5 3,634.2 4,052.7
3.2 Inventories
2022 2021
£m £m
Interests in land 11.4 10.8
Other stocks 1.4 1.3
Inventories 12.8 12.1
At 31 December 2022, the Group had interests in two pieces of land (2021: two
pieces of land).
3.3 Investments in joint ventures
The Group has two joint ventures:
Joint venture Group's share of assets/results 2022 (2021) Objective Partner Legal entity in which
Group has interest
The UNITE UK Student Accommodation Fund (USAF) 29.5%* Invest and operate student accommodation throughout the UK Consortium of investors UNITE UK Student Accommodation Fund,
a Jersey Unit Trust
(23.4%)*
London Student Accommodation 50% Operate student accommodation GIC Real Estate Pte, Ltd Real estate investment vehicle of LSAV Unit Trust, a Jersey Unit Trust and LSAV (Holdings) Ltd, incorporated in
Venture (LSAV)
in London and Birmingham
the Government of Singapore Jersey
(50%)
* Part of the Group's interest is held through a subsidiary, USAF (Feeder)
Guernsey Limited, in which there is an external investor. A non-controlling
interest therefore occurs on consolidation of the Group's results representing
the external investor's share of profits and assets relating to its investment
in USAF. The ordinary shareholders of The Unite Group PLC are beneficially
interested in 28.15% (2021: 22.0%) of USAF.
3.3a) Net assets and results of the joint ventures
The summarised balance sheets and results for the year, and the Group's share
of these joint ventures are as follows:
2022
USAF LSAV Total
£m £m £m
Gross MI Share Gross Share Gross Share
Investment property 2,888.1 38.0 813.0 1,920.8 960.4 4,808.9 1,811.4
Cash 126.5 1.7 35.6 131.2 65.6 257.7 102.9
Debt (851.9) (11.2) (239.8) (770.4) (385.2) (1,622.3) (636.2)
Swap assets/(liabilities) 3.2 - 0.9 6.6 3.3 9.8 4.2
Other current assets 126.5 1.7 35.6 16.4 8.2 142.9 45.5
Other current liabilities (245.8) (3.4) (69.2) (57.2) (28.6) (303.0) (101.2)
Net assets 2,046.6 26.8 576.1 1,247.4 623.7 3,294.0 1,226.6
Non-controlling interest - (26.8) - - - - (26.8)
Swap (assets)/liabilities (3.2) - (0.9) (6.6) (3.3) (9.8) (4.2)
EPRA NTA 2,043.4 - 575.2 1,240.8 620.4 3,284.2 1,195.6
Profit for the year 124.2 1.3 26.1 106.0 53.0 230.2 80.4
2021
USAF LSAV Total
£m £m £m
Gross MI Share Gross Share Gross Share
Investment property 2,867.4 39.3 631.9 1,819.0 909.5 4,686.4 1,580.7
Cash 106.2 1.5 23.4 45.4 22.7 151.6 47.6
Debt (912.1) (12.5) (201.0) (673.0) (336.5) (1,585.1) (550.0)
Swap assets/(liabilities) 0.5 - 0.1 (0.2) (0.1) 0.3 -
Other current assets 106.6 1.5 23.5 22.0 11.0 128.6 36.0
Other current liabilities (211.5) (3.5) (46.6) (40.2) (20.1) (251.7) (70.2)
Net assets 1,957.1 26.3 431.3 1,173.0 586.5 3,130.1 1,044.1
Non-controlling interest - (26.3) - - - - (26.3)
Swap (assets)/liabilities (0.5) - (0.1) 0.2 0.1 (0.3) -
EPRA NTA 1,956.6 - 431.2 1,173.2 586.6 3,129.8 1,017.8
Profit for the year 146.9 2.1 34.2 172.2 86.1 319.1 122.4
Net assets and profit for the year above include the non-controlling interest,
whereas EPRA NTA excludes the non-controlling interest.
3.3b) Movement in carrying value of the Group's investments in joint ventures
The carrying value of the Group's investment in joint ventures increased by
£182.5 million during the year ended 31 December 2022 (2021: £195.1
million), resulting in an overall carrying value of £1,226.6 million (2021:
£1,044.1 million).
The following table shows how the increase has arisen.
2022 2021
£m £m
Recognised in the income statement:
Operations segment result 44.5 30.2
Non-controlling interest share of Operations segment result 1.3 1.1
Management fee adjustment related to trading with joint venture 4.0 3.0
Net valuation gains/(losses) on investment property 32.3 88.7
Property disposals (0.9) (0.3)
Other (0.8) (0.3)
80.4 122.4
Recognised in equity:
Movement in effective hedges 4.7 0.6
Other adjustments to the carrying value:
Profit adjustment related to trading with joint venture (4.0) (3.4)
Profit adjustment related to sale of property with LSAV - (1.9)
Additional capital invested in LSAV - 157.6
Additional capital invested in USAF 140.9 -
LSAV performance fee - (42.2)
USAF distributions received (19.8) (18.6)
LSAV distributions received (19.7) (19.4)
Increase in carrying value 182.5 195.1
Carrying value at 1 January 1,044.1 849.0
Carrying value at 31 December 1,226.6 1,044.1
3.3c) Transactions with joint ventures
The Group acts as asset and property manager for the joint ventures and
receives management fees in relation to these services.
In addition, the Group is entitled to performance fees from USAF and LSAV if
the joint ventures outperform certain benchmarks. The Group receives either
cash or an enhanced equity interest in the joint ventures as consideration for
the performance fee. The Group has recognised the following gross fees in its
results for the year.
2022 2021
£m £m
USAF 16.6 15.2
LSAV 4.8 3.9
Asset and property management fees 21.4 19.1
LSAV performance fee - 41.9
Investment management fees - 41.9
Total fees 21.4 61.0
On an EPRA basis, fees from joint ventures are shown net of the Group's share
of the cost to the joint ventures.
The Group's share of the cost to the joint ventures is £4.0 million (2021:
£3.2 million), which results in management fees from joint ventures of £17.4
million being shown in the Operating segment result in note 2.2a (2021: £15.9
million).
During 2022, the Group did not sell any properties to LSAV or USAF (2021: two
properties sold to LSAV for gross proceeds of £341.9 million). The proceeds
and carrying value of the property are therefore recognised in profit on
disposal of property and the cash flows in investing activities. The loss
relating to the sales, associated disposal costs and related cash flows are
set out below:
Profit and loss
2022 2021
£m £m
Included in loss on disposal of property (net of joint venture trading - 6.6
adjustment)
Loss on disposal of property - 6.6
Cash flow
2022 2021
£m £m
Gross proceeds - 341.9
Less amounts settled by transfer of property - (99.4)
Net cash flows included in cash flows from investing activities - 242.5
Section 4: Funding
4.1 Borrowings
The table below analyses the Group's borrowings which comprise bank and other
loans by when they fall due for payment:
Group - Carrying value
2022 2021
£m £m
Current
In one year or less, or on demand - -
Non-current
In more than one year but not more than two years 298.7 -
In more than two years but not more than five years 228.0 419.2
In more than five years 721.1 719.0
1,247.8 1,138.2
Unamortised fair value of debt recognised on acquisition 18.1 23.8
Total borrowings 1,265.9 1,162.0
In addition to the borrowings currently drawn as shown above, the Group has
available undrawn facilities of £368.0 million (2021: £325.0 million). A
further overdraft facility of £10.0 million (2021: £10.0 million) is also
available.
The carrying value and fair value of the Group's borrowings is analysed below:
2022 2021
Carrying value Fair value Carrying value Fair value
£m £m £m £m
Level 1 IFRS fair value hierarchy 875.0 759.3 898.8 936.7
Other loans and unamortised arrangement fees 372.8 333.8 263.2 263.2
Total borrowings 1,247.8 1,093.1 1,162.0 1,199.9
The fair value of loans classified as Level 1 in the IFRS fair value hierarchy
is determined using quoted prices in active markets for identical liabilities.
The following table shows the changes in liabilities arising from financing
activities:
2022
at 1 January Financing cash flows Fair Value adjustments Other at 31 December 2022
changes
2022
Borrowings 1,162.0 107.0 (4.3) 1.2 1,265.9
Lease liabilities 96.8 (4.8) - 0.3 92.3
Interest rate swaps (2.5) - (70.7) - (73.2)
Total liabilities from financing activities 1,256.3 102.2 (75.0) 1.5 1,285.0
2021
at 31 December 2021 Financing cash flows Fair Value adjustments Other at 31 December 2021
changes
Borrowings 1,689.9 (563.8) (4.3) 40.2 1,162.0
Lease liabilities 101.1 (13.2) - 8.9 96.8
Interest rate swaps 23.6 (3.1) (23.9) 0.9 (2.5)
Total liabilities from financing activities 1,814.6 (580.1) (28.2) 50.0 1,256.3
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:
2022 2021
£m £m
Current - (2.5)
Non-current (73.2) -
Fair value of interest rate swaps (73.2) (2.5)
The fair value of interest rate swaps (a debit balance in 2022 and 2021) have
been calculated by a third party expert, discounting estimated future cash
flows on the basis of market expectations of future interest rates,
representing Level 2 in the IFRS 13 fair value hierarchy. At 31 December 2022
the net current asset fair value above comprises assets of £73.2 million
(2021: assets of £6.1 million and liabilities of £3.6 million).
4.3 Net financing (gains)/costs
2022 2021
Recognised in the income statement: £m £m
Interest income (0.2) -
Finance income (0.2) -
Gross interest expense on loans 39.5 43.7
Interest capitalized (4.3) (5.2)
Amortisation of fair value of debt recognised on acquisition (5.9) (4.3)
Loan interest and similar charges 29.3 34.2
Interest on lease liabilities 8.1 8.5
Mark to market changes on interest rate swaps (70.7) (10.9)
Swap cancellation fair value settlements and loan break costs - 4.2
Finance (gains)/costs (33.3) 36.0
Net financing (gains)/costs (33.5) 36.0
The average cost of the Group's wholly owned investment debt for the year
ended 31 December 2022 is 3.3% (2021: 3.0%). The overall average cost of
investment debt on an EPRA basis is 3.4% (2021: 3.0%).
4.4 Gearing
LTV is a key indicator that the Group uses to manage its indebtedness. The
Group also monitors gearing, which is calculated using EPRA net tangible
assets (NTA) and adjusted net debt. Adjusted net debt excludes IFRS 16 lease
liabilities, the unamortised fair value of debt recognised on acquisition and
mark to market of interest rate swaps as shown below.
The Group's gearing ratios are calculated as follows:
Note 2022 2021
£m £m
Cash and cash equivalents 5.1 38.0 109.4
Non-current borrowings 4.1 (1,265.9) (1,162.0)
Lease liabilities (92.3) (96.8)
Interest rate swaps 4.2 73.2 2.5
Net debt per balance sheet (1,247.0) (1,146.9)
Lease liabilities 92.3 96.8
Unamortised fair value of debt recognised on acquisition 2.3c 19.5 23.8
Adjusted net debt (1,135.2) (1,026.3)
Reported net asset value 2.3c 3,792.1 3,527.8
EPRA NTA 2.3c 3,715.2 3,532.2
Gearing
Basic (net debt/reported net asset value) 33% 33%
Adjusted gearing (adjusted net debt/EPRA NTA) 31% 29%
Loan to value 2.3a 31% 29%
4.5 Covenant compliance
The Group monitors its covenant position and the forecast headroom available
on a monthly basis. At 31 December 2022, the Group was in full compliance with
all of its borrowing covenants.
The Group's unsecured borrowings carry several covenants. The covenant regime
is IFRS based and gives the Group substantial operational flexibility,
allowing property acquisitions, disposals and developments to occur with
relative freedom.
2022 2021
Covenant Actual Covenant Actual
Gearing <1.50 0.34 <1.50 0.30
Unencumbered assets ratio >1.70 3.12 >1.70 3.25
Secured gearing <0.25 0.0 <0.25 0.0
Development assets ratio <30% 4% <30% 7%
Joint venture ratio <55% 24% <55% 23%
Interest cover >2.00 6.71 >2.00 5.49
The Group also has bonds which carry several covenants which the Group was
also in full compliance with as set out below.
2022 2021
Weighted covenant Weighted actual Weighted covenant Weighted actual
Net gearing <60% 34% <60% 30%
Secured gearing <25% 0% <25% 0%
Unsecured gearing >1.67 2.89 >1.67 2.79
Interest cover >1.75 3.50 >1.75 3.31
4.6 Equity
The Company's issued share capital has increased during the year as follows:
Called up, allotted and fully paid 2022 2021
ordinary shares of £0.25p each
No. of Ordinary shares Share Premium No. of Ordinary shares Share Premium
shares
shares
£m £m £m £m
At 1 January 399,139,636 99.8 2,161.2 398,170,432 99.5 2,160.3
Shares issued (placing) - - - - - -
Shares issued (scrip dividend) 865,069 0.2 (0.2) 789,927 0.2 (0.2)
Shares issued (options exercised) 312,520 0.1 1.0 179,277 0.1 1.1
At 31 December 400,317,225 100.1 2,162.0 399,139,636 99.8 2,161.2
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company. All shares rank equally with regard to the Company's residual assets.
4.7 Dividends
During the year, the Company paid the final 2021 dividend of £62.3 million -
15.6p per share - and an interim 2022 dividend of £43.9 million - 11.0p per
share (2021: final 2020 dividend 12.75p and an interim dividend 6.5p).
After the year-end, the Directors proposed a final dividend per share of 21.7p
- totalling £86.8 million (2021: 15.6p), bringing the total dividend per
share for the year to 32.7p (2021: 22.1p). No provision has been made in
relation to this dividend.
The Group has modelled tax adjusted property business profits for 2022 and
2023 and the PID requirement in respect of the year ended 31 December 2022 is
expected to be satisfied by the end of 2023.
Section 5: Working capital
5.1 Cash and cash equivalents
The Group's cash position at 31 December 2022 was £38.0 million (2021:
£109.4 million).
The Group's cash balances include £1.1 million (2021: £2.0 million) whose
use at the balance sheet date is restricted by funding agreements to pay
operating costs.
The Group generates cash from its operating activities as follows:
Note
2022 2021
£m £m
Profit for the year 356.4 344.6
Adjustments for:
Depreciation and amortization 7.8 7.8
Fair value of share-based payments 1.6 2.4
Change in value of investment property (owned and under development) 3.1 (112.7) (116.8)
Change in value of investment property (leased) 3.1 9.3 11.1
Net finance costs excluding interest on lease liabilities 4.3 29.1 34.2
Interest payments for leased assets 4.3 8.1 8.5
Mark to market changes in interest rate swaps 4.3 (70.7) (10.9)
Swap break fair value settlements and debt exit costs 4.3 - 4.2
Loss on disposal of investment property (owned) 15.6 12.0
Share of joint venture profit 3.3b (80.4) (122.2)
Trading with joint venture adjustment 4.0 19.1
Tax charge/(credit) 2.5a 1.6 (1.5)
Cash flows from operating activities before changes in working capital 192.5 132.7
Decrease/(increase) in trade and other receivables 3.6 (52.5)
(Increase) in inventories (1.0) (2.9)
(Decrease)/increase in trade and other payables (10.7) 34.2
Cash flows from operating activities 161.6 171.3
Tax paid (1.4) -
Net cash flows from operating activities 160.2 171.3
Cash flows consist of the following segmental cash inflows/(outflows):
operations £134.1 million (2021: £108.1 million), property £29.6 million
(2021: (£324.8 million)) and unallocated (£235.1 million) (2021: £12.2
million).
The unallocated net cash outflow is comprised of dividends paid totalling
£96.4 million (2021: £64.8 million), an outflow of £141.0 million due to
the acquisition of units in USAF (2021: £nil) and £2.3 million of inflows
from other items.
5.2 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. It arises principally from the Group's cash balances, the Group's
receivables from customers and joint ventures and loans provided to the
Group's joint ventures.
At the year-end, the Group's maximum exposure to credit risk was as follows:
2022 2021
Note £m £m
Cash 5.1 38.0 109.4
Trade receivables 31.8 27.9
Amounts due from joint ventures 46.9 56.8
116.7 194.1
5.2a) Cash
The Group operates investment guidelines with respect to surplus cash.
Counterparty limits for cash deposits are largely based upon long-term ratings
published by credit rating agencies and credit default swap rates. Deposits
were placed with financial institutions with A- or better credit ratings.
5.2b) Trade receivables
The Group's customers can be split into two groups - (i) students
(individuals) and (ii) commercial organisations including universities. The
Group's exposure to credit risk is influenced by the characteristics of each
customer.
5.2c) Joint ventures
Amounts receivable from joint ventures fall into two categories - working
capital balances and investment loans. The Group has strong working
relationships with its joint venture partners, and the joint ventures have
strong financial performance, retain net asset positions and are cash
generative, and therefore the Group views this as a low credit risk balance.
No impairment has therefore been recognised in 2022 or 2021.
5.3 Provisions
During 2020, and in accordance with the Government's Building Safety Advice of
20 January 2020, we undertook a thorough review of the use of High-Pressure
Laminate (HPL) cladding on our properties. We have identified 27 properties
with cladding that needs replacing across our estate, due to legal or
contractual obligations. 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 cladding is expected to be £113.3 million (Unite Share:
£59.2 million), of which £29.5 million is in respect of wholly owned
properties. Whilst the overall timetable for these works is uncertain, we
anticipate this will be incurred over the next 12-24 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.
Management have performed a sensitivity analysis to assess the impact of a
change in their estimate of total costs. A 20% increase in the estimated
remaining costs would affect net valuation gains/losses on property in the
IFRS P&L and would reduce the Group's NTA by 3.0 pence on a Unite share
basis. Whilst provisions are expected to be utilised within two years, there
is uncertainty over this timing.
The Group has recognised provisions for the cost of these cladding works as
follows:
Gross Unite Share
£m
£m
Wholly owned USAF LSAV Total Wholly owned USAF LSAV Total
At 31 December 2020 15.7 50.0 14.2 79.9 15.7 11.0 7.1 33.8
Additions 18.0 23.4 0.5 41.9 18.0 5.1 0.3 23.4
Utilisation (0.2) (17.1) (12.5) (29.8) (0.2) (3.8) (6.3) (10.3)
At 31 December 2021 33.5 56.3 2.2 92.0 33.5 12.3 1.1 46.9
Additions 1.9 40.1 29.8 71.8 1.9 11.4 14.9 28.2
Utilisation (5.9) (40.8) (3.8) (50.5) (5.9) (11.6) (1.9) (19.4)
Change in ownership - - - - - 3.5 - 3.5
At 31 December 2022 29.5 55.6 28.2 113.3 29.5 15.6 14.1 59.2
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
2.2c. Definitions can also be found in the glossary.
Adjusted earnings reflects a more meaningful measure of the underlying
earnings of the Group, excluding the non-recurring impact of one-off
transactions, and therefore aiding comparability.
Non-EPRA measures may not have comparable calculation bases between companies
and therefore may not provide meaningful industry-wide comparability.
Note 2022 2021
£m
£m
EBIT
Net operating income (NOI) 2.2a 241.0 191.8
Management fees 2.2a 17.4 15.9
Overheads 2.2a (27.7) (31.5)
230.7 176.2
EBIT margin %
Rental income 2.2a 339.7 282.7
EBIT 7 230.7 176.2
67.9% 62.3%
EBITDA
Net operating income (NOI) 2.2a 241.0 191.8
Management fees 2.2a 17.4 15.9
Overheads 2.2a (27.7) (31.5)
Depreciation and amortisation 7.8 7.8
238.5 184.0
Net debt
Cash 2.3a 139.2 155.5
Debt on properties 2.3a (1,872.8) (1,677.3)
(1,733.6) (1,521.8)
EBITDA : Net debt
EBITDA 7 238.5 184.0
Net debt 7 (1,733.6) (1,521.8)
Ratio 7.3 8.3
Interest cover (Unite share)
EBIT 7 230.7 176.2
Net financing costs 2.2a (54.9) (54.8)
Interest on lease liability/operating lease rentals 2.2a (8.1) (8.5)
Total interest (63.0) (63.3)
Ratio 3.7 2.8
Reconciliation: IFRS profit before tax to EPRA earnings and adjusted earnings
Note 2022 2021
£m
£m
IFRS profit before tax 358.0 343.1
Net valuation (gains)/losses on investment property (owned) 2.2b (145.0) (205.6)
Property disposals (owned) 2.2b 16.5 12.3
Net valuation losses on investment property (leased) 2.2b 9.3 11.1
Amortisation of fair value of debt recognised on acquisition 2.2b (4.3) (4.3)
Changes in valuation of interest rate swaps 2.2b (70.7) (10.9)
Swap cancellation fair value settlements and loan break costs 2.2b - 4.2
Non-controlling interest, tax and other items (1.9) 2.1
EPRA earnings 161.9 152.0
Net LSAV performance fee - (41.9)
Abortive costs 1.5 -
Adjusted earnings 163.4 110.1
Adjusted EPS yield
Note 2022 2021
Adjusted EPS (A) 2.2c 40.9p 27.6p
Opening EPRA NTA (B) 2.3d 882p 818p
Adjusted EPS yield (A/B) 4.6% 3.4%
Total accounting return
Note 2022 2021
Opening EPRA NTA (A) 2.3d 882.2p 818.0p
Closing EPRA NTA 2.3d 926.7p 882.2p
Movement 44.5p 64.2p
H1 dividend paid 4.9 15.6p 12.8p
H2 dividend paid 4.9 11.0p 6.5p
Total movement in NTA (B) 71.1p 83.5p
Total accounting return (B/A) 8.1% 10.2%
EPRA Performance Measures
Summary of EPRA performance measures
2022 2021 2022 2021
£m
£m
EPRA earnings 161.9 152.0 40.5p 38.1p
Adjusted earnings 163.4 110.1 40.9p 27.6p
EPRA NTA (diluted) 3,718.3 3,536.1 927p 882p
EPRA NRV (diluted) 4,037.3 3,829.7 1,006p 955p
EPRA NDV (diluted) 3,658.5 3,503.6 912p 874p
EPRA net initial yield 4.6% 4.0%
EPRA topped-up net initial yield 4.6% 4.0%
EPRA like-for-like gross rental income 23.0% 4.7%
EPRA vacancy rate 0.8% 5.6%
EPRA cost ratio (including vacancy costs) 33.4% 38.8%
EPRA cost ratio (excluding vacancy costs) 32.3% 36.8%
EPRA like-for-like rental income (calculated based on total portfolio value of
£8.5 billion)
£m Properties owned throughout the period Development property Acquisitions and disposals Total EPRA
2022
Rental income 310.9 5.3 23.5 339.7
Property operating expenses (90.6) (1.1) (7.0) (98.7)
Net rental income 220.3 4.2 16.5 241.0
2021
Rental income 252.8 - 29.9 282.7
Property operating expenses (79.7) - (11.2) (90.9)
Net rental income 173.1 - 18.7 191.8
Like-for-like net rental income (£m) 47.2
Like-for-like gross rental income (£m) 58.1
EPRA vacancy rate
2022 2021
£m £m
Estimated rental value of vacant space 2.0 13.8
Estimated rental value of the whole portfolio 262.9 246.5
EPRA vacancy rate 0.8% 5.6%
EPRA net initial yield
2022 2021
Annualised net operating income (£m) 256.9 205.1
Property market value (£m) 5,325.6 4,864.8
Notional acquisition costs (£m) 285.7 254.3
5,611.3 5,119.1
Net initial yield (%) * 4.6% 4.0%
0%
Difference in projected versus historical GOI 0.1%
Unite net initial yield (%) 4.7% 4.9%
* No lease incentives are provided by the Group and accordingly EPRA topped up
net initial yield is also 4.6% (2021: 4.0%).
EPRA cost ratio
2022 2021
£m £m
Property operating expenses 72.0 67.7
Overheads 26.4 30.7
Development/pre contract costs 1.2 2.2
Unallocated expenses* 2.8 0.5
102.4 101.1
Share of JV property operating expenses 26.7 23.2
Share of JV overheads 1.3 0.8
Share of JV unallocated expenses* 0.3 0.4
130.7 125.5
Less: Joint venture management fees (17.4) (15.9)
Total costs (A) 113.3 109.6
Group vacant property costs** (2.5) (4.1)
Share of JV vacant property costs** (0.9) (1.4)
Total costs excluding vacant property costs (B) 109.9 104.1
Rental income 241.7 209.0
Share of JV rental income 98.0 73.7
Total gross rental income (C) 339.7 282.7
Total EPRA cost ratio (including vacant property costs) (A)/(C) 33.4% 39%
Total EPRA cost ratio (excluding vacant property costs) (B)/(C) 32.4% 37%
* 2022 excludes amounts in respect of abortive costs and 2021 excludes amounts
in respect of the LSAV performance fee.
** Vacant property costs reflect the per bed share of operating expenses
allocated to vacant beds.
Unite's EBIT margin excludes non-operational expenses which are included
within the EPRA cost ratio above.
The Group capitalises costs in relation to staff costs and professional fees
associated with property development activity.
EPRA valuation movement (Unite share)
Valuation Change %
£m
£m
Wholly owned 3,186.5 105.9 3.4
USAF 636.3 28.0 4.6
LSAV 960.4 50.8 5.6
Rental properties 4,783.2 184.7 4.0
Leased properties 90.3
Build-to-rent properties 71.1
Development completions for AY22/23 365.9
Properties under development 202.8
Properties held throughout the year 5,513.3
Acquisitions 176.5
Total property portfolio 5,689.8
EPRA yield movement
NOI yield Yield movement (bps)
% H1 H2 FY
Wholly owned 4.8 (14) 12 (2)
USAF 5.0 (20) 13 (7)
LSAV 4.1 (19) 19 0
Rental properties (Unite share) 4.7 (16) 14 (2)
Property related capital expenditure
2022 2021
Wholly owned Share of JVs Group share Wholly owned Share of JVs Group share
London 3.3 10.5 13.8 4.8 3.1 7.9
Prime regional 31.6 7.3 38.9 16.7 2.9 19.6
Major regional 16.5 11.2 27.7 8.1 10.8 18.9
Provincial 8.1 1.0 9.1 2.8 0.6 3.4
Total rental properties 59.5 30.0 89.5 32.4 17.4 49.8
Increase in beds 2.1 2.0 4.1 - - -
Acquisitions 1.3 - 1.3 - - -
Developments 193.0 - 193.0 81.4 - 81.4
Capitalised interest 6.3 - 6.3 5.2 - 5.2
Total property related capex 262.2 32.0 294.2 119.0 17.4 136.4
Glossary
Adjusted earnings EPRA EPRA net initial yield (NIY)
An alternative performance measure based on EPRA earnings, adjusted to remove The European Public Real Estate Annualised NOI generated by the Group's rental properties expressed as a
the impact of abortive acquisition costs and the LSAV performance fee which
percentage of their fair value, taking into account notional acquisition
was settled in 2021. The items have been excluded from adjusted earnings to Association, who produce best practice recommendations for financial costs.
improve the comparability of results year-on-year. reporting.
EPRA topped up net initial yield (NIY)
Adjusted earnings per share / EPS EPRA cost ratio
EPRA Net Initial Yield adjusted to include the effect of the expiration of
The earnings per share based on adjusted earnings and weighted average number The ratio of property operating expenses, overheads and management fees, rent free periods (or other unexpired lease incentives such as discounted rent
of shares in issue (basic). against rental income, calculated on an EPRA basis. periods or step rents).
Adjusted EPS yield EPRA earnings EPRA vacancy rate
Adjusted EPS as a percentage of opening EPRA NTA (diluted). EPRA earnings exclude movements relating to changes in values of investment The ratio of the estimated market rental value of vacant spaces against the
properties, profits/losses from the disposal of properties, swap/debt break estimated market rental value of the entire property portfolio (including
costs, interest rate swaps and the related tax effects. vacant spaces).
Adjusted net debt
Net debt per the balance sheet, adjusted to remove IFRS 16 lease liabilities EPRA earnings per share / EPS ESG
and the unamortised fair value of debt recognised on the acquisition of
Liberty Living. The earnings per share based on EPRA earnings and weighted average number of Environmental, Social and Governance.
shares in issue (basic).
Basis points (BPS)
Full occupancy
EPRA like-for-like rental growth
A basis point is a term used to describe a small percentage, usually in the
Fully occupancy is defined as occupancy in excess of 97%.
context of change, and equates to 0.01%. The growth in rental income measured by reference to the part of the portfolio
of the Group that has been consistently in operation, and not under
development nor subject to disposal, and which accordingly enables more
meaningful comparison in underlying rental income levels. GRESB
Diluted earnings / EPS
GRESB is a benchmark of the Environmental, Social and Governance (ESG)
Where earnings values per share are used "basic" measures divide the earnings
performance of real assets.
by the weighted average number of issued shares in issue throughout the EPRA Net Tangible Assets (NTA)
period, whilst the diluted measure also takes into account the effect of share
options which have been granted and which are expected to be converted into EPRA NTA includes all property at market value but excludes the mark to market
shares in the future. of financial instruments, deferred tax and intangible assets. EPRA NTA Gross asset value (GAV)
provides a consistent measure of NAV on a going concern basis.
The fair value of rental properties, leased properties and development
properties.
Diluted NTA/NAV
EPRA Net Tangible Assets per share
Where NTA/NAV per share is used, "basic" measures divide the NTA/NAV by the
number of shares issued at the reporting date, whilst the diluted measure also The diluted NTA per share figure based on EPRA NTA. The Group
takes into account the effect of share options which have been granted and
which are expected to be converted into shares in the future (both for the Wholly owned balances plus Unite's interests relating to USAF and LSAV.
additional number of shares that will be issued and the value of additional
consideration that will be received in issuing them). EPRA Net Reinstatement Value (NRV)
EPRA NRV includes all property at market value but excludes the mark to market Group debt
of financial instruments, deferred tax and real estate transfer tax. EPRA NRV
Direct let assumes that entities never sell assets and represents the value required to Wholly owned borrowings plus Unite's share of borrowings attributable to USAF
rebuild the entity. and LSAV.
Properties where short-hold tenancy agreements are made directly between Unite
and the student.
EPRA Net Disposal Value (NDV) HMO
EBITDA EPRA NDV includes all property at market value, excludes the mark to market of Houses in multiple occupation, where buildings or flats are shared by multiple
financial instruments but includes the fair value of fixed interest rate debt tenants who rent their own rooms and the property's communal spaces on an
The Group's adjusted EBIT, adding back depreciation and amortisation. and the carrying value of intangible assets. EPRA NDV represents the individual basis.
shareholders' value in a disposal scenario.
IFRS NAV per share
IFRS equity attributable to the owners of the parent company from the
consolidated balance sheet divided by the total number of shares of the Parent
Company in issue at the reporting date.
Interest cover ratio (ICR)
Calculated as EBIT divided by the sum of net financing costs and IFRS 16 lease
liability interest costs.
Lease Net debt to EBITDA Resident ambassadors
Properties which are leased to universities for a number of years. Net debt as a proportion of EBITDA. Student representatives who engage with students living in the property to
create a community and sense of belonging.
Like-for-like metrics Net financing costs (EPRA)
See-through (also Unite share)
Like-for-like is the change in metric, on a gross basis, calculated using Interest payable on borrowings less interest capitalised into developments and
properties owned throughout the current and previous period. finance income. Wholly owned balances plus Unite's share of balances relating to USAF and
LSAV.
Loan to value (LTV) Net operating income (NOI)
TCFD
Net debt as a proportion of the value of the rental properties, excluding The Group's rental income less property operating expenses.
balances in respect of leased properties under IFRS 16. Prepared on a
The Taskforce on Climate-related Financial Disclosures develops voluntary,
see-through basis. In the opinion of the Directors, this measure enables an consistent climate-related financial risk disclosures for use by companies in
appraisal of the indebtedness of the business, which closely aligns with key
providing information to investors, lenders, insurers and other stakeholders.
covenants in the Group's agreements. NOI margin
The Group's NOI expressed as a percentage of rental income.
Total accounting return
Loan to value post IFRS 16
Growth in diluted EPRA NTA per share plus dividends paid, expressed as a
Net debt as a proportion of the value of the rental properties, including Nomination agreements percentage of diluted EPRA NTA per share at the beginning of the period. In
balances in respect of leased properties under IFRS 16. Prepared on a
the opinion of the Directors, this measure enables an appraisal of the return
see-through basis. Agreements at properties where Universities have entered into a contract to generated by the business for shareholders during the year.
reserve rooms for their students, usually guaranteeing occupancy. The
Universities usually either nominate students to live in the building and
Unite enters into short-hold tenancies with the students or the University
LTV (EPRA) enters into a contract with Unite and makes payment directly to Unite. Total shareholder return
Net debt as a proportion of the value of the rental properties including The growth in value of a shareholding over a specified period, assuming
balances in respect of leased properties and all other assets and liabilities.
dividends are reinvested to purchase additional shares.
Provincial
Properties located in Bournemouth, Coventry, Loughborough, Medway, Portsmouth
LSAV and Swindon. USAF/the fund
The London Student Accommodation Joint Venture (LSAV) is a joint venture The Unite UK Student Accommodation Fund (USAF) is Europe's largest fund
between Unite and GIC, in which both hold a 50% stake. LSAV has a maturity
focused purely on income-producing student accommodation investment assets.
date of September 2032. Prime regional
The fund is an open-ended infinite life vehicle with unique access to Unite's
Properties located in Bristol, Bath, Edinburgh, Manchester and Oxford. development pipeline. Unite acts as fund manager for the fund, as well as
owning a significant minority stake.
Major regional
Properties located in Aberdeen, Birmingham, Cardiff, Durham, Glasgow, Leeds, Property operating expenses
Leicester, Liverpool, Newcastle, Nottingham, Sheffield and Southampton.
WAULT
Operating costs directly related to rental properties, therefore excluding
central overheads Weighted average unexpired lease term to expiry.
Net asset value (NAV)
The total of all assets less the value of all liabilities at each reporting Rental growth Wholly owned
date.
Calculated as the year-on-year change in the average annual price for sold Balances relating to properties that are 100% owned by The Unite Group PLC or
beds. In the opinion of the Directors, this measure enables a more meaningful its 100% subsidiaries.
comparison in rental income as it excludes the impact of changes in occupancy.
Net debt (EPRA)
Borrowings net of cash. IFRS 16 lease liabilities are excluded from net debt
on an EPRA basis. In the opinion of the Directors, net debt is a useful Rental income
measure to monitor the overall cash position of the Group.
Income generated by the Group from rental properties.
Net debt per balance sheet
Rental properties
Borrowings, IFRS 16 lease liabilities and the mark to market of interest rate
swaps, net of cash. Investment properties (owned and leased) whose construction has been completed
and are used by the Operations segment to generate NOI.
Rental properties (leased) / Sale and leaseback
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.
Company information
Unite Group
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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