Annual Report and Accounts 2012
The UNITE Group plc
Sustainable
performance
Who we are
UNITE is the UK’s leading provider of student
accommodation, providing a home to 42,000 students
in over 120 properties across 23 of the UK’s strongest
University cities.
Students living in our high-quality buildings receive
Wi-Fi or broadband internet, utilities, insurance,
maintenance and 24/7 security inclusive in their rent.
The foundation for our success is offering high quality,
well-located, safe accommodation that is close to
University campuses, transport and local amenities.
We work closely with our University partners to ensure we are providing
an excellent student experience.
We are focused on delivering 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 four specialist fund 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
• London Student Accommodation Vehicle (LSAV) in which
we have a 50% stake.
We employ almost 1,000 people and our mission is to deliver the best
accommodation experience for students, with passion and pride.
Governance
38 Risk management
40 Board of Directors
42 Corporate governance
48 Audit Committee report
52 Directors' remuneration report
64 Nomination Committee report
65 Other governance and
statutory disclosures
67 Statement of Directors' responsibilities
68
Independent auditor’s report
Introduction
Overview
01
08 Chairman’s statement
10 How we operate
11 Where we operate
12 Our markets
14 Our top ten properties
Strategy
16 Chief Executive's review
20 Key performance indicators
Business review
22 Operations review
Corporate Responsibility
CR1
CR3
CR4
CR7 CR overview
Caring for the environment
Committed to our people
Supporting our communities
26 Property review
32 Financial review
36 Student accommodation market review
Contents
Introduction and table of contents
Financial statements
69
70 Consolidated income statement
Consolidated statement
70
of comprehensive income
71 Consolidated balance sheet
72 Company balance sheet
73
Consolidated statement of changes
in shareholders’ equity
Company statement of changes
in shareholders’ equity
75 Statements of cash flows
76 Notes to the financial statements
74
Other information
107 Five year record
108 Notice of annual general meeting
112 Glossary
IBC Company information
Introduction
2012 was a year of continued momentum
for UNITE, with the benefits of the work
we have done to enhance our business
model and strengthen our footprint in
the sector reflected in our financial results.
Our deep understanding of the
Universities we work with, our student
customers and knowledge of the market
context ensure we can continue to build
a sustainable, market-leading position
in the months and years to come.
Our achievement of key financing
milestones including the extension and
enlargement of our significant joint
venture with GIC, our £120 million loan
from Legal & General, and our successful
£90 million retail bond, also illustrate the
continued appeal of the student
accommodation sector for UK
and international investors.
In light of the progress made during
the year and our strong performance
across all our financial metrics, we are
pleased to announce a substantial
increase in the total dividend for the
year, demonstrating our confidence
in the strength of our business and
the prospects it offers for attractive
future returns.
Cover image
Our new flagship property
Moonraker Point opened
in 2012. It is situated in an
excellent Zone 1 location
and provides a home for 674
students, including five of
our UNITE Foundation
bursary recipients. UNITE has
signed a 15 year agreement
with King’s College London
for the property.
Financial highlights
NAV pps
2008
2009
2010
2011
2012
Net portfolio contribution £m
252
265
2008 -5.4
2009 0.6
295
318
350
2010
2011
2012
4.1
11.0
Occupancy %
See through net debt £m
2008
2009
2010
2011
2012
99
97
97
99
96
2008
2009
2010
2011
2012
19.1
707
561
547
646
648
See through LTV %
Dividend pps
2008
2009
2010
2011
2012
63
56
54
54
52
2008 –
2009 –
2010 –
2011
2012
1.75
4.0
Strong financial performance
— Net Portfolio Contribution (NPC) up 74% to £19.1 million
— Adjusted earnings per share up 280% to 9.9 pence representing
a yield on opening adjusted NAV of 3.1%
— Adjusted Net Asset Value (NAV) per share up 10% to 350 pence,
equating to a total return on equity (including dividends) of 11.3%
— Final dividend increased to 3.0 pence per share, making
4.0 pence for the full year
— Adjusted loan-to-value ratio reduced to 52% from 54%
at December 2011
— Weighted average loan maturity extended to 4.9 years
and average cost of debt reduced to 5.5%.
Positive outlook
— Student numbers for 2013/14 academic year likely to increase
by 25,000 to 30,000 following positive Government policy
announcements and 3.5% growth in applications
— Net positive demand/supply movement of approximately
18,000 after taking into account 9,500 new beds in the
market for 2013/14
— Reservations for 2013/14 at 62% as at 5 March 2013
and supportive of rental growth in line with recent years
— Three developments secured for delivery in 2014 and 2015,
expected to contribute a further 19 pence per share of NAV uplift
— Good progress with LSAV London development plans, with first
project secured (759 beds) and a second scheme (950 beds)
under lock-out.
0101
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview First class customer
satisfaction
“ The on-site team are very helpful
and attentive; it makes me feel like
a resident as opposed to a number.
The building is in excellent condition
and maintenance issues are dealt
with swiftly.”
Nadeem, Glasgow
Score of
67
This year our increased customer focus led
to our best ever customer satisfaction score.
The results of this independent survey
showed an increase in customer advocacy
demonstrating the clear and increasing
value of our brand.
02
The UNITE Group plc Annual Report and Accounts 2012
Long-term
partnerships
“ King’s College London is very
pleased to have secured additional
accommodation for its students
in a convenient central location; we
look forward to working with UNITE
to ensure that our students have an
excellent experience at Moonraker.”
Jenny Briggs, Director of Student Facilities
at King’s College London
15 year
nominations
agreement
We signed a 15-year nominations agreement
with King’s College London. Our flexible operating
model enables us to fit alongside Universities’
existing accommodation arrangements and
provide their students with a home that enhances
their overall student experience.
0303
The UNITE Group plc Annual Report and Accounts 2012 Strategically important
joint venture
We announced the extension of an
existing joint venture and the creation
of a new partnership – the London
Student Accommodation Vehicle.
£1
billion
portfolio
Both joint ventures are with sovereign wealth
fund GIC Real Estate. The new 50:50 joint
venture will be the vehicle for UNITE to undertake
its next phase of London development activity,
with the target of building a £1 billion
London portfolio.
04
The UNITE Group plc Annual Report and Accounts 2012
The UNITE Foundation
“ Nothing compared to the support
offered by Edinburgh and the
UNITE award was the best of all.
It has meant I can focus on my
studies without worrying about
money and finding a job. Coming
to University would not have been
possible without it.”
Helena, University of Edinburgh
21
bursaries
In 2012 we set up our own charitable trust,
The UNITE Foundation, to support widening access
to Higher Education, integrate students within local
communities and promote employability.
The UNITE Group plc Annual Report and Accounts 2012
05
05
The UNITE Group plc Annual Report and Accounts 2012 Developing
Stratford’s future
We are building a 951 bed
development in Stratford,
London, E15 scheduled
for completion in 2014.
951
new beds
The scheme, which is already under construction
(pictured), is adjacent to the Olympic park.
This property will cater for students seeking
more affordable accommodation. Stratford
is an ideal location due to its strong University
presence and excellent transport links.
06
The UNITE Group plc Annual Report and Accounts 2012 Olympic legacy
UNITE managed 3,600 rooms
on behalf of LOCOG during the
Olympic and Paralympic Games.
The experience provided us with
valuable learning opportunities that
we have used to improve our core
business. In particular, the establishment
of a robust process and supply chain to
tackle multiple room turn-arounds will
allow us to take a more flexible approach
to shorter term tenancies in future.
3,600
rooms
The UNITE Group plc Annual Report and Accounts 2012
The UNITE Group plc Annual Report and Accounts 2012
07
07
Chairman’s statement
2012 was another excellent year for
UNITE, as evidenced by strong results
for all of our key business performance
indicators. Profitability, high occupancy,
rental growth and important margin
improvements meant that Net Portfolio
Contribution increased 74% to £19.1
million from £11.0 million in 2011 and
adjusted earnings per share increased
280% to 9.9 pence for the year.
Adjusted NAV per share increased
10% to 350 pence primarily as a result
of rental growth, retained earnings
and development activity.
“2012 was another
excellent year for
UNITE, as evidenced
by strong results for
all of our key business
performance indicators.”
Phil White CBE
Chairman
Together with dividends, this equates to a 11.3% total return on
equity for the year and, importantly, this performance was based
on sustainable improvements to our operating platform which have
translated into strong customer satisfaction and advocacy.
As a result of the significant earnings growth in the year and
high cash conversion we have increased our dividend meaningfully,
to 4.0 pence for the full year (2011: 1.75 pence). At this level the
dividend is covered more than two and a half times from operating
cashflow and we intend to maintain cover at around this level in
the coming years.
Alongside this strong financial and operating performance we
continued to have some important successes in further strengthening
the Group’s financial position. New debt facilities, most notably
a £120 million ten year senior debt facility with Legal & General
and a £90 million new issue of unsecured bonds to retail investors,
contributed to a significant improvement in the maturity, diversity
and cost profiles of our debt facilities, while £128 million of non-core
asset disposals in late 2011 and throughout 2012 enabled us to
reduce leverage to 52% loan-to-value. In September we also
extended and expanded our joint venture relationship with GIC RE,
one of the world’s largest and most respected real estate investors.
The new JV relationship provides much greater visibility of the Group’s
financing and returns for the coming years, and allows us to
accelerate our London development activity at a time when
returns remain compelling.
We also continued to improve our portfolio quality meaningfully
through our on-going development activity and the successful
conclusion of our targeted non-core asset disposal programme.
As at 31 December 2012, 90% of our portfolio was classified as
core (2011: 82%) and 45% was in London (2011: 45%), increasing
to 50% when built out. As development and disposal activity
continues in 2013 both of these measures will continue to improve.
2012 also saw some changes to the non-executive composition
of our Board. Nigel Hall retired from the Board at the May AGM,
with Manjit Wolstenholme taking on the role of Chair of the Audit
Committee. In February 2013 Andrew Jones, Chief Executive of
London Metric, joined our Board as an additional Non-Executive
Director while Stuart Beevor, currently UNITE’s Senior Independent
Director, will be stepping down from the Board in May 2013 following
nine years’ service. I would like to thank Stuart for his valued
contribution during his time on the Board.
08
The UNITE Group plc Annual Report and Accounts 2012
“As a business working in
partnership with the Higher
Education sector, we realise the
value of a University education;
it provides a unique opportunity
for intellectual development
and wider enrichment, as well
as often being the best route
to a more certain future.”
As a business working in partnership with the Higher Education
sector, we realise the value of a University education; it provides
a unique opportunity for intellectual development and wider
enrichment, as well as often being the best route to a more certain
future. It is important that UNITE is clear in the contribution it makes
to the sector, beyond simply the provision of accommodation,
and in 2012 we launched The UNITE Foundation, a grant-making
trust funded entirely by profits from UNITE. The Foundation
supports the twin objectives of widening participation in Higher
Education and promoting student engagement with their local
communities and made a promising start in 2012.
The UK Higher Education market has been through a period of
transition following the various Government policy changes that
came into effect during 2012 and our business has weathered this
uncertainty well. Recent Government policy announcements have
been supportive of the sector and 2013/14 application numbers
are encouraging. However, the wider economy remains unsettled
and it is important that our business remains appropriately agile
in order to respond proactively to market developments.
With a clear strategy in place, a healthy, cash generative and
efficient operating business, a well-positioned property portfolio
and a sustainable capital structure I am confident that our business
is well equipped for the future.
Phil White CBE
Chairman
6 March 2013
The UNITE Group plc Annual Report and Accounts 2012
0909
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceOverview How we operate
UNITE is split into two Business units, Operations and Property.
Both units are represented at Board level by their respective
Managing Directors.
Business is responsible for delivering our operating cash
flow and NPC through rental income and delivery of our
service platform.
The Property Business, led by Richard Simpson, is responsible
for our Development Strategy as well as overseeing the fund
management for each of our four co-investment vehicles/funds.
The Property Business drives our development profit, as well as
our revaluation gains as a result of careful asset management.
The Operations Business, led by Richard Smith, is responsible
for the running of all our properties; this includes the properties
managed and operated on behalf of our funds. The Operations
Profits from disposals either to our funds or onto the open market
drive capital into our business for further development or paying
down debt.
Our Chief Financial Officer, Joe Lister, is responsible for our debt
management and control of gearing.
We earn a management fee for operating all properties on behalf
of our joint ventures as well as our percentage share of the other
income through rental growth and valuation increase.
NAV
Development profit
Revaluation gains
NPC
Rental income
Management fees
UNITE
Disposals
Property and
joint ventures
Operations
Supply of new beds
Top ten markets
2013 Rank
2012 Rank
City
Completed
Beds
(13/14)
Completed
Beds
(12/13)
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
9
10
11
London
Sheffield
Liverpool
Leeds
Bristol
Manchester
Glasgow
Birmingham
Leicester
Portsmouth
Proportion of UNITE portfolio
10
7,712
3,731
3,372
3,138
2,858
2,337
2,154
1,832
1,685
1,402
30,216
73%
8,074
3,731
3,372
3,138
2,858
2,716
2,154
1,832
1,685
1,402
30,957
72%
FT Student
Numbers
(11/12)
292,734
48,632
42,911
53,402
38,942
81,256
60,990
54,759
29,606
19,103
722,335
Projected
Market
Share
2.8%
7.7%
7.9%
5.9%
7.3%
3.3%
3.5%
3.3%
5.7%
7.3%
4.1%
4.3%
The UNITE Group plc Annual Report and Accounts 2012 Where we operate
Tenancies
22,999
Leased directly to students
Leased to students via Universities 15,238
2,641
Leased to Universities
Leased to key workers
599
London West
1,704 rooms
Edinburgh
717 rooms
Glasgow
2,154 rooms
Manchester
2,337 rooms
Liverpool
3,372 rooms
Loughborough
1,157 rooms
Birmingham
1,832 rooms
Swindon
143 rooms
Bath
646 rooms
Bristol
2,858 rooms
Bournemouth
& Poole
827 rooms
Exeter
532 rooms
Plymouth
1,108 rooms
London North
2,259 rooms
London South
3,749 rooms
Aberdeen
1,322 rooms
Newcastle
1,056 rooms
Leeds
3,138 rooms
Huddersfield
627 rooms
Sheffield
3,731 rooms
Nottingham
1,292 rooms
Leicester
1,685 rooms
Coventry
1,132 rooms
Reading
697 rooms
Portsmouth
1,402 rooms
1111
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Our markets
Student accommodation market
There was a record £2.7 billion invested in student
accommodation in 2012, representing a 125% increase
on 2011 (£1.2 billion) (source: CBRE). There were two large
deals involving UPP and Nido – the UPP transaction, with an
estimated value of £840 million, was the largest transaction
of the year.
These volumes indicate the strength of the sector and the
continued appetite for student accommodation to UK and
international investors attracted by the stable annual income.
CBRE data shows that student housing is outperforming other
asset classes by some margin, delivering 9.6% total returns
in 2012. This compares to 4.4% for all offices and 2.2% for
all retail over the same period.
Full-time student numbers
There has been steady year-on-year growth in student
numbers over the long term, however for the first time
in 14 years student numbers decreased in 2012.
The reduction was the result of changes to policy
mechanisms, the impact of the low rate of deferrals
in 2011 (prior to the first year of increased tuition fees)
and cautious offer making behaviour of Universities.
More information on p.36
These disruptions are thought to be temporary and we expect
to see 25,000-30,000 more students in 2013/14.
Full-time student numbers
Volumes of deals in UK student accommodation 2009-2012
2009
2010
2011
2012
m
£
0
0
0
5
0
0
0
1
0
0
5
1
0
0
0
2
0
0
5
2
0
0
0
3
Key
Q1
Q2
Q3
Q4
Source: CBRE
UCAS accepted and unplaced applicants
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
s
0
0
0
’
0
0
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
6
0
0
7
0
0
8
Key
Total accepted applicants
Total unplaced applicants
Source: UCAS
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
s
0
0
0
’
Key
0
0
9
0
0
0
1
0
0
1
1
0
0
2
1
0
0
3
1
0
0
4
1
0
0
5
1
0
0
6
1
0
0
7
1
0
0
8
1
UK
EU
Non-EU
Source: HESA
12
The UNITE Group plc Annual Report and Accounts 2012 International students
The strength of UK Universities, with 30 Universities in the top
200 of the Times Higher Education’s World University
Ranking, make the UK an attractive place for international
students. For the first time, international students represent
50% of UNITE’s direct let students.
The majority of international growth in UNITE’s portfolio
is driven by Asian nationalities; particularly China which
now represents 18% of UNITE's direct let customers
(13% in 2011/12). In total UNITE has students from
164 different nationalities within its direct let customer
base for the 2012/13 academic year.
The London student market
London has three important characteristics that distinguish
it from the wider UK market:
• A full-time student population (293,000) that is larger
than the next five largest student markets combined
• A very low supply ratio. London’s Universities can only
supply c. 30% of the bed spaces required to meet their
accommodation ‘guarantee’ (all first year and international
students) compared to a national average of c. 65%
• A large international student population (c. 80,000)
with high accommodation requirements and expectations.
UNITE has built a substantial London student accommodation
business in recent years:
• For the academic year 2012/13 UNITE is operating over
8,000 bed spaces in London.
Rent and occupancy outlook
Demand: The increase in UCAS applications for the
2013/14 academic year illustrates the continued demand
for Higher Education. Applications increased by 3.5%
year-on-year. Applications from Non-EU students were up
by 9.6% and 18-19 year old participation was at an all-time
high – both groups representing key markets for UNITE.
Applications at this level mean there are likely to be over
190,000 unplaced applicants in September.
Supply: There will be an additional 9,500 new beds in
the market for 2013/14, with around 4,090 of these beds
in London and 5,400 within the regions, resulting in a net
demand/supply movement of c.+18,000.
Rental Growth: Encouragingly, our portfolio is showing
clear signs of strong occupancy for 2013/14 as a result
of improved University application procedures and
increased demand. Reservations were at 62% as of 5 March
2013, supportive of retail growth in line with recent years.
Top 10 international markets
China
Cyprus
India
Greece
Thailand
Hong Kong
Malaysia
Nigeria
France
United States
Key
0
0
0
5
0
0
0
1
0
0
5
1
0
0
0
2
0
0
5
2
0
0
0
3
0
0
5
3
0
0
0
4
Number of students
Source: UNITE
Total Purpose Built Student Acommodation (PBSA)
beds in Central London
Current
2013
2014
2015
2016+
Key
0
s
0
0
0
’
0
1
0
2
0
3
0
4
0
5
0
6
0
7
UNITE
Other corporate
University
Source: UNITE
UCAS applicants as at 15th January deadline
2008
2009
2010
2011
2012
2013
0
s
0
0
0
’
0
0
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
6
Key
UK
EU
Non-EU
Source: UCAS
1313
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Our top ten managed properties by value
NEW
Moonraker Point, London
Beds: 674 (Wholly owned)
Moonraker Point offers 147 studios
and 527 rooms in cluster flats.
Situated in Zone 1 and close
to shops and local amenities,
Moonraker Point is well located
for King’s College London’s main
teaching campuses.
01
Woburn Place, London
Beds: 462 (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
14
Woodland Court, London
Beds: 577 (OCB)
Shared en-suite flats set around
a communal courtyard, one stop
from King’s Cross underground.
03
Emily Bowes, London
Beds: 694 (USAF)
A contemporary room design, Zone 3
location and quick links into central
London make this a popular choice for
students seeking a lower rent offering.
04
04
The UNITE Group plc Annual Report and Accounts 2012 05
Grand Central, Liverpool
Beds: 1,210 (USAF)
The largest, most centrally located
student residence in Liverpool,
ideally located for Lime Street station,
the city centre and the city's Universities.
NEW
08
06
07
Parkway Gate, Manchester
Beds: 729 (Wholly owned)
Our architectural flagship building in
the centre of Manchester ideally located
for the two main Universities in the city.
The Plaza, Leeds
Beds: 964 (Wholly owned)
Modern premises completed in 2006
convenient for both Universities in Leeds.
The property offers a range of en-suite
rooms in 3-6 bedroom flats.
North Lodge, London
Beds: 528 (LSAV)
Located next to Emily Bowes Court
and just over the road from Tottenham
Hale Retail Park, North Lodge has
excellent transport links. All rooms include
en-suite bathrooms and a study area
with a shared kitchen/lounge.
10
09
The Forge, Sheffield
Beds: 1,157 (Wholly owned)
Campus-style living within a city centre
environment that includes retail facilities
let to Sainsbury’s and Wilkinsons.
Wedgewood Court, London
Beds: 323 (OCB)
Immediately opposite London Metropolitan
University, offering shared flats for 2, 4, 5,
and 6 people and a range of studios
with retail units let to Sainsbury’s and
Costa Coffee.
Our rising stars
Central Point, Plymouth
Central Point was given a £2 million facelift in 2012, refurbishing
the property internally and externally while keeping its 1950s
features. The eight week refurbishment project updated all 234
bedrooms, installed in-room Wi-Fi for all students, created a new
reception and common room, and added ten extra rooms utilising
existing unused space in the building.
Piccadilly Point, Manchester
We obtained a change of planning permission to convert our vacant
commercial space at this popular Manchester property, thereby adding
58 new rooms (14 double studios and 44 beds in cluster flats) to the
building. These new rooms, along with the Central Point refurbishment,
were the first properties to feature our improved room specification.
Wellington Lodge, London
One of our four new properties for 2012, five minutes’ walk from
Waterloo station. Our team's hard work during the construction resulted
in a new nominations agreement with the London School of Economics.
The 146 bed property provides a range of flats of different sizes, all with
en-suite bathrooms, as well as nine studio flats.
Apollo Court, Liverpool
Apollo Court was our top performing property for student satisfaction
in 2012. The property has a choice of over 200 rooms in 5-7 bed cluster
flats, all with en-suite bathrooms. There are also 13 studios. Apollo
Court is a lively first year property for Liverpool John Moores University.
1515
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Chief Executive’s review
Our objectives for 2012 were to continue
growing recurring profit and cashflow
through the delivery of rental growth,
portfolio activity and cost savings;
to establish a sustainable capital
structure and to enhance our portfolio
quality further through our London-
focussed development activity and
non-core asset disposal programme.
Stu d e nts
1
Market-leading
service platform
E
m
p
l
o
y
e
e
s
Sustainable growth
I
n
v
e
s
t
o
r
s
2
Improving
portfolio quality
3
Sustainable
capital structure
s
e
niti
u
m
m
Co
Universit i e s
16
“The Group’s strong financial
performance has been
underpinned by the
substantial and sustainable
improvements we have made
to our operating platform.”
Mark Allan
Chief Executive Officer
Financial highlights
NPC
Adjusted earnings per share
(pre UMS for 2011)
NAV (adjusted, fully diluted)
Full year dividend
Total return
See through loan-to-value ratio
2012
2011
£19.1m
£11.0m
9.9p
350p
4.0p
11.3%
52%
2.6p
318p
1.75p
8.1%
54%
Operating cashflow
£17.2m
£13.8m
We successfully achieved these objectives, a continuation of the
positive progress we made in 2010 and 2011, despite a more
challenging environment as Government policy changes took effect.
As a result we were able to grow rents, earnings and net asset value
meaningfully while also reducing leverage and investing in our
portfolio and development pipeline.
1
Market-leading service platform
Achieved by focusing on developing our people,
processes and technology in an integrated, scalable
and sustainable way. These improvements will drive
improved efficiency and increased service levels,
measured by our customer satisfaction survey. Aligned
with a clear brand identity and positioning, this will also
form the basis for longer term growth opportunities.
Progress in 2012
• People – We reviewed the
activities our front-line staff
carry out to ensure they all
add value to the student
experience, and improved
our learning and development
programmes.
• Process – We significantly
improved the consistency
of our operating processes.
• Technology – We invested
heavily in the latest technology
including handheld devices
for maintenance teams
and a new student website.
See p.24
The UNITE Group plc Annual Report and Accounts 2012 The progress we have made in recent years is evidenced both by the
level of returns we have achieved (an average annual total return of
10.3% over the past three years) and the more balanced profile of
those returns, with recurring earnings accounting for 27% of returns
in 2012 compared to 11% in 2011 and 6% in 2010.
A balanced return profile with modest risk will continue to be a feature
of our strategy going forward. Our portfolio is of a high quality and will
continue to support healthy capital growth in the years ahead; we will
continue to pursue accretive development activity on a prudent and
highly selective basis and we intend to continue growing recurring
earnings meaningfully and steadily reduce leverage.
We continue to target low double digit returns on equity and are
aiming to grow our adjusted EPS yield to in excess of 4.5% by the
end of 2015 as a result of further rental growth, new openings and
continued cost vigilance. Our focus on growing adjusted earnings
has allowed us to grow our dividend substantially this year, to 4.0
pence per share for the full year and we intend to maintain dividend
cover at its current levels (in excess of 2.5 times operating cashflow)
for the time being given the attractive investment opportunities we
see for our business.
Total return on equity
Components of total return on equity
2012
Adjusted EPS yield
Capital growth
Development profits
Other*
Total return**
2011
0.9%
4.9%
7.0%
2010
0.7%
6.6%
6.5%
3.1%
5.4%
4.6%
(1.8%)
(4.7%)
(2.2%)
11.3%
8.1%
11.6%
* Other factors relate primarily to swap close-outs in 2012 and UMS costs
in 2011 and 2010.
** Calculated as NAV growth plus interim and declared final dividend.
2
Improving portfolio quality
3
Sustainable capital structure
Achieved through portfolio enhancing development
activity, with our London pipeline delivered through
LSAV, as well as selective disposals of non-core assets.
Progress in 2012
• Opened four new
properties – We opened
Moonraker Point, Wellington
Lodge and North Lodge
in London, and Kelvin Court
in Glasgow. See p.29
• Asset disposals –
We successfully achieved
our non-core asset disposal
target. See p.31
• Investment in
Sheffield, Plymouth
and Manchester –
We completed three
significant refurbishments
at properties in Manchester,
Plymouth and Sheffield,
with our share of capital
expenditure amounting
to £1 million. See p.31
Achieved by bringing gearing down over time
(through targeted disposals and retained profits),
extending/replacing core JVs, removing non-core
vehicles and diversifying the sources and maturity
profile of debt finance.
Progress in 2012
• L&G – We completed a new
£121 million debt facility with
Legal & General, representing
their first real estate debt
financing deal. See p.33
• Extended JV partnership –
We extended our existing joint
venture (UCC) and created a
new partnership (LSAV) with
GIC Real Estate. See p.34
• New Carnegie Court –
We sold our leasehold interest
in New Carnegie Court to
PRUPIM for £33 million.
See p.37
• Retail Bond – We issued
£90 million Sterling Bonds
due in 2020. See p.25
• USV joint venture –
We acquired the minority
stake in this JV, consistent
with our aim to simplify our
balance sheet.
17
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Chief Executive’s review continued
The Group’s strong financial performance has been underpinned
by the substantial and sustainable improvements we have made
to our operating platform: clearer, more accountable management
structures, investment in technology and infrastructure and customer-
focused training and development for our front line staff. Customer
satisfaction levels are now at an all-time high, as are operating
margins and profitability. As a result, our operating platform is a source
of genuine competitive advantage that we will be building on further
in the coming years.
Crucially, success in our sector is linked to strong University
relationships and during 2012 we continued to build on existing
partnerships as well as forge new ones. Accommodation provision
is a strategically important matter for Universities; it is capital intensive
at a time of funding constraints but it has a significant bearing on the
student experience which is so vital to a University’s long term
success. We believe we have a deep understanding of these twin
factors and this level of market understanding, coupled with our
portfolio scale, is proving increasingly valuable.
At the heart of our progress is the committed team of people we have
across the business, both front-of-house and in support roles; I would
like to thank them and congratulate them on their achievements.
Our strong performance also reflects the quality of our property
portfolio and we enhanced it still further in 2012, through a
programme of London-focused development, selective non-core asset
disposals and on-going refurbishments. These activities, together with
the rental growth achieved through our consistent focus on only the
strongest Universities and locations, contributed to the 10% increase
in adjusted NAV to 350 pence per share. As market forces in the
Higher Education sector increase, those Universities with the
strongest brands, domestically and internationally, are those most
likely to prosper. Our portfolio has always been targeted towards
these Universities and consequently we remain well placed
to perform strongly.
Our development plans for the coming years are clear and we
are making good progress. We have three committed development
projects in place, two in London for 2014 delivery and one in Bristol
for 2015 completion, and we expect these projects, together with
UNITE’s share of the LSAV development pipeline, to contribute
a combined 19 pence per share to adjusted NAV by 2015.
We have also made encouraging progress with our LSAV
development plans. We secured our first LSAV development project,
a second scheme in Stratford, East London, in October 2012; 759
beds targeted for completion in 2015. We have also recently secured
an exclusive position on a second project, subject to contract and
planning and offering the potential of 950 beds for 2016 delivery.
Taken together, these two projects would account for approximately
40% of LSAV’s planned development pipeline and both are forecast
to achieve our target 9% yield on cost. Outside of LSAV and London,
an increasing number of interesting regional opportunities are
beginning to emerge.
Capital availability was a prominent topic for most businesses
in 2012 and it is pleasing that we were able to make substantial
progress on all fronts. Leverage reduced to 52% loan-to-value
as a result of asset disposals and capital growth in the core portfolio,
average debt maturities increased to 4.9 years (2011: 2.6 years) and
we successfully diversified our sources of debt finance. 43% of the
Group’s debt (including its share of co-investment vehicles) is now
from non-bank sources. We expect leverage to fall to 50% loan-to-
value in 2013 as a result of further disposals and capital growth
and intend to reduce it steadily further in the medium term.
Outlook
UNITE has entered 2013 with a healthy, cash generative and flexible
operational business, a strong capital position and an exciting pipeline
of opportunities in its property portfolio. This combination leaves the
business well placed both to benefit from further opportunities in its
market as well as respond proactively to any challenges that may arise.
Recent Government policy announcements have been supportive
of the Higher Education sector in the UK and the most recent
applications data from UCAS showed that demand amongst young
adults for University education remains strong; a 3.5% increase
year-on-year. These are clear signs that the recent instability in
the sector resulting from tuition fee increases is beginning to abate.
Our focus for the year ahead is to build further on the successes
of recent years; to keep growing recurring profits and cashflow
in a sustainable way, taking advantage of our increasingly valuable
brand; to continue improving portfolio quality through highly selective
development and divestment activity; and to manage the Group’s
financial position prudently. London will continue to be our primary
development focus but we are also beginning to see interesting
opportunities in a select number of high quality University cities
elsewhere in the UK.
18
The UNITE Group plc Annual Report and Accounts 2012 “UNITE has entered 2013
with a healthy, cash
generative and flexible
operational business,
a strong capital position
and an exciting pipeline
of opportunities
in its property portfolio.”
The Group is well poised to deliver further growth in earnings and
net asset value in the future. We consider the outlook for rental
growth to be consistent with recent years, we have three committed
development projects on balance sheet which we expect to deliver
a combined 19 pence per share of NAV uplift by 2015, we are making
good progress with our longer term LSAV development plans and the
full effect of cost efficiency measures taken in 2012 will flow through
into 2013 earnings.
Our market has been going through a period of transition as
Government policy changes take effect. However, with much of the
initial impact already absorbed in the 2012/13 academic year and our
business in a strong operational and competitive position we continue
to look forward with confidence.
Mark Allan
Chief Executive Officer
6 March 2013
19
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Key performance indicators
Financial
KPI
Net Portfolio
Contribution
Definition
Performance
Target
Our key indicator of operational
performance measuring the
income from rental properties
after financing costs and our
total non-development
related overheads.
2011
2012
£19.1
High occupancy and important margin
improvements have delivered a 74%
increase in NPC.
£11.0m Annualised impact of 2012
openings and continued focus
on operational efficiencies and
cost management will continue
to grow recurring profits.
Adjusted NAV
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.
318pps
350pps
Rental growth, development profits, and
retained earnings, drove a 10% increase.
Well placed to continue
delivering strong balanced
returns through capital growth,
development profits and
retained earnings.
Total returns
Adjusted net
debt (see
through)
Measures the total return
to shareholders calculated by
the growth in adjusted NAV
plus interim and declared
final dividends.
11.3%
Total return has been driven by growth
in recurring earnings, NAV and dividend.
8.1%
Continue to deliver low double
digit total returns.
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 interest rate swaps.
£648m
Capital expenditure on developments
and USV acquisition offset by disposals
and earnings.
£646m Continue to manage total net
debt by matching expenditure
with targeted disposals.
LTV (see
through)
Measures our ratio of debt
to property values.
52%
Maintained our focus on controlling adjusted
net debt and adding value to the portfolio.
54%
50% by the end of 2013.
Operating
cashflow
Measures conversion of recurring
profit from the Operations
business into cash.
£17.2m
Growth in net portfolio contribution and
working capital management drove the
increase in operating cashflow.
£13.8m Operations cashflow growth
aligned to net portfolio
contribution growth.
Adjusted
EPS yield
EPS yield is calculated by the
earnings per share dividend by
opening adjusted net asset value.
0.9%
3.1%
Achieved through meaningful growth
in recurring earnings.
We are aiming to grow our
adjusted EPS yield to 4.5%
by the end of 2015 as a result
of further rental growth and
continued cost vigilance.
20
The UNITE Group plc Annual Report and Accounts 2012 Non-Financial
KPI
Definition
Performance
Target
2012
2011
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.
62%
Improved reservations level is reflective
of improved market conditions, enhanced
operational capability and brand awareness.
59%
We aim to sell 55-60%
of our rooms by this point
in our sales cycle.
Customer
satisfaction
Health and
safety
Employee
satisfaction
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 TRI*M is
benchmarked against other high
performing companies.
52
67
A shift of emphasis on operational
performance has been rewarded by
a substantial improvement in
customer satisfaction.
We aim to be in the top decile
of service companies for
customer satisfaction.
Measures the number of reportable
accidents in Operations each year
as a means of assessing our
success in approaching health
and safety.
1
6
This year we have changed the way we
classify our reportable incidents which has
resulted in the increase. This is reflective
of Safety being a high priority.
Employee TRI*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.
67
67
Continued focus on improving our
development programme and greater
empowerment for our city teams has resulted
in sustained high employee satisfaction.
We strive to have no
reportable accidents.
Continue to be in the top decile
of European service companies
for employee satisfaction.
HE trust score
Each year we undertake qualitative
research with over 50 of our
HE partners scoring on Trust,
Advocacy and Awareness.
62
67
Focus on HE Engagement, as well as
improving our customer service, has
improved relationships with our partners.
We aim to become a more
trusted partner.
21
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Overview Operations review
Sales, rental growth and profitability
Building on the improvements we made in our operations business
in 2011, we continued to deliver strong performance throughout
2012. Our focus on cash generation and profit growth delivered a
£8.1 million increase in NPC to £19.1 million (with a cash conversion
ratio of 90%); up from £11.0 million in 2011 and £4.1 million in 2010.
This growth was driven by high occupancy levels, rental growth
across the portfolio and efficiency initiatives announced in 2011.
There was also a one-off contribution of £1.0 million following our
successful partnership with LOCOG during the Olympic and
Paralympic games.
Net Portfolio Contribution
Net Portfolio Contribution (NPC) is our measure of the underlying
pre-tax profit of the Operations Business. It includes the pre-tax
results of our joint ventures, but excludes capital movements and
development activity. NPC increased materially in 2012.
Net Portfolio Contribution
Total income from managed
portfolio
UNITE’s share of rental income
UNITE share of total income
2012
£m
2011
£m
240.2
219.5
111.4
46%
95.6
44%
UNITE’s share of operating costs
(32.3)
(29.4)
Net operating income (NOI)
79.1
66.2
NOI margin
71.0%
69.2%
Management fee income
Operating expenses
Finance costs
Net portfolio contribution
10.3
(21.8)
(48.5)
19.1
10.1
(21.6)
(43.7)
11.0
The key components of the movement in NPC were as follows:
Total NPC (£m)
25
20
15
10
5
0
1.0
(0.5)
1.6
2.6
(0.8)
4.2
11.0
19.1
31 Dec
2011
Disposals New
Rental
openings growth
&
occupancy
Property Olympics Other
cost
efficencies
31 Dec
2012
We also made some further 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
92 basis points from 95 basis points in 2011 and 110 basis points
in 2010. Looking forward, we have now set a more ambitious
overhead efficiency target of 60 basis points for the year to
December 2015 (previously 80 basis points for 2014). The targeted
areas of further improvement to achieve this target are the
annualised impact of overhead efficiencies already delivered
in 2012 and growth in portfolio value as a result of rental growth
and development completions in 2014.
The Operations business continues to generate increasing and
meaningful cash flow. In 2012 it generated net cash of £17.2 million,
up from £13.8 million in 2011 and representing cash conversion from
NPC of 90%. The cash conversion ratio is slightly lower than in 2011
due to working capital movements. The operational cash flow
therefore covers the interim and declared final dividend of
£6.4 million, more than two and a half times.
Finance costs have increased to £48.5 million (2011: £43.7 million)
as a result of the increase in the level of borrowing, following
project completions.
Adjusted profit and non-NPC earnings
We also report on Adjusted profit (in line with EPRA guidelines
except for minority interest) which includes costs associated with
development activities that are incurred prior to securing a contract
and a small number of other items. These items are excluded from
NPC but included in adjusted profit and EPS.
• Income growth as a result of 2012 new openings and rental growth
• A one-off positive contribution of £1.0 million from our contract
Profit
with LOCOG during the Olympics
• Cost efficiencies across the operating portfolio
• Offset by increased interest as a result of the larger portfolio.
Our share of total income from the managed portfolio increased from
44% to 46% as a result of the new properties opened in 2012 that
have remained on our balance sheet and after reflecting the impact
of various asset disposals. We expect to increase our share of total
income further in the future as we continue to invest in new
developments and retain a greater ownership stake in these assets.
Our NOI margin increased to 71.0% from 69.2% in 2011, as a result
of our operating efficiencies in arrears performance, more focussed
online marketing spend and a more efficient sales process, and
thereby exceeded our target NOI margin of 70% for the full year. We
intend to improve our NOI margin to 75% by the end of 2015 through
continued focus on operational efficiencies, particularly technology.
22
Net portfolio contribution
Development pre-contract costs
Restructuring, share option and
other costs
Adjusted profit
(pre-UMS for 2011)
NPC per share
Adjusted EPS (pre UMS for 2011)
EPS yield
2012
£m
19.1
(2.7)
2011
£m
11.0
(3.3)
(0.5)
(3.6)
15.9
11.9p
9.9p
3.1%
4.1
6.9p
2.6p
0.9%
The UNITE Group plc Annual Report and Accounts 2012
Our income statement, and the relationship between NPC and
adjusted profit, has been simplified following the disposal of UMS in
June 2012. It will be simplified further in the coming years as the level
of pre-contract development costs reduces as a greater proportion
will be incurred through LSAV.
Investment in people, process and technology
We are increasingly building competitive advantage in our sector
through a clear focus on our key operational drivers: people, process
and technology. Further improvements in each area will help us
improve our NOI margin further.
These changes provide much greater visibility of the Group’s future
earnings and as a result we are able to establish clearer targets
for future profitability. Specifically, we are targeting an EPS yield
(on opening adjusted NAV) of 4.5% by 2015.
Portfolio occupancy and reservations
Occupancy across UNITE’s portfolio for the 2012/13 academic
year stands at 96%, a reduction on the prior academic year when
occupancy reached 99%. This drop was largely anticipated and
occurred as a result of the various Government policy changes
introduced to our sector in 2012. However, even after accounting
for the reduced occupancy the portfolio still delivered 3% like-for-like
rental growth.
Encouragingly, our portfolio is showing clear signs of recovering to
normalised levels of occupancy for 2013/14 as a result of improved
University application procedures and increased demand. As at
5 March 2013, reservations across UNITE’s portfolio for the 2013/14
academic year stood at 62% of available rooms compared to 59% at
the same point in 2012.
The improved reservations level is reflective of improved market
conditions but also enhanced operational capability and brand
awareness. For example, unique visits to our student website
increased by 50% in January 2013, compared to the same month
last year, and online bookings are up 16%, following the launch
of our re-designed website in December 2012.
People
Operational performance throughout the year has benefitted from
the completion of the organisational improvements we began in 2011,
driving recurring profits through a stronger focus on customer service,
with greater empowerment and accountability in our city teams.
A key part of this shift was an improved learning and development
programme, increasing capacity in our front line teams and providing
our employees with clearer sight of career progression opportunities.
Our employee satisfaction has continued to improve as a result and
we now place in the top decile of service companies benchmarked
across Europe.
These changes have also contributed to an improvement in customer
satisfaction, and we achieved our best ever scores in both the Spring
and Autumn rounds of our survey. These independent surveys provide
us with a wealth of valuable information and show a meaningful
increase in customer advocacy as well as satisfaction, demonstrating
the clear and increasing value of our brand.
Process
In recent years we have significantly improved the consistency of our
operating processes whilst retaining appropriate flexibility at a local
level to ensure our approach to customer service remains personal.
Clarity of these processes is a crucial pre-cursor to further effective
investment in technology, where we have clear plans for 2013.
New student
website
We launched our new student website in December 2012,
resulting in an increased number of visitors year-on-year.
The sleek design and improved functionality provides our
customers with an enhanced experience and more efficient
booking facilities and processes.
23
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Operations review continued
Our successful Olympics contract, under which we housed 3,600
Olympic Association guests for periods of up to eight weeks over
July and August, also provided valuable learning opportunities that
we have been able to incorporate into our core business. In particular,
the establishment of a robust process and supply chain to tackle
multiple room turn-arounds will allow us to take a more flexible
approach to shorter term tenancies in the coming years.
Technology
Technology continues to present significant opportunities for
businesses and is particularly important for UNITE, as our customer
base is typically tech-savvy. This year we have made significant
investments in our technology platform to ensure our operations
are sustainable and built to last. We have invested in:
• Student website – a new and improved booking system as
part of a re-launched site
• Mobile working – our maintenance and service teams are
now using handheld devices to log and respond to maintenance
requests and to conduct inspections. This has made these
processes more efficient, as well as improving customer service.
We will be able to develop these devices to make further process
improvements in 2013
• Wi-Fi – We have begun a rolling programme to install Wi-Fi
across our entire estate and this will be fully operational by
the start of the next academic year
• Energy management – We piloted LED lighting and energy
management systems at a number of our properties during 2012.
As a result of these trials a number of energy management
initiatives are being rolled out more widely in 2013. These initiatives
will reduce both costs and our carbon footprint.
Customer profile
We continue to provide accommodation for a diverse population
of students and seeking to understand the likely future trends in
student population make-up is an important part of our philosophy.
For the 2012/13 academic year our customer base was comprised
of students who have been placed with us through University
agreements, and students coming to UNITE directly, in an almost
even 50/50 split. Of the direct let customer base, the charts below
show the domicile breakdown and analysis of year of study:
Due to the slight reduction in UK students in the current academic
year, and the forecast increases for 2013/14, we expect the
proportion of international students within our direct let customer
base to reduce slightly next year and return to the trend of the
previous five years, which saw a much gentler increase.
For the first time international students residing in UNITE properties
represent over 50% of all direct let bookings. The majority of
international growth is driven by Asian nationalities; particularly
China which now represents 18% of UNITE direct let customers
(13% in 2011/12).
We have created an internal Research and Insight Forum to ensure
we use our research most effectively for improving performance and
building partnerships with Universities. We are already looking at
trends in the HE sector and the impact of accommodation on the
student experience to improve the value that we offer to students and
Universities, and international student mobility to target our marketing
efforts more strategically.
Operations summary and outlook
Our Operations business continued to improve performance against
all key measures in 2012 and is well positioned to build on this in
2013. The annualised impact of our 2012 openings will be fully
realised and we will continue our focus on operational efficiencies
and cost management, contributing further to generating recurring
profits for the business.
Recent policy announcements and the expectation of a smoother
applications process for 2013/14 provide further confidence in the
level of student demand across the cities in which we operate and
together with current reservation levels give us confidence that we
will continue to deliver rental growth in line with recent years.
Importantly this is all underpinned by an operationally robust platform
– highly motivated and customer-focused staff, efficient and
consistent processes, and modern technology – with a proven ability
to offer flexibility where required. Alongside our strong brand and
University relationships, this will be a continuing source of competitive
advantage for the future.
Direct let break down by domicile
Analysis by year of study
2012/3
2011/2
2012/3
2011/2
Key
Non-EU
UK
EU
31%
53%
16%
Key
Postgraduate
Undergraduate
14%
86%
37%
48%
15%
16%
84%
24
The UNITE Group plc Annual Report and Accounts 2012 UNITE Corporate responsibility 2012
Built
to last
We believe that UNITE should act professionally
and responsibly at all times. This means minimising
our environmental impact and providing students
with a safe, secure and welcoming home where
they and our employees can flourish.
Caring for the
environment
We work hard to manage and reduce the environmental
impact of our operations, particularly focusing on:
• Reducing energy consumption and carbon emissions
• Reducing water consumption
• Increased levels of recycling both from our students and our
corporate offices, and preventing pollution or damage to the
local environment
• Openly and transparently reporting our performance via
mandatory and voluntary metrics including Carbon Disclosure
Project (CDP) and Global Real Estate Sustainability
Benchmark (GRESB).
In 2012 we were awarded two prestigious environmental awards,
a Business in the Community Award for reducing our carbon
footprint and European Sector Leader in GRESB.
We also employed an Energy and Environment Manager to
investigate and implement new technical solutions and promote
energy efficiency and awareness across our estate. As a result
we have piloted LED lighting in several of our buildings and are
planning roll out across all of our properties in 2013/14.
We have updated our reporting of our carbon footprint to be
in line with the CDP measurement system – a widely recognised
international, not-for-profit organisation providing the only global
system for companies to measure, disclose, manage and share
environmental performance information. This is a more accurate
measurement and allows us to track our performance against
other companies.
In 2012 our overall gas and electricity usage increased, we believe
this can partly be attributed to lower temperatures during the year.
We also had a particular peak in our consumption in the summer
months as a result of development activity.
With the investment we are making in LED lighting, energy
management systems and our sustainability strategy
we would expect to see a decrease in our carbon footprint
in the future.
Beds
2012
41,443
2011
40,869
Company car (km)
633,223
884,031
Absolute consumption
Residential gas (kWh)
Residential electricity (kWh)
Company cars (km)
Absolute CO2e emissions
Residential gas (tonnes)
Residential electricity (tonnes)
Total residential (tonnes)
Company cars (tonnes)
CO2e emissions per bed or km
Residential gas (tonnes)
Residential electricity (tonnes)
Total residential (tonnes)
Company cars (kg)
CR 1
2012
34,141,371
116,609,386
633,223
2011
31,760,874
114,482,019
884,031
2012
6,323
56,245
62,569
123
2012
0.153
1.357
1.509
0.195
2011
5,831
55,689
61,520
181
2011
0.143
1.363
1.505
0.205
Change 2011-2012
8.4%
1.0%
1.7%
(-31.8% )
Change 2011-2012
6.99%
(-0.43%)
0.27%
(-4.84% )
Olympic donation to London ReUse
As part of our contract with LOCOG to provide 3,600 rooms
for the Olympic games we had to equip the flats for guests to use.
At the end of the project we donated more than 7,000 items of
re-usable bedding, crockery and kitchen utensils to families in
need and the homeless. The 80 tonnes of nearly-new goods were
collected by the London Re-Use Network (LRN) and distributed
to a variety of local charities, for example City YMCA London
who used the donated items at its Islington hostel which houses
116 young people at risk of homelessness.
In our other properties across the UK we donated more
than £65,000 worth of unwanted student items to British
Heart Foundation and Cancer Research generating much
needed funds for the charity as well as preventing these items
being sent to landfill.
LED lighting
We have piloted LED lighting in five of our properties,
and are now planning to roll out across our estate.
LED lighting is one of the best and most straightforward
ways of driving sustainability and reducing carbon emissions:
• LED lighting can be up to 80% more efficient than other
forms of lighting
• LED lighting will also increase our productivity as lighting
issues account for 30% of all our maintenance requests
• Unlike fluorescent lighting LEDs don’t contain
hazardous materials.
Engaging our students: Student Switch off
We also believe that it is important to educate and engage our
students in our energy saving activities. This year we have taken
part in the NUS-run scheme Student Switch Off. Delivered via
social media channels, this scheme encourages students to be
aware of their energy usage through fun campaigns and
incentives. Many Universities also take part in this scheme.
Committed
to our people
Students
This year we have increased our focus on student welfare.
We are developing a standard level of welfare that will be part
of our operating manual of core processes, providing a consistent
service for our students. We have also recruited a new Head
of Health & Safety to help embed our procedures across
the business.
In many of our cities we have strengthened relationships with
the local student unions and University welfare teams, as well
as working with organisations such as Talk to Frank and the
Samaritans to signpost our students to the appropriate support
and guidance.
Emergency services
Safety is a top priority at UNITE; we work closely with the
local emergency services to promote strong relationships
and help raise awareness among students, for example:
• In Bath we have a good relationship with the local
constable who has provided advice on drugs and vandalism
and helps with traffic on check-in days. The team is also
in the process of arranging for Avon & Somerset fire
service to run fire drills.
• Sheffield, Liverpool, Exeter and Bournemouth all are
using their local fire service to provide briefings or talks
for their students on fire safety.
• The security team in Leeds works very closely with the
local police to target crime against students and even
provides training for Community Support Officers.
Employees
Our people are the heart of our business, delivering the great
service that our business depends on. A top priority is therefore
the engagement and development of our employees. This year
in response to employee feedback we introduced a new
framework to align our city structures and provide clearer
routes for development and career progression.
Our commitment to our employees is reflected in our Silver
Investors in People and Britain’s Top Employer accreditations,
as well as our employee satisfaction score – which puts us in
the top ten percent of companies in the European service sector.
CR 3
" Our people are the
heart of our
business, delivering
the great service
that our business
depends on."
Nicola Yates, Group Director of HR
Working in partnership with Higher Education
Our aim is to be a genuine partner to Higher Education
institutions, adding value to their distinctive student experience
through high quality and innovatively managed accommodation.
In 2012 we recruited a Head of Higher Education Engagement
to help us better understand the sector’s needs and build lasting
relationships. She has also worked with our teams to create local
engagement plans. We have also just formed a University
Partnerships Team who are responsible for developing our long
term strategic partnerships with Universities.
We draw on the best available research on accommodation and the
student experience, as well as commissioning our own, in order to
understand the impact that accommodation can have on the student
experience and how to optimise this. Using this research, we have
piloted and evaluated a number of accommodation management
initiatives, including improving our product specification and
promoting employability skills among our students.
Student Experience Research
To help us understand and meet the expectations of students
in light of increased tuition fees we surveyed over 1,200
prospective students on their expectations of their ideal
student experience. We were able to share this research
with our partners. We will repeat this research in 2013.
Supporting
our communities
Our ambition is to have a positive impact on the communities
in which we operate. We have strong relationships with a number
of community partners including:
• Residents committees – Our Bournemouth and Edinburgh
teams have both set up regular forums attended by emergency
services, local businesses, residents and staff, to discuss how
to integrate our students with the local community.
• Local charities – We offer our 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 2012 we
contributed £8,578 (2011: £5,848) in matched donations
to charities across the UK.
• Schools – In Reading our team invited a neighbouring primary
school to tour one of our properties to understand more about
going to University and what it means to be a student.
• Local businesses – In all our cities we encourage our students
to use local businesses. In Glasgow we are holding an event
at our Kelvin Court property for businesses in the West End,
an area where we have recently established a presence,
to promote their services directly to students.
• Local authorities – In Exeter the team improved the relationship
with the local council by asking their residents to ‘opt-in’ to
a recycling scheme, encouraging 100% compliance from
our residents.
Trenchard Street development
contribution to local community
As part of all our development schemes we try to contribute
to improving and regenerating the local area. In 2012 we
secured planning consent for a 442 bedroom student home
on Trenchard Street in Bristol.
The new scheme will contribute to the regeneration of the
area, by providing over £300,000 of enhancements including
improvements to the O2 entrance, a café in the front of the
facade and bicycle parking facilities. As part of the scheme
UNITE will also contribute £570,000 to the council to be
spent in the local area.
In addition to our donation we are looking to provide some
public artwork to be located in the area between the site and
Trenchard Street car park further enhancing the area not just
for our students but for local residents too.
Local choir perform to guests at North Lodge.
North Lodge – Bringing people together
Our Emily Bowes Court and North Lodge properties have
played a significant role in the regeneration of Tottenham
Hale. This is not only through bringing 1,220 students to the
area with their associated spending power but they are also
increasing their positive impact on the local community by
partnering with charities to provide volunteering opportunities.
In July 2012 we celebrated the opening of North Lodge, one
year after the London riots which began in Tottenham. The
event was themed around the regeneration of Tottenham Hale
and the benefits students bring to communities. This event
brought together members of the local community including
the metropolitan police, the nearby IntoUniversity centre,
the leaders of a volunteering network that represents over
200 local community groups, the local Councillor for social
inclusion and economic development, and a community choir.
As a result of the event we forged strong relationships
with the local community partners. Subsequently the
Councillor and the property team held another event for our
students raising awareness of local businesses and charities.
The community groups in attendance had not met previously
and found the event to be a great opportunity for forming new
connections and for accessing a group of potential volunteers
– our students.
MP Siobhain McDonagh and Matthew Baird, a former Scheme intern,
officially open Moonraker Point.
Speaker’s Parliamentary Placement Scheme
As part of our ambition to promote employability we signed
up to the Social Mobility Business Compact. This year in
partnership with King’s College London we supported ten
political interns with reduced cost accommodation at our
Moonraker property to support with bringing individuals
from diverse backgrounds into politics.
CR 4
The UNITE Foundation
In 2012 we launched our own charitable trust – the UNITE
Foundation – to support widening access to University for
students from disadvantaged backgrounds, integrating
students and communities and promoting employability.
In 2012 we donated £200,000 to The UNITE Foundation.
The majority of this cost is our bursary scheme, with the
rest accounted by the donations below.
Through the Foundation we support three organisations
with sizeable donations and partnership work:
• IntoUniversity: This charity provides local learning centres
where young people from Britain’s poorest backgrounds
are inspired to gain the skills which will help them to attain
either a University place or another chosen aspiration.
We donated £50,000 to this charity
• Enactus: A global non-profit organisation that works with
business and Higher Education leaders to mobilise
students around the world to make a sustainable difference
to their communities while developing the skills they need
to become socially responsible business leaders. We
donated £18,000 to this organisation (2011: £15,000)
• Land Aid: This property charity uses the collective
resources, expertise and influence of the property industry
to help the young and disadvantaged in the UK access the
buildings, skills and opportunities they need to achieve their
potential. We donated £10,000 to Land Aid.
As well as our financial donations we also make donations
in-kind of time and resource, for example many of our Area
Managers act as business mentors for local Enactus teams,
our HR Director is on the Board of Trustees for Enactus, and
our students and staff have volunteered at IntoUniversity
learning centres.
The major activity of the Foundation is our bursary scheme.
The bursaries consist of up to £4,000 towards living
expenses and free accommodation for every year of study.
In 2012 working in partnership with four Universities we
awarded 21 bursary places; this year we have formed two
new partnerships and extended the number of bursaries
to 50. Many of these students are care leavers – the most
under-represented group in UK Higher Education.
The Foundation is run by elected Trustees – including four
members of UNITE staff and an external trustee – Professor
Stuart Billingham, a former Pro-Vice Chancellor at York St
John University. Stuart has worked in the Higher Education
sector for more than 30 years, focusing particularly on
widening access. He is currently Co-Director of the European
Access Network (EAN) World Congress on Access to
Post-Secondary Education: Connecting the Unconnected.
In 2013 we will increase our donation to £500,000, and we
plan to grow this to £1 million a year within five years, as well
as seeking to further the reach of our activities through
donations from third parties.
The UNITE
Foundation
" We believe that
University should be
an at tainable goal for
every young person
regardless of their
background, social class
or wealth, and that the
private sector has an
important role to play
in enabling this."
Paul Harris, Chair of The UNITE Foundation
CR 5
“ Without UNITE
I would not have
been able to
afford University.”
Lucy, University of Edinburgh
Our Bursary recipients
Lucy
Lucy comes from a traditional coal and steel community in
Yorkshire, where she was educated at the local Community
School, a school not renowned for academic achievement.
The opportunity of a University education inspired her to
work hard and achieve her goal of getting the required
grades (A*AAB) and gaining a place through the College
of Science & Engineering at the University of Edinburgh.
“Coming from a family without a tradition in academic study
I understand the importance and potential life changing
opportunities on offer at Edinburgh. I have younger siblings
and hope my academic effort inspires them to achieve their
full potential.
“The UNITE Accommodation & Access Bursary offers
me the opportunity of achieving my full potential and
I appreciate the extra support it offers to students in
financial need.”
Many of our students have come from diverse and troubled
backgrounds. One of our students, a former asylum
seeker said:
“In the future I also hope to legally become my sister’s
guardian and believe this bursary would help me in
achieving this sooner by financially sustaining me
throughout my studies.”
Students support primary school children at IntoUniversity learning centres.
Partnership with IntoUniversity
Dr Hugh Rayment-Pickard, Director of Development
and External Affairs at IntoUniversity said:
“We live by our funding and those who fund our work over the
longer term are particularly valuable to us. There is a natural
fit between IntoUniversity and UNITE – we are both working
for the benefit of students – and through their investment
they are expressing in a tangible way a commitment to
supporting more young people from poor backgrounds in
their aspiration to reach University. Our research shows that
young people who do go to University are more likely to have
a professional career, less likely to be unemployed, and are
more likely to have children that go to University. We are really
appreciative of the funding.”
CR 6
" Our vision is to have
a positive impact
on the communities
in which we operate."
CR overview
Caring for the
environment P Recognised as the European sector leader for residential real estate in the 2012 Global Real Estate
Sustainability Benchmark (GRESB)
P Awarded a carbon reduction award by Business in the Community for encouraging behavioural change
in our customers through initiatives such as Student Switch Off
P Piloted LED lighting in five of our properties – plan to roll out to whole estate
P Donated more than 7,000 items of bedding to London charities and £65,000 worth of unwanted goods
to British Heart Foundation and Cancer Research preventing it ending up as landfill.
Committed
to our people P Piloted welfare initiatives and developed standard to be rolled out to all properties
P Improved our learning and development programmes to provide more opportunities for career progression
P Awarded Investors in People Silver status and listed as one of Britain’s Top Employers
P Recruited a new Head of Higher Engagement and created a University Partnerships Team
P Published Student Experience research and shared with our partners.
Supporting our
communities P Launched The UNITE Foundation and invested £200,000 in supporting widening participation
to University and integrating students and communities
P Awarded 21 students from disadvantaged backgrounds bursaries and free accommodation making
University a feasible option
P Provided reduced price rooms for five political interns bringing individuals from diverse backgrounds
into politics
P Worked with local organisations and partners to integrate our students with their communities including
encouraging them to volunteer
P Match funded over £8,500 of donations to employees’ favourite charities
P Committed to supporting the regeneration of our communities through contributing to local schemes
as part of our new developments.
CR 7
Retail bond launch
In December we issued £90 million Sterling Bonds due in 2020.
The proceeds will be used to repay secured borrowings and reduce
the Group’s overall cost of debt. The extremely positive response
from investors demonstrates the appeal of UNITE and its consistent
income streams which provide stable returns, as well as providing
access to a new source of finance.
Going wireless
Our research has shown that Wi-Fi is now the most important factor for
students in choosing accommodation. We are rolling out Wi-Fi across all
UNITE properties providing our students with internet not only in their rooms
but also in communal and social areas.
25
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Property review
NAV growth
Adjusted NAV increased by 10% to £567 million or 350 pence
per share (on a fully diluted basis) at 31 December 2012, up from
£514 million or 318 pence per share at 31 December 2011.
Reported NAV, which includes the impact of mark to market
adjustments on interest rate swaps and some properties at cost
was £516 million (321 pence per share) at 31 December 2012
(2011: £388 million, 242 pence per share).
The main factors behind the 32 pence per share growth in adjusted
net asset value per share were:
• The growth in the value of the Group’s share of assets as a result
of 3% rental growth (17 pps)
• The value added to the development portfolio after pre-contract
costs (13 pps)
• The positive impact of retained profits (11 pps)
• Swap close-outs (-7 pps)
• Dividends paid (-2 pps).
Looking forward, our portfolio is well placed to deliver further growth.
Our focus on the strongest University locations underpins rental
growth prospects and we will continue to deliver meaningful upside
from our development activity. We have three committed development
projects that are expected to deliver a further 19 pence per share of
NAV uplift by 2015 and have made good progress securing further
developments through our LSAV joint venture.
Property portfolio
The valuation of our property portfolio at 31 December 2012,
including our share of gross assets held in USAF and joint ventures
was £1,245 million (31 December 2011: £1,206 million). The £39
million increase in portfolio value was attributable to £111 million of
capital expenditure (£82 million on developments and £29 million on
the acquisition of USV) less disposals (£129 million on a see-through
basis) and £58 million of valuation increases (£32 million on the
investment portfolio and £26 million on the development portfolio).
The valuation of the investment portfolio has increased by 3% on a
like-for-like basis, reflecting rental growth. Average yields were stable
at 6.6%.
Adjusted NAV bridge
(7)
11
(2)
13
17
350
e
r
a
h
s
r
e
p
e
c
n
e
P
370
360
350
340
330
320
310
300
318
31 Dec
2011
Rental
growth
Development Swap close Retained
Dividend
outs
profit
31 Dec
2012
The proportion of our property portfolio that is income generating
increased to 93% during 2012, with 7% under development (2011:
84% and 16% respectively). This shift reflects the completion of our
2012 development programme during the year and our decision to
defer the commencement of our next phase of development activity
by a year. The development proportion of our portfolio will increase to
approximately 15% during 2013 as we progress activity on our 2014
and 2015 development programmes.
Our operational portfolio remains well diversified geographically,
particularly our USAF portfolio, although London remains our primary
target market. 45% of our capital was invested in London assets at
December 2012 and this should exceed 50% as our committed
development pipeline is built out.
Summary balance sheet
Rental properties
Development properties
Net debt
Other assets/liabilities
Adjusted net assets
LTV
26
UNITE
£m
Share of JVs
£m
763
83
846
(453)
(23)
370
53%
399
–
399
(195)
(7)
197
49%
2012
Total
£m
1,162
83
1,245
(648)
(30)
567
52%
UNITE
£m
Share of JVs
£m
617
189
806
(434)
(40)
332
54%
400
–
400
(212)
(6)
182
53%
2011
Total
£m
1,017
189
1,206
(646)
(46)
514
54%
The UNITE Group plc Annual Report and Accounts 2012
A split of rental properties by ownership can be seen in the table below:
UNITE portfolio analysis at 31 December 2012
London
Value (£m)
USAF
188
UCC
347
Beds
1,425
2,268
Major provincial
Value (£m)
917
Beds
16,525
Provincial
Value (£m)
215
Beds
3,885
34
333
–
–
Total
Value (£m)
1,320
381
Beds
21,835
2,601
LSAV
50
528
–
–
–
–
50
528
OCB
175
Wholly
owned
274
Lease
Total
UNITE
–
1,034
1,128
2,010
324
7,683
–
–
–
–
329
–
1,280
5,817
2,147
24,822
160
–
375
3,268
1,785
8,938
477
41%
490
42%
195
17%
175
763
–
2,689
1,162
1,128
11,095
4,256
41,443
100%
UNITE ownership share
UNITE ownership (£m)
16%
216
30%
50%
25%
100%
100%
–
114
25
44
763
–
1,162
–
–
Our holdings in USAF and our UCC and LSAV joint ventures with GIC
remain core investments as they provide us with our desired portfolio
balance as well as attractive returns on capital and recurring fee
revenues. We will review our holding in the OCB joint venture during
2013 in tandem with OCB’s planned exit from the vehicle but intend
to retain our stake and management role provided that an appropriate
alternative vehicle can be established. Approximately 90% of our
wholly owned portfolio is considered core (2011: 82%) and we will
continue our non-core asset disposal programme during 2013.
Student accommodation yields
Investment activity in the student accommodation sector increased
significantly in 2012. According to CBRE, a record £2.7 billion
was transacted, representing a 125% increase on 2011 and
demonstrating the growing attraction of the student accommodation
market to UK and overseas investors. The sector continues
to generate strong returns relative to other asset classes with
yields generally ranging between 6% and 7% and rental growth
of approximately 3% per annum.
27
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Property review continued
The average net yield across The UNITE portfolio was 6.6% at
31 December 2012 and has remained stable for the past three years.
The following graph below compares the yields on UNITE’s completed
portfolio and the Investment Property Databank (IPD) All Property
Yield over the past eight years and demonstrates the relative stability
of UNITE’s yields during a period of considerable volatility in the wider
real estate sector.
While average yields have remained broadly flat, this masks continued
changes at a city level. The range of yields within our portfolio
widened during 2012 to 200 basis points (2011: 175 basis points)
from 5.35% for good quality leased assets to 7.35% for direct let
assets in locations perceived as secondary. As liquidity in the student
accommodation market continues to improve and the relative merits
of different Universities become better understood by the market, we
expect yield differentiation to continue. However, in overall terms we
expect our average portfolio yield to remain stable in the year ahead.
Rental growth
Rental growth for 2012 was 3% on a like-for-like basis and this has
flowed through into asset values. A clear feature of the market has
been increasing differentiation between different parts of the market
in terms of rental growth performance and prospects.
Outside London, actual and prospective growth has been strong in
Scotland, where the fee regime is more favourable, and in a number
of English cities where the combination of stronger Universities and
a robust local economy has provided support. For example,
performance in Bristol, Liverpool, Plymouth, Huddersfield, Newcastle
and Coventry has been encouraging, while rental performance in
Leeds, Manchester, Sheffield and Birmingham was weaker, although
we expect much of this weakness to be temporary as a result of
Government policy changes.
UNITE and IPD net initial yields
UNITE Completed Portfolio
IPD All Property Yield
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
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 HY 2012 YE 2012
In London the market is clearly segregated into three categories,
largely defined by price point and location. Performance in our central
London portfolio, where new supply is very limited and demand
remains high and relatively price inelastic, has been strong. Similarly
we believe rental growth prospects in more affordable locations,
where the supply shortage is most acute and our development is
focused, are also very good. In Zone 2 locations we have seen a lot of
new supply enter the market and some rents in this part of the market
have come under pressure as a result.
Indicative yields
London
Major provincial
Provincial
2012
2011
Direct let
University guaranteed
Direct let
University guaranteed
6.0-6.25%
5.35-5.6%
6.0-6.25%
5.5-5.75%
6.5-7.0%
7.1-7.35%
5.85-6.1%
6.5-7.0%
6.0-6.25%
6.35-6.6%
7.0-7.25%
6.5-6.75%
As a result of our proactive portfolio management in recent years we
believe our portfolio is well positioned from a rental growth perspective.
For 2013, based on 62% reservations as at 5 March, we expect rental
growth to be in line with recent years.
Development activity
Balance sheet development
We completed our £209 million 2012 development pipeline of four
high-quality properties, all achieved on time and within budget.
Positive market conditions meant that a number of cost savings were
made through the supply chain, which enhanced development profits.
These properties have generated attractive returns with average
occupancy at 98%, an average NOI yield on cost of 9.3% and an
average profit on cost of 42%. Two of these properties were sold
28
The UNITE Group plc Annual Report and Accounts 2012 Built out portfolio breakdown (see through basis)
Central London
Zone 2 London
Affordable London
London
Regions
Investment
£m
Development
£m
Total
£m
Dev pipeline
£m
Built out
£m
Total
%
Built out
%
270
81
126
477
685
1,162
38
–
39
77
6
83
308
81
165
554
691
1,245
44
–
125
169
26
195
352
81
290
723
717
25%
7%
13%
45%
55%
24%
6%
20%
50%
50%
1,440
100%
100%
to co-investment vehicles for a combined £77 million, North Lodge
in Tottenham Hale to LSAV and Kelvin Court in Glasgow to USAF,
thereby realising approximately one third of 2012 development profit.
We have no completions planned for 2013 but good progress is being
made on our three committed development projects, all of which are
being funded on the balance sheet:
• Stratford 1 – A 951 bed development adjacent to the Olympic
Park providing budget accommodation in a high quality location
is scheduled to open in summer 2014. This property is intended
to cater for students seeking more affordable accommodation
and has been sold to LSAV on a forward commitment basis
• St Pancras Way – A 563 bed project located to the north of King’s
Cross regeneration zone, close to the Royal Veterinary College and
is scheduled for 2014 completion. This project, which will provide
Zone 1 accommodation at very competitive rents, will be retained
on balance sheet upon completion
• Trenchard Street, Bristol – The redevelopment of a commercial
property, which we have owned for the past ten years, into a 442
bedroom student residence. Bristol represents a strong market
for UNITE with 98% occupancy and nominations agreements
with both Universities. Construction will begin in summer 2013,
with delivery planned for the 2015 academic year.
Together with UNITE’s share of the LSAV development pipeline,
these projects are expected to generate 19 pence per share of
future NAV uplift by 2015, equivalent to 5% of adjusted NAV as
at December 2012.
LSAV development
Our London development pipeline for the next three years will all be
delivered through LSAV, our 50:50 joint venture with GIC RE which
was established in September 2012. The Joint Venture will seek to
commit £330 million to new developments over that period, allowing
us to accelerate our development in the capital, and take advantage
of the current positive market conditions.
Since establishing the joint venture we have made good progress,
securing one attractive development opportunity and establishing
an exclusive position on a second.
2012 developments
London
Wellington Lodge
Moonraker Point
North Lodge
Regions
Kelvin Court,
Glasgow
Total
Beds
Occupancy
%
GAV
£m
TDC
£m
NAV uplift
£m
Profit on cost
%
Yield
%
Weekly cluster
rent £
146
674
528
1,348
477
1,825
100%
100%
97%
99%
22
110
46
178
98%
31
98%
209
15
76
30
121
26
147
7
34
16
57
5
62
47%
9.5%
45%
9.0%
53%
11.2%
47%
9.9%
19%
8.0%
42%
9.3%
225
205
158
108
–
29
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Property review continued
Development pipeline
Wholly owned
2014
Stratford
London
Camden
London
2015
Trenchard
Street
Bristol
Total wholly owned
LSAV
2015
Stratford
London
Total LSAV
LSAV
– UNITE share
Total Pipeline
(UNITE Share)
Secured
beds
No.
Total
completed
value
£m
Total
development
costs
£m
Capex in
period
£m
Capex
remaining
£m
Forecast NAV
remaining
£m
Forecast yield
on cost
%
951
563
442
1,956
759
759
380
83
82
32
197
81
81
40
62
59
22
143
62
62
31
6
30
–
36
–
–
–
43
27
22
92
62
62
31
237
174
36
123
6
12
4
22
19
19
9
31
9.1
9.5
10.4
9.4
9.1
9.1
9.1
9.3
London development activity at that time. However, our current view
is that London development returns will begin to decline marginally
from 2014 onwards as economic conditions improve.
Outside of London and LSAV, we are beginning to explore
a number of interesting development opportunities in strong
University locations. The outlook and return prospects for these
particular markets is encouraging and it is likely that we will
commit to non-London developments on a small scale over the
next couple of years. These developments will be undertaken on
balance sheet and capital expenditure on such projects is unlikely
to exceed £30 million per annum. Taken together with UNITE’s
share of likely LSAV development (approximately £65 million
per year) we plan to commit £90 million to £100 million to
development activity each year provided that conditions remain
favourable and returns compelling.
Our secured scheme is Angel Lane, Stratford. This 759 bed property
will be the first LSAV development project. Stratford represents an
excellent location for UNITE due to its strong University presence,
including the new £1 billion UCL campus that has recently been
announced, and strong transport links. The Borough has an aspiration
to be an education hub and UNITE will be the first accommodation
to market with its two major schemes. This accommodation will be
at a lower price point, catering to considerable unmet demand
from students.
Our exclusive position relates to a large affordable development
in a strong Zone 2 location. If secured, it will provide 950 beds at
a very competitive rent level.
Taken together, these projects would account for approximately 40%
of LSAV’s target development pipeline and both projects are expected
to achieve our target return hurdle of 9% yield on cost.
Future development activity
There are continuing signs that the London planning environment is
becoming more restrictive and with the debt markets for development
finance remaining constrained by a lack of capacity, we are continuing
to see opportunities to secure off market sites in London at or above
our target of 9% yield on cost for the time being. We expect to have
fully secured the planned LSAV development pipeline, subject to
planning, by mid-2014 and will review the prospects for further
30
The UNITE Group plc Annual Report and Accounts 2012 Asset disposals
Open market transactions
Completed / exchanged
Wholly owned
USAF
UCC
Total
Asset sales to JV Partners
Completed / exchanged
Wholly owned
Total
Average yield
* As reflected in adjusted NAV.
Proceeds
£m
2012
Book value*
£m
Proceeds
£m
2011
Book value*
£m
71
21
21
113
77
190
6.4%
73
21
19
113
77
190
6.4%
7
–
8
15
–
15
6
–
7
13
–
13
6.4%
6.4%
Property summary and outlook
Our disciplined approach to portfolio management in recent years
underpinned strong results for 2012. Our disposal programme helped
us improve portfolio quality and reduce leverage and our selective
development programme delivered very attractive returns while also
enhancing portfolio quality.
Our focus for 2013 and beyond will be developing new properties
in London through LSAV, as well as exploring a small number of
potential opportunities that are highly accretive elsewhere. Our
disposal activity will improve our portfolio quality further, while also
providing us with the means to pursue development and modestly
reduce leverage.
Asset disposals
We successfully achieved our non-core asset disposal target in 2012.
£71 million of wholly owned assets were sold into the open market
during the year together with £42 million owned by co-investment
vehicles. In addition £77 million core assets were sold by UNITE to
co-investment vehicles. The disposal proceeds generated, which were
in line with book value, were used to repay borrowing and fund some
new development.
In 2013 we plan some further non-core asset sales, both from our
balance sheet and co-investment vehicles, as part of our on-going
portfolio quality objectives. We are targeting disposals of
approximately £100 million by December 2013, of which £50
to £75 million are likely to be from our wholly-owned portfolio.
A particular focus will be our legacy NHS accommodation in
East London, valued at approximately £25 million.
Asset management
During 2012 we completed three significant refurbishments at
properties in Manchester, Plymouth and Sheffield, with our share
of capital expenditure amounting to £1 million. We also invested a
further £5 million (UNITE share) in more minor improvements across
the rest of the estate. The Manchester refurbishment was of particular
note, as we successfully received change of use permission for our
vacant commercial space, thereby adding 58 rooms to the property.
By upgrading some of our older assets, we were able to enhance our
customer experience along with delivering valuation growth as a result
of increased rent levels following refurbishment. In 2012 our share
of valuation uplift was £5 million, net of capital expenditure. This type
of activity will be a continuing feature of our approach to asset
management in the coming years.
31
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Dividend
We are recommending a final dividend payment of 3.0 pence per
share, making 4.0 pence for the full year, a 2.25 pence per share
increase on 2011 (2011: 1.75 pence). The increased dividend is a
result of strong earnings growth and an increased pay-out ratio,
now equivalent to one third of NPC. At this level the dividend is cash
covered 2.7 times. Looking forward we intend to retain dividend cover
at this level such that the dividend will grow in line with profits but the
pay-out ratio will not increase. This will remain the case while we
consider there to be attractive opportunities to invest in the business,
for example through accretive development activity.
Subject to approval at UNITE’s Annual General Meeting on 16 May
2013, the recommended final dividend will be paid on 20 May 2013
to shareholders on the register at close of business on 19 April 2013.
Debt financing
Throughout 2012 we maintained our focus on controlling gearing
levels, extending debt maturities and reducing financing costs and
had some important successes. These objectives will remain a priority
in 2013.
Key debt statistics
31 Dec 2012
31 Dec 2011
See through net debt
£648m
£646m
Adjusted gearing
See through LTV
Weighted average debt
maturity
Weighted average cost of
debt
Proportion of investment
debt hedged
80%
52%
84%
54%
4.9 years
2.6 years
5.5%
88%
5.7%
69%
The Group’s see through LTV reduced to 52% at 31 December 2012
from 54% at the end of 2011 and adjusted gearing decreased to
80% from 84% over the same period. We will continue to manage
our gearing proactively and are targeting a see through LTV of 50%
by the end of 2013.
We also had some significant successes with arranging new debt
facilities, particularly from non-bank sources. In May we announced
a new ten-year £120 million senior debt facility with Legal and
General, their first real estate financing facility. We also successfully
issued our first unsecured retail bond which was over-subscribed and
generated £90 million of proceeds. Including these two new sources
of funding, the Group has raised a total of £272 million of new debt
finance for the wholly owned balance sheet and a further £55 million
for joint ventures.
Financial review
Income statement
NPC and Adjusted Earnings are the key measures for the underlying
performance of the Group. The details of this performance are set out
in the Operations Review section of this report. The following table
shows the further elements that are included within the International
Financial Reporting Standards profit before tax measure.
Income statement
Net portfolio contribution
Adjusted profit (pre-UMS for 2011)
UMS trading and closure
costs (in 2011)
Valuation gains and profit/loss
on disposal
Impact of reclassifying stock
properties to investment assets
Changes in valuation of interest
rate swaps
Minority interest and tax
adjustments
Profit before tax
NPC per share
Adjusted earnings per share
2012
£m
19.1
15.9
2011
£m
11.0
4.1
–
(21.0)
58.0
49.7
0.8
1.8
126.2
11.9p
9.9p
19.7
–
–
1.9
4.7
6.9p
2.6p
During the year, £313 million of assets were transferred from current
assets to investment assets reflecting the Group’s shift in strategy
to hold and retain a greater proportion of its assets on balance sheet,
supported by the longer term funding arrangements that were put in
place in the year. This has resulted in a one-off profit before tax and
reported net assets gain of £50 million. Adjusted profit and Adjusted
NAV are not affected by this change.
A full reconciliation of NPC to Adjusted profit and our Reported profit
before tax is given in Section 2 of the financial statements.
The Group has built up a significant amount of brought forward tax
losses and capital allowances, primarily as a result of the high volume
of development activity it has undertaken over the last ten years.
This deferred tax asset of £22 million is not recognised in the Group’s
balance sheet due to uncertainty of future profits. Brought forward
losses and allowances may be used against future taxable profits
as they arise depending on meeting certain conditions.
Cash flow and net debt
The Operations business has generated £17.2 million of net cash in
2012 (2011: £13.8 million). Cash flow generation is a key objective for
the Group and Operations cash is expected to grow in line with NPC
in 2013 after a favourable working capital benefit in 2011. At the
Group level, our overall cash position increased by £59 million
primarily as a result of the proceeds from our retail bond issue (after
de-gearing £30 million of other facilities) and see through net debt
remained stable at £648 million (31 December 2011: £646 million).
The key components of the movement in net debt were the disposal
programme (generating proceeds of £129 million on a see through
basis) offset by total capital expenditure of £121 million.
32
The UNITE Group plc Annual Report and Accounts 2012 New debt facilities
The arrangement of non-bank debt facilities has been an important
strategic development. The Legal & General facility and the retail
bond allowed us to secure longer term finance than is available in
banking markets and use the proceeds to fund assets we consider
to be core long term investments.
Our main priority in 2013 relates to the refinancing of debt facilities
in USAF, UCC and OCB that mature within the next 12 to 24 months
and we are continuing to work closely with banks, insurers and
arrangers in the capital markets to ensure that the facilities are
in place as required.
As a result of the new facilities our weighted average loan maturity
has been extended to 4.9 years (2011: 2.6 years) and the proportion
of non-bank debt facilities has increased to 43% on a see through
basis (2011: 26%).
Debt maturity
600
500
400
300
200
100
0
2013
2014
2015
2016
2017
2018+
Group
Funds
At 31 December, we had £30 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 £105 million.
Covenant headroom
We are in full compliance with all of our borrowing covenants at 31
December 2012. Our debt facilities include loan-to-value (LTV) and
interest cover covenants that are measured at the portfolio level and
we have maintained significant headroom against both measures.
The weighted LTV across facilities of 35% against a weighted
covenant of 70%, provides headroom for property against values
to fall by over 45% before a breach would occur (using surplus cash
to pay down facilities). The interest cover ratio is 2.6 times against the
covenant level of 1.4 times, again providing significant headroom.
Interest rate hedging arrangements and cost of debt
The Group has increased the proportion of debt that has a fixed
interest rate to 88% (2011: 69%) following the completion of the
L&G re-financing and the retail bond. The Group has cancelled
certain interest rate swaps in the year as part of its refinancing activity,
resulting in a charge of £10.4 million (2011: £0.5 million). It is
anticipated that further break costs will be incurred in 2013 as the
Group completes its re-financing programme, although these should
be at a slightly lower level.
Our see-through cost of debt has reduced to 5.5% (2011: 5.7%) as
a result of the refinancing activity. Further reductions in the cost of
debt are anticipated as a result of the planned refinancing activity,
and as expensive interest rate swaps expire. The recently arranged
unsecured retail bond will assist in this objective, as it will enable us
to reduce the amount of senior secured debt in the business. We
expect this to translate into lower borrowing costs on such facilities
and consequently reduce our average cost of debt over time.
Funds and joint ventures
UNITE acts as co-investing manager of four specialist student
accommodation vehicles that we have established, as outlined
in the table overleaf.
UNITE UK Student Accommodation Fund (USAF)
USAF has delivered a very strong performance in 2012 with a total
return for the year, including the payment of income distributions, of
14.2%. Consequently USAF was placed as the top performing fund
on the IPD PPFI specialist fund index over the last five years. In the
12 months to 31 December 2012, the value of the property portfolio
held by the Fund increased by 3%, on a like-for-like basis, driven
principally by rental growth.
Progress has been made on the recovery of the Landsbanki deposit
placed with the bank in 2008. During 2012 the Fund received a total
of £14.2 million of cash from Landsbanki, representing 47.5% of the
original deposit and adding 2.3% to the annual total return of the
Fund. The Resolution Committee continues to advise that depositors,
including USAF, should receive 100% of their deposit monies over
time. Notwithstanding this, the remaining £15.8 million remains fully
provided for in USAF’s accounts due to uncertainties. UNITE’s share
of this remaining outstanding deposit is £3.2 million and is also fully
provided for.
We are making good progress with plans to extend or replace a
£105 million bank facility in USAF that expires in December 2013
as well as the £280 million CMBS that matures in April 2014. We
expect to conclude a successful refinancing later in 2013.
UNITE’s 16% stake in USAF provides an important part of the
overall earnings of the Group, contributing £6.4 million to adjusted
earnings (excluding fees). Whilst USAF stays around its current size,
the Group intends to maintain its stake at around this level for the
foreseeable future.
Joint ventures with GIC RE
UNITE has developed and maintained a positive working relationship
with GIC RE over the last eight years. With the UCC joint venture now
fully invested, the Group has made important progress with GIC,
extending UCC by ten years and creating a new partnership through
which UNITE will undertake its next phase of London development
activity (LSAV).
UCC
UCC, which was established in March 2005 and had an original
maturity date of March 2013, has now been extended to a new
maturity date of September 2022. In conjunction with the extension,
UNITE will be undertaking a portfolio repositioning and refinancing
exercise for UCC in the coming years as follows:
• Approximately £100 million of UCC's existing assets, equivalent to
around 25% of its total portfolio at 31 December 2012, will be sold
over the next four years. The disposals will be targeted so as to
focus UCC's remaining holdings on its highest quality London
locations and the majority of proceeds will then be applied to
de-leveraging in the JV
33
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceBusiness reviewFinancial statementsOther informationStrategyOverviewGovernance Financial review continued
• UCC's existing senior debt facility of £227 million, provided
by a syndicate of lenders headed by HSH Nordbank, matures
in September 2014 and will need to be replaced with a new facility.
We intend to have the replacement facility arranged and in place
during 2013.
UNITE's UCC performance fee will become payable on the later
of 31 March 2013 and the successful refinancing of the HSH debt
facility. This performance fee is expected to be worth between
£5 million and £8 million, although no value is currently reflected
in the Group’s accounts.
London Student Accommodation Vehicle (LSAV)
LSAV is a new joint venture between UNITE and GIC, alongside
UCC. Both UNITE and GIC have a 50% stake and LSAV has the
same maturity date as UCC (September 2022). It is the primary
vehicle through which UNITE will undertake development activity
in London and has a right of first refusal over UNITE’s London
development projects until such time as its capital investment
targets are met.
LSAV acquired North Lodge from UNITE in November 2012
for £46 million and has committed to acquire Stratford 1
(when completed) on a forward commitment basis for £83 million.
The consideration payable for each asset is subject to a +/- 10%
adjustment after two years of operation depending on
asset performance.
LSAV also plans to invest approximately £330 million in London
development activity over the coming years, equivalent to between
3,500 and 4,000 new bed spaces. UNITE's share of LSAV planned
development capital expenditure will be £165 million, which is
expected to be invested over the period 2013 to 2017 (by which
time all projects are expected to be operational) at anticipated
leverage of 65% loan-to-cost. The first LSAV development
project, Angel Lane Stratford, was secured in late 2012.
UNITE and GIC can agree to extend the development programme by
a further £200 million once the existing capital has been committed.
Potential merger of UCC and LSAV
UNITE has an opportunity to increase its stake in UCC from 30%
to 50% by the end of 2016 and UNITE and GIC have agreed that
this can be achieved by one or more of the following options: applying
Funds and joint ventures
UNITE’s share of proceeds from UCC’s disposal programme; using
its performance fee to acquire units; and selling a recently completed
property at open market value to LSAV.
If UNITE’s stake in UCC reaches 50% before 31 December 2016,
then UCC will merge with LSAV by way of a unit for unit exchange
at NAV. In the event that UNITE’s stake does not reach 50% before
that date then UCC will continue as a separate vehicle.
The establishment of LSAV and extension of UCC was an important
step for UNITE and is consistent with our objectives of growing
recurring earnings, undertaking accretive development activity without
stretching the Group's balance sheet and reducing leverage over time.
It is expected to be accretive to both UNITE’s earnings and NAV whilst
also delivering a modest reduction in the Group's leverage.
OCB
The Oasis Capital Bank joint venture matures in August 2014 and
we are continuing to work with our joint venture partner to determine
the most appropriate strategy for the JV, now that the assets are
completed and income producing.
OCB’s total return in 2012 was -14.4%, reflecting a reduction in asset
values. The three assets in the joint venture are in Zone 2 locations
that have seen new supply enter the market and rents, as a result,
have come under pressure. The returns since the inception of the
joint venture remain positive at an average 11.6% per annum.
We expect OCB to sell their stake in the joint venture during the
2013/14 academic year. We intend to retain our stake and
management role going forward although this is subject to the
arrangement of an alternative vehicle that meets our strategic
objectives. In the event that this does not occur then we would be
likely to sell our stake alongside OCB and reinvest the proceeds
elsewhere in our London portfolio, most probably by increasing
our stake in UCC.
UNITE Student Village (USV)
In January 2012 we completed the acquisition of the remaining
49% interest in USV, owned by a subsidiary of Lehman Brothers
on favourable terms adding £2.5 million of NAV and £1 million
of annualised NPC.
Property
Assets
1,320
381
50
175
Net debt
Other
assets
Adjusted
LTV
Adjusted
NAV
UNITE share
of adjusted
NAV
Total
return
Maturity
UNITE
share
(572)
(214)
(22)
(105)
(23)
(9)
(2)
(4)
43%
56%
44%
60%
725
158
26
66
119
14.2%
Infinite
47
13
16
14.8%
n/a
2022
2022
(14.4)%
2014
16%
30%
50%
25%
Vehicle
USAF
UCC
LSAV
OCB
34
The UNITE Group plc Annual Report and Accounts 2012 Efficient, paperless
procedures
In 2012 we equipped all of our city teams with mobile working devices enabling room
inspections to be completed at a touch of a button. This means less paperwork for
our employees, more efficient management of the process, as well as improving the
customer service we provide through greater transparency.
35
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Student accommodation market review
Student intake for 2012/13 fell by 54,000, largely as a result of
various Government policy changes, representing a 12% drop in
admissions from 2011/12. However, as a result of increased intake
in earlier years the overall student population was broadly static as
the larger number of returning students offset the decline in first
year admissions.
The factors contributing to the drop in intake were as follows:
• A permanent reduction in the number of Government-funded
places (15,000)
• An increase in the number of deferred acceptances back to normal
levels from a very low base in 2011 (16,000)
• A number of policy-related implications that resulted in a mismatch
between the demand for and supply of particular University places
for the year (23,000).
From an accommodation perspective these factors led to higher
than expected voids across the sector in those cities where
Universities experienced a decline in numbers and existing supply
levels are relatively high. In the main, this was the big northern cities
– Leeds, Sheffield and Manchester – and also Wales (where UNITE
does not have a presence). Conversely some towns and cities saw
very strong levels of occupancy – all of Scotland, Bristol and
Plymouth for example. Against this backdrop it is encouraging that
we achieved 96% occupancy and 3% rental growth, reflecting the
quality of our portfolio.
• Penalties for over-recruitment of students subject to number
controls (ie excluding the uncapped pool) have been relaxed.
Universities will now be permitted to over-recruit by 3% of their
allocation without financial penalty whereas in 2012/13 Universities
were at risk of being fined for exceeding student number controls.
We expect this to remove some of the caution Universities have
previously exercised when deciding upon the number of offers to
make to prospective students and it should therefore translate into
improved recruitment levels. A 3% increase in the controlled student
numbers pool is equivalent to approximately 10,000 students
• Up to 5,000 additional University places will be made available,
to be allocated flexibly.
In addition to the above measures, the number of deferred
acceptances should return to normal levels and this should contribute
a further 15,000 increase.
The only remaining area of uncertainty in Government policy relates
to non-EU student visa regulation, where increased restrictions have
been introduced in recent years. However, recent developments
suggest that the political rhetoric is moving in favour of the sector
with a much clearer appreciation amongst ministers that student
immigration should be considered separately from general
immigration and could be a significant driver of economic growth.
This segment of the market still has the potential to grow very strongly
although in the near term we expect this to be slightly tempered as
the political debate continues.
The outlook for 2013/14 student intake is considerably more positive,
following supportive policy announcements and solid growth in the
number of applications.
Market outlook
We believe that the above changes should translate into an increase
in intake for 2013/14 of between 25,000 and 30,000.
New supply has been focused in London for 2013/14 from a small
number of new entrants to the sector, although there is some regional
activity as well. The pipeline of new beds is estimated to be 9,500, of
which 4,000 are in London. Taking into account these new beds and
the anticipated increase in number of students in 2013, the net
positive demand/supply movement is expected to be approximately
18,000. These movements underpin our expectation that rental
growth for 2013/14 will be in line with recent years.
On 30 January UCAS released the applications data for 2013/14
confirming a 3.5% increase on 2012/13. Taking into account the
increased applications and likely number of available University places
we anticipate that there will be at least 180,000 unplaced applicants
for the next academic year (2012: 188,000). Given this heavily
over-subscribed position it is clear that the process for allocating
student places will be a far more important determinant of final
student intake than initial applications. Recently announced changes
to the funding and admissions process are encouraging in this regard.
The main new measures announced were as follows:
• There will be no restriction on the number of students achieving
ABB grades or better at A-level (or equivalent) that Universities can
recruit. In 2012/13, this unrestricted pool was limited only to those
achieving AAB or above. We estimate that this change will increase
the size of this uncapped pool from 79,000 to approximately
120,000. Stronger Universities should be well positioned to benefit
from this change
36
The UNITE Group plc Annual Report and Accounts 2012 Innovative transaction
UNITE sold its leasehold interest in New Carnegie Court to PRUPIM for £33 million,
representing a net initial yield of 5.5%. The sale was achieved following extensive work
to restructure the underlying ownership and new 25 year lease granted to the University
of Aberdeen. The transaction was win-win-win for all parties.
37
The UNITE Group plc Annual Report and Accounts 2012Financial statementsOther informationStrategyOverviewGovernanceBusiness review Risk management
Our approach to identifying, evaluating and avoiding or mitigating the impact
of risks to UNITE is at the core of our business model. Risks are reviewed regularly
at business unit and Group Board meetings, and are central to our strategic
planning and day to day operations. Our principal risks are highlighted in white.
Risk and Impact
Mitigation
Change Commentary
Group H&S committee set up to oversee
policies and frameworks. Reviewed
monthly by Board. External audit
undertaken on all our properties
bi-annually. New Head of H&S appointed
in 2012.
H&S is a primary focus and good progress
made enhancing and embedding across
the business. Head of H&S auditing
existing processes and procedures and
aims to further embed these approaches.
Skilled development team and strong
reputation. Focus on off-market
transactions. Strong relationships
with financially robust lenders.
Development pipeline of over 2,500 beds
secured; good progress with planning
and funding.
Established planning expertise and
careful site selection. Financial
investment in schemes carefully
managed prior to grant of planning.
Pursuing new opportunities on a
conditional basis to ensure we retain
adequate flexibility.
Skilled Development team with strong track
record. Strong relationships with planning
authorities, particularly in London. 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 2012/13 schemes delivered to time
and cost. No schemes in 2013/14 and
2014/15 projects all on track.
Dedicated Fund Directors responsible
for managing the performance of each
Fund/JV. Any potential conflicts are
managed through Group Risk
Committee. Quarterly meetings
with investors.
Work closely with joint venture partners
to agree mutually beneficial extension/
exit strategies.
Strong performance by USAF
and co-investment vehicles.
Open, straightforward communications
with USAF Advisory Committee and
JV partners.
Extension of UCC and establishment
of LSAV shows alignment with GIC.
USV joint venture brought back on
to balance sheet.
OCB strategy now in place.
Operations risks
Major Health and Safety (H&S) incident
in property, development site or office.
Reputational damage and
impact to students living with us.
Property development risks
Failure to secure sites, construction
contracts and/or development debt
at attractive prices.
Unable to generate returns in line
with plans.
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.
Fund management
Ability to deliver strategy of both
the Funds/JVs and the Group.
Loss of investor confidence and/or
potential deadlock.
Joint ventures mature without agreement
for a satisfactory exit.
Forced sales of properties
potentially impacting price. Loss of
management fees.
Loss of market position
in affected cities.
38
The UNITE Group plc Annual Report and Accounts 2012 Risk and Impact
Mitigation
Change Commentary
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.
Refinance 6-12 months before maturity.
Breach of borrowing covenants.
Regular monitoring of covenant position.
Debt becomes
immediately repayable.
Market Risks
Changes in Government policy may
affect student numbers and behaviour.
Significant volume of new entrants leads
to over-supply in certain markets.
May reduce demand and hence
profitability and asset values.
Property markets are cyclical and
performance depends on general
economic conditions.
Reduction in asset values reducing
financial returns.
Risk of further recession or
Eurozone break-up causing possible
failure of construction contractor,
University or bank.
Cost to the business of dealing
with failure, damage to market.
Change in patterns of study through
the enhanced use of technology.
Reduced demand for student
accommodation resulting in lower
profitability.
Proactive management of any potential
issues and ability to use cash to
manage covenants.
UNITE focus and strategy:
• supply/demand imbalance
• exposure to best Universities
• more affluent customer base including
overseas students
• strong sales and marketing expertise
• development of affordable product
• flexible approach to tenancies.
Forecast rental growth and recurring
profit offsets any yield movement.
Clear and active asset
management strategy.
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.
UK Universities retain a global appeal
(second most popular). Continued growth
of international student mobility.
UNITE focus on strongest Universities.
Market knowledge and University
relationships.
Average cost of debt reduced during 2012
from 5.7% to 5.5%.
88% of debt now at fixed rate/swapped.
Completion of new facility with Legal &
General and the retail bond issue provide
evidence of availability of funds and create
funding headroom.
Significant level of headroom in both
LTV and ICR covenants.
Applications to study in 2013/14
applications show 3.5% rise on
2012/13 numbers and a number of policy
mechanisms have been announced which
suggest 25,000-30,000 more students
will be studying next year.
Underlying demand for HE in the UK
remains extremely strong.
Occupancy of 96% achieved in year
of market disruption.
Maximising portfolio value through
programme of refurbishments
and extensions.
Development pipeline still on track;
no issues with construction partners.
Continue to diversify sources
of debt finance.
Increased number of overseas students
living with UNITE.
Operational platform supports more
flexible tenancies.
39
The UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernanceBusiness reviewFinancial statementsOther informationStrategyOverviewGovernance Board of Directors
Phil White CBE
Mark Allan
Joe Lister
Richard Simpson
Richard Smith
Manjit Wolstenholme
Stuart Beevor
Richard Walker
Sir Tim Wilson
Andrew Jones
The Board
Executive
Non-Executive
40
The UNITE Group plc Annual Report and Accounts 2012
Phil White
Chairman
Age 63
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, Non-Executive Chairman of Lookers plc and
a Non-Executive Director of Stagecoach Group plc.
Mark Allan
Chief Executive
Age 40
Experience
Mark was appointed as Chief Executive in September
2006, following three years as Chief Financial Officer.
Mark held a variety of other roles in the business prior
to that, having joined the Group in 1999. Mark has
overall responsibility for the Group’s performance
against its business plan targets, whilst continuing
to develop UNITE’s growth strategy.
Joe Lister
Chief Financial Officer
Age 41
Experience
Joe joined UNITE in 2002. He was appointed
as Chief Financial Officer in January 2008 having
previously held a variety of roles within UNITE,
including investment director. Joe is responsible
for the Group’s finances and investment strategy and
is responsible for the Company Secretarial function
and chairs the Group’s Major Investment Approval
meetings. Prior to joining UNITE; Joe qualified as a
chartered accountant with PricewaterhouseCoopers.
Richard Simpson
Managing Director of Property
Age 37
Experience
Richard is Managing Director of property for UNITE.
Richard sets the strategic direction for all aspects
of the property portfolio and oversees the fund
management of UNITE’s co-investment vehicles.
Richard defines the approach for optimising portfolio
performance and develops the UK wide property
development plan. Richard joined UNITE in 2005 and
in 2007 was appointed to the role of property director
for the London Business. He took over responsibility
for UK-wide property development in 2009, creating
and implementing a growth strategy within London
and other key UK cities. Prior to his roles in property
development, Richard had a six year career in the
British Army.
Richard Smith
Managing Director of Operations
Age 38
Experience
Richard was appointed as Managing Director of
Operations for UNITE in 2011. His role involves leading
on the customer service provided to our 40,000
customers, and managing the maintenance and
facilities management across the Group’s nationwide
property portfolio. Richard joined UNITE as deputy
Chief Financial Officer in 2010. Prior to joining UNITE
Richard spent a total of 18 years in the transport
industry; 13 of which were at 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.
Manjit Wolstenholme
Non-Executive Director
Age 48
Committees
Chair of the Audit Committee
Remuneration Committee
Nomination Committee
Experience
Manjit qualified as a chartered accountant with
Coopers & Lybrand and has a strong financial and
executive background, including roles as chief
operating officer of Kleinwort Benson and partner
in corporate finance boutique Gleacher Shacklock,
before embarking on a career as a non-executive. She
is chairman for Albany Investment Trust plc and senior
independent director and chair of the remuneration
committee of Future plc. She is also a non-executive
director and chair of audit committee for Provident
Financial plc. Manjit’s skills and experience will support
the business as UNITE focuses on growth and
extending its market-leading position.
Stuart Beevor
Non-Executive Director and
Senior Independent Director
Age 56
Committees
Chairman of the Remuneration Committee
Audit Committee
Nomination Committee
Experience
Stuart is an independent consultant with various roles
advising clients in real estate fund management,
investment and asset management. From 2002 to
2011 he was Managing Director of Grosvenor Fund
Management Limited and a member of the board of
Grosvenor Group Limited, the international property
group. Prior to joining Grosvenor, Stuart was managing
director at Legal & General Property Limited, having
previously held a number of roles dealing with
development, investment, property management
and unitised funds at Norwich Union. Stuart brings
a knowledge of property investment, property funds
and investor demand that uniquely supports the
board and the business in its role as a co-investing
asset manager.
Richard Walker
Non-Executive Director
Age 47
Committees
Audit Committee
Remuneration Committee
Nomination Committee
Experience
Richard brings strong operational expertise to
the board, with 18 years of experience of having
the customer at the heart of every decision made.
He was formerly customer experience director then
chief operating officer at Talk Talk (Telco Arm of
Carphone Warehouse Group) and was responsible
for the customer experience change programme.
Prior to this role, Richard was Chief Operating Officer
of Carphone Warehouse UK, with responsibility for
the Group’s 750 UK stores, websites, direct sales and
insurance services. Richard was previously European
Managing Director of Carphone Warehouse’s
European retail business, operating in 14 countries,
and UK Sales Director. He holds a law degree from
Nottingham University and trained as an accountant
with Coopers and Lybrand.
Sir Tim Wilson
Non-Executive Director
Age 63
Committees
Chairman of the Nomination Committee
Audit Committee
Remuneration Committee
Experience
Sir Tim was appointed Knight Bachelor for services
to Higher Education and to business in the 2011
New Year’s Honours List. He is a strong advocate
of the role of Universities in economic development
and acknowledged as one of the leading thinkers
in University-business collaboration. He is the author
of the government-commissioned Wilson Review
of University-Industry collaboration, published in
March 2012. Formerly vice-chancellor of the University
of Hertfordshire, he also served on the board of the
Higher Education Funding Council for England
(HEFCE), was deputy chair of the CBI Innovation,
Science and Technology Committee and a trustee
of the Council for Industry and Higher Education
(CIHE). He has extensive experience in both UK
and international Higher Education.
Andrew Jones
Non-Executive Director
Age 44
Committees
Audit Committee
Remuneration Committee
Nomination Committee
Experience
Andrew Jones is Chief Executive Officer
of LondonMetric Property, following the recent
merger of London & Stamford and Metric. Andrew was
a co-founder of Metric and was Chief Executive
Officer since its inception in March 2010. Andrew’s
previous roles include Executive Director and Head of
Retail at British Land. Andrew joined British Land in
2005 following the acquisition of Pillar Property where
he was on the main board with responsibilities for
their retail portfolio and the Hercules Unit Trust.
The UNITE Group plc Annual Report and Accounts 2012
41
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceBusiness reviewFinancial statementsOther informationStrategyOverviewGovernance Corporate governance
Dear Shareholder
On the following pages we set out UNITE’s Corporate Governance Report, which describes how the principles relating to the role and
effectiveness of the Board have been applied. The report comprises the following sections:
• Leadership
• How the Board operates
• Effectiveness
• Investor relations
• Audit Committee report
• Directors’ remuneration report
• Nomination Committee report
Throughout 2012, 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). During 2013, we will continue to comply with the Code, as amended in October 2012.
Phil White
Chairman of the Board
6 March 2013
42
The UNITE Group plc Annual Report and Accounts 2012 LEADERSHIP
Board structure
Set out below is an outline of the governance structure of UNITE.
Audit
Committee
Remuneration
Committee
Nomination
Committee
Health
and Safety
Committee
UNITE Board
UNITE
Operations
Board
UNITE
Property
Board
Risk
Committee
Composition and appointments
The composition of the Board during 2012 is set out in the table on p.45.
The Board currently consists of the Chairman, four Executive Directors and five Non-Executive Directors.
With effect from the beginning of 2012, Richard Simpson and Richard Smith were appointed as Executive Directors with the roles
of Managing Director (Property) and Managing Director (Operations) respectively.
On 17 May 2012, Nigel Hall, previously Chairman of the Audit Committee, stood down from the Board, having by then served for nine years
as a Non-Executive Director of the Company.
Andrew Jones was appointed to the Board as an additional Non-Executive Director with effect from 1 February 2013.
At the annual general meeting of the Company, which has been convened for 16 May 2013 (the annual general meeting), Stuart Beevor
(currently chair of the Remuneration Committee and Senior Independent Director), will retire from the Board having, by then, served nine years
in office. Stuart will be replaced by Richard Walker as Chairman of the Remuneration Committee and by Manjit Wolstenholme as Senior
Independent Director.
In accordance with the requirements of the Code, each of the current Directors, other than Stuart Beevor, offers himself/herself for re-election
at the annual general meeting. Brief biographies of all the Directors are set out on p.41.
Following the individual performance evaluations of each of the Non-Executive Directors seeking re-election (other than Andrew Jones who,
as stated above, was only appointed on 1 February 2013), it is confirmed that the performance of each of the relevant individuals continues to
be effective and demonstrates commitment to the role.
43
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Corporate governance continued
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
Description
Chairman
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
Chief Executive
by the Board
Senior Independent Director
• implementing the Group’s business plan and annual budget
• the overall operational and financial performance of the Group
As Senior Independent Director, Stuart Beevor’s 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
These responsibilities will be taken-on by Manjit Wolstenholme when she becomes
Senior Independent Director following the annual general meeting.
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 p.47.
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.
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
44
The UNITE Group plc Annual Report and Accounts 2012 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 p.47.
Audit
Remuneration
Nomination
Health & Safety
Phil White
Stuart Beevor
Sir Tim Wilson
Richard Walker
Manjit Wolstenholme
Andrew Jones
Mark Allan
* Denotes Chairman.
*
*
**
*
*
** Will become Chair of the Remuneration Committee following the annual general meeting.
Set out below are sections describing the work of the Committees in discharging their respective functions:
Audit Committee: see the Audit Committee Report on p.48
Nomination Committee: see the Nomination Committee report on p.64
Remuneration Committee: see the Remuneration Committee Report on p.52
Health & Safety Committee
The Health & Safety Committee was established in June 2012 and is chaired by Richard Walker. Its other members are Sir Tim Wilson and
Mark Allan. Richard Simpson (Managing Director (Property)), and Richard Smith (Managing Director (Operations)), together with the Group
Head of Health & Safety, are also invited to attend meetings of the Committee.
The role of the Health & Safety Committee is to:
• Ensure that the Group’s policies, procedures and working practices regarding health and safety meet or exceed legal obligations
• Annually review the Group’s Health & Safety Policy
• Ensure that the Board is kept abreast of any regulatory changes in relation to health and safety and environmental issues and the impact
such changes may have on the business of the Group
• To receive reports as to Business Unit health and safety and environmental performance, policies and arrangements and any major health
and safety incidents so as to ensure that management identifies and implements any corrective action considered appropriate.
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 mis-statement.
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 and Health & Safety Committees and from the Group’s
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.
45
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012 Corporate governance continued
Board tenure
Each of the Executive Directors has a rolling contract, of employment with 12 month notice periods, 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 will all retire at the annual general meeting and (other than Stuart Beevor who, after serving for nine years, will retire from
Board at the annual general meeting), 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.
Key
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 during which 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.
Performance evaluation
A formal independent evaluation exercise in relation to the Board and its Committees was undertaken in 2011 by Ffion Hague Independent
Board Evaluation (which has no other connection with the Company). The results of that evaluation indicated that the Board (and its
Committees), generally, operated effectively, although certain recommendations were made and subsequently implemented. During 2012,
Non-Executive Directors and the Board as a whole considered the effectiveness of the Board and its Committees. The evaluation of the
effectiveness of the Executive Directors was carried out as part of the annual appraisal procedure by the Chief Executive in the case of the
other executive Directors and by the Chairman in the case of the Chief Executive. A formal internal review of the effectiveness of the Board
and its Committees will be carried out in 2013.
46
The UNITE Group plc Annual Report and Accounts 2012 Board and Committee and attendance at meetings in 2012
Current
Directors
Phil White
Status
Date of
Appointment
to the Board
Chairman
21.01.09
Stuart Beevor
Independent
01.03.04
Sir Tim Wilson
Independent
01.12.10
Richard Walker
Independent
03.11.05
Manjit Wolstenholme
Independent
Mark Allan
Executive
01.12.11
17.11.03
Joe Lister
Executive
02.01.08
Richard Simpson
Executive
Richard Smith
Executive
Director who stepped
down in the year
Nigel Hall
Independent
01.01.12
01.01.12
06.03.06
(resigned
17.05.12)
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Health
& Safety
Committee
11
11
11
11
11
10
11
11
11
N/A
4
4
4
4
N/A
N/A
N/A
N/A
5
5
5
5
5
N/A
N/A
N/A
N/A
2
2
2
2
2
N/A
N/A
N/A
N/A
N/A
N/A
2
2
N/A
2
N/A
N/A
N/A
2
2
2
–
N/A
INVESTOR RELATIONS
The Board attaches a high priority to effective communication with shareholders and with other providers of capital to the business
and welcomes their views insofar as they are relevant to the Group’s approach to corporate governance. In addition to the final and interim
presentations, a series of meetings between institutional shareholders/other providers of capital and senior management was held throughout
2012. The Board and, in particular, the Non-Executive Directors, are made aware of the views of major shareholders concerning the
Company through, amongst other means, regular analysts’ and broker briefings and surveys of shareholder opinion. That process will
continue throughout 2013.
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 annual general meetings 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 annual general meetings, 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 annual general meeting is set out on p.108.
47
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012 Audit Committee report
AUDIT COMMITTEE REPORT
Dear shareholder
On the following pages are set out the Audit Committee’s Report for 2012. The Report comprises four sections:
• Committee overview
• Activities in 2012
• Auditors
• Internal control
Throughout 2012, 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.
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.
Manjit Wolstenholme
Chair of Audit Committee
6 March 2013
48
The UNITE Group plc Annual Report and Accounts 2012 COMMITTEE OVERVIEW
Composition
The Committee is comprised entirely of Non-Executive Directors. The current members are:
• Manjit Wolstenholme (Chair)
• Stuart Beevor
• Richard Walker
• Sir Tim Wilson
• Andrew Jones (appointed 1 February 2013)
Manjit Wolstenholme is 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 p.41. Full details of attendance
at meetings of the Committee can be found in the table on p.47.
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.
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 2012
In 2012, the activities of the Committee 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 2011 year-end external audit and monitoring implementation
of recommended improvements
• Monitoring the non-audit services provided to the Group by the external auditor
• Reviewing the results of the review undertaken of the Group’s risk management processes
• Considering the need for an internal audit function within the Group
• Reviewing the effectiveness of the Group’s systems of internal control and its whistle blowing process
• Reviewing processes for the prevention of bribery and fraud
• 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), and the size and activities
of the Group, it was not considered necessary to establish a full internal audit function. However, a 'co-sourced' internal audit model was
introduced during the year, involving the hiring of internal resource, working in conjunction with external providers. The effectiveness and
appropriateness of that model will be kept under review by the Committee.
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Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012 Audit Committee report continued
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 on any matter
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:
Auditor's 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 compliance services
– taxation advisory services
– corporate finance services
2012
£m
0.2
0.1
0.2
0.2
0.1
2011
£m
0.1
0.1
0.2
0.2
–
It is anticipated that the level of fees paid to the audit firm in relation to taxation will reduce in future years following the completion of a one-off
tax project within the Group. The fees paid to the audit firm in relation to corporate finance services related to the issue by the Company of a
retail bond during the course of the year.
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.
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 2012 annual general meeting. 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 annual
general meeting.
50
The UNITE Group plc Annual Report and Accounts 2012 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 Executive Team of UNITE has established a Risk Committee, which is chaired by Joe Lister, the Group CFO. During 2012, the other
members of the Risk Committee were Richard Simpson (Managing Director (Property)), Richard Smith (Managing Director (Operations)),
Paul Harris (Strategy and Corporate Relations Director), Mark Creedy (Managing Director (Fund Management)), Andrew Reid (Company
Secretary and Group Legal Officer) and Stephen Taylor (external consultant). 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, having during the year reviewed the effectiveness of the Company’s risk management
and internal control systems, 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 p.38 and p.39. 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 6 March 2013 and signed on its behalf by Manjit Wolstenholme.
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Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012 Directors' remuneration report
DIRECTORS’ REMUNERATION REPORT
Dear Shareholder,
The Directors’ Remuneration Report for the year ended 31 December 2012 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.
While we have not made any significant changes to remuneration arrangements this year, we have amended the performance metrics within
the annual bonus scheme for Executive Directors to further improve alignment with investors (details of which are set out below). In this
Report, we have also incorporated a number of the proposals on disclosure that have been tabled by the Department for Business Innovation
& Skills (BIS).
2012 was another excellent year for the Group, evidenced by strong financial and operating performance. As a result, Executive Directors
will receive bonuses ranging between 83% and 91.3% of their respective base salaries (out of a maximum of 144% of salary). The Committee
is satisfied that these bonuses reflect the Executives’ contribution to the underlying performance of the Company over the last year.
After slightly more than nine years as a Non-Executive Director with UNITE, I shall be retiring from the Board at the annual general meeting.
At that stage, Richard Walker will become Chairman of the Remuneration Committee and I wish him well in that role.
A resolution to approve this Remuneration Report will be put to shareholders at the annual general meeting.
Stuart Beevor
Chairman Remuneration Committee
6 March 2013
52
The UNITE Group plc Annual Report and Accounts 2012 COMMITTEE OVERVIEW
Composition
The current members of the Committee are:
• Stuart Beevor (Chairman)
• Phil White
• Richard Walker
• Sir Tim Wilson
• Manjit Wolstenholme
• Andrew Jones (as from 1 February 2013)
All of the above are independent Non-Executive Directors (other than Phil White, who is Chairman of the Board). Stuart Beevor will, by the time
of the annual general meeting, have served nine years in office and will then step down from the Board. At that time, Richard Walker will become
Chairman of the Remuneration Committee.
Full details of attendance at Committee meetings can be found in the table on p.47.
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
Area of advice
Kepler Associates
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
is a signatory to the Code of Conduct for Remuneration Consultants (a copy of which can be found at
www.remunerationconsultantsgroup.com). Kepler provides no other services to the Company.
Osborne Clark
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 to those
of shareholders.
The Committee’s terms of reference are set out on the Company’s website.
Activities in the year
The Committee’s activities during the year included:
• Finalising bonus payments in respect of 2011 as disclosed in the 2011 Remuneration Report)
• Reviewing the base salaries of the Executive Directors and those of senior management for 2012
• Setting LTIP performance targets in line with the Company’s strategic plan
• Setting performance targets in line with the Company’s strategic plan for the 2012 bonus plan and determining the amounts payable
• Agreeing 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 taking well considered risks
• Individuals should be rewarded for success, but steps should be taken, within contractual obligations, to prevent rewards for failure.
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Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Directors' remuneration report continued
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
Fixed pay
Base salary
To recognise the individual’s
skills and experience and to
provide a competitive base
reward
Operation
Opportunity
Performance metrics
Changes for 2013
Base salaries are reviewed
from time to time, with
reference to salary levels for
similar roles at comparable
companies, to individual
contribution to performance;
and to the experience of
each Executive
Any base salary increases
are applied in line with the
outcome of the annual
review as part of which the
Committee also considers
average increases across
the Group
None
No changes to the policy
for 2013
Latest salary increases
were effective from 1 March
2013 and are set out in the
relevant section on p.56
Pension
To provide an opportunity
for executives to build up
income on retirement
All Executives are either
members of The UNITE
Group Personal Pension
scheme or receive a cash
pension allowance
Executive Directors receive
a pension contribution of
20% of salary or an
equivalent cash allowance
None
No change
Variable pay
Performance Related
Annual Bonus
To incentivise and reward
strong performance against
financial and non-financial
annual targets, thus
delivering value to
shareholders and being
consistent with the delivery
of the strategic plan
Performance measures,
targets and weightings are
set at the start of the year.
The scheme has two
elements: a ‘corporate’
element and an ‘individual’
multiplier element
At the end of the year, the
Remuneration Committee
determines the extent to
which targets have been
achieved
For Executive Directors, the
maximum annual bonus
opportunity is 144% of base
salary, comprising:
• A maximum bonus under
the corporate element of
120% of salary; achieving
on-target performance
warrants a bonus
equivalent to 70%
of salary
• A maximum multiplier
under the individual
element of 1.2, with a
range of zero to 1.2
Performance measures
used for the 2012
Performance Related
Annual Bonus and
proposed for 2013 are
set out on p.56 and p.57
Maximum opportunities
under the corporate and
individual elements will
remain unchanged. Some
changes have been made
to the measures under the
corporate element (see p.57
for details), but the
weighting between financial
and non-financial measures
remains the same.
LTIP
To drive sustained long term
performance that supports
the creation of shareholder
value
The LTIP comprises a
Performance Share Plan
(PSP) and an Approved
Employee Share Option
Scheme (ESOS)
The ESOS is used to deliver
a proportion of the LTIP in
a tax-efficient manner, and
is subject to the same
performance conditions
as awards made under
the PSP
Award levels and
performance conditions
are reviewed before each
award cycle to ensure they
remain appropriate and no
less stretching than the
first cycle
No change
The LTIP provides for an
award up to a normal
aggregate limit of 150%
of salary for Executive
Directors, with an overall
limit of 200% of salary in
exceptional circumstances
For LTIP participants below
Board level, the maximum
annual LTIP opportunity
is capped at 100% of
base salary
Awards are subject to a
minimum vesting period of
three years. Awards made
to Executive Directors in
2012 and 2013 will vest as
to two-thirds after three
years and one-third after
four years
Performance measures
used for the 2011 and
2012 LTIP award are set
out on p.58
Further 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 2012 The charts below show the remuneration that Executive Directors could be expected to obtain based on three different performance scenarios.
S
t
r
e
t
c
h
T
a
r
g
e
t
F
i
x
e
d
0
0
5
2
0
0
5
0
5
7
0
0
0
1
0
5
2
1
0
0
5
1
0
5
7
1
Other EDs
CFOs
CEOs
Other EDs
CFOs
CEOs
Other EDs
CFOs
CEOs
Key
Salary
Pension
Bonus
LTP
‘Minimum’ performance assumes nil payout under all incentives. ‘Target’ performance assumes bonus payout of 70% of salary and LTIP
threshold vesting at 25% of maximum award. ‘Stretch’ performance assumes full payout of all incentives. Share price appreciation has not been
included in the calculation.
Broadly there is a 52%:48% split between fixed and variable pay at ‘target’ performance and a 29%:71% split at ‘stretch’ performance, showing
the high proportion of performance related pay that is 'at risk' in the total remuneration package.
Remuneration policy for other employees
Our approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience, responsibility,
individual performance and salary levels in comparable companies.
All employees are eligible to participate in an annual bonus scheme with similar metrics to those used for the Executive Directors. Opportunities
and specific performance conditions vary by organisational level with business area-specific metrics incorporated where appropriate.
Senior managers (c.25 individuals) are eligible to participate in the LTIP. Performance conditions are consistent for all participants, while award
sizes vary by organisational level.
All employees are eligible to participate in the Company’s SAYE scheme on the same terms.
Exit payment policy
The Company’s policy is to limit severance payments on termination to pre-established contractual arrangements. 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, where pay is
defined as salary plus benefits only.
In the event an executive leaves for reasons of death, ill-health, redundancy, retirement, or any other reason the awards will be pro-rated for time.
For all other leavers, outstanding LTIP awards will lapse.
The Committee retains discretion to alter these provisions on a case-by-case basis following a review of circumstances and to ensure fairness
for both shareholders and participants.
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 150% of base salary for each
of the other Executive Directors. 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 (the ESOT). 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 p.63.
55
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Directors' remuneration report continued
DELIVERING REMUNERATION POLICY
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 2013:
Base salary from 1 March 2012
to 28 February 2013
Base salary from 1 March 2013
to 28 February 2014
Percentage increase
Mark Allan
Joe Lister
Richard Simpson
Richard Smith
£403,000
£255,000
£230,000
£230,000
£413,075
£261,375
£235,750
£235,750
2.5
2.5
2.5
2.5
A salary increase averaging 2.5% across the Group was awarded at the annual pay review, effective 1 March 2013.
Pension benefits
The Executive Directors are either members of The UNITE Group Personal Pension scheme or receive a cash pension allowance. Executive
Directors receive a pension contribution of 20% of salary or an equivalent cash allowance. The Executive Directors’ pension arrangements
are set out on p.61.
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.
Annual bonus in 2012
Under the corporate element of the scheme, Executive Directors’ bonuses for 2012 have been calculated by reference to a number
of performance criteria reflecting the Group’s main KPIs for the year:
Corporate element performance measures
Financial measures
Net Portfolio Contribution (NPC)
Adjusted diluted net asset value growth (NAV)
Operating cashflow
NAV gearing (net debt over equity)
Non-financial measures
Customer satisfaction
Employee satisfaction
56
Weighting
(% of bonus)
25.0
25.0
12.5
12.5
12.5
12.5
The UNITE Group plc Annual Report and Accounts 2012 The corporate element of the bonus has been calculated on a sliding scale up to a maximum of 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 70% of base salary. Prior to 2012,
'on target' performance by the Group would have resulted in a corporate bonus of an amount equivalent to 75% of base salary.
To determine the actual bonus payment to an Executive Director, a multiplier (being the 'individual' element of the scheme), ranging between
zero 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 2012 reflect corporate bonuses (calculated in accordance with the sliding scale
referred to above), of 83% of base salary. That percentage was arrived at as a result of the Group having achieved its stretch targets in relation
to customer satisfaction and operating cashflow; having modestly outperformed its NAV gearing target; having achieved its targets for
employee satisfaction and NAV; and having marginally missed its target for NPC .
After applying their individual multipliers, actual performance related bonus payments awarded to the Executive Directors range between
83% and 91.3% of their respective base salaries.
Mark Allan and Joe Lister, having already reached their share ownership guidelines will receive 100% of their bonus awards in cash.
Richard Simpson and Richard Smith will each receive 50% of their bonus awards by way of a deferred allocation of shares through the
Company’s ESOT.
Annual bonus for 2013
Some minor changes have been made to the 2013 bonus scheme to improve alignment of the annual bonus with the business strategy:
• The NPC measure has been replaced by an Adjusted earnings measure. Adjusted earnings is a recognised profit measure for real estate
companies and is more closely aligned than NPC to the profit attributable to shareholders
• The NAV gearing measure has been replaced with a see through LTV gearing measure, on the basis that LTV gearing is now the Group’s
primary measure of gearing
• The Employee Satisfaction measure has been removed and the weighting for Customer Satisfaction increased to 25%, maintaining the
same balance between financial and non-financial measures and reflecting the Committee’s view of the importance of improving customer
satisfaction and advocacy.
Long Term Incentives
The current LTIP was approved by shareholders at the AGM on 19 May 2011 (the 2011 LTIP), and replaced the LTIP adopted in 2005
(the 2005 LTIP). Key aspects of the 2011 LTIP, which is designed to support the delivery of the strategic plan, are as follows:
• The 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 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 normally exceed 100% of annual base salary
• 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 2012 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 performance measures applied for awards made in 2011 and 2012 are NPC, NAV and Total Shareholder Return (TSR). NPC is an
important measure of the long term success and profitability of the Group, whilst 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
• 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
• Clawback will apply on unvested LTIP shares in the events of gross misconduct, material misstatement, if a mistake has been made
in calculating vesting for a previous award or in any other circumstance that the Remuneration Committee considers appropriate.
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Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Directors' remuneration report continued
The LTIP awards made to the Executive Directors in 2011 will vest as follows:
Measure
Weighting
Targets
Net Portfolio Contribution (NPC) in 2013
NAV per share growth
Relative TSR outperformance of the FTSE350 Real Estate
(Super Sector) Index
1/3
1/3
1/3
0% vesting below £9m;
25% vesting for £9m;
100% vesting for £20m or more;
Straight line vesting between these points
0% vesting below 7% p.a.;
25% vesting for 7% p.a.;
100% vesting for 13% p.a. or more;
Straight line vesting between these points
0% vesting if Group underperforms Index;
25% vesting for matching Index;
100% vesting for outperforming Index by 9% p.a.;
Straight line vesting between these points
The LTIP awards made to the Executive Directors in 2012 will vest as follows:
Measure
Weighting
Targets
Net Portfolio Contribution (NPC) in 2014
NAV per share growth
Relative TSR outperformance of the FTSE350 Real Estate
(Super Sector) Index
1/3
1/3
1/3
0% vesting below £23.5m;
25% vesting for £23.5m;
100% vesting for £31.5m or more;
Straight line vesting between these points
0% vesting below 6% p.a.;
25% vesting for 6% p.a.;
100% vesting for 12% p.a. or more;
Straight line vesting between these points
0% vesting if Group underperforms Index;
25% vesting for matching Index;
100% vesting for outperforming Index by 9% p.a.;
Straight line vesting between these points
NPC, NAV and TSR will continue to be the performance measures adopted in relation to the LTIP awards to be made in 2013. Targets
will be set at the time awards are granted and the Committee will ensure that they are no less stretching than those for previous LTIP cycles.
The Committee intends to review the performance measure, particularly the possibility of replacing NPC with Adjusted earnings, in future years.
The incentive plans under which awards were made prior to 2011 are the 2005 LTIP and The UNITE Group plc Unapproved Share Option
Scheme (the Unapproved Scheme). None of the awards made under the 2005 LTIP prior to the 2009 awards vested and no options have been
granted to Directors under the Unapproved Scheme since 2004.
In relation to the awards made under in 2009 under the 2005 LTIP, vesting occurred in April 2012. The level of vesting for the awards was
subject, in equal measures, to the NAV and TSR performance of the Company over the three year measurement period. With NAV of 318p
per share having been achieved as at 31 December 2011, that resulted in 64.1% of that element of the award vesting whilst, with the Company
having been placed fourth in its peer group in terms of TSR performance over the measurement period, 100% of that element of the award
vested. Taking account the liability of award holders for employer’s national insurance, net vesting prior to deductions to cover income tax
and employee’s national insurance was at 74.5%.
Awards made in 2010 under the 2005 LTIP are due to vest in April 2013. For Mark Allan and Joe Lister, the level of vesting is again subject in
equal measures to the NAV and TSR performance of the Company over the three year measurement period. For award holders who were not
Executive Directors at the time of grant (including Richard Simpson), the level of vesting is subject to the NAV, TSR and NPC performance of
the Company in equal measures. With the Company having achieved NAV of 350p per share as at 31 December 2012, that will result in 52.6%
of that element of the awards vesting and, with NPC of £19.1 million having been achieved in 2012, that will result in 100% of that element
of the awards vesting. The extent to which the TSR element of the awards will vest will not be known until April 2013. However, based on
performance to 31 December 2012, it is not anticipated that any of this element will vest.
58
The UNITE Group plc Annual Report and Accounts 2012 The tables on p.62 and p.63 set out the awards granted to Executive Directors under the 2011 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 2008 to 31 December 2012.
120
100
80
60
40
20
0
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
Jan 12
Apr 12
UNITE Group
FTSE 350 RE SS
Jul 12
Oct 12
Dec 12
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, where pay is defined as salary plus benefits only.
The dates of the current Executive Directors’ service contracts are as follows:
M C Allan
J J Lister
31 October 1999
28 March 2002
R C Simpson
28 September 2011
R S Smith
28 September 2011
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
10 January 2009
S R H Beevor
20 February 2004
R S Walker
3 November 2005
R J T Wilson
1 December 2010
M J Wolstenholme
1 December 2011
A Jones
18 October 2012
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Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Directors' remuneration report continued
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 annual general meeting in 2013 in the case of Stuart
Beevor; at the annual general meeting in 2014 in the cases of Richard Walker and Sir Tim Wilson; at the annual general meeting in 2015 in the
cases of Phil White and Manjit Wolstenholme; and at the annual general meeting in 2016 in the case of Andrew Jones. The appointment and
re-appointment and the remuneration of Non-Executive Directors are matters reserved for the full Board.
With effect from 1 January 2012, the fee payable to the Chairman of the Board is £118,000 per annum and the basic fee payable to each
Non-Executive is £41,000 per annum. The fees payable for chairing the Audit, Remuneration and Nomination Committees are £8,500, £6,850
and £6,000 per annum respectively. The fee paid for being Senior Independent Director is £4,750 per annum.
The Non-Executive Directors are not eligible to participate in the Company’s performance related bonus plan, long-term incentive plans
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 2012. These tables have been audited by KPMG Audit Plc.
Remuneration summary
Fees
£’s
Base
salaries
£’s
Performance
bonus
£’s
Other
benefits*
£’s
Total
remuneration
2012
£’s
Total
remuneration
2011
£’s
Executive Directors
M C Allan
J J Lister
R C Simpson
R S Smith
Non-Executive Directors (Fees)
P M White
N P Hall**
S R H Beevor
R S Walker
R J T Wilson
M K Wolstenholme***
–
–
–
–
118,000
18,832
52,600
41,000
47,000
49,500
401,333
367,939
31,855
801,127
813,619
250,833
232,815
14,929
498,577
494,030
230,000
190,900
13,696
434,596
230,000
209,990
13,000
452,990
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
118,000
112,500
18,832
48,875
52,600
48,061
41,000
47,000
49,500
39,000
39,000
3,250
* Benefits receivable consist primarily of company car or car allowance and private health care insurance.
** The fees paid to Nigel Hall relate to the period 1 January 2012 to 17 May 2012 when he stepped down from the Board.
*** The fees paid to Manjit Wolstenholme in 2011 relate to the period 1 December 2011 (when she joined the Board), to 31 December 2011.
60
The UNITE Group plc Annual Report and Accounts 2012 Pensions
During the year Joe Lister, Richard Simpson and Richard Smith each 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 £50,167, £46,000 and £46,000 in the
year (2011: £28,542, £nil and £19,049 respectively). The Company also paid Mark Allan a cash pension allowance of £70,533 (2011: £43,116).
Share options
Director
As at
31.12.11
Granted
during the
year
Exercised
during the
year*
Lapsed
during the
year
As at 31.12.12
M C Allan
11,823
J J Lister
8,255
3,154
5,235
58,662
–
–
–
–
–
–
11,283
8,255
–
–
–
–
–
–
–
* On the date of exercise (9 October 2012), the closing mid-market share price was 264.7p.
The highest, lowest and closing share prices for 2012 are shown on p.63.
Exercise
price
323.5p
129p
–
–
3,154
158.5p
5,235
191p
58,662
232.5p
Normal
exercise
dates
21.03.2005
– 20.03.2012
11.10.2005
– 10.10.2012
25.09.2006
– 24.09.2013
04.05.2007
– 03.05.2014
16.09.2007
– 15.09.2014
All options referred to in the table above were granted pursuant to 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
investments trusts).
61
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Directors' remuneration report continued
LTIP awards
Director
Interests held
at 01.01.12
Interests
awarded
during year
(ordinary
shares of 25p
each in the
Company)
Market price
per share
when
awarded
Interests
vested during
the year
Interests
lapsed in the
year
Interests held
at 31.12.12
(ordinary
shares of 25p
each in the
Company)
Period of
qualifying
conditions
M C Allan
415,094
92.75p
148,498*
266,596
–
158,436
275,725
243p
213.8p
329,947
185.5p
–
–
–
–
–
–
158,436
275,725
329,947
J J Lister
215,633
92.75p
77,141*
138,492
–
90,534
161,366
243p
213.8p
210,270
185.5p
–
–
–
–
–
–
90,534
161,366
210,270
R C Simpson
90,296
92.75p
32,303*
57,993
–
69,222
156.8p
158,057
185.5p
R S Smith
74,313
156.8p
158,057
185.5p
–
–
–
–
–
–
–
–
69,222
158,057
74,313
158,057
09.04.09
– 09.04.12
14.04.10
– 14.04.13
22.06.11
– 22.06.14
10.04.12
– 10.04.15
09.04.09
– 09.04.12
14.04.10
– 14.04.13
22.06.11
– 22.06.14
10.04.12
– 10.04.15
09.04.09
– 09.04.12
05.10.11
– 05.10.14
10.04.12
– 10.04.15
05.10.11
– 05.10.14
10.04.12
– 10.04,15
* After deductions to satisfy income tax and national insurance liabilities. Details of the qualifying performance conditions in relation to the above referred to awards made in 2009
(under the 2005 LTIP), and in 2011 and in 2012 (under the 2011 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 2005 LTIP took the form of restricted share awards; the awards made in 2011 to Mark Allan and Joe Lister took
the form of nil cost options under the PSP, whilst the awards made in 2011 to Richard Simpson and Richard Smith and each of the awards made
in 2012 took the form of a combination of nil cost options under the PSP and HMRC approved options under the ESOS. 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:
62
The UNITE Group plc Annual Report and Accounts 2012 M C Allan
J J Lister
R C Simpson
R S Smith
2012
£
371,789
197,504
131,312
73,715
2011
£
278,133
133,929
79,710
6,562
774,320
498,334
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 2012
is set out below.
Directors
M C Allan*
J J Lister**
R C Simpson***
R S Smith
P M White
S R H Beevor
R Walker
R J T Wilson
M K Wolstenholme
Ordinary Shares
of 25p each
31 December
2012
Ordinary Shares
of 25p each
31 December
2011
538,723
966,483
335,916
474,408
99,273
157,266
–
10,000
9,986
10,000
5,730
7,300
–
10,000
9,986
10,000
5,730
–
*
Mr Allan’s interests include 158,436 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 that award will be determined following the end of the three year measurement period.
** Mr Lister’s interests include 90,534 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 that award will be determined following the end of the three year measurement period.
*** Mr Simpson’s interests include 55,555 ordinary shares conditionally awarded to him pursuant to the 2005 LTIP. The number of such shares that will unconditionally vest
in Mr Simpson pursuant to that award will be determined following the end of the three year measurement period.
None of the Directors has a beneficial interest in the shares of any other Group company. Since 31 December 2012, there have been
no changes in the Directors’ interests in shares.
Details of Directors’ share options (including nil cost options awarded pursuant to the 2011 LTIP) are set out above.
Share price information
As at 31 December 2012 the middle market price for ordinary shares in the Company was 276.3p per share. During the course of the year,
the market price of the Company’s shares ranged from 164p to 287p per ordinary share.
APPROVAL
The Remuneration Report was approved by the Board on 6 March 2013 and signed on its behalf by Stuart Beevor.
63
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Nomination Committee report
NOMINATION COMMITTEE REPORT
Dear Shareholder,
On the following pages is set out the Nomination Committee Report for 2012. The report comprises the following sections:
• Committee overview
• Activities during 2012
Sir Tim Wilson
6 March 2013
COMMITTEE OVERVIEW
Composition
The Committee is comprised entirely of Non-Executive Directors. The current members are:
• Sir Tim Wilson (Chairman)
• Phil White
• Stuart Beevor
• Richard Walker
• Manjit Wolstenholme
• Andrew Jones
At the invitation of the Committee, any other Director or other person may be invited to attend meetings of the Committee if considered
desirable in assisting the Committee in fulfilling its role.
Role
The role of the 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, including gender
• 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.
ACTIVITIES IN 2012
The major activity of the Committee in 2012 was the selection of a candidate to replace Stuart Beevor (who retires from the Board at the
annual general meeting), as a Non-Executive Director. Stuart has extensive knowledge of the contemporary real estate sector and, in order to
maintain the balance of experience on the Board, it was considered appropriate to seek to recruit a replacement with similar experience.
Ordinarily, the Committee would appoint an external search consultancy to identify suitable potential Non-Executive candidates. However, in
this instance, given the extensive knowledge of the Board and its professional advisers in relation to the potential Non-Executive candidate
base in the commercial real estate sector, it was agreed that efforts would, in the first instance, be made to identify a short list of potential
candidates without recourse to an external search consultancy. Those efforts were successful in producing a strong list of candidates and,
following a series of meetings with potential non-executive directors, Andrew Jones was invited to join the Board, which he did on 1 February
2013. Biographical details of Andrew Jones are set out on p.41.
APPROVAL
The Nomination Committee Report was approved by the Board on 6 March 2013 and signed on its behalf by Sir Tim Wilson.
64
The UNITE Group plc Annual Report and Accounts 2012 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 p.94.
Substantial shareholdings
As at 6 March 2013 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
Old Mutual Asset Management Limited
JP Morgan Asset Management Holdings Inc
APG Algemene Pensioen Groep NV
Perennial Investment Partners (Australia) Limited
Royal London Asset Management Limited
FIL Limited
Orange European Property Fund NV
Allianz SE
Percentage of
Share Capital
9.7
5.3
4.9
4.9
4.8
4.3
3.7
3.6
3.2
Share Capital
At the date of this report, there are 160, 464, 449 ordinary shares of 25p each in issue, all of which are fully paid-up and quoted on the London
Stock Exchange.
During the year, a total of 18,937 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 (5,976 at a price of 138.5p per share, 5,615 at a price of 162p per share, 1,013 at a price of
189.5p per share and 6,333 at a price of 221.5p per share). In addition, 8,255 ordinary shares of 25p each were allotted and issued pursuant
to the exercise of options under the Approved Scheme at a price of 129p per share and 162,790 ordinary shares of 25p each were allotted
and issued pursuant to the exercise of options under the Unapproved Scheme, again at price of 129p 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 annual general meeting 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 2012, the Group’s trade creditors were equivalent to 13 days purchases
(2011: 31 days). The Company does not have any trade creditors (2011: Nil).
65
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012 Other governance and statutory disclosures continued
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.
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 annual general meeting.
Annual general meeting
The annual general meeting of the Company will be held at The Core, 40 St Thomas Street, Bristol BS1 6JX at 9.30 a.m. on 16 May 2013.
Formal notice of the meeting is given on p.108 to p.111.
In addition to the ordinary business of the meeting, Resolution 15 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 £13,372,037 (representing approximately one third of the issued share capital of the Company as at 6 March 2013). 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 £13,372,037, again representing approximately one third of the nominal value of the issued
ordinary share capital of the Company as at 6 March 2013. This additional authority may only be applied to fully pre-emptive rights issues.
Resolution 16 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 £2,005,805 (representing approximately five per cent of the issued share capital of the Company as at
6 March 2013).
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 annual general meeting 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
annual general meeting of the Company held in 2012, shareholders authorised the calling of general meetings, other than an annual general
meeting, on not less than 14 clear days’ notice. Resolution 17 seeks the approval of shareholders to renew the authority to be able to call
general meetings (other than an annual general meeting), on 14 clear days’ notice. The flexibility offered by Resolution 17 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
annual general meeting, when it is intended that a similar resolution will be proposed.
By order of the Board
A D Reid
Secretary
6 March 2013
66
The UNITE Group plc Annual Report and Accounts 2012 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 name of whom are set out on p.40 and p.41, 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; and
• 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
6 March 2013
J J Lister
Director
67
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance 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 2012 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 67, 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/auditscopeukprivate.
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 2012 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 45 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 66, in relation to going concern
the part of the Corporate Governance Statement on pages 42 to 51 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
William Meredith (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
6 March 2013
68
The UNITE Group plc Annual Report and Accounts 2012
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Introduction and table of contents
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), adjusted earnings 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
Asset management
Funding
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 Segmental information
2.2 Adjusted profit and EPS
2.3 Adjusted Net Assets and NAV per share
2.4 Revenue
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 non-current 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
5.5 Transactions with other group companies
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 2012
69
Consolidated income statement
For the year ended 31 December 2012
Revenue
Cost of sales
Operating expenses
Results from operating activities
Loss on disposal of property
Net valuation gains on property
Valuation gains recognised on transfer
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
Profit for the period attributable to
Owners of the parent company
Minority interest
Earnings per share
Basic
Diluted
Note
2.4
3.1
3.1
4.3
4.3
4.3
4.3
4.3
3.4b
2.2a
2.6
2.2b
2.2b
2.2b
2012
Total
£m
214.6
(145.2)
(28.0)
41.4
(2.4)
29.8
49.7
118.5
(16.0)
(7.6)
(23.6)
1.0
(22.6)
30.3
126.2
1.0
127.2
125.6
1.6
127.2
78.3p
78.3p
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)
Included above is £49.7 million (2011: £nil) of valuation gains not previously recognised on property transferred from current assets to non-current assets during the year.
Consolidated statement of comprehensive income
For the year ended 31 December 2012
Profit for the period
Movements in effective hedges
Gains on hedging instruments transferred to income statement
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.
2012
£m
127.2
0.6
2.5
2.7
5.8
133.0
131.4
1.6
133.0
2011
Total
£m
94.9
(62.7)
(39.1)
(6.9)
(0.2)
7.7
–
0.6
(8.7)
(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
2011
£m
3.9
(2.6)
–
0.1
(2.5)
1.4
(0.2)
1.6
1.4
70
The UNITE Group plc Annual Report and Accounts 2012
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Consolidated balance sheet
At 31 December 2012
Assets
Investment property
Investment property under development
Investment in joint ventures
Joint venture investment loans
Other non-current 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
3.1
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
2012
£m
2011
£m
762.8
37.6
194.8
11.2
5.0
1,011.4
–
26.5
1.7
53.5
75.4
157.1
1,168.5
(100.2)
(0.7)
(82.0)
(0.5)
(0.5)
(183.9)
(427.7)
(23.0)
(0.2)
(450.9)
(634.8)
396.2
–
173.0
14.1
6.8
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)
533.7
404.7
40.1
249.2
40.2
195.0
(8.7)
515.8
17.9
533.7
40.1
249.0
40.2
72.8
(14.5)
387.6
17.1
404.7
These financial statements were approved by the Board of Directors on 6 March 2013 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
The UNITE Group plc Annual Report and Accounts 2012
71
Company balance sheet
At 31 December 2012
Assets
Investments in subsidiaries
Investments in joint ventures
Total investments
Loan to group undertaking
Joint venture investment loan
Total non-current assets
Amounts due from group undertakings
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Amounts due to group undertakings
Other payables
Total current liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Merger reserve
Retained earnings
Revaluation reserve
Total equity
Note
3.5a
3.5a
3.5a
3.5a
5.2
5.1
4.1
5.4
5.4
4.1
2012
£m
2011
£m
228.4
–
228.4
90.0
–
318.4
321.5
–
321.5
639.9
(1.2)
(29.7)
(3.2)
(34.1)
(90.0)
(90.0)
(124.1)
112.0
2.5
114.5
–
3.9
118.4
317.7
0.1
317.8
436.2
–
(29.7)
(3.0)
(32.7)
–
–
(32.7)
515.8
403.5
40.1
249.2
40.2
23.6
162.7
515.8
40.1
249.0
40.2
25.4
48.8
403.5
Total equity is wholly attributable to equity holders of The UNITE Group plc.
These financial statements were approved by the Board of Directors on 6 March 2013 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
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Consolidated statement of changes in shareholders’ equity
For the year ended 31 December 2012
At 1 January 2012
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 paid to owners
of the parent company
Dividends to minority interest
At 31 December 2012
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
Issued
share capital
£m
40.1
Share
premium
£m
249.0
Merger
reserve
£m
40.2
–
–
–
–
–
–
–
–
40.1
Issued
share capital
£m
40.1
–
–
–
–
–
–
–
–
0.2
–
–
–
–
249.2
Share
premium
£m
249.0
–
–
–
–
–
–
–
–
–
–
–
–
–
40.2
Merger
reserve
£m
40.2
–
–
–
–
–
–
–
40.1
–
–
249.0
–
–
40.2
Retained
earnings
£m
72.8
125.6
–
125.6
–
1.5
(1.3)
(3.6)
–
195.0
Retained
earnings
£m
70.4
2.1
–
2.1
1.2
(0.1)
(0.8)
–
72.8
Hedging
reserve
£m
(14.5)
Attributable
to owners
of the parent
£m
387.6
Minority
interest
£m
17.1
–
5.8
5.8
–
–
–
–
–
(8.7)
125.6
5.8
131.4
0.2
1.5
(1.3)
(3.6)
–
515.8
Hedging
reserve
£m
(12.2)
Attributable
to owners
of the parent
£m
387.5
–
(2.3)
(2.3)
–
–
2.1
(2.3)
(0.2)
1.2
(0.1)
–
–
(14.5)
(0.8)
–
387.6
1.6
–
1.6
–
–
–
–
(0.8)
17.9
Minority
interest
£m
16.2
1.8
(0.2)
1.6
–
–
–
(0.7)
17.1
Total
£m
404.7
127.2
5.8
133.0
0.2
1.5
(1.3)
(3.6)
(0.8)
533.7
Total
£m
403.7
3.9
(2.5)
1.4
1.2
(0.1)
(0.8)
(0.7)
404.7
The UNITE Group plc Annual Report and Accounts 2012
73
Company statement of changes in shareholders’ equity
For the year ended 31 December 2012
At 1 January 2012
Loss for the period
Transfer on sale of joint venture
Revaluation of investments in subsidiaries
and joint ventures
Shares issued
Dividends to shareholders
At 31 December 2012
At 1 January 2011
Loss for the period
Revaluation of investments in subsidiaries
and joint ventures
Dividends to shareholders
At 31 December 2011
Issued
share capital
£m
40.1
–
–
–
–
–
40.1
Issued
share capital
£m
40.1
–
–
–
40.1
Share
premium
£m
249.0
–
–
–
0.2
–
249.2
Share
premium
£m
249.0
–
–
–
249.0
Merger
reserve
£m
40.2
–
–
–
–
–
40.2
Merger
reserve
£m
40.2
–
–
–
40.2
Retained
earnings
£m
25.4
Revaluation
reserve
£m
48.8
(0.7)
2.5
–
–
(3.6)
23.6
–
(2.5)
116.4
–
–
162.7
Retained
earnings
£m
27.1
Revaluation
reserve
£m
44.8
Total
£m
403.5
(0.7)
–
116.4
0.2
(3.6)
515.8
Total
£m
401.2
(0.9)
–
(0.8)
25.4
–
(0.9)
4.0
–
48.8
4.0
(0.8)
403.5
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Note
5.1
Statements of cash flows
For the year ended 31 December 2012
Cash flows from operating activities
Cash flows from taxation
Investing activities
Proceeds from sale of investment property
Payments to/on behalf of subsidiaries
Payments from subsidiaries
Repayment received of joint venture investment loan
Loan to 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 increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
5.1
Group
Company
2012
£m
58.4
(0.9)
27.5
–
–
–
–
9.6
0.2
(1.6)
(49.5)
(0.2)
(14.0)
2011
£m
(74.0)
(0.6)
8.3
–
–
–
–
8.9
0.1
(1.5)
(18.3)
(0.6)
(3.1)
(21.1)
(15.0)
5.1
(16.0)
(18.8)
0.2
(1.3)
291.3
(235.9)
(3.6)
(0.8)
15.1
58.6
16.8
75.4
7.1
(7.9)
(11.7)
–
(0.1)
113.6
(21.7)
(0.8)
(0.7)
70.7
(7.0)
23.8
16.8
2012
£m
(2.4)
–
–
(13.2)
14.1
3.9
(90.0)
–
–
–
–
–
(85.2)
(0.3)
–
(0.3)
–
0.2
–
90.0
–
(3.6)
–
86.3
(1.3)
0.1
(1.2)
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
The UNITE Group plc Annual Report and Accounts 2012
75
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 out in the Business Review
on pages 22 to 37. 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 until the end of 2014. The Group has borrowing facilities expiring in 2013 and 2014, but has
capacity in place within existing committed facilities to refinance all of the 2013 expiries. Plans are also in place to refinance remaining debt
facilities that mature in 2013 and 2014 over the course of the next 12 months. Historically the Group has maintained positive relationships
with lenders and has arranged a significant level of new debt every year to manage its debt position and remain within its borrowing covenants.
The Group is in full compliance with its borrowing covenants at 31 December 2012 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, investment property under development,
investments in subsidiaries, 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
There are no new standards, amendments or interpretations which are effective for the first time in 2012.
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their adoption is not
expected to have a material effect on the financial statements unless otherwise indicated:
Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive Income’ (mandatory for year commencing on or after 1 July
2012). The amendments require an entity to present the items of other comprehensive that may be recycled to profit or loss in the
future if certain conditions are met, separately from those that would never be recycled to profit or loss. Consequently, as the Group
presents items of other comprehensive income before related income tax effects the aggregated income tax amount would need
to be allocated between those sections.
IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements, IFRS 11 Joint Arrangements and
Amendments to IAS 28 (2008) Investments in Associates and Joint Ventures and IFRS 12 Disclosure of Interests in Other Entities
are all mandatory for years commencing on or after 1 January 2014. These are part of a new suite of standards on consolidation and
related standards, replacing the existing accounting for subsidiaries and joint ventures (now joint arrangements), and making limited
amendments in relation to associates.
IFRS 13 Fair Value Measurement (mandatory for year commencing on or after 1 January 2013).
Amendments to IFRS 7 ‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ (mandatory for years commencing
on or after 1 January 2013).
76
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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.
Transfer of properties held as current assets
In December 2012, the Board decided to transfer most of the properties held as current assets to investment property based on a change
of use. All of these properties are being leased to customers and the Board has now concluded that these assets are no longer likely to be
sold in the near term but will be held for rental income and capital growth.
Since the establishment of the UNITE UK Student Accommodation Fund (USAF) in 2006, the Group has been required to offer all newly
completed properties which meet certain performance criteria for sale to USAF, and USAF may be required to purchase assets which meet
certain conditions. Hence these assets have been accounted for as current assets since that time. More recently USAF has had limited equity
available to purchase property and the Group strategy has also shifted to holding property longer term. The Group will continue to make strategic
disposals to manage the quality of the portfolio and the gearing levels in the business.
During the second half of 2012 the Group entered into a new joint venture intending to develop and hold investment property in London and
designed to be its primary development vehicle. The Group has also secured further long term funding with Legal and General and with the issue
of its retail bond, this supports the Group strategy to hold property for the longer term.
It is the combination of these factors that has led the Group to conclude that transfer is now appropriate. As shown in note 3.1, this has resulted
in the recognition in the income statement of £49.7 million of revaluation gains not previously recognised in the IFRS statements.
There remain a few properties under development which have not been transferred as there is a clear current intention to sell these
in the near future.
The other 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 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, investment property under development, 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 2012
77
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 adjusted 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 Segmental information
The Board of Directors monitor the business along two activity lines. The reportable segments for the years ended 31 December 2012 and
31 December 2011 are Operations and Property.
The Group undertakes its Operations and Property activities directly and through joint ventures with third parties. The joint ventures are an
integral part of each segment and are included in the information used by the Board to monitor the business.
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
The Operations business 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.
The segmental result is outlined below.
2012
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Net portfolio contribution
UNITE
Total
£m
79.4
(24.6)
54.8
13.2
(21.5)
46.5
(12.8)
(24.7)
9.0
USAF
£m
18.8
(5.6)
13.2
(1.4)
(0.1)
11.7
–
(5.3)
6.4
Share of joint ventures
UCC
£m
9.4
(1.5)
7.9
(1.2)
–
6.7
–
(3.8)
2.9
LSAV
£m
0.3
–
0.3
–
(0.1)
0.2
–
(0.1)
0.1
OCB
£m
3.3
(0.6)
2.7
(0.3)
(0.1)
2.3
–
(1.7)
0.6
USV
£m
0.2
–
0.2
–
–
0.2
–
(0.1)
0.1
Included in the UNITE total above is rental income of £18.5 million and property operating expenses of £5.5 million relating to sale and leaseback properties.
2011
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
12.8
(21.2)
33.5
(12.6)
(18.8)
2.1
USAF
£m
17.8
(5.0)
12.8
(1.3)
(0.2)
11.3
–
(5.3)
6.0
Share of joint ventures
UCC
£m
8.1
(1.2)
6.9
(1.1)
(0.1)
5.7
–
(4.0)
1.7
LSAV
£m
–
–
–
–
–
–
–
–
–
OCB
£m
3.1
(0.5)
2.6
(0.3)
(0.1)
2.2
–
(1.7)
0.5
USV
£m
3.0
(1.0)
2.0
–
–
2.0
–
(1.3)
0.7
Group on see
through basis
Total
£m
111.4
(32.3)
79.1
10.3
(21.8)
67.6
(12.8)
(35.7)
19.1
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
Total
£m
32.0
(7.7)
24.3
(2.9)
(0.3)
21.1
–
(11.0)
10.1
Total
£m
32.0
(7.7)
24.3
(2.7)
(0.4)
21.2
–
(12.3)
8.9
Included in the UNITE total above is rental income of £18.0 million and property operating expenses of £6.2 million relating to sale and leaseback properties.
* 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.
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Section 2: Results for the year continued
2.1 Segmental information continued
b) Property
The Group’s Property business undertakes the acquisition and development of properties. This included the manufacture and sale
of modular building components in the first half of 2012 prior to the business closure, through UNITE Modular Solutions Limited, ‘UMS’.
The Property Segment’s revenue comprises revenue from development management fees earned from joint ventures; and the sale
of modules to third parties and joint ventures, as set out in note 2.4. The Property segmental result is set out below.
Pre-contract, abortive and other costs
UMS losses
Property segment result*
2012
£m
(2.7)
(1.0)
(3.7)
2011
£m
(3.3)
(21.0)
(24.3)
* The Group has restated its Property Segment result in 2011 to exclude profits from the sale of properties and property impairments; so that it’s adjusted profit is presented consistently
with that recommended by EPRA, except for minority interest. All periods presented have been restated accordingly (see note 2.2 for more details).
The UMS loss in 2012 includes trading losses of £nil (2011: £5.5 million) together with a provision of £1.0 million (2011: £5.6 million)
for completing loss making contracts; provisions for onerous leases of nil (2011: £5.4 million); and impairment of other fixed assets
of £nil (2011: £3.7 million) and inventory of £nil (2011: £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
2.1a
2012
£m
2011
£m
19.1
11.0
33.8
(6.1)
(1.4)
1.8
28.1
23.7
51.8
(1.0)
(2.7)
48.1
(15.2)
52.0
514.5
566.5
22.9
–
0.6
–
23.5
33.3
56.8
(21.0)
(3.4)
32.4
(3.4)
40.0
474.5
514.5
2.3a
The unallocated amount includes cash received from Landsbanki of £2.9 million (2011: £nil), restructuring costs of £nil (2011: £1.6 million),
dividends of £3.6 million (2011: £0.8 million), current tax charges of £0.4 million (2011: £0.4 million), costs relating to the set-up of LSAV
£1.7 million (2011: £nil) and swap losses, associated with the early termination of swaps relating to refinancing activity of £10.4 million
(2011: £0.5 million).
The UNITE Group plc Annual Report and Accounts 2012
79
Notes to the financial statements continued
Section 2: Results for the year continued
2.2 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, except for minority interests. The calculation of adjusted profit/(loss) and adjusted earnings per
share has been changed in the period to exclude the impact of property disposals and trading in order to align adjusted profit/(loss) with that
recommended by EPRA and to remove the fluctuations these items cause to Group’s underlying recurring profits. Prior period numbers have
been restated to present the results on a consistent basis.
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 profit / (loss)
Net valuation gains on investment property
Valuation gains realised on transfer of completed property
Property disposals and write downs
LSAV set up costs
Share of joint venture gains on investment property
Share of joint venture property disposals and write downs
Share of joint venture LSAV set up costs
Mark to market changes in interest rate swaps*
Interest rate swap payments on ineffective hedges*
Share of joint venture interest rate swaps charges
Current tax included in unallocated to segments
Share of joint venture deferred tax credit/(charge)
Minority interest share of NPC**
Profit before tax
Note
2.1a
2.1b
2.1b
3.1
3.1
3.4b
4.3
3.4b
3.4b
3.4b
2012
£m
19.1
(2.7)
0.5
16.9
(1.0)
15.9
29.8
49.7
14.7
(1.3)
14.9
0.3
(0.4)
(7.6)
9.0
(0.6)
0.4
0.4
1.0
126.2
2011
£m
11.0
(3.3)
(3.6)
4.1
(21.0)
(16.9)
7.7
–
1.3
–
10.7
–
–
(10.6)
10.2
0.4
0.4
0.3
1.2
4.7
* Within IFRS reported profit, there is a £7.6 million loss (2011: £10.6 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, £9.0 million (2011: £10.2 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 2.1a.
** 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 share of joint venture amounts received from Landsbanki of £2.9 million (2011: £nil), restructuring costs of £nil
million (2011: £1.6 million), current tax charges of £0.4 million (2011: £0.4 million), contributions to the UNITE Foundation of £0.2 million
(2011: £nil) and share option fair value charges of £1.5 million (2011: £1.2 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 profit / (loss) as set out above.
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2.2 Adjusted profit and EPS continued
The calculations of basic and adjusted EPS for the year ended 31 December 2012 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
2.2a
2.2a
2012
£m
125.6
15.9
16.9
2011
£m
2.1
(16.9)
4.1
160,319
136
160,455
160,271
39
160,310
78.3p
78.3p
9.9p
10.5p
1.3p
1.3p
(10.5p)
2.6p
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 no further share options in existence
at 31 December 2012 (2011: 29,000) 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 3,176,000 options in existence at 31 December 2012 (2011: 1,460,000)
which are subject to conditions that have not yet been met.
2.3 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
Investment properties under development
Properties under development
(at market value)
Development properties
Total property portfolio
Debt on rental properties (net of cash)
Debt on properties under development
Other liabilities
Wholly owned
£m
762.8
–
762.8
37.6
45.5
83.1
845.9
(452.6)
–
(452.6)
(23.1)
2012
Share of JV’s
£m
399.3
–
399.3
0.2
–
0.2
399.5
(195.1)
–
(195.1)
(8.1)
Total
£m
1,162.1
–
1,162.1
37.8
45.5
83.3
1,245.4
(647.7)
–
(647.7)
(31.2)
Wholly owned
£m
396.2
220.9
617.1
–
189.1
189.1
806.2
(393.7)
(40.3)
(434.0)
(39.9)
2011
Share of JV’s
£m
400.1
–
400.1
–
0.2
0.2
400.3
(212.1)
–
(212.1)
(6.0)
Total
£m
796.3
220.9
1,017.2
–
189.3
189.3
1,206.5
(605.8)
(40.3)
(646.1)
(45.9)
Adjusted net assets
370.2
196.3
566.5
332.3
182.2
514.5
Loan to value (%)
53
49
52
54
53
54
The UNITE Group plc Annual Report and Accounts 2012
81
Notes to the financial statements continued
Section 2: Results for the year continued
2.3 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
2.3a
3.1
2012
£m
566.5
(31.7)
(19.0)
–
2011
£m
514.5
(50.5)
(76.1)
(0.3)
515.8
387.6
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 2012 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
Note
2.3b
2.1c
2012
£m
515.8
566.5
568.4
2011
£m
387.6
514.5
516.4
160,461
2,111
162,572
160,271
2,344
162,615
321p
353p
350p
242p
321p
318p
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2.4. Revenue
The Group earns revenue from the following activities:
Rental income
Management fees
Management fees
Manufacturing revenue
Property sales
Operations segment
Operations segment
Property segment
Property segment
Unallocated
Impact of minority interest on management fees
Impact of minority interest on property sales
Total revenue
Note
2.1a
2012
£m
79.4
10.9
–
12.5
112.1
214.9
(0.2)
(0.1)
214.6
2011
£m
63.6
10.6
1.3
11.4
8.2
95.1
(0.2)
–
94.9
The revenue above excludes the Group’s share of revenue from joint ventures; this can be seen in note 2.1a.
Revenue has increased due to increased rental income and planned property sales to the UNITE UK Student Accommodation Fund (USAF),
the London Student Accommodation Venture (LSAV) (note 3.4c) and other third parties.
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.
2.5 Provisions for onerous contracts
At 1 January 2012
Provisions utilised in the year
At 31 December 2012
At 1 January 2011
Increase in provisions charged to the income statement
At 31 December 2011
Current
liability
£m
6.3
(5.8)
0.5
Non-current
liability
£m
4.7
(4.5)
0.2
Current
liability
£m
–
6.3
6.3
Non-current
liability
£m
–
4.7
4.7
Total
liability
£m
11.0
(10.3)
0.7
Total
liability
£m
–
11.0
11.0
The provisions relate to onerous leases at the group’s manufacturing facility (UMS). The decision to cease trading at UMS resulted in future lease
payments and associated costs becoming onerous. Discounted future payments of £0.7 million (2011: £5.4 million) (relating to the lease of the
factory site) have been provided in respect of these leases of which £0.2 million (2011: £4.7 million) is not expected to be realised until 2014
and is therefore disclosed as due after one year. There has been a reduction of £4.7 million in the lease provision following sub-let interest in the
manufacturing premises, which has been offset by further costs incurred completing the onerous contracts. Contract losses exceeded the amount
previously provided by £5.7million resulting in a net UMS related loss of £1.0 million as shown in note 2.1b. Future payments have been discounted
using a market rate of 5%.
The UNITE Group plc Annual Report and Accounts 2012
83
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).
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 (credit) / charge 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
Origination and reversal of temporary differences
Effect of change in tax rate
Adjustments for prior years
Deferred tax (credit) / charge
Total tax (credit) / charge in income statement
2012
£m
–
0.6
–
0.6
(1.3)
(0.3)
–
(1.6)
(1.0)
2011
£m
–
0.5
–
0.5
0.9
(0.3)
(0.3)
0.3
0.8
In order to understand how, in the income statement, a tax credit of £1.0 million arises on a profit before tax of £126.2 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 24.5% (2011: 26.5%)
Effect of indexation on investment and development property
Non-deductible expenses
Effect of transferring property from current to non-current assets
Share of joint venture profit
Movement on unprovided deferred tax asset
Profit on disposal of assets not chargeable to tax
Effect of property disposals
Adjustments for prior years – deferred tax
Rate difference on deferred tax
Total tax (credit) / charge in the income statement
2012
£m
126.2
30.9
(3.3)
0.8
(10.8)
(0.1)
(13.1)
–
(4.3)
–
(1.1)
(1.0)
2011
£m
4.7
1.2
(2.4)
0.9
–
0.4
1.6
0.1
(0.4)
(0.3)
(0.3)
0.8
b) Tax – other comprehensive income
Within other comprehensive income a tax charge totalling £0.8 million (2011: £0.4 million) has been recognised representing deferred tax.
An analysis of this is included below in the deferred tax movement table.
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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:
2012
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
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
At 31 December
2011
£m
8.8
(1.3)
(1.2)
7.6
(8.0)
(2.7)
(3.2)
–
At 31 December
2010
£m
7.5
(0.7)
(0.3)
8.0
(10.0)
(2.7)
(1.8)
–
Transfers
£m
–
–
–
–
–
–
–
–
Transfers
£m
–
–
–
–
–
–
–
–
(Credited)
in income
£m
7.1
1.3
0.5
(0.5)
3.0
–
(13.0)
(1.6)
Charged
in income
£m
1.3
(0.6)
(0.9)
(0.4)
2.4
–
(1.4)
0.4
Charged
in equity
£m
–
–
–
–
0.8
0.8
–
1.6
At 31 December
2012
£m
15.9
–
(0.7)
7.1
(4.2)
(1.9)
(16.2)
–
(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)
–
A deferred tax asset of £20.0 million (2011: £31.9 million) in respect of losses of £86.9 million (2011: £127.6 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 £44.1 million (2011: £12.2 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 2012
85
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 four 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 the Group intends to hold for a long period to earn rental income or capital appreciation. The assets are held at fair value
in the balance sheet with changes in fair value taken to the income statement.
ii) Investment property under development (fixed assets)
These are assets which are currently in the course of construction and which will be transferred to ‘Investment property’ on completion.
iii) Completed properties (current assets)
These are assets acquired by the Group with the intention to hold the assets for a short period prior to disposal to a joint venture or third parties.
The Group continues to earn rental income and capital appreciation on these assets which are held at cost in the balance sheet.
iv) 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 investment property under development or properties under development.
As disclosed in note 1 in greater detail, in 2012 the Group has transferred all of its completed property to investment property,
based on a change of use and an intention to hold for the longer term. The effects of this change are shown in the following tables.
As at 31 December 2012 three properties remain classified as property under development as there is a clear intention to sell in the near term.
These include one property with a carrying value of £19.2 million and a fair value of £38.2 million which is subject to a conditional contract to sell
to LSAV after completion of construction.
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 2012
and 2011.
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 property and investment property under development 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 5.9% (2011: 6.7%).
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.
86
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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 2012 were as follows:
2012
At 1 January 2012
Acquisitions
Cost capitalised
Interest capitalised
Transfer of completed property
Transfer from property under development
Transfer from work in progress
Disposals
Reversal of impairment / (impairment)
Valuation gains recognised on transfer of completed property
Valuation gains
Valuation losses
Net valuation gains
Carrying value at 31 December 2012
Investment property
£m
396.2
56.8
2.4
–
263.6
–
–
(29.2)
–
49.7
30.5
(7.2)
23.3
762.8
Investment
property under
development
£m
–
–
28.8
0.9
–
–
1.4
–
–
–
6.5
–
6.5
37.6
Completed
property
£m
198.7
–
0.4
–
(263.6)
159.2
–
(95.1)
0.4
–
–
–
–
–
Property under
development
£m
135.2
–
46.0
5.1
–
(159.2)
–
–
(0.6)
–
–
–
–
26.5
Total
£m
730.1
56.8
77.6
6.0
–
–
1.4
(124.3)
(0.2)
49.7
37.0
(7.2)
29.8
826.9
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 property
and investment property under development, by external valuers. The fair value of the Group’s wholly owned properties at the year ended
31 December 2012 is as follows:
Carrying value at 31 December 2012 (above)
Valuation gains not recognised under IFRS but included in
Adjusted NAV
Brought forward
Transfer from property under development
Transfer of completed property
Disposals
Valuation gain in year
Market value at 31 December 2012
Investment
property
£m
762.8
Investment
property under
development
£m
37.6
Completed
property
£m
–
Property under
development
£m
26.5
–
–
–
–
–
–
762.8
–
–
–
–
–
–
37.6
22.2
49.4
(49.7)
(26.0)
4.1
–
–
53.9
(49.4)
–
–
14.5
19.0
45.5
Total
£m
826.9
76.1
–
(49.7)
(26.0)
18.6
19.0
845.9
During the year properties with a carrying value of £263.6 million and a fair value of £313.3 million were transferred from completed property
to investment property. This resulted in the recognition of £49.7 million of previously unrecognised valuation gains.
The UNITE Group plc Annual Report and Accounts 2012
87
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 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
The fair value of the Group’s wholly owned property portfolio 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
593.8
13.5
118.0
7.1
–
1.1
(13.8)
2.7
13.5
(5.8)
7.7
730.1
Total
£m
730.1
37.1
–
39.0
76.1
806.2
Included within investment properties are £29.7 million (2011: £43.1 million) of assets held under a long leasehold and £12.7 million (2011: £9.9
million) of assets held under short leasehold.
Total interest capitalised in investment and development properties at 31 December 2012 was £32.1 million (2011: £32.9 million) on an
accumulative basis. Total internal costs relating to manufacturing, construction and development costs of group properties amount to
£46.7 million at 31 December 2012 (2011: £53.6 million) on an accumulative basis.
3.2 Inventories
UMS modules for sale to third parties or joint ventures
Interests in land
Other stocks
Inventories
2012
£m
–
0.6
1.1
1.7
2011
£m
1.0
1.4
6.0
8.4
The movement in other stock is caused by a decrease in manufacturing work in progress, raw materials and consumables relating to the cessation
of manufacturing activity during the year.
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Section 3: Asset management continued
3.3 Other non-current 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. Property, plant and equipment mainly
comprise leasehold improvements at the Group’s head office and London office as well as computer hardware and software at these sites.
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
Other assets
Shorter life of lease and economic life
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 non-current assets can be analysed as follows:
Property, plant and
equipment
£m
2012
Intangible
assets
£m
Property, plant and
equipment
£m
Total
£m
2011
Intangible
assets
£m
Cost or valuation
At 1 January
Additions
Disposals
At 31 December
Depreciation, amortisation and impairment losses
At 1 January
Depreciation / amortisation charge for the year
Disposals
Impairment
At 31 December
Carrying value at 1 January
Carrying amount at 31 December
19.8
0.2
(12.3)
7.7
17.5
0.6
(11.6)
–
6.5
2.3
1.2
19.5
1.6
(3.6)
17.5
15.0
2.3
(3.6)
–
13.7
4.5
3.8
39.3
1.8
(15.9)
25.2
32.5
2.9
(15.2)
–
20.2
6.8
5.0
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
Total
£m
37.6
2.1
(0.4)
39.3
24.9
4.1
(0.2)
3.7
32.5
12.7
6.8
The UNITE Group plc Annual Report and Accounts 2012
89
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:
Group’s share of
assets/results 2012 (2011)
18.9%* (18.9%)
Joint venture
The UNITE UK Student
Accommodation Fund
(USAF)
UNITE Capital Cities (UCC) 30% (30%)
London Student
Accommodation Venture
(LSAV)
50% (nil)
Objective
Invest and operate
student accommodation
throughout the UK
Invest and operate student
accommodation in the capital
cities of London and
Edinburgh
Develop and operate student
accommodation in London
OCB Property Holdings
(OCB)
25% (25%)
Develop and operate three
investment properties located
in London
Partner
Consortium of investors
GIC Real Estate Pte, Ltd
Real estate
investment vehicle
of the Government
of Singapore
GIC Real Estate Pte, Ltd
Real estate
investment vehicle
of the Government
of Singapore
Oasis Capital Bank
Legal entity in which
Group has interest
UNITE Student
Accommodation Fund,
a Jersey Unit Trust
UNITE Capital Cities Unit
Trust, incorporated
in Jersey
LSAV Unit Trust, a Jersey
Unit Trust and LSAV
(Holdings) Ltd,
incorporated in Jersey
OCB Property Holdings
(Jersey) Ltd, incorporated
in Jersey
* 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 16.4% (2011: 16.3%) of USAF.
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.
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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:
2012
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Investment loans
Net assets
Profit/(loss)
for the period
USV profit for period
Profit for the period
USAF
£m
UCC
£m
LSAV
£m
OCB
£m
Total
£m
Gross
1,320.1
50.1
(621.7)
(17.5)
1.6
(24.9)
707.7
(3.2)
704.5
Share
250.0
9.5
(117.7)
(2.9)
0.3
(4.8)
134.4
(3.2)
131.2
Gross
381.2
12.6
(226.7)
(16.9)
0.3
(9.4)
141.1
–
141.1
Share
114.4
3.8
(68.0)
(5.1)
0.1
(2.9)
42.3
–
42.3
Gross
49.8
2.5
(24.2)
(0.2)
0.1
(2.1)
25.9
–
25.9
Share
24.9
1.3
(12.1)
(0.1)
0.1
(1.1)
13.0
–
13.0
Gross
174.7
7.8
(112.5)
(0.5)
0.2
(4.5)
65.2
(32.1)
33.1
Share
43.7
1.9
(28.1)
(0.1)
0.1
(1.2)
16.3
(8.0)
8.3
Gross
1,925.8
73.0
(985.1)
(35.1)
2.2
(40.9)
939.9
(35.3)
904.6
Share
433.0
16.5
(225.9)
(8.2)
0.6
(10.0)
206.0
(11.2)
194.8
81.5
17.7
21.7
6.5
17.1
8.6
(11.8)
(2.9)
108.5
0.9
109.4
29.9
0.4
30.3
Adjusted net assets
725.2
119.5
157.9
47.4
26.1
13.0
65.7
16.4
974.9
196.3
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
(28.2)
(0.7)
0.1
(0.9)
19.1
(7.3)
11.8
Gross
1,907.2
50.5
(1,012.7)
(47.3)
1.9
(29.3)
870.3
(39.9)
830.4
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
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 2012
91
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 £21.8 million during the year ended 31 December 2012
(2011: £11.4 million), resulting in an overall carrying value of £194.8 million (2011: £173.0 million). The following table shows how the increase
has been achieved.
2012
2011
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
Recognised in the income statement:
Net portfolio contribution (NPC)
Minority interest share of NPC
Management fee adjustment related to trading
with joint venture
Net revaluation gains
Deferred tax
Discount on interest free loans
Loss on cancellation of interest rate swaps
Landsbanki cash received
Ineffective swaps
Other
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
Acquisition of remaining 49% in USV
Acquisition of 50% share in LSAV
Distributions received
Increase in carrying value
Carrying value at 1 January
Carrying value at 31 December
10.1
1.0
2.3
14.9
0.4
(0.8)
(0.6)
2.9
–
0.1
30.3
3.6
(0.1)
(10.1)
(3.8)
11.5
(9.6)
21.8
173.0
194.8
–
–
–
–
–
0.8
–
–
–
–
0.8
–
–
0.2
(3.9)
–
–
(2.9)
14.1
11.2
10.1
1.0
2.3
14.9
0.4
–
(0.6)
2.9
–
0.1
31.1
3.6
(0.1)
(9.9)
(7.7)
11.5
(9.6)
18.9
8.9
1.2
2.2
10.7
0.3
(0.7)
0.4
–
(0.4)
–
22.6
0.3
(0.2)
(2.4)
–
–
(8.9)
11.4
187.1
206.0
161.6
173.0
–
–
–
–
–
0.7
–
–
–
–
0.7
–
–
0.2
–
–
–
0.9
13.2
14.1
8.9
1.2
2.2
10.7
0.3
–
0.4
–
(0.4)
–
23.3
0.3
(0.2)
(2.2)
–
–
(8.9)
12.3
174.8
187.1
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.
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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
2012
£m
6.3
3.3
1.0
10.6
–
–
–
10.6
2011
£m
6.3
3.1
0.9
10.3
1.2
0.1
1.3
11.6
During the year the Group sold one property to USAF for £30.4 million and one property to LSAV for £45.2 million. The two 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
revenue and cost of sales in the income statement and the cash flows in operating activities. No properties were sold to joint ventures in 2011.
The profits relating to sales and associated disposal costs and related cash flows are set out below:
Included in revenue (net of joint venture trading adjustment)
Included in cost of sales
Profit on disposal of property
Gross proceeds
Part settled by:
Investment in joint venture
Net cash flows included in cash flows from operating activities
Profit and loss
2012
Profit and loss
2011
USAF
£m
29.7
(26.7)
3.0
Cash flow
2012
USAF
£m
31.0
–
31.0
LSAV
£m
38.2
(31.2)
7.0
LSAV
£m
46.2
(11.5)
34.7
USAF
£m
–
–
–
Cash flow
2011
USAF
£m
–
–
–
LSAV
£m
–
–
–
LSAV
£m
–
–
–
Included within cash flows from financing activities is (£32.2 million) relating to the repayment of non-current borrowings on disposal
of properties to joint ventures. (£9.9 million) relates to USAF and (£22.3 million) relating to LSAV.
UCC properties are partly funded by debt totalling £226.7 million (2011: £248.4 million) which equates to 59.5% (2011: 64.2%) of the market
value of these properties. The Group has guaranteed its share, 30%, of this debt amounting to £68.0 million (2011: £74.5 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.
OCB properties are partly funded by debt totalling £113.0 million (2011: £113.5 million) which equates to 64.7% (2011: 60.1%) of the
market value of these properties. The Group has guaranteed one facility amounting to £50.0 million (2011: £50.0 million). The Group has
a back to back guarantee from Oasis Capital Bank for £37.5 million (2011: £37.5 million). This guarantee only takes effect in the event
that the joint venture is unable to repay the debt within six 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.
The UNITE Group plc Annual Report and Accounts 2012
93
Notes to the financial statements continued
Section 3: Asset management continued
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
Acquisitions
Transfer from investment in joint ventures
Disposals
Revaluation
At 31 December
Investment in subsidiaries
Investment in joint ventures
2012
£m
112.0
1.8
2.5
(4.3)
116.4
228.4
2011
£m
106.8
–
–
–
5.2
112.0
2012
£m
2.5
–
(2.5)
–
–
–
2011
£m
3.7
–
–
–
(1.2)
2.5
The carrying value of investment in subsidiaries has been calculated using the equity attributable to the owners of the parent company from the
consolidated balance sheet adjusted for the fair value of fixed rate loans. This includes investment property, investment property under development
and swaps at a fair value calculated by a third party expert. In addition a market value adjustment is applied based on the profitability of the main
development company. This represents Level 2 in the IFRS 7 fair value hierarchy.
In addition to the equity investment in subsidiaries and joint ventures, the Company has provided a loan with interest chargeable at 6.125%
to LDC (Holdings) plc. The carrying value of the loan to LDC (Holdings)plc was £90.0 million (2011: nil). During the year the interest free loan
the Company made to the USV joint venture was repaid as part of the Group’s acquisition of the second half of the USV joint venture.
The carrying value of the investment loan to USV at 31 December 2012 was £nil (2011: £3.9 million).
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%
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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
Group
2012
£m
2011
£m
100.2
29.2
Company
2012
£m
1.2
65.1
131.8
230.8
427.7
527.9
251.9
140.4
29.2
421.5
450.7
–
–
90.0
90.0
91.2
2011
£m
–
–
–
–
–
–
In addition to the borrowings currently drawn as shown above, the Group has available undrawn facilities of £34.9 million (2011: £14.3 million).
A further working capital facility of £20.0 million (2011: £20.0 million) is also available.
A further £146 million (2011: £132 million) of facilities are available if certain conditions are met. Of this amount £75 million (2011: £30 million)
is only available for rental properties and £41 million (2011: £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 £227.8 million
(2011: £17.4 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 £237.2 million (2011: £18.4 million).
Properties with a carrying value of £728.1 million (2011: £696.8 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 2012
95
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
2012
£m
0.7
23.0
23.7
2011
£m
–
39.0
39.0
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
Loan break costs
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
2012
£m
(0.2)
(0.8)
(1.0)
21.9
0.1
(6.0)
16.0
7.6
23.6
22.6
2011
£m
(0.1)
(0.7)
(0.8)
15.8
–
(7.1)
8.7
10.6
19.3
18.5
The Group’s overall average cost of debt as at 31 December 2012 is 5.5% (2011: 5.7%). The average cost of the Group’s investment debt
at 31 December 2012 is 5.5% (2011: 5.4%).
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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)
See- through adjusted LTV
Note
5.1
4.1
4.1
4.2
2.3c
2.3c
2012
£m
75.4
(100.2)
(427.7)
(23.7)
(476.2)
2011
£m
16.8
(29.2)
(421.5)
(39.0)
(472.9)
23.6
38.9
(452.6)
515.8
566.5
(434.0)
387.6
514.5
92%
80%
114%
52%
122%
84%
126%
54%
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
The Group had no specific development borrowings at 31 December 2012 and is currently funding its developments from general borrowings.
The Group has development debt facilities in place to finance those going forward. After taking account of interest rate swaps, £36 million (89%)
of the Group’s development borrowings at 31 December 2011 was 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’s policy also allows this exposure to be managed through the use of forward starting swaps.
The UNITE Group plc Annual Report and Accounts 2012
97
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 both floating and fixed rate arrangements. The majority of this floating debt is
hedged through the use of interest rate swap agreements, although not all these arrangements qualify for hedge accounting under IAS 39. During
2012, the Group’s policy guideline has been to hedge in excess of 75% of the Group’s exposure for terms of approximately 2-10 years.
At 31 December 2012, after taking account of interest rate swaps, 88% (2011: 69%) of the Group’s medium and long-term investment borrowing
was held at fixed rates. Excluding the £241 million of swaps the fixed investment borrowing is at an average rate of 5.5% (2011: 5.7%) for an
average period of 9 years (2011: 2 years), including these swaps the average rate is 5.5%.
The Group holds interest rate swaps at 31 December 2012 against £258 million (2011: £302.9 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
2012
2011
Nominal
amount hedged
£m
–
116.2
122.8
1.8
Applicable
interest rates
%
–
2.3-5.8
1.7-5.3
5.6
Nominal
amount hedged
£m
–
27.6
242.5
32.8
Applicable
interest rates
%
–
5.2-5.3
2.8-5.8
5.3-5.6
During the year, if interest rates had increased/decreased by 1%, pre-tax profit for the year would have been £1.2 million (2011: £0.8 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.
2012
Bank and other loans
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
2011
Bank and other loans
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
Total contractual
cash flows
£m
652.3
82.0
4.4
11.2
749.9
Total contractual
cash flows
£m
480.0
84.4
13.5
17.9
595.8
Less than
1 year
£m
119.7
82.0
1.3
5.6
208.6
Less than
1 year
£m
42.2
84.4
3.9
10.8
141.3
Between
1 and 2 years
£m
82.3
–
Between
2 and 5 years
£m
175.0
–
1.3
3.1
86.7
1.2
2.5
178.7
Between
1 and 2 years
£m
260.4
–
Between
2 and 5 years
£m
146.0
–
4.4
5.1
269.9
4.7
2.0
152.7
Over
5 years
£m
275.3
–
0.6
–
275.9
Over
5 years
£m
31.4
–
0.5
–
31.9
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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 2012, 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 2012
31 December 2011
Weighted
covenant
70%
1.38
£250m
Weighted
actual
35%*
2.60
£567m
Weighted
covenant
74%
1.18
£250m
Weighted
actual
56%*
1.74
£515m
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
2012
£m
15.3
58.2
192.9
266.4
2011
£m
14.5
57.2
226.5
298.2
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. Two properties are subject to a fixed annual rent
increase of 2%. The total operating lease expenditure incurred during the year was £15.3 million (2011: £14.6 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
2012
£m
48.8
30.1
10.5
89.4
2011
£m
52.0
22.3
13.4
87.7
The UNITE Group plc Annual Report and Accounts 2012
99
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 (2.3a)
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. £150 million of non-core assets were sold in 2012 and a further £50
million of non-core property disposals are targeted by December 2013. 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 reinstated dividends during 2011.
The Operations Segment generated cash of £17.2 million (2011: £13.8 million) during the year, thereby covering the proposed dividend of
£6.4 million, 3 times (2011: £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
Share options exercised
Issued at end of year – fully paid
2012
2011
160,271,460 160,268,343
3,117
160,461,442 160,271,460
189,982
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 £1.6 million (2011: £0.8 million) and paid a £2.0 million final dividend
relating to the year ended 31 December 2011.
After the year end, the Directors proposed a final dividend per share of 3p (2011: 1.25p), bringing the total dividend per share for the year to 4p
(2011: 1.75p). No provision has been made in relation to this dividend.
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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 2012 was £75.4 million (2011: £16.8 million).
At 31 December 2012 the Company had an overdraft of £1.2 million (2011 cash position: £0.1 million).
The Group’s cash balances include £12.1 million (2011: £14.5 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
Profit on acquisition of subsidiary
Loss on disposal of investment property
Share of joint venture profit
Trading with joint venture adjustment
Tax (credit)/charge
Cash flows from operating activities before
changes in working capital
(Increase)/decrease in trade and other receivables
Decrease/(increase) in completed property and property
under development
Decrease/(increase) in inventories
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Cash flows from operating activities
Note
3.3
6.1
3.3
3.1
4.3
3.4b
2.6a
2012
£m
127.2
2.9
–
1.5
–
(79.5)
22.6
–
2.4
(30.3)
(1.6)
(1.0)
44.2
(12.9)
43.8
5.3
(11.7)
(10.3)
58.4
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)
2012
£m
(0.7)
–
–
–
–
–
0.3
(2.2)
–
–
–
–
(2.6)
–
–
–
0.2
–
(2.4)
2011
£m
(0.9)
–
(2.3)
–
–
–
0.1
–
–
–
–
–
(3.1)
–
–
–
0.7
–
(2.4)
Cash flows consist of the following segmental cash inflows/(outflows): Operations £17.2 million (2011: £13.8 million), property £48.3 million
(2011: (£17.2 million)) and unallocated (£6.9 million) (2011: £3.6 million). The unallocated amount includes restructuring £nil (2011: £1.4 million),
Group dividends (£3.6 million) (2011: £0.8 million), LSAV set-up costs (£1.3 million) (2011: £nil), own shares purchase (£1.3 million)
(2011: (£0.1 million)), tax payable of (£0.9 million) (2011: £0.6 million) and amounts received from shares issued £0.2 million (2011: £nil).
The UNITE Group plc Annual Report and Accounts 2012
101
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
2012
£m
7.8
–
27.9
16.7
1.1
53.5
2011
£m
6.7
–
13.4
19.5
1.4
41.0
2012
£m
–
321.5
–
–
–
321.5
2011
£m
–
317.7
–
–
–
317.7
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 past the payment due date.
2012
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
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
Ageing by academic year
Total
£m
6.2
4.1
(3.4)
6.9
0.9
7.8
2012/13
£m
2011/12
£m
Prior years
£m
5.6
2.3
(1.2)
6.7
0.9
7.6
0.6
0.9
(1.3)
0.2
–
0.2
–
0.9
(0.9)
–
–
–
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
2012
£m
5.9
1.4
(3.4)
3.9
–
3.3
(3.0)
0.3
–
0.3
2011
£m
6.3
2.6
(3.0)
5.9
Amounts receivable from joint ventures are not past due or impaired.
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
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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
2012
£m
75.4
7.8
27.9
11.2
122.3
2011
£m
16.8
6.7
13.4
14.1
51.0
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 £7.9 million (2011: £9.0 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
2012
£m
4.1
2.4
–
41.9
33.6
82.0
2011
£m
9.7
3.1
–
53.0
18.6
84.4
2012
£m
–
–
29.7
3.2
–
32.9
2011
£m
–
–
29.7
3.0
–
32.7
Other payable and accrued expenses include £7.9 million (2011: £9.0 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. Deferred income relates to rental income
that has been collected in advance of it being recognised as revenue.
The UNITE Group plc Annual Report and Accounts 2012
103
Notes to the financial statements continued
Section 5: Working capital continued
5.5 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 £2.4 million (2011: £2.7 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
LDC (Holdings) plc
Amounts due from group undertakings
Unilodge Holding Ltd
Unilodge Holdings (UK) Ltd
Amounts due to group undertakings
2012
£m
74.6
246.9
321.5
(13.9)
(15.8)
(29.7)
2011
£m
76.5
241.2
317.7
(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 £152 million of its subsidiary companies borrowings (2011: £235 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.
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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
2012
338
628
966
2012
£m
32.8
3.5
0.6
1.5
38.4
2011
371
606
977
2011
£m
30.7
3.2
0.7
1.2
35.8
The wages and salaries costs include redundancy costs of £0.3 million (2011: £1.1 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 52 to 63.
The UNITE Group plc Annual Report and Accounts 2012
105
Notes to the financial statements continued
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
Exercisable at 31 December
Weighted average
exercise price
2012
£0.85
£1.44
£1.44
£0.35
£0.52
Number of options
(thousands)
2012
2,375
(308)
(190)
1,843
3,720
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
£2.22
256
£1.92
439
For those options exercised in the year, the average share price during 2012 was £2.63 (2011: £2.08).
For those options still outstanding, the range of exercise prices at the year end was 0p to 299p (2011: 0p to 344p) and the weighted average
remaining contractual life of these options was 0.3 years (2011: 0.9 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.
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The UNITE Group plc Annual Report and Accounts 2012
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)
2012
350
321
567
516
2011
2010
2009
2008
318
242
515
388
295
242
475
388
265
229
423
366
306
252
483
320
Managed portfolio value (£m)
2,688
2,502
2,334
2,039
1,829
Gearing
adjusted (%)
including share of co investment funds (%)
on balance sheet (%)
Rental income
from wholly owned assets (£m)
including share of co investment funds (%)
Net portfolio contribution (£m)
Adjusted profit/
(loss) before tax (£m)
Profit/(loss) before tax (£m)
Earnings per share
adjusted (pence)
basic (pence)
80
114
92
79
111
19
16
126
10
78
84
126
122
64
96
11
(17)
5
(11)
1
71
115
96
64
89
4
(5)
24
(3)
12
92
133
115
58
82
1
(4)
(35)
(3)
(26)
131
174
180
58
78
(5)
(24)
(116)
(19)
(92)
107
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Notice of annual general meeting
NOTICE IS HEREBY GIVEN that the annual general meeting of The UNITE Group plc (the Company) will be held at The Core, 40 St Thomas
Street, Bristol BS1 6JX at 9.30 a.m. on 16 May 2013 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 2012, 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 2012 of 3p per ordinary share payable
to shareholders on the register at the close of business on 19 April 2013.
3. To approve the Directors’ Remuneration Report for the year ended 31 December 2012.
4. To appoint Mr A Jones 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 Mrs M K Wolstenholme 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 £13,372,037 (such amount to be reduced by the nominal amount of any
allotments or grants made under paragraph (b) below in excess of £13,372,037; and further
(b) to allot equity securities (as defined by Section 560(1) of the Act) up to an aggregate nominal amount of £26,744,074 (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 annual general meeting 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.
108
The UNITE Group plc Annual Report and Accounts 2012
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
(b) to the allotment (other than under (a) above) of equity securities having a nominal value not exceeding in aggregate £2,005,805.
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
annual general meeting 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 annual general meeting may be called on not less than 14 clear days' notice.
By order of the board
A D Reid
Secretary
Dated 6 March 2013
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 9.30 a.m. 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 9.30 a.m. on 14 May 2013.
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.
109
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance
Notice of annual general meeting continued
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.
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.
9.
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).
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 5.00 p.m. 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 6 March 2013 the Company’s issued share capital consists of 160,464,449 ordinary shares carrying one vote each. Therefore the
total voting rights in the Company as at 6 March 2013 are 160,464,449.
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 annual general meeting; (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 annual general meeting; 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.
110
The UNITE Group plc Annual Report and Accounts 2012 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 6 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 6 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 annual general meeting
and will also be available for inspection at the place of the meeting from 9.15 a.m. on the day of the meeting until its conclusion:
(a) copies of the executive directors' service contracts with the Company and any of its subsidiary undertakings; and
(b) and letters of appointment of the non-executive directors.
111
Business reviewFinancial statementsOther informationStrategyOverviewGovernanceThe UNITE Group plc Annual Report and Accounts 2012Business reviewFinancial statementsOther informationStrategyOverviewGovernance Glossary
Adjusted earnings per share
The diluted earnings per share based
on adjusted profit.
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:
• 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. 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.
LSAV
The London Student Accommodation Joint
Venture (LSAV) is a new joint venture
between UNITE and GIC, alongside UCC.
Both UNITE and GIC have a 50% stake
and LSAV has the same maturity date as
UCC (September 2022). It is the primary
vehicle through which UNITE undertakes
development activity in London and it has
112
right of first refusal over UNITE’s London
development projects until such time as
its capital investment targets are met.
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 of their financing
costs and the Group’s total non-development
related overheads.
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).
Non-core assets
Properties which do not fit with the Group’s
long-term investment strategy, either because
of their location or because they are let to
Universities under long-term agreements.
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 £240.2 million from
properties owned by:
The Group
Third parties
USAF
LSAV
UCC
USV
(Pre Acquisition)
OCB
£m
79.2
0.2
115.2
0.5
31.5
0.3
13.3
The Group’s share of this gross income
is shown in note 2.1(a).
Total returns
The total return to shareholders calculated
by the growth in adjusted NAV plus interim
and declared final dividends.
UCC
UNITE Capital Cities was established in
2005 as a joint venture between UNITE
and GIC Real Estate. In 2012 we extended
the maturity of this JV to September 2022
alongside the formation of LSAV.
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.
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 2012 Company information
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
25 Bank Street
London E14 5JP
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
Designed by luminous.co.uk
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