Annual Report and Accounts 2011
The UNITE Group plc
Building for
sustainable growth
Highlights
1 Financial highlights
2 Highlights
8 Who we are
Overview
10 Our markets
12 Key performance indicators
14 Our top 20 properties
16 Rent by city
17 Where we operate
18 Chairman’s statement
Directors’ report
Business review
21 Overview
22 Operations review
23 Property review
28 Financial review
32 Risk management
36 Corporate responsibility
Governance
42 Board of Directors
45 Corporate governance
50 Audit Committee report
53 Directors’ remuneration report
61 Other governance and
statutory disclosures
63 Statement of Directors’
responsibilities
Contents
Financial statements
64 Independent auditor’s report
65 Introduction and table of contents
66 Consolidated income statement
66 Consolidated statement
of comprehensive income
67 Consolidated balance sheet
68 Company balance sheet
69 Consolidated statement of changes
in shareholders’ equity
70 Company statement of changes
in shareholders’ equity
71 Statements of cash flows
72 Notes to the financial statements
Other information
102 Five year record
103 Notice of annual general meeting
106 Glossary
108 Company information
Highlights
Overview
Business review
Governance
Financial statements
Other information
Introduction
2011 was a strong year for UNITE.
High occupancy across our portfolio,
solid rental growth and effective cost
management drove a step change in
the profitability of our core business.
Continued success in the delivery of
our forward development pipeline and
investment in our operating platform have
laid the foundations for further growth.
We have made good progress on
financing initiatives and asset disposals,
while a range of service and efficiency
improvements have enhanced our
customer service to students and
University partners.
Demand for UK University places remains
extremely strong and with little new
accommodation being built, the outlook
for continued growth in rents, values
and profitability is positive.
Cover image
Emily Bowes Court in
Tottenham, London zone 3,
is just 20 minutes from
central London with excellent
transport links and offers
students a more affordable
option. In 2012 we will open
North Lodge on the same site.
Financial highlights
NAV pps
Net portfolio contribution £m
2007
2008
2009
2010
2011
337
2007
-2.0
252
265
295
318
2008 -5.4
2009
2010
2011
0.6
4.1
Occupancy %
Adjusted net debt £m
2007
2008
2009
2010
2011
92
99
97
97
99
2007
2008
2009
2010
2011
390
335
434
Gearing %
Dividend pps
2007
2008
2009
2010
2011
106
131
92
71
84
2007
2008 –
2009 –
2010 –
2011
11.0
547
531
1.67
1.75
Strong financial performance
— Recurring profits from Operations (net portfolio contribution)
increased to £11 million
— Adjusted, diluted net asset value (NAV) per share up 8% to
318 pence, driven by rental growth and development activity
— Like for like growth in net operating income (NOI) of 3.1%,
delivering capital growth of £23 million (14pps)
— Development profits of £33 million (20pps) secured as
a result of strong progress in site acquisition, construction
and planning consents
— Dividend reinstated
Positive outlook
— Demand for 2012/2013 University places far outstrips supply.
Likely shortfall of at least 160,000 places
— Our reservations for 2012/2013 are solid at 59% with enquiry levels
healthy and supportive of rental growth of 3-4% for the full year
— Development pipeline progressing well and on track to deliver
a further £40 million of NAV uplift by December 2014
— Rental growth, new openings and cost savings underpin prospects
for further growth in NPC and NAV in 2012
— Further accretive development opportunities will be pursued,
subject to prudent management of the Group’s financial position
The UNITE Group plc Annual Report and Accounts 2011
1
A very strong sales performance for
2011/12 saw 99% of our rooms sold,
boosted by improvements to our online
booking system and customer contact centre.
A sell-out year
2
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Targeted
investment
Development continues in London and a small
number of other cities. In 2011 we opened
Thurso Street, a 405-room property in Glasgow’s
West End where there are strong Universities
and high demand for student accommodation.
We have worked in partnership with Sheffield
Hallam University for over ten years supplying
1,850 bedrooms each year. The arrangement
is flexible and this year rose to 2,450
rooms when the University increased
its intake of international students.
Long-term
partnerships
4
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Portfolio
investment
A £2.3 million refurbishment of Waverley House
in Bristol creating nine additional studio rooms and
an improved common room, was rewarded by strong
operational performance. The University of the West
of England called the transformation ‘phenomenal’.
Customer satisfaction improved in every
city in which we operate, leading to increased
numbers of students rebooking to live
with us and new customers living with
us after a recommendation from a friend.
Student
experience
6
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Major new
scheme
Planning was secured for a 951 bedroom
property in Stratford adjacent to the Olympic
Park and close to several London Universities
– a milestone project for London and part
of our selective development in the capital.
Who we are
UNITE develops and manages student accommodation. We have over 130 properties
in 23 cities across the UK, centrally-located close to strong Universities. Students living
in our high-quality buildings receive broadband, utilities, insurance, maintenance and
24/7 security inclusive in their rent. We work closely with our University partners to
ensure we are meeting the needs of all our stakeholders at a time of major change.
We are focused on providing attractive returns for our investors, while
balancing investment in customer service, our operating platform and future
development opportunities.
UNITE is also a manager and investor in three specialist funds and joint ventures:
– UNITE Student Accommodation Fund (USAF) in which we have a 16% stake
– Oasis Capital Bank (OCB) in which we have a 25% stake
– UNITE Capital Cities (UCC) in which we have a 30% stake
We manage all the properties owned by these vehicles.
Our selective development programme is focused on London.
Our strategy
Target low double-digit total returns, with modest risk
Income growth
Development
Capital growth
• Rental growth
• Operating efficiencies
• New openings
• Increased ownership stake
• Dividend reinstated
• London focus
• London focus
• Mix of product, price point
and location
• 9% yield on cost target
• Further accretive developments
subject to financing/disposals
• Quality portfolio and Universities
• Asset management
• Brand platform
• Rental growth 3-4%
Our key priorities are to maintain the growth of our cashflow and recurring profits,
to deliver development profits and earnings growth from a selective development
programme, and to reduce our gearing through management of our balance sheet
and maintaining the most effective capital structure for the business.
8
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Managing the business
We made changes in the autumn of 2011 to realign our business
and provide a clearer route for making decisions and empowering
our people. Our teams in the 23 cities which serve our customers are
the heart of UNITE, and we have embedded support functions within
this Operations Business Unit to ensure all activities are focused
on meeting and exceeding the needs of students and Universities.
The Managing Directors of our two Business Units – Operations
and Property (which includes Asset Management and Development)
– now represent the interests of their Business Units at the UNITE
Group Board, to whom they are directly accountable for performance.
The Executive Team has overall responsibility for developing strategy
and meeting our longer term business goals, through which we aim
to make UNITE a commercially successful business over the long-
term, while balancing the needs of all our stakeholders.
Governance
UNITE Board
UNITE Executive Team
UNITE Operations Board
UNITE Property Board
USAF/JVs
Phil White CBE
Chairman
Mark Allan
Chief Executive
Joe Lister
Chief Financial
Officer
Richard Smith
Managing
Director
of Operations
Nicola Yates
Group HR
Director
Richard Simpson
Managing
Director
of Property
Paul Harris
Group Strategy
and Corporate
Relations Director
UNITE’s three phases of growth
Expansion
Co-investment
Focus
2000-2006
2006-2009
2009-2012
In 2000 we listed on the London Stock
Exchange. Having created the private
student accommodation sector in 1991,
we used our first mover advantage to
secure high quality sites and expand
rapidly across the UK, growing from
10,000 to 31,000 rooms by 2006.
During this period of operational and
financial consolidation we implemented
a change programme, standardising our
brand and operations, and established
our co-investment model with the launch
of USAF.
We now have 41,000 rooms in 23 cities and
our focus is on managed growth with an
emphasis on London, growing our recurring
cash flows and differentiating our brand.
The UNITE Group plc Annual Report and Accounts 2011
9
Our markets
Full-time student numbers
Student numbers have doubled since 1991 (Chart 1), driven by
government policy, demographics and global mobility, with almost
1.7 million students now studying full-time in the UK, with some 17%
from outside the UK. There are expected to be over 160,000 more
applicants than places for the 2012/13 academic year (Chart 2).
The changes to the Higher Education (HE) sector mean there will
be variations in student numbers in some cities and Universities;
however UNITE is aligned with stronger Universities. The HE sector
remains vastly oversubscribed and actual student numbers are not
anticipated to decline.
International students
The strength of UK institutions, with 32 UK Universities in the top
200 of the Times Higher Education’s World University Ranking,
make the UK an attractive place for international students and more
than 47% of UNITE customers are from outside the UK. Between
2000 and 2009 international students studying abroad increased
by 76% (Chart 3) and furthermore the UK increased its market share
during this time – resulting in a rise in actual numbers.
The global trend for studying abroad looks set to continue with
the OECD forecasting that international mobility will more than
double by 2025.
Supply demand imbalance
A fundamental supply/demand imbalance persists in the student
accommodation sector. University housing levels remain flat, while
the private residential sector is facing tougher regulations and high
demand from non-students. Access to capital and an increasingly
strict planning environment are constraining new supply of corporate
purpose built student accommodation.
The London student market
London has three important characteristics that distinguish it from
the wider UK market (Chart 4); a large full-time student market of
around 284,000 students; low accommodation supply ratio with
London’s Universities only able to supply accommodation to 30% of
first year and international students; and a large international student
population of around 80,000 (Chart 6) with high expectations
of their accommodation.
UNITE has built a substantial London student accommodation
business in recent years and we will continue to focus our new
development in the capital. For the 2012/13 academic year we will
operate over 8,000 bed spaces in London and 47% of our London
customers are from outside the EU and therefore not impacted
by incoming fee changes.
Rent and occupancy outlook
Demand – the much publicised University fee increases of up to
£9,000 resulted in a reduction in applications of 7% which was
firmly in line with UNITE’s expectations of a 5-10% fall. After the fall
there are expected to remain over 160,000 more University applicants
than places available to study. Demand from school leavers is resilient
and international demand is increasing; both of which are key customer
groups for UNITE.
Supply – the planning regime remains challenging with
capital constraints limiting new supply. New corporate student
accommodation projects are focused in London (c.15,000 beds
by 2015, of which 20% are UNITE developments).
Rental growth – at the end of February 2012 UNITE’s 2012/13
reservations were already at 59% which is supportive of our projected
3-4% increase in NOI. Prospects are higher than this for London and
stronger University cities.
Full-time student numbers
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
0
0
0
0
0
8
,
0
0
0
0
0
9
,
Source: HESA
,
0
0
0
0
0
0
1
,
,
0
0
0
0
0
,1
1
,
0
0
0
0
0
2
1
,
,
0
0
0
0
0
3
1
,
,
0
0
0
0
0
4
1
,
Key
UK
EU
Non-EU
,
0
0
0
0
0
6
1
,
,
0
0
0
0
0
7
1
,
,
0
0
0
0
0
5
1
,
10
The UNITE Group plc Annual Report and Accounts 2011
Chart 1 Highlights
Overview
Business review
Governance
Financial statements
Other information
UCAS full year applicants
Year of entry
2004
2005
2006
2007
2008
2009
2010
2011
2012
projection
0
Key
0
0
0
0
0
1
,
0
0
0
0
0
2
,
0
0
0
0
0
3
,
0
0
0
0
0
4
,
0
0
0
0
0
5
,
0
0
0
0
0
6
,
0
0
0
0
0
7
,
Accepted applicants
Unplaced applicants
Source: UCAS
Accommodation choices in top five full-time student markets
London
Manchester
Nottingham
Leeds
Liverpool
0
Key
HMO/Other
Corporate PBSA
Institution Halls
Source: HESA 2010/11
0
0
0
0
5
,
0
0
0
0
0
1
,
0
0
0
0
5
1
,
0
0
0
0
0
2
,
Student mobility 2000
Student mobility 2009
Accommodation choices of full-time students studying
in UK Higher Education Institutions (HEIs)
Key
Private residential
sector
833,814
University purpose
built student
accommodation 336,681
Parental/guardian
home
341,089
Corporate purpose
built student
accommodation
Source: HESA 2010/11
165,759
Key
Europe
North America
Latin America
Oceania
Other
Africa
Asia
44%
27%
1%
6%
7%
5%
10%
Source: Education at a Glance, OECD, Paris (2010)
45%
23%
2%
9%
6%
4%
11%
Overall proportion of international students
London
UK
Key
UK students
International
83%
17%
Source: HESA 2010/11 – all students
74%
26%
11
The UNITE Group plc Annual Report and Accounts 2011
Chart 2Chart 4Chart 5Chart 6Chart 3 Key performance indicators
Over the medium term we are looking to deliver consistent, balanced returns to
shareholders by meeting and exceeding the collective expectations of our five key
stakeholders, Students, Universities, Employees, Communities and Investors.
Financial KPI
Definition
Performance
2011
2010
Target
Net portfolio
contribution
Our key indicator of operational
performance measuring the income
from rental properties after financing
costs and our total non-development
related overheads.
Adjusted
net asset value
per share
Our adjusted NAV per share
measures the market value of
properties and developments less
any debt used to fund them plus
any working capital in the business.
Total returns
Measures the total return to
shareholders calculated by
the growth in adjusted NAV
plus dividends.
Adjusted
net debt
Measures the net indebtedness
of the business and our ability
to generate cash and control
expenditure calculated as debt,
net of cash and excluding the mark
to market of interest rate swaps.
£11.0m £4.1m High occupancy,
Our continued focus on cash generation and
profit growth has delivered a 168% increase
of £6.9m in NPC.
318pps 295pps Continue to deliver
Rental growth and development profits drove
this 8% increase.
8.5% 11.3% Plan to deliver a
Total return has been driven by growth in adjusted
NAV and the reinstatement of the dividend.
rental growth and
continued focus on
efficiency to drive
further growth in
recurring profits.
strong returns
through rental growth,
development activity
and recurring profits.
low double digit
return balanced
between dividend,
rental growth and
development.
net debt through
targeted disposals,
and paying down
existing debt.
£434m £335m Plan to manage total
Growth in net debt is the result of planned capital
expenditure on development offset by asset
disposals and paying down debt.
Gearing
Measures our ratio of debt to equity. 84% 71%
We have maintained our focus on controlling gearing
levels and extending debt maturities.
Continue to
work closely with
funding partners
to manage our debt
level at around its
current level.
Operating
cashflow
Measures the conversion of recurring
profit from the Operations business
into cash.
£13.8m £0.6m Continue to deliver
Growth in net portfolio contribution and working
capital management drove the increase in
operating cashflow.
improvements in
operating cashflow
aligned to net
portfolio contribution
growth.
12
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Non-financial
KPI
Definition
Performance
Health and safety Measures the number of reportable
accidents in Operations each year as
a means of assessing our success
in approaching health and safety.
We also monitor health and safety
in all other parts of the Group.
2011
1
2010
4
Target
We strive to have no
reportable accidents.
Monthly audits and ongoing programmes to further
embed health and safety awareness have led
to this improvement.
Reservations
for next
academic year
Measurement of how many of our
rooms have been leased to students
directly or through agreements with
Universities by the end of February.
59% 62%
We aim to sell
55-60% of our
rooms by this point
in our sales cycle.
Employee
satisfaction
Customer
satisfaction
We aim to develop and retain
high performing people that live
UNITE’s values. Employee TR*M
is an independent benchmarked
measure of the extent to which
UNITE employees are committed
to achieving our corporate goals,
our mission, vision and values.
We undertake an independent
survey twice a year where we use
key indices to understand our
relationship with our customers
and their likelihood to rebook and
recommend. Customer TR*M is
benchmarked against other high
performing companies.
2011 saw solid reservations performance with
enquiry levels healthy and supportive of rental
growth of 3-4% for the full year.
67
63
Further investments in our people through improved
development programmes have led to this increase.
We aim to be in the
top decile of service
companies for
employee satisfaction.
52
35
A shift of emphasis on operational performance
has been rewarded by a substantial improvement
in customer satisfaction.
We aim to be in the
top third of service
companies for
customer satisfaction.
The UNITE Group plc Annual Report and Accounts 2011
13
Top 20 properties
Our top 20
managed properties
by value (and
funding vehicle).*
01 Woburn Place London
Beds: 454 (UCC)
Woburn Place is ideally located
adjacent to three University
campuses at the heart of student
life in central London. A smart
collection of twin and studio
rooms sit alongside one and two
bedroom flats. Customers enjoy an
assortment of high end communal
and in-room facilities.
02
04
07
01
02 Woodland Court London
Beds: 573 (OCB)
Shared en-suite flats set around
a communal courtyard, one stop
from Kings Cross underground.
03 Emily Bowes Court London
Beds: 693 (USAF)
With a contemporary room design and
zone 3 location, quick links into central
London make this a popular choice for
students seeking a lower rent offering.
04 Grand Central Liverpool
Beds: 1,210 (USAF)
The largest, most centrally located
student accommodation residence in
Liverpool, ideally located for Lime Street
station, the city centre and Universities.
05 Great Suffolk Street London
Beds: 233 (OCB)
Just three minutes’ walk from the
Southbank and close to Waterloo and
London Bridge, this property incorporates
a roof top terrace and common room,
with stunning views over Westminster.
A smart mix of premium and studio
accommodation with retail facilities
let to Tesco.
06 Wedgwood Court London
Beds: 322 (OCB)
Immediately opposite London Metropolitan
University, offering shared flats with retail
units let to Sainsbury’s and Costa Coffee.
07 Parkway Gate Manchester
Beds: 729 (UNITE)
Architectural flagship building in the
centre of Manchester ideally located
for the two main Universities in the city.
03
05
06
* Initials in brackets denote the ownership vehicle for each property. UNITE: wholly owned by UNITE, USAF: UNITE UK Student
Accommodation Fund, UCC: UNITE Capital Cities, OCB: Oasis Capital Bank. See page 106 for explanation of each funding vehicle.
14
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
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Governance
Financial statements
Other information
09
11
08 The Heights Birmingham
Beds: 909 (USAF)
Prime city centre property, with strong
links to two of the city’s Universities.
09 The Plaza Leeds
Beds: 964 (USAF)
Modern premises completed in 2006
convenient for both Universities in Leeds.
10 The Forge Sheffield
Beds: 1,378 (UNITE)
Campus-style living within a city centre
environment that includes retail facilities
let to Sainsbury’s and Wilkinsons.
08
10
11 Blithehale Court London
Beds: 306 (USAF)
High performing property with easy access
to several top Universities.
12 Curzon Gateway Birmingham
Beds: 742 (UNITE)
Opposite Birmingham City University’s new
campus development and ideally located for
the city centre.
14
15
13 Sky Plaza Leeds
Beds: 533 (USAF)
A prominent feature of the Leeds city skyline with
34 floors of unrivalled views across the vibrant
city centre.
14 Callice Court Coventry
Beds: 666 (UNITE)
Boasts the best location for student
accommodation in Coventry with its prime
position next to the University and city centre.
15 New Medlock House Manchester
Beds: 672 (USAF)
Prime city centre location, ideally located for
the city’s Universities, this property offers both
budget and higher end accommodation.
16 Piccadilly Point Manchester
Beds: 530 (USAF)
Adjacent to Piccadilly train station and
Manchester University this is one of the
best properties in the city.
17 St Peters Court Nottingham
Beds: 808 (USAF)
Premium property in an established student
accommodation area very popular with
University of Nottingham students.
18 Canto Court London
Beds: 164 (UCC)
Modern studio accommodation for students
studying in the wide variety of London’s
nearby HEIs.
12
13
19 East Central House London
Beds: 245 (UNITE)
Established property popular with international
and domestic students attracted by the
zone 1 location.
20 Newarke Point Leicester
Beds: 653 (USAF)
At the heart of the DeMontfort campus
and adjacent to the city centre.
The UNITE Group plc Annual Report and Accounts 2011
15
Rent by city
The table below lists our average rents
per city, broken down for shared flats
and studios.
Location
2011/2012
Location
2011/2012
£ Shared Flat
£ Studio
£ Shared Flat
£ Studio
Aberdeen
Bath
Birmingham
Bournemouth
Bristol
Coventry
Edinburgh
Exeter
Glasgow
Huddersfield
Leeds
Leicester
Liverpool
Loughborough
Manchester
Newcastle
Nottingham
Plymouth
Poole
Portsmouth
Reading
Sheffield
Rest of UK
119
110
109
93
113
114
131
129
113
94
109
111
107
92
124
104
106
113
99
59
135
95
108
178
192
164
113
163
154
185
159
183
n/a
153
145
141
119
190
139
165
142
114
59
204
121
154
London Central
London East
London North
London
195
174
178
183
341
251
252
311
A mix of tenancies
Leased directly to students
Leased to students via Universities*
Leased to Universities
Leased to key workers
19,001
18,209
2,446
484
Data from 31 October 2011.
*
Leases range from two to 20 years.
These rates are based on weighted average weekly rates.
No adjustment has been made for differing tenancy lengths.
16
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Where we operate
We operate in 23 cities across the UK
and our properties are aligned with
cities that have strong and often multiple
higher education institutions.
Aberdeen
Number of rooms by location
London
Major provincial
Provincial
7,224
24,197
9,448
Glasgow
Edinburgh
Newcastle
Leeds
Huddersfield
Manchester
Liverpool
Loughborough
Birmingham
Sheffield
Nottingham
Leicester
Coventry
Bristol
London
Bath
Reading
Bournemouth
Portsmouth
Exeter
Plymouth
Poole
The UNITE Group plc Annual Report and Accounts 2011
17
Chairman’s statement
UNITE enjoyed a strong year in 2011
across its core business. The combination
of strong rental growth, 99% occupancy
and effective control of costs drove
a significant increase in Net Portfolio
Contribution (NPC) to £11 million from
£4 million in 2010 and has enabled us
to reinstate a dividend at 1.75 pence
per share for the full year. We also laid
the foundations for further growth in
NPC in 2012; new openings, continued
rental growth, further cost savings and
a focus on London should all help ensure
recurring profits and cash flows grow
strongly again in 2012.
“The strong financial
performance of the
business has been
built on important
improvements in
customer service.”
Phil White CBE
Chairman
Rental growth and a strong performance in our development business
contributed to an 8% increase in adjusted NAV per share to 318
pence across the year and, despite broader economic volatility, yields
across our portfolio remained stable at 6.6%. Development activity
and rental growth will continue to underpin NAV growth in future
years and this growth would have been even stronger in 2011 had
we not recorded a charge of £21 million (13 pence per share) in
relation to UNITE Modular Solutions (UMS) in our 2011 accounts
for trading losses and costs associated with our decision to cease
trading. Whilst it is disappointing to incur these costs it does remove
a loss making activity for the Group and will result in greater visibility
of the underlying profitability and cash generation of our core
business. There will be no detrimental impact on the Group’s future
development pipeline as a result of the UMS closure.
The strong financial performance of the business has been built
on important improvements in customer service, both for our student
residents and our University partners. Credit for this must go to the
dedicated employees throughout our business and I would like to
congratulate them and thank them for their impressive performance.
We have remained very focused on managing the Group’s financial
position over the year. Operationally the business has significantly
improved its cash generation and capital commitments to new
development activity have been, and will continue to be, carefully
managed until the outcome of debt refinancing can be viewed with
more certainty. We have also made positive early steps to sell non-
core assets as a means of enhancing portfolio quality and controlling
leverage. In addition, in January 2012 we successfully bought out
Lehman Brothers, our former partner in the UNITE Student Village
(USV) Joint Venture, at an attractive price and made positive progress
with our other partners in establishing longer term strategies for
our remaining joint ventures. There is more to be done in 2012
in all these areas but the progress to date has been pleasing.
18
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Unsurprisingly, debt financing has been very much in focus throughout
2011 and again UNITE has enjoyed success in this area. Despite the
ongoing constraints on credit, we successfully arranged or extended
£234 million of new debt facilities for ourselves, our fund and joint
ventures during the year, with a further £82 million arranged since
the year end, all of which has resulted in a fall in our overall cost of
debt from 6.8% to 5.7%. Of course, this will remain an area of focus
during 2012 but our long track record and recent successes give us
continued confidence as we move forward.
University applications were also the subject of much media coverage
throughout 2011 following the Government’s introduction of higher
tuition fees from 2012. At the initial closing date in January 2012,
applications were down 7.4% overall but despite this fall there will still
be over 160,000 unsuccessful applicants this year. In addition, with
applications from school leavers only down 2% and demand from
non-EU students (a key customer segment for UNITE) up 14%, the
fundamentals of longer term demand remain stable. Our reservations
and enquiry levels for the forthcoming academic year are solid and we
remain confident of delivering rental growth of 3-4% for the full year.
2011 also saw some important changes on the UNITE Board.
John Tonkiss, our COO, left the company at the end of December
after nearly ten years of committed service and, as part of a wider
management reorganisation, we made two internal promotions to
the Board with Richard Simpson and Richard Smith joining with effect
from January 2012 as Managing Directors of Property and Operations
respectively. On the non-executive side, we were pleased to appoint
Manjit Wolstenholme as an additional Director on 1 December.
Manjit will succeed Nigel Hall as Chair of the Audit Committee
when he retires from the Board following the annual general
meeting (AGM) in May 2012.
In recent years, Boards and management teams have had to adjust
to operating in a much more volatile environment and we do not
expect 2012 to be any different. Our focus is very much to build
further on the good work of 2011; to keep growing recurring profits
and cashflow substantially and sustainably, to pursue attractive
development opportunities selectively, and to manage the Group’s
financial position prudently. With a robust outlook for demand, a clear
strategy in place that is being delivered and a strong track record we
look forward to 2012 with continued confidence.
“Despite the ongoing
constraints on credit,
we successfully arranged
or extended £234 million
of new debt facilities.”
Phil White CBE
Chairman
1 March 2012
The UNITE Group plc Annual Report and Accounts 2011
19
Development
Selective development
programme
Moonraker Point forms part of our secured
development pipeline. The property is a significant
project in the heart of London’s Southbank close
to two other UNITE properties. The 671 room
development on Great Suffolk Street in the London
Borough of Southwark, is due for completion for the
2012/13 academic year. King’s College, London,
has agreed a nominations agreement, securing
the lease of the building over a 15 year period.
Teams from both organisations worked to ensure
that the UNITE offer matches King’s standard
offer to incoming students so that the experience
of residents at Moonraker is in line with that
of King’s students in other College residences.
Highlights
Overview
Business review
Governance
Financial statements
Other information
Overview
Our key objectives in 2011 were to grow recurring profits and cash
flow, make good progress in the delivery of our targeted development
programme and manage the Group’s financing effectively in
challenging conditions. We made very good progress in all areas.
This progress has ensured positive movements in our key metrics of
Net Portfolio Contribution (NPC) and Adjusted Net Asset Value (NAV)
whilst keeping gearing within target levels. The financial performance
has been driven by rental growth and high levels of occupancy across
the portfolio together with tight financial stewardship of operating
and interest expenses and the overall level of gearing in the business.
Financial highlights
NPC
Profit before tax
NPC per share
Adjusted earnings per share (EPS)
(pre UMS)
2011
2010
£11.0m
£4.1m
£4.7m
£24.2m
6.9p
3.4p
2.6p
2.7p
NAV (adjusted, fully diluted)
318pps
295pps
Gearing (adjusted)
See through loan to value (LTV)
84%
54%
71%
54%
Operating cashflow
£13.8m
£0.6m
Full year dividend
1.75pps
–
Occupancy for current
academic year
99%
97%
Reservations for next academic
year at 28 February
59%
62%
Net operating income growth
(like-for-like)
3.1%
3.1%
As a result of a disappointing performance at UMS, a reduction in
the Group’s own development pipeline and a challenging outlook
for the construction sector generally we have taken the decision
to close the facility once production has finished at the end of March.
The resultant provision, together with in year trading losses, has
resulted in a reduction in NAV in 2011 of £21 million. However,
a strong performance in all other areas of the business means that
this charge has been absorbed within an overall increase in adjusted
NAV per share of 8% for the year. Whilst disappointing, the closure
of UMS means that going forward we can focus on our core activities
to deliver shareholder returns.
21
Operations review
Sales, rental growth and profitability
Our continued focus on cash generation and profit growth has
delivered a £6.9 million increase in NPC to £11.0 million, up from
£4.1 million in 2010 and £0.6 million in 2009. This growth has been
driven by achieving 99% occupancy for the 2011/12 academic year
and delivering 3.1% like-for-like net operating income (NOI) growth
across the portfolio, together with the impact of opening 1,277 beds
in 2011. We have also been able to reduce the average cost of debt
from 6.8% to 5.7% contributing to a lower finance charge, down
from £46.8 million in 2010 to £43.7 million in 2011.
Reservations
As at 28 February 2012, reservations across UNITE’s portfolio for the
2012/13 academic year stood at 59% of available rooms compared
to 62% at the same point in 2011 but in line with the 2010 level
(59%). The movement in reservation levels is largely explained by the
one-off rush to secure accommodation in 2011 as applications surged
ahead of the rise in tuition fees. Overall enquiry levels are 5% ahead
of 2011 and remain healthy.
Operations outlook
Looking forward, the Operations business is well positioned to build
on the strong performance in 2011:
Net portfolio contribution
2011
£m
2010
£m
• a further 1,822 beds will be opened in September 2012, of which
1,345 will be in London and we will also see the full year NOI impact
of the 1,277 beds delivered in 2011
Total income from managed portfolio
219.5
188.9
• overhead cost saving initiatives have been actioned and the
£2.5 million annual benefits have begun to accrue from early 2012
UNITE’s share of rental income
UNITE’s share of total income
95.6
44%
89.0
47%
• the outlook for student numbers in the cities in which we operate
remains solid which, together with current reservations, gives
us continued confidence in our ability to deliver rental growth
of 3-4% in the forthcoming academic year
UNITE’s share of operating costs
(29.4)
(26.9)
NOI
NOI margin
Management fee income
Operating expenses
Finance costs1
NPC
66.2
62.1
69.2%
69.8%
10.1
(21.6)
(43.7)
11.0
8.4
(19.6)
(46.8)
4.1
1
Finance costs include net interest of £31.1 million and lease payments
of £12.6 million on sale and leaseback assets.
UNITE’s share of total income from the managed portfolio has
decreased to 44% from 47% as a result of asset sales to USAF at the
end of 2010 and the 2010 new openings being held within our OCB
joint venture. As we intend to hold a greater share of rental properties
going forward we would therefore expect to increase our share
of total income in the future.
The Group’s NOI margin has fallen from 69.8% to 69.2%, primarily
due to ongoing increases in utility prices, although these were partially
offset by efficiencies elsewhere. The Group has a target NOI margin
of 70% and will continue to seek operating efficiencies to improve
performance to this level.
Operating expenses increased to £21.6 million (2010: £19.6 million)
as a result of increased performance related costs and some one-off
transactional costs. Despite these increases, we have made progress
in reducing our key overhead efficiency measure (total operating
expenses less management fees as a proportion of UNITE’s share
of gross property asset value) to 95 basis points from 110 basis points
in 2010 and remain on track to reduce this to 80 basis points by
2014. As announced in September 2011, we have made a number
of changes to the senior management structure of the business
which will result in annual overhead savings of £2.5 million per
annum with effect from 2012.
The Operations business generated net cash of £13.8 million in 2011,
thereby covering the dividend payment of £2.8 million five times.
Customer service and organisation
Operational performance throughout the year has benefited from
a shift of emphasis to ensure empowerment of and ownership
by our city teams for the delivery of enhanced customer service.
This change has led to a number of improvements including our
approach to maintenance, contact centre performance and debt
collection. In turn, these efficiencies have led to an improvement
in customer satisfaction in every city in which we operate while
also delivering financial benefits.
We have made further investments in our people through improved
development programmes and our latest employee satisfaction
survey puts us in the top quartile for customer service organisations
across Europe. We are also proud to have been awarded a Silver
Investors in People award for our commitment to learning and
development. The tools that we provide our staff with to deliver
customer service have also been reviewed and enhanced with
a significant investment in the UNITE online booking system, IT
network resilience, improved connection speeds at sites and the
introduction of improved technology to our contact centre. These
investments have underpinned our improvement in customer
satisfaction, helping drive cashflows, retention rates and
relationships with our University partners.
Customer profile
Each year we carry out a detailed analysis of our customer base,
which provides rich data on the demographic and societal trends
which are influencing University education and the student
experience. This analysis, combined with other pieces of proprietary
research, has enabled us to identify a number of themes and patterns
which will influence our longer term strategy, and which underline the
resilience of our business model. Some of the major themes include:
• continued increase in international students staying with UNITE,
particularly in London (47% across the UK and 71% in London)
• clear alignment of UNITE properties with Universities and cities
expecting to maintain or increase student numbers next year
• students who are starting University in 2012 are generally
undeterred by tuition fee increases but have higher expectations
of University life, including accommodation
Full details of our research have been shared with our University
partners to facilitate deeper discussions around meeting student
expectations, managing volatility in student numbers and developing
strategies for the future.
22
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Property review
NAV growth
Adjusted NAV increased by 8% to £514 million or 318 pence per
share at 31 December 2011, up from £474 million or 295 pence per
share at 31 December 2010, driven by rental growth and development
profits but offset by trading losses and charges arising from the
decision to cease trading at UMS. Reported NAV, which includes the
impact of mark to market adjustments on interest rate swaps and
some properties at cost was £405 million at 31 December 2011
(2010: £404 million).
The main factors behind the 23 pence per share growth in adjusted
net assets were:
• the growth in the value of the Group’s share of assets as a result
of rental growth (+14 pence per share), with average yields
remaining flat during 2011
• the value added to the development portfolio after pre-contract
costs (+17 pence per share)
• the positive impact of retained profits (+5 pence per share)
• the impact of the decision to close UMS together with in year
trading losses (-13 pence per share)
Adjusted NAV bridge
e
r
a
h
s
r
e
p
e
c
n
e
P
335
320
305
290
275
295
3 1 D ec 1 0
5
17
(13)
14
318
R ental gro wth
D evelop m ent
R etained profit
U M S
3 1 D ec 2 0 1 1
Looking forward we expect to be able to continue delivering value
growth in 2012 and beyond across our portfolio with our London
focus driving both rental growth and development profits. At the
same time, proceeds from our asset disposal programme will allow
us to keep gearing within target levels.
Capital growth
Asset management
Realising the potential of our assets is a component
of our capital growth strategy. Manchester has
the second largest student population in the UK
after London and there is strong demand for
accommodation. Our 530 room Piccadilly Point
property has been fully let since opening in
2007 and we have been granted planning
permission to convert the current 15,000 sq/ft
of vacant commercial space, which has not been
let since the property opened, into 58 additional
rooms and 1,450 sq/ft of commercial space.
The UNITE Group plc Annual Report and Accounts 2011
23
Property review cont.
Property portfolio
The valuation of our property portfolio at 31 December 2011, including our share of gross assets held in USAF and joint ventures was
£1,206 million (31 December 2010: £1,022 million). The £184 million increase in portfolio value was attributable to £127 million of capital
expenditure less disposals and £57 million of valuation movements.
The valuation of the investment portfolio has increased by 3.1% on a like for like basis, reflecting a 4% growth in headline rents offset
by a growth in operating costs driven primarily by rising utility costs.
Summary balance sheet
31 December 2011
31 December 2010
Rental properties
Properties under development
Debt on rental properties (net of cash)
Debt on properties under development
Other assets/(liabilities)
Adjusted net assets
Wholly
owned £m
Fund/JV
£m
Total
£m
Wholly
owned £m
Fund/JV
£m
617
189
806
(394)
(40)
(434)
(40)
332
400
–
400
(212)
–
(212)
(6)
182
1,017
189
1,206
(606)
(40)
(646)
(46)
514
493
138
631
(268)
(67)
(335)
6
302
391
–
391
(212)
–
(212)
(7)
172
Total
£m
884
138
1,022
(480)
(67)
(547)
(1)
474
We have continued to shift the weighting of our property portfolio towards rental properties with 84% of the portfolio being income generating
and 16% being under development. We have also increased our London exposure with 45% of our capital now invested in London assets, up
from 41% at December 2010 and from 17% in the five years since December 2006. London remains UNITE’s key market by virtue of its size,
high concentration of quality Universities, international reputation and significant demand/supply imbalance.
A split of rental properties by ownership and by location is set out in the following table.
UNITE portfolio analysis at 31 December 2011
USAF
UCC
USV
London
London
Value (£m)
209
354
Beds
1,952
2,426
Major provincial
Value (£m)
858
Major provincial
Beds
15,900
Provincial
Value (£m)
Provincial
Beds
205
3,875
1,273
Total
Total
33
333
–
–
387
–
–
58
1,378
–
–
58
Leased
Total
UNITE
OCB
189
Wholly
owned
182
1,128
1,458
251
–
–
–
–
–
260
–
934
7,224
1,200
4,439
2,147
24,197
185
–
3,788
1,785
390
9,448
2,524
369
37%
430
42%
218
21%
1,017
Value (£m)
189
617
–
Beds
21,727
2,759
1,378
1,128
9,685
4,192
40,869
UNITE ownership share
Ownership share
16%
208
30%
116
50%
29
25%
100%
100%
47
617
–
1,017
Our strong lettings performance in 2011 has meant that the number of stabilising assets has reduced significantly and now amounts
to £65 million (2010: £145 million). These assets are all outside London and are expected to stabilise by 2013.
24
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Great Suffolk Street, London
The UNITE Group plc Annual Report and Accounts 2011
25
Property review cont.
UNITE and IPD net initial yields
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
UNITE Completed Portfolio
IPD All Property Yield
YE 2004
HY 2005
YE 2005
HY 2006
YE 2006
HY 2007
YE 2007
HY 2008 YE 2008
HY 2009
YE 2009
HY 2010
YE 2010
HY 2011
YE 2011
Student accommodation yields
The average net initial yield across the UNITE portfolio was 6.6%
at 31 December 2011 having remained at this level now for the
last 24 months. The graph above compares the yields on UNITE’s
completed portfolio and the Investment Property Databank (IPD)
All Property Yield over the last few years and demonstrates the
relative stability of UNITE’s yields during a period of considerable
volatility in the wider property market.
Whilst average yields have remained flat, this masks some changes
at the asset level. During the year, yields improved by 10 to 25 basis
points for direct let assets in London and by 25 to 40 basis points
for assets with long-term income guarantees from Universities.
Assets located in weaker University towns have seen yields expand
by 10 to 25 basis points. Following these changes, yield ranges
across the UNITE portfolio now stand as follows:
Indicative yields
Direct
let
University
guaranteed
London
6.0-6.25%
5.5-5.75%
Major provincial
6.5-7.0%
6.0-6.25%
Provincial
7.0-7.25%
6.5-6.75%
Despite ongoing economic uncertainty the student accommodation
investment market has remained active with a record amount
of transactions estimated at £1.1 billion of capital committed
to investment and developments in the sector in the whole of 2011
(source: CBRE). The sector continues to deliver strong returns
relative to other asset classes with yields generally ranging
between 6% and 7% together with year-on-year rental growth.
Total returns have continued to outperform other investment property
sectors with the Knight Frank Student London index climbing to
15.1% and the Knight Frank Student Regional index demonstrating
10.5% total returns versus the IPD All Property Index of 9%.
Looking forward we expect one of the main determinants of yield
direction to be the activities of lending banks in the sector. A number
of regional operators in the sector are highly leveraged and the
approach of their lenders to addressing this may result in asset sales
over the next 12 to 18 months, which could lead to weakness in some
regional locations despite ongoing strong occupational performance.
This is much less of a factor in London and it therefore seems likely
that the yield differential between London and the provinces will
widen over 2012 and 2013.
Development activity
UNITE completed and let four new developments in 2011 in Reading,
Manchester, Glasgow and London, on time and within budget. Very
good progress is being made with our four developments planned
to open in 2012, three in London and one in Glasgow, as follows:
• Moonraker Point – Southbank – we have signed a 15 year agreement
with King’s College to take 97% of the 671 rooms and construction
is progressing in line with plan
• North Lodge – Tottenham Hale – construction is scheduled for
completion in May, and will provide a further 528 rooms close to our
existing property, Emily Bowes Court, benefiting from excellent links
to central London and a lower rent reflecting the zone 3 location.
Emily Bowes Court has been fully let since opening in 2009 and
we expect North Lodge to be similarly popular
• Waterloo Road – Waterloo – the 146 room development is on track
for opening in September and is attracting interest from a number
of prospective University occupiers
• Nairn Street – Glasgow – following the successful launch of our
new property in Thurso Street in 2011, Nairn Street will add a further
477 rooms to cater for Glasgow University students. The West End
of Glasgow has a clear shortage of purpose built accommodation,
which we expect to underpin demand
During the year we have also secured planning approvals on the
remaining two schemes in our secured development pipeline. Stratford
City is a 951 bed development adjacent to the Olympic Park and will
provide budget accommodation in a high quality location. Camden
is a 563 bed scheme to the north of the Kings Cross regeneration
zone. Having originally planned to develop the Camden site for a 2013
opening, we decided to defer the scheme by a year in order to manage
our balance sheet prudently during 2012. Both Stratford City and
Camden will now open in 2014 and prospective returns are attractive.
Having obtained planning on all of the schemes in our secured
development pipeline and with funding also in place for all projects
with the exception of the Stratford City site (which is in progress),
the major development risks in our pipeline have now been mitigated.
Based on current rents and yields, the completion of these schemes
will add £40 million (25 pps) to NAV over the next three years and
increase our London weighting to over 50%.
While we have not secured any new developments since May 2011
we continue to pursue a number of prospective opportunities on a
very selective basis. Our focus remains in London on sites that meet
our objectives of offering a range of product and affordable price
points, with excellent transport links a pre-requisite. There are signs
that the planning environment is becoming more restrictive, particularly
in a number of London boroughs and with the debt markets for
development finance remaining constrained by a lack of capacity,
26
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Development pipeline
Secured
beds
No.
Total
completed
value £m
Total
development
cost £m
Capex in
period
£m
Capex
remaining
£m
Forecast NAV
remaining
£m
Forecast
yield on cost
2012
London
Glasgow
2014
London
Total
1,345
477
1,514
3,336
172
35
166
373
124
27
123
274
62
13
15
90
24
13
108
145
3
1
36
40
9.3%
9.0%
9.1%
9.2%
we are continuing to see opportunities to secure off market sites in
London at or above our target of 9% yield on cost. We are pursuing
new development opportunities on a conditional basis to ensure
we retain adequate flexibility to manage our balance sheet.
• Applications from non-EU international students – who make
up 31% of UNITE’s direct let customer base, and 47% in London
– increased by 14%, demonstrating the continued appeal of
a UK University qualification and strong global reputation.
Asset management
During 2011 we completed the refurbishment of seven rental
properties, with our share of capital expenditure amounting to
£3 million. By upgrading some of our older assets, we are able
to enhance the experience for our customers as well as deliver
valuation growth as a result of the increased rent levels following
refurbishment. In 2011 our share of valuation uplift was £1 million,
net of capex. This type of activity will be a continuing feature of
our approach to asset management in the coming years.
Asset disposals
We have now exchanged contracts or completed on the disposal
of a total of £47 million of assets, of which £21 million was on behalf
of UNITE UK Student Accommodation Fund (USAF), £8 million for
our UNITE Capital Cities joint venture and £18 million related to wholly
owned assets. Disposals were in Manchester, Edinburgh and London
and were all non-core assets due to their size or location. A further
£14 million of wholly owned assets are under offer with completion
expected by 30 June. The disposals are supportive of valuations at
31 December 2011, with sales proceeds in line with book valuation
and at an average yield of 6.5%.
Taking into account the balance sheet sales achieved to date and
those currently under offer, a total of £35 million, we remain satisfied
that we will achieve our target of £100 million to £150 million asset
sales by December 2012. We expect approximately £25 million of
these sales to be to USAF, following its successful sale of a small
portfolio in early 2012, with the remainder being into the open
market. As part of this, we are undertaking work on a number
of other non-core assets to ready them for sale later in the year.
Demand and supply outlook
Following the changes to Higher Education funding arrangements,
Universities and Colleges Admissions Service (UCAS) announced
application numbers in January 2012 from students aiming to begin
University in September this year, the first cohort facing increased
tuition fees of up to £9,000 a year. While the overall reduction in
applications of 7.4% was widely anticipated, further analysis of the
results shows strong support for UNITE’s student demographic and
business model.
• The proportion of school-leavers applying to University has only
reduced by 2%, revealing that the major decline in applications was
from mature students who generally live at home while studying.
• The high demand for University is expected to leave over 160,000
students unable to secure a place, and student numbers are
therefore likely to remain flat year-on-year.
Individual Universities have received their allocation of places,
although these will not be published until the end of March 2012.
Through our relationships with most of the UK’s stronger Universities,
we have been providing input and support at a local level to ensure
that we are able to meet any changing accommodation requirements
from our University partners.
• The number of first year and international students – the segments
that are ‘guaranteed’ a bed by their University – continue
to significantly outstrip the total number of University beds
available by more than 2.5:1.
• When the students who are guaranteed accommodation by
Universities and those that choose to live at home are removed from
the total number of students, the addressable market for UNITE and
other corporate accommodation providers in 2011 was 1,020,000
(2010: 976,000).
• Supply of student accommodation remains a key factor with many
cities continuing to have a shortfall that leaves many Universities
unable to house all their first year and international students.
The majority of future student accommodation construction activity
is planned for London where the greatest supply/demand imbalance
is to be found and where new stock will be best absorbed. While
there remains significant headroom in some regional cities, a lack of
capital among Universities and private providers and the challenging
planning environment is likely to render more modest future supply
activity outside London.
The UNITE Group plc Annual Report and Accounts 2011
27
UNITE Modular Solutions
Financial review
The trading performance of UMS in 2011 was disappointing
as it struggled with the complexity of new contracts during the
final quarter of the year, thereby reducing factory throughput and
consequently absorption rates and earnings performance. As a
result, trading generated a £5.5 million loss (c.£3 million negative
earnings before interest, tax, depreciation and amortisation (EBITDA)
against our expectations of a £2.5 million loss and a neutral EBITDA
performance) and we have made a provision for completing
loss-making contracts in 2012 amounting to £5.6 million.
At the same time it has also become clear that the Group’s need
for modular capability is diminishing, with neither of the secured
development projects beyond 2012 suitable for modular construction,
and that the broader construction market is likely to remain
demanding for a considerable time. This poor performance offsets
the outperformance achieved in our core business and, together
with the challenging market outlook for UMS, means that we
cannot justify further investment into the business and are therefore
ceasing operations. Production will continue until late March
with site based operations continuing until the summer in order
to complete remaining contracts.
A further provision has been made in the 2011 accounts as a result
of the decision to cease operations, amounting to a £9.9 million
charge. The provision covers future lease commitments (£5.4 million),
and the write down of the carrying value of UMS assets (£4.5 million).
The future cash impact, as at 31 December 2011, of closure and
future contract costs is anticipated to be approximately £7 million.
The closure of UMS will not impact on UNITE’s development
programme. Production for the 2012 modular projects is substantially
complete and neither of the 2014 completions are suitable for
modular construction in any event. There will be a small negative
impact on future NPC as a result of the closure with approximately
£1 million of central Group costs previously allocated to UMS now
to be absorbed by the Operations business.
Earnings
Net Portfolio Contribution (NPC) is our measure of the underlying
pre-tax profit of the Operations business, which we use to assess
our income performance. It includes the pre-tax results of our joint
ventures, but excludes capital, development and UMS. We also report
on Adjusted Profit which includes costs associated with development
activities that are incurred prior to securing a contract and also profits
or losses on the sales of trading assets. We have also included
one-off restructuring costs incurred as part of the organisational
design changes in late 2011 and fair value movements of share
options in Adjusted Profit.
A full reconciliation of NPC to Adjusted Profit and our International
Financial Reporting Standards (IFRS) profit before tax is given
in Section 2 of the financial statements.
Profit
Net portfolio contribution
Development pre-contract costs
Development trading
profits/write-downs
Restructuring, share option and
other costs
Adjusted profit (pre UMS)
UMS
Valuation gains on investment
property
Changes in valuation of interest
rate swaps
Minority interest and tax
adjustments
Profit before tax
NPC per share
Adjusted earnings per share
(pre UMS)
2011
£m
11.0
(3.2)
2010
£m
4.1
(3.2)
1.2
4.0
(3.6)
5.4
(21.0)
(0.6)
4.3
(4.8)
18.4
33.5
–
1.9
4.7
(8.0)
(0.8)
24.2
6.9p
2.6p
3.4p
2.7p
28
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Cash flow
The Operations business has generated £13.8 million of net cash
in 2011 (2010: £0.6 million). Cashflow generation is a key objective
for the Group and Operations cash is expected to grow in line with
NPC in 2012. At the Group level, our overall cash position reduced
by £7 million as a result of the net investment into development
activities and the cash impact of UMS’s trading losses.
Debt financing
Throughout 2011 we have maintained our focus on controlling gearing
levels and extending debt maturities and have had some important
successes. This will remain a priority throughout 2012. In addition,
we have been able to reduce the average cost of debt by taking
advantage of the low interest rate swap environment and actively
using surplus cash to reduce borrowing costs.
Cash flow
Operations
Property
Key debt statistics
2011
£m
13.8
2010
£m
31 December
2011
31 December
2010
0.6
Group net debt (adjusted)
£434m
£335m
Adjusted gearing
See through LTV
84%
54%
71%
54%
Capital expenditure
(137.1)
(81.5)
Weighted average debt maturity*
3 years
3 years
Disposals
Change in debt
Working capital movements
UMS
Corporate
Net cash movement
13.7
93.9
20.1
(7.8)
(3.6)
(7.0)
155.6
(81.8)
(13.5)
(4.7)
0.3
(25.0)
Dividend
The positive NPC and cash performance in 2011 and the encouraging
outlook for the next few years enabled us to reinstate a dividend
in 2011. We are recommending a final dividend payment of
1.25 pence per share. Taken together with the interim dividend
of 0.5 pence per share, our full year dividend will be 1.75 pence per
share (2010: nil), in line with our stated objective to pay a dividend
at 25-50% of NPC. Subject to approval at UNITE’s Annual General
Meeting (AGM) on 17 May 2012, the recommended final dividend
will be paid on 21 May 2012 to shareholders on the register at close
of business on 20 April 2012.
Weighted average cost
of investment debt
Proportion of investment
debt hedged
5.7%
6.8%
69%
97%
*
Including impact of extension to RBS facility.
Adjusted gearing has increased from 71% in December 2010
to 84% at December 2011. Capital expenditure on property in the
year of £137 million was offset by the growth in the Group’s adjusted
NAV of £40 million and disposals of £14 million. We will continue
to manage our gearing proactively and are seeking to ensure that
the increase in Group net debt arising from capital expenditure and
the USV acquisition is substantially offset by the proceeds of our
planned disposal programme. As a result our objective is to maintain
gearing at around its current level, although due to timing differences
it is likely to rise in the first half of 2012 before falling back later
in the year.
The weighted average cost of debt on a see through basis fell during
the period from 6.8% at 31 December 2010 to 5.7% at 31 December
2011 as a result of the lower proportion of investment debt hedged,
using surplus cash balances to manage interest costs, and entering
into new swaps at lower rates. At 31 December, we had £35 million
of cash being used to pay down revolving facilities that can be
redrawn. Taken together with other cash balances, this provides an
effective cash balance of £52 million. The proportion of investment
debt hedged is likely to increase during 2012, which will contribute
to a modest increase in the average cost of debt across the course
of the year.
The UNITE Group plc Annual Report and Accounts 2011
29
Financial review cont.
We have continued to work closely with our banking partners and
including debt secured since the year end, have arranged a total
of £169 million of new or extended senior debt facilities for wholly
owned assets and a further £147 million for funds and joint ventures
since January 2011. The all-in cost of the facilities includes the cost of
existing swaps which have been extended in line with the facility length.
The details of the new facilities are outlined in the following table.
New debt facilities
Bank
Amount
Maturity
All-in
cost
Purpose
Wholly owned
HSBC
£49m
2016
5.0%
HSBC
£38m
2017
5.0%
RBS*
£82m
2015
5.7%
Funds/JVs
Lloyds
£115m
2016
5.7%
Nationwide
£32m
2014
4.2%
*
Secured in 2012.
New development
facility
New facility to
acquire and
refinance USV
Extension of
investment and
development
facility
Extension of
investment facility
New investment
facility
In addition to the new facilities, we continue to work closely with
our funding partners to extend 2013 and 2014 debt maturities and
in particular are making very good progress in discussions with
insurance companies to secure a new facility that will provide capacity
to refinance the Group’s remaining debt that matures in 2013.
Debt maturity profiles
£m
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
2017+
Group
Funds
We are also in early discussions with lenders about our strategy to
extend maturities for debt in USAF and joint ventures, and expect
to make further progress extending the maturity of these facilities
through 2012.
Income growth
Operational efficiencies
Our Operations business plays a significant role in
maintaining the growth of our income and recurring
profits. In 2011 we placed an emphasis on improving
our maintenance service as it is a key factor in
our residents’ experience of living with us. Having
brought our property maintenance teams in-house
in 2010, we worked to improve procurement
processes, provided training so we can resolve
more problems ourselves, and created a smart
phone application to make it easy for residents
to log maintenance requests. These initiatives have
resulted in significant efficiencies and cost savings.
30
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Funds and joint ventures
Vehicle
USAF
UCC
OCB
Property assets
£m
Net debt
£m
Other assets
£m
Adjusted NAV
£m
UNITE share of
adjusted net
assets
£m
UNITE share
1,273
387
189
(580)
(236)
(106)
(14)
(6)
(4)
679
145
79
111
43
20
16%
30%
25%
Covenant headroom
We were in full compliance with all of our borrowing covenants at
31 December 2011. Our banking facilities include loan to value (LTV)
and interest cover covenants that are measured at the portfolio level.
We have maintained significant headroom against both measures
with the weighted LTV across facilities, with LTV covenants, of 56%
against a weighted covenant of 74% providing headroom for property
values to fall by over 20% before a breach would occur. The interest
cover ratio is 1.7 against the covenant level of 1.2, again providing
significant headroom.
Co-investment vehicles
UNITE acts as co-investing manager of three specialist student
accommodation vehicles that we have established, as outlined
in the table above.
UNITE UK Student Accommodation Fund (USAF)
USAF has delivered another strong trading performance with
a total return of 11.5%, placing it in the top quartile of IPD Specialist
Funds. There has been a good level of demand for units traded
in the secondary market with £62 million of units traded in the year
at a small premium to the Fund’s NAV.
Following a ruling of the Icelandic Supreme Court in October, USAF’s
status as a priority creditor of Landsbanki in respect of its £30 million
deposit has been confirmed. The Resolution Committee of the bank
has stated its expectation of a full recovery and has made an initial
payment of £10 million in respect of USAF’s deposit into an escrow
account. We are following a legal process to facilitate its payment
to USAF later this year, although the timing of this remains uncertain.
The deposit, of which UNITE’s effective share is £6 million, remains
fully provided for.
During the year, USAF completed an extension to its £115 million
facility with Lloyds Banking Group. The facility extended the maturity
date to October 2016 and has reduced the cost of debt from
6.2% to 5.7%. USAF is now making plans to extend or replace
a further £100 million facility that expires in December 2013 and
the £285 million CMBS that matures in April 2014.
Joint ventures
We have continued to make progress in our stated strategy to simplify,
consolidate and extend our joint venture structures. In January 2012
we successfully acquired the remaining 49% stake in UNITE Student
Village from our former joint venture partner, Lehman Brothers,
at a 31% discount to NAV. The additional NPC and NAV arising
from the transaction will be recognised in 2012.
We are also making progress in discussions regarding the future
strategy for the UNITE Capital Cities (UCC) and Oasis Capital Bank
(OCB) joint ventures. UCC and OCB are both London focused joint
ventures due to mature in 2013 and 2014 respectively. Both ventures
have performed well since inception and discussions with our partners
regarding future strategy are proving constructive.
Outlook
We expect the broader business environment to remain challenging
and volatile in 2012 as the UK and Europe struggle to recover and the
long process of deleveraging in the economy continues. Demand for
student accommodation will remain robust and underpins our rental
growth expectation of 3-4% for the year, but students are becoming
increasingly demanding consumers and a clear understanding of their
expectations and absolute focus on service delivery will be critical
to success.
In the student accommodation investment market we expect lenders
to become more proactive in tackling over-leveraged portfolios and
this seems likely to be the principal driver of transaction volumes and
yields in the sector over the next 12 to 18 months. Given that higher
leverage is more concentrated in provincial markets we anticipate
some yield expansion in these areas with London yields remaining
more stable. With approximately half of our capital invested in London,
UNITE is well placed in this regard.
Operationally our objective for 2012 is to continue to build on the
successes of 2011. We are focused on achieving further substantial
growth in profitability and cash generation based on continued high
occupancy across the portfolio, rental growth, the impact of new
openings and cost efficiencies. These improvements will be based
on a firm commitment to customer service and deepening
relationships with our University partners. Based on performance for
the first two months of 2012, we are on track to achieve these targets.
Alongside the existing portfolio we are also committed to extending
our development programme beyond its current level and see
attractive opportunities to do so. However, these opportunities will
only be pursued in a selective and controlled way with asset disposals
and debt refinancing taking priority to ensure that the Group’s balance
sheet is not stretched in pursuit of growth. Based on our recent track
record we are confident of making good progress with our financing
initiatives during 2012 such that new development opportunities will
be able to be pursued in good time.
In the medium term we remain focused on delivering sustainable
balanced returns from a combination of income growth, rental growth
and accretive development activity. Based on the positive progress of
2011 and with a clear strategy in place to build on this further in 2012
and beyond we look forward to the future with confidence.
The UNITE Group plc Annual Report and Accounts 2011
31
Risk management
Our approach to identifying, evaluating and avoiding or mitigating the impact
of risks on UNITE is at the core of our business model. Risks – including a detailed
assessment of health and safety – are standing items on Business Unit, Executive
Team and Group Board agendas, and have been central to our business and
strategic planning processes. Our principal risks are highlighted in white.
Risk
Impact
Mitigation
Change Commentary
Property and asset management risks
Risk arising from short-
term nature of tenancies –
occupancy and rents.
Revenues are uncertain.
Reduced lettings as a result
of economic downturn.
Alignment with strong
Universities and geographic
diversification. Supply/
demand imbalance.
Strong sales and
marketing expertise.
High occupancy for 2011/12
driven by strong sales
performance and University
relationships.
General cost inflation,
in particular on the cost
of utilities.
Reduced return on
investment portfolio.
Forward purchase of
utilities. Annual opportunity
to increase rent to recover
additional costs.
Utilities remains a major
consideration and UNITE is
looking at several initiatives
to drive down consumption
and demand.
Risk of failure to collect
rent in austere economic
conditions.
Loss of cash revenue.
Focus on affluent customer
base. Strong debt collection
procedures.
Major health and safety
incident in property,
development site
or office.
Reputational damage and
impact to students living
with us.
Health and safety policies
and frameworks in place.
Group Risk Committee
considers health and safety.
External audit undertaken
on all our properties every
six months and internal audit
undertaken monthly.
Changes to our ways
of working have given
responsibility for debt
collection back to city
teams, which has driven
performance improvement
on debt.
We have brought in external
consultants to review our
health and safety processes
and commenced a review
of our business continuity
management processes
to conclude in H2 2012.
Adverse yield movement
leading to a fall in asset
values.
Falling NAV, increased
gearing.
Yield movement offset by
rental growth and mitigated
by focus on strongest
University markets.
London focus of portfolio,
high occupancy and rental
growth outlook support
property yields.
32
The UNITE Group plc Annual Report and Accounts 2011
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Governance
Financial statements
Other information
Risk
Impact
Mitigation
Change Commentary
Development management risks
Failure to secure sites,
construction contracts
and/or development debt
at attractive prices.
Unable to generate returns
in line with plans.
Skilled development team
and strong reputation. Focus
on off-market transactions.
Strong relationships with
financially robust lenders.
Development pipeline
of 3,336 beds secured;
good progress with
planning and funding.
Failure or delays in obtaining
planning consents.
Cost of aborted schemes.
Delayed schemes impacting
financial returns.
Delays in completion of
construction in time for
the start of academic year
or cost over-runs.
Reduced financial returns
and cash tied up. Impact on
reputation with customers.
Established planning
expertise and careful site
selection. Low financial
investment in schemes prior
to grant of planning. Pursuing
new opportunities on a
conditional basis to ensure
we retain adequate flexibility.
Strong relationships
with planning authorities,
particularly in London.
Planning consent gained
in six months for Stratford
scheme. Focus on pre-
application discussions
with authorities.
Strong track record and
focus on project delivery
and strong relationships with
construction partners with
appropriate risk sharing.
All 2011/12 schemes
delivered to time and cost
and 2012/13 projects
similarly on track.
Closure of UMS will not
impact future deliveries.
Provision made for UMS is
not sufficient to meet all
future costs.
Reduced financial returns.
Careful management
of future costs. Detailed
planning gone into
setting provision.
Provision set to cover all
future known liabilities.
The UNITE Group plc Annual Report and Accounts 2011
33
Risk management cont.
Risk
Impact
Mitigation
Change Commentary
Fund management
Ability to determine strategy
of Funds/JVs not in line
with Group strategy and to
manage potential conflicts
of interest.
Joint ventures mature
without agreement for
a satisfactory exit.
Loss of market position and
asset management fees.
Established separate fund
management function.
Focus on investor relations
and strong Fund level
performance.
Strong performance by
USAF and co-investment
vehicles.
Forced sales of properties
potentially impacting price.
Loss of management fees.
Loss of market position
in affected cities.
Create infinite life joint
ventures such as USAF.
Work closely with joint
venture partners to agree
mutually beneficial exit/
extension strategies.
USV joint venture brought
back on to balance sheet;
good progress with UCC
and OCB partners on future
of these vehicles.
Risk of being forced to sell
properties if redemption
requests cannot be met.
Properties sold below
valuation.
Contractual limits on
redemption rate in USAF.
Proactive management of
fund investors, equity raising
and alternative sources
of finance.
Valuation of portfolio
continues to increase
(NAV up 8% year-on-year).
Emergence of secondary
market with £62 million
of units traded in 2011.
Financing
Adverse interest rate
movements.
Reduced profitability.
Hedge exposure with interest
rate swaps.
Expiring debt facilities
cannot be replaced or
only at high cost.
Possible forced sale of
assets potentially leading
to sales below valuation.
Slowdown of development
activity. Reduced level
of profitability.
Management of debt
maturity. Control of future
cash commitments in line
with progress of disposals
and refinancing. Plans to
make asset disposals.
Breach of borrowing
covenants.
Debt becomes immediately
repayable.
Regular forecasting of
covenant position. Proactive
management of any potential
issues and ability to use cash
to manage covenants.
Average cost of debt
reduced during 2011 from
6.8% to 5.7%. 69% of
UNITE’s investment debt
is hedged using interest
rate swaps.
Good progress has been
made in 2011 with over
£300 million of debt
arranged and extended.
Risk further managed through
encouraging discussions with
other lenders (eg insurance
companies).
Significant level of headroom
in both LTV and ICR
covenants.
Filed tax position cannot
be agreed. Time and cost
of resolving disputes.
Potential loss of equity funds
in tax payments.
Tax advice from leading
professionals.
Progress being made to
agree outstanding positions.
34
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
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Governance
Financial statements
Other information
Risk
Impact
Mitigation
Change Commentary
Market risks
Changes in Government
policy may affect student
numbers and behaviour.
May reduce demand
and hence prices.
Supply/demand imbalance
is significant at present and
customer base focused on
affluent groups including
overseas students. Strong
sales and marketing
expertise. Development
of affordable product.
Applications to study in
2012/13 among UNITE’s
core demographic largely
unaffected by tuition fees
increase. Reservation levels
at end of February similar
to previous year and
in line with 2010.
Concentration of assets in
student accommodation
sector.
Reduced student numbers
impacting financial
performance.
Geographic diversification
and in-depth market
intelligence.
Student numbers expected
to flatten out but not fall, and
UNITE is aligned to potential
‘winners’ across Higher
Education sector.
Property markets are cyclical
and performance depends
on general economic
conditions.
Reduction in asset values
reducing financial returns.
Forecast rental growth
mitigates any yield
movement. Clear and active
asset management strategy.
Maximising portfolio
value through programme
of refurbishments and
extensions.
Risk of further recession
causing possible failure
of construction contractor,
competitor, University
or bank.
Cost to the business of
dealing with failure, damage
to market. Potential impact
on values in the sector.
Impact of changes in
legislation, particularly in
respect of environmental
legislation and planning
regulations.
Increased cost of compliance
leading to reduced returns
or, in extremis, scheme
cancellation.
Select financially robust
construction partners. Focus
on major University cities
with at least two high quality
institutions. Build strong
relationships with banks
with good credit ratings.
Highly developed skill base
for managing planning
process and building design.
Minimum investment made
in schemes prior to securing
planning.
Development pipeline still
on track; no issues with
construction partners while
land and build prices remain
attractive.
Abortive costs remained low
through 2011 and planning
consent secured on two
London sites in rapid order.
The UNITE Group plc Annual Report and Accounts 2011
35
Corporate responsibility
We believe that UNITE should act professionally and responsibly at all
times, and that we should have a positive impact on the communities
in which we work, as well as society more broadly. We also understand
that it is important that we limit the impact of our business activities on
the environment, find ways to use resources more efficiently, and help
educate customers, partners and suppliers to do the same.
We are involved in a variety of programmes which aim to ensure
we are a good corporate citizen. We encourage our employees to
understand and support these programmes, work with causes they
are passionate about, engage with local community projects which
are aligned with our Corporate Social Responsibility (CSR) policy, and
benefit from and contribute to an exceptional working environment.
The five areas we consider within corporate responsibility are
outlined below. Each has different objectives and all are aligned
with our strategy.
1. Charitable donations and fundraising
At a corporate level our strategy is to support a small number
of charitable causes which make a significant difference to two
overarching objectives:
• widening access to higher education
• integrating students within local communities
We work closely with Students in Free Enterprise (SIFE), an
international organisation that mobilises University students around
the world to make a difference in their communities, while developing
their skills to become socially responsible business leaders. This year
we donated £15,000 (2010: £15,000) to SIFE and our employees
offered practical support by providing business advice, and sitting
on judging panels for SIFE’s UK Region Award scheme.
At an individual level, we offer UNITE employees a charity match
scheme in which up to £250 is paid to the individual’s charity
of choice to match the amount they raise. In 2011, UNITE
contributed £5,848 (2010: £6,669) in matched donations
to charities across the UK.
In January 2012 we launched the UNITE Foundation, through which
we will channel our corporate donations, going forward. It will have
two main areas of activity:
• UNITE Bursaries that cover living expenses and provide free
accommodation for students from poorer backgrounds wishing
to go to University. This scheme will replace the donations we
made in previous years to the UNIAID Foundation
• donations to a small number of organisations that support the aims
of the Foundation make up the other major strand of activity. Initial
beneficiaries will be IntoUniversity and SIFE
“Working with UNITE for the
last two years across the UK
has enriched the experience
for students participating
in SIFE programmes.”
Jim Innes
Executive Director, SIFE UK
UNITE Foundation
In celebration of our 21st birthday, 21 students
from the University of Bristol, the University of
Edinburgh, King’s College London and Sheffield
Hallam University will benefit from bursaries in
2012/13 which include free accommodation in
a UNITE property for the duration of their study
and £3,000 per year towards living expenses
(£4,000 in London). A number of the bursaries
will give priority to students who have been
looked after in local authority care, a group that is
particularly under-represented in Higher Education.
36
The UNITE Group plc Annual Report and Accounts 2011
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Overview
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Governance
Financial statements
Other information
Recognising our stars
Every year students living in our properties leave
behind unwanted items, ranging from pots and
pans to televisions, which need to be removed
or disposed of. The London South team
collected the useful items and donated them
to Cancer Research, raising over £8,000 for
the charity. The team were recognised for their
community-spirited solution at the UNITE Stars
Awards, our annual staff achievement event.
2. Employee welfare and development
As a customer service organisation the engagement and development
of our employees is a priority for UNITE. We are proud that in 2011
we achieved a silver award from Investors in People (IIP), placing
us in the top 4% of the 27,000 UK organisations actively working
with IIP. The reward reflects our continuing commitment to our
employees and organisational improvement. The understanding and
implementation of our mission, vision and values was commended
by the assessor, indicating they are at the heart of our organisation.
Our offering to employees includes the following programmes:
One UNITE Employee Forum: An employee body which, through
a group of elected representatives, allows staff to engage regularly
with senior management and discuss issues of concern and interest.
UNITE is in the top 4% of the
27,000 UK organisations working with
Investors in People
UNITE’s maintenance teams
attended 553 training days in 2011
Learning and development: A comprehensive series of training
courses and development techniques, focused on both technical skills
and leadership/management competences. In 2011 we introduced
a nine month supervisory development programme for Operations
teams with a modular format that culminates in participants
undertaking a community project.
Professional skills development: We worked with Leeds College
of Building to design a bespoke technical programme to develop
the technical abilities of our maintenance employees.
Engagement processes: We run annual employee engagement
surveys and use the results to drive further change across the
business. In 2011 we held a series of face-to-face sessions in every
city to improve two-way communications and provide greater access
to senior management.
Code of ethics: We seek to conduct our business in accordance
with the highest standards of business and personal ethics at all
times. An independent ‘whistle-blowing’ scheme enables employees
to report any incidents of improper or illegal conduct that they may
become aware of, maintaining their anonymity.
Employee incentives: All employees are eligible to participate
in a save-as-you-earn share option scheme once they have
completed a qualifying period of employment. A new Long-Term
Incentive Plan (LTIP) was introduced in 2011 to help us structure
remuneration packages in order to retain, motivate and reward
selected senior employees.
Employment policy: We operate a non-discriminatory employment
policy with full and fair consideration given to all applicants.
Working environment: UNITE provides a variety of benefits and
services to ensure employees are productive and motivated at work,
and are able to achieve a healthy work/life balance.
The UNITE Group plc Annual Report and Accounts 2011
37
Corporate responsibility cont.
3. Environmental impact and energy use
We are committed to effective environmental management
to support sustainable communities in which we operate. As a major
user of utilities with over 130 buildings, we take our responsibility for
sustainable living and our impact on the community very seriously.
The Group measures and manages its emissions by following the
principles set out in the Green House Gas protocol. We are also
monitoring and recording our emissions for compliance with the
Carbon Reduction Commitment scheme.
In 2011, we saw the benefit of several projects initiated in 2010
to improve our energy efficiency. These focused on better
management of heating and lighting systems, and a comprehensive
smart metering project that now sees our electricity, gas and water
consumption collected on a daily basis. This is enabling us to
understand our customers’ consumption better and our focus for
2012 is to use this information to further reduce the Group’s impact
on the environment and reduce costs, by targeting the areas of our
operations that are least efficient.
We established an Energy Network to promote energy efficiency
and awareness across our estate among employees and customers,
with employees in the network acting as best practice champions.
Our new properties continue to use a variety of technologies designed
to reduce carbon emissions per bed, with schemes completed in 2011
using biomass boilers and combined heat and power to generate
electricity on-site and make use of surplus heat to provide hot water.
We established UNITE’s energy network to promote
energy efficiency and awareness across our estate,
with network members from each of our 23 cities
acting as best practice champions. Our University
partners have welcomed the fact that we are
promoting energy efficiency and in December we
ran our first behavioural change campaign targeting
residents, incentivising them to turn off their lights,
close windows to save energy and recycle.
Energy Network
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The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Carbon emission summary 2011
We measure and report our carbon emissions using the latest Green House Gas conversion factors sourced from the Department for Energy
the Environment, Food and Rural Affairs. In 2011, we are pleased to have reduced our carbon emissions in all three of the areas we measure
and have achieved our target of reducing our overall levels of energy consumption by 5% of CO2 per bed.
KPI table
Measures (beds,
modules, 000km)
CO2 kg
KPI (kg of CO2
per bed)
% changes in CO2
compared with 2010
Residential CO2/bed
Manufacturing CO2/module
Business travel CO2/000km
*
64,287,576
675,378
196,000
The significant reduction is due to the fact that we changed the basis on which we calculated our figures in 2011.
41,137
1,561
1,442
1,562.77
432.66
135.92
-6.7%
-18.0%
-161.0%*
2011
31,674,487
107,144,682
770
2,605
2010
17,990,821
113,566,047
486
3,069
% change compared
with 2010
2011
2010
76.06%*
-5.65%
58.38%
-15.13%
-10.95%
6,498.02
57,789.56
0.16
1.40
1.58
Residential and manufacturing
Residences consumption (kWh)
Residences gas
Residences electricity
Residences gas per room
Residences electricity per room
Residences carbon (tonnes)
Residences gas
Residences electricity
Residences gas per room
Residences electricity per room
Overall residential carbon per room
*
The increase in our residential gas consumption is due to the inclusion of meters in properties that we were not aware of previously.
Internal consumption (kWh)
Office gas
Office electricity
Manufacturing gas
Manufacturing electricity
Internal carbon (tonnes)
Office gas
Office electricity
Manufacturing gas
Manufacturing electricity
2011 business travel
Business travel
2011
423,729
312,083
417,555
1,093,363
2011
87
168
86
590
% change compared
with 2010
-14%
13%
-72%
33%
GHG scope
Distance km
Total CO2 (tonnes)
Company cars
Private cars
Total
* GHG Scope 1 – refers to direct emission which must be reported to comply with the GHG protocol.
** GHG Scope 3 – refers to indirect emission which must be reported to comply with the GHG protocol.
1*
3**
844,031
597,823
1,441,853
Conversion factors comparison (kg/kWh)
Electricity
Gas
The UNITE Group plc Annual Report and Accounts 2011
166
30
196
2011
0.54
0.21
3,690.82
61,252.98
0.10
1.66
1.75
2010
490,761
275,870
1,491,784
824,158
2010
101
149
306
445
% change in CO2
compared to 2010
11.19%
-172.46%
-161.27%
2010
0.54
0.21
39
5. Health and safety
The health and safety of our residents, employees and visitors is
our utmost priority. UNITE’s policy is to provide and maintain safe
and healthy working conditions, equipment and systems of work
for all our employees and to provide the information, training and
supervision they need. Monthly external audits are undertaken
on all our properties and health and safety is a component of the
Executive Team Risk Committee. In 2011 we began a programme
of work to review our business continuity management and we
continue to advance our transparent, scalable and robust safety
management system.
Within our properties, all students are briefed on fire and accident
procedures, and we hold regular fire drills in partnership with
the emergency services. We provide lone worker devices for our
operations employees to help provide a safe working and a secure
home for our customers.
We measure our health and safety performance using the number
of reportable accidents that take place in our properties and also
monitor health and safety in all other parts of the Group. We strive
to have no reportable accidents and in 2011 had one (2010: four).
Corporate responsibility cont.
4. Community impact and involvement
Our Community Plan focuses on a number of areas which address
UNITE’s impact on the communities in which we operate. At a
national level this includes complying with Government legislation
and providing secretariat support for the All Party Parliamentary
Group into Balanced and Sustainable Communities, which focuses
on student integration within communities.
At a local level, we place an emphasis on developing better
relationships with local communities across all our sites, in particular:
• Emergency services: We share information and best practice,
meet regularly to minimise the impact of daily site operations on
these services, for example, reducing fire alarms, calls to police
and ambulance.
• Local authorities: We work with environmental health and other
teams to ensure compliance with local targets and to minimise
impact on residents.
• Community groups: We hold regular meetings with residents,
associations and other groups to maintain dialogue and resolve
issues should they arise.
• Student integration: Working with our customers to find
ways of ensuring they contribute positively to the local community,
including our relationship with SIFE.
• Local businesses: We develop our relationships with local
businesses, ensuring their needs and concerns are reflected
in the way we plan, build and operate our buildings.
• Planning authorities: We work with city planners to ensure our
developments have a positive impact on the communities in which
they are located and to manage the construction process in line with
best in class sustainability and noise reduction principles including
BREEAM assessments.
Safeguarding lone workers
With 24-hour security staff and customer service
staff required to visit students in their flats, we are
conscious that the nature of our operations means
employees have to work alone at times. We have
provided all our operations teams with lone worker
devices that link back to a central security centre.
40
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Kendrick Hall, Reading
The UNITE Group plc Annual Report and Accounts 2011
41
Board of Directors
Phil White CBE
Chairman
Age 62
Committees
Remuneration Committee
Nomination Committee
Experience
Phil became Chairman in May 2009. The majority
of his executive career was spent in the public
transport sector, during a period of deregulation
and privatisation. He was Chief Executive of
National Express Group plc from 1997 to 2006,
leading the business through considerable growth
both in the UK and overseas. Phil is currently
Non-Executive Chairman of Kier Group plc
and Non-Executive Chairman of Lookers plc.
Mark Allan
Chief Executive
Age 39
Joe Lister
Chief Financial Officer
Age 40
Experience
Mark was appointed Chief Executive in 2006
having previously served as Chief Financial Officer
for three years. He joined the Group in 1999
and held a variety of roles in the business. Prior
to that he worked at KPMG where he qualified
as a Chartered Accountant and spent five years
specialising in corporate finance.
Experience
Joe joined UNITE in 2002. He was appointed
as Chief Financial Officer in January 2008 having
held a variety of roles within UNITE before that,
including Investment Director. Joe is responsible
for the Group’s finances and investment strategy.
Prior to joining UNITE, Joe qualified as a Chartered
Accountant with PricewaterhouseCoopers.
Richard Simpson
Managing Director of Property
Age 36
Richard Smith
Managing Director of Operations
Age 37
Experience
Richard’s role includes determining the strategic
direction of the Group’s nationwide property
portfolio, and the acquisition and development
of new property. He joined UNITE in 2005 and
previously held the role of Managing Director
Property Development for the London Business.
Prior to property development, Richard had a six
year career in the army.
Experience
Richard was appointed as Managing Director
of Operations for UNITE in 2011. He joined UNITE
as Deputy Chief Financial Officer in 2010. Prior
to this Richard spent 18 years in the transport
industry, including 13 years with National Express
Group, where he held a range of senior finance,
strategy and operations roles in the UK and
overseas, including Group Development Director
and Chief Financial Officer North America.
42
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Stuart Beevor
Non-Executive Director and
Senior Independent Director
Age 55
Committees
Chairman of the Remuneration Committee
Audit Committee
Nomination Committee
Experience
Stuart was Managing Director of Grosvenor Fund
Management Limited and a member of the Board
of Grosvenor Group Limited, the international
property group until 2011, which he joined in 2002.
Prior to this, Stuart was Managing Director at Legal
and General Property Limited, having previously
held a number of roles dealing with development,
investment, property management and unitised
funds at Norwich Union.
Nigel Hall
Non-Executive Director
Age 56
Committees
Chairman of the Audit Committee
Remuneration Committee
Nomination Committee
Richard Walker
Non-Executive Director
Age 46
Committees
Audit Committee
Remuneration Committee
Nomination Committee
Experience
Nigel was Group Finance Director of Arcadia
Group plc (formerly The Burton Group plc) until
February 2003. He joined the Burton Group in
1984 and was appointed to its Board in 1997.
Nigel is also Chairman of Countrywide Farmers
plc and a Non-Executive Director of Pinewood
Shepperton plc and C&J Clark Limited. He
qualified as a Chartered Accountant in 1980
with Price Waterhouse.
Experience
Richard was Senior Director at TalkTalk,
responsible for the customer experience change
programme. Prior to this, he was COO of Carphone
Warehouse UK, with responsibility for 750 stores,
websites, direct sales and insurance services.
Richard was previously Managing Director of
Carphone Warehouse’s European retail business
and UK Sales Director. He holds a law degree
from Nottingham University and trained as an
Accountant with Coopers & Lybrand.
Composition of the Board
Directors
Executive
Non-Executive
No.
4
6
Professor Sir Tim Wilson
Non-Executive Director
Age 62
Committees
Chairman of Nomination Committee
Audit Committee
Remuneration Committee
Manjit Wolstenholme
Non-Executive Director
Age 49
Committees
Audit Committee
Remuneration Committee
Nomination Committee
Experience
Tim was Vice-Chancellor of the University of
Hertfordshire until 2010, preceded by an academic
career with Leeds Metropolitan, Cranfield and
De Montfort Universities. As well as serving on the
Board of the Higher Education Funding Council
for England (HEFCE), Tim was a Board member of
East of England Development Agency for six years
and Deputy Chair of the CBI Innovation, Science
and Technology Committee. He has just published
the Wilson Review, a government-commissioned
review of UK University-industry collaboration.
Experience
Manjit qualified as a Chartered Accountant with
Coopers & Lybrand and her background includes
roles as Director and Co-Head of Investment
Banking at Dresdner Kleinwort Wasserstein, and
Partner at Gleacher Shacklock. She is Chairman
for Albany Investment Trust and Senior
Independent Director and Chair of the
Remuneration Committee of Future Publishing.
She is a Non-Executive Director and Chair of
Audit Committee for Capital & Regional and
Provident Financial, as well as Governor of
Manchester Academic Health Science Centre.
The UNITE Group plc Annual Report and Accounts 2011
43
Sky Plaza, Leeds
44
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Corporate governance
Dear shareholder
UNITE takes corporate governance very seriously and, during the course of 2011, the Board complied with the principles of best
practice set out in the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 (the Code).
On the following pages we set out UNITE’s Corporate Governance Report, which comprises the following sections:
Leadership
How the Board operates
Effectiveness
Audit Committee Report
Remuneration Report
Investor relations
In 2011, a formal and independent evaluation of the Board’s (and its Committees) effectiveness was carried out and I am pleased
to report that the results of such evaluation were largely positive. However, we are not complacent and we have acted on the
recommendations that were made. Our aim now is to give shareholders the information they require in order to decide whether
management and the Board are being effective.
We will continue to comply with the requirements of the Code during 2012.
Phil White
Chairman of the Board
1 March 2011
Leadership
Composition and appointments
The composition of the Board during 2011 is set out in the table on page 49.
The Board currently consists of the Chairman, four Executive Directors and five Non-Executive Directors.
Manjit Wolstenholme was appointed to the Board as a Non-Executive Director with effect from 1 December 2011. Manjit will become
Chair of the Audit Committee following the annual general meeting (the AGM) of the Company, which has been convened for 17 May
2012, when Nigel Hall (currently chair of the Audit Committee), will step down from the Board having, by then, served nine years in office.
John Tonkiss resigned from the Board with effect from 31 December 2011 following his role as Chief Operating Officer having been
made redundant.
With effect from the beginning of January 2012 Richard Simpson and Richard Smith were appointed as Executive Directors with the
roles of Managing Director (Property) and Managing Director (Operations) respectively.
In accordance with the requirements of the Code, each of the current Directors, other than Nigel Hall, offers himself/herself for
re-election at the AGM. Brief biographies of all the Directors are set out on pages 42 and 43.
The UNITE Group plc Annual Report and Accounts 2011
45
Corporate governance continued
Board structure
Set out below is an outline of the governance structure of UNITE.
UNITE Board
Audit Committee
Remuneration Committee
Nomination Committee
UNITE Executive Team
Risk Committee
UNITE Operations Board
UNITE Property Board
Roles
The Group’s terms of reference for the Chairman and the Chief Executive are such as to clearly establish the division of responsibility
between the two roles. Summaries of those roles, and that of the Senior Independent Director, are set out in the table below.
Role
Chairman
Chief Executive
Senior Independent Director
Description
Phil White’s principal responsibilities are:
to establish, in conjunction with the Chief Executive, the strategic objectives of the Group
for approval by the Board
to organise the business of the Board
to enhance the standing of the Company by communicating with shareholders, the financial
community and the Group’s stakeholders generally
Mark Allan has responsibility for:
establishing, in conjunction with the Chairman, the strategic objectives of the Group,
for approval by the Board
implementing the Group’s business plan and annual budget
the overall operational and financial performance of the Group
Stuart Beevor was appointed as Senior Independent Director on 1 June 2011 in succession
to Nigel Hall. His principal responsibilities are to:
act as Chairman of the Board if the Chairman is conflicted
act as a conduit to the Board for the communication of shareholder concerns if other channels
of communication are inappropriate
ensure that the Chairman is provided with effective feedback on his performance
46
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
How the Board operates
Meetings
Details of the number of meetings of the Board and its Committees held during the year and attendance of Directors at those meetings
are set out in the table on page 49.
The Board approves annually a schedule of matters to be considered at each meeting and at each meeting of its Committees.
Meetings are normally held in Bristol or London and, when appropriate, at different regional locations.
Board meetings are structured around the following areas:
operational, property and functional updates
financial updates
strategy and risk
other reporting
Senior executives are regularly invited to attend meetings for specific items. Some of the matters scheduled for consideration
in 2012 include:
a ‘people plan’ review
approach to ‘brand’
University engagement
the Group’s five year strategic plan
the Operations Business Unit’s ‘service improvement plan’
Responsibility and delegation
A schedule of specific matters is reserved for the Board. Those include:
approving the strategic objectives of the Group and the business plan to achieve those objectives
approving major investments, acquisitions, mergers and divestments
approving appointments to and dismissals from the Board
reviewing systems of internal control and risk management
approving policies relating to Directors’ remuneration
Board Committees
The Board has delegated certain responsibilities to its Committees, as detailed on the following pages. The terms of reference for each
Committee are reviewed annually and the current versions are available on the Company’s website at www.unite-group.co.uk. The current
membership of each Committee of the Board is set out below and full details of attendance at Committee meetings can be found in the
table on page 49.
Phil White
Stuart Beevor
Nigel Hall
Sir Tim Wilson
Richard Walker
Manjit Wolstenholme
* Denotes Chairman.
** Will become Chair of the Audit Committee following the AGM.
Audit
*
**
Remuneration
*
Nomination
*
Set out below are sections describing the work of the Committees in discharging their respective functions:
Audit Committee: see the Audit Committee Report on page 50
Remuneration Committee: see the Directors’ Remuneration Report on page 53
Nomination Committee: Sir Tim Wilson became Chairman of the Committee on 1 January 2012. The other members of the Committee
are Phil White, (Chairman of the Board) and each of the other Non-Executive Directors.
The role of the Nomination Committee is to:
ensure that appropriate procedures are adopted and followed in the nomination, selection, training, evaluation and re-election
of Directors and for succession planning, with due regard in all cases to the benefits of diversity on the Board
regularly review the structure, size, composition, skills and experience of the Board and to make recommendations with regard
to any adjustments considered necessary
when it is agreed that an appointment to the Board should be made, to lead a selection process that is formal,
rigorous and transparent
be responsible for identifying, reviewing and recommending candidates for appointment to the Board
The UNITE Group plc Annual Report and Accounts 2011
47
Corporate governance continued
Internal control
The Board has overall responsibility for the Group’s system of internal control. However, such a system is designed to achieve business
objectives and can only provide reasonable and not absolute assurance against material misstatement.
The provisions of the Code in respect of internal controls require that Directors review all controls including operational, compliance and
risk management, as well as financial control. Through reports from the Group’s Risk Committee and Business Units, the Board has
reviewed the effectiveness of the Group’s system of internal controls for the period covered by the Annual Report and Accounts and
has concluded that such controls were effective throughout such period.
Further information on the Company’s internal control framework is set out in the Audit Committee Report.
Board tenure
Each of the Executive Directors has a rolling contract of employment with a 12 month notice period, whilst Non-Executive Directors
are, subject to re-election by shareholders, appointed to the Board for a term of approximately three years. In accordance with the
recommendations of the Code, the Directors have resolved, as they did in 2011, that they will all retire at the AGM and (other than Nigel
Hall who, after serving for nine years, will step down from Board at the AGM), will submit themselves for re-election by shareholders.
The graph below shows the current balance of tenure of the Non-Executive Directors, including the Chairman.
0-3 years
3-6 years
6-9 years
Chairman and Non-Executive Directors
The Board considers each of its five Non-Executive Directors to be independent. Accordingly, the Company meets the requirement
of the Code in relation to members of the FTSE 350 that at least half of the Board (excluding the Chairman) is made-up of independent
Non-Executive Directors. In addition, Phil White (Chairman of the Board) was considered independent on his appointment
to that role.
The Chairman and the Non-Executive Directors constructively challenge and help develop proposals on strategy and bring strong,
independent judgement, knowledge and experience to the Board’s deliberations. Non-Executive Directors are expected to commit
approximately 20 days per annum to the business of the Group.
Professional advice and Board support
Directors are given access to independent professional advice at the Company’s expense when the Directors deem it necessary in order
for them to carry out their responsibilities. The Directors also have access to the advice and services of the Company Secretary who acts
as secretary to the Board and who ensures that Board processes and corporate governance practices are followed.
Insurance
The Company maintains Directors and Officers liability insurance, which is renewed on an annual basis.
Effectiveness
Induction
On appointment each Director takes part in a comprehensive induction programme where they:
receive information concerning all aspects of the Group
meet representatives of the Company’s key advisors
receive information about the role of the Board and matters reserved for its decisions; the terms of reference and membership
of Board Committees; and powers delegated to those Committees
receive information about the Company’s corporate governance practices and procedures and the latest financial information
about the Group
are advised of their legal and other duties and obligations as a Director of a listed company
This is supplemented by visits to key locations and meetings with key senior executives.
48
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Performance evaluation
During 2011, a formal independent Board evaluation exercise was undertaken. The results of that evaluation indicated that the Board,
generally, operates effectively. However, certain recommendations were made and set out below is a summary of the main
recommendations made and actions taken:
Recommendations
To regularise the membership of the Nominations Committee,
with a greater focus on succession planning.
To enhance the risk management processes of the Group.
To diversify the Board’s profile and to increase its breadth
and experience.
Actions
Sir Tim Wilson has been appointed Chairman of the
Nominations Committee. New terms of reference for
the Committee have been adopted.
An external review of the Group’s risk management procedures
was undertaken, following which relevant processes and
procedures have been enhanced.
Three new appointments to the Board have been made
since December 2011.
Board and Committee membership and attendance at meetings in 2011
Current Directors
Phil White
Stuart Beevor
Nigel Hall
Sir Tim Wilson
Richard Walker
Manjit Wolstenholme
Mark Allan
Joe Lister
John Tonkiss
Status
Chairman
Senior Independent Director
Independent
Independent
Independent
Independent
Executive
Executive
Executive
* Unable to attend one meeting due to overseas travel.
** Attended all meetings since appointment.
*** Unable to attend one meeting due to family bereavement.
Date of appointment
to the Board
21.01.09
01.03.04
06.03.03
01.12.10
03.11.05
01.12.11
17.11.03
02.01.08
25.01.07
(resigned 31.12.11)
Board
11
11
11
10*
10*
1**
11
10***
11
Audit
Committee
–
4
4
4
4
–
–
–
–
Remuneration
Committee
6
6
6
6
6
–
–
–
–
Investor relations
The Board attaches a high priority to effective communication with shareholders. In addition to the final and interim presentations,
a series of meetings between institutional shareholders and senior management was held throughout 2011. That process will continue
throughout 2012.
The Company maintains a corporate website containing a wide range of information of interest to institutional and private investors.
The Company has frequent discussions with shareholders on a range of issues affecting its performance, both following the Company’s
announcements and in response to specific requests. The Company regularly seeks feedback on perception of the Company amongst
its shareholders, the investor community more broadly and its stakeholders.
Save in exceptional circumstances, all members of the Board attend the Company’s AGMs and shareholders are invited to ask questions
during the meeting and to meet with Directors prior to and after the formal proceedings. At the meeting, the Chairman reviews the
Group’s current trading.
The results of the votes at the AGMs, together with details of the level of proxy votes lodged for each resolution is made available
on a regulatory information service and on the Company’s website at www.unite-group.co.uk.
Notice of the AGM is set out on page 103.
The UNITE Group plc Annual Report and Accounts 2011
49
Audit Committee report
Dear shareholder
On the following pages are set out the Audit Committee’s Report for 2011. The Report comprises four sections:
Committee overview
Activities in 2011
Auditors
Internal control
Throughout 2011, the Audit Committee continued to monitor the integrity of the Group’s financial statements; to assist the Board
in reviewing the effectiveness of the Company’s internal control and risk management systems; and to review arrangements for its
employees to raise concerns in confidence. During the year, the Committee also adopted policies and reviewed the procedures put
in place designed to ensure the Group’s compliance with the Bribery Act 2010.
The Committee works to a structured programme of activities, with agenda items focused to coincide with key events in the annual
financial reporting cycle.
The Committee reports regularly to the Board on its work and has made recommendations to the Board concerning the re-appointment
and remuneration of the external auditor.
Nigel Hall
Chairman Audit Committee
1 March 2012
Committee overview
Composition
The Committee is comprised entirely of Non-Executive Directors. The current members are:
Nigel Hall (Chairman)
Stuart Beevor
Richard Walker
Sir Tim Wilson
Manjit Wolstenholme (appointed 1 December 2011)
Nigel Hall is a Chartered Accountant and was, until February 2003, Finance Director of Arcadia Group plc (formerly The Burton Group
plc). Nigel will, by the time of the AGM, have served nine years in office and will then step down from the Board. At that time, Manjit
Wolstenholme will take on the role of Chair of the Audit Committee. Manjit is also a Chartered Accountant, having qualified with Coopers
& Lybrand (now PriceWaterhouseCoopers). She was formally a Director and Co-Head of Investment Banking at Dresdner Kleinwort
Wasserstein.
Biographical details of the members of the Committee, including their qualifications, are set out on page 43. Full details of attendance
at meetings of the Committee can be found in the table on page 49.
At the invitation of the Chairman of the Committee, the Chairman, the Group CFO, the external auditors (KPMG) and representatives
of senior management regularly attend Committee meetings. Committee members have the opportunity to meet privately with the
external auditors as required.
50
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Role
The role of the Committee is to:
review the actions and judgements of management in relation to the Group’s financial statements, operating and financial reviews,
preliminary announcements, interim reports and related formal statements
review the effectiveness of the Group’s systems for internal financial control, financial reporting and risk management
review the Company’s procedures for ‘whistle blowing’, ensuring that arrangements are in place by which staff may, in confidence,
raise concerns about, amongst other things, improprieties in matters of financial reporting and financial control
consider annually whether there is a need for an internal audit function
consider and make recommendations on the appointment, removal and remuneration of the external auditor
Activities in 2011
In 2011, the activities of the Committee during the year included:
reviewing the Group’s financial statements (including the format and layout of the detailed disclosures)
reviewing the appropriateness of the Group’s accounting policies
reviewing the Group’s cash flow forecasts and facilities to support the going concern statement in the Annual Report
reviewing and approving the annual external audit process, the external auditor’s strategy and plan for the audit, considering
the findings of that work and confirming that all significant matters had been satisfactorily resolved
reviewing the management letter arising from the 2010 year-end external audit and monitoring implementation
of recommended improvements
reviewing the results of the review undertaken of the Group’s risk management processes
reviewing the effectiveness of the Group’s whistle blowing process
reviewing processes for the prevention of bribery and fraud
monitoring the non-audit services provided to the Group by the external auditor
considering the performance and effectiveness of the external auditor
considering the performance and effectiveness of the Committee itself
Having reviewed the Group’s existing internal control systems (including an operational compliance audit regime), it was not considered
necessary to establish an internal audit function. However, that position is being reviewed.
Auditors
Independence and objectivity
The Committee regularly monitors the other services provided to the Group by its external auditor and has developed a formal policy
to ensure this does not impair their independence or objectivity.
Pursuant to that policy, differentiation is made between (i) work that would be inappropriate for the external auditors to perform;
(ii) work that is clearly audit-related or required to be performed by the Company’s external auditors; (iii) work that is often cost
effectively performed by the external auditor as a result of its unique position and knowledge of the Company; and (iv) other work.
In relation to category (i), the Committee will not support the use of the external auditor for any services deemed to be incompatible with
auditor independence by professional or government regulations. For category (ii) work, management has discretion to use the external
auditor without prior consultation with the Committee, although the nature of the work and the associated fees are regularly reported
to the Committee. For category (iii) work, management has discretion to use the audit firm without prior consultation with the Committee
for any piece of work for which the individual fee does not exceed £50,000. Where the cumulative fees for this category of work are
expected to exceed the budgeted annual audit fee in any year, or an individual fee exceeds £50,000, the Chairman of the Committee
will be consulted. For category (iv) work, management would normally review a range of possible suppliers of such services and select the
most appropriate supplier. If management identifies the external auditor as the best supplier in a specific field and also believes that such
assignment would not prejudice the independence of the external auditor, then an evaluated request is made to the Committee to confirm
the appointment to any appointment involving fees in excess of £10,000.
The Committee also reviews any potential threat to the objectivity and independence of the external auditor, including, in particular,
those potential threats identified by the Auditing Practices Board in its independence guidelines. The Committee determines and then
reports to the Board, whether or not it is satisfied that the independence of the external auditor is not jeopardised, taking into account
the external auditor’s own submissions to the Committee and/or the Board.
Details of the remuneration paid to the external auditor are set out in the table below:
Auditors remuneration
Fees payable to the Company’s auditor for the audit of the Company’s financial statements
Fees payable to the Company’s auditors for other services
– The audit of the Company’s subsidiaries
– Taxation
2011
£m
0.1
0.1
0.4
2010
£m
0.2
0.1
0.3
The senior audit partner and the independent reviewing partner serve no more than five years continuously in either role and other key
partners serve no longer than seven consecutive years. The Committee monitors the tenure of partners and senior staff.
The UNITE Group plc Annual Report and Accounts 2011
51
Audit Committee report continued
Performance
The Committee performs a specific evaluation of the performance of the external auditor annually, through assessment of the results
of questionnaires completed by relevant senior management, in addition to Committee members’ own views of auditor performance.
Re-appointment
During the year, the Committee reviewed the tenure of the external auditor (KPMG Audit Plc has been UNITE’s auditor since 1999),
its performance, the level of audit fees paid to the external auditor and the level of non-audit work undertaken by the external auditor.
Following that review, the Committee recommended to the Board that a resolution for the re-appointment of KPMG Audit Plc for
a further year as the Company’s auditor be proposed to shareholders at the 2011 AGM. The resolution was passed and KPMG Audit Plc
was re-appointed for a further year. A resolution for the re-appointment of KPMG Audit Plc for a further year is to be proposed at this
year’s AGM.
Internal control
The Board has overall responsibility for the Group’s systems of internal control and for regularly reviewing the effectiveness of those
systems. The Committee assists the Board in reviewing such systems which include, amongst other things, the following:
Financial reporting
The Group has a comprehensive budgeting system with an annual business plan approved by the Board. Operating results and cash
flows are reported on monthly and compared against budget. Forecasts are reviewed throughout the year and revised as necessary.
The Company reports to shareholders on a half-yearly basis.
Investment appraisal
The Company has clearly defined guidelines for capital expenditure. These include annual budgets, detailed appraisal and review
procedures, levels of authority and due diligence requirements where investment or development properties are being acquired.
Post-investment appraisals are performed for major investments.
Risk management
The Leadership Team of UNITE has established a Risk Committee, which is chaired by Joe Lister, the Group CFO. The other members
of the Risk Committee are Richard Simpson (Managing Director, Property), Richard Smith (Managing Director, Operations), Paul Harris
(Strategy and Corporate Relations Director) and Andrew Reid (Company Secretary and Group Legal Officer). The Risk Committee
is responsible for the delivery of the Group’s Risk Management Framework, which includes:
managing the governance structure for risk management and reporting on risk management matters to the Board and the
Audit Committee
reviewing and challenging management plans for key Group and functional risks
managing procedures for monitoring and escalation of key risks
embedding a culture of risk ownership throughout the Group
Through the work of the Risk Committee, the Board is satisfied with the high level risk management controls in place, although all
areas of the business are kept under review and new controls introduced as appropriate. An analysis of the more important risks and
uncertainties faced by the Group is set out on pages 32 to 35. The Group’s objectives and policies with regard to the management
of financial risks are set out in note 4.5 to the financial statements.
Approval
The Audit Committee Report was approved by the Board on 1 March 2012 and signed on its behalf by Nigel Hall.
52
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Directors’ remuneration report
Dear shareholder
The Directors’ Remuneration Report for the year ended 31 December 2011 is set out on the following pages. The Report comprises
five sections:
Committee overview
Remuneration policy
Delivering remuneration policy
Non-Executive Directors
Detailed audited disclosures
In preparing this Report, the Remuneration Committee has complied with the Companies Act 2006 and Schedule 8 to the Large and
Medium-Sized Companies and Group’s (Accounts & Reports) Regulations 2008. The Report also meets the relevant requirements
of the Listing Rules of the Financial Services Authority and describes how the Board has applied the Principles of Good Governance
in relation to Directors’ remuneration.
During 2011, a significant element of the Committee’s work involved a full review of the Group’s incentive arrangements. Following that
review, a new long-term incentive structure was developed (and approved by shareholders in May 2011), that is designed to ensure that
the Group’s incentives are aligned to its business strategy and shareholders’ interests. At the same time, the structure is designed
to incentivise long-term sustainable profit growth and the creation of long-term value for shareholders.
In considering this Report, the Committee would highlight the following:
a significant proportion of Executive Directors’ and other senior executives’ remuneration is dependent on the achievement
of stretching performance conditions that support the creation of shareholder value
2011 bonus payments at 109% of base salary (76% of maximum) for each of the Executive Directors who held office during the
year are a result of the significant progress that was made during the year towards the Company achieving its strategic objectives
the share ownership guideline for Executive Directors, other than the Chief Executive, has increased from 100% to 150% of base
salary (the guideline for the Chief Executive remains unchanged at 200% of base salary)
A resolution to approve the Remuneration Report will be put to shareholders at the AGM.
Stuart Beevor
Chairman Remuneration Committee
1 March 2012
Committee overview
Composition
The current members of the Committee are:
Stuart Beevor (Chairman)
Phil White
Nigel Hall
Richard Walker
Sir Tim Wilson
Manjit Wolstenholme (from 1 December 2011)
All of the above are independent Non-Executive Directors (other than Phil White, who is Chairman of the Board).
Nigel Hall will retire from the Committee at the AGM.
Full details of attendance at Committee meetings can be found in the table on page 49.
The UNITE Group plc Annual Report and Accounts 2011
53
Directors’ remuneration report continued
Advisors
The Committee obtains advice from various sources in order to ensure it makes informed decisions. The Committee’s main external
advisors are set out below:
Advisor
Kepler Associates
Osborne Clark
Area of advice
Independent advisors on remuneration policy and the external remuneration environment; salary benchmarking
data; and performance testing for long term incentive plans. Kepler reports directly to the Committee Chairman
and complies with the Code of Conduct for Remuneration Consultants (which can be found at
www.remunerationconsultantsgroup.com). Kepler provides no other services to the Company.
Legal advisors in relation to share scheme rules, service contracts and employment matters. Osborne Clarke
also provides more general legal advice to the Group.
In addition, certain Executives, including Mark Allan (Chief Executive) and Nicola Yates (Group HR Director), are, from time to time,
invited to attend meetings of the Committee. No individuals are involved in decisions relating to their own remuneration.
Role
The primary role of the Committee is to:
review, recommend and monitor the level and structure of remuneration for the Executive Directors and other senior executives
approve the remuneration packages for the Executive Directors
determine the balance between base pay and performance related elements of the package so as to align Directors’ interests
with those of shareholders
approve the annual bonus payments to Executive Directors
The Committee’s terms of reference are set out on the Company’s website.
Activities in 2011
The Committee’s activities during the year included:
finalising 2010 bonus payments
reviewing the base salaries of the Executive Directors for 2011
developing and agreeing, in dialogue with shareholders, a new long-term incentive plan (LTIP) for the Executive Directors and other
senior executives
setting LTIP performance targets in line with the Company’s strategic plan
setting annual performance targets in line with the Company’s strategic plan for the 2011 bonus plan and determining the amounts
potentially payable
agreeing remuneration packages for new Executive Directors and termination arrangements for those individuals within the senior
executive group whose employment ceased
Remuneration policy
The Group aims to balance the need to attract, retain and motivate Executive Directors and other senior executives of an appropriate
calibre with the need to be cost effective, whilst at the same time rewarding exceptional performance. The Committee has designed
a remuneration policy that balances those factors, taking account of prevailing best practice, investor expectations and the level
of remuneration and pay awards made generally to employees of the Group.
In addition to the above, the remuneration policy for the Executive Directors and other senior executives is based on the following
key principles:
a significant proportion of remuneration should be tied to the achievement of specific and stretching performance conditions that
align remuneration with the creation of shareholder value and the delivery of the Group’s strategic plan
there should be a focus on sustained long-term performance, with performance measured over clearly specified timescales,
encouraging executives to take action in line with the Group’s strategic plan, using good business management principles
and also managing risks
individuals should be rewarded for success, but steps should be taken, within contractual obligations, to prevent rewards for failure
Components of reward
The reward package for Executive Directors and other senior executives consists of a combination of fixed and variable elements
intended to provide motivation and reward for short, medium and long-term performance and to retain key executives over the longer
term. Each component is intended to fulfil a different function within the remuneration framework as set out in the table below:
Function
Component
Fixed
Base Salary
Pension/Pension Cash Allowance
Variable
Performance Related Annual Bonus To incentivise and reward strong performance against financial and non-financial annual targets,
To recognise the individual’s skills and experience and to provide a competitive base reward
To provide an opportunity for executives to build up income on retirement
Long-Term Incentives
thus delivering value to shareholders and contributing to the strategic plan
To drive sustained long-term performance that supports the creation of shareholder value
Details of how these components are delivered are set out below in the section headed Delivering Remuneration Policy.
54
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Delivering remuneration policy
By way of illustration, the balance between the various elements of the total remuneration package for Executive Directors is shown
in the charts below.
CEO
CFO
Other EDs
CEO
CFO
Other EDs
LTI
LTI
Bonus
Bonus
Pension
Pension
Salary
Salary
T
T
a
a
r
r
g
g
e
e
t
t
M
a
x
i
m
u
m
0
200
400
600
800
1000
1200
1400
1600
1800
Remuneration (£000s)
Broadly there is a 52%:48% split between fixed and variable pay at target performance and a 29%:71% split at maximum performance,
showing the high proportion of performance related pay that is ‘at risk’ in the total remuneration package.
Shareholder alignment
The Committee continues to recognise the importance of Executive Directors aligning their interests with shareholders through building
up a significant shareholding in the Company. Shareholding guidelines are in place that require Executive Directors to acquire a holding
(excluding shares held conditionally pursuant to LTIP awards), equivalent to 200% of base salary for the Chief Executive and (since the
adoption of the New LTIP – see below), 150% of base salary for each of the other Executive Directors (increased from the previous
guideline of 100% of base salary). Until the relevant shareholding levels are acquired, 50% of the annual bonus payable to the relevant
Director is satisfied by an allocation of shares in the Company, which are held in its Employee Share Ownership Trust. Subject to the
Directors’ continued employment within the Group, such shares are transferred to the Director on the third anniversary of the original
allocation. Details of the Executive Directors’ current personal shareholdings are shown in the table on page 60.
Base salary
Market positioning of base salary is approached on an individual basis, taking account of advice received from the Committee’s
independent advisors on the rates of salary for similar roles in selected groups of comparable companies and the individual performance
and experience of each Executive. The aim is for base salary to be set with reference to the market median, dependent on the
Committee’s view of individual and Group performance.
The Committee approved the following base salary increases with effect from 1 March 2012:
Mark Allan
Joe Lister
Base salary from 1 March 2011
to 29 February 2012
£393,000
£230,000
Base salary from 1 March 2012
to 28 February 2013
£403,000
£255,000
Percentage
increase
2.5%
10.9%
The Committee is conscious that the percentage increase in salary for Joe Lister is significantly above the 2.5% increase across the
Group. However, Joe Lister has continued to develop into his role and, as highlighted in last year’s report, his salary was positioned
significantly below comparable market levels. The salary increase awarded reflects a strong individual performance in 2011 and brings
him broadly in line with the market.
The salaries of Richard Simpson and Richard Smith were each set at £230,000 with effect from 1 January 2012 (on appointment
to the Board) and will not be subject to further review until 1 March 2013.
Pension benefits
The Executive Directors are either members of The UNITE Group Personal Pension scheme or receive a cash pension allowance.
With effect from January 2012, Executive Directors receive a pension contribution of 20% of salary or an equivalent cash allowance
(previously the contribution was 12.5% of salary). The Executive Directors’ pension arrangements are set out on page 58.
Performance related annual bonus
The Group operates an annual performance related bonus scheme that is designed to encourage the achievement of targeted levels
of performance over the short-term and reward outstanding results. The scheme has two elements: a ‘corporate’ element and
an ‘individual’ element.
Under the corporate element of the scheme, Executive Directors’ bonuses for 2011 have been calculated by reference to performance
criteria set in relation to net portfolio contribution (NPC) (which is defined as net operating income (NOI) plus management fees, less
financing costs, operational overheads and corporate costs, including share of joint venture overheads) (NPC); increases in adjusted
diluted net asset value (NAV); operating cash flow; customer satisfaction and employee satisfaction. These reflect the Group’s main KPIs
for the year. NPC, NAV and operating cash flow each have a weighting of 25%, whilst customer satisfaction and employee satisfaction
each have weightings of 12.5%.
The corporate element of the bonus has been calculated on a sliding scale of amounts equivalent to between 50% and 120% of base
salary, in accordance with which ‘on target’ performance by the Group would have resulted in a corporate bonus of an amount equivalent
to 75% of base salary.
The UNITE Group plc Annual Report and Accounts 2011
55
Directors’ remuneration report continued
To determine the actual bonus payment to an Executive Director, a multiplier (being the ‘individual’ element of the scheme), ranging
between 0.5 and 1.2 is applied against the corporate bonus. That multiplier is determined following the Performance Development
Programme review of each Executive Director (which is carried out at the start and end of the year), and reflects the strength of that
Director’s individual performance over the course of the bonus plan year.
Applying the maximum individual multiplier (of 1.2), against the maximum corporate bonus (of 120% of base salary), results
in a maximum annual performance related bonus opportunity of 144% of base salary. However, bonus payments at that level would
only be made subject to the achievement of extremely stretching corporate performance targets and exceptional individual performance
by the relevant Director.
The performance related bonuses awarded in respect of 2011 reflect corporate bonuses (calculated in accordance with the sliding
scale referred to above), of 102% of base salary. That percentage was arrived at as a result of the Group having been close to achieving
its stretch targets in relation to NPC, operating cash flow and employee satisfaction; having modestly outperformed its NAV target; and
having been marginally above its customer satisfaction target.
After applying their individual multipliers, actual performance related bonus payments awarded to each of Mark Allan, John Tonkiss
and Joe Lister are 109% of their respective base salaries.
Mark Allan and Joe Lister, having reached their share ownership guidelines (including the shares that will vest unconditionally in April
2012 pursuant to the NAV element of their 2009 LTIP awards, as shown below), will receive 100% of their bonus awards in cash.
As John Tonkiss has now left the employment of the Company, 100% of his bonus will also be paid in cash.
For the 2012 bonus scheme, performance targets have been set in relation to the same measures as applied in 2011, save that
the weighting on operating cash flow (which related to 25% of the 2011 corporate bonus), will be reduced to a 12.5% weighting,
with the remaining 12.5% being based on an additional measure of NAV gearing (net debt over equity).
Long-Term Incentives
Following the Committee’s review of the Group’s incentive structure, a new LTIP was adopted by shareholders in May 2011 (the New
LTIP). The New LTIP replaces the LTIP adopted in 2005 (the 2005 LTIP) and is designed to better support delivery of the Group’s
strategic plan. Key changes are as follows:
the New LTIP is delivered through two new share plans – The UNITE Group plc 2011 Performance Share Plan (the PSP) and
The UNITE Group plc 2011 Approved Employee Share Option Scheme (the ESOS)
the individual limit under the New LTIP is 150% of annual base salary although, in exceptional circumstance (for example for new
hires), awards of up to 200% of annual base salary may be made. Awards for participants below Board level will not exceed 100%
of annual base salary
although the individual limit on awards under the New LTIP is an increase on the 100% of annual base salary under the 2005 LTIP,
the increase has been accompanied by more demanding performance targets, resulting in an increase in the fair value of
approximately 4% of the overall long-term incentive opportunity. However, the New LTIP offers a greater incentive to management
by paying a greater amount for achieving more stretching performance conditions and is fully aligned with the Group’s strategic
objectives
awards made under the PSP will have a performance period of at least three years and a minimum vesting period of three years.
Vesting of awards may, at the discretion of the Committee, be deferred in whole or in part for a period of up to two years following
the end of a three year vesting period. The awards made to the Executive Directors in 2011 will vest as to two thirds after three years
and one third after four years (to the extent the performance conditions have been achieved over the three year performance period).
Awards made to participants other than the Executive Directors will vest as to 100% after three years to the extent the performance
conditions have been achieved. The number of shares vesting at the end of the deferral period may be adjusted by the Committee
in the instance of a misstatement of results relating to the performance period
the performance measures under the New LTIP are NPC, NAV and Total Shareholder Return (TSR). NPC is an additional measure
(compared to the 2005 LTIP) and is an important measure of the long term success and profitability of the Group. It also reduces the
emphasis on NAV performance, which can be affected by external market factors and gearing levels. However, NAV per share
remains a relevant performance measure for the Group as the key balance sheet metric. Relative TSR is also considered to remain
the best measure to capture creation of shareholder value and reward management performance in comparison with the Company’s
peers. TSR is measured on an outperformance (rather than a ranking) basis
the ESOS, which operates as a HMRC approved Company Share Option Plan, is used in conjunction with the PSP to deliver
a proportion of an award under the New LTIP in a tax efficient manner (on a fair value exchange basis). Awards made under
the ESOS are subject to the same performance conditions as those of the PSP
The LTIP awards made to the Executive Directors in 2011 will vest as follows:
one third on NPC performance in 2013. None of the NPC element of the award will vest if NPC in 2013 is below £9 million;
25% will vest for achieving NPC of £9 million; and 100% will vest for NPC of £20 million or greater
one third on NAV per share growth between 2011 and 2013. None of the NAV element of the award will vest if NAV per share
growth (measured as a constant annualised growth rate), is below 7% per annum; 25% will vest for growth of 7% per annum;
and 100% will vest for achieving NAV growth of 13% per annum or greater
one third on three year relative TSR outperformance of the FTSE 350 Real Estate (Super Sector) Index. None of the TSR element
of the award will vest if the Group underperforms the Index; 25% will vest for performance in line with the Index and 100% will vest
for average 9% per annum TSR outperformance of the Index. Average outperformance of 9% per annum is consistent with historical
TSR outperformance at upper quintile of the peer group
Awards vest on a straight line basis between threshold and maximum targets.
56
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
The Committee will review the appropriateness of the performance conditions before each award cycle and will ensure that the
performance targets set are no less stretching than in the first cycle.
The incentive plans under which awards were made prior to 2011 are:
the 2005 LTIP: this was the only long-term incentive used for awards between 2006 and 2010. To date, none of the awards
made to Executive Directors under that scheme have vested. However, with the Group having achieved NAV of 318pps in 2011,
that will result in 64.7% of that element of the award made in 2009 (being 50% of the overall award) vesting in April 2012.
The extent to which the TSR element of the 2009 awards will vest will not be known until April 2012
share options: no options have been granted to Directors under The UNITE Group plc Unapproved Share Option Scheme
(the Unapproved Scheme) since 2004
The tables on page 59 sets out the awards granted to Executive Directors under the New LTIP, the 2005 LTIP and the
Unapproved Scheme.
Performance graph
The following graph charts the TSR of the Company and the FTSE 350 Real Estate ‘Super Sector’ Index over the five year period from
1 January 2007 to 31 December 2011.
120
100
80
60
40
20
0
Jan 07
UNITE Group
FTSE 350 RE SS
Apr 07
Jul 07
Oct 07
Jan 08
Apr 08
Jul 08
Oct 08
Jan 09
Apr 09
Jul 09
Oct 09
Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Dec 11
Source: Datastream
Whilst there is no comparator index or group of companies that truly reflects the activities of the Group, the FTSE 350 Real Estate
‘Super Sector’ Index (the constituent members of which are all property holding and/or development companies or real estate investment
trusts within the UK), was chosen as it reflects trends within the UK property market generally and tends to be the index against which
analysts judge the performance of the Company.
Service contracts
In accordance with general market practice, each of the Executive Directors has a rolling service contract requiring 12 months’ notice
of termination on either side. Such contracts contain no specific provision for compensation for loss of office, other than an obligation
to pay for any notice period waived by the Company.
The dates of the current Executive Directors’ service contracts are as follows:
M C Allan
J J Lister
R C Simpson
R S Smith
31 October 1999
28 March 2002
28 September 2011
28 September 2011
Payment to outgoing Executive Director
John Tonkiss ceased to be an employee and a Director of the Company by reason of redundancy on 31 December 2011. He received
a payment of £238,305 (being payment in lieu of notice equivalent to nine months’ salary/benefits and accrued but unused holidays),
and a termination payment of £86,067 as compensation for loss of employment, including statutory redundancy.
All outstanding share awards made to John Tonkiss will be treated in accordance with the terms of the relevant schemes. LTIP awards
will be pro-rated for the period of employment, with performance measured at the end of the normal vesting period. In accordance with
the terms of his compromise agreement, John Tonkiss will also be eligible to receive a cash amount in respect of the award made to him
in 2009 under the 2005 LTIP, subject to normal performance testing at the end of the period. The cash amount covers the pro-rata
amount of the 2009 LTIP award foregone by Mr Tonkiss by reason of his redundancy (on 31 December 2011), before the end of the
vesting period (on 9 April 2012).
In addition, John Tonkiss has agreed to act as a consultant until 31 March 2012 in relation to the Group’s plans for UNITE Modular
Solutions Limited. The maximum amount payable under that consultancy is £45,500.
The UNITE Group plc Annual Report and Accounts 2011
57
Directors’ remuneration report continued
Non-Executive Directors
Each of the Chairman and Non-Executive Directors has a specific letter of engagement, the dates of which are set out below:
P M White
N P Hall
S R H Beevor
R S Walker
R J T Wilson
M J Wolstenholme
10 January 2009
6 March 2003
20 February 2004
3 November 2005
1 December 2010
1 December 2011
Subject to annual re-election by shareholders, Non-Executive Directors are appointed for an initial term of approximately three years.
Subsequent terms of three years may be awarded. Current appointments will expire at the AGM in 2012 in the case of Nigel Hall;
at the AGM in 2013 in the case of Stuart Beevor; at the AGM in 2014 in the cases of Richard Walker and Sir Tim Wilson; and at
the AGM in 2015 in the cases of Phil White and Manjit Wolstenholme. The appointment and re-appointment and the remuneration
of Non-Executive Directors are matters reserved for the full Board.
Having not been reviewed since 1 January 2010, the Board agreed, with effect from 1 January 2012 to increase the fee payable to the
Chairman of the Board from £112,500 per annum to £118,000 per annum and to increase the basic fee payable to each Non-Executive
Director from £39,000 per annum to £41,000. It was also agreed to pay a fee of £6,000 per annum for chairing the Nominations
Committee (previously no fee was payable for chairing that Committee as the role was undertaken by the Chairman of the Board).
The fees payable for chairing the Audit and Remuneration Committees were (again with effect from 1 January 2012) increased
from £8,000 and £6,500 respectively to £8,500 and £6,850 respectively, whilst the fee for being Senior Independent Director
was increased from £4,500 to £4,750.
The Non-Executive Directors are not eligible to participate in the Company’s performance related bonus plan, LTIPs or
pension arrangements.
Detailed audited disclosures
The following tables provide details of emoluments, pension entitlements, rights to share options and long-term incentive awards made
to Directors who served in 2011. These tables have been audited by KPMG Audit Plc.
Remuneration summary
Executive Directors
M C Allan
J M Tonkiss
J J Lister
Non-Executive Directors (Fees)
P M White
N P Hall
S R H Beevor1
R S Walker
R J T Wilson2
M K Wolstenholme3
Fees
£’s
Base Salaries
£’s
Performance
Bonus*
£’s
Other Benefits**
£’s
Total
Remuneration
2011
£’s
Total
Remuneration
2010
£’s
–
–
–
391,167
244,167
228,333
391,000
267,393
251,022
31,452
337,348
14,675
112,500
48,875
48,061
39,000
39,000
3,250
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
813,619
848,908
494,030
112,500
48,875
48,061
39,000
39,000
3,250
646,996
398,089
343,189
112,500
51,500
45,500
39,000
3,250
–
* Payable in cash. Mark Allan waived £38,000 of his bonus with the amount waived being used to help fund a donation by the Company
to the Penny Brohn charity, a charity offering specialist support for people living with cancer.
** Benefits receivable consist primarily of company car or car allowance and private health care insurance. However, ‘Other Benefits’ paid
to John Tonkiss in 2011 include the £238,305 paid in lieu of notice equivalent to nine months’ salary/benefits and unused holidays and
the £86,067 termination payment, both as referred to above under the heading ‘Payment to Outgoing Executive Director’.
1 £9,663 of the fees paid in respect of Stuart Beevor were paid to Grosvenor Investments Limited, who made available the services of Mr Beevor
until 17 March 2011, when he ceased to be employed by that company.
2
The fees paid to Sir Tim Wilson in 2010 relate to the period 1 December 2010 (when he joined the Board) to 31 December 2010.
3 The fees paid to Manjit Wolstenholme relate to the period 1 December 2011 (when she joined the Board), to 31 December 2011.
Pensions
During the year John Tonkiss and Joe Lister participated in The UNITE Group Personal Pension Scheme, which is a money purchase
scheme, in relation to whom the Company contributed respectively the sums of £30,521 and £28,542 in the year. The Company also
paid Mark Allan a cash pension allowance of £43,116.
58
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Share options
Director
M C Allan
J M Tonkiss
J J Lister
As at 31.12.10
11,823
1,545
5,235
50,000
8,255
3,154
5,235
58,662
Granted during
the year
–
–
–
–
–
–
–
–
Exercised during
the year*
–
–
–
–
–
–
–
–
Lapsed during
the year
–
–
–
–
–
–
–
–
As at 31.12.11
11,823
1,545
5,235
50,000
8,255
3,154
5,235
58,662
Exercise price
323.5p
323.5p
191p
232.5p
129p
158.5p
191p
232.5p
Normal exercise dates
21.03.2005-20.03.2012
21.03.2005-20.03.2012
04.05.2007-03.05.2014
16.09.2007-15.09.2014
11.10.2005-10.10.2012
25.09.2006-24.09.2013
04.05.2007-03.05.2014
16.09.2007-15.09.2014
The highest, lowest and closing share prices for 2011 are shown on page 60.
All options referred to in the table above were granted pursuant to the Unapproved Scheme. All options were granted for nil consideration.
Vesting of half the options granted prior to 2004 under the Unapproved Scheme is based on the TSR of the Company against companies
included in the FTSE Small Companies Index (excluding investment trusts) over the three year period from the date of grant. Vesting
of the other half is based on the Company’s NAV growth exceeding the average NAV growth of companies included in the FTSE Small
Companies Index (excluding investment trusts) over the three-year period from the date of grant. Options granted under the Unapproved
Scheme after 1 January 2004 are subject to performance criteria based solely on TSR against companies included in the FTSE Small
Companies Index (excluding investment trusts).
LTIP awards
Director
M C Allan
J M Tonkiss
J J Lister
Interests
awarded during
year (ordinary
shares of 25p
each in the
Company)
275,725
171,890
161,366
Interests held at
01.01.11
124,294
415,094
158,436
67,796
226,415
98,765
64,568
215,633
90,534
Market price per
share when
awarded
309.75p
92.75p
243p
213.8p
309.75p
92.7p
243p
213.8p
309.75p
92.75p
243p
213.8p
Interests vested
during the year
–
–
–
–
–
–
–
–
–
–
–
–
Interests lapsed
in the year
124,294
–
–
–
67,796
–
–
–
64,568
–
–
–
Interests held at
31.12.11
(ordinary shares
of 25p each in
the Company)
–
415,094
158,436
275,725
–
226,415
98,765
171,890
–
215,633
90,534
161,366
Period of qualifying conditions
15.04.08-15.04.11
09.04.09-09.04.12
14.04.10-14.04.13
22.06.11-22.06.14
15.04.08-15.04.11
09.04.09-09.04.13
14.04.10-14.04.13
22.06.11-22.06.14
15.04.08-15.04.11
09.04.09-09.04.12
14.04.10-14.04.13
22.06.11-22.06.14
Details of the qualifying performance conditions in relation to the above referred to awards made in 2011 (under the New LTIP)
are set out above under the heading Long Term Incentives. Those details should also be taken as forming part of the ‘auditable part’
of this Report. The awards made under the New LTIP took the form of nil cost options.
All other awards referred to above were made under the 2005 LTIP and took the form of restricted share awards. No awards were
made to or vested in Executive Directors’ under the 2005 LTIP during the year.
No variations have been made to the terms or conditions of any awards.
The fair value in respect of Directors’ share options and LTIP awards recognised in the Income Statement is as follows:
M C Allan
J M Tonkiss
J J Lister
2011
£
278,133
163,797
133,929
575,859
2010
£
207,603
118,484
111,382
437,469
The UNITE Group plc Annual Report and Accounts 2011
59
Directors’ remuneration report continued
Directors’ interests
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at 31 December 2011
is set out below.
Directors
M C Allan1
J Tonkiss2
J J Lister3
P M White
N P Hall
S R H Beevor
R Walker
R J T Wilson
M K Wolstenholme
Ordinary shares of 25p each
31 December 2011
966,483
452,553
474,408
10,000
17,849
9,986
10,000
5,730
–
Ordinary shares of 25p each
31 December 2010
1,090,777
520,349
538,976
10,000
17,849
–
10,000
–
–
1 Mr Allan’s interests include 573,530 ordinary shares conditionally awarded to him pursuant to the terms of the 2005 LTIP. The number of such shares
that will unconditionally vest in Mr Allan pursuant to those awards will be determined following the end of the relevant three year measurement periods.
2 Mr Tonkiss’s interests include 325,180 ordinary shares conditionally awarded to him pursuant to the 2005 LTIP. The number of such shares that will
unconditionally vest in Mr Tonkiss pursuant to those awards will be determined following the end of the relevant three year measurement periods.
3 Mr Lister’s interests include 306,167 ordinary shares conditionally awarded to him pursuant to the 2005 LTIP. The number of such shares that will
unconditionally vest in Mr Lister pursuant to those awards will be determined following the end of the relevant three year measurement periods.
None of the Directors has a beneficial interest in the shares of any other Group company. Since 31 December 2011, there have been
no changes in the Directors’ interests in shares.
Details of Directors’ share options (including nil cost options awarded pursuant to the New LTIP) are set out above.
Share price information
As at 30 December 2011 (being the last business day of the year), the middle market price for ordinary shares in the Company
was 168p per share. During the course of the year, the market price of the Company’s shares ranged from 152.9p to 224.1p per
ordinary share.
Approval
The Remuneration Report was approved by the Board on 1 March 2012 and signed on its behalf by Stuart Beevor.
60
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Other governance and statutory disclosures
Principal activities
The principal activities of the Group during the year were the development and management of student residential accommodation
in the United Kingdom. Details of the Company and its principal subsidiaries are set out on pages 89 and 90.
Substantial shareholdings
As at 1 March 2012 the Company had received notifications from the following companies and institutions of the voting interests
of themselves and their clients in 3% or more of the issued ordinary share capital of the Company.
Shareholder
FMR LLL
Fortis Investment Management SA
APG European Pensioen Groep NV
J P Morgan Asset Management Holdings Inc
Morgan Stanley Investment Management Ltd
Perennial Investment Partners (Australia) Limited
Royal London Asset Management Limited
BNP Paribas Investment Partners SA
Legal & General Group plc
FIL Limited
Orange European Property Fund NV
Allianz SE
Percentage of
share capital
9.74
5.18
5.17
4.92
4.80
4.75
4.11
3.97
3.95
3.66
3.62
3.22
Share capital
At the date of this report, there are 160,271,460 ordinary shares of 25p each in issue, all of which are fully paid-up and quoted
on the London Stock Exchange.
During the year, 3,117 ordinary shares of 25p each were allotted and issued pursuant to the exercise of options under The UNITE
Group plc Savings Related Share Option Scheme at a price of 188p per share.
The rights attaching to the Company’s ordinary shares, as well as the powers of the Company’s Directors, are set out in the Company’s
articles of association.
There are no restrictions on the transfer or voting rights of ordinary shares in the capital of the Company (other than those which may
be imposed by law from time to time or as set out in the Company’s articles of association).
In accordance with the Disclosure and Transparency Rules, certain employees are required to seek approval to deal in the
Company’s shares.
The Company is not aware of any agreements between shareholders that may result in restrictions on the transfers of securities and/or
voting rights. No person holds securities in the Company carrying special rights with regard to control of the Company. Unless expressly
specified to the contrary, the Company’s articles of association may be amended by special resolution of the shareholders.
Change of control
All of the Company’s share schemes contain provisions relating to a change of control. Outstanding rewards and options would normally
vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. Other than certain of the
Group’s banking facilities, there are no other significant agreements to which the Company is a party that affect, alter or terminate upon
a change of control of the Company following a takeover bid. Nor are there any agreements between the Company and its Directors
or employees providing for compensation for loss of office or employment that occurs because of a takeover bid.
Purchase of own shares
The Directors have no authority to buy-back the Company’s shares.
Details of proposals to be put to the AGM in relation to the power of Directors to issue shares in the Company are set out under
the heading ‘Annual General Meeting’.
Creditor payment policy
During the year, the Company maintained its policy of agreeing and abiding by supplier payment terms. The Group has not followed any
recognised code for payment practice. As at 31 December 2011, the Group’s trade creditors were equivalent to 31 days purchases
(2010: 30 days). The Company does not have any trade creditors (2010: Nil).
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources
to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in
preparing the accounts.
The UNITE Group plc Annual Report and Accounts 2011
61
Other governance and statutory disclosures continued
Disclosure of information to auditors
The Directors who held office at the date of approval of the Directors’ Report confirm that, so far as they are each aware, there
is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought
to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditors
are aware of that information.
As recommended by the Audit Committee, a resolution for the re-appointment of KPMG Audit Plc as auditor to the Company
will be proposed at the AGM.
Annual General Meeting
The Annual General Meeting of the Company will be held at The Core, 40 St Thomas Street, Bristol BS1 6JX at 9.30am on 17 May 2012.
Formal notice of the meeting is given on pages 103 to 105.
In addition to the ordinary business of the meeting, Resolution 14 will be proposed as an Ordinary Resolution to grant the Directors
authority to allot shares in the Company, and grant rights to subscribe for or to convert any security into shares of the Company,
up to an aggregate of nominal value of £13,355,955 (representing approximately one third of the issued share capital of the Company
as at 1 March 2012). In accordance with guidelines issued by the Association of British Insurers, this resolution also grants the Directors
authority to allot further equity securities up to an aggregate nominal value of £13,355,955, again representing approximately one
third of the nominal value of the issued ordinary share capital of the Company as at 1 March 2012. This additional authority may only
be applied to fully pre-emptive rights issues.
Resolution 15 will be proposed as a Special Resolution to authorise the Directors to allot equity securities for cash other than
in accordance with statutory pre-emption rights (which require a company to offer all allotments for cash first to existing shareholders
in proportion to their holdings), in respect of the allotment of shares in connection with any rights issue or other issue by way of rights
and otherwise up to an aggregate nominal amount of £2,003,393 (representing approximately 5% of the issued share capital of the
Company as at 1 March 2012).
The Board has no current intention of exercising either of the authorities conferred by the above resolutions. Unless revoked, varied
or extended, those authorities will expire at the conclusion of the next AGM of the Company or the date following 15 months from the
passing of the resolutions, whichever is the earlier.
The Companies (Shareholders’ Rights) Regulations 2009 (the Shareholders’ Rights Regulations), increased the notice period for general
meetings of the Company to 21 days unless shareholders approve a shorter notice period, which cannot be less than 14 clear days.
At the AGM of the Company held in 2011, shareholders authorised the calling of general meetings, other than an AGM, on not less
than 14 clear days’ notice. Resolution 16 seeks the approval of shareholders to renew the authority to be able to call general meetings
(other than an AGM), on 14 clear days’ notice. The flexibility offered by Resolution 16 will be used where, taking into account the
circumstances, the Directors consider this appropriate in relation to the business of the meeting and in the interests of the Company
and shareholders as a whole. The Company undertakes to meet the requirements for electronic voting under the Shareholders’ Rights
Regulations before calling a general meeting on 14 clear days’ notice. If given, the approval will be effective until the Company’s next
AGM, when it is intended that a similar resolution will be proposed.
By order of the Board
A D Reid
Secretary
1 March 2012
62
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Statement of directors’ responsibilities in respect
of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent company financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have
elected to prepare the parent company financial statements on the same basis.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent company and of their profit or loss for that period.
In preparing each of the Group and parent company financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently
make judgments and estimates that are reasonable and prudent
state whether they have been prepared in accordance with IFRSs as adopted by the EU
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent
company will continue in business
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report
and Corporate Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, the names of whom are set out on pages 42 and 43, confirms that to the best of his or her knowledge:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken
as a whole
the Directors’ Report includes a fair review of the development and performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties
that they face
M C Allan
Director
J J Lister
Director
1 March 2012
The UNITE Group plc Annual Report and Accounts 2011
63
Independent auditor’s report to the members of the UNITE Group plc
We have audited the financial statements of The UNITE Group plc for the year ended 31 December 2011 which comprise the
Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets,
the Consolidated and Company Statement of Changes in Shareholders’ Equity, the Group and Company Statements of Cash Flows and
the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 63, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion
on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 31 December 2011 and of the group’s profit for the year then ended
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the Companies Act 2006
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the group financial statements, Article 4 of the IAS Regulation
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements
information given in the Corporate Governance Statement set out on page 48 with respect to internal control and risk management
systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns
certain disclosures of directors’ remuneration specified by law are not made
we have not received all the information and explanations we require for our audit
a Corporate Governance Statement has not been prepared by the Company
Under the Listing Rules we are required to review:
the Directors’ statement, set out on page 61, in relation to going concern
the part of the Corporate Governance Statement on pages 45 to 49 relating to the Company’s compliance with the nine provisions
of the UK Corporate Governance Code specified for our review
certain elements of the report to shareholders by the Board on Directors’ remuneration
Stephen Bligh (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
1 March 2012
64
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Introduction and table of contents
In preparing these financial statements we have changed the format and layout following the principles outlined
in the Financial Reporting Council’s publication ‘Cutting Clutter’. We have made these changes to make UNITE’s
financial statements easier to follow and more relevant to shareholders. The purpose of these changes is to provide
readers with a clearer understanding of what drives the financial performance of the Group. Whilst these financial
statements are prepared in accordance with IFRS, the Board of Directors manage the business based on the
adjusted results being net portfolio contribution (NPC) and adjusted net asset value (NAV) which can be found
in section 2.
We have grouped the notes to the financial statements under five main headings:
• Results for the year, including segmental information, adjusted profits and adjusted NAV
• Funding
• Asset management
• Working capital
• Key management and employee benefits
Each section sets out the relevant accounting policies applied in these financial statements together with the key
judgements and estimates used.
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Company balance sheet
Consolidated statement of changes in shareholders’ equity
Company statement of changes in shareholders’ equity
Statements of cash flows
Section 1: Basis of preparation
Section 2: Results for the year
2.1 Revenue
2.2 Segmental information
2.3 Adjusted Profit and EPS
2.4 Adjusted Net Assets and NAV per share
2.5 Provisions for onerous contracts
2.6 Tax
2.7 Audit fees
Section 3: Asset management
3.1 Wholly owned property assets
3.2 Inventories
3.3 Other fixed assets
3.4 Investments in joint ventures
3.5 Investments in subsidiaries
Section 4: Funding
4.1 Borrowings
4.2 Interest rate swaps
4.3 Net financing costs
4.4 Gearing
4.5 Financial risk factors
4.6 Operating leases
4.7 Capital management
4.8 Equity
4.9 Dividends
Section 5: Working capital
5.1 Cash
5.2 Trade and other receivables
5.3 Credit risk
5.4 Trade and other payables
Section 6: Key management and employee benefits
6.1 Staff numbers and costs
6.2 Key management personnel
6.3 Share based compensation
The UNITE Group plc Annual Report and Accounts 2011
65
Consolidated income statement
For the year ended 31 December 2011
Revenue
Cost of sales
Operating expenses
Results from operating activities
Loss on disposal of property
Net valuation gains on property
Profit before net financing costs
Loan interest and similar charges
Mark to market changes in interest
rate swaps
Finance costs
Finance income
Net financing costs
Share of joint venture profit
Profit before tax
Tax
Profit for the year
Note
2.1
3.1
4.3
4.3
4.3
4.3
4.3
3.4b
2.3a
2.6
Profit for the period attributable to
Owners of the parent company
Minority interest
2.3b
Earnings per share
Basic
Diluted
2.3b
2.3b
2011
Excluding UMS
£m
83.5
(42.2)
(27.2)
14.1
(0.2)
7.7
21.6
(8.7)
(10.6)
(19.3)
0.8
(18.5)
22.6
25.7
(0.8)
24.9
23.1
1.8
24.9
14.4p
14.4p
2011
UMS
£m
11.4
(20.5)
(11.9)
(21.0)
–
–
(21.0)
–
–
–
–
–
–
(21.0)
–
(21.0)
(21.0)
–
(21.0)
(13.1p)
(13.1p)
2011
Total
£m
94.9
(62.7)
(39.1)
(6.9)
(0.2)
7.7
0.6
2010
Excluding UMS
£m
186.2
(139.8)
(23.7)
22.7
(2.9)
15.4
35.2
(8.7)
(13.8)
(10.6)
(19.3)
0.8
(18.5)
22.6
4.7
(0.8)
3.9
2.1
1.8
3.9
1.3p
1.3p
(18.6)
(32.4)
0.9
(31.5)
25.3
29.0
(2.9)
26.1
24.4
1.7
26.1
15.2p
15.2p
2010
UMS
£m
7.2
(7.2)
(4.8)
(4.8)
–
–
(4.8)
–
–
–
–
–
–
(4.8)
–
(4.8)
(4.8)
–
(4.8)
(3.0p)
(3.0p)
2010
Total
£m
193.4
(147.0)
(28.5)
17.9
(2.9)
15.4
30.4
(13.8)
(18.6)
(32.4)
0.9
(31.5)
25.3
24.2
(2.9)
21.3
19.6
1.7
21.3
12.2p
12.2p
The results have been presented in a columnar format to show the significant impact of UMS trading losses and the decision to cease
trading at UMS, as discussed in note 2.2b. The comparatives have been restated in columnar format for consistency.
Consolidated statement of comprehensive income
For the year ended 31 December 2011
Profit for the period
Movements in effective hedges
Share of joint venture movements in effective hedges
Other comprehensive income for the period
Total comprehensive income for the period
Attributable to
Owners of the parent company
Minority interest
All movements above are shown net of deferred tax.
2011
£m
3.9
(2.6)
0.1
(2.5)
2010
£m
21.3
0.5
0.1
0.6
1.4
21.9
(0.2)
1.6
1.4
20.2
1.7
21.9
66
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Consolidated balance sheet
At 31 December 2011
Assets
Investment property
Property, plant and equipment
Investment in joint ventures
Joint venture investment loans
Intangible assets
Total non-current assets
Completed property
Properties under development
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Borrowings
Interest rate swaps
Trade and other payables
Provisions
Current tax creditor
Total current liabilities
Borrowings
Interest rate swaps
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Merger reserve
Retained earnings
Hedging reserve
Equity attributable to the owners of the parent company
Minority interest
Total equity
Note
3.1
3.3
3.4b
3.4b
3.3
3.1
3.1
3.2
5.2
5.1
4.1
4.2
5.4
2.5
4.1
4.2
2.5
2011
£m
2010
£m
396.2
2.3
173.0
14.1
4.5
590.1
198.7
135.2
8.4
41.0
16.8
400.1
990.2
(29.2)
–
(84.4)
(6.3)
(0.4)
(120.3)
(421.5)
(39.0)
(4.7)
(465.2)
(585.5)
375.7
6.9
161.6
13.2
5.8
563.2
105.1
113.0
2.7
44.6
23.8
289.2
852.4
(0.3)
(0.2)
(52.8)
–
(0.5)
(53.8)
(357.8)
(37.1)
–
(394.9)
(448.7)
404.7
403.7
40.1
249.0
40.2
72.8
(14.5)
387.6
17.1
404.7
40.1
249.0
40.2
70.4
(12.2)
387.5
16.2
403.7
These financial statements were approved by the Board of Directors on 1 March 2012 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
The UNITE Group plc Annual Report and Accounts 2011
67
Company balance sheet
At 31 December 2011
Assets
Investments in subsidiaries
Investments in joint ventures
Total investments
Joint venture investment loan
Total non-current assets
Amounts due from group undertakings
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Amounts due to group undertakings
Other payables
Total current liabilities
Net assets
Equity
Issued share capital
Share premium
Merger reserve
Retained earnings
Revaluation reserve
Total equity
Note
3.5a
3.5a
3.5a
5.2
5.1
5.4
5.4
2011
£m
2010
£m
112.0
2.5
114.5
3.9
118.4
317.7
0.1
317.8
436.2
106.8
3.7
110.5
3.9
114.4
318.3
0.5
318.8
433.2
(29.7)
(3.0)
(32.7)
(29.7)
(2.3)
(32.0)
403.5
401.2
40.1
249.0
40.2
25.4
48.8
403.5
40.1
249.0
40.2
27.1
44.8
401.2
Total equity is wholly attributable to equity holders of The UNITE Group plc.
These financial statements were approved by the Board of Directors on 1 March 2012 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
68
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Consolidated statement of changes in shareholders’ equity
For the year ended 31 December 2011
At 1 January 2011
Profit for the period
Other comprehensive income
for the period
Total comprehensive income
for the period
Fair value of share based
payments
Own shares acquired
Dividends paid to owners
of the parent company
Dividends to minority interest
At 31 December 2011
At 1 January 2010
Profit for the period
Other comprehensive income
for the period
Total comprehensive income
for the period
Shares issued
Fair value of share based
payments
Own shares acquired
Dividends to minority interest
At 31 December 2010
Issued
share capital
£m
40.1
Share
premium
£m
249.0
Merger
reserve
£m
40.2
Retained
earnings
£m
70.4
Hedging
reserve
£m
(12.2)
Attributable
to owners
of the parent
£m
387.5
Minority
interest
£m
16.2
Total
£m
403.7
–
2.1
1.8
3.9
(2.3)
(0.2)
(2.5)
–
–
–
–
–
–
–
–
–
–
–
–
40.1
–
–
249.0
Issued
share capital
£m
39.9
Share
premium
£m
247.5
–
–
–
0.2
–
–
–
40.1
–
–
–
1.5
–
–
–
249.0
–
–
–
–
–
–
–
40.2
Merger
reserve
£m
40.2
–
–
–
–
–
–
–
40.2
2.1
–
2.1
1.2
(0.1)
(0.8)
–
72.8
(2.3)
(2.3)
–
–
(0.2)
1.2
(0.1)
–
–
(14.5)
(0.8)
–
387.6
Retained
earnings
£m
51.0
Hedging
reserve
£m
(12.8)
Attributable
to owners
of the parent
£m
365.8
19.6
–
19.6
–
1.3
(1.5)
–
70.4
–
0.6
0.6
–
–
–
–
(12.2)
19.6
0.6
20.2
1.7
1.3
(1.5)
–
387.5
1.6
–
–
–
(0.7)
17.1
Minority
interest
£m
15.2
1.7
–
1.7
–
–
–
(0.7)
16.2
1.4
1.2
(0.1)
(0.8)
(0.7)
404.7
Total
£m
381.0
21.3
0.6
21.9
1.7
1.3
(1.5)
(0.7)
403.7
The UNITE Group plc Annual Report and Accounts 2011
69
Company statement of changes in shareholders’ equity
For the year ended 31 December 2011
At 1 January 2011
Loss for the period
Revaluation of investments in subsidiaries
and joint ventures
Dividends to shareholders
At 31 December 2011
At 1 January 2010
Loss for the period
Revaluation of investments in subsidiaries
and joint ventures
Shares issued
At 31 December 2010
Issued
share capital
£m
40.1
–
–
–
40.1
Issued
share capital
£m
39.9
–
–
0.2
40.1
Share
premium
£m
249.0
–
–
–
249.0
Share
premium
£m
247.5
–
–
1.5
249.0
Merger
reserve
£m
40.2
–
–
–
40.2
Merger
reserve
£m
40.2
–
–
–
40.2
Retained
earnings
£m
27.1
Revaluation
reserve
£m
44.8
Total
£m
401.2
–
(0.9)
(0.9)
–
(0.8)
25.4
4.0
–
48.8
Retained
earnings
£m
29.7
Revaluation
reserve
£m
18.2
4.0
(0.8)
403.5
Total
£m
375.5
(2.6)
–
–
27.1
–
(2.6)
26.6
–
44.8
26.6
1.7
401.2
70
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Statements of cash flows
For the year ended 31 December 2011
Group
Company
Cash flows from operating activities
Note
5.1
2011
£m
(74.0)
2010
£m
40.1
Cash flows from taxation
(0.6)
0.8
Investing activities
Proceeds from sale of investment property
Payments to/on behalf of subsidiaries
Payments from subsidiaries
Dividends received
Interest received
Acquisition of intangible assets
Acquisition of property
Acquisition of plant and equipment
Cash flows from investing activities
Financing activities
Total interest paid
Interest capitalised into inventory and property under
development included in cash flows from operating activities
Interest paid in respect of financing activities
Ineffective swap payments
Proceeds from the issue of share capital
Payments to acquire own shares
Proceeds from non-current borrowings
Repayment of borrowings
Dividends paid to the owners of the parent company
Dividends paid to minority interest
Cash flows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
5.1
8.3
–
–
8.9
0.1
(1.5)
(18.3)
(0.6)
(3.1)
42.7
–
–
5.4
0.2
(1.5)
(5.6)
(0.6)
40.6
(15.0)
(15.5)
7.1
(7.9)
(11.7)
–
(0.1)
113.6
(21.7)
(0.8)
(0.7)
70.7
(7.0)
23.8
16.8
2.5
(13.0)
(11.2)
1.7
(1.5)
45.4
(127.2)
–
(0.7)
(106.5)
(25.0)
48.8
23.8
2011
£m
(2.4)
–
–
(42.0)
42.6
2.3
–
–
–
–
2.9
(0.1)
–
(0.1)
–
–
–
–
–
(0.8)
–
(0.9)
(0.4)
0.5
0.1
2010
£m
(2.9)
–
–
(34.8)
35.7
–
–
–
–
–
0.9
(0.2)
–
(0.2)
–
1.7
–
–
–
–
–
1.5
(0.5)
1.0
0.5
The UNITE Group plc Annual Report and Accounts 2011
71
Notes to the financial statements
Section 1: Basis of preparation
This section lays out the Group’s accounting policies that relate to the financial statements as a whole. Where
an accounting policy is specific to a particular note to the financial statements, the policy is described in the note
to which it relates and has been clearly identified in a box.
The financial statements consolidate those of The UNITE Group plc, (the Company) and its subsidiaries (together referred to as the
Group) and include the Group’s interests in jointly controlled entities. The parent company financial statements present information
about the Company as a separate entity and not as a group.
Both the parent company financial statements and the group financial statements have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRS). On publishing the parent company
financial statements here together with the group financial statements, the Company is taking advantage of the exemption in s408
of the Companies Act 2006 not to present its individual income statement and related notes.
The accounting policies have, unless otherwise stated, been applied consistently to all periods presented in these consolidated
financial statements.
The Company is domiciled in the United Kingdom.
Going concern
The Group’s business activities, together with the factors likely to affect its future development and position are set on in the Business
Review on pages 18 to 31. In addition, section 4 of these Notes to the financial statements includes the Group’s objectives, policies
and processes for managing its capital; details of its borrowings and interest rate swaps; and in note 5.3 its exposure to credit risk.
The Group has prepared cash flow projections with appropriate sensitivities until the end of 2013. The group has borrowing facilities
expiring in 2012 and 2013, but it has already refinanced one of these facilities for a further three years and is making good progress
with another new facility. While the Group will continue to extend future debt maturities, it expects to have sufficient headroom in existing
banking facilities and its forecast cash balances to repay any facilities expiring and to meet its funding requirements until at least the
end of 2013, while remaining within its banking covenants. The Group is in full compliance with its borrowing covenants at 31 December
2011 as set out in note 4.5c.
The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future.
The financial statements have therefore been prepared on a going concern basis.
Measurement convention
The financial statements are prepared on the historical cost basis except for investment property, interest rate swaps and land
and buildings included in property, plant and equipment all of which are stated at their fair value.
Basis of consolidation
Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly,
to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. In assessing control, potential
voting rights that are presently exercisable are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
Intra-group balances and transactions, and any unrealised gains and losses arising from intra-group transactions, such as property
disposals and management fees are eliminated in preparing the consolidated financial statements. Unrealised gains arising from
transactions with joint ventures are eliminated to the extent of the Group’s retained interest in the entity. Unrealised losses are eliminated
in the same way as unrealised gains except where the loss provides evidence of a reduction in the net realisable value of current assets
or an impairment in value of fixed assets.
Impact of accounting standards and interpretations in issue but not yet effective
A number of new standards, amendments to standards and interpretations became effective for the year ended 31 December 2011,
but none of these had a material effect on the consolidated financial statements of the Group.
The Group has not adopted early any standard, amendment or interpretation. A number of new standards, amendments to standards
and interpretations have been announced but are not yet effective for the year ended 31 December 2011. None of these are expected
to have a material effect on the consolidated financial statements of the Group.
72
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 1: Basis of preparation continued
Accounting estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying the Group’s accounting policies.
It also requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis with revisions recognised in the period in which the estimates are revised
and in any future periods affected.
The areas involving a higher degree of judgement of complexity are set out below and are explained in more detail in the related notes
to the financial statements.
The accounting policy descriptions set out the areas where judgement needs exercising, the most significant of which are as follows:
classification of properties (note 3.1)
classification of joint venture vehicles (note 3.4)
The areas involving the most sensitive estimates and assumptions that are significant to the financial statements are set out below and
in more detail in the related notes:
valuation of investment property, completed property and properties under development (note 3.1)
onerous contract provisions (note 2.5)
taxation (note 2.6)
valuation of interest rate swaps (note 4.2)
impairment of trade receivables (note 5.2)
The UNITE Group plc Annual Report and Accounts 2011
73
Notes to the financial statements continued
Section 2: Results for the year
This section focuses on the results and performance of the Group. On the following pages you will find disclosures
explaining the Group’s results for the year, segmental information, taxation, earnings and net asset value (NAV)
per share.
Net portfolio contribution (NPC) and NAV movement are the Group’s main key performance indicators.
This reflects the way the business is managed and how the directors assess the performance of the Group.
2.1. Revenue
The Group earns revenue from the following activities:
Rental income
Property sales
Manufacturing revenue
Management fees
Management fees
Operations segment
Property segment
Property segment
Operations segment
Property segment
Impact of minority interest on management fees
Total revenue
Note
2.2a
2.2a
2011
£m
63.6
8.2
11.4
10.6
1.3
95.1
(0.2)
94.9
2010
£m
63.5
111.9
7.2
8.9
2.1
193.6
(0.2)
193.4
Revenue has reduced to £94.9 million (2010: £193.4 million) due to a planned reduction in the volume of property sales to the UNITE
UK Student Accommodation Fund (USAF). Revenue from property sales includes £nil (2010: £103.5 million) to USAF, a joint venture,
and represents 0% (2010: 54%) of total revenue.
Accounting policies
Revenue is recognised on the following bases:
Rental income
Rental income from property leased out under operating leases (comprising direct lets to students and leases to Universities and
commercial tenants) is recognised in the income statement on a straight line basis over the term of the lease. Lease incentives are
sometimes granted on commercial units, these are recognised as an integral part of the total rental income and spread over the term
of the lease.
Property sales
Income relating to the sale of trading properties is recognised once contracts for sale have been unconditionally exchanged.
Manufacturing revenue
Revenue from the sale of modules and related services is recognised in the income statement when the significant risks and rewards
of ownership have been transferred to the buyer. For modules this is on receipt of customer acceptance following manufacture and
for related services as the service is provided.
Management and promote fees
Management and promote fees are recognised, in line with the management contracts, in the period to which they relate as services
are provided. The Group can earn promote fees relative to criteria specified in the joint venture agreements.
74
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 2: Results for the year continued
2.2 Segmental information
The Board of Directors monitor the business along two activity lines. The reportable segments for the years ended 31 December 2011
and 31 December 2010 are Operations and Property (in prior years, the same segments were referred to as Investment and
Development, however the names have been changed in the current year to be consistent with the Group’s new internal terminology).
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.
The Group’s properties are located exclusively in the United Kingdom. The Board therefore does not consider that the Group
has meaningful geographical segments.
a) Operations Segment result
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. NPC is the key indicator which is used by the Board to manage the
Operations business.
2011
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Net portfolio contribution
2010
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Net portfolio contribution
UNITE
Total
£m
63.6
(21.7)
41.9
10.6
(21.2)
31.3
(12.6)
(18.8)
(0.1)
UNITE
Total
£m
63.5
(20.3)
43.2
8.9
(19.2)
32.9
(12.1)
(24.4)
(3.6)
USAF
£m
17.8
(5.0)
12.8
–
(0.2)
12.6
–
(5.3)
7.3
USAF
£m
14.9
(4.2)
10.7
–
(0.1)
10.6
–
(4.4)
6.2
Share of joint ventures
UCC
£m
8.1
(1.2)
6.9
(0.5)
(0.1)
6.3
–
(4.0)
2.3
USV
£m
3.0
(1.0)
2.0
–
–
2.0
–
(1.3)
0.7
Share of joint ventures
UCC
£m
7.1
(1.4)
5.7
(0.5)
(0.2)
5.0
–
(4.1)
0.9
USV
£m
2.7
(0.8)
1.9
–
–
1.9
–
(1.3)
0.6
OCB
£m
3.1
(0.5)
2.6
–
(0.1)
2.5
–
(1.7)
0.8
OCB
£m
0.8
(0.2)
0.6
–
(0.1)
0.5
–
(0.5)
–
Total
£m
32.0
(7.7)
24.3
(0.5)
(0.4)
23.4
–
(12.3)
11.1
Total
£m
25.5
(6.6)
18.9
(0.5)
(0.4)
18.0
–
(10.3)
7.7
Group on see
through basis
Total
£m
95.6
(29.4)
66.2
10.1
(21.6)
54.7
(12.6)
(31.1)
11.0
Group on see
through basis
Total
£m
89.0
(26.9)
62.1
8.4
(19.6)
50.9
(12.1)
(34.7)
4.1
* Operating lease rentals arise from properties which the Group has sold and is now leasing back. As these properties contribute to the Group’s rental
income, the Group consider these lease costs to be a form of financing.
The UNITE Group plc Annual Report and Accounts 2011
75
Notes to the financial statements continued
Section 2: Results for the year continued
2.2 Segmental information continued
b) Property Segment result
The Group’s Property Segment undertakes the acquisition and development of properties. This includes the manufacture and sale
of modular building components, through UNITE Modular Solutions Limited, ‘UMS’. The Property Segment’s revenue predominantly
comprises the sales proceeds from properties, including those sold to the UNITE UK Student Accommodation Fund; revenue from
the sale of modules to third parties and joint ventures, and development management fees earned from joint ventures.
Pre-contract and abortive costs
Property disposals and write downs
Other
Property segment result pre UMS losses
UMS losses
Property segment result
2011
£m
(3.2)
1.3
(0.1)
(2.0)
(21.0)
(23.0)
2010
£m
(3.2)
4.0
(0.2)
0.6
(4.8)
(4.2)
The property segment derives its revenue from property sales, manufacturing revenue and management fees as set out in note 2.1.
The UMS loss in 2011 includes trading losses of £5.5 million together with a provision of £5.6 million for completing loss making
contracts in 2012; provisions for onerous leases of £5.4 million; and impairment of other fixed assets of £3.7 million and inventory
of £0.8 million.
c) Segmental contribution to NAV
The Board does not use balance sheet information split out by segment to monitor and manage the Group’s activities. Instead the
position of the Group is managed by reviewing the increases in Adjusted NAV contributed by each segment during the period.
Contributions to Adjusted NAV by each segment during the year is as follows:
Operations
Net portfolio contribution
Property
Rental growth
Yield movement
Disposals and acquisition costs
Capital expenditure and refurbishments
Rental property gains
Development property gains
UMS
Pre-contract and other development costs
Total property
Unallocated
Total adjusted NAV movement in the period
Total adjusted NAV brought forward
Total adjusted NAV carried forward
Note
2.2a
2.4a
2011
£m
11.0
22.9
–
0.6
–
23.5
33.3
56.8
(21.0)
(3.4)
32.4
(3.4)
40.0
474.5
514.5
2010
£m
4.1
19.3
14.6
(5.4)
(0.4)
28.1
27.5
55.6
(4.8)
(3.5)
47.3
0.1
51.5
423.0
474.5
The unallocated amount includes restructuring costs of £1.6 million (2010: £nil), dividends of £0.8 million (2010: £nil), current tax
charges of £0.4 million (2010: credit £1.0 million) and the share of joint venture swap losses of £0.5 million (2010: £0.7 million).
76
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 2: Results for the year continued
2.3 Adjusted profit and EPS
In addition to the IFRS reporting measures, the Group reports adjusted profit on the basis recommended for real estate companies by
EPRA, the European Public Real Estate Association. EPRA recommends that real estate investment companies exclude development
profits and profits from disposal of assets as they are one off in nature, however the development of properties for future sale is an
on-going business activity for the Group and therefore results of this core activity are included in the adjusted result through the
Property Segment result.
a) Adjusted profit and reconciliation to IFRS
The adjusted profit/(loss) excludes movements relating to changes in values of investment properties and interest rate swaps, which
are included in the profit reported under IFRS. The adjusted profit/(loss) reconciles to the profit reported under IFRS as follows:
Operations segment result – Net portfolio contribution
Property segment result pre UMS losses
Unallocated to segments
Adjusted profit pre UMS losses
UMS losses
Adjusted loss*
Net valuation gains on investment property
Share of joint venture gains on investment property
Mark to market changes in interest rate swaps**
Interest rate swap payments on ineffective hedges**
Share of joint venture changes in fair value of interest rate swaps
Current tax included in unallocated to segments
Share of joint venture deferred tax credit/(charge)
Minority interest share of NPC***
Minority interest share of property segment result
Profit before tax
Note
2.2a
2.2b
2.2b
3.1
3.4b
4.3
3.4b
3.4b
3.4b
2011
£m
11.0
(2.0)
(3.6)
5.4
(21.0)
(15.6)
7.7
10.7
(10.6)
10.2
0.4
0.4
0.3
1.2
–
4.7
2010
£m
4.1
0.6
(0.4)
4.3
(4.8)
(0.5)
15.4
18.1
(18.6)
10.9
(0.3)
(1.0)
(0.5)
1.0
(0.3)
24.2
*
The adjusted loss for 2010 has been restated to include losses on disposal of investment property of £2.9 million, which had been previously
excluded, so that all property disposals are included in adjusted loss.
** Within IFRS reported profit, there is a £10.6 million loss (2010: £18.6 million loss) relating to movements in the mark to market of ineffective interest
rate swaps, this full loss can be seen in note 4.3. Part of this movement, £10.2 million (2010: £10.9 million) relates to actual interest payments made
on these swaps and is considered to be a true operating cost of the Operations Segment. It is therefore already included within Net Financing Costs
in NPC (Operating Segment result) in note 2.2a.
*** The minority interest share, or 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 Ltd. More detail is provided in note 3.4.
Unallocated to segments includes restructuring costs of £1.6 million (2010: £nil), current tax charges of £0.4 million (2010: credit
£1.0 million) and share option fair value charges of £1.2 million (2010: £1.3 million).
b) EPS and Adjusted EPS
EPS is the amount of post-tax profits attributable to each share. Basic EPS is adjusted in order to more accurately show the business
performance of the Group in a consistent manner and to reflect how the business is managed and measured on a day to day basis.
Adjusted EPS is calculated using adjusted loss as set out above.
The UNITE Group plc Annual Report and Accounts 2011
77
Notes to the financial statements continued
Section 2: Results for the year continued
2.3 Adjusted profit and EPS continued
The calculations of basic and adjusted EPS for the year ended 31 December 2011 is as follows:
Earnings
Basic (and diluted)
Adjusted
Adjusted pre UMS losses
Weighted average number of shares (thousands)
Basic
Dilutive potential ordinary shares (share options)
Diluted
Earnings per share (pence)
Basic
Diluted
Adjusted
Adjusted (pre-UMS result)
Note
2.3a
2.3a
2011
£m
2.1
(15.6)
5.4
2010
£m
19.6
(0.5)
4.3
160,271
39
160,310
160,074
81
160,155
1.3p
1.3p
(9.7p)
3.4p
12.2p
12.2p
(0.3p)
2.7p
Movements in the weighted average number of shares have resulted from the issue of shares arising from the employee share based
payment schemes. In addition to the potential dilutive ordinary shares (share options) shown above, there were a further 29,000 share
options in existence at 31 December 2011 (2010: 794,000) which are excluded from this calculation because they would increase
EPS (they are anti-dilutive). Also excluded from the potential dilutive shares (share options) are 1,460,000 options in existence at
31 December 2011 (2010: nil) which are subject to conditions that have not yet been met.
2.4 Adjusted Net Assets and NAV per share
Adjusted NAV as recommended by EPRA excludes the mark to market valuation of swaps, deferred tax liabilities and recognises
all properties at market value. This is the key performance measure that the Board uses to monitor and manage the position
of the segments.
a) Adjusted net assets
Investment properties
Completed properties (at market value)
Rental properties
Properties under development
(at market value)
Total property portfolio
Debt on rental properties (net of cash)
Debt on properties under development
Other assets/(liabilities)
Wholly owned
£m
396.2
220.9
617.1
2011
Share of JV’s
£m
400.1
–
400.1
189.1
806.2
(393.7)
(40.3)
(434.0)
(39.9)
0.2
400.3
(212.1)
–
(212.1)
(6.0)
Total
£m
796.3
220.9
1,017.2
189.3
1,206.5
(605.8)
(40.3)
(646.1)
(45.9)
Wholly owned
£m
375.7
117.4
493.1
2010
Share of JV’s
£m
391.1
–
391.1
Total
£m
766.8
117.4
884.2
137.8
630.9
(267.9)
(66.7)
(334.6)
6.5
0.2
391.3
138.0
1,022.2
(212.5)
–
(212.5)
(7.1)
(480.4)
(66.7)
(547.1)
(0.6)
Adjusted net assets
332.3
182.2
514.5
302.8
171.7
474.5
Loan to value (%)
54
53
54
53
54
54
The movement in other assets/(liabilities) shown above is caused mainly by the provision for onerous contracts in UMS and a significant
increase in development creditors.
78
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 2: Results for the year continued
2.4 Adjusted Net Assets and NAV per share continued
b) Reconciliation to IFRS
Adjusted NAV reconciles to NAV reported under IFRS as follows:
Adjusted NAV
Mark to market interest rate swaps
Valuation gain not recognised on property held at cost
Deferred tax
Net asset value reported under IFRS
Note
2.4a
3.1
2011
£m
514.5
(50.5)
(76.1)
(0.3)
2010
£m
474.5
(49.6)
(37.1)
(0.3)
387.6
387.5
c) NAV per share and Adjusted NAV per share
The Board continuously monitors the adjusted NAV attributable to its shareholders. NAV per share as at 31 December 2011
is calculated as follows:
Net assets
Basic (as reported under IFRS on the balance sheet)
Adjusted pre-dilution (as defined by EPRA)
Adjusted diluted (takes into account the dilutive effect of all share options being exercised)
Number of shares (thousands)
Basic
Outstanding share options
Diluted
Net asset value per share (pence)
Basic
Adjusted pre dilution
Adjusted diluted
2.5 Provisions for onerous contracts
At 1 January 2011
Increase in provisions charged to the income statement
At 31 December 2011
Note
2.4b
2.2c
2011
£m
387.6
514.5
516.4
2010
£m
387.5
474.5
476.0
160,271
2,344
162,615
160,268
830
161,098
242p
321p
318p
242p
296p
295p
Current
liability
£m
Non-current
liability
£m
Total liability
£m
–
6.3
6.3
–
4.7
4.7
–
11.0
11.0
The provisions relate to onerous trading contracts and leases at the group’s manufacturing facility (UMS). Provision has been made
for forecast unavoidable losses on existing trading contracts of £5.6 million, all expected to be realised in 2012. The decision to
cease trading at UMS also resulted in future lease payments and associated costs becoming onerous. Discounted future payments
of £5.4 million (relating primarily to the lease of the factory site) have been provided in respect of these leases of which £4.7 million
is not expected to be realised until between 2013 and 2017 and is therefore disclosed as due after one year. Future payments have
been discounted using a market rate of 5%.
The UNITE Group plc Annual Report and Accounts 2011
79
Notes to the financial statements continued
Section 2: Results for the year continued
2.6 Tax
The Group has not paid any corporation tax in the recent past due to the availability of capital allowances, indexation and brought forward
losses. However it does pay UK income tax on rental income that arises from investments held by offshore subsidiaries (predominantly
the investments in USAF).
The preparation of the tax charge in the financial statements requires the Directors to make significant judgements around the outcome
of challenges by HMRC to the tax treatment of certain of the Group’s activities; where appropriate, the Directors seek advice from leading
tax professionals and tax counsel in arriving at such judgements.
Accounting policies
The tax charge for the period is recognised in the income statement and the statement of comprehensive income, according
to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable
in respect of previous years. The current tax charge is based on tax rates that are enacted or substantively enacted at the year end.
Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and those for taxation purposes. Temporary differences relating to investments in subsidiaries and joint ventures are not
provided for to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities. The deferred tax provision in respect of property assets is calculated on the basis that assets will not be held indefinitely and
therefore takes account of available indexation. A deferred tax asset is recognised only to the extent that it is probable that sufficient
future taxable profits will be available against which the asset can be utilised.
a) Tax – income statement
The total taxation charge/(credit) in the income statement is analysed as follows:
Corporation tax in respect of income
Income tax on UK rental income arising in non-UK companies
Adjustments for prior years
Current tax charge/(credit)
Origination and reversal of temporary differences
Effect of change in tax rate
Adjustments for prior years
Deferred tax charge
Total tax charge in income statement
2011
£m
–
0.5
–
0.5
0.9
(0.3)
(0.3)
0.3
0.8
2010
£m
–
0.5
(1.3)
(0.8)
2.5
(0.1)
1.3
3.7
2.9
In order to understand how, in the income statement, a tax charge of £0.8 million arises on a profit before tax of £4.7 million, the taxation
charge that would arise at the standard rate of UK corporation tax is reconciled to the actual tax charge as follows:
Profit before tax
Income tax using the UK corporation tax rate of 26.5% (2010: 28%)
Effect of indexation on investment and development property
Non-deductible expenses
Share of joint venture profit
Movement on unprovided deferred tax asset
Profit on disposal of assets not chargeable to tax
Effect of property disposals to USAF
Adjustments for prior years – deferred tax
Adjustments for prior years – current tax
Rate difference on deferred tax
Total tax charge in the income statement
2011
£m
4.7
1.2
(2.4)
0.9
0.4
1.6
0.1
(0.4)
(0.3)
–
(0.3)
0.8
2010
£m
24.2
6.8
(3.5)
1.3
(0.7)
(0.3)
–
(0.6)
1.3
(1.3)
(0.1)
2.9
b) Tax – other comprehensive income
Within other comprehensive income a tax charge totalling £0.4 million (2010: £3.7 million) has been recognised representing deferred
tax. An analysis of this is included below in the deferred tax movement table.
80
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 2: Results for the year continued
2.6 Tax continued
c) Tax – balance sheet
The table below outlines the deferred tax liabilities/(assets) that are recognised in the balance sheet, together with their movements
in the year:
2011
Investment property
Property held in current assets
Property, plant and machinery
Investments in joint ventures
Interest rate swaps
Interest rate swaps relating to joint ventures
Tax value of carried forward losses recognised
Net tax liabilities
2010
Investment property
Property held in current assets
Property, plant and machinery
Investments in joint ventures
Interest rate swaps
Interest rate swaps relating to joint ventures
Tax value of carried forward losses recognised
Net tax liabilities
At 31 December
2010
£m
7.5
(0.7)
(0.3)
8.0
(10.0)
(2.7)
(1.8)
–
At 31 December
2009
£m
2.8
(2.9)
(0.3)
7.4
(7.0)
–
–
–
Transfers
£m
–
–
–
–
–
–
–
–
Transfers
£m
–
–
–
–
–
–
–
–
Charged
in income
£m
1.3
(0.6)
(0.9)
(0.4)
2.4
–
(1.4)
0.4
Charged
in income
£m
4.7
2.2
–
0.6
(2.0)
–
(1.8)
3.7
(Credited)
in equity
£m
–
–
–
–
(0.4)
–
–
(0.4)
At 31 December
2011
£m
8.8
(1.3)
(1.2)
7.6
(8.0)
(2.7)
(3.2)
–
(Credited)
in equity
£m
–
–
–
–
(1.0)
(2.7)
–
(3.7)
At 31 December
2010
£m
7.5
(0.7)
(0.3)
8.0
(10.0)
(2.7)
(1.8)
–
A deferred tax asset of £35.1 million (2010: £33.6 million) in respect of losses of £140.7 million (2010: £124.6 million) has not been
recognised due to uncertainty of future taxable profits and the ability to offset these losses against them.
Company
Deferred tax has not been recognised on temporary timing differences of £12.2 million (2010: £12.1 million) in respect of
revaluation of subsidiaries and investment in joint ventures as it is probable that the temporary timing difference will not reverse
in the foreseeable future.
2.7 Audit fees
Disclosures in respect of fees paid to the auditors can be found in the Audit Committee Report, page 50.
The UNITE Group plc Annual Report and Accounts 2011
81
Notes to the financial statements continued
Section 3: Asset management
The Group holds its property portfolio directly and through its joint ventures. The performance of the property
portfolio whether wholly owned or in joint ventures is the key factor that drives adjusted net asset value (NAV),
one of the Group’s key performance indicators.
The following pages provide disclosures about the Group’s investments in property assets and joint ventures
and their performance over the year.
3.1 Wholly owned property assets
The Group’s wholly owned property portfolio is held in three groups on the balance sheet at the carrying values detailed below.
In the Group’s adjusted NAV, all these groups are shown at market value.
i) Investment property (fixed assets)
These are assets that were acquired by the Group with the intention to hold the assets for a long period to earn rental income or capital
appreciation, prior to establishing The UNITE UK Student Accommodation (USAF). The assets are held at fair value in the balance sheet
with changes in fair value taken to the income statement.
ii) Completed properties (current assets)
Following the establishment of USAF in 2006, the Group is required to offer all completed properties which meet certain performance
criteria for sale to USAF, and USAF may be required to purchase assets which meet certain conditions. Therefore, all properties
constructed and completed after 2006 are held as completed properties in current assets, because these may be sold to USAF.
The Group continues to earn rental income and capital appreciation on these assets which are held at cost in the balance sheet.
iii) Properties under development (current assets)
These are assets which are currently in the course of construction and which will be transferred to ‘Completed properties’ on completion.
The Group also acquires land which it intends to develop. Land is held within inventories until planning permission is obtained, at which
point it is transferred to properties under development.
The property portfolio is valued every six months 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, being the estimated amount for which a property could be exchanged on the date of valuation
between a willing buyer and a willing seller in an arm’s length transaction where the parties had each acted knowledgeably, prudently
and without compulsion. CB Richard Ellis Ltd, Jones Lang LaSalle Ltd and Messrs Knight Frank, Chartered Surveyors were the external
valuers in the years ending 31 December 2011 and 2010.
Accounting policies
Properties held under operating leases are not included in assets, but the future payments due in respect of these properties are
disclosed in note 4.6a.
Investment properties are held at fair value.
Completed properties, properties under development and inventories are shown at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling
expenses. All costs directly associated with the purchase and construction of a property, and all subsequent qualifying expenditure
is capitalised.
The recognition of acquisitions and disposals of investment and other property occurs on unconditional exchange of contracts.
Borrowing costs are capitalised if they are directly attributable to the acquisition and construction of a property asset. Capitalisation
of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are
being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for their intended use but stops
if development activities are suspended. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment
loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes
or, with regard to that part of the development cost financed out of general borrowings, to the average rate. During the year the average
capitalisation rate used was 6.7% (2010: 7.0%).
The valuations are based on assumptions made by considering the aggregate of the net annual rents receivable and associated costs.
Valuations reflect, where appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely
to be in occupation after letting of vacant accommodation and the market’s general perception of their credit worthiness; the allocation
of maintenance and insurance responsibilities between lessor and lessee; and the remaining economic life of the property.
82
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 3: Asset management continued
3.1 Wholly owned property assets continued
The movements in the carrying value of the Group’s wholly owned property portfolio during the year ended 31 December 2011 were
as follows:
2011
At 1 January 2011
Acquisitions
Cost capitalised
Interest capitalised
Transfer from property under development
Transfer from work in progress
Disposals
Reversal of impairment
Valuation gains
Valuation losses
Net valuation gains
Carrying value at 31 December 2011
Investment
property
£m
375.7
13.5
5.2
–
–
–
(5.9)
–
13.5
(5.8)
7.7
396.2
Completed
property
£m
105.1
–
0.2
–
92.1
–
–
1.3
–
–
–
198.7
Property under
development
£m
113.0
–
112.6
7.1
(92.1)
1.1
(7.9)
1.4
–
–
–
135.2
Total
£m
593.8
13.5
118.0
7.1
–
1.1
(13.8)
2.7
13.5
(5.8)
7.7
730.1
Whilst completed property and property under development are held at cost on the balance sheet, the Group manages the assets based
on their market value (fair value). These properties are included in adjusted NAV at their fair value, valued on the same basis as for
investment properties, by external valuers. The fair value of the Group’s wholly owned properties at the year ended 31 December 2011
is as follows:
Carrying value at 31 December 2011 (above)
Valuation gains not recognised under IFRS but included in Adjusted NAV
Brought forward
Transfer from property under development
Valuation gain in year
Market value at 31 December 2011
Investment
property
£m
396.2
Completed
property
£m
198.7
Property under
development
£m
135.2
–
–
–
–
396.2
12.3
8.3
1.6
22.2
220.9
24.8
(8.3)
37.4
53.9
189.1
Total
£m
730.1
37.1
–
39.0
76.1
806.2
The UNITE Group plc Annual Report and Accounts 2011
83
Notes to the financial statements continued
Section 3: Asset management continued
3.1 Wholly owned property assets continued
The movements in the carrying value of the Group’s wholly owned property portfolio during the year ended 31 December 2010 were
as follows:
2010
At 1 January 2010
Cost capitalised
Interest capitalised
Transfer from property under development
Transfer from work in progress
Disposals
Impairment
Valuation gains
Valuation losses
Net valuation gains
Carrying value at 31 December 2010
Investment
property
£m
403.6
4.7
–
–
–
(48.0)
–
17.4
(2.0)
15.4
375.7
Completed
property
£m
204.1
0.5
–
(0.8)
–
(96.6)
(2.1)
–
–
–
105.1
Property under
development
£m
38.1
76.5
2.5
0.8
0.6
(3.0)
(2.5)
–
–
–
113.0
The fair value of the Group’s wholly owned property portfolio at the year ended 31 December 2010 is as follows:
Carrying value at 31 December 2010 (above)
Valuation gains not recognised under IFRS but included in Adjusted NAV
Brought forward
Disposals
Valuation gain in year
Market value at 31 December 2010
Investment
property
£m
375.7
Completed
property
£m
105.1
Property under
development
£m
113.0
–
–
–
–
375.7
17.2
(12.9)
8.0
12.3
117.4
0.8
–
24.0
24.8
137.8
Total
£m
645.8
81.7
2.5
–
0.6
(147.6)
(4.6)
17.4
(2.0)
15.4
593.8
Total
£m
593.8
18.0
(12.9)
32.0
37.1
630.9
Included within investment properties are £43.1 million (2010: £44.5 million) of assets held under a long leasehold and £9.9 million
(2010: £10.6 million) of assets held under short leasehold.
Total interest capitalised in investment and development properties at 31 December 2011 was £32.9 million (2010: £28.4 million)
on an accumulative basis. Total internal costs relating to manufacturing, construction and development costs of group properties
amount to £53.6 million at 31 December 2011 (2010: £45.6 million) on an accumulative basis.
3.2 Inventories
Modules for sale to third parties or joint ventures
Interests in land
Other stocks
Inventories
2011
£m
1.0
1.4
6.0
8.4
2010
£m
–
1.8
0.9
2.7
The movement in other stock is caused by an increase in manufacturing work in progress, raw materials and consumables relating
to an increase in manufacturing activity at the end of the year.
84
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 3: Asset management continued
3.3 Other fixed assets
Accounting policies
Property, plant and equipment
Other than land and buildings; property, plant and equipment are stated at cost less accumulated depreciation and impairment losses
(see below). Land and buildings are stated at fair value on the same basis as investment properties.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant
and equipment. Freehold land is not depreciated. The estimated useful lives are as follows:
Leasehold improvements Shorter life of lease and economic life
Other assets
4-20 years
Intangible assets
Intangible assets predominately comprise internally developed computer software which allows customers to book online and processes
transactions within the sales cycle. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion
of overheads. Expenditure on research activities is recognised in the income statement as an expense incurred. The assets are amortised
on a straight-line basis over 4 to 5 years being the estimated useful lives of the intangible assets, from the date they are available for use.
Amortisation is charged to the income statement.
The Group’s other fixed assets can be analysed as follows:
Cost or valuation
At 1 January
Additions
Disposals
At 31 December
Depreciation and impairment losses
At 1 January
Depreciation charge for the year
Disposals
Impairment
At 31 December
Carrying value at 1 January
Carrying amount at 31 December
2011
2010
Property, plant
and equipment
£m
Intangible
assets
£m
Property, plant
and equipment
£m
Intangible
assets
£m
19.4
0.6
(0.2)
19.8
12.5
1.5
(0.1)
3.6
17.5
6.9
2.3
18.2
1.5
(0.2)
19.5
12.4
2.6
(0.1)
0.1
15.0
5.8
4.5
18.8
0.6
–
19.4
11.4
1.1
–
–
12.5
7.4
6.9
16.7
1.5
–
18.2
10.2
2.2
–
–
12.4
6.5
5.8
UMS freehold land and buildings, carried at fair value of £0.7 million (2010: £0.7 million), are included within property, plant and
equipment and have a historic cost of £1.8 million (2010: £1.8 million).
The impairment reduces the carrying value of other UMS fixed assets to their scrap value of £0.2 million. This arises from the decision
to cease trading at UMS, as disclosed in note 2.5. UMS is a separate cash generating unit.
The UNITE Group plc Annual Report and Accounts 2011
85
Notes to the financial statements continued
Section 3: Asset management continued
3.4 Investments in joint ventures (Group)
Accounting policies
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated
financial statements include joint ventures initially at cost subsequently increased or decreased by the Group’s share of total gains and
losses of joint ventures on an equity basis. Interest free joint venture investment loans are initially recorded at fair value – the difference
between the nominal amount and fair value being treated as an investment in the joint venture. The implied discount is amortised over
the contracted life of the investment loan.
The Directors consider that the agreements integral to its joint ventures result in the Group having joint control; a significant degree
of judgement is exercised in this assessment due to the complexity of the contractual arrangements.
The Group has four joint ventures:
Joint venture
The UNITE UK Student
Accommodation Fund
(USAF)
UNITE Capital Cities
(UCC)
Group’s share of
assets/results 2011 & 2010
18.9%*
30%
OCB Property Holdings
(OCB)
25%
UNITE Student Village
(USV)
51%**
Objective
Invest and operate
student accommodation
throughout the UK
Develop and operate
student accommodation in
the capital cities of London
and Edinburgh
Partner
Consortium of investors
GIC Real Estate Pte, Ltd
Real estate
investment vehicle
of the Government
of Singapore
Legal entity in which
Group has interest
UNITE Student
Accommodation Fund,
a Jersey Unit Trust
UNITE Capital Cities Unit
Trust, incorporated
in Jersey
Develop and operate three
investment properties
located in London
Develop and operate
a student village
located in Sheffield
Oasis Capital Bank OCB Property Holdings
(Jersey) Ltd, incorporated
in Jersey
LDC (Project 110) Ltd,
incorporated in England
and Wales
Lehman Brothers
* Part of the Group’s interest is held through a subsidiary, USAF (Feeder) Guernsey Ltd, in which there is an external investor. A minority interest
therefore occurs on consolidation of the Group’s results representing the external investor’s share of profits and assets relating to its investment
in USAF. The ordinary shareholders of The UNITE Group plc are beneficially interested in 16.3% (2010: 16.3%) of USAF.
** At 31 December 2011, the Group held a 75% interest in the ordinary shares of the joint venture, however under the articles of association the
Group cannot exercise control and are only entitled to a beneficial interest of 51% of the joint ventures assets and results.
On 18 January 2012 the Group acquired the balance of the share capital in USV for £2.4 million and discharged shareholder loans amounting
to £3.8 million. The payment of these amounts is deferred until 31 October 2012.
86
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
a) Net assets and results of the joint ventures
The summarised balance sheets and results for the period, and the Group’s share of these joint ventures are as follows:
2011
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Investment loans
Net assets
Profit / (loss) for the
period
USAF
£m
UCC
£m
USV
£m
OCB
£m
Total
£m
Gross
1,273.0
28.4
(607.9)
(17.8)
1.4
(16.1)
661.0
(2.9)
658.1
Share
240.6
5.3
(114.9)
(3.0)
0.3
(3.0)
125.3
(2.9)
122.4
Gross
387.0
12.3
(248.4)
(25.6)
0.2
(6.2)
119.3
–
119.3
Share
116.1
3.7
(74.5)
(7.7)
0.1
(1.9)
35.8
–
35.8
Gross
58.2
3.5
(43.7)
(1.0)
0.1
(3.4)
13.7
(7.8)
5.9
Share
29.1
1.8
(21.9)
(0.5)
0.1
(1.7)
6.9
(3.9)
3.0
Gross
189.0
6.3
(112.7)
(2.9)
0.2
(3.6)
76.3
(29.2)
47.1
Share
47.2
1.6
Gross
1,907.2
50.5
(28.2) (1,012.7)
(47.3)
1.9
(29.3)
870.3
(39.9)
830.4
(0.7)
0.1
(0.9)
19.1
(7.3)
11.8
Share
433.0
12.4
(239.5)
(11.9)
0.6
(7.5)
187.1
(14.1)
173.0
72.9
15.1
22.4
6.7
(3.4)
(1.7)
10.0
2.5
101.9
22.6
Adjusted net assets
678.8
111.3
144.9
43.5
15.3
7.6
79.2
19.8
918.2
182.2
2010
USAF
£m
UCC
£m
USV
£m
OCB
£m
Total
£m
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Investment loans
Net assets
Gross
1,231.5
32.7
(607.2)
(11.0)
1.4
(22.0)
625.4
(2.6)
622.8
Share
232.8
6.2
(114.7)
(2.0)
0.3
(4.0)
118.6
(2.6)
116.0
Gross
379.5
6.6
(253.3)
(27.0)
0.4
(5.9)
100.3
–
100.3
Share
113.8
2.0
(76.0)
(8.1)
0.1
(1.7)
30.1
–
30.1
Gross
63.0
3.5
(44.9)
(2.4)
–
(3.0)
16.2
(7.8)
8.4
Profit for the period
71.9
16.4
11.6
3.5
4.2
Adjusted net assets
636.4
104.3
127.3
38.2
19.4
Share
31.5
1.8
(22.5)
(1.2)
–
(1.5)
8.1
(3.9)
4.2
2.1
9.7
Gross
179.6
4.3
(100.9)
(6.3)
2.0
(7.1)
71.6
(26.2)
45.4
Share
44.9
1.1
Gross
1,853.6
47.1
(25.2) (1,006.3)
(46.7)
3.8
(38.0)
813.5
(36.6)
776.9
(1.6)
0.5
(1.7)
18.0
(6.7)
11.3
Share
423.0
11.1
(238.4)
(12.9)
0.9
(8.9)
174.8
(13.2)
161.6
13.2
3.3
100.9
25.3
78.0
19.5
861.1
171.7
Net assets and profit for the period above include the minority interest, whereas adjusted net assets exclude the minority interest.
The UNITE Group plc Annual Report and Accounts 2011
87
Notes to the financial statements continued
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
b) Movement in carrying value of the Group’s investments in joint ventures
The carrying value of the Group’s investment in joint ventures has increased by £11.4 million during the year ended 31 December 2011
(2010: £13.3 million), resulting in an overall carrying value of £173.0 million (2010: £161.6 million). The following table shows how the
increase has been achieved.
Recognised in the income statement:
Net portfolio contribution (NPC)
Minority interest share of NPC
Net revaluation gains
Deferred tax
Discount on interest free loans
Loss on cancellation of interest rate swaps
Ineffective swaps
Recognised in equity:
Movement in effective hedges
Deferred tax on movement
in effective hedges
Other adjustments to the carrying value:
Profit adjustment related to trading
with joint venture
Distributions received
Increase in carrying value
Carrying value at 1 January
Carrying value at 31 December
2011
2010
Investment in
joint venture
£m
Joint venture
investment loan
£m
Total
interest
£m
Investment in
joint venture
£m
Joint venture
investment loan
£m
Total
interest
£m
11.1
1.2
10.7
0.3
(0.7)
(0.4)
0.4
22.6
0.3
(0.2)
(2.4)
(8.9)
11.4
161.6
173.0
–
–
–
–
0.7
–
–
0.7
–
–
0.2
–
0.9
13.2
14.1
11.1
1.2
10.7
0.3
–
(0.4)
0.4
23.3
0.3
(0.2)
(2.2)
(8.9)
12.3
174.8
187.1
7.7
1.0
18.1
(0.5)
(0.7)
–
(0.3)
25.3
(2.6)
–
(4.0)
(5.4)
13.3
148.3
161.6
–
–
–
–
0.7
–
–
0.7
–
–
0.3
–
1.0
12.2
13.2
7.7
1.0
18.1
(0.5)
–
–
(0.3)
26.0
(2.6)
–
(3.7)
(5.4)
14.3
160.5
174.8
In addition to its equity shares, the Group has also provided interest free investment loans to some of the joint ventures. These were
primarily provided on the setting up of the joint venture to provide capital to acquire investment properties. As a result of being provided
interest free, the loans were discounted on recognition to reflect the fair value, the unwinding of the discount is reflected in the Group’s
finance income.
88
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
c) Transactions with joint ventures
The Group acts as asset and property manager for the joint ventures and receives management fees in relation to these services.
In addition, the Group is entitled to a promote fee from USAF if the joint venture outperforms certain benchmarks. The Group receives
additional units in USAF as consideration for the promote fee. The Group has recognised the following management fees in its results
for the year.
USAF
UCC
OCB
Property management fees
USAF
OCB
Development management fees
Total fees
2011
£m
6.3
3.1
0.9
10.3
1.2
0.1
1.3
2010
£m
5.3
2.8
0.4
8.5
–
2.1
2.1
11.6
10.6
During the year the Group did not sell any properties to USAF. In 2010 the group sold five properties to USAF for £146.2 million.
£105.7 million of the properties were held on the balance sheet as completed property within current assets, the proceeds and carrying
value of the properties is therefore recognised in turnover and cost of sales in the income statement and the cash flows in operating
activities. The remaining £40.5 million of properties were classified as investment properties within fixed assets, the proceeds and
carrying value of the properties is therefore recognised in loss on disposal of property in the income statement and the cash flows
in investing activities.
UCC properties are partly funded by debt totalling £248.4 million (2010: £253.3 million) which equates to 64.2% (2010: 66.7%)
of the market value of these properties. The Group has guaranteed its share, 30%, of this debt amounting to £74.5 million
(2010: £76.0 million). This guarantee only takes effect in the event that the joint venture is unable to repay the debt within nine
months of it becoming due. The Group considers the likelihood of the guarantee being invoked to be remote based on the level
of debt and the time frames allowed under the arrangements. These guarantees are accounted for in accordance with IFRS 4.
3.5 Investments in subsidiaries (Company)
Accounting policies
In the financial statements of the Company, investments in subsidiaries and joint ventures are carried at fair value with movements
in fair value being recognised directly in equity.
a) Carrying value of investment in subsidiaries and joint ventures
The movements in the Company’s interest in unlisted subsidiaries and joint ventures during the year are as follows.
At 1 January
Disposals
Impact of discounting on interest free loans
Revaluation
At 31 December
Investment in subsidiaries
Investment in joint ventures
2011
£m
106.8
–
–
5.2
112.0
2010
£m
96.8
(14.4)
–
24.4
106.8
2011
£m
3.7
–
–
(1.2)
2.5
2010
£m
1.6
–
(0.1)
2.2
3.7
In addition to the equity investment in subsidiaries and joint ventures, the Company has provided an interest free loan to the USV joint
venture. The carrying value of the investment loan at 31 December 2011 was £3.9 million (2010: £3.9 million).
The UNITE Group plc Annual Report and Accounts 2011
89
Notes to the financial statements continued
Section 3: Asset management continued
3.5 Investments in subsidiaries (Company) continued
A full list of the company’s subsidiaries is appended to the annual return. The Company’s principal subsidiaries and joint ventures are:
LDC (Holdings) plc *
UNITE Holdings plc *
UNITE Integrated Solutions plc
UNITE Modular Solutions Ltd
USAF LP Ltd
USAF Jersey Investments Ltd
UNITE (Capital Cities) Jersey Ltd
LDC (Imperial Wharf) Ltd
UNITE Finance One (Property) Ltd
USAF Feeder (Guernsey) Ltd
OCB UNITE Property Holdings (Jersey) Ltd^
* Held directly by the Company.
^ Joint venture. Joint control is explained in note 3.4.
Country of incorporation
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Jersey
Jersey
England and Wales
England and Wales
Guernsey
Jersey
Class of
Shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
25%
b) Transactions with other group companies
During the year, the company entered into various interest free loans with its subsidiaries, the aggregate of which are disclosed in
the cash flow statement. In addition, the Company was charged by UNITE Integrated Solutions plc for corporate costs of £2.7 million
(2010: £2.3 million).
As a result of these intercompany transactions, the following amounts were due (to)/from the company’s subsidiaries at the year end.
UNITE Holdings plc
UNITE Finance Ltd
LDC (Holdings) plc
Amounts due from group undertakings
Unilodge Holding Ltd
Unilodge Holdings (UK) Ltd
Amounts due to group undertakings
2011
£m
76.5
–
241.2
317.7
(13.9)
(15.8)
(29.7)
2010
£m
77.7
33.4
207.2
318.3
(13.9)
(15.8)
(29.7)
The Company has had a number of transactions with its joint ventures, which are disclosed in note 3.4c.
The Company has guaranteed £235 million of its subsidiary companies borrowings (2010: £192 million). The guarantees have been
entered into in the normal course of business. A liability would only arise in the event of the subsidiary failing to fulfil its contractual
obligations. These guarantees are accounted for in accordance with IFRS 4.
90
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 4: Funding
The Group finances its development and investment activities through a mixture of retained earnings, borrowings
and equity. The Group continuously monitors its financing arrangements to manage its gearing.
Interest rate swaps are used to manage the Group’s risk to fluctuations in interest rate movements.
The following pages provide disclosures about the Group’s funding position, including borrowings, gearing
and hedging instruments; its exposure to market risks; and its capital management policies.
4.1 Borrowings
Accounting policies
Interest bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition,
interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised
in the income statement over the period of the borrowings on an effective interest basis.
The table below analyses the Group’s borrowings which comprise bank and other loans by when they fall due for payment:
Current
In one year or less, or on demand
Non-current
In more than one year but not more than two years*
In more than two years but not more than five years
In more than five years
Total borrowings
2011
£m
29.2
251.9
140.4
29.2
421.5
450.7
2010
£m
0.3
68.3
260.3
29.2
357.8
358.1
* Since the year end £78.3 million of this debt has been refinanced through an extended facility of £82.0 million expiring in 2015.
In addition to the borrowings currently drawn as shown above, the Group has available undrawn facilities of £14.3 million
(2010: £39.7 million). A further working capital facility of £20.0 million (2010: £20.0 million) is also available.
A further £132 million (2010: £227 million) of facilities are available if certain conditions are met. Of this amount £30 million
(2010: £44 million) is only available for rental properties and £99 million (2010: £99 million) for development properties.
The remaining amount is available for investment or development.
The carrying value of borrowings is considered to be approximate to fair value, except for the Group’s fixed rate loans carried
at £17.4 million (2010: £39.4 million). The fair value of these fixed rate loans has been calculated by a third party expert discounting
estimated future cash flows on the basis of market expectations of future interest rates. The fair value of these loans is £18.4 million
(2010: £40.8 million).
Properties with a carrying value of £696.8 million (2010: £582.4 million) have been pledged as security against the Group’s borrowings.
4.2 Interest rate swaps
The Group uses interest rate swaps to manage the Group’s exposure to interest rate fluctuations. In accordance with the Group’s treasury
policy, the Group does not hold or issue interest rate swaps for trading purposes and only holds swaps which are considered to be
commercially effective.
Accounting policies
Interest rate swaps are recognised initially and subsequently at fair value, with mark to market movements recognised in the income
statement unless cash flow hedge accounting is applied.
Hedge accounting, as defined in IFRS, is when the interest rate swap is designated as the hedging instrument in a hedge of the
variability in cash flows attributable to the interest risk of borrowings. The effective portion of changes in fair value of the interest rate
swap is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes
in the fair value of the interest rate swap is recognised immediately in profit or loss. The Group only applies hedge accounting when
the hedge is expected to be highly effective.
When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative
gain or loss at that point remains in equity with any subsequent movements in fair value taken to the income statement. If the hedged
transaction is no longer probable, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement
immediately.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance
sheet date, taking into account current interest rates and the current credit worthiness of the swap counterparties.
The UNITE Group plc Annual Report and Accounts 2011
91
Notes to the financial statements continued
Section 4: Funding continued
4.2 Interest rate swaps continued
The following table shows the fair value of interest rate swaps:
Current
Non-current
Fair value of interest rate swaps
2011
£m
–
39.0
39.0
2010
£m
0.2
37.1
37.3
The fair values of interest rate swaps have been calculated by a third party expert, discounting estimated future cash flows on the basis
of market expectations of future interest rates, representing Level 2 in the IFRS 7 fair value hierarchy. The IFRS 7 level categorisation
relates to the extent the fair value can be determined by reference to comparable market values. The classifications range from level 1
where instruments are quoted on an active market through to level 3 where the assumptions used to arrive at fair value do not have
comparable market data.
4.3 Net financing costs
Accounting policies
Net financing costs comprise interest payable on borrowings less interest receivable on funds invested (both calculated using the
effective interest rate method) and gains and losses on hedging instruments that are recognised in the income statement.
Recognised in the income statement:
Finance income
– Interest income on deposit
– Impact of discounting on interest free joint venture investment loans (note 3.4b)
Finance income
Gross interest expense on loans
Interest capitalised
Loan interest and similar charges
Changes in mark to market of interest rate swaps not accounted for as hedges
Finance costs
Net financing costs
2011
£m
(0.1)
(0.7)
(0.8)
15.8
(7.1)
8.7
10.6
19.3
18.5
2010
£m
(0.2)
(0.7)
(0.9)
16.3
(2.5)
13.8
18.6
32.4
31.5
The Group’s overall average cost of debt as at 31 December 2011 is 5.7% (2010: 6.9%). The average cost of the Group’s investment
debt at 31 December 2011 is 5.4% (2010: 6.1%). This excluded £27 million of swaps and associated debt which are not specifically
allocated to properties, see note 4.5a(i) for further details.
92
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 4: Funding continued
4.4 Gearing
The Group’s adjusted gearing ratio is a key indicator that the Group uses to manage its indebtness. Adjusted net asset value (NAV)
and adjusted net debt are used to calculate adjusted gearing. Adjusted net debt excludes mark to market of interest rate swaps as
shown below.
The Group’s gearing ratios are calculated as follows:
Cash and cash equivalents
Current borrowings
Non-current borrowings
Interest rate swaps liabilities
Net debt per balance sheet
Mark to market of interest rate swaps
Adjusted net debt
Reported net asset value (attributable to owners of the parent company)
Adjusted net asset value
Gearing
Basic (Net debt/Reported net asset value)
Adjusted gearing (Adjusted net debt/Adjusted net asset value)
See-through adjusted gearing (including share of JV properties and net debt)
Note
5.1
4.1
4.1
4.2
2.4c
2.4c
2011
£m
16.8
(29.2)
(421.5)
(39.0)
(472.9)
2010
£m
23.8
(0.3)
(357.8)
(37.3)
(371.6)
38.9
37.0
(434.0)
387.6
514.5
(334.6)
387.5
474.5
122%
84%
126%
96%
71%
115%
4.5 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risks – primarily interest rate risk, credit risk and liquidity risk.
The Group’s treasury policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects
on the Group’s financial performance. Details on credit risk can be found in note 5.3.
a) Interest rate risk
Interest rate risk is the risk that the Group is impacted by significant changes in interest rates. Borrowings issued at or swapped
to floating rates expose the Group to interest rate risk. The Group’s policy is separated into two main areas:
i) Development and refinancing
After taking account of interest rate swaps, £36 million (89%) of the Group’s development borrowing at 31 December 2011
(2010: £27 million (41%)) is fixed. The Group will continue to review the level of its hedging in the light of the current low interest
rate environment.
The Group’s principal exposure to interest rate fluctuations during development relates to movements in longer term interest rates
which affect the amount of debt the property income is capable of servicing at completion. Significant adverse movements undermine
the Group’s ability to release equity from its developments.
The Group currently manages this risk by retaining swaps of £27 million relating to loans against properties that have been sold with
the intention of allocating them against imminent new developments. Prior to this reallocation these swaps were commercially hedging
loans against rental properties. The Group’s policy also allows this exposure to be managed through the use of forward starting swaps.
The UNITE Group plc Annual Report and Accounts 2011
93
Notes to the financial statements continued
Section 4: Funding continued
4.5 Financial risk factors continued
a) Interest rate risk continued
ii) Medium and long-term finance
The Group holds its medium and long-term bank finance under floating rate arrangements. The majority of this debt is hedged through
the use of interest rate swap agreements, although not all these arrangements qualify for hedge accounting under IAS 39. During 2011,
the Group’s policy guideline has been to hedge in excess of 75% of the Group’s exposure for terms of approximately 2-15 years.
At 31 December 2011, after taking account of interest rate swaps, 69% (2010: 97%) of the Group’s medium and long-term investment
borrowing was held at fixed rates. This was temporarily below the hedging policy guideline of 75%. New funding facilities are to be put
in place in early 2012 which will require further hedging taking the hedge ratio above 75% again. Excluding the £27 million of swaps
the fixed investment borrowing is at an average rate of 5.7% (2010: 6.8%) for an average period of 2 years (2010: 3 years), including
these swaps the average rate is 5.4%.
The Group holds interest rate swaps at 31 December 2011 against £302.9 million (£295.6 million) of the Group’s borrowings.
The maturity of these swaps and the applicable interest rates are as follows:
Within one year
Between one and two years
Between two and five years
More than five years
2011
Nominal
amount hedged
£m
–
27.6
242.5
32.8
2011
Applicable
interest rates
%
–
5.2-5.3
2.8-5.8
5.3-5.6
2010
Nominal
amount hedged
£m
5.0
–
243.5
47.1
2010
Applicable
interest rates
%
4.8
–
5.2-5.8
4.50-5.6
At 31 December 2011, if interest rates had increased/decreased by 1%, pre-tax profit for the year would have been £0.8 million
(2010: £0.3 million) lower/higher.
b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. For development activities, the
Group has a policy to inject substantially the full amount of equity required for each development before drawing debt against the specific
facility for the development. The funding requirements of each scheme are therefore substantially ‘ring fenced’ and secured at the outset
of works.
The table below analyses the Group’s financial liabilities and interest rate swaps into relevant maturity groupings based on the period
remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows (including
interest), so will not always reconcile with the amounts disclosed on the balance sheet.
2011
Bank and other loans
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
2010
Bank and other loans
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
Total contractual
cash flows
£m
480.0
84.4
Less than
1 year
£m
42.2
84.4
Between
1 and 2 years
£m
260.4
–
Between
2 and 5 years
£m
146.0
–
13.5
17.9
595.8
3.9
10.8
141.3
4.4
5.1
269.9
4.7
2.0
152.7
Total contractual
cash flows
£m
398.2
52.8
Less than
1 year
£m
11.0
52.8
Between
1 and 2 years
£m
78.8
–
Between
2 and 5 years
£m
272.5
–
6.1
46.4
503.5
1.8
11.4
77.0
1.6
11.4
91.8
2.0
21.4
295.9
Over
5 years
£m
31.4
–
0.5
–
31.9
Over
5 years
£m
35.9
–
0.7
2.2
38.8
94
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 4: Funding continued
4.5 Financial risk factors continued
c) Covenant compliance
Many of the Group’s funding facilities carry covenants. The Group monitors its covenant position and the headroom available on an
ongoing basis. At 31 December 2011, the Group was in full compliance with all of its borrowing covenants. The Group is able to use
available cash to reduce debt to increase headroom on its loan to value (LTV) covenants. The covenant headroom position is outlined
below and assumes that available cash is used to reduce debt.
Loan to value
Interest cover
Minimum net worth
* Calculated on the basis that available cash is used to reduce debt.
4.6 Operating leases
a) Payable
31 December 2011
31 December 2010
Weighted
covenant
74%
1.18
£250m
Weighted
actual
56%*
1.74
£515m
Weighted
covenant
74%
1.11
£250m
Weighted
actual
54%*
1.60
£475m
Accounting policies
Payments made under operating leases are recognised in the income statement on a straight line basis over the term of the lease. Lease
incentives received are recognised in the income statement as an integral part of the total lease expense. Where the property interest
under an operating lease is classified as an investment property, the property interest is accounted for as if it were a finance lease and
the fair value model is used for the asset recognised.
The total future minimum lease rentals payable under non-cancellable operating leases fall due for repayment as follows:
Less than one year
Between one and five years
More than five years
Total
2011
£m
14.5
57.2
226.5
298.2
2010
£m
14.2
56.6
211.5
282.3
These leases primarily relate to properties which the group has sold and leased back and on which rental income is earned. The leases
are generally for periods between 17 and 25 years and subject to annual RPI-based rent review. One property is subject to a fixed annual
rent increase of 2%. The total operating lease expenditure incurred during the year was £14.6 million (2010: £14.5 million)
b) Receivable
The Group accounts for its tenancy contracts offered to commercial and individual tenants as operating leases. The future minimum lease
payments receivable under non-cancellable operating leases are as follows:
Less than one year
Between one and five years
More than five years
Total
2011
£m
52.0
22.3
13.4
87.7
2010
£m
40.8
26.1
14.7
81.6
The UNITE Group plc Annual Report and Accounts 2011
95
Notes to the financial statements continued
Section 4: Funding continued
4.7 Capital management
The capital structure of the Group consists of shareholders’ equity and adjusted net debt, including cash held on deposit. The Group’s
equity is analysed into its various components in the Statement of Changes in Equity. The components and calculation of adjusted
net debt is set out in note 4.4. Capital is managed so as to continue as a going concern and to promote the long-term success
of the business and to maintain sustainable returns for shareholders and joint venture partners.
The Group uses a number of key metrics to manage its capital structure:
adjusted net debt (4.4)
adjusted gearing (4.4)
see through LTV (2.4a)
weighted average cost of investment debt (4.5aii)
In order to manage levels of adjusted gearing over the medium term, the Group seeks to deliver NAV growth and to dispose of non-core
property assets in order to offset capital that is committed to development activity. £100 million to £150 million of non-core property
disposals are targeted by December 2012. The Group targets new developments with a yield on cost of approximately 9%. The Group
does not commit to developing new sites until sufficient equity and funding to fulfil the full cost of the development is secure.
The Board monitors the ability of the Group to pay dividends out of available cash and distributable profits and has reinstated dividends
during 2011. The Operations Segment generated cash of £13.8 million during the year, thereby covering the proposed dividend
of £2.8 million, 5 times.
4.8 Equity
Accounting policies
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business
combination, are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection
with a business combination are deducted from the proceeds of the issue.
The Company’s issued share capital has increased during the year as follows:
Number of ordinary shares
Issued at start of year – fully paid
Shares issued to long-term incentive plan
Share options exercised
Issued at end of year – fully paid
2011
2010
160,268,343 159,606,942
640,000
21,401
160,271,460 160,268,343
–
3,117
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.
4.9 Dividends
Accounting policies
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
During the year, the Company declared and paid an interim dividend of £0.8 million (2010: £nil). After the year end, the Directors
proposed a final dividend of 1.25p per share. No provision has been made in relation to this dividend.
96
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 5: Working capital
This section focuses on how the Group generates its operating cash flows. Careful management of working capital
is vital to ensure that the Group can meet its trading and financing obligations within its ordinary operating cycle.
On the following pages you will find disclosures around the group’s cash position and how cash is generated from
the group’s trading activities, and disclosures around trade receivables and payables.
5.1 Cash
Accounting policies
Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts
that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and
cash equivalents for the purpose of the statement of cash flows.
The Group’s cash position at 31 December 2011 was £16.8 million (2010: £23.8 million).
The Company’s cash position at 31 December 2011 was £0.1 million (2010: £0.5 million).
The Group’s cash balances include £14.5 million (2010: £15.6 million) whose use at the balance sheet date is restricted by funding
agreements to pay operating costs and loan interest relating to specific properties.
The Group generates cash from its operating activities as follows:
Group
Company
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Dividends receivable
Fair value of share based payments
Impairment of fixed assets
Change in value of investment property
Net finance costs
Loss on disposal of investment property
Share of joint venture profit
Trading with joint venture adjustment
Tax charge
Cash flows from operating activities before
changes in working capital
Decrease in trade and other receivables
(Increase)/decrease in completed property and property
under development
(Increase)/decrease in inventories
Increase/(decrease) in trade and other payables
Increase in provisions
Cash flows from operating activities
Note
3.3
6.1
3.3
3.1
4.3
3.4b
2.6a
2011
£m
3.9
4.1
–
1.2
3.7
(7.7)
18.5
0.2
(22.6)
2.2
0.8
4.3
1.2
(114.7)
(6.8)
31.0
11.0
(74.0)
2010
£m
21.3
3.3
–
1.3
–
(15.4)
31.5
2.9
(25.3)
3.7
2.9
26.2
2.5
24.7
4.9
(18.2)
–
40.1
2011
£m
(0.9)
–
(2.3)
–
–
–
0.1
–
–
–
–
(3.1)
–
–
–
0.7
–
(2.4)
2010
£m
(2.6)
–
–
–
–
–
0.1
–
–
–
–
(2.5)
(0.1)
–
–
(0.3)
–
(2.9)
Cash flows consist of the following segmental cash inflows/(outflows): Operations £13.8 million (2010: £0.6 million), property
(£17.2 million (2010: (25.9 million) and unallocated (£3.6 million) (2010: £0.3 million). The unallocated amount includes restructuring
(£1.4 million) (2010: £nil), Group dividends (£0.8 million) (2010: £nil), dividend payable to minority interests (£0.7 million)
(2010: (£0.7 million)) and tax payable of (£0.6 million) (2010: £0.8 million).
The UNITE Group plc Annual Report and Accounts 2011
97
Notes to the financial statements continued
Section 5: Working capital continued
5.2 Trade and other receivables
Accounting policies
Trade receivables are initially recognised at the amount invoiced to the customer (fair value) and subsequently at the amounts considered
recoverable (amortised cost). Estimates are used in determining the level of receivables that will not, in the opinion of the Board,
be collected. These estimates include such factors as historical experience and industry specific factors. A provision for impairment
of trade receivables is established when there is sufficient evidence that the Group will not be able to collect all amounts due.
The carrying value of trade receivables is considered to approximate fair value.
Trade and other receivables can be analysed as follows, all trade and other receivables are current.
Trade receivables
Amounts due from group undertakings
Amounts owed by joint ventures
Prepayments and accrued income
Other receivables
Trade and other receivables
Group
Company
2010
£m
12.0
–
20.2
11.8
0.6
44.6
2011
£m
–
317.7
–
–
–
317.7
2010
£m
–
318.3
–
–
–
318.3
2011
£m
6.7
–
13.4
19.5
1.4
41.0
The Group offers tenancy contracts to commercial (Universities and retail unit tenants) and individual tenants based on the academic
year. The Group monitors and manages the recoverability of its receivables based on the academic year to which the amounts relate.
Rental income is payable immediately, therefore all receivables relating to tenants are passed the payment due date.
2011
Rental debtors
Commercial tenants (past due and impaired)
Individual tenants (past due and impaired)
Provisions carried
Rental debtors (past due but not impaired)
Manufacturing debtors (not past due or impaired)
Trade receivables
2010
Rental debtors
Commercial tenants (past due and impaired)
Individual tenants (past due and impaired)
Provisions carried
Rental debtors (past due but not impaired)
Manufacturing debtors (not past due or impaired)
Trade receivables
Amounts receivable from joint ventures are not past due or impaired.
Ageing by academic year
Total
£m
4.3
6.3
(5.9)
4.7
2.0
6.7
2011/12
£m
2010/11
£m
Prior years
£m
4.3
1.0
(1.2)
4.1
2.0
6.1
–
2.0
(1.7)
0.3
–
0.3
–
3.3
(3.0)
0.3
–
0.3
Ageing by academic year
Total
£m
8.1
8.0
(6.3)
9.8
2.2
12.0
2010/11
£m
2009/10
£m
Prior years
£m
6.7
2.3
(1.0)
8.0
2.2
10.2
0.8
3.8
(3.3)
1.3
–
1.3
0.6
1.9
(2.0)
0.5
–
0.5
As at 31 December 2011, trade receivables of £10.6 million (2010: £16.1 million) were provided against. Movements in the Group’s
provision for impairment of trade receivables can be shown as follows:
At 1 January
Impairment charged to income statement in year
Receivables written off during the year (utilisation of provision)
At 31 December
2011
£m
6.3
2.6
(3.0)
5.9
2010
£m
3.5
2.8
–
6.3
98
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 5: Working capital continued
5.3 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. It arises principally from the Group’s cash balances, the Group’s receivables from customers and joint ventures and loans
provided to the Group’s joint ventures.
At the year end, the Group’s exposure to credit risk was as follows:
Cash
Trade receivables
Amounts due by joint ventures (excluding loans that are capital in nature)
Joint venture investment loans
Note
5.1
5.2
5.2
3.4b
2011
£m
16.8
6.7
13.4
14.1
51.0
2010
£m
23.8
12.0
20.2
13.2
69.2
a) Cash
The Group operates investment guidelines with respect to surplus cash. Counterparty limits for cash deposits are largely based upon
long-term ratings published by credit rating agencies and credit default swap rates.
b) Trade receivables
The Group’s customers can be split into three groups – (i) students (individuals), (ii) commercial organisations including Universities and
(iii) manufacturing customers. The Group’s exposure to credit risk is influenced by the characteristics of each customer. The Group holds
tenant deposits of £9.0 million (2010: £8.1 million) as collateral against individual customers.
c) Joint ventures
Amounts receivable from joint ventures fall into two categories – working capital balances and investment loans.
5.4 Trade and other payables
Accounting policies
Trade payables are initially recognised at the value of the invoice received from a supplier (fair value) and subsequently at amortised cost.
The carrying value of trade payables is considered approximate to fair value.
Trade and other payables due within one year can be analysed as follows:
Trade payables
Retentions on construction contracts for properties
Amounts due to group undertakings
Other payables and accrued expenses
Deferred income
Trade and other payables
Group
Company
2011
£m
9.7
3.1
–
53.0
18.6
84.4
2010
£m
4.7
2.4
–
30.3
15.4
52.8
2011
£m
–
–
29.7
3.0
–
32.7
2010
£m
–
–
29.7
2.3
–
32.0
Other payable and accrued expenses include £9.0 million (2010: £8.1 million) in relation to customer deposits. These will be returned
at the end of the tenancy subject to the condition of the accommodation and payment of any outstanding amounts.
The UNITE Group plc Annual Report and Accounts 2011
99
Notes to the financial statements continued
Section 6: Key management and employee benefits
The Group’s greatest resource is its staff and it works hard to develop and retain its people. The remuneration
policies in place are aimed to help recognise the contribution that UNITE’s people make to the performance
of the Group.
Over the next couple of pages you will find disclosures on wages and salaries and share option schemes which
allow employees of the Group to take an equity interest in the Group.
6.1 Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Managerial and administrative
Site operatives
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Pension costs
Fair value of share based payments
Number of employees
2011
371
606
977
2011
£m
30.7
3.2
0.7
1.2
35.8
2010
370
543
913
2010
£m
27.7
2.9
0.6
1.3
32.5
The staff numbers above are average full-time equivalents and therefore are only marginally affected by the reduction in headcount
as a result of the restructure late in 2011. Managerial and administrative full-time equivalents in December 2011 amounted to 354
(2010: 378), a reduction of 24.
The wages and salaries costs include redundancy costs of £1.1 million (2010: £0.3 million).
Accounting policies
The Group operates a defined contribution pension scheme. Obligations for contributions to defined contribution pension plans
are recognised as an expense in the income statement as incurred.
6.2 Key management personnel
The Board considers that the key management personnel within the Group are those appointed to the Board. As such, the remuneration
of key management personnel is contained within the Remuneration Report on pages 53 to 60.
100
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
Section 6: Key management and employee benefits continued
6.3 Share based compensation
A transaction is classified as a share based transaction where the Group receives services from employees and pays for these in shares
or similar equity instruments. The Group operates a number of share-based compensation schemes allowing employees to acquire shares
in the Company.
a) Share schemes
The Group operates the following schemes:
Executive share option scheme – ‘The Approved Scheme’
Executive share option scheme – ‘The Unapproved Scheme’
Executive Long-Term Incentive Plan (LTIP)
Save As You Earn Scheme (SAYE)
Employee Share Ownership (ESOT)
{ Details can be found in the Directors’
Remuneration Report
Open to employees, vesting periods of three to five
years, service condition
Used to award part of Directors’ and senior
managers’ bonuses in shares, vest after three years
continued service
b) Outstanding share options
The table below summarises the movements in the number of share options outstanding for the Group and their average exercise price:
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 31 December
Weighted
average
exercise price
2011
£1.92
£1.21
£1.90
£0.41
£0.85
Number of
options
(thousands)
2011
875
(355)
(3)
1,858
2,375
Weighted
average
exercise price
2010
£2.08
£2.31
£2.38
£1.62
£1.92
Number of
options
(thousands)
2010
877
(181)
(20)
199
875
Exercisable at 31 December
£1.92
439
£1.97
474
For those options exercised in the year, the average share price during 2011 was £2.08 (2010: £2.97).
For those options still outstanding, the range of exercise prices at the year end was 0p to 344p (2010: 129p to 344p) and the weighted
average remaining contractual life of these options was 0.9 years (2010: 1.5 years).
The Group funds the purchase of its own shares by the ‘Employee Share Ownership Trust’ to meet the obligations of the LTIP
and executive bonus scheme. The purchases are shown as ‘Own shares acquired’ in retained earnings.
The accounting is in accordance with the relevant standards. No further information is given as the amounts for share based payments
are immaterial.
The UNITE Group plc Annual Report and Accounts 2011
101
Five year record
Adjusted diluted net asset value per share (pence)*
Net asset value per share (pence)
Adjusted net assets (£m)
IFRS net assets (£m)
Managed portfolio value (£m)
Gearing
adjusted (%)
including share of co investment funds (%)
on balance sheet (%)
from wholly owned assets (£m)
including share of co investment funds (%)
Rental income
Net portfolio contribution (£m)
Adjusted profit/(loss) before tax (£m)
Profit/(loss) before tax (£m)
Earnings per share adjusted (pence)
basic (pence)
2011
318
242
515
388
2,502
84
126
122
64
96
11
(16)
5
(10)
1
2010
295
242
475
388
2,334
71
115
96
64
89
4
(1)
24
0
12
2009
265
229
423
366
2,039
92
133
115
58
82
1
(32)
(35)
(24)
(26)
2008
306
252
483
320
1,829
131
174
180
58
78
(5)
(57)
(116)
(45)
(92)
2007
374
337
587
450
1,723
106
136
121
63
82
(2)
(66)
(37)
(54)
(30)
* Net asset values and earnings per share (EPS) for 2008 and prior years have been restated in accordance with the retrospective adjustment
requirements of IAS 33 EPS with regard to share capital issued in October 2009.
102
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
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Governance
Financial statements
Other information
Notice of annual general meeting
Notice is hereby given that the annual general meeting (AGM) of The UNITE Group plc (the ‘Company’) will be held at The Core,
40 St Thomas Street, Bristol BS1 6JX at 9.30am on 17 May 2012 for the purpose of considering and, if thought fit, passing
the following resolutions which, in the case of resolutions numbered 1 to 15 (inclusive), shall be proposed as ordinary resolutions
and, in the case of resolutions numbered 16 and 17, shall be proposed as special resolutions.
Ordinary business
1. To receive the audited annual accounts of the Company for the year ended 31 December 2011, together with the Directors’ Report
and Auditor’s Report on those accounts and that section of the remuneration report subject to audit
2. To confirm and declare a final dividend on the ordinary shares for the year ended 31 December 2011 of 1.25p per ordinary share
payable to shareholders on the register at the close of business on 20 April 2012
3. To approve the Directors’ Remuneration Report for the year ended 31 December 2011
4. To appoint Mrs M K Wolstenholme as a Director of the Company
5. To re-appoint Mr P M White as a Director of the Company
6. To re-appoint Mr M C Allan as a Director of the Company
7. To re-appoint Mr J J Lister as a Director of the Company
8. To appoint Mr R C Simpson as a Director of the Company
9. To appoint Mr R S Smith as a Director of the Company
10. To re-appoint Mr S R H Beevor as a Director of the Company
11. To re-appoint Mr R S Walker as a Director of the Company
12. To re-appoint Sir Tim Wilson as a Director of the Company
13. To re-appoint KPMG Audit Plc as auditors to hold office until the conclusion of the next general meeting of the Company at which
accounts are laid
14. To authorise the Directors to determine the remuneration of the auditors
Special business
15. That, in substitution for any equivalent authorities and powers granted to the Directors prior to the passing of this resolution, the
Directors be and are generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 (the ‘Act’):
(a) to exercise all powers of the Company to allot shares in the Company, and grant rights to subscribe for or to convert any security
into shares of the Company, up to an aggregate nominal amount of £13,355,955 (such amount to be reduced by the nominal
amount of any allotments or grants made under paragraph (b) below in excess of £13,355,955; and further;
(b) to allot equity securities (as defined by Section 560(1) of the Act) up to an aggregate nominal amount of £26,711,910
(such amount to be reduced by the nominal amount of any allotments or grants made under paragraph (a) above) in connection
with an offer by way of rights issue:
(i) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable
to the interests of such holders are proportionate (as nearly as practicable), to the respective number of ordinary shares
in the capital of the Company held by them; and
(ii) to holders of any other equity securities as required by the rights of those securities or as the Directors otherwise
consider necessary,
but subject to such exclusions or other arrangements as the Directors consider expedient in relation to treasury shares,
fractional entitlements, legal or practical problems under the laws in any territory or the requirements of any relevant regulatory
body or stock exchange or any other matter whatsoever,
provided that this authority shall expire (unless renewed, varied or revoked by the Company in general meeting), on the date falling
15 months from the passing of this Resolution or, if earlier, at the conclusion of the next AGM of the Company to be held following
the passing of this Resolution, save that the Company may, before such expiry, make an offer or enter into an agreement which would
or might require shares in the Company to be allotted or rights to subscribe for or convert securities into shares be granted after such
expiry and the directors may allot shares or grant rights to subscribe for or convert securities into shares in pursuance of such offer
or agreement as if this authority had not expired.
16. That, in accordance with Section 570(1) of the Act, the directors be and are empowered to allot equity securities (within the meaning
of Section 560(1) of the Act) pursuant to the general authority conferred on them by Resolution 15 above as if Section 561(1)
of the Act did not apply to any such allotment, provided that this power shall be limited:
(a) to the allotment of equity securities in connection with an offer or issue to or in favour of ordinary shareholders on the register
on a date fixed by the Directors where the equity securities respectively attributable to the interests of all those shareholders are
proportionate (as nearly as practicable) to the respective numbers of ordinary shares held by them on that date, but the Directors
may make such exclusions or other arrangements as they consider expedient in relation to fractional entitlements, legal or
practical problems under the laws in any territory or the requirements of any relevant regulatory body or stock exchange; and
The UNITE Group plc Annual Report and Accounts 2011
103
Notice of annual general meeting continued
(b) to the allotment (other than under (a) above) of equity securities having a nominal value not exceeding in aggregate £2,003,393
and this authority shall expire on the date falling 15 months from the passing of this Resolution, or, if earlier, at the conclusion of
the next AGM of the Company to be held following the passing of this resolution, save that the Company may, before this authority
expires, make an offer or agreement which would or might require equity securities to be allotted after it expires and the Directors
may allot equity securities in pursuance of such offer or agreement as if this authority had not expired and provided further that
this authority shall supersede and revoke all previous authorities under Section 570(1) of the Act.
17. That a general meeting other than an AGM may be called on not less than 14 clear days’ notice.
By order of the board
A D Reid
Secretary
Dated 1 March 2012
Registered office:
The Core
40 St Thomas Street
Bristol
BS1 6JX
Notes
1. A member of the Company who wishes to attend the meeting in person should arrive at the offices of the Company, The Core,
40 St Thomas Street, Bristol BS1 6JX in good time before the meeting, which will commence at 9.30am. In order to gain admittance
to the meeting, members may be required to produce their attendance card, which is attached to the form of proxy enclosed with this
document, or otherwise prove their identity.
2. A member of the Company who is unable or does not wish to attend the meeting is entitled to appoint a proxy to exercise all
or any of his/her rights to attend and to speak and vote on his/her behalf at the meeting. A member may appoint more than one
proxy provided each proxy is appointed to exercise rights attached to different shares (so a member must have more than one
share to be able to appoint more than one proxy). A proxy need not be a member of the Company but must attend the meeting
to represent his/her appointing member. Appointing a proxy will not prevent a member from attending in person and voting at
the meeting. A proxy must vote in accordance with any instructions given by the member by whom the proxy is appointed. A form
of proxy which may be used to make such appointment and give proxy instructions accompanies this notice. You can only appoint
a proxy using the procedures set out in these notes and the notes to the proxy form.
3. To be valid, any form of proxy, and the original or duly certified copy of the power of attorney or other authority (if any) under which
it is signed or authenticated, must be received by hand or by post at Computershare Investor Services PLC, The Pavilions, Bridgwater
Road, Bristol, BS99 6ZY, no later than 9.30am on 15 May 2012.
4. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for
the meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members
or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
5.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST
Proxy Instruction’) must be properly authenticated in accordance with Euroclear’s specifications, and must contain the information
required for such instruction, as described in the CREST manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be a valid, be transmitted
so as to be received by the Company’s agent (CREST ID 3RA50) by the latest time for receipt of proxy appointments specified in
note 3 above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the
message by the CREST Application Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST
in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
6. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear does not make
available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in
relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST
member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his/her
CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those sections of the CREST manual concerning practical limitations
of the CREST system and timings.
7. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001 (as amended).
8.
9.
104
If you would like to submit your proxy vote via the internet, you can do so by accessing our registrar’s website
(www.eproxyappointment.com). You will require the control number, your unique PIN (which will expire at the end of the voting period)
and your Shareholder Reference Number (SRN), printed on the proxy card, in order to log in and submit your proxy vote electronically.
You can access this site from any internet enabled PC.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted
by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in
the Company’s register of members in respect of the joint holding (the first-named being the most senior).
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
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Governance
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Other information
10. If you submit more than one valid proxy appointment in respect of the same shares, the appointment received last before the latest
time for the receipt of proxies will take precedence.
11. Any person to whom this notice is sent who is a person nominated under section 146 of the Act to enjoy information rights
(a ‘Nominated Person’) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have
a right to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
12. The statement of the rights of shareholders in relation to the appointment of proxies above does not apply to Nominated Persons.
These rights can only be exercised by shareholders of the Company.
13. Pursuant to Part 13 of the Companies Act 2006 and Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended),
the Company specifies that only those shareholders registered in the register of members of the Company at 5.00pm two days
before the meeting shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name
at that time. Any changes to the register of members after such time shall be disregarded in determining the rights of any person
to attend or vote at the meeting.
14. As at 1 March 2012 the Company’s issued share capital consists of 160,271,460 ordinary shares carrying one vote each.
Therefore the total voting rights in the Company as at 1 March 2012 are 160,271,460.
15. You may not use any electronic address provided either in this notice of meeting or any related documents (including the proxy form)
to communicate with the Company for any purposes other than those expressly stated.
16. Members attending the meeting have the right to ask and, subject to the provisions of the Act, the Company must cause
to be answered, any questions relating to the business being dealt with at the meeting.
17. The following information is available at www.unite-group.co.uk (1) the matters set out in this notice of AGM; (2) the total numbers
of shares in the Company in respect of which members are entitled to exercise voting rights at the meeting; (3) the totals of the
voting rights that members are entitled to exercise at the meeting; and (4) members’ statements, members’ resolutions and members’
matters of business received by the Company after the date on which notice of the meeting was given.
18. It is possible that, pursuant to requests made by members of the Company under Section 527 of the Act, the Company may
be required to publish on a website a statement setting out any matter relating to: (a) the audit of the Company’s accounts
(including the auditor’s report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstance connected
with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid
in accordance with Section 437 of the Act. The Company may not require the members requesting any such website publication
to pay its expenses in complying with Sections 527 or 528 of the Act. Where the Company is required to place a statement on
a website under Section 527 of the Act, it must forward the statement to the Company’s auditor not later than the time when it
makes the statement available on the website. The business which may be dealt with at the meeting includes any statement that
the Company has been required under Section 527 of the Act to publish on a website.
19. In accordance with Section 338 of the Act, a member or members of the Company may (provided that the criteria set out
in Section 338(3) of the Act are met) require the Company to give to members notice of a resolution which may properly be moved
and is intended to be moved at the meeting, provided that: (a) the resolution must not be, if passed, ineffective (whether by reason
of inconsistency with any enactment or the Company’s constitution or otherwise); and (b) the resolution must not be defamatory
of any person, frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must be authenticated by the
person or persons making it, must identify the resolution of which notice is to be given and must be received by the Company not
later than six weeks before the meeting, or, if later, the time at which notice is given of the meeting. (In the foregoing sentence,
the terms ‘hard copy form’, ‘electronic form’ and ‘authenticated’ bear their respective meanings set out in the Act in relation to
a communication, or a document or information sent or supplied, to a company.)
20. In accordance with Section 338A of the Act, a member or members of the Company may (provided that the criteria set out in
Section 338A (3) of the Act are met) require the Company to include in the business to be dealt with at the meeting a matter
(other than a proposed resolution) which may properly be included in the business of the meeting, provided that the matter is not
defamatory of any person, frivolous or vexatious. A request may be in hard copy form or electronic form, must identify the matter
to be included in the business, must be accompanied by a statement setting out the grounds for the request, must be authenticated
by the person or persons making it and must be received by the Company not later than six weeks before the meeting, or, if later,
the time at which notice is given of the AGM. (In the foregoing sentence, the terms ‘hard copy form’, ‘electronic form’ and
‘authenticated’ bear the respective meanings set out in the Act in relation to a communication, or a document or information
sent or supplied, to a company.)
21. A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone
to represent it. This can be done in one of two ways: Either by the appointment of a proxy (as described in the notes above) or of a
corporate representative. Members considering the appointment of a corporate representative should check their own legal position,
the Company’s articles of association and the relevant provisions of the Act.
22. The following documents are available for inspection at the registered office of the Company during the usual business hours on any
weekday (Saturday, Sunday or public holidays excluded) from the date of this notice until the conclusion of the AGM and will also be
available for inspection at the place of the meeting from 9.15am on the day of the meeting until its conclusion:
(a)
(b)
copies of the Executive Directors’ service contracts with the Company and any of its subsidiary undertakings
and letters of appointment of the Non-Executive Directors.
The UNITE Group plc Annual Report and Accounts 2011
105
Glossary
Adjusted earnings per share
The diluted earnings per share based on adjusted profit.
of their financing costs and the Group’s total non-development
related overheads.
Adjusted, fully diluted net asset value per share
(Adjusted NAV)
The basic NAV per share figure is recalculated to take account
of dilutive outstanding share options and adjusted to:
Net rental growth
The annual growth in net operating income less costs from
a property (measured on a like-for-like basis, ie, excluding
impact of completion and disposals).
exclude the impact of deferred tax
exclude the mark to market of interest rate swaps
include the valuation gain not recognised on properties
held at cost
Adjusted gearing
Adjusted net debt as a percentage of adjusted net assets.
Adjusted net debt
The Group’s debt, net of cash and unamortised debt raising
costs, excluding the mark to market of interest rates swaps.
Adjusted net debt to property assets
The adjusted net debt as a percentage of the value
of UNITE properties.
Adjusted profit
Adjusted profit is prepared on the basis recommended for real
estate companies by EPRA, the European Public Real Estate
Association, except for profits from disposal of assets (see note
2.3(a) for details). This excludes movements relating to changes
in values of investment properties and interest rate swaps and
the related tax effects.
Basis points (bps)
A basis point is a term used to describe a small percentage,
usually in the context of a change, and equates to 0.01%.
Financing costs
Gross financing costs net of interest capitalised into
developments and interest received on deposits.
Gross financing costs
This includes all interest paid by the Group, including those
capitalised into developments and operating lease rentals.
It includes all receipts and payments under interest rate
swaps whether they are effective or ineffective under IFRS
as economically they all hedge interest rate exposures.
Interest cover ratio (ICR)
The interest cover ratio is the income generated by a property
as a multiple of the interest charge on the debt secured
on the property.
Minimum net worth
Minimum net worth covenant measures the value of the
Company against an absolute target.
Net Initial Yield (NIY or Yield)
The net operating income generated by a property expressed
as a percentage of its value.
Net operating income (NOI)
The rental income from rental properties less those operating
costs directly related to the property, therefore excluding
central overhead.
Net portfolio contribution (NPC)
This is an important indicator of operational performance
as it measures the income from the rental properties, net
Non-core assets
Properties which do not fit with the Group’s long-term
investment strategy, either because of their location or
operational inefficiency as a result of their size.
OCB
UNITE successfully established a joint venture with Oasis
Capital Bank (OCB) in August 2009. The joint venture consists
of three assets located in London, all of which were completed
in 2010.
Rental properties
Investment and completed properties whose construction has
been completed and are used by the Operations segment
to generation Net Portfolio Contribution.
Stabilising assets
Properties that have recently been developed and are not yet
generating their optimal net operating income.
Total income from managed portfolio
This measure indicates the overall scale of the property
portfolio that the Group manages. It comprises rental and
related income, totalling £219.6 million from properties
owned by:
The Group
Third parties
USAF
UCC
USV
OCB
£m
63.6
1.1
109.5
27.1
5.9
12.4
The Group’s share of this gross income is shown in note
2.2(a).
UCC
UNITE Capital Cities was established in 2005 as a joint venture
between UNITE and GIC Real Estate. It is a closed-ended
vehicle due to mature in 2013 and was established by UNITE
to develop and operate student accommodation in London and
Edinburgh. UCC equity is now fully invested and all
development projects have been completed.
USAF/the Fund
The UNITE UK Student Accommodation Fund (USAF)
is Europe’s largest fund that purely focuses on direct let student
accommodation investment assets. The Fund is an open-ended
infinite life vehicle which has unique buying access to UNITE’s
portfolio. UNITE act as Fund Manager of the Fund, as well
as owning a significant minority stake.
USV
UNITE Student Village was established in 2004 as a joint
venture between UNITE and Lehman Brothers to develop large
student village schemes of c1,000 bed spaces. UNITE acquired
the USV stake in the one remaining operation asset from
Lehman Brothers in January 2012.
106
The UNITE Group plc Annual Report and Accounts 2011
Highlights
Overview
Business review
Governance
Financial statements
Other information
UNITE letting arrangements
Direct Let
Properties where short-hold tenancy agreements are made
directly between the commercial operator and the student.
Lease
Properties which are leased to Universities for a number
of years and have no UNITE management presence.
Nominations
Properties where short-hold tenancy agreements are made with
students, with the University providing a longer term occupancy
guarantee in respect of a significant proportion of rooms.
Sale and lease back
Properties which have been sold to a third party investor then
leased back to the Company. UNITE are responsible for the
management of these assets on behalf of the owner.
The UNITE Group plc Annual Report and Accounts 2011
107
Company information
UNITE Executive Team
Mark Allan
Chief Executive
Joe Lister
Chief Financial Officer
Richard Simpson
Managing Director of Property
Richard Smith
Managing Director of Operations
Nicola Yates
Group Human Resources Director
Paul Harris
Group Strategy and Corporate Relations Director
Registered office
The Core
40 St Thomas Street
Bristol BS1 6JX
Registered number in England
3199160
Company Secretary
Andrew Reid
Auditors
KPMG Audit Plc
15 Canada Square
London E14 5GL
Financial Advisors
JP Morgan Cazenove
20 Moorgate
London EC2R 6DA
Numis Securities
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Financial PR Consultants
FTI Consulting
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
108
The UNITE Group plc Annual Report and Accounts 2011
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The UNITE Group plc
The Core
40 St Thomas Street
Bristol BS1 6JX
Tel: 0117 302 7000
Fax: 0117 302 7400
info@unite-group.co.uk
www.unite-group.co.uk
www.unite-students.com