REG - Unite Group PLC - Results for the year ended 31 December 2023
27/02/2024 07:00
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RNS Number : 5254E Unite Group PLC (The) 27 February 2024
PRESS RELEASE
27 February 2024
THE UNITE GROUP PLC
('Unite Students', 'Unite', the 'Group', or the 'Company')
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
RECORD EARNINGS, STRONG OUTLOOK FOR 2024/25 AND SIGNIFICANT GROWTH
OPPORTUNITIES
Joe Lister, Chief Executive of Unite Students, commented:
"This is a strong set of results, driven by full occupancy, rental growth and
substantial investment into our platform and portfolio. Our pipeline of
developments, asset management projects and our new university partnership
present a substantial growth opportunity for the business.
"The supply-demand imbalance of student accommodation is acute and continues
to intensify. We play a leading role in tackling this shortage, easing
pressure on the wider housing market and freeing up homes for families. Our
development and asset management pipeline stands at a record £1.3 billion and
we are taking an innovative approach to delivering more homes for students.
University partnerships provide a compelling opportunity to deliver new,
high-quality accommodation and our first joint venture with Newcastle
University is only possible for a business of our reputation, scale and
development expertise.
"We are trusted by students, parents and universities to deliver high-quality,
safe and affordable accommodation where it is needed the most. Our strong
leasing performance supports continued earnings growth in 2024 and we are
confident that our all-inclusive offer, student support programmes and
balanced approach to rental increases will continue to provide real value for
money."
Year ended 31 December 2023 31 December 2022 Change
Adjusted earnings(1,3) £184.3m £163.4m 13%
Adjusted EPS(1,3) 44.3p 40.9p 8%
IFRS profit before tax £102.5m £350.5m (71)%
IFRS diluted EPS 24.6p 87.6p (72)%
Dividend per share 35.4p 32.7p 8%
Total accounting return(1) 2.9% 8.1%
As at 31 December 2023 31 December 2022 Change
EPRA NTA per share(1) 920p 927p (1%)
IFRS net assets per share 931p 944p (1%)
Net debt: EBITDA 6.1x 7.3x (1.2x)
Loan to value(2) 28% 31% (3)ppts
HIGHLIGHTS
Full occupancy in 2023/24, strong demand for 2024/25
· 99.8% occupancy and 7.4% rental growth for the 2023/24 academic year
(2022/23: 99.3% and 3.5%)
· Strong reservations for 2024/25 80% (2023/24: 83%)
· 44.3p adjusted EPS in 2023, +8% YoY (2022: 40.9p)
Sustained earnings growth from our best-in-class platform
· Confident in delivering rental growth of at least 6% for 2024/25
(previously at least 5%)
· Guidance for 3-5% growth in adjusted EPS in 2024 to 45.5-46.5p
· Targeting 10-12% Total Accounting Return (TAR) in 2024, before
yield movement
· Earnings growth to accelerate from 2026 as development
completions increase
· £26 million technology upgrade to enhance customer experience
and EBIT margins from 2025
Housing supply unable to meet student demand
· Significant need for high-quality, affordable student homes
· New PBSA supply 60% below pre-pandemic levels and over 100,000 reduction
in HMO beds available
Investment activity aligned to the strongest universities
· Delivery of £60 million Morriss House development in Nottingham
at 8.5% yield on cost
· Rental portfolio enhanced through £24 million of refurbishments
at a 9% yield on cost
· £197 million of disposals held for sale to improve portfolio
quality (Unite share: £79 million)
Record £1.3 billion development pipeline in the strongest markets
· £569 million committed pipeline in Russell Group cities at 6.5%
yield on cost
· £250 million joint venture agreed with Newcastle University
announced in February
· Future development pipeline of £452 million at 6.7% yield on
cost in cities with tightest supply
· New London scheme added to future pipeline for delivery in 2028
· Targeting £50-75 million p.a. of refurbishment projects at 8%+
yield on cost
Strong balance sheet underpinned by resilient valuations
· £5,510 million portfolio valuation (Unite share), up 1.2% on a
like-for-like basis (2022: £5,397 million)
· 7.4% rental growth offsetting 31bps yield expansion
· TAR of 2.9% (2022: 8.1%), reflecting 1% reduction in NTA to 920p
(2022: 927p)
· Continued investment in fire safety, resulting in 9p of new
commitments net of claims
· Net debt: EBITDA reduced to 6.1x (2022: 7.3x), with LTV of 28%
(2022: 31%)
Delivering on sustainability targets
· Significant improvement in EPC ratings, over 99% of portfolio now
A-C rated (2022: 80%)
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 SaaS implementation
costs and abortive acquisition costs from EPRA earnings and EPRA EPS. See
glossary for definitions and note 7 for calculations and reconciliations.
PRESENTATION
A live webcast of the presentation including Q&A will be held today at
8:30am GMT for investors and analysts and will be available via our website at
https://www.unitegroup.com/ (https://www.unitegroup.com/) or on
https://brrmedia.news/UTG_FY23 (https://brrmedia.news/UTG_FY23) . This will be
available for playback after the event.
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
Joe Lister / Mike Burt / Saxon Ridley
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 2023, delivering record earnings and
dividends. This reflects the strength of our best-in-class operating platform,
the commitment of our teams and the ongoing appeal of our value-for-money
proposition. We operate in a structurally growing sector, underpinned by the
attractiveness of the UK's Higher Education sector to domestic and
international students. The growing shortage of accommodation to meet this
demand supports sustainable rental growth and our standing in the sector
creates compelling investment opportunities for the business.
Record earnings and dividend
We delivered record occupancy during the year, supporting growth in adjusted
earnings to £184.3 million and adjusted EPS of 44.3p, up 13% and 8%
respectively year-on-year. The impact of rental growth, development
completions and lower interest costs more than offset increases in operational
costs during the year. The growth in adjusted EPS also reflects the increased
share count following our capital raise in July 2023. IFRS profit before tax
of £102.5 million and EPS of 24.6p (2022: £350.5 million and 87.6p) also
reflect the valuation change of our property portfolio during the year. We
have proposed a final dividend of 23.6p which, if approved, totals 35.4p for
the full year, representing a payout ratio of 80% of adjusted EPS.
Total accounting returns for the year were 2.9%, with adjusted earnings
offsetting a 1% decrease in EPRA NTA per share to 920p. Our LTV ratio reduced
to 28% during the year, reflecting lower net debt following the capital raise
in July and broadly stable property valuations. Net debt: EBITDA and ICR also
improved to 6.1x and 4.6x respectively (2022: 7.3x and 3.7x). Our robust
balance sheet 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(1) 2023 2022
Adjusted earnings £184.3m £163.4m
Adjusted EPS 44.3p 40.9p
IFRS profit before tax £102.5m £350.5m
IFRS diluted EPS 24.6p 87.6p
Dividend per share 35.4p 32.7p
Adjusted EPS yield 4.8% 4.6%
Total accounting return 2.9% 8.1%
EPRA NTA per share 920p 927p
IFRS net assets per share 931p 944p
Loan to value 28% 31%
1. 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 2024/25
We continue to see strong demand for our well-located, value-for-money student
accommodation at a time of declining numbers of Houses in Multiple Occupancy
(HMOs), obsolescence in older university stock and lower levels of new supply.
This is reflected in our strong progress with reservations for the 2024/25
academic year. Across the Group's entire property portfolio, 80% of rooms are
now sold for the 2024/25 academic year, ahead of our typical leasing pace and
slightly below the record reservation rates last year (2023/24: 83%).
We have seen increased demand from universities as they look to secure
accommodation earlier in the sales cycle, resulting in nomination agreements
for an additional 1% of beds for 2024/25 compared to the same stage of the
2023/24 sales cycle. These agreements deepen our relationships with
universities and provide income security at rental levels comparable with
direct-let sales.
Direct-let sales have also started well, with customers looking to secure
accommodation early in the sales cycle. We have continued to see strong demand
from UK students as our product grows in popularity with second- and
third-year students who recognise the value of our all-inclusive product. 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 at least 6% for 2024/25
(previously at least 5%).
Providing value for money
We are committed to delivering value-for-money to our customers and increasing
rents at a responsible and sustainable pace. 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.
Our rents are 7% more affordable in real terms than 2019 (based on CPI) and
have grown in line with the student maintenance loan over the same period.
Rental increases are a response to higher operating costs, particularly for
utilities and staff, as well as our commitment to being a Real Living Wage
employer.
Our pricing is comparable in cost to HMOs once bills are included. This is
before allowing for the high-quality of our product and price certainty we
provide on utilities and the additional product and service features we offer,
such as on-hand maintenance teams and 24/7 security, high-speed Wi-Fi and
contents insurance. Our rents have also grown by less than the wider private
rental sector, which rose 10% in 2023 (source: Zoopla), and at a comparable
rate to university owned accommodation (source: Cushman & Wakefield).
We also continue to make significant capital investment into our operating
model and estate to improve the customer experience, as well as the safety and
sustainability of our buildings. During 2023, we continued to enhance the
service we offer to students through the embedding of our 24/7 operating
model, the expansion of our Support to Stay programme for student wellbeing
and the launch of a 24/7 mental health and wellbeing helpline in partnership
with Endsleigh and Health Assured.
Growing shortage of high-quality student homes
Structural factors continue to drive a growing supply/demand imbalance for
student accommodation. Demographic growth will see the population of UK
18-year-olds increase by 124,000 (16%) by 2030, supporting growing demand for
UK Higher Education. Demand from international students also remains high, as
reflected in the 23% growth in overseas students since 2019/20 (source: HESA).
Many university cities are facing housing shortages and our investment
activity is focused on those markets with the most acute need. Since 2021,
there has been an 8% reduction in the number of HMOs in England (source:
Department for Levelling Up), equivalent to 100,000-150,000 fewer beds
available for students to rent. Private landlords are choosing to leave the
sector in response to rising mortgage costs and increasing regulation. New
supply of PBSA is also down 60% on pre-pandemic levels, reflecting planning
backlogs and viability challenges created by higher costs of construction and
funding. Obsolescence of older university accommodation is also expected to
increase due to building age and the need to operate buildings more
sustainably. In many cities, property valuations are below replacement costs,
further constraining new supply.
The combination of these factors has significantly increased demand for our
accommodation in many cities and we expect this supply challenge to continue
for a number of years.
Strategic overview
Our purpose is to deliver a Home for Success to allow students to make the
most of their time at university. We also support the growth of the UK's
Higher Education sector by delivering new high-quality homes that are
affordable and sustainable. We achieve this by partnering with universities to
deliver long-term growth and attractive returns for our shareholders.
Our strategy is focused on three key objectives to deliver our purpose:
· 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 24/7/365 operating platform in the student
accommodation sector, underpinned by our PRISM technology platform, passionate
customer-facing teams and sector-leading student support. We are currently in
the process of a £26 million upgrade to our PRISM platform to enhance
customer experience and deliver operational efficiencies, which will start to
deliver in 2024 with the remainder in 2025.
The impact of our customer initiatives is reflected in an increase in our Net
Promoter Scores to +42 for students at check-in (2022: +38) and +32 (2022: +7)
with university partners. We are targeting further improvements in our
customer experience during 2024. We have also seen an increase in our
retention of direct-let customers for 2023/24 and the proportion of beds under
nomination agreements rose to 53% (2022/23: 52%).
Our long-term university relationships remain a key differentiator for Unite
and a significant source of potential growth opportunities. This is reflected
in over 90% of our development pipeline by cost being underpinned by
university partnerships, either through long-term nomination agreements or a
joint venture in the case of our strategic partnership with Newcastle
University.
Attractive returns for shareholders
We delivered full occupancy for the 2023/24 academic year and rental growth of
7.4%, reflecting improving market conditions. Total accounting returns were
2.9% for the year, reflecting adjusted earnings and broadly stable property
valuations (2022: 8.1%). Strong rental growth offset the valuation impact of
increases in property yields as the market adjusted to an environment of
higher interest rates.
The quality and scale of our portfolio is key to delivering attractive,
sustainable returns for our shareholders. We successfully delivered £84
million in development and major asset management projects in the year at a
blended yield on cost of 9%. We continue to recycle capital with a focus on
increasing alignment to the strongest universities and expect to complete the
disposal of a £197 million portfolio in the first half of 2024 (Unite share:
£79 million).
In July 2023, we raised £300 million in equity to accelerate our investment
activity into development and asset management. We have fully allocated the
proceeds and expect the transaction to enhance earnings and total returns as
projects are delivered between 2024 and 2027. We are tracking further
opportunities in London and strong regional markets at attractive returns and
expect to add to our pipeline in 2024.
Being a responsible and resilient business
Our sustainability strategy is focused on delivering a positive impact for our
stakeholders. 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 are proud to be a
Real Living Wage employer and have honoured the recommended 10% increase for
2024 for our relevant employees.
We continue to make good progress towards our objective of becoming a net zero
carbon business by 2030. During the year, we invested £8 million in energy
initiatives to reduce consumption, save carbon and ensure ongoing compliance
with regulations. This contributed to a further improvement in the EPC ratings
of our portfolio during the year, with over 99% of the portfolio now A-C rated
(2022: 80%). We have now reduced the energy intensity of our estate by 8%
compared to our 2019 baseline. We also published our sustainable construction
framework, setting out our approach to reducing the embodied carbon and whole
life impact of our development pipeline by around half by 2030. Our most
recent development completions demonstrate that we are on track to deliver
this improvement by 2030.
Higher Education and housing policy
Higher Education is one of the UK's leading sectors, contributing £130
billion to the economy, delivering world class research and supporting
employment of more than 750,000 people. Our universities attract young people
from around the world for the quality of learning and life experience the UK
offers.
International students are fundamental to the sector's health and contribute
£42 billion to the UK economy. The Government recently reiterated its
commitment to hosting 600,000 international students each year, with a focus
on attracting the best and brightest. Changes to UK visa rules mean that from
January 2024, postgraduate taught students can no longer be accompanied by
their family members. We expect this change to particularly impact
postgraduate student numbers from India and Nigeria, who are more likely to
bring dependents, with a disproportionate impact on lower-ranked universities.
Postgraduates from India and Nigeria accounted for less than 3% of our
bookings for 2023/24. Moreover, our product offering is focused on single
occupancy rooms, meaning we expect limited direct impact from the change.
The Renters Reform bill is expected to be introduced in late 2024 and will
further increase regulatory requirements for HMO landlords. We expect the
change to further reduce the availability of HMOs as more landlords will
choose to leave the sector, increasing demand for the professionally managed,
sustainable accommodation we provide. Purpose-built student accommodation is
recognised as being different to traditional rental accommodation, with
students seeking accommodation for one academic year, and has been excluded
from the Bill's scope.
We are confident that our alignment to the strongest universities,
high-quality portfolio and responsible approach to rent setting position us
well to navigate potential changes in policy.
Management succession
I would like to extend my thanks to Richard Smith and acknowledge his
significant achievements over the last eight years as CEO. He has been a
driving force behind our successful strategy of aligning to the best
universities and building Unite into a purpose-led, responsible business. I am
excited to take over as CEO after 22 years with the business and look forward
to working with the leadership team and all our colleagues to deliver the next
stage of Unite's growth.
Opportunities for growth
We now have our largest ever development pipeline at £1.3 billion, focused on
delivering new homes in the most supply constrained markets and aligned to the
UK's strongest universities. It will deliver significant earnings and NTA
growth over the next four years. The outlook for development is strong and we
are tracking a number of further opportunities at attractive returns, which we
will look to secure over the next 6-12 months.
Universities increasingly see access to high-quality and value-for-money
accommodation as a barrier to growth. Funding challenges and competing
priorities for capital are encouraging universities to partner with Unite to
deliver new accommodation. This has become more pressing due to acute housing
shortages post-pandemic and growing obsolescence in university estates. In
February we announced our first joint venture with a university, to redevelop
existing accommodation in partnership with Newcastle University. The agreement
to deliver 2,000 new beds on the University's land highlights how Unite is
uniquely positioned to address housing shortages.
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. Our pilot asset in Stratford
has performed well during our first full year of ownership and is now fully
integrated into our operational platform. We are exploring opportunities to
grow our operational platform by partnering with co-investors.
Positive outlook for growth
We are confident in the outlook for the business. Student accommodation is
structurally supported by growing demand for Higher Education and constrained
supply, which supports long-term sustainable rental growth and creates
significant investment opportunities to deliver new homes.
The strength of our relationships with universities, combined with our
best-in-class operating platform, strong balance sheet and development
expertise creates unrivalled opportunities for university partnerships both
on- and off-campus. We are the provider of choice for universities seeking
nominations agreements, which underpins over half of our letting activity each
year and underwrites over 90% of our development pipeline. Our first joint
venture with Newcastle University underlines these qualities and we are
confident there is more to come as we help universities unlock potential
housing supply on their campuses.
Strong reservations support rental growth of least 6% for the 2024/25 academic
year. Despite ongoing cost pressures, this supports an improvement in our EBIT
margin and 3-5% growth in adjusted EPS in 2024. We expect earnings growth to
accelerate from 2026 as development completions increase.
Rental growth together with value creation through planning milestones,
development and asset management supports total accounting returns of 10-12%
in 2024, prior to yield movements.
OPERATIONS REVIEW
Full occupancy for 2023/24
We achieved occupancy of 99.8% across our total portfolio for the 2023/24
academic year (2022/23: 99.2%), reflecting the quality of our offer and
university relationships, strong student demand and the shortage of supply in
many markets.
We have been deliberate in aligning our portfolio to High and Medium tariff
universities, where the number of accepted applicants grew slightly for the
2023/24 academic year. By contrast, lower tariff universities saw a 5%
reduction in acceptances, continuing the trend of the past decade for a flight
to quality. Our portfolio is 93% aligned to Russell Group markets, where the
number of accepted students rose by 2% YoY and is now 7% above pre-pandemic
levels. Overall, the undergraduate intake for 2023/24 reduced by 2% to 554,000
(2022/23: 563,000), but remained 2% higher than pre-pandemic levels.
Strong rental growth
Annual rents increased by 7.4% on a like-for-like basis for 2023/24 (2022/23:
3.5%), reflecting average increases of 7.7% for nomination agreements and 7.1%
for direct-let tenancies. Rental growth from our nomination agreements
exceeded the portfolio average despite the rental caps in place on many of our
multi-year nomination agreements. This reflects our success in agreeing
increased rental levels on renewals of single-year deals and new multi-year
agreements where our university partners recognise the value our accommodation
provides at a time of increasing costs. Continued enhancements to our service
and product offering drove strong demand and supported the increase in our
check-in NPS score to +42 (2022: +38). Occupancy was broadly consistent across
our wholly-owned portfolio, USAF and LSAV, with limited availability in all
markets.
2023/24 rental growth and occupancy Rental growth(1) Occupancy(2)
Nomination agreements 7.7%
Direct let 7.1%
Total 7.4% 99.8%
1. Like-for-like properties based on annual value of core student tenancies
2. Beds sold
We have maintained a high proportion of income let to universities, with
37,143 beds (53% of total) provided under nomination agreements for 2023/24
(2022/23: 36,611 and 52%). The increase in the percentage of beds under
nomination agreements reflects universities' growing reliance on partners to
meet their accommodation needs. We achieved our highest ever university NPS
score of +32 (2022: +7), recognising our sector-leading student welfare offer,
Support to Stay, and thought leadership in the sector.
The unexpired term of our nomination agreements is 5.8 years, down slightly
from 6.3 years in 2022/23. 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
between 50-60% of beds going forward.
65% 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 89%
with universities for 2023/24 (2022/23: 92%). As inflation reduces,
index-linked agreements will move below their capped annual uplifts, meaning a
return to historical levels of rental growth over time.
Agreement length Beds % Income
2023/24 2023/24
Single year 12,877 35%
2-5 years 6,535 19%
6-10 years 5,362 15%
11-20 years 6,581 16%
20+ years 5,788 15%
Total 37,143 100%
UK students account for 72% of our customers for 2023/24 (2022/23: 72%),
making up a large proportion of the beds under nomination agreements with
universities. This represents a significant increase in our weighting to UK
students over recent years, compared to 60% immediately prior to the pandemic,
and reflects our success in retaining second and third year students who might
have historically moved into the HMO sector. In addition, 26% and 2% of our
customers come from non-EU and EU countries respectively (2022/23: 25% and
3%).
Postgraduates make up around 20% of our direct-let customer base and
re-bookers accounted for 43% of our direct-let bookings for the 2023/24
academic year (2022/23: 39%), reflecting the proactive retention campaign in
our properties. The growing share of postgraduate and non-first year
undergraduate students in our properties, who typically seek greater
independence, supports our strategy of increasing the segmentation of our
customer offer to capture market share from the traditional HMO sector.
Occupancy by type and domicile by academic year
Direct let
Nominations UK China EU Non-EU Total
2020/21 53% 16% 11% 4% 4% 88%
2021/22 51% 21% 13% 3% 6% 94%
2022/23 52% 24% 14% 2% 7% 99%
2023/24 53% 24% 13% 2% 8% 100%
Positive outlook for 2024/25
Applications data for the 2024/25 academic year is encouraging, with total
applications flat on 2023/24 but still 6% ahead of pre-pandemic levels. We
continue to see strongest demand for the high and mid-tariff universities to
which we have aligned our portfolio. Application rates remain strong for UK
18-year-olds at 41.3% and there continues to be significant unmet demand for
university places, as demonstrated by the nearly 200,000 unplaced students in
2023/24. Applications from international students are 1% higher for 2024/25,
with 2% growth from non-EU markets more than offsetting a 3% reduction in EU
applicants.
Demand for the Group's accommodation remains strong . Across the Group's
entire property portfolio, 80% of rooms are now reserved for the 2024/25
academic year, which is ahead of our typical leasing pace. We have seen
increased early demand from universities who see quality accommodation as a
key part of their offer to prospective students. Current reservations under
nomination agreements account for 55% of available beds for 2024/25, an
increase of 2 percentage points compared to 2023/24.
In our strongest markets, we have also seen students looking to secure
accommodation early in the sales cycle. Our nominations and direct-let sales
performance is supportive of our guidance for full occupancy and rental growth
of at least 6% for the 2024/25 academic year (previously at least 5%).
Technology upgrade to enhance customer experience and operating margins
We are in the process of upgrading our end-to-end technology systems to
enhance customer experience and drive efficiencies which deliver margin
improvement. The project is our largest investment in technology since the
implementation of PRISM in 2016 and will deliver enhanced systems for customer
relationship and property management, as well as improved booking and
marketing platforms. The initial phase of upgrades has now been implemented,
with the remaining elements of the programme expected to be delivered over the
next 12-24 months. Around half of the total £26 million programme cost has
already been incurred. We expect to achieve a payback of under 5 years on our
investment through enhanced utilisation and cost efficiencies, which will
increase our EBIT margin by around 1%, as benefits accrue from mid-FY2025.
Software as a Service accounting
Our technology upgrade project includes transitioning from traditional
on-premises solutions to a predominantly cloud-based Software as a Service
(SaaS) model. Following a review of our accounting treatment, implementation
costs which were previously capitalised will now be recognised as an expense
when incurred. £12.8 million of costs have already been expensed in 2022 and
2023, reflecting around half of the overall project costs. We expect to incur
around £10 million of further implementation costs in FY2024 and the
remaining £3 million in FY2025. To better reflect the underlying operating
performance of the business, these implementation costs will be removed from
adjusted earnings. Post implementation, technology license costs will be
expensed on a recurring basis.
Following completion of the technology upgrade, we expect a reduction in
annual depreciation and amortisation charges of around £3 million from FY2026
due to less intangible assets. The change has no impact on EPRA NTA, which
excludes intangible assets. Further information is included within section 1
of the financial statements.
Operating costs
Inflation remained higher than expected through the year and resulted in our
operating costs growing faster than initially expected. 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 discretionary spend. Inflationary
pressures, combined with higher marginal costs from increased occupancy,
resulted in a 14% increase in property operating costs during 2023.
Staff costs increased by £1.5 million due to underlying wage increases,
driven by the pay award for 2023. 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 18% or £4.1 million during
the year. Our utility costs are fully hedged through 2024 and 55% for 2025. As
cheaper hedges put in place before the war in Ukraine expire, we expect the
cost of utilities to increase by around 15% in 2024, equivalent to 1% growth
in rental income. Reductions in power and gas prices would support margin
improvement from 2025 if sustained at current levels.
Summer cleaning costs increased by £0.5 million as we enhanced our
pre-check-in cleaning in response to student feedback, which supported the
improvement in our NPS score. Marketing costs increased by £0.6 million,
reflecting ongoing investment in our brand and commercial proposition.
Central and other costs increased by £7.5 million due to cost increases for
buildings insurance, reactive maintenance, broadband, bad debt and council
tax/HMO licences, as well as a c.£0.8 million full year impact of our BTR
pilot in Stratford.
Property operating expenses breakdown 2023 2022 Change
£m £m
Staff costs (29.7) (28.2) 5%
Utilities (26.9) (22.8) 18%
Summer cleaning (5.7) (5.1) 9%
Marketing (7.3) (6.7) 9%
Central costs (16.8) (14.4) 16%
Other (26.6) (21.5) 24%
Property operating expenses (113.0) (98.7) 14%
PROPERTY REVIEW
Our property portfolio saw a 1.7% increase in valuations on a like-for-like
basis during the year (Unite share: 1.2%), as strong rental growth offset
increases in property yields as the market adjusted to a higher interest rate
environment. The see-through net initial yield of the portfolio was 5.0% at 31
December 2023 (December 2022: 4.7%), which reflects like-for-like yield
expansion of 31 basis points in the year. Since June 2022, we have seen a
total 40-60bps of yield expansion across our markets. The weaker valuation
performance for LSAV reflects its higher London weighting when compared to
USAF (85% and 14% by value respectively), where greater increases in property
yields have had a more significant negative impact on valuations.
Breakdown of like-for-like capital growth(12)
£m Valuation Rental growth Yield movement Other(3) Total
31 Dec 2023
Wholly-owned 3,748 301 (223) (42) 36
LSAV 1,922 171 (166) (4) 1
USAF 2,992 223 (121) 2 104
Total (Gross) 8,662 695 (510) (44) 141
Total (Unite share) 5,550 66
% capital growth
Wholly-owned 8.3% (6.2)% (1.2)% 1.0%
LSAV 8.9% (8.6)% (0.2)% 0.0%
USAF 7.7% (4.2)% 0.1% 3.6%
Total (Gross) 8.2% (6.0)% (0.5)% 1.7%
Total (Unite share) 1.2%
1. Excludes leased properties and gains on disposals
2. Excludes NTA neutral re-allocation of fire safety provisions to Investment
Property from Other assets/ (liabilities) on balance sheet
3. Other includes changes to operating cost assumptions and income adjustments
on reversionary assets
The proportion of the property portfolio that is income generating is 97% by
value, up from 96% at 31 December 2022. Properties under development have
decreased to 3% of our property portfolio by value (31 December 2022: 4%),
following the completion of our development at Morriss House in Nottingham,
offsetting the impact of additional spend on our committed pipeline during the
year. We expect the proportion of properties under development to grow as we
commit to additional projects.
The PBSA investment portfolio is 38% weighted to London by value on a Unite
share basis, which is expected to rise to 43% on a built-out basis following
completion of our secured development pipeline.
Development and university partnership activity
The slowing supply of competing purpose-built student accommodation and an 8%
decline in HMO supply over the last two years 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 in local communities. New supply of PBSA
is down 60% on pre-pandemic levels, reflecting viability challenges created by
higher build and funding costs. Planning timescales are also increasing as
local authorities face significant backlogs, further constraining supply.
Moreover, property valuations are now below replacement costs in many
university cities, making new development less viable. Positively, we saw
build cost inflation moderate during the year on the back of lower material
prices, though the availability of skilled labour remains tight.
These conditions, while challenging, play to the strengths of our development
capabilities and well-capitalised balance sheet. As a result, the current
market environment offers the strongest opportunity for new development in
recent years.
Our development pipeline is aligned to the highest quality universities with
100% located in Russell Group cities. Development and university partnerships
will be a significant driver of future growth in our earnings and EPRA NTA as
we build out the pipeline. Our development pipeline now includes 7,327 beds,
with a total development cost of £1,271 million, of which 2,741 beds or 53%
by cost will be delivered in London. This will contribute £77 million (Unite
share) of net operating income when complete.
The Building Safety Act is now in effect and addresses the safety of new
residential accommodation, by adding three gateways to the design, build and
occupation of new buildings. We expect these gateways will add around 6 months
to PBSA development programmes, which will further slow new supply. Our
appraisals and delivery targets fully reflect the expected impact of the Act.
We continue to see opportunities for new development and university
partnership schemes at attractive returns and expect to add new opportunities
to our pipeline during the year.
Completed schemes
During the year, we completed our 705-bed Morriss House scheme in Nottingham
at a cost of £60 million. The development is fully let for the 2023/24
academic year, achieving a yield on cost of 8.5%. The project trialled a new
design concept with enhanced communal areas and welcome desk, which has been
well received by customers. The project's embodied carbon of c.800kg/m(2) is
33% below the RIBA baseline of 1,200kg/m(2) and ahead of annual milestones on
our path towards net zero development from 2030. The scheme also achieved
BREEAM Excellent and EPC A ratings and is fully electric, with no gas
reliance.
Committed schemes
We are committed to five development schemes, totalling 2,954 beds and £569
million in total development costs. The £407 million of costs to complete
these projects is fully funded from the Group's cash and available credit
facilities. When complete, the projects will add a combined £37 million to
net operating income.
Our £36 million Bromley Place development in Nottingham city centre will
deliver 271 new beds for the 2024/25 academic year. We will deliver a higher
specification product, with larger bedrooms and an enhanced design for the
common areas, which we will target at the post-graduate market. We expect a
significant reduction in embodied carbon, to around 670kgCO(2)e/m(2), through
adoption of low carbon construction materials and retaining elements of the
existing building.
At Abbey Lane in Edinburgh, we are on-site and targeting completion for the
2025/26 academic year. We will deliver 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 and form part of our BTR pilot.
Construction is also underway at our Hawthorne House scheme in Stratford with
the student accommodation element expected to be delivered in time for the
2026/27 academic year. The development will be delivered as a university
partnership, with over half of the beds let under a nomination agreement for
10 years to an existing university partner.
At Marsh Mills, construction is underway and on track to deliver for the
2025/26 academic year. The 614 bed scheme will be 50% nominated by the
University of Bristol on a long-term agreement. The site is adjacent to the
University of Bristol's new Temple Quarter campus and will grow our portfolio
in Bristol to 4,700 beds.
Our Meridian Square project in Stratford is set to be heard at planning
committee in the coming weeks and we expect to acquire the site and start
construction later in the year. We are targeting delivery of the 952-bed
project for the 2027/28 academic year.
Future pipeline
There are an additional 2,373 beds in our secured pipeline for as yet
uncommitted schemes with total development costs of £452 million. We expect
to fund these schemes through a mix of disposals and new borrowing.
Planning is progressing well for our Freestone Island project in Bristol,
which we expect to secure later in Q1 2024. Following planning, we will
exercise our option to acquire the site this year for delivery for the 2026/27
academic year.
In September we announced our new Central Quay development in Glasgow, which
aims to deliver 800 beds for the 2026/27 academic year. We have an option to
acquire the land once planning is secured, which is targeted for the second
quarter of 2024.
We have recently secured an option to acquire a 501-bed project in Elephant
and Castle in London, which is well located for a number of leading London
universities. The scheme is expected to be delivered in 2028, subject to
planning.
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.
We are seeking prospective returns on new direct-let schemes at around
7.5-8.0% in regional 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, viability has been supported by strong recent
rental growth and a stabilisation in build costs.
University partnerships pipeline
Co-investment in accommodation alongside a university has been an objective
for the business for several years. In February 2024, we announced that Unite
and Newcastle University have agreed to enter into a joint venture to develop
c.2,000 beds at the University's Castle Leazes site for delivery in 2027 and
2028. The joint venture deepens our 20-year relationship with Newcastle
University through a long-term strategic partnership. The Castle Leazes site
currently provides c.1,250 beds and was built in 1969. Newcastle University
has committed to close the existing accommodation on the site and commence
demolition in the summer of 2024. Total development costs are expected to be
c.£250 million with Unite expecting to commit c.£70 million in equity for a
51% stake. Newcastle University will own a 49% stake in the JV and contribute
the Castle Leazes site on a 150-year lease, with remaining funding coming from
new debt secured against the JV. To support the University's accommodation
requirement during development, Unite has provided 1,600 beds on a four year
nomination agreement. Entry into the joint venture is subject to planning
approval. Planning submission is expected by the end of Q1, which would
support formation of the JV before the end of 2024.
Building on this proof of concept, 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. We expect our agreement with Newcastle
University to support further progress in other discussions. 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.
In addition, our four London developments will be delivered 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 projects
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 the city.
Secured development and partnerships pipeline
Type(1) Target delivery Secured beds/ Total completed value Total devel. Costs Capex in period Capex remaining Forecast NTA remaining Forecast yield on cost
units
no. £m £m £m £m £m %
Committed development
Bromley Place, Nottingham DL 2024 271 47 36 10 19 4 7.1%
Abbey Lane, Edinburgh DL 2025 614 122 78 7 52 21 7.3%
Marsh Mills, Bristol UPT 2025 401 74 62 4 49 6 7.1%
Hawthorne House, Stratford(3) UPT 2026 716 238 194 14 102 33 6.1%
Meridian Square, Stratford(2) UPT 2027 952 265 199 11 185 40 6.4%
Total Committed 2,954 746 569 46 407 104 6.5%
Future pipeline
Freestone Island, Bristol(2) UPT 2026 500 71 69 7.2%
Central Quay, Glasgow(2) UPT 2027 800 97 97 7.2%
TP Paddington, London(2) UPT 2028 572 157 152 6.4%
Elephant & Castle, London(2) UPT 2028 501 127 127 6.5%
Total Future pipeline 2,373 452 445 6.7%
Castle Leazes, Newcastle(4) JV 2027/28 2,000 250 250 7.3%
Total pipeline 7,327 1,271 1,102 6.8%
Total pipeline (Unite share) 7,327 1,149 980 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 £45 million
4. Unite share 51%. Yield on cost includes management fees in NOI and deducts
development management fee from costs
Asset management
In addition to our development activity, we see significant opportunities to
create value through asset management projects in our estate. These projects
have shorter lead times than new developments, often carried out over the
summer period, and deliver both attractive risk-adjusted returns and
significant enhancements to student experience.
In September we completed three asset management schemes in London, Edinburgh
and Birmingham. Investment across the three projects totalled £24 million in
aggregate and delivered a 9% yield on cost. The projects delivered additional
beds, refurbished existing rooms and enhanced the environmental performance of
the properties. We have secured new nomination agreements for over half of the
refurbished beds and achieved full occupancy for the 2023/24 academic year.
We have a significant pipeline of attractive asset management opportunities
and will accelerate investment to c.£50 million (Unite share: £40 million)
during 2024, improving the experience of around 5,000 students for the start
of the 2024/25 academic year. We expect to further increase the level of asset
management activity in 2025.
Disposals
We continue to manage the quality of the portfolio and our balance sheet
leverage by recycling capital through disposals. We are holding £197 million
of assets (Unite share: £79 million) for sale on our balance sheet, which are
expected to complete in the second quarter. The disposals were priced at a
blended 6.4% yield and in line with book value after deductions for fire
safety works.
We will continue to recycle capital from disposals to maintain LTV around our
c.30% target and net debt: EBITDA in the 6-7x range. The level of planned
disposals will adjust to reflect capital requirements for our development and
asset management activity as well as market pricing. We will target future
disposals of around £100-150 million p.a. (Unite share).
Acquisitions
We continue to review potential acquisition and forward funding opportunities
alongside our other uses of capital. We are tracking opportunities to acquire
older, well-located assets with asset management potential at relatively
attractive yields. We are focused on opportunities in our strongest markets
aligned to high-quality universities, where we see the ability to deliver
attractive rental growth over the long term.
Build-to-rent
During the year, we have transferred operational management of our pilot
build-to-rent (BTR) asset in Stratford, London onto our operating platform.
There are clear opportunities to leverage our existing operating platform to
deliver cost efficiencies and use our BTR product to retain our student
customers seeking a more independent living experience. Rental growth
continues to outperform our assumptions from the time of acquisition, with new
lettings during 2023 15% above previous rental levels. We are planning to
commence a refurbishment of the building in 2024 to improve the customer
experience and support higher rental levels.
We do not expect to increase our capital commitment to BTR in the short term.
We continue to explore 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,
this 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
Fire safety is a critical part of our health and safety strategy, and we have
a track record of leading the sector on fire safety standards through our
proactive approach. The Building Safety Act has introduced new requirements
for provision of safety information, management of data and design gateways
for new developments, and has been fully embedded in the day-to-day workings
of the business. We will continue to make future investments in fire safety,
as required, to comply with Government regulations.
During 2023 we completed fire safety improvements on 16 buildings across our
estate. We prioritise remediation according to our risk assessments and have
made additional provisions totalling £86.2 million (Unite share: £42.5
million) for works at a further 10 properties. In our year-end balance sheet,
we have transferred the 2023 addition to provisions in respect of committed
spend on fire safety and façade works taking place in AY 2024/25 to property
valuations as a deduction to fair value, totalling £80.6 million (Unite
share: £39.8 million). This change is NTA neutral with the reduction in
property valuations offset by a reduction in other liabilities. We spent
£78.5 million (Unite share: £39.3 million) on fire safety capex during the
year. At the year end, the total outstanding provision for fire safety works
was £42.3 million (Unite Share: £22.3 million), the costs for which will be
incurred over the next two years.
During the year we reached agreement with contractors for recovery of £13.6
million (Unite share: £5.7 million) in relation to three buildings. In total
we have now agreed settlements totalling £39.2 million (Unite share: £27.3
million). We ultimately expect to recover 50-75% of total cladding remediation
costs through claims from contractors, although the settlement and recognition
of these claims is likely to lag costs incurred to remediate buildings. We
expect the remediation programme to complete in 2028 with net spend higher in
the earlier years of the programme and reducing substantially from 2026.
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.
Earnings and adjusted earnings
We delivered a strong operating performance in 2023, with adjusted earnings
increasing by 13% to £184.3 million (2022: £163.4 million), reflecting an
increase in rental income and costs, with a reduction in finance costs, when
compared to the prior year. Adjusted EPS increased by 8% to 44.3p (2022:
40.9p), reflecting the increased share count following the capital raise in
July.
2023 2022
£m £m
Rental income 369.5 339.7
Property operating expenses (113.0) (98.7)
Net operating income (NOI) 256.5 241.0
NOI margin 69.4% 70.9%
Management fees 16.9 17.4
Overheads (33.1) (33.8)
Finance costs (55.1) (63.0)
Development and other costs (9.1) (4.3)
EPRA earnings 176.1 157.3
SaaS implementation costs 8.2 4.6
Abortive acquisition costs - 1.5
Adjusted earnings 184.3 163.4
Adjusted EPS 44.3p 40.9p
EPRA EPS 42.4p 39.4p
EBIT margin 68.0% 67.9%
A reconciliation of profit after tax to EPRA earnings and adjusted earnings is
set out in note 2.2b to the financial statements.
IFRS profit before tax decreased to £102.5 million in the year (2022: £350.5
million), reflecting the increase in adjusted earnings of £20.9 million, a
revaluation loss of £61.2 million (2022: £119.2 million profit) and a £17.2
million revaluation loss for interest rate swaps (2022: £70.7 million
profit).
2023 2022
£m £m
Adjusted earnings 184.3 163.4
SaaS implementation costs (8.2) (4.6)
Abortive transaction costs - (1.5)
EPRA earnings 176.1 157.3
Valuation (losses)/gains and profit/(loss) on disposal (61.2) 119.2
Changes in valuation of interest rate swaps and debt break costs (17.2) 70.7
Non-controlling interest and other items 4.8 3.3
IFRS profit before tax 102.5 350.5
Adjusted earnings per share 44.3p 40.9p
IFRS diluted earnings per share 24.6p 87.6p
A reconciliation of profit before tax to adjusted earnings and EPRA earnings
is expanded in section 7 of the financial statements.
Sales, rental growth and profitability
Rental income increased by £29.8 million to £369.5 million, up 9%, as a
result of higher occupancy, rental growth and the full-year impact of
increased USAF ownership. Like-for-like rental income, excluding the impact of
major refurbishments, acquisitions, disposals and development completions,
increased by 7% during the year.
Operating expenses increased by 18% in for like-for-like properties, primarily
driven by increased utility and staff costs due to the return to full
occupancy throughout the year and increases in bad debt provisions, property
maintenance and costs associated with commercial units within our buildings.
The annualised impact of our increased USAF share contributed around 2% to the
increase in operating expenses.
This resulted in a 6% increase in net operating income to £256.5 million
(2022: £241.0m).
FY 2023 FY 2022 YoY change
£m Wholly- owned Share of Fund/JV Total Wholly- owned Share of Fund/JV Total £m %
Rental income
Like-for-like properties 224.7 94.4 319.1 209.0 88.8 297.8 21.3 7%
Non-like-for-like properties 34.1 16.3 50.4 32.8 9.1 41.9 8.5
Total rental income 258.8 110.7 369.5 241.8 97.9 339.7 29.8 9%
Property operating expenses
Like-for-like properties (71.7) (27.8) (99.5) (62.0) (22.2) (84.2) (15.3) 18%
Non-like-for-like properties (8.2) (5.3) (13.5) (10.0) (4.5) (14.5) 1.0
Total property operating expenses (79.9) (33.1) (113.0) (72.0) (26.7) (98.7) (14.3) 14%
Net operating income
Like-for-like properties 152.9 66.6 219.5 146.9 66.7 213.6 5.9 3%
Non-like-for-like properties 26.1 10.9 37.0 22.8 4.6 27.4 9.6
Total net operating income 179.0 77.5 256.5 169.7 71.3 241.0 15.5 6%
Overheads decreased by £0.8 million, reflecting underlying cost control.
Recurring management fee income from joint ventures decreased to £16.9
million (2022: £17.4 million), driven by the annualised impact of our
increased ownership share of USAF, partially offset by increased property
valuations and NOI in USAF. Our EBIT margin increased slightly to 68.0% (2022:
67.9%), reflecting the offsetting impact of increases in rental income and
operating costs.
We are targeting around a 50-100bps improvement in our EBIT margin in 2024,
driven by rental growth, the impact of development and asset management,
procurement savings and the enhanced use of technology as we seek to offset
increases in utility and staff costs.
Finance costs reduced to £55.1 million in 2023 (2022: £63.0 million),
reflecting lower borrowings following our equity raise and a reduction in our
average cost of debt to 3.2% (2022: 3.4%) following the repayment of more
expensive debt. £8.4 million of interest costs were capitalised during the
year (2022: £6.3 million) in relation to our development pipeline.
Development (pre-contract) and other costs increased to £9.2 million (2022:
£4.3 million), primarily reflecting accelerated recognition of share based
payments for Richard Smith.
EPRA NTA growth
EPRA net tangible assets (NTA) per share, our key measure of NAV, decreased by
1% to 920p at 31 December 2023 (31 December 2022: 927p). EPRA net tangible
assets were £4,015 million at 31 December 2023, a £300 million increase from
£3,715 million in the prior year.
The main drivers of the £300 million increase in EPRA NTA and 7 pence
decrease in EPRA NTA per share were our capital raise, and retained profits,
which more than offset the impact of negative valuation movements on our
investment and development portfolio, losses on disposals and a further
provision for fire safety capex.
£m Diluted pence per share
EPRA NTA as at 31 December 2022 3,717 927
Investment portfolio 326 75
Yield movement (336) (77)
Net fire safety capex (38) (9)
Development deficit (15) (3)
Disposals and associated transaction costs 8 2
Capital raise 295 (4)
Retained profits/other 58 9
EPRA NTA as at 31 December 2023 4,015 920
IFRS net assets increased by 7% in the year to £4,067 million (31 December
2022: £3,788 million), principally driven by net proceeds from the capital
raise and retained profits. On a per share basis, IFRS NAV decreased by 1% to
931p.
Property portfolio
The valuation of our property portfolio at 31 December 2023, including our
share of property assets held in USAF and LSAV, was £5,770 million (31
December 2022: £5,690 million). The £85 million increase in portfolio value
reflects the valuation movements outlined above, capital expenditure and
interest capitalised on developments.
Summary balance sheet
31 December 2023 31 December 2022
Wholly- owned £m Share of fund/JV £m Total Wholly- owned £m Share of fund/JV £m Total
£m £m
Rental properties(1) 3,728 1,782 5,510 3,624 1,773 5,397
Rental properties (leased) 85 - 85 90 - 90
Properties under development 175 - 175 203 - 203
Total property 3,988 1,782 5,770 3,917 1,773 5,690
Net debt (1,030) (541) (1,571) (1,210) (524) (1,734)
Lease liability (84) - (84) (90) - (90)
Other assets/(liabilities) (49) (51) (100) (95) (56) (151)
EPRA net tangible assets 2,825 1,190 4,015 2,522 1,193 3,715
IFRS NAV 2,848 1,219 4,067 2,561 1,227 3,788
LTV 28% 31%
1 Rental properties (owned) includes assets classified as held for sale in the
IFRS balance sheet
Total accounting return
Dividends paid of 33.5p (2022: 26.6p) were the key component of the 2.9% total
accounting return delivered in the year (2022: 8.1%), offsetting the small
decrease in in EPRA NTA. Our adjusted EPS yield (measured against opening EPRA
NTA) increased to 4.8% in the year (2022: 4.6%), reflecting the growth in
recurring earnings.
We expect to deliver a total accounting return of 10-12% in 2024 before the
impact of any property yield movements. This reflects our expectation of
growing recurring earnings, continuing rental growth and delivery of our
development and asset management pipeline.
Cash flow and net debt
The business generated £176 million of net cash in 2023 (2022: £134 million)
and net debt reduced to £1,571 million (2022: £1,734 million). The key
components of the movement in net debt were:
· Capital raise gross proceeds of £300 million
· Operational cash flow of £178 million on a see-through basis
· Total capital expenditure of £152 million on a see-through basis
· Dividends paid of £117 million
· A £46 million net outflow for other items
In 2024, we expect see-through net debt to increase as planned capital
expenditure on investment and development activity will exceed anticipated
property disposals.
Debt financing and liquidity
During the year, borrowing rates for new debt remained high, as markets
adjusted to higher inflation and tightening of monetary policy by central
banks. Encouragingly, funding conditions have improved over recent months as
markets anticipate the end of the tightening cycle for monetary policy.
Lenders remain supportive of the student accommodation sector and the Group,
providing access to new funding when required.
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
in-place debt at higher prevailing market costs.
We are focused on maintaining a strong and flexible balance sheet and will
continue to use leverage to support our growth and enhance risk-adjusted
returns. In response to a higher interest rate environment, we have reduced
our medium-term target LTV to c.30% on a built-out basis (previously 30-35%).
We remain committed to active portfolio management through capital recycling
and will continue to target disposals of around £100-150 million p.a. (Unite
share).
Key debt statistics (Unite share basis) 31 Dec 2023 31 Dec 2022
See-through net debt £1,571m £1,734m
LTV 28% 31%
Net debt: EBITDA ratio 6.1 7.3
Interest cover ratio 4.6 3.7
Average debt maturity 3.8 years 4.1 years
Average cost of debt 3.2% 3.4%
Proportion of investment debt at fixed rate 100% 97%
LTV reduced to 28% at 31 December 2023 (31 December 2022: 31%), primarily
driven by our £300 million capital raise, offsetting capital expenditure on
our development pipeline and investment portfolio.
We continue to monitor our interest cover and net debt to EBITDA ratios. In
2023, interest cover improved to 4.6x (2022: 3.7x) and net debt to EBITDA
reduced to 6.1x (2022: 7.3x), reflecting both the improved operational
performance of the business and the impact of lower leverage. We aim to
maintain an ICR ratio of 3.5-4.0x and a net debt to EBITDA ratio to 6-7x.
Following our capital raise, The Unite Group credit rating was upgraded to
Baa1 (from Baa2) by Moody's and our BBB rating was moved to a positive outlook
by Standard & Poor's, reflecting our lower leverage targets, robust
capital position, cash flows and track record.
Funding activity
As at 31 December 2023, the wholly-owned Group had £579 million of cash and
debt headroom (31 December 2022: £397 million), comprising of £29 million of
drawn cash balances and £550 million of undrawn debt (2022: £29 million and
£368 million respectively).
During the year, the Group extended the maturity on £450 million of its
sustainability-linked revolving credit facility to March 2027, with the
remaining £150 million due to mature in March 2026. In February 2024 we
increased our revolving debt capacity by £150 million to a total of £750
million and added a further £150 million term loan. Both new facilities are
on similar terms to our existing RCF and mature in 2027. The new loans
increase investment capacity and provide flexibility to capitalise on growth
opportunities.
We are progressing several funding options to refinance the £300 million
Liberty Living bond, which matures in November 2024, including via debt
capital markets and bank lending. The refinancing is fully pre-hedged and
subject to market conditions we expect an all-in interest rate of around 4.5%
on the replacement facility.
In January 2023, LSAV repaid the £100 million term loan from Legal &
General as it matured using available cash in LSAV.
During the year, USAF entered into a new £400 million loan for a term of
seven years with Legal & General, using the proceeds to pay down the bond
maturing in June 2023. USAF has also agreed terms for a new £150 million
secured loan to refinance its existing £150 million revolving credit
facility.
Interest rate hedging arrangements and cost of debt
Our average cost of debt decreased to 3.2% (31 December 2022: 3.4%) following
repayment of more expensive revolving debt after the capital raise. At the
year end, 100% of the Group's debt was subject to fixed or capped interest
rates (31 December 2022: 97%), providing protection against future changes in
interest rates. Based on our hedging position, forecast drawings, planned
refinancing and market interest rates, we currently expect an average cost of
debt of 3.6% for FY2024 and 4.3% for FY2025. Reflecting an increased level of
development activity, we expect a corresponding increase in capitalised
interest in 2024 to around £15 million (2023: £8 million).
Our average debt maturity is 3.8 years (31 December 2022: 4.1 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 7.7 years.
Dividend
We are proposing a final dividend payment of 23.6p per share (2022: 21.7p),
making 35.4p for the full year (2022: 32.7p) and representing an 8% increase
compared to 2022. This represents a payout ratio of 80% of adjusted EPS. The
final dividend will be fully paid as a Property Income Distribution (PID) of
23.6p, which we expect to fully satisfy our PID requirement for the 2023
financial year.
Subject to approval at Unite's Annual General Meeting on 16 May 2024, the
dividend will be paid in either cash or new ordinary shares (a 'scrip dividend
alternative') on 24 May 2024 to shareholders on the register at close of
business on 19 April 2024. The last date for receipt of scrip elections will
be 2 May 2024.
During 2023, scrip elections were received for 25.0% and 1.2% of shares in
issue for the 2022 final dividend and 2023 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.
The Directors intend to propose an 'Enhanced Scrip Dividend alternative' at
the 2024 Annual General Meeting. In offering the enhanced scrip dividend, the
Directors' aim to encourage greater participation in the scrip scheme, and to
retain additional capital in the business for investment in asset management
and new development. The enhanced scheme would allow the scrip reference price
to be set at a discount of up to 5% to the prevailing share price. If the
shares are trading below 31 December 2023 NTA of 920p, the scrip will not be
enhanced (i.e. 0% discount). The Company will engage with shareholders to
gather feedback on the proposal and further detail will be provided in the
notice of AGM.
We plan to distribute 80% of adjusted EPS as dividends for the 2024 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 £1.2 million
(2022: £0.7 million charge).
Funds and joint ventures
The table below summarises the key financials at 31 December 2023 for our
co-investment vehicles.
Property assets Net debt Other Net assets Unite share of NTA Total return Maturity Unite share
£m £m liabilities £m £m
£m
USAF 2,941 (800) (80) 2,061 580 5.1% Infinite 28%
LSAV 1,910 (631) (60) 1,219 610 (1.9%) 2032 50%
Property valuations increased by 3.6% for USAF and were unchanged in LSAV over
the year, on a like-for-like basis, reflecting positive rental growth, offset
by the negative impact of rising property yields.
During the year, a £20 million (Unite share: £10 million) payment from LSAV
to the Wholly Owned Group crystalised due to the increase in value of a London
asset sold to LSAV in 2021, which achieved a performance target agreed at the
time of sale.
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. USAF, in-line with other non-listed property funds, has
received redemption requests which will be met from planned and future
disposals to provide liquidity to its unitholders.
Fees
During the year, the Group recognised net fees of £16.9 million from its fund
and asset management activities (2022: £17.4 million). The decrease in fee
income is due to the full-year impact of the Group's increased USAF ownership,
following the purchase of additional units in mid-2022.
2023 2022
£m £m
USAF asset management fee 12.1 12.6
LSAV asset and property management fee 4.8 4.8
Total fees 16.9 17.4
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.
Joe Lister
Michael Burt
Chief Executive
Chief
Financial Officer
27 February 2024
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 2023
2023 2022
Note £m £m
Rental income 2.4 259.2 241.7
Other income 2.4 16.9 17.6
Total revenue 276.1 259.3
Cost of sales (76.8) (70.3)
Expected credit losses (3.0) (1.7)
Operating expenses (41.6) (37.1)
Results from operating activities before gains/(losses) on property 154.7 150.2
Profit/(loss) on disposal of property 11.8 (15.6)
Net valuation (losses)/gains on property (owned and under development) 3.1 (37.2) 112.7
Net valuation losses on property (leased) 3.1 (10.4) (9.3)
Profit before net financing (costs)/gains and share of joint venture profit 118.9 238.0
Loan interest and similar charges 4.3 (19.8) (29.3)
Interest on lease liability 4.3 (7.7) (8.1)
Mark to market changes on interest rate swaps 4.3 (17.2) 70.7
Finance (costs)/gains (44.7) 33.3
Finance income 4.3 1.3 0.2
Net financing (costs)/gains (43.4) 33.5
Share of joint venture profit 3.3b 27.0 80.4
Profit before tax 102.5 351.9
Current tax 2.5a (1.2) (0.7)
Deferred tax 2.5a 2.3 0.6
Profit for the year 103.6 351.8
Profit for the year attributable to
Owners of the Parent Company 102.5 350.5
Non-controlling interest 1.1 1.3
103.6 351.8
Earnings per share
Basic 2.2c 24.7p 87.7p
Diluted 2.2c 24.6p 87.6p
All results are derived from continuing activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
Note 2023 2022
£m £m
Profit for the year 103.6 351.8
Share of joint venture mark to market movements on hedged instruments 3.3b (2.1) 4.7
Other comprehensive income for the year (2.1) 4.7
Total comprehensive income for the year 101.5 356.5
Attributable to
Owners of the Parent Company 100.4 355.2
Non-controlling interest 1.1 1.3
101.5 356.5
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 2023 Note 2023 2022
£m £m
Assets
Investment property (owned) 3.1 3,694.3 3,623.4
Investment property (leased) 3.1 84.7 90.3
Investment property (under development) 3.1 174.7 202.7
Investment in joint ventures 3.3b 1,219.0 1,226.6
Other non-current assets 12.7 15.4
Interest rate swaps 4.2 56.0 73.2
Right of use assets 1.7 2.7
Deferred tax asset 2.5d 5.6 3.6
Total non-current assets 5,248.7 5,238.0
Assets classified as held for sale 3.1 25.7 -
Inventories 3.2 26.2 12.8
Trade and other receivables 132.8 105.2
Cash and cash equivalents 5.1 37.5 38.0
Total current assets 222.2 156.0
Total assets 5,470.9 5,393.9
Liabilities
Current borrowings 4.1 (299.4) -
Lease liabilities (5.4) (4.8)
Trade and other payables (207.8) (191.5)
Current tax liability 0.6 (0.8)
Provisions 5.3 (5.2) (29.5)
Total current liabilities (517.2) (226.6)
Borrowings 4.1 (782.2) (1,265.9)
Lease liabilities (78.4) (87.5)
Total non-current liabilities (860.6) (1,353.4)
Total liabilities (1,377.8) (1,580.0)
Net assets 4,093.1 3,813.9
Equity
Issued share capital 4.6 109.4 100.1
Share premium 4.6 2,447.6 2,162.0
Merger reserve 40.2 40.2
Retained earnings 1,466.0 1,479.0
Hedging reserve 3.8 6.2
Equity attributable to the owners of the Parent Company 4,067.0 3,787.5
Non-controlling interest 26.1 26.4
Total equity 4,093.1 3,813.9
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2023
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 2023 100.1 2,162.0 40.2 1,479.0 6.2 3,787.5 26.4 3,813.9
Profit for the year - - - 102.5 - 102.5 1.1 103.6
Other comprehensive income
for the year:
Share of joint venture mark to market movements on hedged instruments 3.3b - - - - (2.1) (2.1) - (2.1)
Total comprehensive income - - - 102.5 (2.1) 100.4 1.1 101.5
for the year
Shares issued 4.6 9.3 285.6 - - - 294.9 - 294.9
Deferred tax on share-based payments - - - 0.2 - 0.2 - 0.2
Fair value of share-based payments - - - 2.2 - 2.2 - 2.2
Own shares acquired - - - (0.6) - (0.6) - (0.6)
Unwind of realised swap gain - - - - (0.3) (0.3) - (0.3)
Dividends paid to owners 4.7 - - - (117.3) - (117.3) - (117.3)
of the parent company
Dividends to non-controlling interest - - - - - - - (1.4) (1.4)
At 31 December 2023 109.4 2,447.6 40.2 1,466.0 3.8 4,067.0 26.1 4,093.1
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 - - - 350.5 - 350.5 1.3 351.8
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 - - - 350.5 4.7 355.2 1.3 356.5
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 1,479.0 6.2 3,787.5 26.4 3,813.9
STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
Note 2023 2022
£m £m
Net cash flows from operating activities 5.1 153.2 154.1
Investing activities
Investment in joint ventures - (144.6)
Capital expenditure on properties (135.3) (316.5)
Acquisition of intangible assets (1.8) (2.3)
Acquisition of plant and equipment (0.9) (1.3)
Proceeds from sale of investment property - 234.1
Interest received 1.3 0.2
Dividends received 27.3 38.5
Net cash flows from investing activities (109.4) (191.9)
Financing activities
Proceeds from the issue of share capital 294.9 1.1
Payments to acquire own shares (0.6) (1.7)
Interest paid in respect of financing activities (38.8) (43.6)
Proceeds from non-current borrowings - 105.7
Repayment of borrowings (182.5) -
Dividends paid to the owners of the parent company (103.4) (85.1)
Withholding tax paid on distributions (12.0) (8.7)
Dividends paid to non-controlling interest (1.9) (1.3)
Net cash flows from financing activities (44.3) (33.6)
Net decrease in cash and cash equivalents (0.5) (71.4)
Cash and cash equivalents at start of year 38.0 109.4
Cash and cash equivalents at end of year 37.5 38.0
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 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies, and those for 2023 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 2023 or 2022.
Going concern
In determining the appropriate basis of preparation of the financial
statements, the Directors are required to consider whether the Group can
continue in operational existence for at least 12 months from the date of this
report.
The Directors have considered a range of scenarios for future performance
through the 2023/24 and 2024/25 academic years. This included a base case
assuming cash collection and performance for the 2023/24 academic year remains
in line with current expectations and sales performance for the 2024/25
academic year consistent with published guidance; and a reasonable worst-case
scenario where income for the 2024/25 academic year is impacted by reduced
sales, equivalent to occupancy of around 90%. The Directors considered the net
(£295 million) current liability position of the Group and were satisfied
that it could be met through available cash and undrawn debt. The impact of
our ESG asset transition plans are included within the cashflows, which have
been modelled to align with the Group's 2030 net zero carbon targets. 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 around 30% before there would be a
breach of LTV and gearing covenants in facilities where such covenants exist.
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
2023 2022 2023 2022
£m
£m
pps
pps
Note
Profit after tax 2.2b 102.5 350.5 24.7p 87.7p
Net assets 2.3c 4,067.0 3,787.5 931p 944p
EPRA performance measures
2023 2022 2023 2022
£m
£m
pps
pps
Note
EPRA earnings 2.2b 176.1 157.3 42.4p 39.4p
Adjusted earnings* 2.2b 184.3 163.4 44.3p 40.9p
EPRA NTA 2.3d 4,014.7 3,716.7 920p 927p
* 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 2023 and 31 December 2022 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 amends IFRS measures by removing
principally the unrealised investment property valuation gains and losses such
that users of the financial statements are able to see the extent to which
dividend payments (dividend per share) are underpinned by earnings arising
from operational activity. In 2023 and 2022, software as a service costs,
which were previously capitalised under the existing intangibles policy have
been excluded from adjusted earnings (net of deferred tax), to align with the
International Financial Reporting Interpretations Committee ('IFRIC') agenda
decision in 2021. In consideration of EPRA's focus on presenting clear
comparability in results from recurring operational activities, in 2022
adjusted earnings also excludes abortive costs relating to an aborted
acquisition. The reconciliation between profit attributable to owners of the
Company and EPRA earnings is available in note 2.2b.
The Operations segment manages rental properties, owned directly by the Group
or by joint ventures. Its revenues are derived from rental income and asset
management fees earned from joint ventures. The way in which the Operations
segment adds value to the business is set out in the Operations review on
pages 11-15. 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 Groups financial performance.
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
2023
Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Rental income 259.2 57.5 52.8 369.5
Property operating expenses (79.8) (20.0) (13.2) (113.0)
Net operating income 179.4 37.5 39.6 256.5
Management fees 21.4 (4.5) - 16.9
Overheads (32.2) (0.4) (0.5) (33.1)
Interest on lease liabilities (7.7) - - (7.7)
Net financing costs (22.9) (9.4) (15.1) (47.4)
Operations segment result 138.0 23.2 24.0 185.2
Property segment result (2.7) - - (2.7)
Unallocated to segments (6.0) (0.2) (0.2) (6.4)
EPRA earnings 129.3 23.0 23.8 176.1
Software as a service costs 8.2 - - 8.2
Adjusted earnings 137.5 23.0 23.8 184.3
Included in the above is rental income of £19.0 million and property
operating expenses of £10.2 million relating to sale and leaseback
properties. Included in the above is also rental income of £3.8m and property
operating expenses of £1.2m, relating to a build to rent property.
Unallocated to segments includes the fair value of share-based payments of
(£3.4 million), costs due to leadership changes of (£2.9 million),
contributions to the Unite Foundation and social causes of (£1.6 million), a
deferred tax credit of £2.5 million and current tax charge of (£1.0
million).
Depreciation and amortisation totalling (£6.3 million) is included within
overheads.
The software as a service costs are presented net of deferred tax of £2.8
million.
2.2a) EPRA earnings (continued)
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 (32.5) (0.7) (0.6) (33.8)
Interest on lease liabilities (8.1) - - (8.1)
Net financing costs (33.4) (7.7) (13.8) (54.9)
Operations segment result 117.1 20.5 24.0 161.6
Property segment result (1.2) - - (1.2)
Unallocated to segments (2.8) (0.2) (0.1) (3.1)
EPRA earnings 113.1 20.3 23.9 157.3
Abortive costs 1.5 - - 1.5
Software as a service costs previously capitalised 4.6 - - 4.6
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. Also 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.
Unallocated to segments 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 £1.3 million and
current tax charge of (£0.7 million). Depreciation and amortisation totalling
(£7.8 million) is included within overheads.
The software as a service costs capitalised under the existing intangibles
policy in the prior year are presented net of deferred tax of £1.5 million.
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 2023 2022
£m £m
Profit attributable to owners of the parent company 102.5 350.5
Net valuation losses/(gains) on investment property (owned) 3.1 37.2 (112.7)
Property disposal (gains)/losses (11.8) 15.6
Net valuation losses on investment property (leased) 3.1 10.4 9.3
Amortisation of fair value of debt recognised on acquisition (4.3) (4.3)
Share of joint venture losses/(gains) on investment property 3.3b 21.9 (32.3)
Share of joint venture property disposals 3.3b 3.5 0.9
Mark to market changes on interest rate swaps 4.3 17.2 (70.7)
Current tax relating to property disposals (0.1) (0.2)
Deferred tax 2.5d (0.2) 0.7
Non-controlling interest share of reconciling items* (0.2) 0.5
EPRA earnings 2.2a 176.1 157.3
Software as a service costs previously capitalised 2.4 8.2 4.6
Abortive costs - 1.5
Adjusted earnings 2.2a 184.3 163.4
* 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 3.4.
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 2023 and 2022 are as follows:
2023 2022 2023 2022
£m
£m
pps
pps
Note
Earnings
Basic 102.5 350.5 24.7p 87.7p
Diluted 102.5 350.5 24.6p 87.6p
EPRA 2.2b 176.1 157.3 42.4p 39.4p
EPRA diluted 42.2p 39.3p
Adjusted 2.2b 184.3 163.4 44.3p 40.9p
Adjusted diluted 44.2p 40.8p
2023 2022
Weighted average number of shares (thousands)
Basic 415,733 399,581
Dilutive potential ordinary shares (share options) 1,165 584
Diluted 416,898 400,615
Movements in the weighted average number of shares have resulted from the
issue of shares arising from the employee share-based payment schemes. In
2023, there were 16,505 options excluded from the potential dilutive shares
that did not affect the diluted weighted average number of shares (2022:
19,015).
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.
2023 Unite Share of JVs Group on
EPRA basis
£m
£m
USAF LSAV
£m £m
Investment property (owned)* 3,727.8 827.8 954.7 5,510.3
Investment property (leased) 84.7 - - 84.7
Investment property (under development) 174.7 - - 174.7
Total property portfolio 3,987.2 827.8 954.7 5,769.7
Debt (1,067.6) (243.5) (337.0) (1,648.1)
Lease liabilities (83.8) - - (83.8)
Cash 37.5 18.2 21.5 77.2
Net debt (1,113.9) (225.3) (315.5) (1,654.7)
Other assets and (liabilities) (48.3) (22.3) (29.7) (100.3)
EPRA NTA 2,825.0 580.2 609.5 4,014.7
Loan to value** 26% 27% 33% 28%
Loan to value post IFRS 16 28% 27% 33% 29%
* 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.
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 (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) (95.1) (33.6) (20.4) (149.1)
EPRA NTA 2,521.1 575.2 620.4 3,716.7
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.
2.3b) Movement in EPRA NTA during the year
Contributions to EPRA NTA by each segment during the year is as follows:
2023
Note Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Operations
Operations segment result 2.2a 137.8 23.3 24.1 185.2
Add back amortisation of intangibles 5.2 - - 5.2
Total Operations 143.0 23.3 24.1 190.4
Property
Rental growth 185.2 41.8 56.1 286.7
Yield movement (215.9) (34.4) (85.7) (339.6)
Disposal gains/ (losses) 11.8 (3.7) 0.3 8.4
Investment property (losses)/gains (owned)* (18.9) 3.7 (29.3) (44.5)
Investment property losses (leased) 3.1a (10.4) - - (10.4)
Investment property losses (under development) 3.1a (6.6) - - (6.6)
Pre-contract/other development costs 2.2a (2.8) - - (2.8)
Total Property (38.7) 3.7 (29.3) (64.3)
Unallocated
Shares issued 294.9 - - 294.9
Investment in joint ventures 27.3 (21.8) (5.5) -
Dividends paid (117.3) - - (117.3)
Acquisition of intangibles (1.6) - - (1.6)
Share based payment charge (3.4) - - (3.4)
Other (0.4) (0.2) (0.2) (0.8)
Total Unallocated 199.6 (22.0) (5.7) 172.0
Total EPRA NTA movement in the year 303.9 5.0 (10.9) 298.0
Total EPRA NTA brought forward 2,521.1 575.2 620.4 3,716.7
Total EPRA NTA carried forward 2,825.0 580.2 609.5 4,014.7
* Investment property gains (owned) includes gains on assets classified as
held for sale in the IFRS balance sheet.
The £0.8 million other balance within the unallocated segment includes the
purchase of own shares of (£0.6 million), contributions to the Unite
Foundation and other social causes of (£1.6 million), tax credits of £1.1
million and other costs of (£0.3 million).
2022
Note Unite Share of joint ventures Group on
EPRA basis
£m
Total
£m
USAF LSAV
£m £m
Operations
Operations segment result 2.2a 117.1 20.5 24.0 161.6
Add back amortisation of intangibles 5.9 - - 5.9
Total Operations 123.0 20.5 24.0 167.5
Property
Rental growth 117.1 0.5 32.6 150.2
Yield movement (11.0) 2.2 (3.0) (11.8)
Disposal losses (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 (1.9) - - (1.9)
Other (1.8) (0.3) (0.2) (2.3)
Total Unallocated (202.9) 121.7 (19.8) (101.0)
Total EPRA NTA movement in the year 6.7 144.0 33.8 184.5
Total EPRA NTA brought forward 2,514.4 431.2 586.6 3,532.2
Total EPRA NTA carried forward 2,521.1 575.2 620.4 3,716.7
The £2.3 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), tax credits of £0.1 million and other costs of
(£0.1 million).
2.3c) Reconciliation to IFRS
To determine EPRA NTA, net assets reported under IFRS are adjusted 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 adjusted 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 adjusted 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:
2023
NTA NRV NDV
£m
£m
£m
Net assets reported under IFRS 4,067.0 4,067.0 4,067.0
Mark to market interest rate swaps (58.1) (58.1) -
Unamortised swap gain (1.2) (1.2) (1.2)
Mark to market of fixed rate debt - - 35.0
Unamortised fair value of debt recognised on acquisition 15.2 15.2 15.2
Current tax 0.7 0.7 -
Deferred tax 0.4 0.4 -
.4
Intangibles per IFRS balance sheet (9.3) - -
Real estate transfer tax - 306.7 -
EPRA reporting measure 4,014.7 4,330.7 4,116.0
2022
NTA NRV NDV
£m
£m
£m
Net assets reported under IFRS 3,787.5 3,787.5 3,787.5
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 (12.2) - -
Real estate transfer tax - 300.7 -
EPRA reporting measure 3,716.7 4,029.6 3,960.3
2.3d) NAV, NTA, NRV and NDV per share
The Board uses EPRA NTA to monitor the performance of the Property segment on
a day-to-day basis.
Note 2023 2022 2023 2022
£m
£m
pps
pps
EPRA NTA 2.3a 4,014.7 3,716.7 921p 928p
EPRA NTA (diluted) 4,018.6 3,719.7 920p 927p
EPRA NRV 2.3c 4,330.7 4,029.6 994p 1,004p
EPRA NRV (diluted) 4,334.6 4,032.6 992p 1,005p
EPRA NDV 4,116.0 3,960.3 944p 987p
EPRA NDV (diluted) 4,119.9 3,963.3 943p 988p
Number of shares (thousands) 2023 2022
Basic 435,855 400,292
Outstanding share options 1,165 895
Diluted 437,019 401,187
2.4 Revenue and costs
The Group earns revenue from the following activities:
Note 2023 2022
£m £m
Rental income* Operations segment 2.2a 259.2 241.7
Management fees Operations segment 17.1 17.8
276.3 259.5
Impact of non-controlling interest on management fees (0.2) (0.2)
Total revenue 276.1 259.3
* EPRA earnings includes £369.5 million (2022: £339.7million) of rental
income, which is comprised of £259.2 million (2022: £241.7 million)
recognised on wholly owned assets and a further £110.3 million (2022: £98.0
million) from joint ventures, which is included in share of joint venture
profit in the consolidated income statement.
The cost of sales included in the consolidated income statement includes
property operating expenses of £76.8 million (2022: £70.3 million).
2.5 Tax
As a REIT, rental profits and gains on disposal of investment properties are
exempt from corporation tax. The Group pays UK corporation tax on the profits
from its residual business, including management fees received from joint
ventures, together with UK income tax on rental income that arises from
investments held by offshore subsidiaries in which the Group holds a
non-controlling interest.
2.5a) Tax - income statement
The total taxation charge/(credit) in the income statement is analysed as
follows:
2023 2022
£m £m
Corporation tax on residual business income arising in UK companies 1.0 0.5
Income tax on UK rental income arising in non-UK companies 0.4 0.4
Adjustments in respect of prior periods (0.2) (0.2)
Current tax charge/(credit) 1.2 0.7
Origination and reversal of temporary differences (2.3) (1.0)
Effect of change in tax rate - -
Adjustments in respect of prior periods - 0.4
Deferred tax charge/(credit) (2.3) (0.6)
Total tax charge/(credit) in income statement (1.1) 0.1
The movement in deferred tax is shown in more detail in note 2.5d.
In the income statement, a tax charge of £1.2 million arises on a profit
before tax of £102.5 million. The taxation charge that would arise at the
standard rate of UK corporation tax is reconciled to the actual tax charge as
follows:
2023 2022
£m £m
Profit before tax 102.5 351.9
Income tax using the UK corporation tax rate of 19% (2021: 19%) 24.1 67.0
Property rental business profits exempt from tax in the REIT Group (45.7) (28.4)
Property revaluations not subject to tax 16.2 (25.8)
Mark to market changes in interest rate swaps not subject to tax 3.0 (13.4)
Effect of indexation on investments - 0.1
Effect of other permanent differences 1.3 0.5
Effect of tax deduction transferred to equity on share schemes 0.2 0.3
Rate difference on deferred tax - (0.4)
Prior year adjustments (0.2) 0.2
Total tax charge/(credit) in income statement (1.1) 0.1
As a UK REIT, the Group is exempt from UK corporation tax on the profits from
its property rental business. Accordingly, the element of the Group's profit
before tax relating to its property rental business has been separately
identified in the reconciliation above.
No deferred tax asset has been recognised in respect of the Group's
accumulated tax losses on the basis that they are not expected to be utilised
in future periods. At 31 December 2023 these losses totalled £15.3 million
(2022: £15.3 million).
Although the Group does not pay UK corporation tax on the profits from its
property rental business, it is required to distribute 90% of the profits from
its property rental business after accounting for tax adjustments as a
Property Income Distribution (PID). PIDs are charged to tax in the same way as
property income in the hands of the recipient. For the year ended 31 December
2023 the required PID is expected to be fully paid by the end of 2022.
2.5b) Tax - other comprehensive income
Within other comprehensive income a tax charge totalling £nil (2022: £nil)
has been recognised.
2.5c) Tax - statement of changes in equity
Within the statement of changes in equity a tax credit totalling £0.1 million
(2022: £0.3 million charge) has been recognised representing deferred tax. An
analysis of this is included below in the deferred tax movement table.
2.5d) Tax - balance sheet
The table below outlines the deferred tax (assets)/liabilities that are
recognised in the balance sheet, together with their movements in the year:
2023
At 31 December 2022 Charged/(credited) Charged/(credited) At 31 December 2023
in income
in equity
£m
£m
£m £m
Investments 0.4 - - 0.4
Property, plant and machinery and provisions (2.8) (2.1) - (4.9)
Share schemes (0.9) (0.4) 0.2 (1.1)
Tax value of carried forward losses recognised - 0.2 (0.2) -
Net tax (assets)/liabilities (3.3) (2.3)* - (5.6)
* The £2.3 million credit above includes tax movements totaling £2.5 million
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 £0.2
million movement shown in note 2.2b.
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) (1.6) - (2.8)
Share schemes (1.8) 0.3 0.6 (0.9)
Tax value of carried forward losses recognised - 0.3 (0.3) -
Net tax (assets) (3.0) 0.6* 0.3 (3.3)
* The £0.6 million balance above includes tax movements totaling £1.3
million 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.
Section 3: Asset management
3.1 Wholly owned property assets
The Group's wholly owned property portfolio is held in four groups on the
balance sheet at the carrying values detailed below.
In the Group's EPRA NTA all these groups are shown at market value, except
where otherwise stated.
i) Investment property (owned)
These are assets that the Group intends to hold for a long period to earn
rental income or capital appreciation. The assets are measured 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, and taking account of
committed fire safety and external façade works as provided by Unite.
CB Richard Ellis Ltd, Jones Lang LaSalle Ltd and Messrs Knight Frank LLP,
Chartered Surveyors were the valuers in the years ended 31 December 2023 and
2022.
The Group has transferred the 2023 addition in respect of committed spend on
fire safety and façade works taking place in 2024/ 2025 to property
valuations, which is presented as a deduction to fair value below.
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 and
capital expenditure. 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 2023 are shown in the table below.
2023
Investment Investment Investment property (under development) Total
property property £m £m
(owned) (leased)
£m £m
At 1 January 2023 3,623.4 90.3 202.7 3,916.4
Additions - - - -
Cost capitalised 66.5 4.8 58.9 130.2
Interest capitalised - - 8.4 8.4
Transfer from investment property under development 88.7 (88.7) -
Transfer from work in progress - - - -
Transfer to assets held for sale (33.5) - - (33.5)
Disposals - - - -
Valuation gains 121.1 - 32.4 153.5
Valuation losses (151.7) (10.4) (39.0) (201.1)
Net valuation gains/(losses) (30.6) (10.4) (6.6) (47.6)
Committed fire safety and external facade works (20.2) - - (20.2)
Carrying and market value at 31 December 2023 3,694.3 84.7 174.7 3,953.7
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
Assets classified as held for sale at 31 December 2023 are comprised of £33.5
million of investment property (owned) less (£7.8 million) costs to sell -
the amounts are presented net in the balance sheet at £25.7 million (£nil).
Assets classified as held for sale are reported within the Operations segment
and represent a portfolio of properties (split across the Group and joint
ventures) intended to be sold within the next 12 months.
Included within investment properties at 31 December 2023 are £11.7 million
(2022: £28.4 million) of assets held under a long leasehold and £0.1 million
(2022: £0.1 million) of assets held under short leasehold.
Total interest capitalised in investment properties (owned) and investment
properties under development at 31 December 2023 was £66.4 million (2022:
£63.5 million) on a cumulative basis.
Total internal costs capitalised in investment properties (owned) and
investment properties under development was £77.1 million at 31 December 2023
(2022: £70.0 million) on a cumulative basis.
Investment property (under development) includes interests in land not
currently under construction totalling £8.3 million (2022: £136.3 million).
Recurring fair value measurement
All investment and development properties are classified as Level 3 in the
fair value hierarchy.
Class of asset 2023 2022
£m £m
London - rental properties 1,154.9 1,212.8
Prime regional - rental properties 1,156.0 1,105.6
Major regional - rental properties 1,246.0 1,130.0
Provincial - rental properties 104.0 103.9
London - development properties 86.2 91.9
Prime regional - development properties 57.0 32.4
Major regional - development properties 22.0 64.1
London build-to-rent - rental properties 66.9 71.1
Prime regional build-to-rent - development properties 9.5 14.3
Investment property (owned) 3,902.5 3,826.1
Investment property (leased) 84.7 90.3
Market value (including assets classified as held for sale) 3,987.2 3,916.4
Investment property (classified as held for sale) (33.5) -
Market value 3,953.7 3,916.4
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)
2023 2022
£m £m
Opening fair value 3,916.4 3,516.9
Gains and (losses) recognised in income statement (47.5) 103.4
Transfer to current assets classified as held for sale (33.5) -
Capital expenditure 138.5 310.6
Committed fire safety and external facade works (20.2) -
Disposals - (14.5)
Closing fair value 3,953.7 3,916.4
Investment property (classified as held for sale) 33.5 -
Closing fair value (including assets classified as held for sale) 3,987.2 3,916.4
Quantitative information about fair value measurements using unobservable
inputs (Level 3)
2023
Fair value Valuation Unobservable inputs Range Weighted average
technique
£m
London - 1,154.9 RICS Red Book Net rental income (£ per week) £206-£424 £324
rental properties
Estimated future rent increase (%)
Net initial yield/discount rate (%) 2%-4% 3%
4.0%-4.7% 4.3%
Prime regional - 1,156.0 RICS Red Book Net rental income (£ per week) £152-£270 £189
rental properties
Estimated future rent increase (%)
Net initial yield/discount rate (%) 2%-5% 3%
4.3%-6.7% 4.9%
Major regional - 1,246.0 RICS Red Book Net rental income (£ per week) £84-£189 £135
rental properties
Estimated future rent increase (%)
Net initial yield/discount rate (%) 2%-5% 3%
4.9%-7.2% 5.7%
Provincial - 104.0 RICS Red Book Net rental income (£ per week) £103-£162 £136
rental properties
Estimated future rent increase (%)
Net initial yield/discount rate (%) 2%-3% 3%
7.0%-21.7% 8.9%
London - 86.2 RICS Red Book Estimated cost to complete (£m) £102.2m - £185.3m £154.5m
development properties
Net rental income (£ per week) £304 £304
Estimated future rent increase (%) 3% 3%
Net initial yield/discount rate (%)
4.0% 4.0%
Prime regional - 57.0 RICS Red Book Estimated cost to complete (£m) £50.0m - £52.0m £51.4m
development properties
Net rental income (£ per week) £234-£236 £242
Estimated future rent increase (%) Net initial yield/discount rate (%) 3% 3%
4.4% - 5.2% 4.7%
Major regional - 22.0 RICS Red Book Estimated cost to complete (£m) £19.4m - £124.1m £97.6m
development properties
Net rental income (£ per week) £214 £214
Estimated future rent increase (%) 3% 3%
Net initial yield/discount rate (%)
5.2% 5.2%
3,826.1
Investment property - 66.9 RICS Red Book Net rental income (£ per week) £412 £412
Estimated future rent increase (%)
build-to-rent
Net initial yield/discount rate (%) 3% 3%
4.1% 4.1%
Development property - 9.5 RICS Red Book Estimated cost to complete (£m) £12.6m £12.6m
build-to-rent Net rental income (£ per week) £278 £278
Estimated future rent increase (%)
Net initial yield/discount rate (%) 3% 3%
4.4% 4.4%
3,902.5
Investment property 84.7 Discounted Net rental income (£ per week) £106-£207 £168
(leased)
cash flows
Estimated future rent increase (%)
Discount rate (yield) (%) 1.8% - 2.7% 2.3%
6.3% 6.3%
Fair value at 31 December 2023 3,987.2
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
Net rental income (£ per week)
£248
£183 - £366
Estimated future rent increase (%)
3.0% 3.0%
Net initial yield/discount rate (%)
3.7%
3.7%
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
Estimated future rent increase (%)
2.5% - 3.0%
3.0%
Net initial yield/discount rate (%)
4.3% - 5.0%
4.5%
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
Estimated future rent increase (%)
3.0%
3.0%
Net initial yield/discount rate (%)
4.9% - 5.0%
4.9%
3,740.7
Investment property - 71.1 RICS Red Book Net rental income (£ per week) £359 £359
build-to-rent Estimated future rent increase (%) 3.0% 3.0%
Net initial yield/Discount rate (%) 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 (%) 3.0% 3.0%
Net initial yield/discount rate (%) 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
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 2023
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 1,154.9 1,234.0 1,116.3 1,110.6 1,247.6
Prime regional 1,156.0 1,213.6 1,098.8 1,099.7 1,218.9
Major regional 1,246.0 1,270.9 1,147.4 1,157.1 1,266.1
Provincial 104.0 110.8 100.2 102.5 108.7
Development properties
London 86.2 91.4 80.9 79.9 92.4
Prime regional 57.0 59.7 54.3 54.2 60.1
Major regional 22.0 23.0 20.9 21.0 23.1
Build-to-rent properties
London 66.9 70.2 63.7 63.5 70.8
Prime regional 9.5 10.0 9.0 9.0 10.1
Market value 3,902.5 4,083.6 3,691.4 3,697.5 4,097.8
3.2 Inventories
2023 2022
£m £m
Interests in land 25.3 11.4
Other stocks 0.9 1.4
Inventories 26.2 12.8
At 31 December 2023 and 31 December 2022 Interests in land includes
conditionally exchanged schemes.
3.3 Investments in joint ventures
The Group has two joint ventures:
Joint venture Group's share of assets/results 2023 (2022) Objective Partner Legal entity in which
Group has interest
The UNITE UK Student Accommodation Fund (USAF) 29.5%* Operate student accommodation throughout the UK Consortium of investors UNITE UK Student Accommodation Fund,
a Jersey Unit Trust
(29.5%*)
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% (2022: 28.15%) 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:
2023
USAF LSAV Total
£m £m £m
Gross MI Share Gross Share Gross Share
Investment property 2,940.8 38.7 827.8 1,909.4 954.7 4,850.2 1,821.2
Cash 64.7 0.9 18.2 43.0 21.5 107.7 40.6
Debt (865.0) (11.4) (243.5) (674.0) (337.0) (1,539.0) (591.9)
Swap assets/(liabilities) 1.4 - 0.4 3.6 1.8 5.0 2.2
Other current assets 12.4 0.2 3.5 (2.8) (1.4) 9.6 2.3
Other current liabilities (92.1) (1.2) (25.8) (56.6) (28.4) (148.7) (55.4)
Net assets 2,062.2 27.2 580.6 1,222.6 611.2 3,284.8 1,219.0
Non-controlling interest - (27.2) - - - - (27.2)
Swap (assets)/liabilities (1.4) - (0.4) (3.6) (1.7) (5.0) (2.1)
EPRA NTA 2,060.8 - 580.2 1,219.0 609.5 3,279.8 1,189.7
Profit for the year 104.9 1.2 31.2 (10.8) (5.4) 94.1 27.0
* Investment property includes assets classified as held for sale in the IFRS
balance sheet.
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
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 decreased by
£7.6 million during the year ended 31 December 2023 (2022: £182.5 million
increase), resulting in an overall carrying value of £1,219.0 million (2022:
£1,226.6 million). The following table shows how the increase has arisen.
2023 2022
£m £m
Recognised in the income statement:
Operations segment result 47.4 44.5
Non-controlling interest share of Operations segment result 1.3 1.3
Management fee adjustment related to trading with joint venture 4.5 4.0
Net valuation (losses)/gains on investment property (21.9) 32.3
Property disposals* (3.5) (0.9)
Ineffective swap (0.4) (0.4)
Other (0.4) (0.4)
27.0 80.4
Recognised in equity:
Movement in effective hedges (2.1) 4.7
Other adjustments to the carrying value:
Profit adjustment related to trading with joint venture (4.5) (4.0)
Additional capital invested in USAF - 140.9
USAF distributions received (22.6) (19.8)
LSAV distributions received (5.4) (19.7)
Increase in carrying value (7.6) 182.5
Carrying value at 1 January 1,226.6 1,044.1
Carrying value at 31 December 1,219.0 1,226.6
* Property disposals includes costs to sell relating to assets held for sale
of £3.7 million at Unite share (£nil)
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.
2023 2022
£m £m
USAF 16.6 16.6
4.8
21.4
LSAV 4.8 4.8
Asset and property management fees 21.4 21.4
Total fees 21.4 21.4
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 £4.5 million (2022:
£4.0 million), which results in management fees from joint ventures of £16.9
million being shown in the Operating segment result in note 2.2a (2022: £17.4
million).
During 2023, the Group did not sell any properties to LSAV or USAF (2022: no
properties sold to LSAV or USAF).
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
2023 2022
£m £m
Current
In one year or less, or on demand 299.4 -
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 320.7 228.0
In more than five years 447.6 721.1
1,067.6 1,247.8
Unamortised fair value of debt recognised on acquisition 14.0 18.1
Total borrowings 1,081.6 1,265.9
In addition to the borrowings currently drawn as shown above, the Group has
available undrawn facilities of £550.0 million (2022: £368.0 million). A
further overdraft facility of £10.0 million (2022: £10.0 million) is also
available.
The carrying value and fair value of the Group’s borrowings is analysed
below:
2023 2022
Carrying value Fair value Carrying value Fair value
£m £m £m £m
Level 1 IFRS fair value hierarchy 875.0 852.3 875.0 759.3
Other loans and unamortised arrangement fees 192.6 180.3 372.8 333.8
Total borrowings 1,067.6 1,032.6 1,247.8 1,093.1
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:
2023
At 1 January Financing cash flows Fair Value adjustments Other At 31 December 2023
changes
2023
Borrowings 1,265.9 (182.5) (4.3) 2.5 1,081.6
Lease liabilities 92.3 (8.5) - - 83.8
Interest rate swaps (73.2) - 17.2 - (56.0)
Total liabilities from financing activities 1,285.0 (191.0) 12.9 2.5 1,109.4
2022
at 31 December 2021 Financing cash flows Fair Value adjustments Other at 31 December 2022
changes
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
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 which at 31
December 2023 are not designated in accounting hedge relationships:
2023 2022
£m £m
Current - -
Non-current (56.0) (73.2)
Fair value of interest rate swaps (56.0) (73.2)
The fair value of interest rate swaps has 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 2023 the fair value above comprises
non-current assets of £56.0 million (2022: non current assets of £73.2
million).
4.3 Net financing (gains)/costs
2023 2022
Recognised in the income statement: £m £m
Interest income (1.3) (0.2)
Finance income (1.3) (0.2)
Gross interest expense on loans 32.5 39.5
Amortisation of fair value of debt recognised on acquisition (4.3) (4.3)
Interest capitalised (8.4) (5.9)
Loan interest and similar charges 19.8 29.3
Interest on lease liabilities 7.7 8.1
Mark to market changes on interest rate swaps 17.2 (70.7)
Finance (gains)/costs 44.7 (33.3)
Net financing (gains)/costs 43.4 (33.5)
The average cost of the Group's wholly owned investment debt for the year
ended 31 December 2023 is 2.7% (2022: 3.3%). The overall average cost of
investment debt on an EPRA basis is 3.2% (2022: 3.4%).
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 2023 2022
£m £m
Cash and cash equivalents 5.1 37.5 38.0
Current borrowings 4.1 (299.4) -
Non-current borrowings 4.1 (782.2) (1,265.9)
Lease liabilities (83.8) (92.3)
Interest rate swaps 4.2 56.0 73.2
Net debt per balance sheet (1,071.9) (1,247.0)
Lease liabilities 83.8 92.3
Unamortised fair value of debt recognised on acquisition 2.3c 15.2 19.5
Adjusted net debt (972.9) (1,135.2)
Reported net asset value 2.3c 4,067.0 3,787.5
EPRA NTA 2.3c 4,014.7 3,716.7
Gearing
Basic (net debt/reported net asset value) 26% 33%
Adjusted gearing (adjusted net debt/EPRA NTA) 24% 31%
Loan to value 2.3a 28% 31%
4.5 Covenant compliance
The Group monitors its covenant position and the forecast headroom available
on a monthly basis. At 31 December 2023, 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.
2023 2022
Covenant Actual Covenant Actual
Gearing <1.50 0.27 <1.50 0.34
Unencumbered assets ratio >1.70 3.71 >1.70 3.12
Secured gearing <0.25 0.0 <0.25 0.0
Development assets ratio <30% 3% <30% 4%
Joint venture ratio <55% 23% <55% 24%
Interest cover >2.00 8.23 >2.00 6.71
The Group also has bonds which carry several covenants which the Group was
also in full compliance with as set out below.
2023 2022
Weighted covenant Weighted Weighted covenant Weighted actual
actual
Net gearing <60% 28% <60% 34%
Secured gearing <25% 0% <25% 0%
Unsecured gearing >1.67 3.54 >1.67 2.89
Interest cover >1.75 4.66 >1.75 3.50
4.6 Equity
The Company's issued share capital has increased during the year as follows:
Called up, allotted and fully paid 2023 2022
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 400,317,225 100.1 2,162.0 399,139,636 99.8 2,161.2
Shares issued (placing) 33,149,172 8.6 286.3 - - -
Shares issued (scrip dividend) 2,232,001 0.6 (0.6) 865,069 0.2 (0.2)
Shares issued (options exercised) 156,144 0.1 (0.1) 312,520 0.1 1.0
At 31 December 435,854,542 109.4 2,447.6 400,317,225 100.1 2,162.0
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 2022 dividend of £65.9 million -
21.7p per share - and an interim 2023 dividend of £51.4 million - 11.8p per
share (2022: final 2021 dividend 15.6p and an interim dividend 11.0p).
After the year-end, the Directors proposed a final dividend per share of 23.6p
(2022: 21.7p), bringing the total dividend per share for the year to 35.4p
(2022: 32.7p). No provision has been made in relation to this dividend.
The Group has modelled tax adjusted property business profits for 2023 and
2024 and the PID requirement in respect of the year ended 31 December 2023 is
expected to be satisfied by the end of 2024.
Section 5: Working capital
5.1 Cash and cash equivalents
The Group's cash position at 31 December 2023 was £37.5 million (2022: £38
million).
The Group's cash balances include £1.1 million (2022: £1.1 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
2023 2022
£m £m
Profit for the year 103.6 351.8
Adjustments for:
Depreciation and amortization 6.3 7.8
Fair value of share-based payments 3.4 1.6
Change in value of investment property (owned and under development) 3.1 37.2 (112.7)
Change in value of investment property (leased) 3.1 10.4 9.3
Net finance costs 4.3 18.5 29.1
Interest payments for leased assets 4.3 7.7 8.1
Mark to market changes in interest rate swaps 4.3 17.2 (70.7)
(Gain)/Loss on disposal of investment property (owned) (11.8) 15.6
Share of joint venture profit 3.3b (27.0) (80.4)
Trading with joint venture adjustment 4.5 4.0
Tax charge/(credit) 2.5a (1.1) 1.6
Cash flows from operating activities before changes in working capital 168.9 163.6
Decrease/(increase) in trade and other receivables (24.8) 3.6
(Increase) in inventories (13.5) (1.0)
(Decrease)/increase in trade and other payables 24.4 (10.7)
Cash flows from operating activities 155.0 155.5
Tax paid (1.8) (1.4)
Net cash flows from operating activities 153.2 154.1
Cash flows consist of the following segmental cash inflows/(outflows):
Operations £178.0 million (2022: £134.1 million), Property (£354.0 million)
(2022: £29.6 million) and Unallocated £175.5 million (2022: £235.1
million).
The Unallocated amount includes a net cash outflow of dividends paid of
£117.3 million (2022: £96.4 million) and a cash inflow of £295.0 million
(net of fees) as a result of the capital raise in July 2023.
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:
2023 2022
Note £m £m
Cash 5.1 37.5 38.0
Trade receivables 34.8 31.8
Amounts due from joint ventures 49.4 46.9
121.7 116.7
5.2a) Cash
The Group operates investment guidelines with respect to surplus cash.
Counterparty limits for cash deposits are largely based upon long-term ratings
published by credit rating agencies and credit default swap rates. Deposits
were placed with financial institutions with A- or better credit ratings.
5.2b) Trade receivables
The Group's customers can be split into two groups - (i) students
(individuals) and (ii) commercial organisations including universities. The
Group's exposure to credit risk is influenced by the characteristics of each
customer.
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 2023 or 2022.
5.3 Provisions
During 2020, and in accordance with the Government's Building Safety Advice of
20 January 2020, the Group undertook a thorough review of the use of
High-Pressure Laminate ('HPL') cladding on its properties. This identified 27
properties with HPL cladding that needed replacing across the estate, due to
legal or contractual obligations.
The Group continue to carry out replacement works for properties with HPL
cladding and those where there is a legal obligation to do so, with activity
prioritised according to risk assessments, starting with those over 18 metres
in height. The remaining cost of the works is expected to be £42.4 million
(Unite Group Share: £22.5million), of which £5.2 million is in respect of
wholly owned properties. Whilst the overall timetable for these works is
uncertain, management anticipate this will be incurred over the next 12-24
months.
The Government's Building Safety Bill, covering building standards, was passed
in April 2022 and has introduced more stringent fire safety regulations. The
Group will ensure it remains aligned to fire safety regulations as they evolve
and continue to make any required investment to ensure its buildings remain
safe to occupy. The Group has provided for the costs of remedial work where
there is 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.
The regulations continue to evolve in this area and Unite will ensure that its
buildings are safe for occupation and compliant with laws and regulations.
The Group has transferred the 2023 addition in respect of committed spend on
fire safety and facade works taking place in 2024/ 2025 to property
valuations, which is presented as a deduction to fair value, see note 3.
The Group has not recognised any assets in respect of future claims, but
expect to recover 50 - 75% of remediation costs through claims from
contractors.
Management has 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 1.0 pence on a Unite Group
share basis. Whilst provisions are expected to be utilised within the next
year, 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 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) (11.5) (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
Releases (3.6) (3.3) - (6.9) (3.6) (0.9) - (4.5)
Additions 21.3 51.5 22.2 95.0 21.3 14.5 11.1 46.9
Utilisation (21.9) (49.7) (6.9) (78.5) (21.9) (14.0) (3.5) (39.4)
Transferred to valuations (20.1) (48.2) (12.3) (80.6) (20.1) (13.6) (6.2) (39.9)
At 31 December 2023 5.2 5.9 31.2 42.3 5.2 1.6 15.5 22.3
Section 6: Post balance sheet events
On 19(th) February 2024 Unite announced that it had entered into a joint
venture ('JV') framework agreement with Newcastle University for the
development of 2,000 new student beds, subject to planning approval. Unite
will act as development and asset manager to the JV with 51% ownership share.
Total development costs are expected to be c.£250 million (Unite share: £128
million).
On 20(th) February 2024 Unite increased its debt capacity by an additional
£150 million revolving credit facility and a further £150 million term loan.
Both are on similar terms to the existing revolving credit facility and mature
in 2027. The new facilities provide liquidity to satisfy the redemption of the
£300 million Liberty Living bond, which matures in November 2024 and
increases investment capacity.
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. The APMs below have been calculated on
a see through/Unite Group 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 of the Group excludes the non-recurring impact of one-off
transactions, improving comparability between reporting periods.
Non-EPRA measures may not have comparable calculation bases between companies
and therefore may not provide meaningful industry-wide comparability.
Note 2023 2022
£m
£m
EBIT
Net operating income (NOI) 2.2a 256.5 241.0
Management fees 2.2a 16.9 17.4
Overheads 2.2a (22.1) (27.7)
251.3 230.7
EBIT margin %
Rental income 2.2a 369.5 339.7
EBIT 7 251.3 230.7
68.0% 67.9%
EBITDA
Net operating income (NOI) 2.2a 256.5 241.0
Management fees 2.2a 16.9 17.4
Overheads 2.2a (22.1) (27.7)
Depreciation and amortisation 6.3 7.8
257.6 238.5
Net debt
Cash 2.3a 77.2 139.2
Debt 2.3a (1,648.1) (1,872.8)
(1,570.9) (1,733.6)
EBITDA : Net debt
EBITDA 7 257.6 238.5
Net debt 7 (1,570.9) (1,733.6)
Ratio 6.1 7.5
Interest cover (Unite share)
EBIT 7 251.3 230.7
Net financing costs 2.2a (47.4) (54.9)
Interest on lease liability/operating lease rentals 2.2a (7.7) (8.1)
Total interest (55.1) (63.0)
Ratio 4.6 3.7
Reconciliation: IFRS profit before tax to EPRA earnings and adjusted earnings
Note 2023 2022
£m
£m
IFRS profit before tax 102.5 350.5
Net valuation losses/(gains) on investment property (owned) 2.2b 59.1 (145.0)
Property disposals 2.2b (8.3) 16.5
Net valuation losses on investment property (leased) 2.2b 10.4 9.3
Amortisation of fair value of debt recognised on acquisition 2.2b (4.3) (4.3)
Changes in valuation of interest rate swaps 2.2b 17.2 (70.7)
Non-controlling interest, tax and other items (0.4) (0.5)
EPRA earnings 176.1 155.8
Software as a service costs 8.2 6.1
Abortive costs - 1.5
Adjusted earnings 184.3 163.4
Adjusted EPS yield
Note 2023 2021
Adjusted EPS (A) 2.2c 44.3 40.9p
Opening EPRA NTA (B) 2.3d 927p 882p
Adjusted EPS yield (A/B) 4.8% 4.6%
Total accounting return
Note 2023 2022
Opening EPRA NTA (A) 2.3d 927p 882p
Closing EPRA NTA 2.3d 920p 927p
Movement (7p) 45p
H1 dividend paid 4.9 21.7p 15.6p
H2 dividend paid 4.9 11.8p 11.0p
Total movement in NTA (B) 25.9p 71.6p
Total accounting return (B/A) 2.9% 8.1%
EPRA Performance Measures
Summary of EPRA performance measures
2023 2022 2023 2022
£m
£m
EPRA earnings 176.1 155.8 42.4p 39.4p
Adjusted earnings 184.3 163.4 44.3p 40.9p
EPRA NTA (diluted) 4,014.7 3,716.7 920p 927p
EPRA NRV (diluted) 4,330.7 4,029.6 992p 1,005p
EPRA NDV (diluted) 4,116.0 3,960.3 943p 988p
EPRA net initial yield 4.8% 4.6%
EPRA topped-up net initial yield 4.8% 4.6%
EPRA like-for-like gross rental income 2.6% 23.0%
EPRA vacancy rate 0.3% 0.8%
EPRA cost ratio (including vacancy costs) 35.2% 33.4%
EPRA cost ratio (excluding vacancy costs) 34.9% 32.3%
* Adjusted earnings calculated as EPRA earnings less software as a service
costs (in 2023 and 2022) and abortive costs (in 2022 only).
EPRA like-for-like rental income (calculated based on total portfolio value of
£8.7 billion)
£m Like for like properties Development property Other properties Total EPRA
2023
Rental income 319.0 18.7 31.8 369.5
Property operating expenses (100.0) (3.9) (9.1) (113.0)
Net rental income 219.0 14.8 22.7 256.5
2022
Rental income 298.2 5.2 36.3 339.7
Property operating expenses (86.3) (1.0) (11.4) (98.7)
Net rental income 211.9 4.2 24.9 241.0
Like-for-like net rental income (£m) 7.1
Like-for-like gross rental income (£m) 20.8
*Other properties includes acquisitions, disposals, major refurbishments and
changes in ownership.
EPRA vacancy rate
2023 2022
£m £m
Estimated rental value of vacant space 0.9 2.0
Estimated rental value of the whole portfolio 283.9 262.9
EPRA vacancy rate 0.3% 0.8%
EPRA net initial yield
2023 2022
Annualised net operating income (£m) 278.3 256.9
Property market value (£m) 5,510.4 5,325.6
Notional acquisition costs (£m) 288.6 285.7
5,799.0 5,611.3
Net initial yield (%) * 4.8% 4.6%
Difference in projected versus historical GOI 0.2% 0.1%
Unite net initial yield (%) 5.0% 4.7%
* No lease incentives are provided by the Group and accordingly the Topped Up
Net Initial Yield measure is also 4.8% (2022: 4.6%).
EPRA cost ratio
2023 2022
£m £m
Property operating expenses 79.8 72.0
Overheads* 21.2 26.4
Development/pre contract costs 2.7 1.2
Unallocated expenses* 8.8 2.8
112.5 102.4
Share of JV property operating expenses 33.2 26.7
Share of JV overheads 0.9 1.3
Share of JV unallocated expenses 0.4 0.3
147.0 130.7
Less: Joint venture management fees (16.9) (17.4)
Total costs (A) 130.1 113.3
Group vacant property costs** (0.8) (2.5)
Share of JV vacant property costs** (0.3) (0.9)
Total costs excluding vacant property costs (B) 129.0 109.9
Rental income 259.2 241.7
Share of JV rental income 110.3 98.0
Total gross rental income (C) 369.5 339.7
Total EPRA cost ratio (including vacant property costs) (A)/(C) 35.2% 33.4%
Total EPRA cost ratio (excluding vacant property costs) (B)/(C) 34.9% 32.4%
* Excludes software as a service costs net of deferred tax (in 2023 and 2022)
and abortive costs (in 2022 only).
** 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 3,639.1 15.8 0.4%
USAF 827.8 14.9 1.8%
LSAV 954.7 (5.7) (0.6%)
Rental properties 5,421.6 25.0 0.5%
Leased properties 84.7
Development completions for AY22/23 88.7
Properties under development 174.7
Properties held throughout the year 5,769.7
Acquisitions -
Total property portfolio 5,769.7
EPRA yield movement
NOI yield Yield movement (bps)
% H1 H2 FY
Wholly owned 5.1 12 19 31
USAF 5.3 10 11 21
LSAV 4.5 14 25 39
Rental properties (Unite share) 5.0 6 26 32
Property related capital expenditure
2023 2022
Wholly owned Share of JVs Group share Wholly owned Share of JVs Group share
London 4.3 20.5 24.8 3.3 10.5 13.8
Prime regional 19.3 4.8 24.1 31.6 7.3 38.9
Major regional 24.6 3.0 27.6 16.5 11.2 27.7
Provincial 5.2 1.3 6.5 8.1 1.0 9.1
Total rental properties 53.4 29.6 83.0 59.5 30.0 89.5
Increase in beds - - - 2.1 2.0 4.1
Acquisitions 2.1 - 2.1 1.3 - 1.3
Developments 58.8 - 58.8 193.0 - 193.0
Capitalised interest 8.4 - 8.4 6.3 - 6.3
Total property related capex 122.7 29.6 152.3 262.2 32.0 294.2
EPRA LTV
2023 2022
£m £m
Investment property (owned) 5,510.4 5,396.8
Investment property (under development) 174.7 202.7
Intangibles 9.3 18.3
Total property value and other eligible assets 5,694.4 5,617.8
Cash at bank and in hand 77.2 139.2
Borrowings (1,648.1) (1,872.8)
Net other payables (100.3) (150.6)
EPRA net debt (1,671.2) (1,884.2)
EPRA loan to value 29.3% 33.5%
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)
SaaS - Software as a Service
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. Software that allows users to connect to and use cloud-based software via
remote access.
Loan to value (LTV) Net operating income (NOI)
See-through (also Unite share)
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
Wholly owned balances plus Unite's share of balances relating to USAF and
see-through basis. In the opinion of the Directors, this measure enables an LSAV.
appraisal of the indebtedness of the business, which closely aligns with key
covenants in the Group's agreements. NOI margin
The Group's NOI expressed as a percentage of rental income. TCFD
Loan to value post IFRS 16 The Taskforce on Climate-related Financial Disclosures develops voluntary,
consistent climate-related financial risk disclosures for use by companies in
Net debt as a proportion of the value of the rental properties, including Nomination agreements providing information to investors, lenders, insurers and other stakeholders.
balances in respect of leased properties under IFRS 16. Prepared on a
see-through basis. Agreements at properties where Universities have entered into a contract to
reserve rooms for their students, usually guaranteeing occupancy. The
Universities usually either nominate students to live in the building and Total accounting return
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. Growth in diluted EPRA NTA per share plus dividends paid, expressed as a
percentage of diluted EPRA NTA per share at the beginning of the period. In
Net debt as a proportion of the value of the rental properties including the opinion of the Directors, this measure enables an appraisal of the return
balances in respect of leased properties and all other assets and liabilities.
generated by the business for shareholders during the year.
Provincial
Properties located in Bournemouth, Coventry, Loughborough, Medway, Portsmouth
LSAV and Swindon. Total shareholder return
The London Student Accommodation Joint Venture (LSAV) is a joint venture The growth in value of a shareholding over a specified period, assuming
between Unite and GIC, in which both hold a 50% stake. LSAV has a maturity
dividends are reinvested to purchase additional shares.
date of September 2032. Prime regional
Properties located in Bristol, Bath, Edinburgh, Manchester and Oxford.
USAF/the fund
Major regional
The Unite UK Student Accommodation Fund (USAF) is Europe's largest fund
Properties located in Aberdeen, Birmingham, Cardiff, Durham, Glasgow, Leeds, Property operating expenses focused purely on income-producing student accommodation investment assets.
Leicester, Liverpool, Newcastle, Nottingham, Sheffield and Southampton.
Operating costs directly related to rental properties, therefore excluding The fund is an open-ended infinite life vehicle with unique access to Unite's
central overheads development pipeline. Unite acts as fund manager for the fund, as well as
owning a significant minority stake.
Net asset value (NAV)
The total of all assets less the value of all liabilities at each reporting Rental growth
date.
WAULT
Calculated as the year-on-year change in the average annual price for sold
beds. In the opinion of the Directors, this measure enables a more meaningful Weighted average unexpired lease term to expiry.
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
Wholly owned
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.
Balances relating to properties that are 100% owned by The Unite Group PLC or
Income generated by the Group from rental properties. its 100% subsidiaries.
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
Joe Lister
Chief Executive
Michael Burt
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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