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Sustainable growth from
strong foundations
The UNITE Group plc
Annual Report and Accounts 2013
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We are the UK’s leading manager and
developer of student accommodation.
We provide a home for 41,000 students in over
120 purpose built properties across 23 of the UK’s
strongest University towns and cities. We have nearly
1,000 employees and work in partnership with over
50 Higher Education providers, as well as renting rooms
directly to students.
Our culturally-diverse customers are at the heart
of our business and we aim to provide a home
for students that supports their success, whether
defined as academic achievement, personal growth or
employability. Our properties provide high quality, well-
located, safe accommodation that is close to University
campuses, transport and local amenities. Our rent
includes a study bedroom, all bills, insurance, 24-hour
security and high speed Wi-Fi throughout our buildings.
Strategic report
1 Financial highlights
2 A year of achievement
4 Chairman’s statement
6 Where we operate
8 Our top ten managed properties by value
9 Market review
12 Chief Executive’s strategic review
14 Business model and strategic priorities
18 Strategy in action
24 Key performance indicators
26 Our risk management framework
27 Principal risks and uncertainties
30 Operations review
32 Property review
38 Financial review
41 Corporate responsibility review
Corporate governance
50 Chairman’s overview and Code compliance
52 Board of Directors
54 Relations with shareholders
55 Leadership
59 Effectiveness
60 Nomination Committee report
61 Heath & Safety Committee report
62 Accountability and Audit Committee report
67
Annual Statement of the Chair
of the Remuneration Committee
68 Directors’ Remuneration Policy
76 Annual Report on Remuneration
90 Directors’ responsibilities
91
Independent auditor’s report
Introduction and table of contents
Financial statements
93
94 Consolidated income statement
Consolidated statement
94
of comprehensive income
95 Consolidated balance sheet
96 Company balance sheet
97
Consolidated statement of changes
in shareholders’ equity
Company statement of changes
in shareholders’ equity
99 Statements of cash flows
100 Notes to the financial statements
98
Other information
134 Five year record
135 Notice of annual general meeting
139 Glossary
IBC Company information
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Strategic report
Financial highlights
Continued momentum
• Continued strong performance built
around high levels of service
• Positive market outlook supported by
encouraging reservations performance
• Significant, fully funded, development
programme secured, underpinning
attractive growth prospects
• Capital structure strengthened
Net asset value
382pps
2009
2010
2011
2012
2013
Adjusted EPS
14pps
2009
2010
2011
2012
2013
See-through LTV
49%
2009
2010
2011
2012
2013
Occupancy
98%
265 2009
295
2010
318
2011
350
2012
382
2013
Net portfolio contribution
£25.6m
(3)p 2009
(3)p
2010
3p
2011
10p
2012
14p
2013
Dividend
4.8pps
56 2009
54
2010
54
52
49
2011
2012
2013
97
97
99
96
98
0.6
4.1
11.0
19.1
25.6
–
–
1.75
4.0
4.8
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The UNITE Group plc Annual Report and Accounts 2013 1
Strategic report Corporate governance Financial statements Other information Strategic report
A year of achievement
Building on our success
Achieved planning consent on three sites
We gained planning permission for a new 759 bed
development in Stratford, Angel Lane, which is due
to open in 2015, and achieved consent for additional
rooms in properties in Bristol and Coventry.
Launched Wellbeing programme
We launched our student Wellbeing programme at the start
of the academic year. Each UNITE property established a
designated area offering advice on a wide range of issues to
help students settle into their new home, creating a healthy,
positive and supportive culture that allows students to flourish.
2 The UNITE Group plc Annual Report and Accounts 2013
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Student Accommodation Operator of the Year
UNITE won the inaugural RESI award for Student
Accommodation Operator of the Year, recognising our
achievements in delivering an exceptional student experience,
profitable occupancy rates and the best management of our
portfolios and assets nationally. The judges said: “UNITE
observes a high standard of thought and care that the
RESI industry in general should take on board.”
Secured six new sites
We secured six new development sites which will add 3,530
beds to our portfolio. A turnkey development in Huddersfield
opens in 2014, while the other five development sites in
Aberdeen, Edinburgh, Newcastle and two sites in London
(Wembley and Islington), open in 2016.
Award-winning refinancing
In recognition of our Treasury Team’s achievements, including
refinancing 66% of UNITE’s debt and increasing our unsecured
borrowings, we won the Association of Corporate Treasurers
UK Treasury Team of the Year Award for companies with
a market cap below £2 billion. The judges said: “UNITE’s
Treasury Team did a lot in a short space of time.”
Share placing
We completed a £51 million share placing in June that
allowed us to secure new development sites in strong regional
University cities. The three sites in Edinburgh, Aberdeen and
Newcastle, together with a fourth site that is under offer, mean
that the proceeds from the placing are now fully deployed.
Installed high speed
Wi-Fi throughout all
our properties
We raised over £1 billion
of funding through
innovative financing
The UNITE Group plc Annual Report and Accounts 2013 3
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Strategic report Corporate governance Financial statements Other information Strategic report
Chairman’s statement
Working in partnership
In 2013 the business continued to build
on the positive momentum of recent years.
EPRA adjusted earnings per share increased
to 18.0 pence, 13.6 pence excluding the
UCC performance fee (2012: 9.9 pence),
and adjusted NAV per share (fully diluted)
rose 9.1% to 382 pence from 350 pence a
year earlier. We are declaring a final dividend
of 3.2 pence per share (2012: 3.0 pence),
making 4.8 pence for the full year (2012: 4.0
pence), a 20% rise. Including dividends, the
business delivered a total return on equity
of 10.5% for the year.
Importantly, the business’ performance has been
based on continued improvements to service levels
which further enhance our brand. Our most recent service
satisfaction surveys again saw an increase to highest
ever levels and we have clear plans in place to build
on this further in 2014.
Alongside the delivery of a strong financial performance
we also achieved a number of important milestones
which will underpin growth in the coming years. We
have transformed our capital base and created the
capacity to expand our portfolio, further strengthened
our operating platform and brand and grown our secured
development pipeline meaningfully. All of these things
give us confidence that our growth and performance
are sustainable.
The basis of our continued progress remains our dedicated
teams of people throughout the business. I would like to
congratulate them on their achievements in 2013 and
thank them for their continued significant contribution.
At Board level, Liz McMeikan joined us as a Non-
Executive Director in February 2014 and Richard Walker,
who acts as Chair of both the Remuneration and Health
and Safety Committees, will retire at the next AGM after
nine years’ valued service. I would like to thank Richard for
his contribution throughout his time on the Board and
warmly welcome Liz.
Our market outlook is the most encouraging it has
been for a number of years. Government policy is clearly
supportive of increasing University enrolment, from which
our investment portfolio and development pipeline are
well positioned to benefit, and we are currently seeing
little sign of inflationary pressure to our key input costs.
We remain conscious of the risks inherent in a fragile
economic recovery but look forward with optimism.
Phil White CBE
Chairman
6 March 2014
4 The UNITE Group plc Annual Report and Accounts 2013
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Committed to good governance
We are committed to high standards of corporate governance at
UNITE and believe it is central to the continued strong performance
and sustainable growth of the business, and to maintaining the
confidence of our shareholders. For us, good governance is about
responsible and effective management of the business in a way
which demonstrates honesty, transparency and accountability.
In 2013, our Board adopted the revisions to the UK Corporate
Governance Code, introduced in September 2012 and also the
Large and Medium-sized Companies and Group Regulations 2013.
See page 50 for the Chairman’s introduction to governance.
Phil White
Chairman
Mark Allan
Chief Executive
Board breakdown
Joe Lister
Chief Financial Officer
Richard Simpson
MD of Property
■
■
■
Chairman
Executive
Non-Executive
1
4
5
Richard Smith
MD of Operations
Manjit Wolstenholme
Senior Independent Director
A diverse workforce
UNITE has a culturally-diverse customer base and we value
diversity among our employees at all levels. Our aim is that our
workforce will be truly representative of all sections of society
and each employee will feel respected and able to give their best.
See page 49 for UNITE’s diversity policy.
Elizabeth McMeikan
Non-Executive Director
Richard Walker
Non-Executive Director
Professor Sir Tim Wilson
Non-Executive Director
Andrew Jones
Non-Executive Director
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The UNITE Group plc Annual Report and Accounts 2013 5
Strategic report Corporate governance Financial statements Other information Strategic report
Where we operate
A leading operator of purpose built
student accommodation
Edinburgh
717 rooms
Glasgow
2,149 rooms
Manchester
2,337 rooms
Liverpool
3,398 rooms
Loughborough
1,157 rooms
Birmingham
1,832 rooms
Bath
643 rooms
Bristol
2,858 rooms
Bournemouth
518 rooms
Poole
308 rooms
Exeter
532 rooms
Plymouth
1,110 rooms
Aberdeen
1,321 rooms
Newcastle
984 rooms
Leeds
3,138 rooms
Huddersfield
627 rooms
Sheffield
3,731 rooms
Nottingham
1,292 rooms
Leicester
1,685 rooms
Coventry
878 rooms
Reading
703 rooms
London
7,612 rooms
Portsmouth
1,402 rooms
6 The UNITE Group plc Annual Report and Accounts 2013
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Top ten markets
2013 rank
2012 rank
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
9
10
11
Proportion of UNITE portfolio
City
London
Sheffield
Liverpool
Leeds
Bristol
Manchester
Glasgow
Birmingham
Leicester
Portsmouth
Completed beds
FT student numbers
7,612
3,731
3,398
3,138
2,858
2,337
2,149
1,832
1,685
1,402
30,142
73%
281,495
46,889
52,742
49,779
38,334
76,562
50,883
56,391
29,292
18,720
701,087
Projected
market
share
2.7%
8.0%
6.4%
6.3%
7.5%
3.1%
4.2%
3.2%
5.8%
7.5%
4.3%
London North
3,977 rooms
London South
3,635 rooms
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The UNITE Group plc Annual Report and Accounts 2013 7
Strategic report Corporate governance Financial statements Other information Strategic report
Our top ten managed properties by value
A strong national portfolio
1
2
3
4
5
6
7
8
9
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.
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.
Woodland Court, London
Beds: 577 (OCB)
Shared en-suite flats set around
a communal courtyard, one stop
from King’s Cross underground.
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.
10
Grand Central, Liverpool
Beds: 1,236 (USAF)
The largest, most centrally located
student residence in Liverpool,
ideally located for Lime Street
station, the city centre and the
city’s Universities.
Sky Plaza, Leeds
Beds: 964 (USAF)
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.
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.
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.
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.
Wedgwood 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.
Property ownership is noted in brackets:
LSAV London Student Accommodation Venture
OCB Oasis Capital Bank
UCC UNITE Capital Cities
USAF UNITE UK Student Accommodation Fund
8 The UNITE Group plc Annual Report and Accounts 2013
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Strategic report
Market review
Understanding our market
Student intake in 2013/14 saw a 37,000 increase in UK
and EU student enrolment year on year. This saw student
numbers return to pre-2011 levels following the slight dip
in 2012/13 after Government changes to the University
funding system and the allocation of places. There were
677,000 applicants competing for 496,000 places,
meaning that approximately 181,000 people failed to
secure a place. This surplus of applicants over available
places provides comfort that student numbers should be
maintained at or above current levels in the future. As at
31 January 2014, applications for the next academic year
(2014/15) were up a further 4% year on year.
In recent years non-EU student numbers have grown
steadily, with applications up 9% compared with 2010,
and this has been achieved despite a tightening of student
visa regulations. There are currently 268,000 non-EU
students studying in the UK, representing 16% of total
full-time students and 20% of full-time students requiring
accommodation. The UK has a 13% share of the global
international student market and if this share is maintained
a recent Organisation for Economic Co-operation and
Development (OECD) forecast suggests an additional
250,000 non-EU students could be studying in the UK
by 2025.
The market has seen a continued increase in both
non-EU and EU students choosing to study in the UK.
There are currently 106,000 EU students in the UK, an
increase of 55% in the last ten years, and EU applications
for 2014/15 were up 5% (as at January 2014). We expect
EU demand to remain healthy for the foreseeable future.
In his 2013 Autumn Statement, the Chancellor announced
his intention to fund an additional 30,000 University places
for 2014/15 and to remove the student number cap
completely from 2015, which the Treasury anticipates
could lead to an increase in enrolments of up to 60,000
(12%) UK and EU students, compared to current levels.
We have not yet factored this into our forecasts.
UCAS application figures
181,000
Unplaced applicants in 2013
Number of full-time students in UK
1.65m
Full-time students in 2013/14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
Key
0
0
0
0
0
1
,
0
0
0
0
0
2
,
0
0
0
0
0
3
,
0
0
0
0
0
4
,
0
0
0
0
0
5
,
0
0
0
0
0
6
,
0
0
0
0
0
7
,
0
0
0
0
0
8
,
2012/13
2011/12
2010/11
2009/10
2008/9
0
Key
,
0
0
0
0
0
4
,
0
0
0
0
0
8
,
0
0
0
0
0
2
1
,
,
0
0
0
0
0
6
1
,
,
0
0
0
0
0
0
2
,
Total accepted applicants
Total unplaced applicants
UK
EU
Non-EU
Source: UCAS
Source: HESA 2012/13 Data – full-time students
Origin of University applicants
UNITE’s top 10 international markets
374,000
International students in the UK in 2013/14
13%
UK’s share of the international student market
2014
2013
2012
2011
2010
0
Key
China
Cyprus
Thailand
Greece
Hong Kong
India
Malaysia
Nigeria
Taiwan
Spain
0
Key
0
0
0
0
0
1
,
0
0
0
0
0
2
,
0
0
0
0
0
3
,
0
0
0
0
0
4
,
0
0
0
0
0
5
,
0
0
0
0
0
6
,
0
0
0
1
,
0
0
0
2
,
0
0
0
3
,
0
0
0
4
,
0
0
0
5
,
UK
EU (excluding UK)
Non-EU
2013-2014 direct let customer base
Source: UCAS
Source: UNITE
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The UNITE Group plc Annual Report and Accounts 2013 9
Strategic report Corporate governance Financial statements Other information Strategic report
Market review continued
The significant growth in full-time
student numbers over the past
20 years has led to a significant
demand/supply imbalance in the
student accommodation sector.
Taking into account the above factors, longer term we
expect demand for UK Higher Education to remain strong,
both from domestic and international students. Stronger
Universities, where UNITE has concentrated its activities,
are well placed to benefit from the greater level of market
forces in the sector and we expect all strong University
towns and cities to experience sustained growth.
The significant growth in full-time student numbers over
the past 20 years has led to a significant demand/supply
imbalance in the student accommodation sector and this
is likely to remain, and potentially widen, over the next
few years. New accommodation supply is likely to be
constrained for some time due primarily to lack of capital
and although this will ease as credit conditions improve
and regional economies recover, it is unlikely that the rate
of new supply will keep pace with the overall growth in
student numbers in stronger towns and cities.
As a result of the favourable demand/supply dynamics
we continue to believe that the rental growth outlook
will be positive for some time. We have forecast rental
growth of 3% for 2014/15 and consider the outlook to
be positive thereafter. Our view of rental growth could be
further positively affected by the planned removal of the
student number cap from 2015/16 referred to above.
If implemented, this could lead to a substantial rise in
student numbers at a time when the level of new
accommodation supply is still constrained and, again,
stronger Universities are going to be best placed
to benefit.
New competitors have entered the sector over the past
two to three years and others are likely to do so in due
course. However these operators tend to lack scale, which
we believe places them at a disadvantage. At the same
time, a number of longer standing competitors face certain
financial challenges which are likely to restrict their ability
to grow and invest in their businesses for the long term.
Against this backdrop, and with a positive market outlook,
we believe it is vital that we invest carefully in enhancing
our brand and service platform to create genuine,
sustainable competitive advantage. This will then form
the basis of continued positive performance in the
longer term.
10 The UNITE Group plc Annual Report and Accounts 2013
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Contribution of students to the UK economy
Higher Education contributes £17.5 billion to the UK economy. Student numbers have returned to pre-2011
numbers, their highest ever levels, and the number and quality of leading Higher Education institutions in
the UK continue to make it an attractive destination for both international and EU students. With student
numbers forecast to rise further following the Government’s decision to remove the number cap from 2015,
the value students bring to the UK economy is likely to grow.
374,000
There were 1.65 million full-time students
in 2012/13, 268,000 were international
students and 106,000 were EU students.
(Source: HESA 2014)
830,000 jobs
Student expenditure supports over
830,000 UK jobs. In the UK, the
number of people employed directly
and indirectly supported by student
spending is more than the total
population of Liverpool.
(Source: NUS, Student Contribution
to the UK Economy, 2013)
£17.5bn
UK’s education exports were estimated to be
worth £17.5bn to the UK economy in 2012/13.
(Source: HM Government, International Education: Global Growth
and Prosperity, 2013)
£80.0bn
Student spending supported over £80 billion
of UK economic output.
(Source: NUS, Student Contribution to
the UK Economy, 2013)
£8.3bn
International students contributed £6.3 billion in living expenses
and £3.9 billion in tuition fees to the UK economy in 2012/13.
(Source: HM Government, International Education: Global Growth and Prosperity, 2013)
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The UNITE Group plc Annual Report and Accounts 2013 11
Strategic report Corporate governance Financial statements Other information Strategic report
Chief Executive’s strategic review
A year of progress
Total return on equity
Components of total return
Adjusted EPS yield on NAV
Capital growth
Development profits
Other*
Total return**
2013
3.9%
4.4%
4.1%
2012
2011
2010
3.1%
5.4%
4.6%
0.9%
4.9%
7.0%
0.7%
6.6%
6.5%
(1.9)%
(1.8)%
(4.7)% (2.2)%
10.5%
11.3%
8.1%
11.6%
*
Other factors comprise swap close outs, UCC performance fee and impact of convertible bond and share
placing in the current year. In prior years this has also included UMS performance and closure costs.
** NAV growth plus interim and declared final dividend.
Throughout 2013 we continued to deliver the clear,
consistent strategy that has underpinned performance
since 2010. This strategy has been based on three priorities:
• To grow recurring profit and cash flow through a
combination of rental growth, new openings and cost
savings, while building an increasingly strong brand
• To enhance portfolio quality through a programme of
highly selective developments, focusing on London and
strong regional locations, together with the disposal of
non-core assets, and
• To strengthen the Group’s capital base.
We made good progress on all fronts and this is reflected
in our key financial indicators:
Financial highlights
NPC
EPRA earnings per share
Adjusted earnings per share (pre
UCC performance fee)
NAV per share (adjusted, fully diluted)
Full year dividend declared
Total return (NAV growth plus
dividends)
See-through LTV ratio
2013
2012
£25.6m £19.1m
18.0p
13.6p
382p
4.8p
9.9p
9.9p
350p
4.0p
10.5% 11.3%
49%
52%
Operating cash flow
£23.2m £17.2m
The business has now delivered an average total return on
equity of 10.4% per annum over the past four years. This is
in line with our stated objective of delivering low double digit,
balanced total returns and has been achieved against a
difficult economic backdrop.
Adjusted earnings (pre UCC performance fee) now account
for 37% of returns, compared to 6% in 2010, and we are on
track to achieve our strategic target of a 4.5% EPRA EPS
yield on opening NAV for 2015. Dividends for the full year
are 4.8 pence per share, a 20% increase on 2012, and
are 2.7 times covered by operating cash flow.
Capital structure
The substantial progress we made in 2013 with our financing
activity was particularly encouraging. Across the course of the
year our team secured £1.1 billion of new debt facilities either
on behalf of co-investment vehicles or on the UNITE balance
sheet, with a further £124 million arranged since the year
end that has brought our principal refinancing activity to
a conclusion. This has enabled us to take advantage of
historically low interest rates for the longer term while
also improving the diversity and flexibility of our funding.
Taking into account the post year end activity, our average
cost of debt is now 4.7% (2012: 5.5%), materially accretive
to ungeared investment yields at an average 6.5% and
development yields at 9-10%. The weighted average
period to expiry has been extended to 7.1 years (2012: 4.1
years), providing certainty of financing costs for the longer
term. Our loan-to-value ratio fell to 49% from 52% at
December 2012 and we intend to continue reducing
this over time towards 40% as future capital growth and
development profits increase the Group’s equity base.
Simplification of our co-investment vehicles remains a priority
for 2014. In December we crystallised our UCC performance
fee which will be re-invested into additional units and increase
our stake in UCC from 30% to 34%. We are progressing
the planned sale of our OCB joint venture, the proceeds of
which will be invested in increasing our stake in UCC
further, and once our stake in UCC reaches 50% it will
be merged with LSAV, thereby reducing the number of
co-investment vehicles from four to two. We have entered
into an exclusivity agreement with a credible prospective
purchaser of the OCB assets at a level supportive of current
valuations. Due to its relative complexity, the planned sale
has taken longer than originally expected but we are
confident that a sale will be concluded later in 2014.
Portfolio activity
In June we raised £51.2 million of new equity by way of a
share placing to part-fund a highly targeted £125 million
regional development programme. We have subsequently
made very good progress in committing this new capital
with approximately 70% already committed to three new
12 The UNITE Group plc Annual Report and Accounts 2013
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projects, subject to planning and expected to be delivered
in 2016. The remainder is allocated to a fourth project
where we are in exclusive negotiations. The prospective
returns from this activity are attractive, with yields on cost
in the region of 9.5% to 10%.
This regional development programme supplements our
ongoing London development activity being undertaken by
LSAV, our 50/50 joint venture with GIC. LSAV also made
good progress in the year with additional sites and planning
consents secured. Its target £330 million development
programme is now 60% committed with all funding in place
and returns expected to be in the region of 9% yield on cost.
The combined effect of our London and regional
development programme on future growth prospects is
significant. If our return expectations are achieved, the
secured development pipeline will add 39 pence (10%)
to adjusted NAV per share and 13 pence per share (96%)
to recurring EPRA EPS once completed. Projects where
the Group is in exclusive negotiations could add a further
6 pence and 1 pence to NAV per share and EPS respectively.
Development costs in London are increasing (both
for land and build) whereas in strong regional locations
they remain low and are currently showing little sign of
inflation. As a result of this and the encouraging demand
outlook we currently favour new development in strong
regional locations over London. We expect these
favourable conditions to persist in the regions for
the next 12 to 18 months.
Investor interest in the student accommodation sector is
broadening and deepening and 2013 was another year of
healthy transaction volumes. We expect to see continued
activity throughout 2014 and this is likely to translate into
stronger yields as the year progresses. However the relative
lack of liquidity in the sector when compared to other sub
sectors of the property market mean that yield movements
in general are likely to lag the wider market to some extent.
Brand and operating platform
Over the past few years we have increased the levels of
recurring profit and cash flow from our operating business
materially, evidenced most clearly by the increase in NPC
from £4.1 million in 2010 to £25.6 million in 2013. Over
this period the operational portfolio has only increased
in size by 3%; the improvement in profitability has been
delivered through a combination of rental growth, portfolio
recycling and cost efficiences. However, most importantly
our improvements have been supported by consistent
enhancements to service levels.
Our cost base has been tightly controlled but has
significant capacity. Since 2010, our NOI margin has
improved from 69.8% to 71.4% and net overheads (after
deducting fees received from co-investment vehicles)
have fallen by 25%, from £11.2 million to £8.4 million.
These efficiency gains have been achieved without
impairing operational capacity and we continue to
believe that our operating platform is capable of managing
approximately 60,000 beds at minimal additional cost.
Service satisfaction levels again increased to highest
ever levels in 2013, reflecting students’ appreciation of
the improvements we have made. Targeted investments in
technology and processes, such as mobile working, have
allowed us to free up front-line staff to spend more time on
high customer impact duties, such as longer opening hours
and more rapid maintenance response, while also reducing
overall operating costs. We have also invested consistently
in our estate, including the installation of high speed Wi-Fi
throughout our buildings and our ongoing lifecycle investment
programmes, again improving customers’ experiences.
For 2014 we have a clear plan of further upgrades to our
service proposition, all of which is deliverable within the
framework of our financial plans. These improvements
are built on our brand promise to provide a ‘Home for
Success’ and we are confident that they will further
differentiate us positively from our competitors.
Outlook
The substantial progress we have made in the areas of
capital structure, portfolio quality and operating platform
combine to support our growth prospects for the next few
years. We have a strong capital base, attractive secured
development pipeline, scalable operating business and
market leading brand.
At the same time, the market outlook for the student
accommodation sector is the most positive that it has
been for a number of years. UCAS applications data
shows an increase in University applications of 4% year
on year and applications from non-EU students and UK
school leavers, both core markets for UNITE, are at record
highs. Government policy is supportive of rising student
enrolment, Universities are increasingly looking to the
private sector for solutions, investor interest is increasing
and development costs remain comparatively low.
The performance of the business in the early part of 2014
supports this outlook. In particular, reservations for 2014/15
stand at 64% (2013: 62%) and we are experiencing
increased demand from all customer segments (re-
bookers, new customers and University referrals) through
both on-line and off-line channels. Pricing is supportive of
our 3% rental growth guidance for the full year, our cost
reduction activity has been largely concluded and we
have three new properties on schedule to be opened for
the 2014/15 academic year. The combination of these
factors gives us confidence that in 2014 we will continue
to deliver strong performance and growth.
Mark Allan
Chief Executive Officer
6 March 2014
1420-1 UNITE AR_1.Strategic_v14.indd 13
02/04/2014 17:59
The UNITE Group plc Annual Report and Accounts 2013 13
Strategic report Corporate governance Financial statements Other information Strategic report
Business model and strategic priorities
Creating long-term value
Creating long-term value
Our focused business model seeks to deliver low double digit returns and sustainable, growing cash flows
by being the most trusted brand in the sector, having the highest quality portfolio and maintaining a strong
capital structure. Maintaining strong relationships with University partners, customers and employees is
also crucial to our success.
Operations
Our Operations business unit is responsible for running our 130
properties, including those managed and operated on behalf of
our co-investment vehicles. Operations adds value by:
• Delivering operating cash flow, net portfolio contribution and profit through
rental income and delivery of our service platform
• Differentiating UNITE from its competitors by ensuring our service meets and
exceeds the needs of students and Universities and provides a safe and secure
environment for students and employees alike
• Delivering sustainable annual growth in rental income and profits, increasing
the value of our investment portfolio
• Ensuring our infrastructure is able to support cost saving and
service improvement initiatives such as mobile working
• Earning a management fee for operating all properties on behalf
of our co-investment vehicles.
We measure progress in this business unit through earnings per share, operating
cash flow, customer satisfaction, Higher Education trust and safety benchmarks
each year.
Property
Our Property business unit is responsible for our development
and asset management strategy as well as overseeing the fund
management processes for each of our four co-investment vehicles.
The Property business adds value by:
• Identifying and managing the delivery of new development opportunities to
promote sustainable growth
• Maintaining and enhancing the value of our investment assets through targeted
asset management activities
• Identifying and managing asset disposal opportunities, generating capital for
re-investment into the portfolio, new development activity.
The key metric for the Property business is net asset value (NAV) per share.
14 The UNITE Group plc Annual Report and Accounts 2013
1420-1 UNITE AR_1.Strategic_v14.indd 14
02/04/2014 18:00
Further reading
Strategic report
Our risk management framework
Embedding a risk
management culture
Our Group strategy targets low double digit returns with
low risk. The Board, when setting the Group’s strategy
and overseeing its implementation, also determines the
nature and extent of the significant risks in this strategy
and ensures that sound risk management and internal
control systems are in place commensurate with the risk.
The Board undertakes a formal risk review at least twice
a year at Group Board meetings. This involves a thorough
risk review of UNITE’s material risks (presented by the
Risk Committee’s Chair, Joe Lister) and also serves as an
opportunity to step back and consider any emerging risks.
The culture of the organisation, set by the Group Board,
is to ensure ‘Risk Trackers’ are maintained which clearly
scope out the risks and their impact, and assign an
accountable person to own and manage each risk.
This risk tracking approach is embedded within UNITE
and leads to a real, tactile and substantive approach
to risk management.
Risk management framework
Risk Committee
• J J Lister
(Chair of Risk Committee and
Chief Financial Officer)
• R C Simpson (MD Property)
• R S Smith (MD Operations)
• M Creedy (MD Fund Management)
• S Taylor (Internal Audit)
• C R Szpojnarowicz
(Company Secretary/Head of Legal)
Policies and Controls
(such as Capital Operating
Guidelines; Treasury Policy;
Anti-Bribery Policy; Major
Investment Approvals
Committee and the internal
controls framework)
The Group’s Risk Committee, which meets quarterly,
serves as a bridge between the Business Unit boards
and the Group Board, and allows a focused forum for
risk review. It thoroughly reviews, and scrutinises, the
Business Unit Board’s risk management plans and also
helps ensure these business risks are being considered
holistically, providing a conduit for the free flow of
information on risk across UNITE’s business units. The
Risk Committee also monitors Group policies and the
most important controls as well as prioritising other risk
management activities.
Risk Oversight
Owned by the Board
and its Committees
Twice yearly formal risk
review and regular review
of risk integral to board
meetings
Risk Management
Owned by the Risk
Committee and the
Business Unit boards
Monthly Risk Tracker review
at Business Unit boards
Risk Committee
quarterly review of all
Risk Trackers
People – embedded risk
management culture
Openness, transparency and
clear ownership of risk
management (through Risk
Trackers) cascades through
the organisation
Strategic report
Principal risks and uncertainties
Strategic report
Corporate governance
Financial statements
Other information
Strategic report
Operations review
Building on our achievements
Strategic report
Corporate governance
Financial statements
Other information
Strategic report
Property review
Building on our achievements
Strategic report
Corporate governance
Financial statements
Other information
Strategic report
Financial review
A year of results
Strategic report
Corporate governance
Financial statements
Other information
Risk and Impact
How we manage the risk
Change from
last year
What happened in the year
Market risks
Changes in Government policy
(such as on HE funding and
immigration) may affect student
numbers and behaviour.
May reduce demand and hence
profitability and asset values.
On-going monitoring of Government
policy and its impact on, and
forecasts of, student numbers whilst
in parallel regularly reviewing our
portfolio to ensure we are
appropriately sized in the right
locations.
Significant volume of new entrants,
particularly in London, may lead to
over-supply in certain markets.
May result in price cutting by
competitors in certain markets
to fill voids.
UNITE focus and strategy:
• supply/demand imbalance
• exposure to best Universities
• seeking out opportunities, not
only in London but also across the
UK, for development in select
cities where the supply/demand
metrics and land & build costs
bring value to our portfolio
• more affluent customer base
including overseas students
• strong sales and marketing
expertise
• development of affordable
product
• flexible approach to tenancies
Student numbers in the UK recovered strongly
after disruption in Government policy changes
affected the 2012/2013 University year.
Occupancy of 98% for 2013/2014 academic
year, compared to 96% in 2012/2013,
demonstrates this recovery in student numbers
is translating into occupancy.
Underlying demand for HE study in the UK
remains extremely strong (the UK continues
to be the 2nd most popular).
To read more go to page 9.
The Government’s announcement in the 2013
Autumn Statement that the cap on student
numbers will be abolished supports growth in
student numbers.
Student intake for 2013/2014 at least
30,000 higher than 2012/2013, representing
a 6% increase.
To read more go to page 9.
Macro issues such as an EU
referendum (leading to the UK leaving
the EU) or Scottish independence.
On-going monitoring of these macro
issues to ensure we are prepared
for any macro changes.
Departure from EU may impact our
non-UK EU student business.
Scotland independence may add
complexity to our business.
Property markets are cyclical and
performance depends on general
economic conditions.
Forecast rental growth and
recurring profit offsets any yield
movement.
Reduction in asset values reducing
financial returns.
Clear and active asset management
strategy.
Our principal risks are highlighted in blue
The UK’s position on an independent Scotland
retaining the Pound Sterling and whether an
independent Scotland would need to re-apply
for EU membership have become clearer
during the year. We will continue to monitor
these developments and proactively ascertain
what this means for our business so we are
ready to manage any change accordingly.
The UK is experiencing a more positive
economic outlook and there is general
improvement in strength of the UK’s
commercial and residential property markets.
Maximising portfolio value through programme
of refurbishments and extensions. Customer
satisfaction at highest ever levels supporting
rental growth.
“Our activity
over the next 24
months will further
differentiate UNITE
and ensure we
provide a home
for success…”
2013 has been a year of achievement for UNITE, from which we look to build
on in the coming year. Our recurring profit has been transformed from a loss
of £5.4 million five years ago to a sustainable £25.6 million which is largely
cash backed, our customer service is improving and is consistently strong
across the business, we are working more closely and effectively with our
Higher Education partners, and reservations for the next academic year are
ahead of this time last year. Most importantly, we’ve achieved all this alongside
our highest ever customer and employee satisfaction scores.
The majority of UNITE’s 1,000 employees sit within our Operations business
unit and they are key to our success. We delivered substantial efficiencies and
operational improvements during 2013, the scale of change which can cause
staff to become dejected. However, the outstanding people within UNITE have
embraced the changes. In 2013, we provided a clear career path through
accredited training courses, introduced timesaving technology and taught staff
the real skills required to deliver outstanding customer service.
Our processes and technology were also a focus during 2013. Perhaps our
most significant step change was the installation of high speed Wi-Fi
throughout all our properties, an important milestone and considered to be a
hygiene factor by our customers. We reviewed all our key processes through
the lens of customer service to ensure they are effective and efficient and used
technology to remove administrative burden, making us an easier company to
do business with.
Looking ahead, we will continue the work we started in 2013 with further
investment in our digital offering, our service platform and our brand. We
do this in the context of positive investor sentiment towards the student
accommodation sector and favourable Government policy following two years
of funding cuts, fee increases and uncertainty. Our activity over the next 24
months will further differentiate UNITE and ensure we provide a home for
success – a place that students seek out because we help them achieve
more in their University life.
Richard Smith
MD Operations
Sales, rental growth and profitability
Our strong performance continued throughout 2013,
resulting in a £6.5million, 34% increase in NPC to
£25.6 million compared to last year (2012: £19.1 million).
This growth has been driven by high occupancy, rental
growth and the impact of portfolio movements as well
as operational efficiencies and ongoing cost discipline.
Adjusted profit (pre UCC performance fee) increased
by £7.2 million to £23.1 million or 13.6 pence per share
compared to 2012 (December 2012: £15.9 million,
9.9 pence per share).
Summary profit and loss account
Total income from managed
portfolio
UNITE share of rental income
UNITE share of operating costs
Net operating income (NOI)
2013
£m
2012
£m
240.7
240.2
113.4
(32.4)
81.0
111.4
(32.3)
79.1
NOI margin
71.4%
71.0%
Management fee income
Operating expenses
Finance costs
Net portfolio contribution
UCC performance fee
Development pre-contract/
share option and other costs
EPRA earnings
Adjusted profit (pre UCC
performance fee)
EPRA EPS
Adjusted EPS (pre UCC
performance fee)
Adjusted EPS yield (adjusted
EPS/opening NAV)
10.6
(19.0)
(47.0)
25.6
7.5
(2.5)
30.6
23.1
18.0p
13.6p
10.3
(21.8)
(48.5)
19.1
–
(3.2)
15.9
15.9
9.9p
9.4p
3.9%
3.1%
Total income from the managed portfolio increased to
£240.7 million (2012: £240.2 million) driven by rental
growth and increased occupancy, offset by the reduction
in the number of managed beds as a result of non-core
disposals.
The Group’s NOI margin increased to 71.4% from 71.0%
in December 2012 as we delivered further efficiencies
and productivity improvements, while improving our
service and the quality of our estate through targeted
investment. Overheads reduced by 13% to £19 million
as a result of the full year impact of efficiency savings
flowing through and our key overhead efficiency measure
(total operating expenses less management fees as a
proportion of UNITE’s share of investment asset value)
has also benefited from these efficiencies, having now
fallen to 61 bps (December 2012: 92 bps), in line with our
target of 60 bps. This will deteriorate marginally when we
exit our OCB joint venture and increase our stake in UCC
but we intend to maintain 60 bps as our ongoing target.
Finance costs (comprising interest and lease payments)
fell to £47 million (2012: £48.5 million), reflecting the fall
in the Group’s average cost of debt as various refinancing
events were completed while development pre-contract
and other costs fell £0.7 million to £2.5 million. EPRA
earnings includes a one-off receipt of £7.5 million
performance fee from UCC following the completion
of refinancing within the joint venture.
visits and bookings. Similarly, the latest iteration of our
mobile working device for service teams has reduced
more time-consuming activity, and provided clarity and
transparency to customers regarding inspections,
maintenance requests, and room charges.
University relationships
The creation of our specialist University Partnerships
Team at the start of 2013 is proving successful, with
stronger relationships now in place with our most
significant University partners and new relationships
being established. This has opened doors for more
strategic discussions about future ways of working.
Occupancy and rental growth
Occupancy across UNITE’s portfolio for the 2013/14
academic year stands at 98% and like-for-like rental
growth of 3% was achieved on our stabilised portfolio.
The number of students enrolling at UK Universities
increased by 37,000 on 2012/13 levels, recovering
much of the previous year’s drop and contributing to
the overall strong occupancy and rent performance.
Reservations for the 2014/15 academic year are
encouraging, standing at 64% (62% at the same point last
year), and recent Government announcements together
with the continued attraction of the UK as a destination
for international students, suggest a further increase in
the number of new students next year of around 20,000.
This provides us with further confidence in occupancy
and rental levels for the 2014/15 academic year, which
we again expect to show rental growth of around 3%.
Investment in people, technology
and relationships
Over the past few years we have invested carefully in
building and retaining the expertise of our staff; utilising
technology as a way to both enhance service levels and
reduce operating costs; and in increasing and maintaining
our profile in the University sector, building on the strong,
long standing relationships we have in a number of cities.
Building on our long track record in the sector, these
investments have formed strong foundations from which
we will continue to build our brand.
People
The knowledge, commitment and competence of our staff
base continues to be at the heart of our performance,
and during 2013 we made further investments in learning
and development to provide clear career progression
opportunities for all roles and grades. The empowerment
of our teams, has progressed further, with city managers
encouraged to make the right decisions for students to
improve the experience of living with UNITE, and this has
been reflected in our highest ever customer satisfaction
scores, in both our Spring and Autumn independent surveys.
Technology
We have made further improvements to our online
booking platform throughout the year, driving additional
Our presence in the Higher Education sector has become
yet more substantial, and we have presented or spoken at
a wide range of events and conferences, and launched
high-profile research publications undertaken in-house,
which have stimulated healthy levels of interest and
engagement from Universities and sector groups. We will
build on this further in 2014.
Student numbers
Around 37,000 more students started degrees in the
2013/14 academic year than the year before, substantially
reversing the drop seen in 2012/13. This was partly due to
the Government’s relaxation of the student number caps
applied to University enrolment but also the positive impact
of deferrals returning to normalised levels. Acceptances
were up year on year across all student groups, with UK and
non-EU students showing the healthiest increases, further
underlining the structural robustness of the student sector.
Operations outlook
Our Operations business continued its strong
performance against all key measures throughout 2013.
High occupancy, consistent rental growth and portfolio
recycling, combined with the successful embedding of
cost efficiencies, continued to drive sustainable profit
growth, alongside further improvements to service levels
and the experience we provide for our students.
We are continuing to invest in our operating platform and
expanding our digital presence, recently launching new
smartphone apps and online community features to
further increase the strength of our brand and competitive
advantage. Having completed the installation of Wi-Fi
throughout all our properties in the summer of 2013, we
are looking to increase broadband speed significantly for
the new academic year, and have also appointed a partner
to install LED lighting across our portfolio over the next
two years. This will reduce our operating costs and carbon
footprint while further improving our students’ experience.
As the student accommodation market continues to
mature, the combination of our continued investment in
brand and service driving rental growth, coupled with a
growing portfolio as new properties are completed, will
underpin further profit growth for 2014 and we continue
to target a 4.5% EPS yield for 2015.
“voluptatur molesci
amendis id maiosam
net pedigendae laut
as voluptatur
molesci amendis id
maiosam”
NAV growth
Adjusted NAV per share increased by 9.1% to 382 pence
(on a fully diluted basis) at 31 December 2013, up from
350 pence at 31 December 2012. In total, adjusted net
assets were £682 million at 31 December 2013, up from
£567 million a year earlier.
The main factors behind the growth in adjusted NAV per
share were:
Our Property business unit comprises Asset Management and Property
Development, who support our operational colleagues in maximising our
existing portfolio as well as seeking out new opportunities for growth. I also
look after our Fund Management team who manage our four co-investment
vehicles. Our Property business has had the same core team for the last ten
years; we are a lean operation of 22 people. This same ten-year period has
seen a great deal of volatility in the property sector, but the team’s wealth of
expertise and the strong fundamentals of the student accommodation sector
have enabled UNITE to take full advantage of market conditions.
While tentative signs of general economic recovery slowly felt during 2013, the
Higher Education sector demonstrated good fundamentals with a bounce back
in student numbers for the 2013/14 academic year which brought overall
student levels back in line with those seen in 2011. Against this positive
backdrop, demand for exposure into purpose built student accommodation
increased too. Our development activity continued to build strong momentum
both in London and also across the UK. We secured several new projects in
London, through our JV with GIC, which are high quality locations and will be
significantly accretive to returns. Overall, these projects will account for around
60% of the capital we’ve identified for deployment into development activities.
Timing for these and prior years’ acquisitions was strong. Subsequently,
London is displaying development cost inflation and an increase to barriers to
entry. In response to this, our strategy evolved to include wider UK development
projects and we’ve made good progress in building a high quality pipeline of
future projects, accounting for the full proceeds raised over the summer for
this purpose .
Our asset management saw UNITE’s remaining non-core assets sold or
contracts exchanged. Our portfolio is now 100% student accommodation. Four
refurbishment or extension projects were undertaken in the year, which
alongside other initiatives delivered an NAV upside of around £7 million.
This proven track record in challenging conditions positions us well for the
future as we continue to feel the impact of economic recovery. With the market
outlook strengthening in terms of student numbers, investor interest in the
student accommodation sector and regional development costs still low, I’m
confident the energy and expertise of my team will continue to give UNITE
clear competitive edge.
Richard Simpson
MD Property
• The growth in the value of the Group’s share of
investment assets (+16 pence), as a result of rental
growth, some yield compression and asset specific
write downs associated with the disposal of legacy
NHS assets;
• The value added to the development portfolio
(+14 pence)
• The impact of financing activity (-6 pence), related
primarily to swap breakage costs, partially offset by
the positive impact of our convertible bond issuance
• The positive impact of retained profits after dividends
(+14 pence)
• The impact of the £50 million equity issue in June
(-6 pence).
Looking forward, our portfolio is well placed to deliver
continued 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 projects, comprising
1,555 beds and accounting for approximately 70% of
the proceeds of our June share placing, secured under
contract in strong regional locations and are in exclusive
negotiations on a fourth. In addition, 60% of our target
LSAV pipeline has also been secured across three
London projects comprising 2,350 beds.
In total, our secured pipeline is expected to deliver
39 pence per share of NAV uplift once completed if
expected returns are achieved (UNITE share). Projects
where the Group is in exclusive negotiations could add
a further 6 pence. The development pipeline will have
an even more significant positive impact on EPS once
delivered with the secured projects adding 13 pence
and those where the Group is in exclusive negotiations
a further 1 pence.
Property portfolio
The valuation of our property portfolio at 31 December
2013, including our share of gross assets held in USAF
and joint ventures, was £1,370 million (31 December
2012: £1,245 million). The £125 million increase in
portfolio value was attributable to £76 million of capital
expenditure less disposals of £14 million and £63 million
of valuation increases. The valuation of the stabilised
investment portfolio increased by 3.0% on a like-for-like
basis over the year, primarily as a result of rental growth.
Summary balance sheet
Rental properties
Properties under development
Adjusted net debt
Other assets/(liabilities)
Adjusted net assets
2013 £m
Wholly
owned
Fund/JV
767
180
947
(470)
(24)
453
Total
1,175
195
1,370
408
15
423
(196)
(666)
2
229
(22)
682
2012 £m
Fund/JV
399
–
399
(195)
(7)
197
Wholly
owned
763
83
846
(453)
(23)
370
Total
1,162
83
1,245
(648)
(30)
567
The proportion of our property portfolio that is income generating decreased to 86% from 93% at December 2012,
with 14% now under development. This reflects the progress with our 2014 and 2015 development programme as well
as the commitment of capital to 2016 deliveries. The development weighting will continue to increase over the next
year as our activity in this area accelerates and our remaining non-core investment assets are sold. We expect the
development weighting to peak at approximately 20% in 2015.
UNITE investment portfolio analysis at 31 December 2013
London
Major provincial
Provincial
Total
Value
(£m)
Beds
Value
(£m)
Beds
Value
(£m)
Beds
Value
(£m)
USAF
190
UCC
353
LSAV
51
OCB
173
Wholly
owned
Lease
Total
UNITE
share
274
0
1,041
479
1,425
2,268
528
1,128
1,910
324
7,583
41%
945
36
16,551
333
220
3,732
1,355
0
–
0
–
0
–
0
–
0
–
333
0
1,314
499
5,773
2,147
24,804
42%
161
0
381
197
389
51
173
768
–
3,168
1,785
8,685
2,736
17%
1,175
Beds
21,708
2,601
UNITE ownership share
UNITE ownership (£m)
16.4%
30%
221
117
528
50%
26
1,128
10,851
4,256
41,072
100%
25% 100% 100%
–
43
768
–
1,175
The investment portfolio is split between London (41%) and the rest of the UK (59%). At the beginning of the year,
London projects would have represented approximately 50% of the UNITE portfolio on a built out basis. However, the
acceleration of our regional development activity during 2013 means that our built out London weighting has fallen
marginally to around 48% by the year end.
We currently favour new development in strong regional locations over London and as a result it is likely that our built
out London weighting will fall further, to around 40%, as our regional development pipeline expands.
“We transformed the
capital structure of
the business,
securing long term
funding that will
support our growth
aspirations…”
In 2013 we delivered growth in all of our key financial metrics. Profits, cash flow
and NAV growth mean that UNITE is well positioned to look forward with
increasing confidence. The outlook for further rental growth and new beds
opening in 2015 and 2016 mean we have good visibility about the future
growth of the business.
In 2013, we transformed the capital structure of the business, securing long
term funding that will support our growth aspirations. The £51 million share
placing that was completed in June has allowed us to secure new development
sites in strong regional University cities. The three sites in Edinburgh, Aberdeen
and Newcastle together with a fourth site that is under offer, mean that the
proceeds from the placing are now fully deployed. We also secured over £1.1
billion of new debt finance on behalf of the Group and our co-investment
vehicles. This new debt has been secured from a variety of sources and has
resulted in cheaper finance and longer debt maturities.
We have continued to work closely with our co-investment partners to set and
deliver the strategies across all of the co-investment vehicles. Looking
forward, we are well positioned to take advantage of the favourable conditions
in our market, with a strong, stable and flexible capital structure.
Joe Lister
Chief Financial Officer
Income statement and profit measures
NPC and EPRA Earnings are the key profitability
performance measures for the Group. The detail of this
performance is set out in the Operations Review section
of this report.
Net portfolio contribution
EPRA earnings profit
Adjusted profit (pre UCC
performance fee)
Profit before tax
EPRA earnings per share
Adjusted earnings per share
(pre UCC performance fee)
2013 £m
2012 £m
25.6
30.6
23.1
19.1
15.9
15.9
77.1
126.2
18.0p
13.6p
9.9p
9.9p
EPRA earnings of £30.6 million for 2013 (2012:
£15.9 million) includes the one-off receipt of a £7.5 million
performance fee from UCC following the completion
of refinancing within the joint venture. Excluding this
amount, adjusted profit (pre UCC performance fee) was
£23.1 million or 13.6 pence per share (2012: £15.9 million
and 9.9 pence per share).
Profit before tax includes valuation gains and profit/loss
on disposal of investment properties of £46.9 million
(2012: £59.7 million). In 2012, a gain of £49.7 million was
also included in profit before tax as a result of the one-off
transfer of stock properties to investment assets.
A full reconciliation of NPC to Adjusted Profit and our
Reported Profit before Tax is given in Section 2 of the
financial statements.
Tax
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. A net deferred tax
asset of £0.6 million has been recognised in the Group’s
balance sheet representing the amount of tax that the
Group believes it will be able to offset over the next three
years with its brought forward losses. Deferred tax assets
of a further £9.6 million have not been recognised in the
Group’s balance sheet due to the uncertainty of future
profits in the relevant companies and the ability to offset
the losses against them. The existence of the brought
forward losses means that the Group is unlikely to incur
meaningful levels of tax within the next three years.
Cash flow and net debt
The Operations business has generated £23.2 million of
net cash in 2013 (2012: £17.2 million) and see through
net debt increased to £666 million (2012: £648 million).
The key components of the movement in net debt were
inflows from the share placing (£50 million), operational
cash flow (£23 million) and disposal proceeds (£14
million) less outflows related to swap break costs of £18
million and capital expenditure investment of £76 million.
Dividend
We are recommending a final dividend payment
of 3.2 pence per share, (2012: 3.0 pence), making
4.8 pence for the full year, 0.8 pence per share higher
than 2012 (2012: 4.0 pence), an increase of 20%.
The increased dividend is a result of strong earnings
growth and maintains our dividend pay-out ratio of one
third of NPC (NPC being a proxy for cash generation
in the business). At this level the dividend is 2.7 times
covered by operating cash flow.
Subject to approval at UNITE’s Annual General Meeting
(AGM) on 15 May 2014, the recommended final dividend
will be paid on 19 May 2014 to shareholders on the
register at close of business on 16 April 2014.
Share placing
We completed a placing of 16 million new ordinary shares
in June at a price of 320 pence per share, raising net
proceeds of £50 million. The proceeds are being used to
fund a highly targeted regional development programme
and this capital should be fully committed to projects
during the first quarter 2014 and we expect those
projects to be completed in 2016.
The placing has reduced NAV at 31 December 2013 by
6 pence per share due to the additional number of shares
in issue. This modest NAV dilution is expected to unwind
in 2014 and become substantially accretive from 2015 as
profitable new developments are delivered. From an EPS
perspective, the impact across 2013 was broadly neutral
as the placing proceeds were immediately deployed to
reduce debt levels on revolving facilities, thereby saving
interest costs.
Debt financing
During 2013 we maintained our focus on reducing
gearing levels, extending debt maturities, diversifying
sources of capital and reducing financing costs, and
have had some important successes. We completed
over £1.1 billion of refinancing during 2013 and have
concluded a further £124 million facility since the year
end. Consequently the Group’s refinancing activity is now
largely complete. All key debt statistics have improved
significantly as a result of this activity:
Key debt statistics (see through basis)¹
Adjusted net debt
Adjusted LTV
2013
2012
£666m £648m
49%
52%
Average debt maturity
7.1 years
4.1 years
Average cost of debt
Proportion of investment debt
hedged
4.7%
86%
5.5%
88%
Proportion of unsecured debt
27%
15%
¹ Key debt statistics are shown on a proforma basis to include the
impact of refinancing completed in January 2014.
Debt maturity and LTV
As a result of the refinancing activity, the Group’s debt
maturity profile has improved significantly and the
weighted average loan maturity is 7.1 years (2012: 4.1
years). The Group’s see through LTV reduced to 49% at
31 December 2013 from 52% at the end of 2012. We will
continue to manage our gearing proactively and intend to
continue reducing this over time towards 40% as future
capital growth and development profits increase the
Group’s equity base.
Covenant headroom
We were in full compliance with all of our borrowing
covenants at 31 December 2013. Our debt facilities
include loan to value and interest cover covenants that are
measured at both a Group and an individual portfolio level
and we have maintained significant headroom against all
measures. Covenant headroom will reduce
as surplus capital is deployed into new development
opportunities but we intend to maintain substantial
headroom against all covenants.
Interest rate hedging arrangements
and cost of debt
Our see through cost of debt has reduced to 4.7% (2012:
5.5%), primarily as a result of the USAF bond and other
financing activity, and the Group now has 86% of its see
through investment debt subject to a fixed interest rate
(31 December: 88%). The Group cancelled certain
interest rate swaps in the year as part of its refinancing
activity, resulting in a £17.9 million reduction in adjusted
profit (2012: £10.6 million). This reflected our decision
to accelerate the remainder of some refinancing activity
to take advantage of the low interest rate environment.
This resulted in swap cancellation costs being incurred
in 2013, slightly earlier than anticipated.
As the Group’s refinancing activity is largely complete,
swap breakage costs will be much lower in future years.
We anticipate a further £2-3 million of such costs in 2014
and, in total, the cancellation costs incurred across 2013
and 2014 will be in line with management expectations
and previous guidance.
26 The UNITE Group plc Annual Report and Accounts 2013
The UNITE Group plc Annual Report and Accounts 2013 27
30 The UNITE Group plc Annual Report and Accounts 2013
The UNITE Group plc Annual Report and Accounts 2013 31
32 The UNITE Group plc Annual Report and Accounts 2013
The UNITE Group plc Annual Report and Accounts 2013 33
38 The UNITE Group plc Annual Report and Accounts 2013
The UNITE Group plc Annual Report and Accounts 2013 39
Risk management framework
Find out more on page 26.
Operations review
Find out more on page 30.
Property review
Find out more on page 32.
Financial review
Find out more on page 38.
Capital structure
A strong, stable and flexible capital structure is essential to support
our growth aspirations and to ensure we can deliver our strategy.
We achieve this by:
• Proactively managing the Group’s borrowings, ensuring they are structured
appropriately to support the strategic objectives of the business
• Securing equity and new debt facilities to fund development activity
• Diversifying UNITE’s sources of capital to reduce risk
• Simplifying the capital structure of the business.
We measure the strength of our capital structure through loan-to-value (LTV),
weighted average loan maturity and cash.
Relationships
Our business model is reliant on us having strong relationships with
Universities, our suppliers and partners, and behaving with integrity
in our relationships. We achieve this by:
• Having a customer-focused approach
• Working closely with our Higher Education partners to provide a seamless
service to their students and tailoring our service to meet their needs
• Working strategically with University leaders to partner with them in the
realisation of their estates and residences strategies
• Developing our employees and building a high-performance culture that
supports them in achieving their personal and professional potential.
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The UNITE Group plc Annual Report and Accounts 2013 15
Strategic report Corporate governance Financial statements Other information Strategic report
Business model and strategic priorities
The right strategy
for growth
Key performance indicators (KPIs)
The three priorities of our strategy are
reflected in our KPIs, earnings per share,
net portfolio contribution, net asset value per
share and loan-to-value. We also have two
operational KPIs which relate to our strategy,
customer satisfaction and HE Trust.
Find out more on page 24.
Keys risks to manage
Among the risks for our business, our
Risk Committee has identified five priority
areas which relate to our ability to deliver our
strategy. These risks are constantly monitored
by UNITE’s relevant business unit and the
Board undertakes a formal risk review at
least twice a year.
Find out more on page 27.
Corporate responsibility
We recognise that all businesses have a
responsibility to manage their operations in a way
which has a positive impact on all stakeholders and
communities. We take this responsibility very seriously
and believe that forming stronger relationships with
local communities, charities, businesses, Universities,
our staff and the students who live with us, creates
additional value for wider society.
Find out more on page 41.
16 The UNITE Group plc Annual Report and Accounts 2013
Directors’ Remuneration Report
Our Remuneration Policy is aligned with
our principles and strategy. We operate a
simple annual bonus plan and long-term
incentive plan with remuneration aligned
to the creation of shareholder value and
the delivery of the Group’s strategic plan.
Find out more on page 67.
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Strategic priorities
During 2013, we continued to deliver the clear, consistent strategy,
that has underpinned UNITE’s strong performance in recent years.
It has three priorities:
• To grow recurring profits and cash flow through a combination
of rental growth, new openings and cost savings, through our
market leading services platform, while building the most trusted
brand in the sector
Improving portfolio quality:
Throughout 2013 we made good progress on improving the
quality of our portfolio through proactive asset management,
disposing of further non-core assets, progress on our ongoing
London development programme and the announcement of a new,
targeted, regional development programme. Progress includes:
• Announced a targeted £125 million, wholly owned, regional
• To enhance our portfolio quality through a programme of highly
selective developments, focusing on London and strong regional
locations, together with the disposal of non-core assets, and
development programme for which we secured funding (see below),
and we have subsequently made good progress in fully allocating
this capital to four projects.
• To strengthen the Group’s capital base.
By maintaining the most trusted brand in the student accommodation
sector, the highest quality portfolio and the strongest capital structure,
we are delivering sustainable, growing recurring cash flow and
increasing the value of our business each year. One-third of our recurring
cash flow is distributed to shareholders as dividends, two-thirds is
reinvested back into the business to promote sustainable growth.
This year, we made good progress on all fronts.
Market leading service platform:
In 2013 we focused on developing our people, technology and
University relationships in an integrated and sustainable way.
We have driven further efficiency and service improvements
which are measured by our customer satisfaction levels and Higher
Education ‘trust’ score (see page 24 for details of our KPIs) and
we received record-breaking scores for both these KPIs in 2013.
Progress includes:
• Continued investment in our people by providing clear career
progression and accredited training programmes for all levels. We
also introduced cultural training for city-based employees who work
with Chinese students, our largest group of international students.
• Further improvements to our online booking platform, driving
additional visits and bookings. Our latest mobile working device has
improved efficiency and increased transparency for customers on
areas such as room inspections, charging and maintenance requests.
• Our specialist University Partnerships Team, created at the
beginning of 2013, has helped us build stronger and more strategic
relationships with our Higher Education partners. We also increased
our level of engagement at HE sector events, giving more speeches
and presentations, which has helped generate interest in UNITE.
These investments will provide the foundation from which we will
continue to build our brand in 2014. We will continue to invest in our
digital platforms and place an increased focus on the link between
accommodation and success at University.
• Made good progress with our London development programme
though our 50/50 LSAV joint venture, securing three new sites
in 2013.
• Completed the disposal of £75 million of non-core assets.
• Secured planning for 41 additional rooms in a development project
in Bristol, due to open in 2015. We also gained consent for 69 new
rooms in an existing property in Coventry which will be in operation
for the 2014/15 academic year.
• Construction of our three new openings for the 2014/15 academic
year progressed well with all projects on track and on budget.
With development costs in London increasing, we see further
opportunity in strong regional locations over the next 12-18 months,
particularly in light of encouraging demand outlook for student
accommodation (see Market review on page 9).
Sustainable capital structure:
We made substantial progress with our financing activity during
2013. Across the year, we secured £1.1 billion of new debt facilities
either on behalf of co-investment vehicles or the UNITE Group. This
has enabled us to take advantage of historically low interest rates
while also improving the diversity and flexibility of our funding.
Progress includes:
• A successful £51 million share placing in June 2013, to fund a
targeted regional development programme. This capital has now
been deployed, (see page 35) for more information. The remainder
of UNITE’s development programme will be funded by the proceeds
of a convertible bond issue in October which raised £88 million.
• Reduced our average cost of debt from 5.5% in 2012 to 4.7%
and extended the weighted average loan maturity from 4 years
to 7 years.
• Undertook a refinancing programme for USAF, increasing the
Fund’s weighted average debt maturity from 2 years at the start
of 2013 to 9 years, while reducing its total cost of interest from
5.0% to 3.7%.
• Concluded plans to increase our stake in our UCC joint venture
from 30% to 34%, taking us closer to the 50% stake we require
in order to merge UCC with LSAV, our other joint venture with GIC.
During 2014, simplifying our co-investment vehicles remains a priority.
To this end, we will continue to increase our stake in UCC towards
50% and to progress the planned sale of our OCB joint venture.
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Strategic report Corporate governance Financial statements Other information
Strategy in action
18 The UNITE Group plc Annual Report and Accounts 2013
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Market leading service platform Market leading
service platform
We continued to expand our digital presence, using
technology to remove administrative burden and to
make us an easier company to do business with.
We expanded our mobile working programme, adding the ability to perform
check-outs and room inspections on the move to our existing maintenance
app. The new apps helped improve efficiency, reduced the time staff spend
on administrative tasks and enhanced the customer experience. During
2013, mobile working helped our customer-facing teams:
• complete 160,481 inspections
• repair or check 3.6 million items
• take 89,303 photographs during check-out.
160,481
completed inspections
3.6m
items repaired or checked
Upgrades to our National Contact Centre significantly increased the
volume of calls they were able to accept and make. The team:
• took over 100,000 inbound calls
• made 70,000 outbound calls
• generated 21,000 email responses to customers
• scheduled 25,000 maintenance requests
• secured 48% of all our direct let sales.
We established the UNITE Customer Panel, creating an online panel of
more than 500 students with whom we are able to test ideas and get
feedback on proposed improvements.
To help improve internal communication and streamline our operations,
we launched Team Talk, a suite of internal communications channels to help
share information and best practice across the business. Team Talk includes
Team Talk Home, our intranet system, providing employees with a bank of
information and news to access as they need it, ‘Chatterbox’, our employee
online forum, and Team Talk weekly, monthly and termly updates.
We completed the installation of high speed Wi-Fi throughout all our
properties in the summer of 2013 and made further improvements to
our online booking platform which drove more site visits and bookings,
and increased the time visitors spent on our site by 20%.
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The UNITE Group plc Annual Report and Accounts 2013 19
Market leading service platform Strategy in action
20 The UNITE Group plc Annual Report and Accounts 2013
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Improving portfolio quality Improving
portfolio quality
We invested £7.5 million in our regional portfolio,
upgrading ten properties in five cities. The work has
added 52 new rooms, made significant improvements to
three common rooms, and transformed the entrances and
facades of two properties, contributing to £16.8 million in
valuation uplift.
200
electric showers installed
26
football pitches – equivalent to
area of ceilings painted
112,000
hours of work undertaken
1,400
sofas installed
We exchanged contracts on two prime London sites that we will develop
as part of our LSAV joint venture, in Islington and Wembley Park. These
sites will bring 1,597 beds to our London portfolio. The new rooms will be
developed to UNITE’s new room design, which provides a modern, high
quality look and feel, at a very competitive price point.
We also secured three further development sites in Aberdeen, Edinburgh
and Newcastle, a total of 1,555 beds. Work will begin on site next year,
subject to planning, and the properties will open in 2016.
Topping out at Stratford
We celebrated the structural completion of our new London property
in Stratford City, adjacent to the Queen Elizabeth Olympic Park and
Westfield Stratford City shopping centre, with a topping out performed
by Dennis Hone, Chief Executive of the London Legacy Development
Corporation. The 1,001 bedroom development boasts panoramic
views across London and is the first property to be built entirely to
UNITE’s new specification room design.
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Strategy in action
22 The UNITE Group plc Annual Report and Accounts 2013
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Sustainable capitalstructure Sustainable
capital structure
We made substantial progress strengthening our capital
structure during 2013, raising £51 million of equity through
a share placing in June to fund regional developments and
securing £1.1 billion of new debt facilities on behalf of
UNITE and our co-investment vehicles.
This funding activity means that we have sufficient capital in place to
fund our growth plans over the coming years. The refinancing activity
has transformed the profile of our borrowings:
• Extending our weighted average loan maturity from 4 to 7 years
• Reducing our cost of debt to 4.7% (2012: 5%)
• Lowering our LTV ratio from 52% to 49%
• Diversifying our sources of funds with 75% of debt now provided from
non-bank sources
• Improving flexibility with 27% of debt being unsecured.
We have continued to work closely with our funding partners to deliver
a number of innovative and noteworthy funding projects, and the Treasury
Team were recognised for their achievements, being awarded the
Association of Corporate Treasurer’s award for the Treasury Team
of the Year.
Highlights
• UNITE Group plc issued £90 million of unsecured convertible bonds
at a coupon of 2.5%
• UNITE Group plc secured a £124 million ten-year facility from Mass
Mutual for a portfolio of core assets at a cost of 4.5%
• USAF issued £465 million of secured bonds with a 10-12-year maturity
profile, lowering USAF’s average cost of debt to 3.7%
• UCC refinanced its entire debt, with a nine-year £149 million facility
provided by Legal and General and £77 million from RBS
• LSAV secured a £135 million development facility from HSBC.
£1.1bn
new debt facilities
4.7%
reduced borrowing costs
(2012: 5%)
UNITE’s Capital Operating Guidelines (COGs) are a set of metrics
designed to provide the business with guidelines for:
• Capital commitment
• Capital structure
• Capital allocation.
Significant progress was made with our COGs in 2013, due to the
substantial volume of successful refinancing activity completed in the year,
all of which had a positive impact on the Group’s cost of debt, debt maturity
and diversity of lenders.
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The UNITE Group plc Annual Report and Accounts 2013 23
Strategic report
Key performance indicators
Measuring our progress
Delivering shareholder value
Our KPIs have been selected to provide a balance between financial and operational targets. They comprise the key metrics that we focus on
to run our business.
Financial
Earnings
NPC: £26.5m and Adjusted EPS: 14pps
NAV
382p
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
£0.6m
(3)p
£4.1m
(3)p
£11.0m
3p
£19.1m
10p
£26.5m
14p
265p
295p
318p
350p
382p
Measure
NPC measures the income from rental properties after financing
costs and our total non-development related overheads. It is a proxy
for cash generation in the business. Adjusted EPS is a measure of
profit per share in line with EPRA guidelines.
Measure
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.
Comments
Consistent improvement in performance has been driven by high
levels of occupancy, rental growth, cost control and enhancements
to our portfolio.
Comments
Consistent NAV growth has been delivered through rental growth,
development profits and retained earnings.
Target
Increase EPS yield, measured as EPS divided by opening NAV, to
4.5% by 2015 (3.9% in 2013).
Target
We are well placed to continue delivering strong balanced returns,
contributing to a low double digit total return.
Total return
10.5%
2009
2010
2011
2012
2013
LTV
49%
(13.3)% 2009
11.6%
2010
8.1%
2011
11.3%
2012
10.5%
2013
56%
54%
54%
52%
49%
Measure
Measures the total return to shareholders calculated by the growth in
adjusted NAV plus dividends.
Measure
Measures our ratio of debt to property values.
Comments
Total return has averaged over 10% over the last four years, driven by
growth in recurring earnings, NAV and dividends.
Comments
Continued to deliver reduction in LTV through ongoing focus on
disposals and growing the value of the property portfolio.
Target
Continue to deliver low double digit total returns.
Target
To continue reducing LTV towards 40% over time.
24 The UNITE Group plc Annual Report and Accounts 2013
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Operational
Safety
5
2009
2010
2011
2012
2013
Customer satisfaction
72
2 2009
3
1
6
5
2010
2011
2012
2013
24
35
52
67
72
Measure
Measures the number of reportable accidents in our Operations
business each year as a means of assessing our success in
approaching health and safety.
Measure
We undertake an independent survey twice a year using key indices
to understand our relationship with our customers, the experience
we provide and their likelihood to re-book and recommend UNITE.
Companies receive a score ranging from -66 to 134 and our score
is benchmarked against other high performing service companies.
Comments
In 2012 we introduced a new software reporting system, AIMS
(Accident and Incident Management System). This has provided
greater visibility on incident reporting and resulted in the subsequent
increase shown. This is reflective of safety being a high priority with
a number of working procedures being revised or introduced into
the business.
Comments
The improvements in the last few years reflect our drive to put our
customers at the heart of everything we do. This has most recently
been enhanced by setting up a Customer Panel of more than 500
UNITE students, with whom we discuss ideas and opportunities to
improve the overall experience. Our current score places us within
the top 33% of service industries covered by the same methodolgy.
Target
We strive to reduce the number of reportable incidents year on year.
Target
We aim to reach the top 10% of benchmarked companies within the
next four years, which requires a further steady increase year on year.
Employee satisfaction
72
Higher Education trust
70
2009
2010
2011
2012
2013
62 2009
66
2010
67
67
72
2011
2012
2013
–
–
62
67
70
Measure
Employee Tri*M is an independent benchmark that measures how
satisfied and motivated towards achieving our strategy our employees
are. It enables us to identify areas for improvement and ensures we
are able to deliver high quality service while minimising staff turnover
and recruitment costs. Scores range from -30 to 134.
Comments
Year on year we have seen an improvement in employee satisfaction,
cementing UNITE’s position in the top 10% of European service
companies. UNITE has continued to improve across all metrics,
delivering an increase of five points in 2013 due to a significant rise in
employees’ perception of UNITE’s market strength and motivation.
Target
We will continue to focus on development programmes, line
management and empowering teams in order to maintain employee
satisfaction as a core strength. We aim to maintain our position in the
top 10% of European customer service organisations.
Measure
Since 2011, we have undertaken annual qualitative research with our
HE partners to understand their perception of UNITE and the degree
to which we meet their needs and those of their students. This
generates an annual ‘trust score’.
Comments
Understanding what our HE partners need from us, both for them as
institutions and for their students, is a vital part of improving our level
of service and achieving a strong branded service platform. In 2013
our HE partners recognised the work we did at a national and a local
level to engage with them, and the improvements we made to our
service for students.
Target
We aim to become the accommodation partner of choice for the
HE sector.
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Strategic report Corporate governance Financial statements Other information
Strategic report
Our risk management framework
Embedding a risk
management culture
Our Group strategy targets low double digit returns with
low risk. The Board, when setting the Group’s strategy
and overseeing its implementation, also determines the
nature and extent of the significant risks in this strategy
and ensures that sound risk management and internal
control systems are in place commensurate with the risk.
The Board undertakes a formal risk review at least twice
a year at Group Board meetings. This involves a thorough
risk review of UNITE’s material risks (presented by the
Risk Committee’s Chair, Joe Lister) and also serves as an
opportunity to step back and consider any emerging risks.
The culture of the organisation, set by the Group Board,
is to ensure ‘Risk Trackers’ are maintained which clearly
scope out the risks and their impact, and assign an
accountable person to own and manage each risk.
This risk tracking approach is embedded within UNITE
and leads to a real, tactile and substantive approach
to risk management.
Risk management framework
Risk Committee
• J J Lister
(Chair of Risk Committee and
Chief Financial Officer)
• R C Simpson (MD Property)
• R S Smith (MD Operations)
• M Creedy (Director of Fund Management)
• S Taylor (Internal Audit)
• C R Szpojnarowicz
(Company Secretary/Head of Legal)
Policies and Controls
(such as Capital Operating
Guidelines; Treasury Policy;
Anti-Bribery Policy; Major
Investment Approvals
Committee and the internal
controls framework)
26 The UNITE Group plc Annual Report and Accounts 2013
The Group’s Risk Committee, which meets quarterly,
serves as a bridge between the business unit boards
and the Group Board, and allows a focused forum for
risk review. It thoroughly reviews, and scrutinises, the
business unit boards’ risk management plans and also
helps ensure these business risks are being considered
holistically, providing a conduit for the free flow of
information on risk across UNITE’s business units. The
Risk Committee also monitors Group policies and the
most important controls as well as prioritising other risk
management activities.
Risk Oversight
Owned by the Board
and its Committees
Twice yearly formal risk
review and regular review
of risk integral to board
meetings
Risk Management
Owned by the Risk
Committee and the
business unit boards
Monthly Risk Tracker review
at business unit boards
Risk Committee
quarterly review of all
Risk Trackers
People – embedded risk
management culture
Openness, transparency and
clear ownership of risk
management (through Risk
Trackers) cascades through
the organisation
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Strategic report
Principal risks and uncertainties
Risk and Impact
How we manage the risk
Change from
last year
What happened in the year
Market risks
Changes in Government policy
(such as on HE funding and
immigration) may affect student
numbers and behaviour.
May reduce demand and hence
profitability and asset values.
Ongoing monitoring of
Government policy and its impact
on, and forecasts of, student
numbers whilst in parallel regularly
reviewing our portfolio to ensure
we are appropriately sized in the
right locations.
Significant volume of new entrants,
particularly in London, may lead to
over-supply in certain markets.
May result in price cutting by
competitors in certain markets
to fill voids.
UNITE focus and strategy:
• Supply/demand imbalance
• Exposure to best Universities
• Seeking out opportunities, not
only in London but also across the
UK, for development in select
cities where the supply/demand
metrics and land & build costs
bring value to our portfolio
• More affluent customer base
including overseas students
• Strong sales and marketing
expertise
• Development of
affordable product
• Flexible approach to tenancies.
Macro issues such as an EU
referendum (leading to the UK leaving
the EU) or Scottish independence.
Ongoing monitoring of these macro
issues to ensure we are prepared
for any macro changes.
Departure from EU may impact our
non-UK EU student business.
Scotland independence may add
complexity to our business.
Property markets are cyclical and
performance depends on general
economic conditions.
Forecast rental growth and
recurring profit offsets any
yield movement.
Reduction in asset values reducing
financial returns.
Clear and active asset
management strategy.
Our principal risks are highlighted in white
Student numbers in the UK recovered strongly
after disruption in Government policy changes
affected the 2012/13 University year.
Occupancy of 98% for 2013/14 academic
year, compared to 96% in 2012/13,
demonstrates this recovery in student numbers
is translating into occupancy.
Underlying demand for HE study in the UK
remains extremely strong (the UK continues
to be the 2nd most popular).
To read more go to page 9.
The Government’s announcement in the 2013
Autumn Statement that the cap on student
numbers will be abolished supports growth
in student numbers.
Student intake for 2013/14 at least
30,000 higher than 2012/13, representing
a 6% increase.
To read more go to page 9.
The UK’s position on an independent Scotland
retaining the Pound Sterling and whether an
independent Scotland would need to re-apply
for EU membership have become clearer
during the year. We will continue to monitor
these developments and proactively ascertain
what this means for our business so we are
ready to manage any change accordingly.
The UK is experiencing a more positive
economic outlook and there is general
improvement in strength of the UK’s
commercial and residential property markets.
Maximising portfolio value through programme
of refurbishments and extensions. Customer
satisfaction at highest ever levels supporting
rental growth.
The UNITE Group plc Annual Report and Accounts 2013 27
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Strategic report Corporate governance Financial statements Other information Strategic report
Principal risks and uncertainties
Risk and Impact
How we manage the risk
Change from
last year
What happened in the year
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 risks
Ability to deliver strategy of both the
Funds/JVs and the Group.
Loss of investor confidence and/or
potential deadlock
H&S is given direct Board
supervision by the H&S Committee
(a sub-committee of the Board)
which actively supervises H&S
ensuring robust policies and
procedures are in place and
consistently complied with.
H&S is also actively reviewed
at the Operations and Property
business unit boards, ensuring
that H&S is top of mind in our day
to day operations and regularly
assessed and validated.
Focus on off-market transactions
whilst building a track record of
successfully completing schemes
thereby making us the partner of
choice for many vendors, since we
deliver what we promise. Strong
relationships with financially robust
lenders and Higher Education
institutions.
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.
Strong track record and focus
on project delivery and strong
relationships with construction
partners with appropriate
risk sharing.
H&S continues to be a primary focus and
robust processes are embedded throughout
the organisation following the appointment
of a new Head of Safety Support Services
during the year and regular attention by the
H&S Committee.
A new incident management reporting system
was introduced during the year and fire safety
reviews have been a key focus for 2013 with
fire identified as a key H&S risk.
To read more go to page 48.
Development pipeline of 6,342 beds secured;
good progress and consistent performance
on planning and funding.
To read more go to page 36.
Skilled Development team with strong track
record. Strong relationships with planning
authorities, particularly in London. Focus on
pre-application discussions with authorities.
To read more go to page 32.
All schemes continuing to run to schedule.
2014 development pipeline on track and
targeted 2015 completions commenced
on site on time.
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.
Strong performance by USAF and
co-investment vehicles.
Open, straightforward communications with
USAF Advisory Committee and JV partners.
28 The UNITE Group plc Annual Report and Accounts 2013
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Risk and Impact
How we manage the risk
Change from
last year
What happened in the year
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
Financing risks
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.
Adverse interest rate movements.
Reduced profitability and reduction in
property values (through resulting
expansion of valuation yields and
lower valuations).
Breach of borrowing covenants.
Debt becomes immediately repayable.
Work closely with joint venture
partners to agree mutually
beneficial extension/
exit strategies.
Working closely with GIC to consolidate UCC
and LSAV joint ventures into one joint venture.
Sale of OCB joint venture planned to take place
in 2014.
To read more go to page 40.
Proactively managing debt
maturities to refinance these
facilities at least 6-12 months
before maturity and in parallel
diversifying our sources of finance
to repay more expensive and less
flexible borrowings.
Control of future cash commitments
in line with progress of disposals
and refinancing.
Hedge exposure with interest rate
swaps. Refinance facilities with
fixed rates.
Regular monitoring of covenant
position.
Proactive management of any
potential issues and ability to use
cash to manage covenants.
Financing activities during 2013 have
strengthened our balance sheet, diversified
sources of funding (unsecured debt increased
to 27% and 75% debt provided by non-bank
sources), extended maturity (see-through
weighted average loan maturity is 7 years)
and lowered cost of debt to 4.7% from 5.5%
(31 December 2012).
To read more go to page 39.
90% of debt now at fixed rate / swapped.
Average cost of debt reduced during 2013
from 5.5% (December 2012) to 4.7%.
To read more go to page 39.
Significant level of headroom in both LTV and
ICR covenants. See-through LTV reduced to
49% (December 2012: 52%).
To read more go to page 39.
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The UNITE Group plc Annual Report and Accounts 2013 29
Strategic report Corporate governance Financial statements Other information
Strategic report
Operations review
Building on our achievements
“Our activity
over the next 24
months will further
differentiate UNITE
and ensure we
provide a home
for success…”
2013 has been a year of achievement for UNITE, which we look to build
on in the coming year. Our recurring profit has been transformed from a loss
of £5.4 million five years ago to a sustainable £25.6 million which is largely
cash backed, our customer service is improving and is consistently strong
across the business, we are working more closely and effectively with our
Higher Education partners, and reservations for the next academic year
are ahead of this time last year. Most importantly, we’ve achieved all this
alongside our highest ever customer and employee satisfaction scores.
The majority of UNITE’s 1,000 employees sit within our Operations business
unit and they are key to our success. We delivered substantial efficiencies
and operational improvements during 2013, the scale of change which can
cause staff to become dejected. However, the outstanding people within
UNITE have embraced the changes. In 2013, we provided a clear career path
through accredited training courses, introduced timesaving technology and
taught staff the real skills required to deliver outstanding customer service.
Our processes and technology were also a focus during 2013. Perhaps
our most significant step change was the installation of high speed Wi-Fi
throughout all our properties, an important milestone and considered to be
a hygiene factor by our customers. We reviewed all our key processes through
the lens of customer service to ensure they are effective and efficient and used
technology to remove administrative burden, making us an easier company to
do business with.
Looking ahead, we will continue the work we started in 2013 with further
investment in our digital offering, our service platform and our brand. We
do this in the context of positive investor sentiment towards the student
accommodation sector and favourable Government policy following two years
of funding cuts, fee increases and uncertainty. Our activity over the next 24
months will further differentiate UNITE and ensure we provide a home for
success – a place that students seek out because we help them achieve
more in their University life.
Richard Smith
MD Operations
Sales, rental growth and profitability
Our strong performance continued throughout 2013,
resulting in a £6.5million, 34% increase in NPC to
£25.6 million compared to last year (2012: £19.1 million).
This growth has been driven by high occupancy, rental
growth and the impact of portfolio movements as well
as operational efficiencies and ongoing cost discipline.
Adjusted profit (pre UCC performance fee) increased
by £7.2 million to £23.1 million or 13.6 pence per share
compared to 2012 (December 2012: £15.9 million,
9.9 pence per share).
Summary profit and loss account
Total income from managed
portfolio
UNITE share of rental income
UNITE share of operating costs
Net operating income (NOI)
2013
£m
2012
£m
240.7
240.2
113.4
(32.4)
81.0
111.4
(32.3)
79.1
NOI margin
71.4%
71.0%
Management fee income
Operating expenses
Finance costs
Net portfolio contribution
UCC performance fee
Development pre-contract/
share option and other costs
EPRA earnings
Adjusted profit (pre UCC
performance fee)
EPRA EPS
Adjusted EPS (pre UCC
performance fee)
Adjusted EPS yield (adjusted
EPS/opening NAV)
10.6
(19.0)
(47.0)
25.6
7.5
(2.5)
30.6
23.1
18.0p
13.6p
10.3
(21.8)
(48.5)
19.1
–
(3.2)
15.9
15.9
9.9p
9.4p
3.9%
3.1%
Total income from the managed portfolio increased
to £240.7 million (2012: £240.2 million) driven by
rental growth and increased occupancy, offset by
the reduction in the number of managed beds as
a result of non-core disposals.
The Group’s NOI margin increased to 71.4% from 71.0%
in December 2012 as we delivered further efficiencies
and productivity improvements, while improving our
service and the quality of our estate through targeted
investment. Overheads reduced by 13% to £19 million
as a result of the full year impact of efficiency savings
flowing through and our key overhead efficiency measure
(total operating expenses less management fees as a
proportion of UNITE’s share of investment asset value)
has also benefited from these efficiencies, having now
30 The UNITE Group plc Annual Report and Accounts 2013
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fallen to 61 bps (December 2012: 92 bps), in line with our
target of 60 bps. This will deteriorate marginally when we
exit our OCB joint venture and increase our stake in UCC
but we intend to maintain 60 bps as our ongoing target.
Finance costs (comprising interest and lease payments)
fell to £47 million (2012: £48.5 million), reflecting the fall
in the Group’s average cost of debt as various refinancing
events were completed while development pre-contract
and other costs fell £0.7 million to £2.5 million. EPRA
earnings includes a one-off receipt of £7.5 million
performance fee from UCC following the completion
of refinancing within the joint venture.
visits and bookings. Similarly, the latest iteration of our
mobile working device for service teams has reduced
more time-consuming activity, and provided clarity and
transparency to customers regarding inspections,
maintenance requests, and room charges.
University relationships
The creation of our specialist University Partnerships
Team at the start of 2013 is proving successful, with
stronger relationships now in place with our most
significant University partners and new relationships
being established. This has opened doors for more
strategic discussions about future ways of working.
Occupancy and rental growth
Occupancy across UNITE’s portfolio for the 2013/14
academic year stands at 98% and like-for-like rental
growth of 3% was achieved on our stabilised portfolio.
The number of students enrolling at UK Universities
increased by 37,000 on 2012/13 levels, recovering
much of the previous year’s drop and contributing to
the overall strong occupancy and rent performance.
Reservations for the 2014/15 academic year are
encouraging, standing at 64% (62% at the same point last
year), and recent Government announcements together
with the continued attraction of the UK as a destination
for international students, suggest a further increase in
the number of new students next year of around 20,000.
This provides us with further confidence in occupancy
and rental levels for the 2014/15 academic year, which
we again expect to show rental growth of around 3%.
Investment in people, technology
and relationships
Over the past few years we have invested carefully in
building and retaining the expertise of our staff; utilising
technology as a way to both enhance service levels and
reduce operating costs; and in increasing and maintaining
our profile in the University sector, building on the strong,
long standing relationships we have in a number of cities.
Building on our long track record in the sector, these
investments have formed strong foundations from which
we will continue to build our brand.
People
The knowledge, commitment and competence of our staff
base continues to be at the heart of our performance,
and during 2013 we made further investments in learning
and development to provide clear career progression
opportunities for all roles and grades. The empowerment
of our teams has progressed further, with city managers
encouraged to make the right decisions for students to
improve the experience of living with UNITE, and this has
been reflected in our highest ever customer satisfaction
scores, in both our Spring and Autumn independent surveys.
Technology
We have made further improvements to our online
booking platform throughout the year, driving additional
Our presence in the Higher Education sector has
become yet more substantial, and we have presented or
spoken at a wide range of events and conferences, and
launched high-profile research publications undertaken
in-house, which have stimulated healthy levels of interest
and engagement from Universities and sector groups.
We will build on this further in 2014.
Student numbers
Around 37,000 more students started degrees in the
2013/14 academic year than the year before, substantially
reversing the drop seen in 2012/13. This was partly due to
the Government’s relaxation of the student number caps
applied to University enrolment but also the positive impact
of deferrals returning to normalised levels. Acceptances
were up year on year across all student groups, with UK and
non-EU students showing the healthiest increases, further
underlining the structural robustness of the student sector.
Operations outlook
Our Operations business continued its strong
performance against all key measures throughout 2013.
High occupancy, consistent rental growth and portfolio
recycling, combined with the successful embedding of
cost efficiencies, continued to drive sustainable profit
growth, alongside further improvements to service levels
and the experience we provide for our students.
We are continuing to invest in our operating platform
and expanding our digital presence, recently launching
new smartphone apps and online community features to
further increase the strength of our brand and competitive
advantage. Having completed the installation of Wi-Fi
throughout all our properties in the summer of 2013, we
are looking to increase broadband speed significantly for
the new academic year, and have also appointed a partner
to install LED lighting across our portfolio over the next
two years. This will reduce our operating costs and carbon
footprint while further improving our students’ experience.
As the student accommodation market continues to
mature, the combination of our continued investment in
brand and service driving rental growth, coupled with a
growing portfolio as new properties are completed, will
underpin further profit growth for 2014 and we continue
to target a 4.5% EPS yield for 2015.
1420-1 UNITE AR_1.Strategic_v14.indd 31
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The UNITE Group plc Annual Report and Accounts 2013 31
Strategic report Corporate governance Financial statements Other information Strategic report
Property review
Building on our achievements
“This proven track
record in challenging
conditions positions
us well for the
future…”
Our Property business unit comprises Asset Management and Property
Development, who support our operational colleagues in maximising our
existing portfolio as well as seeking out new opportunities for growth. I also
look after our Fund Management team who manage our four co-investment
vehicles. Our Property business has had the same core team for the last ten
years; we are a lean operation of 22 people. This same ten-year period has
seen a great deal of volatility in the property sector, but the team’s wealth of
expertise and the strong fundamentals of the student accommodation sector
have enabled UNITE to take full advantage of market conditions.
While tentative signs of general economic recovery were slowly felt during
2013, the Higher Education sector demonstrated good fundamentals with
a bounce back in student numbers for the 2013/14 academic year which
brought overall student levels back in line with those seen in 2011. Against
this positive backdrop, demand for exposure into purpose built student
accommodation increased too. Our development activity continued to build
strong momentum both in London and also across the UK. We secured
several new projects in London, through our JV with GIC, which are high quality
locations and will be significantly accretive to returns. Overall, these projects
will account for around 60% of the capital we’ve identified for deployment
into development activities. Timing for these and prior years’ acquisitions was
strong. Subsequently, London is displaying development cost inflation and an
increase to barriers to entry. In response to this, our strategy evolved to include
wider UK development projects and we’ve made good progress in building a
high quality pipeline of future projects, accounting for the full proceeds raised
over the summer for this purpose.
Our Asset Management saw UNITE’s remaining non-core assets sold or
contracts exchanged. Our portfolio is now 100% student accommodation.
Four refurbishment or extension projects were undertaken in the year, which
alongside other initiatives delivered an NAV upside of around £7 million.
This proven track record in challenging conditions positions us well for the
future as we continue to feel the impact of economic recovery. With the market
outlook strengthening in terms of student numbers, investor interest in the
student accommodation sector and regional development costs still low, I’m
confident the energy and expertise of my team will continue to give UNITE
clear competitive edge.
Richard Simpson
MD Property
32 The UNITE Group plc Annual Report and Accounts 2013
NAV growth
Adjusted NAV per share increased by 9.1% to 382 pence
(on a fully diluted basis) at 31 December 2013, up from
350 pence at 31 December 2012. In total, adjusted net
assets were £682 million at 31 December 2013, up from
£567 million a year earlier.
The main factors behind the growth in adjusted NAV per
share were:
• The growth in the value of the Group’s share of
investment assets (+16 pence), as a result of rental
growth, some yield compression and asset specific
write downs associated with the disposal of legacy
NHS assets
• The value added to the development portfolio
(+14 pence)
• The impact of financing activity (-6 pence), related
primarily to swap breakage costs, partially offset by
the positive impact of our convertible bond issuance
• The positive impact of retained profits after dividends
(+14 pence)
• The impact of the £50 million equity issue in June
(-6 pence).
Looking forward, our portfolio is well placed to deliver
continued 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 projects, comprising
1,555 beds and accounting for approximately 70% of
the proceeds of our June share placing, secured under
contract in strong regional locations and are in exclusive
negotiations on a fourth. In addition, 60% of our target
LSAV pipeline has also been secured across three
London projects comprising 2,356 beds.
In total, our secured pipeline is expected to deliver
39 pence per share of NAV uplift once completed if
expected returns are achieved (UNITE share). Projects
where the Group is in exclusive negotiations could add
a further 6 pence. The development pipeline will have
an even more significant positive impact on EPS once
delivered with the secured projects adding 13 pence
and those where the Group is in exclusive negotiations
a further 1 pence.
Property portfolio
The valuation of our property portfolio at 31 December
2013, including our share of gross assets held in USAF
and joint ventures, was £1,370 million (31 December
2012: £1,245 million). The £125 million increase in
portfolio value was attributable to £76 million of capital
expenditure less disposals of £14 million and £63 million
of valuation increases. The valuation of the stabilised
investment portfolio increased by 3% on a like-for-like
basis over the year, primarily as a result of rental growth.
1420-1 UNITE AR_1.Strategic_v14.indd 32
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Summary balance sheet
Rental properties
Properties under development
Adjusted net debt
Other assets/(liabilities)
Adjusted net assets
2013 £m
Wholly
owned
Fund/JV
767
180
947
(470)
(24)
453
Total
1,175
195
1,370
408
15
423
(196)
(666)
2
229
(22)
682
2012 £m
Fund/JV
399
–
399
(195)
(7)
197
Wholly
owned
763
83
846
(453)
(23)
370
Total
1,162
83
1,245
(648)
(30)
567
The proportion of our property portfolio that is income generating decreased to 86% from 93% at December 2012,
with 14% now under development. This reflects the progress with our 2014 and 2015 development programme as
well as the commitment of capital to 2016 deliveries. The development weighting will continue to increase over the
next year as our activity in this area accelerates and our remaining non-core investment assets are sold. We expect
the development weighting to peak at approximately 20% in 2015.
UNITE investment portfolio analysis at 31 December 2013
London
Major provincial
Provincial
Total
UNITE ownership share
UNITE ownership (£m)
Value
(£m)
Beds
Value
(£m)
Beds
Value
(£m)
Beds
Value
(£m)
Beds
USAF
190
UCC
353
LSAV
51
OCB
173
Wholly
owned
Lease
Total
UNITE
share
274
0
1,041
479
1,425
2,268
528
1,128
1,910
324
7,583
41%
945
36
16,551
333
220
3,732
1,355
0
–
0
–
0
–
0
–
0
–
333
0
1,314
499
5,773
2,147
24,804
42%
161
0
381
197
389
51
173
768
–
3,168
1,785
8,685
2,736
17%
1,175
21,708
2,601
16.4%
30%
221
117
528
50%
26
1,128
10,851
4,256
41,072
100%
25% 100% 100%
–
43
768
–
1,175
The investment portfolio is split between London (41%) and the rest of the UK (59%). At the beginning of the year,
London projects would have represented approximately 50% of the UNITE portfolio on a built out basis. However,
the acceleration of our regional development activity during 2013 means that our built out London weighting has
fallen marginally to around 48% by the year end.
We currently favour new development in strong regional locations over London and as a result it is likely that our built
out London weighting will fall further, to around 40%, as our regional development pipeline expands.
1420-1 UNITE AR_1.Strategic_v14.indd 33
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The UNITE Group plc Annual Report and Accounts 2013 33
Strategic report Corporate governance Financial statements Other information Strategic report
Property review continued
Student accommodation yields
Over the latter part of 2013, yields for student accommodation started to show some signs of modest compression.
Across our portfolio, net initial yields moved from 6.55% to 6.50% reflecting a change of 5 bps. This was partly due to
portfolio mix but also some movement in stronger regional locations, reflecting the increasing level of demand for good
quality, well located purpose built student accommodation.
Indicative yields
London
Major provincial
Provincial
2013
2012
Direct let
University
guaranteed
Direct let
University
guaranteed
6.0–6.25% 5.35–5.6%
6.0–6.25%
5.35–5.6%
6.25–6.75% 5.85–6.1%
6.5–7.0%
5.85–6.1%
6.75–7.25% 6.35–6.6%
7.1–7.35%
6.35–6.6%
The investment market for student accommodation
assets was positive in 2013 with approximately
£2.1 billion of transactions recorded during the year,
compared to £2.7 billion in 2012 when two particularly
large transactions completed. The most significant
transactions in 2013 were the sale of several former
Opal portfolios for which demand was strongest from
overseas investors. The portfolio nature of these
transactions, together with the mixed quality of the
underlying assets, makes precise yield evidence hard
to establish. However, we believe the transactions
were supportive of our current valuations.
Investor interest in the student accommodation sector
is continuing to broaden and we expect continued high
levels of transactional activity in 2014. However, in
comparison to more established sub sectors of the UK
Real Estate market, liquidity remains relatively low and
we therefore expect yield movements to lag the wider
market slightly.
Our business model is focused on growing recurring
cash flow, primarily through new development activity and
leveraging our brand across our established, high quality
investment portfolio to deliver sustainable rental growth.
We have largely completed our non-core asset disposal
programme (with £60 million of disposals completed/
exchanged unconditionally since our 2012 result and a
further £15 million conditionally exchanged), and put in
place a fixed low cost, longer term debt structure against
our high quality core assets, meaning that the level of
future asset disposals will be lower than in recent years.
At this stage in our business, therefore, investment yields
are of less importance to business performance than the
‘cash on cash’ economics of development, cost control
and rental growth.
Development activity
During 2013 we made good progress with our
four developments onsite, secured two new London
development projects for LSAV (our 50/50 development
joint venture with GIC) and accelerated our development
activity in strong regional locations, subsequently securing
three new sites in the early part of 2014. Our new regional
development activity is being funded from the proceeds of
a successful share placing in June 2013 (£50 million net
proceeds), the majority of which has been committed to
specific projects, and a convertible bond issue in October
(£88 million net proceeds).
34 The UNITE Group plc Annual Report and Accounts 2013
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The returns from our development activity are very attractive with our secured London projects forecast to deliver an
average yield on cost of 9.0% and strong regional projects delivering 9.5–10%. Our full secured pipeline is as follows:
Secured development pipeline (wholly owned)
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
%
London
2014
completions
Stratford City
London
St Pancras Way London
Total London
(wholly owned)
Regional
2014
completions
1,001
571
1,572
102
85
187
64
59
123
Kingsmill Lane
Huddersfield
378
19
14
2015
completions
Trenchard Street Bristol
481
35
26
2016
completions
Newgate Street1 Newcastle
Causewayend1
Aberdeen
St Leonards1
Edinburgh
Total Regional
(wholly owned)
606
399
550
42
26
50
2,414
172
Total (wholly owned)
3,986
359
1 Subject to obtaining planning consent.
31
20
38
129
252
33
19
52
8
2
0
0
0
10
62
12
9
21
4
3
7
11.2%
9.8%
10.5%
6
1
10.1%
24
4
9.9%
31
20
38
119
140
11
6
12
34
9.6%
9.7%
9.5%
9.7%
41
10.1%
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The UNITE Group plc Annual Report and Accounts 2013 35
Strategic report Corporate governance Financial statements Other information
Strategic report
Property review continued
Secured development pipeline (LSAV)
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
%
LSAV
2015
completions
Angel Lane
London
759
84
54
18
36
19
9.3%
2016
completions
Stapleton
House1
London
901
117
Wembley Park1
London
696
62
Total LSAV
UNITE share
of LSAV
Total UNITE
share
94
49
197
98
1
0
19
10
72
92
49
177
88
24
13
55
28
8.8%
8.8%
9.0%
9.0%
228
69
9.8%
2,356
263
132
491
350
1 Subject to obtaining planning consent.
Wholly owned development
Our three 2014 completions are proceeding in line with
budget and programme and are on track to be open and
let for the 2014/15 academic year. Subject to achieving
90% occupancy, our Stratford project will be sold to LSAV
later in 2014 and this will release funds back to the Group
for investment into further development activity. We intend
to retain the other two projects on balance sheet.
Following our decision to accelerate development activity
in strong regional locations, our experience has been
very encouraging. We have secured three projects
“Following our decision to accelerate
development activity in strong
regional locations, our experience
has been very encouraging.”
(in Newcastle, Aberdeen and Edinburgh) for 2016 delivery
and are in exclusive negotiations on a fourth project.
These projects are all supportive of our 9.5–10% yield
on cost targets and are in very strong locations that we
expect to perform well for the long term.
Regional development costs are currently low,
occupational demand remains strong and the planning
environment is generally supportive. This creates a very
attractive opportunity which we believe will persist for
no longer than 12–18 months.
36 The UNITE Group plc Annual Report and Accounts 2013
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“Our three 2014 completions are
proceeding in line with budget
and programme and are on track
to be open and let for the 2014/15
academic year.”
Asset disposals
We have achieved £75 million of disposals comprising
non-core assets from both the Group’s own balance sheet
and on behalf of co-investment vehicles, in line with
expectations. These disposals included our remaining
NHS properties and, as a result, our portfolio is now
comprised exclusively of student accommodation assets.
Total asset sales
Completed/exchanged
Wholly owned
USAF
Total
Under offer
Wholly owned
Total
Proceeds
£m
Book value
£m
19
34
60
15
75
20
33
7
15
75
Since early 2011 the Group has sold £198 million
of non-core assets comprising 2,390 beds, from its
wholly owned and co-investment portfolios. Following
this activity, our non-core asset disposal programme is
now substantially complete and, as a result, asset sales
in the future will be lower.
LSAV development
Within LSAV, three excellent schemes have now been
secured; Angel Lane in Stratford, Stapleton House in
Islington and Wembley Park, meaning that 60% of
LSAV’s capital has been committed. Work began on
Angel Lane, our second Stratford project, in late 2013
for completion in 2015. Stapleton House and Wembley
Park are expected to obtain planning consents during
2014 and construction will start shortly thereafter for
delivery in 2016. The three secured projects have a
projected yield on cost of 9.0%.
Looking forward, the London development market is
becoming more challenging. Alternative use (particularly
residential) values for prospective sites are increasing and
reducing the competitiveness of student accommodation
bids, construction costs are beginning to escalate and the
imminent adoption of the Community Infrastructure Levy
(CIL) will have a further negative impact on the viability
of student schemes. We have not placed a London
development site under offer since Wembley Park in May
2013 and, based on current pricing, are unlikely to do so
during 2014 unless there is a correction to land values.
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The UNITE Group plc Annual Report and Accounts 2013 37
Strategic report Corporate governance Financial statements Other information Strategic report
Financial review
A year of results
“We transformed
the capital structure
of the business,
securing long-term
funding that will
support our growth
aspirations…”
In 2013 we delivered growth in all of our key financial metrics. Profits, cash
flow and NAV growth mean that UNITE is well positioned to look forward with
increasing confidence. The outlook for further rental growth and new beds
opening in 2015 and 2016 mean we have good visibility about the future
growth of the business.
In 2013, we transformed the capital structure of the business, securing
long-term funding that will support our growth aspirations. The £51 million
share placing that was completed in June has allowed us to secure new
development sites in strong regional University cities. The three sites in
Edinburgh, Aberdeen and Newcastle together with a fourth site that is under
offer, mean that the proceeds from the placing are now fully deployed. We also
secured over £1.1 billion of new debt finance on behalf of the Group and our
co-investment vehicles. This new debt has been secured from a variety of
sources and has resulted in cheaper finance and longer debt maturities.
We have continued to work closely with our co-investment partners to set
and deliver the strategies across all of the co-investment vehicles. Looking
forward, we are well positioned to take advantage of the favourable conditions
in our market, with a strong, stable and flexible capital structure.
Joe Lister
Chief Financial Officer
6 March 2014
Income statement and profit measures
NPC and EPRA earnings are the key profitability
performance measures for the Group. The detail
of this performance is set out in the Operations
review section of this report.
Net portfolio contribution
EPRA earnings profit
Adjusted profit (pre UCC
performance fee)
Profit before tax
EPRA earnings per share
Adjusted earnings per share
(pre UCC performance fee)
2013
£m
25.6
30.6
23.1
2012
£m
19.1
15.9
15.9
77.1
126.2
18.0p
13.6p
9.9p
9.9p
EPRA earnings of £30.6 million for 2013 (2012:
£15.9 million) includes the one-off receipt of a £7.5 million
performance fee from UCC following the completion
of refinancing within the joint venture. Excluding this
amount, adjusted profit (pre UCC performance fee) was
£23.1 million or 13.6 pence per share (2012: £15.9 million
and 9.9 pence per share).
Profit before tax includes valuation gains and profit/loss
on disposal of investment properties of £46.9 million
(2012: £59.7 million). In 2012, a gain of £49.7 million was
also included in profit before tax as a result of the one-off
transfer of stock properties to investment assets.
A full reconciliation of NPC to Adjusted Profit and our
Reported Profit before Tax is given in Section 2 of the
financial statements.
Tax
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. A net deferred tax
asset of £0.6 million has been recognised in the Group’s
balance sheet representing the amount of tax that the
Group believes it will be able to offset over the next three
years with its brought forward losses. Deferred tax assets
of a further £9.6 million have not been recognised in the
Group’s balance sheet due to the uncertainty of future
profits in the relevant companies and the ability to offset
the losses against them. The existence of the brought
forward losses means that the Group is unlikely to incur
meaningful levels of tax within the next three years.
38 The UNITE Group plc Annual Report and Accounts 2013
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Cash flow and net debt
The Operations business has generated £23.2 million
of net cash in 2013 (2012: £17.2 million) and see-through
net debt increased to £666 million (2012: £648 million).
The key components of the movement in net debt were
inflows from the share placing (£50 million), operational
cash flow (£23 million) and disposal proceeds (£14
million) less outflows related to swap break costs of £18
million and capital expenditure investment of £76 million.
Dividend
We are recommending a final dividend payment
of 3.2 pence per share, (2012: 3.0 pence), making
4.8 pence for the full year, 0.8 pence per share higher
than 2012 (2012: 4.0 pence), an increase of 20%.
The increased dividend is a result of strong earnings
growth and maintains our dividend pay-out ratio of
one-third of NPC (NPC being a proxy for cash generation
in the business). At this level the dividend is 2.7 times
covered by operating cash flow.
Subject to approval at UNITE’s annual general meeting
(AGM) on 15 May 2014, the recommended final dividend
will be paid on 19 May 2014 to shareholders on the
register at close of business on 22 April 2014.
Share placing
We completed a placing of 16 million new ordinary shares
in June at a price of 320 pence per share, raising net
proceeds of £50 million. The proceeds are being used to
fund a highly targeted regional development programme
and this capital should be fully committed to projects
during the first quarter 2014 and we expect those
projects to be completed in 2016.
The placing has reduced NAV at 31 December 2013 by
6 pence per share due to the additional number of shares
in issue. This modest NAV dilution is expected to unwind
in 2014 and become substantially accretive from 2015 as
profitable new developments are delivered. From an EPS
perspective, the impact across 2013 was broadly neutral
as the placing proceeds were immediately deployed to
reduce debt levels on revolving facilities, thereby saving
interest costs.
Debt financing
During 2013 we maintained our focus on reducing
gearing levels, extending debt maturities, diversifying
sources of capital and reducing financing costs, and
have had some important successes. We completed
over £1.1 billion of refinancing during 2013 and have
concluded a further £124 million facility since the year
end. Consequently the Group’s refinancing activity is
now largely complete. All key debt statistics have
improved significantly as a result of this activity:
Key debt statistics (see-through basis)¹
Adjusted net debt
Adjusted LTV
2013
2012
£666m £648m
49%
52%
Average debt maturity
7.1 years
4.1 years
Average cost of debt
Proportion of investment debt
hedged
4.7%
86%
5.5%
88%
Proportion of unsecured debt
27%
15%
¹ Key debt statistics are shown on a proforma basis to include the
impact of refinancing completed in January 2014.
Debt maturity and LTV
As a result of the refinancing activity, the Group’s
debt maturity profile has improved significantly and
the weighted average loan maturity is 7.1 years (2012:
4.1 years). The Group’s see-through LTV reduced to 49%
at 31 December 2013 from 52% at the end of 2012. We
will continue to manage our gearing proactively and intend
to continue reducing this over time towards 40% as future
capital growth and development profits increase the
Group’s equity base.
Covenant headroom
We were in full compliance with all of our borrowing
covenants at 31 December 2013. Our debt facilities
include loan-to-value and interest cover covenants that
are measured at both a Group and an individual portfolio
level and we have maintained significant headroom
against all measures. Covenant headroom will reduce
as surplus capital is deployed into new development
opportunities but we intend to maintain substantial
headroom against all covenants.
Interest rate hedging arrangements
and cost of debt
Our see-through cost of debt has reduced to 4.7%
(2012: 5.5%), primarily as a result of the USAF bond and
other financing activity, and the Group now has 86% of its
see-through investment debt subject to a fixed interest
rate (31 December: 88%). The Group cancelled certain
interest rate swaps in the year as part of its refinancing
activity, resulting in a £17.9 million reduction in adjusted
profit (2012: £10.6 million). This reflected our decision
to accelerate the remainder of some refinancing activity
to take advantage of the low interest rate environment.
This resulted in swap cancellation costs being incurred
in 2013, slightly earlier than anticipated.
As the Group’s refinancing activity is largely complete,
swap breakage costs will be much lower in future years.
We anticipate a further £2-3 million of such costs in 2014
and, in total, the cancellation costs incurred across 2013
and 2014 will be in line with management expectations
and previous guidance.
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The UNITE Group plc Annual Report and Accounts 2013 39
Strategic report Corporate governance Financial statements Other information Strategic report
Finance review continued
Funds and joint ventures
UNITE acts as co-investing manager of four specialist student accommodation vehicles that it established. The table
below summarises the key financials for each vehicle:
Property
assets
£’m
Net debt
£’m
Other
assets
£’m
Adjusted
NAV
£’m
1,355
390
80
174
(583)
(212)
(25)
(96)
(15)
(7)
–
(4)
757
171
55
72
Vehicle
USAF
UCC
LSAV
OCB
During the year, both USAF and UCC completed major
refinancing of their debts. In USAF, £565 million of new
debt was put in place through a secured bond programme.
This resulted in a reduction in USAF’s average cost of
debt to 3.7% (2012: 5%) and increased debt maturity
to 9 years (2012: 2 years). This new financing will result in
increased profits available for distribution, with the income
yield expected to increase to approximately 7% (2012:
5.5%). UCC arranged a £149 million facility with Legal
& General and a £77 million facility with RBS resulting
in a reduction in its average cost of debt to 4% by
the year end (2012: 5.5%) and an increase in maturity
to 7 years (2012: 1 year).
Following the conclusion of the refinancing in UCC, a
performance fee of £7.5 million became payable. The
fee will be used to increase UNITE’s stake in UCC from
30% to 34%.
USAF delivered a total return of 12.6% in 2013 and has
been among the top performing fund in the IPD Specialist
Funds index over the past five years, reflecting the quality
of its portfolio and consistent rental growth performance.
Following the refinancing of the majority of its debt
facilities into longer term, fixed low cost bonds, its growth
prospects have improved further and we anticipate
ongoing strong performance. The Group has a 16.4%
stake in USAF and we consider this to be a core
strategic investment.
We have taken the decision to realise our investment in
the OCB joint venture, which matures in August 2014,
alongside OCB as our joint venture partner. We have now
agreed terms with a credible prospective purchaser of
the OCB JV assets and have entered into an exclusivity
agreement with them. Due to the relative complexity of
the transaction it has taken longer than originally planned.
However, we remain confident that the assets will be sold
later in 2014 at levels supportive of current valuations.
UNITE
share of
adjusted
NAV
£’m
125
59
28
18
Adjusted
LTV
Total
return
Maturity
UNITE
share
43%
54%
31%
55%
12.6%
Infinite
10.0%
9.5%
1.4%
2022
2022
2014
16%
30%
50%
25%
Once the OCB sale has concluded we intend to invest
our share of proceeds to increase our stake in our UCC
joint venture with GIC towards 50%. This will allow us to
maintain our level of London exposure, avoid earnings
dilution and help trigger the automatic merger of UCC
and LSAV into a single entity. Once this outcome has
been achieved the number of indirect vehicles we
manage will reduce from four to two, contributing to a
significant simplification of the Group’s balance sheet.
Outlook
In recent months the market outlook for the student
accommodation sector has strengthened further. As a
result the outlook is the most positive it has been for a
number of years:
• Demand, as evidenced by applications, continues
to increase and planned Government policy changes
look set to ensure this translates into higher levels of
enrolments in the coming years, underpinning rental
growth prospects
• Regional economies are recovering but land and
build prices remain depressed, creating a window
of opportunity for development in strong regional
locations at cyclically low costs. The Group is well
placed to capitalise on these
• Investor interest in the sector is broadening and
deepening, both amongst UK and international
investors. Although liquidity remains low relative
to more established property sub-sectors and yield
movements may therefore lag slightly, the emergence
of sustained investor appetite is encouraging and
contributes to a positive yield outlook.
Following a period of strong operational performance,
targeted portfolio repositioning and comprehensive
refinancing, UNITE is well placed to benefit from the
improving sector outlook.
40 The UNITE Group plc Annual Report and Accounts 2013
1420-1 UNITE AR_1.Strategic_v14.indd 40
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2013
CORPORATE
RESPONSIBILITY
REVIEW
The UNITE Group plc Annual Report and Accounts 2013 41
1420-1 UNITE AR_1.Strategic_v14.indd 41
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Strategic report
Corporate responsibility review
COMMITTED TO
SUSTAINABLE
VALUE
We want UNITE to be the most sought
after and trusted student accommodation
brand, known as a good corporate citizen
that is committed to responsible business
practice. This supports our position as a
sustainable business generating strong
recurring cash flows.
LED lighting upgrade
We have partnered with Philips Lighting to install state
of the art LED lighting and advanced controls in all our
buildings, including every customer bedroom. This
will bring significant energy and carbon savings, reduce
maintenance and hazardous waste, and considerably
improve lighting levels to create a healthier and more
effective environment for customers and staff.
42 The UNITE Group plc Annual Report and Accounts 2013
We offer our students safe, secure and welcoming accommodation that
supports their success whether defined as academic success, personal growth
or future employability. Underpinning this is the trust we build with our employees,
customers, partner Universities, communities and suppliers through operating our
business in a transparent and responsible manner. We place a particular emphasis
on the following areas:
Minimising our impact on the ENVIRONMENT through a commitment to
sustainable business practice.
Working closely with our stakeholders to engage with, and integrate into, local
COMMUNITIES.
Creating a BUSINESS that exceeds the expectations of its partner Universities
and suppliers, and provides best in class returns for our investors. We owe our
success to considering and exceeding the needs of all our stakeholders.
Growing diverse, talented and engaged teams and providing the opportunities
for our PEOPLE to realise their personal and professional potential.
To enable this, our Strategy & Commercial Director is responsible for managing
our performance across these four key areas.
ENVIRONMENT
During 2013, we continued to work to reduce UNITE’s impact on the
environment, taking important steps towards formalising our environmental
policies and procedures. We are pleased that our residential carbon emissions
from gas, electricity and operating our buildings reduced meaningfully compared
to last year, 10-15% across each measure. We attribute this, in large part, to
improved communication with our customers about heating controls and energy
use, and milder weather. Also, DEFRA slightly reduced its carbon factor for
electricity, which reduced our total electricity CO2 per bed by 7.3% in addition to
lower consumption. Our CO2 emissions from company vehicles increased by 32%
and during 2014 we are actively working to reduce these emissions through staff
engagement and by setting reduction targets, following further evaluation of the
2013 data.
Within our properties, we installed new heating controls and are trialling ways
we can reduce heating demand. We are now able to collect data for over 95% of
our electricity consumption through automatic meter readings and have installed
extensive sub-metering to a number of sites, monitoring energy consumption for
individual uses such as bedroom heating, lighting, small-power, water heating and
cooking. This is providing valuable data to help us target and assess energy
saving opportunities.
Shower-head and toilet upgrades have been trialled and the best solutions
for high usage sites been identified. We’ve installed a water treatment system
at selected sites that prevents limescale damage to toilets, boilers and water
services, and in doing so reduces energy and water consumption. Following last
year’s pilot, we installed LED lighting in three properties and plan to replace all
existing lighting across our entire portfolio with state of the art LED lighting and
controls over the next two years.
Our Energy and Environment team undertook a climate change risk assessment
with the Operations Board which informed their business strategy and planning.
The team also recruited a dedicated Sustainability Engagement Coordinator who
will be launching a nationwide sustainability engagement campaign aimed at
employees and students during 2014.
1420-1 UNITE AR_1.Strategic_v14.indd 42
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Our Energy and Environment
team undertook a climate
change risk assessment with
the Operations Board which
informed their business
strategy and planning.
We have been reporting our carbon emissions for several years ahead of the
recent mandatory reporting requirements, and also disclose information via
the CRC scheme and to independent bodies such as the Global Real Estate
Sustainability Benchmark and West of England Carbon Challenge. UNITE is also
now a member of the Environmental Association for Universities and Colleges. In
2013 we received an E rating from the Carbon Disclosure Project (CDP) reflecting
our lack of formal environmental policies and targets. While recognising that many
respondents fail to even achieve an E rating, we are keen to improve our CDP
rating as a measure of our environmental performance. We had already identified
our policies and procedures as an area of opportunity and are implementing an
environmental management system in line with the requirement of ISO 14001
during 2014.
11% Reduction in residential CO2 emissions
Carbon emissions data
Absolute energy use:
Residential gas (kWh)
Residential electricity (kWh)
Company car use (km)
Absolute CO2e emissions:
Residential gas emissions (tonnes CO2e) (Scope 1)
Residential electricity emissions (tonnes CO2e) (Scope 2)
Total residential emissions (tonnes CO2e) (Scopes 1 + 2)
Company car (tonnes CO2e) (Scope 3)
CO2e emissions per bed:
Residential gas emissions (tonnes CO2e/bed) (Scope 1)
Residential electricity emissions (tonnes CO2e/bed) (Scope 2)
Total residential emissions (tonnes CO2e/bed) (Scopes 1 + 2)
Company car (tonnes CO2e/bed) (Scope 3)
Climate Week in Exeter
Across our properties in Exeter the city team rolled
out a week long programme of events for Climate Week
to raise awareness among students and staff of how
to reduce their carbon footprint. Daily energy saving
activities encouraged students to turn down their heaters
and wear a jumper, switch off lights, and grow their own
edible plant.
Heating controls
A warm and comfortable home is an essential part of
what we offer our customers; however, equally important
is that we do this efficiently and effectively. As colder
weather approached, we worked closely with specialist
heating controls manufacturer, Prefect Controls, to
optimise our existing heating systems and develop the
next generation including timer and presence controls.
2013
2012
Change 2012-2013
28,563,633
111,527,805
847,940
34,141,371
116,609,386
633,223
2013
5,257
49,683
54,940
161
2013
0.129
1.215
1.344
0.004
2012
6,323
56,245
62,569
123
2012
0.153
1.357
1.509
0.003
-16.3%
-4.4%
33.9%
% change
-16.9%
-11.7%
-12.2%
30.8%
% change
-15.7%
-10.5%
-11.0%
32%
* Carbon emissions factors used are from the 2014 Department for Environment Food and Rural Affairs Greenhouse Gas Conversion Factor Repository using the following
factors: natural gas (kgCO2e/kWh) 0.184040, grid electricity (kgCO2e/kWh) 0.445480 and company cars (kgCO2e/kWh) 0.19023.
1420-1 UNITE AR_1.Strategic_v14.indd 43
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The UNITE Group plc Annual Report and Accounts 2013 43
Strategic report
Corporate responsibility review continued
Forming stronger
relationships with local
communities, charities,
businesses, Universities,
our staff and the
students who live with
us, creates additional
value for wider society.
COMMUNITIES
We recognise that all businesses have a responsibility to manage their operations
in a way which has a positive impact on all stakeholders and communities. We take
this responsibility very seriously and believe that forming stronger relationships
with local communities, charities, businesses, Universities, our staff and the
students who live with us creates additional value for wider society.
We created the UNITE Foundation in 2012 to focus our charitable and
community activity on causes which have the most resonance for the sector
in which we work, in turn forging closer links with many parties who are crucial
to the successful delivery of our strategy. During 2013, we expanded the UNITE
Foundation Scholarship programme so that it now supports 56 students from
disadvantaged backgrounds through partnerships with seven Universities. We
recognise that access to student accommodation is a valuable asset that can
support social mobility in Higher Education. We also provide interns from the
Speaker’s Parliamentary Placements Scheme and Upreach with subsidised
accommodation enabling them to take up employment opportunities away
from home.
The UNITE Foundation also makes targeted donations to established charities
that further the aims of the Foundation including IntoUniversity, which provides
local learning centres that support young people from disadvantaged backgrounds
to attain either a University place or another chosen aspiration. In 2013 we
provided opportunities for our employees and customers to volunteer their skills
and time to support IntoUniversity. This included helping to prepare a new centre
for opening in Nottingham and running a Christmas party for children from the
Bristol centre. Students living with UNITE also volunteered as mentors to children
at IntoUniversity centres.
Healthy eating
Our Liverpool team partnered with local business,
Student Grub Company, and Liverpool John Moores
University to provide a free fruit and veg box for students
when they checked-in. Each welcome box contained
everything students needed to cook a healthy meal
for all their flatmates. In addition to providing a great
welcome gift, the box promoted healthy eating as part
of our Wellbeing campaign, helped the team strengthen
University relationships and had a positive impact
on the community by supporting local providers.
Curtis Reid, President of Liverpool Students’ Union, said:
“It’s fantastic that LJMU and UNITE are
working together to promote healthy living
to new students. Student Grub shows
that it is possible for students to eat well
on a budget.”
44 The UNITE Group plc Annual Report and Accounts 2013
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During 2013 our city teams made some strong progress in building relationships
with local councils and emergency services, and integrating students into their
local community. For example:
• Our North London team piloted a scheme with Islington Council, helping
adults with learning difficulties find employment and, so far, have provided one
permanent role through the programme – 90% of people with learning
difficulties never get a job after college.
• Our team in Bath built ties with the local Police and Communities Together
group and now hosts the local meetings in one of our common rooms. This
has improved the team’s relationship with the local community and raised
awareness of UNITE in the wider area.
• As part of our Wellbeing programme, the Liverpool team partnered with local
business Student Grub and Liverpool John Moores University to provide every
flat in one of our properties with a box of healthy food to encourage students
to cook a healthy meal together.
• UNITE’s Nottingham team set up a series of initiatives focused on improving
students’ employability through community engagement. They built relationships
with the University Volunteering scheme, the University Tutor scheme and the
IntoUniversity centre in Nottingham to involve customers in volunteering and
encourage students to become involved in the local community.
• Our Newcastle team work closely with local café, Skylight, close to one of its
properties. The café is run as a social enterprise that trains and employs homeless
people. The team uses Skylight for meetings and team events, orders its catering
from the café and allows Skylight to use their common room for events.
We recognise that we could do more, centrally, to support this activity and
our focus for 2014 is on improving our capabilities in this area so that we can
establish minimum requirements for communities outreach and learn from
the best practice that is already taking place in some of our cites. We plan to
become members of Business in the Community to help with our approach
and to build a network of community champions within our cities.
Creating employment
Neil joined our Emily Bowes Court property team
as our post room assistant on a pilot scheme we ran in
partnership with Islington Council to find jobs for adults
with learning difficulties. Despite having been looking
for work for eight years, Neil soon settled into his role and
has relieved the Emily Bowes service and sales assistants
of processing up to eight sacks of mail per day. This
scheme not only benefited Neil as an individual but has
enriched the team at Emily Bowes.
Supporting Parliamentary interns
The UNITE Foundation partners with the Social Mobility
Foundation to support the Speaker’s Parliamentary
Placements Scheme. This is a paid internship scheme
that gives participants the opportunity to spend more
than nine months working with a Member of Parliament
in Westminster. It aims to broaden diversity within
government by targeting those who would otherwise
find the cost of living and working in London without
pay, prohibitive.
“ London is one of the most expensive
cities in the world to live in and the cost of
housing is often one of the biggest barriers
to those who seek to take up internships in
our capital. That is why the support of the
UNITE Foundation is so vital to the young
people who take part in the Speaker’s
Parliamentary Placements Scheme.”
Hazel Blears, MP
The UNITE Group plc Annual Report and Accounts 2013 45
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Strategic report
Corporate responsibility review continued
BUSINESS
We behave with integrity in the relationships that allow our business model to
work. This underpins our position as a sustainable business generating strong
recurring cash flows.
During 2013 our Procurement team updated our supplier pre-qualification
questionnaire to ensure that the companies we work with are responsible,
well-run businesses that treat their staff fairly and have the right procedures
and insurance in place. This gives us a more holistic view of suppliers when viewed
alongside our financial due diligence process. Where possible, we work with local
suppliers, particularly in our cities, and use an umbrella company that enables us to
trade with sole traders in a protected way. We also installed a portal that ensures
our employment agencies are paid a fixed margin, giving us transparency of
temporary staff costs so we can ensure our agency workers are paid fairly.
UNITE has always undertaken and published research and in 2013, recruited
a dedicated Market Intelligence (MI) team to ensure all the Group’s business
decisions are underpinned by insight. The MI team established the UNITE
Customer Panel made up of 400 UNITE students, which allows us to gain
direct feedback and input into decisions from our customers. The Panel is being
expanded in 2014 to include non-UNITE students and parents, and will also be
offered to University partners. The team also runs the Group’s Research and
Insight Forum which coordinates research across our business units so that
we gain maximum value from any research we undertake, and are able to
share this effectively with the wider sector.
Our internal processes and procedures, and our Operations Manual were
updated by our Operations Support Team during 2013. Access to these
important documents was improved through our investment in mobile working
which allows them to be accessed from anywhere in our properties. Accessing
these resources through mobile devices also helped employees follow the
guidelines more consistently as they were guided through step by step. Our
crisis procedures were also reviewed and updated by Operations Support in
partnership with our Health and Safety team.
Around half our 41,000 rooms are rented to students through nominations
agreements with Universities. We continued to strengthen our relationships
with our University partners through the formation of a dedicated University
Partnerships team. We recognise that every institution has different needs and
this team worked closely with UNITE’s Head of Higher Education Engagement,
and our city teams, throughout the year to improve the way we manage HE
relationships and to tailor our accommodation offer to better meet the needs
of our nominations agreement partners.
The UK’s Higher Education sector is going through a time of profound change
and growth. Our Head of Higher Education Engagement works closely with senior
colleagues across the business to stay ahead of changes in the sector. By doing
so, we can better understand the role that accommodation can play in enhancing
a unique student experience for each of our University partners.
We behave with
integrity in the
relationships that
allow our business model
to work. This underpins
our position as a
sustainable business
generating strong
recurring cash flows.
Supporting small businesses
Our Scotland Area Facilities Manager, John Stevenson,
began working with sole trade window cleaner, First
Glass, at one of the city’s five properties. He was very
reliable and John was keen to give him more work. John
worked with business owner, Kenny Rogers, over time
on his business plan and strategy. First Glass is now
contracted to clean the windows at all UNITE’s Glasgow,
Aberdeen, Edinburgh, Leeds and Newcastle sites and has
won a number of other contracts. Kenny now employs six
members of staff and operates a fleet of five vehicles.
46 The UNITE Group plc Annual Report and Accounts 2013
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We aim to grow diverse, talented and engaged teams where
all employees have the support, development and opportunity
to realise their professional and personal potential, enabling
success and delivering a sustainable high performance culture.
PEOPLE
We aim to grow diverse, talented and engaged teams where all employees have
the support, development and opportunity to realise their professional and personal
potential, enabling success and delivering a sustainable high performance culture.
In 2013 we focused on training and development, and providing clear career
progression for our employees. Online learning became freely available on the intranet
with modules including Mobile Working and Loan Working. We also launched our
Becoming a Supervisor training course. There were 65 successful graduates in the
inaugural year who are now on the path to more senior roles within UNITE. Importantly,
Becoming a Supervisor is accredited by the Institute of Leadership and Management
(ILM). Further development programmes for all roles are being introduced in 2014.
Students from 215 countries lived with us during 2013 and introduced cultural training
for staff who have a high percentage of international students living in their properties
from China, Malaysia, Cyprus, Thailand, India and Nigeria.
The investment that we have made has been recognised externally and this year we
gained the ‘Investors in People Silver’ accreditation. We also received our highest ever
employee satisfaction score in our annual survey.
2013 was a successful year for UNITE thanks to the hard work of our employees. We
celebrated the contribution of 115 staff members who went the extra mile for UNITE
at our annual, black tie, Stars Awards. Our long service awards took place at Woburn
Abbey and brought together 114 employees with over 370 years’ collective service.
Launched Wellbeing programme
Student mental health is a growing concern across the
HE sector. Our annual Higher Education partner survey
confirmed feedback from our staff, that this was an area
in which accommodation providers can make a significant
impact on the lives of students. In 2013 we launched
Wellbeing, a broad approach to ensuring the welfare of
our student residents in all aspects of their life – physical
health, mental health, study and achievement. Working
in close partnership with University student services
departments, our staff are able to provide support to
students in a crisis, a sympathetic ear to students who are
unhappy or concerned, and referrals to counselling and
other specialist services to those who need it. Wellbeing
is also about promoting positive lifestyles and habits, and
initiatives involving healthy eating, stress reduction, good
study habits and exercise throughout the year.
Becoming a Supervisor
UNITE’s accredited development programme, Becoming
a Supervisor, is designed to provide participants with the
confidence, skills and knowledge to progress to the next
stage of their career. Emma Hamilton, Business
Development Coordinator, said:
“The course has been a great development
platform for me that has supported my
supervisory responsibilities. I feel better
equipped to carry out my role with the
knowledge and skills I have been able to
develop and I felt a sense of achievement
and pride after passing the course. I am
looking forward to future development
courses that will be on offer and I will
certainly recommend the Becoming a
Supervisor course to my colleagues.”
The UNITE Group plc Annual Report and Accounts 2013 47
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Strategic report
Corporate responsibility review continued
PEOPLE continued
Health and Safety remained at the core of our business and the main areas
of focus in 2013 were workplace safety and fire prevention. For more information
on the work of the Group’s Health and Safety Committee, see page 61.
The Safety Support team rolled out a new Accident and Incident Management
System (AIMS) which provides greater clarity over incidents relating to workplace
safety, fire prevention, security and customer welfare support. On fire prevention,
we installed over 500 fire door alarms in kitchens which help our customers
recognise the importance of keeping kitchen fire protection doors closed. The
installation programme is continuing into 2014 with a further 300 installations
planned. During 2013, we also saw the roll-out of further safety training and a new
Safety Support Services intranet site detailing clear procedures to support both
our Health and Safety and Fire Prevention Policies. A Health and Safety training
session was also held for the Operations Board and all Area Managers, to ensure
their knowledge and understanding of the area is up to date.
Graduates of UNITE’s accredited
Becoming a Supervisor course
65
370
Years’ collective service celebrated
at our long service awards
Online accident reporting
In 2013 the Safety Support Services team worked with
internal business partners to build an online reportable
accident and incident system. Employees are now able to
report safety issues, welfare incidents, accidents, theft
and fires online. From this, managers are able to access
reports that permit trend analysis to be carried out and
risk control measures to be applied in an attempt to
prevent or reduce the risk to safety of both customers and
staff. Since its launch in May 2013, there have been over
2,000 incidents reported on the system, ranging from
minor incidents such as flooding to reportable accidents.
The business now has sight of activities relating to safety
and allows UNITE to act as both a responsible landlord
and employer.
H&S management system
In 2013 the Safety Support Services team produced an
internal safety management system for UNITE. This
consisted of an overarching Group Safety Policy and a
Fire Prevention Policy and procedural guides to support
business compliance from gymnasiums to window safety.
Risk assessments for all job roles have been created
alongside a suite of safety and fire safety training courses
to further develop our employees in key focus areas.
The team has worked with internal business partners
to build a Safety Support Services home page on our
company Intranet site. This simple and user friendly ‘one
stop shop’ for safety was launched at the end of 2013
and has proved invaluable as a support to the business,
highlighting that people are our passion and safety is
our strength.
48 The UNITE Group plc Annual Report and Accounts 2013
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UNITE DIVERSITY
POLICY
UNITE values diversity amongst its workforce. Our aim is that our
workforce will be truly representative of all sections of society and
each employee will feel respected and able to give their best.
The purpose of this policy is to promote a culture of equality and
fairness for all and ensure no person acting on our behalf shall
discriminate in any situation against another individual or group,
directly or indirectly, because of any of the nine protected
characteristics stated in the Equality Act 2010. The protected
characteristics are:
• age
• disability
• gender reassignment
• marriage and civil partnership
• pregnancy and maternity
• race
• religion or belief
• sex
• sexual orientation.
We are committed to a workplace free from processes, attitudes
and behaviours that amount to direct discrimination, associative
discrimination, discrimination by perception, indirect discrimination,
harassment, victimisation and bullying.
All employees, whether part-time, full-time or temporary, will
be treated fairly and with respect. Selection for employment,
promotion or training will be on the basis of aptitude and ability.
The talents and resources of the workforce will be fully utilised
to maximise the efficiency of the organisation.
We strive to be an employer of choice and expect positive
behaviour from our entire workforce to help create an environment
that encourages equality. All of our employees have a responsibility
to embrace and support this policy and must challenge processes,
behaviour and attitudes that prevent us from achieving our Equality
& Diversity Aims.
UNITE opposes and will challenge all forms of unfair discrimination.
Cultural awareness
With an eclectic mix of nationalities living with UNITE it is important
for our employees to understand what international students will be
experiencing and the cultural differences they will encounter through
living and learning in the UK. We have produced a number of cultural
guides, available through Online Learning, to help us support and
meet their needs. The largest percentage of international students
living with us come from China; in light of this we created a more
in-depth Chinese training programme and customer-facing employees
from all 23 cities have attended the course since its inception in
July 2013..
Gender diversity split (%)
All employees
■
■
Male
Female
56
44
Our 2013 Strategic report, from page 1 to page 49 has
been reviewed and approved by the Board of Directors
on 6 March 2014.
Mark Allan
Chief Executive Officer
6 March 2014
Senior managers
(Operations and Property Boards
and their direct reports)
■
■
Male
Female
71
29
Board
Chairman, Executives and
Non-Executive Directors
■
■
Male
Female
8
2
1420-1 UNITE AR_1.Strategic_v14.indd 49
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The UNITE Group plc Annual Report and Accounts 2013 49
Corporate governance
Chairman’s overview and Code compliance
Committed to a culture
of good governance
“ The Board has driven the development of
a market leading service platform with a
particular emphasis on service delivery.
Further, ensuring governance on health
and safety is an integral part of our market
leading service platform; the Board ensures
health and safety governance through the
Health and Safety Committee.”
Our governance priorities for 2014
During 2014, our Governance priorities will focus on:
• The allocation of our capital and the Group’s new developments;
the Board will oversee the management of the build process,
with a particular emphasis on planning and the timetable
to completion
• Enhancing our market leading service platform; the Board will
oversee the development of our brand coupled with an upgrade
to our IT systems which will directly impact the way our
customers deal with us.
Dear shareholders,
How governance supported UNITE’s strategy
during 2013
Our Group strategy comprises three elements: grow recurring
profits and cash flow while building on our market leading service
platform; enhance our portfolio quality; and strengthen our capital
base. A strong governance culture and framework built around
these three elements is essential to secure its successful delivery.
During 2013, the Board has continued to oversee the progression
and implementation of the three strands of the Group’s strategy.
The Board meets twice a year to focus on UNITE’s strategy, often
at Universities across the UK in order to meet Vice-Chancellors
and learn about their accommodation requirements and broader
developments in the Higher Education sector.
The Board has driven the development of a market leading service
platform with a particular emphasis on service delivery. Further,
ensuring governance on health and safety is an integral part of
our market leading service platform; the Board ensures health
and safety governance through the Health and Safety Committee.
A second area of focus was enhancing the quality of our portfolio.
The Board reviewed and approved three new development projects,
secured under contract, in strong regional locations, as well as three
London projects as part of the LSAV pipeline. The Board scrutinised
these projects, ensuring they meet the quality, location and target
returns set by our strategy.
Finally, the Board focused on strengthening our capital structure.
The focus in 2013 was on reducing our cost of debt, extending our
weighted average loan maturity and diversifying our sources of finance
(for more detail see page 38). The Board, led by the CEO and CFO,
oversaw this activity, with a number of successful refinancings, a share
placing and the issue of a convertible bond, all completed during 2013.
50 The UNITE Group plc Annual Report and Accounts 2013
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The UNITE Board is able to oversee the setting and implementation
of the Group‘s strategy due to its flat management structure; four
members of the Board are Executive Directors and therefore actively
involved in the day to day implementation of the strategy. This
executive perspective is balanced by five Non-Executive Directors,
including the Chairman, who bring a depth and breadth of experience
in senior management, finance, customer service and real estate.
The Board has ultimate responsibility to UNITE shareholders for
all the Group’s activities and also a broader responsibility, extending
to environmental and social issues, recognising that the Group is
home to 41,000 students during a crucial stage of their personal
development, and with Universities right across the UK. To discharge
this broader responsibility effectively, the Group needs to operate in an
open, harmonious and transparent manner. One way in which this is
achieved is by ensuring open communication between the Board and
senior UNITE management. Senior management regularly present to
the Board; for example, during 2013, UNITE’s Development Director,
Funds Directors (representing our various co-investment vehicles),
University Partnerships Director, Head of Legal & Company Secretary
and Operations Directors (among others) presented to the Board.
This access to senior management opens dialogue beyond the
boardroom itself.
Further, with Board meetings located in cities across the UK, the
Board visits our new developments and the existing properties and
meets with our Operations teams, giving them a grounded insight
to the implementation of the strategy.
Appointments and succession
During 2013, the Nomination Committee continued to ensure the
Board had the appropriate balance of skills, experience, independence
and knowledge in order to discharge their respective duties and
responsibilities effectively. As part of an orderly succession plan, Stuart
Beevor left the Board after nine years and Andrew Jones was appointed
to supplement our Real Estate experience. In May 2014, Richard Walker
will also leave us after nine years’ service and we have appointed
Elizabeth McMeikan (who joined on 1 February 2014), who brings
significant experience in customer-focused businesses to our Board.
Richard Walker’s positions as Chair of the Remuneration Committee
and Chair of the Health and Safety Committee will be taken by Elizabeth
McMeikan and Sir Tim Wilson respectively, following Richard’s departure.
“ The Board has ultimate responsibility
to UNITE shareholders for all the Group’s
activities and also a broader responsibility,
extending to environmental and social
issues, recognising that the Group is home
to 41,000 students during a crucial stage
of their personal development…”
UK Corporate Governance Code
During 2013, our governance framework was enhanced to take
into account the revisions in the UK Corporate Governance Code
(the Code) introduced in September 2012 and also the Large and
Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 (the 2013 Regulations).
The Code remained the minimum standard against which we
measured ourselves during 2013. The Code is published by the
Financial Reporting Council (FRC) and is available at www.frc.org.uk.
We complied with all the provisions in the Code during 2013 and
expect to be fully compliant during 2014.
The edition of the Code published in September 2012 applied
throughout our financial year ending 31 December 2013, but the
Financial Conduct Authority has yet to change the Listing Rules and
therefore requires that certain compliance statements are made in
relation to the previous edition of the Code, issued in June 2010.
This report addresses the requirements of both editions of the Code.
During the year to 31 December 2013 the Company has in all
respects complied with the provisions of both editions of the Code.
Phil White
Chairman of the Board
6 March 2014
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The UNITE Group plc Annual Report and Accounts 2013 51
Strategic report Corporate governance Financial statements Other information
Corporate governance
Board of Directors
The right mix of skills and experience
Phil White
Chairman
Committees
Mark Allan
Chief Executive
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
Non-Executive Director of Stagecoach Group plc.
Health & Safety Committee
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
Committees
Chair of Risk Committee
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, 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.
Manjit Wolstenholme
Senior Independent Director
Committees
Elizabeth McMeikan
Non-Executive Director
Committees
Richard Walker
Non-Executive Director
Committees
Chair of Audit Committee
Remuneration Committee
Nomination Committee
Experience
Manjit qualified as a Chartered Accountant with
Coopers & Lybrand and has strong financial and
executive experience, including roles as Chief Operating
Officer of Kleinwort Benson, Co-Head of Investment
Banking for Dresdner Kleinwort Wasserstein and a
Partner in Gleacher Shacklock. She is Chair of Provident
Financial plc and Senior Independent Director and Chair
of the Remuneration Committee of Future plc. Manjit is
also a Non-Executive Director and Chair of Audit
Committee for Aviva Investors.
Audit Committee
Remuneration Committee
Nomination Committee
Health & Safety Committee
Experience
Liz was appointed Non-Executive Director of UNITE
in February 2014. She has significant experience in
customer-focused businesses, Tesco and Colgate
Palmolive, where she was successful in driving growth
through a thorough understanding of customer needs
and an innovative marketing approach. Liz is Senior
Independent Director at FTSE 250 pub group JD
Wetherspoon and family-owned wine merchants Direct
Wines. She is also a Non-Executive Director at import/
export fruit and vegetable company, Fresca Group Ltd,
and CH & Co Ltd, a privately-owned catering company.
In November 2012 Liz was appointed Chair of Moat
Homes Ltd, a leading housing association working in
the South East.
Chair of Health & Safety Committee
Chair of Remuneration Committee
Audit Committee
Nomination Committee
Experience
Richard brings strong operational expertise to
the Board. He formerly held the roles of Customer
Experience Director and Chief Operating Officer at
TalkTalk (Telco Arm of Carphone Warehouse Group),
and was responsible for their customer experience
change programme. Prior to this, 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. He holds a law
degree from Nottingham University and trained as an
accountant with Coopers & Lybrand. Richard was
recently appointed as Non-Executive Director of
Lookers plc.
52 The UNITE Group plc Annual Report and Accounts 2013
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Richard Simpson
Managing Director of Property
Experience
Richard is Managing Director of Property for UNITE.
He sets the strategic direction for all aspects of the
property portfolio, oversees the fund management of
UNITE’s co-investment vehicles and leads the property
development activities. Richard joined UNITE in 2005
and has held a variety of senior roles within the Group.
He is Chair of the British Property Federation’s
cross-sector Student Accommodation Committee and
is a qualified chartered surveyor and a fellow of the
Royal Institute of Chartered Surveyors. Prior to this,
Richard served for six years in the British Army.
Richard Smith
Managing Director of Operations
Experience
Richard was appointed as Managing Director of
Operations for UNITE in 2011. His role involves leading
the service provided to our 41,000 customers, and
managing the maintenance and facilities management
across the Group’s portfolio. Richard joined UNITE as
Deputy Chief Financial Officer in 2010. Prior to this he
spent 18 years in the transport industry, 13 of which
were at National Express Group plc 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.
Professor Sir Tim Wilson
Non-Executive Director
Committees
Andrew Jones
Non-Executive Director
Committees
Chair of Nomination Committee
Audit Committee
Remuneration Committee
Health & Safety 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,
Tim 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.
Audit Committee
Remuneration Committee
Nomination Committee
Experience
Andrew is Chief Executive Officer of LondonMetric
Property, following the 2013 merger of London &
Stamford and Metric. He was co-founder of Metric
and its Chief Executive Officer since its launch in
March 2010. Andrew’s previous roles include Executive
Director and Head of Retail at British Land. He 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.
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The UNITE Group plc Annual Report and Accounts 2013 53
Strategic report Corporate governance Financial statements Other information Corporate governance
Relations with shareholders
Relations with shareholders
The Board attaches a high priority to effective communication
with shareholders and with other providers of capital to the business,
and welcomes their views on 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 were held throughout 2013. The
Board is made aware of the views of major shareholders concerning
the Company through, among other means, regular analyst and
broker briefings, and surveys of shareholder opinion. That process
will continue throughout 2014.
The Board, together with its professional advisers, actively analyses
the Register of the Company with a view to ensuring the long-term
stability of the Register.
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 the 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, are 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 page 135.
Results of AGM 2013
1 Accounts
2 Dividend
3 Remuneration Report
4-12 Appointment of Directors
13 Re-appointment of Auditors
14 Auditors’ remuneration
Total
votes
for and
discretion
%
98.8
100.00
99.8
92.3
to 99.9
92.6
82.3
Total
votes
against
%
1.2
0.0
0.2
0.1
to 7.6
7.4
17.7
54 The UNITE Group plc Annual Report and Accounts 2013
Shareholders by geography %
■
■
■
■
England and Wales
Scotland
North America and Canada
Rest of Europe
Rest of World
Top ten shareholders %
■
■
■
■
■
■
■
■
■
FIL Limited/FMR LLC
Old Mutual Asset
Managers Limited
Lloyds Banking Group
BlackRock Inc.
Royal London Asset
Management Limited
Franklin Resources Inc.
APG Algemene Pensioen
Groep N.V.
Aberforth Partners
Legal & General Investment
Management Limited
Norges Bank
Investment Management
Other
41.1
9.7
29.8
14.0
5.4
9.1
6.0
5.0
5.0
4.6
4.4
4.3
3.5
3.4
3.1
51.6
MacBook Pro
Stay up to date:
www.unite-group.co.uk/investors
1420-1 UNITE AR_2.Gov_v6.indd 54
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■■■ Corporate governance
Leadership
Board structure
Set out below is an outline of UNITE’s governance structure:
UNITE Board
Audit Committee
Remuneration Committee
Nomination Committee
Health & Safety Committee
UNITE Operations Board
UNITE Property Board
Risk Committee
How the Board operates
Meetings
The Board discusses and approves, annually, a forward agenda of
items for the forthcoming year. This forward agenda sets out a wide
range of matters to be reviewed and (to the extent necessary)
approved at Board meetings, and at meetings of its Committees.
Meetings are held in our head office in Bristol, in London (where a
large proportion of our properties are located and also the largest
concentration of Higher Education institutions in the UK) and in cities
throughout the UK. These cities are selected to give the Board an
opportunity to see, first-hand, the Company’s operations, properties
and developments across the UK. During these city visits, the Board
meets with senior leaders in the Higher Education sector, such
as Vice-Chancellors of Universities UNITE partners with, so that
the Board can hear how our business is performing and how
the Higher Education sector is developing, directly from some
of our key stakeholders.
Board meetings are structured around the following areas:
• Operational, property and financial updates: To provide
the Board with the necessary information to track the Group’s
performance and challenge any problems with performance
• New development schemes: This is to review and challenge new
development schemes being recommended by management and,
due to the significant capital expenditure involved and key strategic
decisions required, approve these schemes
• Strategy and five year plan: To discuss, review and approve our
strategy and five year plan, and track how we are performing
against our current strategy and the five year plan
• Risk review: A review and discussion of our key risks at a Group
level and also a review of our operational level risks (the Board’s
operational risk review is to verify that risks have been properly
identified and that appropriate risk mitigation plans are being
properly managed with clear actions and ownership
• Market and Higher Education sector updates: To ensure
the Board is equipped with the most up-to-date knowledge and
understanding of the industry and environment we are operating in
• Training: To ensure the Board is up to date on key legal and
regulatory changes (for example, during 2013, there was training
on changes in the UK Corporate Governance Code, changes in
executive remuneration reporting and the Directors’ Remuneration
Report and changes in narrative reporting for the annual report)
• Regular updates from the Board Committees on their
activities and recommendations: This to ensure the detailed
work performed in the Board Committees is considered by the
Board as a whole.
Senior managers are regularly invited to attend meetings and
present to the Board on the areas they manage, and for which they
have domain expertise. This provides the Board, and in particular the
Non-Executives, with direct and open access to managers throughout
the Group and helps foster a culture of openness and directness.
Details of the number of meetings the Board and its Committees held
during the year, and attendance of Directors at those meetings, are
set out in the table on page 57.
Board meetings
2013
Birmingham
Bristol
London
Plymouth
Leicester
2012
Bristol
London
Huddersfield
Liverpool
Edinburgh
1
2
7
1
1
3
5
1
1
1
MacBook Pro
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Corporate governance
Leadership continued
Composition and appointments
The Board currently consists of the Chairman, four Executive
Directors and five Non-Executive Directors.
Andrew Jones joined the Board on 1 February 2013. On 16 May
2013, Stuart Beevor, previously Chair of the Remuneration Committee
and Senior Independent Director, stood down from the Board,
having by then served for nine years as a Non-Executive Director
of the Company.
Roles
The Group’s terms of reference for the Chairman and the
Chief Executive 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:
Elizabeth McMeikan was appointed to the Board as an additional
Non-Executive Director with effect from 1 February 2014.
At the annual general meeting of the Company, convened for
15 May 2014, Richard Walker (currently Chair of the Remuneration
Committee and Health and Safety Committee), will retire from the
Board having, by then, served nine years in office. Richard will be
replaced by Elizabeth McMeikan as Chair of the Remuneration
Committee and by Sir Tim Wilson as Chair of the Health and
Safety Committee.
Board breakdown
Chief
Executive
■
■
■
Chairman
Executive
Non-Executive
1
4
5
• To establish, in conjunction with the Chief
Executive, the strategic objectives of the
Group, for approval by the Board
• To organise the business of the Board
• To enhance the standing of the Company
by communicating with shareholders, the
financial community and the Group’s
stakeholders generally.
Mark Allan has responsibility for:
• Establishing, in conjunction with the Chairman,
the strategic objectives of the Group, for
approval by the Board
• Implementing the Group’s business plan and
annual budget
• The overall operational and financial
performance of the Group.
In accordance with the requirements of the Code, each of the
current Directors, other than Richard Walker, offers himself/herself
for re-election at the annual general meeting. Brief biographies
of all the Directors are set out on pages 52 and 53. Following the
individual performance evaluations of each of the Non-Executive
Directors seeking re-election (other than Elizabeth McMeikan who
was only appointed effective 1 February 2014), it is confirmed that
the performance of each of these Non-Executive Directors continues
to be effective. They each demonstrate commitment to the role,
and add value and relevant experience to the Board.
Senior
Independent
Director
As Senior Independent Director, Manjit
Wolstenholme’s principal responsibilities are to:
• Act as Chair 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.
Board activity throughout the year
February
March
April
May
June
July
Group strategic
five year plan
Review of USAF
fund
People plan
review
London market
review
Review of student
numbers
Review of Preliminary
Announcement, Annual
Report and Accounts
and recommend final
dividend
Board meeting at
Plymouth University
and tour of Plymouth
properties
Analyst review on
Preliminaries
Board evaluation
Board meeting in
Bristol and tour of
Bristol properties
Review of student
numbers
Sales performance
to date
University partnerships
OCB JV review
UCC and LSAV
JV review
Development strategy
and pipeline
Customer satisfaction
scores
Five year strategic
plan approval
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August
Review of half-year
results and interim
dividend
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 major development schemes
• Approving appointments to and dismissals from the Board
• Reviewing systems of internal control and risk management, and
• Approving policies relating to Directors’ remuneration.
These topics are scheduled as part of the forward agenda for
the forthcoming year or brought to the Board on an ad hoc basis,
as and when this is necessary.
Board and Committee attendance at meetings in 2013
Date of
appointment
to the Board
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Health
& Safety
Committee
Current Directors
Status
Phil White
Chairman
Sir Tim Wilson
Independent
Richard Walker
Independent
Manjit Wolstenholme
Independent
Andrew Jones
Independent
Mark Allan
Joe Lister
Executive
Executive
Richard Simpson
Executive
Richard Smith
Executive
21.01.09
01.12.10
03.11.05
01.12.11
01.02.13
17.11.03
02.01.08
01.01.12
01.01.12
Director who stepped down in the year
Stuart Beevor
Independent
01.03.04
(resigned 16.05.13)
12
12
12
12
12
12
12
12
12
3
N/A
5
5
5
5
N/A
N/A
N/A
N/A
2
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
2
2
N/A
N/A
2
N/A
N/A
N/A
3
1
N/A
Elizabeth McMeikan, a current Non-Executive Director, did not attend any Board meetings during 2013 since she was only appointed to the
Board effective 1 February 2014.
July
Sales performance
to date
UCC and LSAV
JV review
Five year strategic
plan approval
August
September
October
November
December
Review of half-year
results and interim
dividend
University reputation
results – commercial
Board meeting in
Leicester and tour of
Leicester properties
IT strategy
Review of capital
operating guidelines
Review CSR and the
UNITE Foundation
Review of 2013/14
lettings
Property market
review
2014/15 sales strategy
■ Strategy
■ Commercial
■ Investor relations
■ Financial and risk
management
■ Governance
Customer and employee
satisfaction scores
2014 budget and
impact on five year
strategic plan
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Corporate governance
Leadership continued
Board Committees
The Board has delegated certain responsibilities to its Committees,
as detailed on the following pages. The terms of reference for each
Committee are reviewed annually and the current versions are
available on the Company’s website at www.unite-group.co.uk.
The current membership of each Committee of the Board is set
out below and full details of attendance at Committee meetings
can be found in the table on page 57.
Phil White
Remuneration
Nomination
Richard Walker
Audit
Remuneration*
Nomination
Health & Safety*
Andrew Jones
Audit
Remuneration
Nomination
Mark Allan
Health & Safety
Sir Tim Wilson
Audit
Remuneration
Nomination*
Health & Safety**
Manjit Wolstenholme
Audit*
Remuneration
Nomination
Elizabeth McMeikan
Audit
Remuneration***
Nomination
Health & Safety
* Denotes Chair.
** Sir Tim Wilson will become Chair of the Health and Safety Committee following the
annual general meeting.
*** Elizabeth McMeikan 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:
Nomination Committee: see the Nomination Committee report
on page 60.
Audit Committee: see the Audit Committee report on page 62.
Health and Safety Committee: see the Health and Safety
Committee report on page 61.
Remuneration Committee: see the Remuneration Committee
report on page 67. The Remuneration Committee report is
incorporated into this corporate governance statement by reference.
Board tenure
Each of the Executive Directors has a rolling contract of
employment with a 12-month notice period, whilst Non-Executive
Directors are, subject to re-election by shareholders, appointed to the
Board for a term of approximately three years. In accordance with the
recommendations of the Code, the Directors will all retire at the annual
general meeting and (other than Richard Walker 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:
■
■
■
0-2
3-5
6-9
3
2
1
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
regular dialogue with, and direct access to, the advice and services of
the Company Secretary who ensures Board processes and corporate
governance practices are followed.
Insurance
The Company maintains Directors and Officers Liability insurance,
which is renewed on an annual basis.
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Effectiveness
Induction
On appointment, each Director takes part in a comprehensive and
personalised induction programme covering:
• The business and operations of the Group and the Higher
Education sector, 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
• The Group’s corporate governance practices and procedures
and the latest financial information about the Group, and
• Their legal and regulatory responsibilities as a Director and,
specifically, as a Director of a listed company.
As part of the induction programme, each Director also visits key
locations to see our business operations and properties first hand
and the Higher Education institutions we are partnering with. Also,
they meet with key senior executives so from the outset they have
access to managers throughout the organisation to help them form
their own independent views on the Group and its performance, and
the Higher Education sector we operate in. In addition, they are given
the opportunity to meet with representatives of the Company’s
key advisors.
This induction is also supplemented with ongoing training throughout
the year to ensure the Board is kept up to date with key legal,
regulatory and industry updates.
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.
The terms and conditions of appointment of the Non-Executive
Directors are available for inspection at the Company’s registered
office and at the annual general meeting.
Performance evaluation
Each year the Board, its Committees and Directors are evaluated
considering (among other things) the balance of skills, experience,
independence and knowledge on the Board, its diversity (including
gender), how it works together as a unit and other factors relevant
to its effectiveness. Every third year, this evaluation is conducted
by an external advisor with the requisite skill and expertise. The last
independent evaluation was undertaken in 2011 by Ffion Hague
Independent Board Evaluation (which has no other connection with
the Company) followed by internal reviews in 2012 and 2013.
Board induction
Elizabeth McMiekan joined the Board on 1 February 2014
as a Non-Executive Director and takes over as Remuneration
Committee Chair once Richard Walker retires from the Board
in May 2014. Her induction was organised by the Company
Secretary and covered our operations and developments, the
Higher Education industry, corporate governance and risk. In
addition, with Elizabeth taking over the Remuneration Committee
chair, Elizabeth’s induction was further tailored to cover the 2013
changes in remuneration reporting and she spent time with the
Group’s remuneration consultants, Kepler Associates. So that
Elizabeth could get close to the business, she visited a handful of
our operating properties and our development sites throughout the
UK. This will continue going forward, with Group Board meetings
taking place throughout the UK with visits to our operating
properties and development sites.
During 2013, the Non-Executive Directors, and the Board as a
whole, considered the effectiveness of the Board and its Committees
considering the criteria set out above. The Chairman evaluated
the effectiveness of the Chief Executive and the Chief Executive
evaluated the effectiveness of the other Executive Directors. In
addition, the Senior Independent Director evaluated the Chairman.
This 2013 review concluded that the Board and its Committees
were working effectively. In particular, it was noted that meetings
were productive and well prepared for and the meetings ran smoothly.
Senior managers throughout the organisation were invited to present
to the Board on their areas of expertise. This ensured the Board had
a deeper and uncluttered view of the organisation, our operations
and the Higher Education industry. Further, this helped the Board
constructively challenge matters brought to them for approval, and
ensure there was well informed dialogue at the Board meetings.
The 2013 internal evaluation noted that, due to the large number of
regulatory changes coming into force during 2013 (notably on the UK
Corporate Governance Code, executive remuneration and narrative
reporting), the Board should receive training on these key changes
during 2013. This training did take place during 2013 with the result
that the Board felt confident with the changes and believed it was
being kept up to date with these developments.
A formal independent evaluation will be undertaken during the second
half of 2014.
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Strategic report Corporate governance Financial statements Other information
Corporate governance
Effectiveness continued
Committee overview
Nomination Committee
report
Sir Tim Wilson
Chair of the Nomination Committee
Dear shareholders,
The Nomination Committee is integral to an effective Board. It
ensures the Board has the correct balance of skills, experience,
independence and knowledge. In addition, the Nomination Committee
drives Board succession planning. In discharging this responsibility,
it is critical that the Nomination Committee anticipates the Group’s
challenges and opportunities so we can help future proof the
Board with the appropriate diversity of skills and experience for
the changing environment we operate in.
During 2013, the Nomination Committee focus has been on
appointing a new Non-Executive Director, Elizabeth McMeikan,
who joined us on 1 February 2014. Elizabeth’s appointment was part
of our timely succession planning for Richard Walker, the Chair of our
Remuneration Committee and Health and Safety Committee, who
leaves us in May 2014 after nine years’ service. Following Richard
Walker’s departure, Elizabeth will become the Chair of the
Remuneration Committee and I will take over as Chair of the
Health and Safety Committee.
Further, during 2013, we monitored the induction of Andrew Jones,
who joined the Board on 1 February 2013, and also focused on senior
management succession planning to ensure the future leadership
needs of the business are kept under review.
Composition
The Committee is comprised entirely of Non-Executive Directors.
The members of the Committee are set out on page 58 of the
corporate governance statement. 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 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, lead a selection process that is formal, rigorous and
transparent, and
• Be responsible for identifying, reviewing and recommending
candidates for appointment to the Board.
60 The UNITE Group plc Annual Report and Accounts 2013
Activities in 2013
The major activity of the Committee in 2013 was the search and
appointment of a Non-Executive Director to replace Richard Walker
(who retires from the Board at the annual general meeting).
The Nomination Committee decided to look for someone with
experience as an operator in a multi-site environment, particularly
in the retail and/or leisure sector, where customer service is of
vital importance and an understanding of digital media and social
networking is key. The Zygos Partnership (a signatory to the Voluntary
Code of Conduct for Executive Search Firms) was engaged to
conduct a thorough search and this resulted in a strong list of
candidates. The Zygos Partnership has no other connection with the
Company. Following a series of meetings between the Nomination
Committee and these candidates, Elizabeth McMeikan was invited to
join the Board, which she did on 1 February 2014. Biographical details
of Elizabeth McMeikan are set out on page 52.
In addition, as part of an ongoing Board succession planning review,
the Nomination Committee reviewed the skills and experience of
senior managers in the Group’s various business units. The primary
purpose was to establish the internal pipeline for future Board
candidates and identify development needs for these high potentials.
Board diversity
As a business that provides homes for 41,000 students from many
different backgrounds and countries, the Board recognises that
diversity at the Board level and across the Group, including gender,
is critical to our continued success. The Board is proud of the diversity
of the Group as a whole, an organisation made up of employees
who, like our customers, are from many different backgrounds and
countries and have diverse personalities, experiences, perspectives
and skills (see table on page 49). This is fundamental to us providing
the best customer service to our diverse customers and
understanding their needs.
The Nomination Committee considered during 2013 whether
it wanted to set specific targets for female representation on the
Board or other diversity targets. The Committee welcomes the
developments in the Code to consider diversity at a Board level,
but the Committee does not feel the setting of targets is necessarily
in the best interests of the Group and its stakeholders. Rather, the
Committee will consider gender diversity, along with all other aspects
of diversity, with its more general remit to consider the balance of
skills, experience, independence and knowledge when reviewing
appointments to the Board.
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Activities in 2013
The major activity of the Committee in 2013 was workplace
safety and fire prevention. The Safety Support team rolled out a
new Accident and Incident Management System (AIMS) which
provides greater clarity over incidents relating to workplace safety,
fire prevention, security and customer welfare support. AIMS is being
used by the business to direct resources more effectively and provide
enhanced support material and training.
On fire prevention, the business installed over 500 fire door
alarms in kitchens. These alarms help ensure our customers
recognise the importance of keeping kitchen fire protection doors
closed, this being one of the greatest causes of fire in our operating
properties. The installation programme will continue into 2014 with
a further 300 installations planned. During 2013, we also saw the
roll-out of further safety training and a new Safety Support Services
intranet site detailing clear procedures to support both our Health
and Safety and Fire Prevention Policies.
Priorities for 2014
The Committee has set the following strategic priorities for 2014:
• A new auditing programme for fire risk assessment and
workplace safety
• Revision of fire prevention procedures so as to see a decrease
in incidents as well as false fire alarm activations
• A review of our induction and job role training for team members
• Improved information for our customers using modern
media technology
• Benchmarking UNITE against other similar providers for our
workplace safety and fire prevention to help ensure governance
in our health and safety processes and implement industry
best practices.
Heath & Safety
Committee report
Richard Walker
Chair of the Health & Safety Committee
Dear shareholders,
The Health and Safety Committee ensures the governance of
health and safety in both our ongoing operations and our construction
and development activity. We are home to 41,000 students and their
safety, welfare and security are critical not only to us but also other
key stakeholders, such as parents and Universities as well as the
police and fire services.
During 2013, the focus of the Committee has been on the
governance of workplace safety and fire prevention procedures, our
key health and safety risks. These priorities have been implemented
by our new Head of Health and Safety, appointed at the start of 2013.
Fire and workplace safety will continue as our health and safety
priorities for 2014, with a particular focus on a new auditing
programme we are rolling out during 2014 to further enhance
our safety and security in our properties. Further, we will be bench
marking UNITE against other similar providers on workplace safety
and fire prevention to help ensure governance in our health and
safety processes and implement industry best practices.
I am pleased to report that during 2013 UNITE became a full member
of the British Safety Council and affiliate member of the University
Health and Safety Association.
Committee overview
Composition
• Richard Walker (Chair)
• Sir Tim Wilson
• Mark Allan
Richard Simpson (Managing Director, Property) and Richard Smith
(Managing Director, Operations), together with the Group Head
of Health and Safety, Douglas Cameron, also attend meetings
of the Committee.
Role
The role of the Health and Safety Committee is to:
• Ensure the Group’s policies, procedures and working practices
regarding health and safety meet or exceed legal obligations
• Annually review the Group’s Health and Safety policy
• Ensure 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, and
• 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
management identifies and implements any corrective
action considered appropriate.
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Accountability
Internal control
The Board has overall responsibility for the Group’s system of internal
control. However, such a system is designed to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement.
The provisions of the Code in respect of internal controls require that
Directors review all controls including operational, compliance and risk
management, as well as financial controls. Through reports from the
Board’s Committees, the Group’s Risk Committee and the Group’s
business unit boards (Operations Board and Property Board), 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. The Board delegates certain of
its duties, responsibilities and powers to the Audit Committee, so that
these can receive suitably focused attention, but in so doing the Audit
Committee acts on behalf of the full Board, and the matters reviewed
and managed by the Audit Committee remain the responsibility of the
Directors taken as a whole.
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.
Risk management
The Board, when setting the strategy, also determines the nature and
extent of the significant risks and its risk appetite in implementing this
strategy. Each year the Board reviews the effectiveness of the Group’s
risk management systems and how the Board did this during 2013 is
set out in ‘Risk management’ on page 64.
Business model
For a description of the Group’s business model, see page 16 of the
strategic report.
Audit Committee report
Manjit Wolstenholme
Chair of the Audit Committee
Dear shareholders,
The Audit Committee plays an important role sitting between
management and shareholders. The Committee has specific duties
as set out in its terms of reference, in line with the Code, and goes
beyond to reassure shareholders that their interests are properly
protected in respect of the Company’s financial management
and reporting.
The Audit 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.
During 2013, the Audit Committee has continued to monitor the
integrity of the Group’s financial statements; assisted the Board in
reviewing the effectiveness of the Company’s internal control and risk
management systems; reviewed the internal audit activity and findings;
and reviewed arrangements for the Group’s employees to raise
concerns in confidence.
The Audit Committee also reviews the performance of the Group’s
external auditor each year and believes the relationship with the
auditor continues to be effective. We remain satisfied with the
auditor’s independence and effectiveness and have recommended
to the Board that they be re-appointed.
As noted in this corporate governance statement, the Board
delegates certain of its duties, responsibilities and powers to the
Audit Committee, so that these can receive suitably focused attention.
However, the Audit Committee acts on behalf of the full Board, and
the matters reviewed and managed by the Committee remain the
responsibility of the Directors taken as a whole.
Role of the Audit Committee
The Audit Committee has delegated authority from the Board
set out in its written terms of reference. The terms of reference
for the Audit Committee take into account the requirements of the
Code and are available for inspection at the registered office and at
the annual general meeting and can also be found on the Company
website at www.unite-group.co.uk/about-unite/
corporate-governance.
The key objectives of the Audit Committee are:
• To provide effective governance and control over the integrity
of the Group’s financial reporting and review significant financial
reporting judgements
• To review the effectiveness of the Group’s system of internal
controls, including financial controls and risk management systems
• To monitor the effectiveness of the Group’s internal audit function
and review its material findings, and
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• To oversee the relationship with the external auditor, including
making recommendations to the Board in relation to the
appointment of the external auditor and monitoring the
external auditor’s objectivity and independence.
Composition of the Audit Committee
The members of the Committee are set out on page 58 of this corporate
governance statement. The Committee members are all independent
Non-Executives and have been selected with the aim of providing the
wide range of financial and commercial expertise necessary to fulfil the
Committee’s duties. The Board considers that as a chartered accountant
I have recent and relevant financial experience.
Meetings are attended, by invitation, by the Chief Executive, the
Chief Financial Officer, the Deputy Chief Financial Officer, the Group
Financial Controller and the External Reporting and Tax Manager.
I also invite our external auditor, KPMG Audit Plc, to each meeting.
The Committee regularly meets separately with KPMG Audit Plc
without others being present. As appropriate, I also invite our internal
auditor, PricewaterhouseCoopers, to attend the meetings.
Committee meetings
The Committee met five times during the year and attendance at those
meetings is shown on page 57 of this corporate governance statement.
Main activities of the Committee during the year
The Committee assists the Board in carrying out its responsibilities in
relation to financial reporting requirements, risk management and the
assessment of internal controls. It also reviews the effectiveness of
the Company’s Internal Audit function and manages the Company’s
relationship with the external auditor.
As part of this process of working with the Board and to maximise
effectiveness, meetings of the Committee generally take place just
prior to a Company Board meeting. I report to the Board as part of a
separate agenda item, on the activity of the Committee and matters
of particular relevance to the Board in the conduct of their work. At its
five meetings during the year, the Committee focused on the activities
described below.
Following the publication of the revised version of the Code, which
applies to financial years commencing on or after 1 October 2012,
the Board requested that the Committee advise it on whether we
believe the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company’s performance, business
model and strategy. The Committee has undertaken a review and is
satisfied that there are appropriate controls and procedures in place
to ensure the Annual Report and Accounts are fair, balance and
understandable. Additionally, this review covered all of the changes
to the Code and the Committee has ensured the appropriate changes
have been made to the Group’s external reporting.
The Committee reviewed the half-year and annual financial
statements and the significant financial reporting judgements.
As part of this review, the Committee reviewed the liquidity risk and
the basis for preparing the accounts on a going concern basis as
outlined below. The Committee also reviewed the external auditor’s
report on these financial statements.
The Committee considered and approved the audit approach and
scope of the audit work to be undertaken by the external auditor
and the fees for the same. The Committee also considered the
independence of the auditor and the recommendations in the
Code regarding the tender of the external audit contract.
The Committee considered reports from the internal auditors on their
audits and assessment of the control environment. The Committee
reviewed and proposed areas of focus for the Internal Audit
programme of review.
Financial reporting
The primary focus of the Committee in relation to financial reporting in
respect of the year ending 2013 was to review with both management
and the external auditor the appropriateness of the half-year and
annual financial statements concentrating on:
• The quality and acceptability of accounting policies and practices
• The clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance
reporting requirements
• Material areas in which significant judgements have been applied or
there has been discussion with the external auditor, and
• Whether the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
To aid our review, the Committee considers reports from the External
Reporting Manager and also reports from the external auditor on the
outcomes of their half-year review and annual audit. As a Committee
we support KPMG Audit Plc in displaying the necessary professional
scepticism their role requires.
Significant issues considered by the Committee
After discussion with both management and the external auditor,
the Committee determined that the key risk of misstatement of
the Group’s 2013 financial statements related to:
• Property valuations, and
• Deferred tax assets.
Property valuation
The Group’s principal assets are investment properties and investment
properties under development that are either owned on balance sheet
or in the Group’s Fund or joint ventures. The investment properties are
carried at fair value based on an appraisal by the Group’s external valuers
who carry out the valuations in accordance with the Royal Institution of
Chartered Surveyors Red Book valuation guide, taking into account
transactional evidence during the year. The valuation of property assets
involves significant judgement and changes in the core assumptions
could have a significant impact on the carrying value of these assets.
Management discuss the underlying performance of each asset with the
external valuers and provide detailed performance data to them including
rents, University lease agreements, occupancy, property costs and costs
to complete (for development properties). Management receive detailed
reports from the valuers and perform a detailed review of the valuations
to ensure management consider the valuations to be appropriate.
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Strategic report Corporate governance Financial statements Other information Corporate governance
Accountability continued
During the year, the Committee met with two of the Group’s valuers
and challenged them on the basis of their valuations and their core
assumptions, including the yield for each property, rental growth and
forecast costs. The Committee was satisfied that the Group’s valuers
were appropriately qualified and provided an independent assessment
of the Group’s assets. The Committee was satisfied that an appropriate
valuation process had taken place, the core assumptions used
were reasonable and hence the carrying value of investment and
development properties in the financial statements was appropriate.
The auditor explained their audit procedures to test the valuation of
investment and development properties and the Group’s disclosures
on the subject. On the basis of their audit work, the auditor reported
no inconsistencies or misstatements that were material in the context
of the financial statements as a whole.
Deferred tax assets
The Group has significant tax losses brought forward from prior
years. Recognition of deferred tax assets relating to these losses is
only made when it is probable that these losses will be utilised in the
future and is therefore dependent on the forecast taxable profits
which involve significant judgements and assumptions regarding
future performance. Recent changes in Group strategy to reduce
gearing levels and improved profitability have made the future use
of these losses more likely. Management regularly prepare forecasts
of the Group results which are reviewed at Board level. Management
have used these forecasts to model the Group’s future taxable profits
which were then reviewed with the support of external tax advisors
to ensure management considered the forecast taxable profits
appropriate. Management also considered the impact on the Group’s
tax profile of potential conversion to a Real Estate Investment Trust
(REIT) in the medium term and whether complexities in the Group
structure might make some of the tax losses inaccessible at some
point in the future. Management therefore decided to restrict deferred
tax assets in respect of the next three years’ forecast taxable profits.
During the year, the Committee has regularly discussed the recognition
of a deferred tax asset with management and the Group’s external
auditor. The Committee was satisfied that the forecast approach and
three year recognition criteria and assumptions were reasonable and
hence the recognition of only a relatively small deferred tax asset
included in the financial statements was appropriate.
The auditor explained their audit procedures to test the assets
recognised and the Group’s disclosures on the subject. On the
basis of the audit work, the auditor reported no inconsistencies
or misstatements that were material in the context of the financial
statements as a whole.
Risk management
The Group’s risk assessment process and the way in which significant
business risks are managed is a key area of focus for the Committee.
Our work here was driven primarily by performing an assessment of
the approach taken by the Group’s Risk Committee which is chaired
by Joe Lister, the Group CFO. The Risk Committee is responsible for
the delivery of the Group’s risk management framework, which the
Committee has approved, and the Group’s assessment of its principal
risks and uncertainties, as set out on pages 27 to 29. We reviewed
and challenged reports from the CFO and Head of Legal on the
Group’s risk evaluation process and reviewed changes to significant
risks identified at both operating entity and Group levels. As part of
this review, the Committee also considered the risk management
procedures within the business and was satisfied that the key Group
risks were being appropriately managed.
The risk assessment flags the importance of the internal control
framework to manage risk and this forms a separate area of review
for the Committee.
Internal control
Led by the Group’s risk assessment process, we reviewed the
process by which the Group evaluated its control environment.
Management is responsible for establishing and maintaining
adequate internal controls over financial reporting, including over
the Group’s consolidation process. Internal controls are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the financial statements for external
reporting purposes. A comprehensive strategic planning, budgeting
and forecasting process is in place. Monthly financial information
and performance insight is reported to the Board.
The Committee’s work to review the effectiveness of the internal
controls was driven by the Group Financial Controller’s reports on
the effectiveness of internal controls; the feedback from the Group’s
internal auditor on specific areas of control that are tested on a
periodic basis and a request to our external auditor to provide specific
feedback and assessment of the Group’s financial controls and any
areas of weakness. No significant weaknesses were identified
through the course of the Committee’s reviews.
Internal audit
The Group engages PricewaterhouseCoopers to perform internal
audit activity. The Committee discussed and provided guidance for
the programme of activity that would be undertaken by the internal
auditor in 2013 and on a rolling three-year basis. This review included
the scope of Internal Audit’s activity and resourcing together with
areas of focus and planning for the next three years. The Committee
also receives the output from the Internal Audit reviews that are
undertaken in the year.
The relationship with PricewaterhouseCoopers is managed by an
Internal Audit Manager and the Group Financial Controller. Reports
from the CFO include updates on audit activities and progress of the
Group audit plan. During the year PricewaterhouseCoopers focused
its internal audit work on cash management, cash flow forecasting
and controls around Property investment and development activities.
The internal audit report highlighted the positive engagement from
64 The UNITE Group plc Annual Report and Accounts 2013
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the finance team in the preparation of risk and control matrices and
concluded that the financial controls tested appeared to be designed
and operating effectively.
2016. Notwithstanding this, the Audit Committee considers it
appropriate to conduct a tender of the external audit contract before
2016 and a tender will be run within the next two years.
External audit
The effectiveness of the external audit process is facilitated by
appropriate audit risk identification at the start of the audit cycle.
We receive from KPMG Audit Plc a detailed audit plan, identifying
its assessment of these key risks.
In addition, as part of the Audit Committee’s assessment of the
independence of the auditor, the Committee receives details of any
relationships between the Company and KPMG Audit Plc that may
have a bearing on their independence and receives confirmation
that it is independent of the Company.
Non-audit services
To further safeguard the objectivity and independence of the external
auditor from becoming compromised, the Committee has a formal
policy governing the engagement of the external auditor to provide
non-audit services. No material changes have been made to this policy
during the year. This precludes KPMG Audit Plc from providing certain
services such as valuation work or the provision of accounting services.
For certain specific permitted services (reporting accountant activities,
tax advisory and compliance work and debt advisory services), the
Committee has pre-approved that KPMG Audit Plc can be engaged
by management, subject to the policies set out above, and subject to
specified fee limits for individual engagements and fee limits for each
type of specific service. For all other services, or those permitted
services that exceed the specified fee limits, I as Chairman, or in my
absence another member, can pre-approve permitted services.
Fees paid to the Company’s auditors
For the 2013 financial year the significant risks identified were
in relation to the valuation of properties, funding covenants and
refinancing, the recognition of income, cost and interest capitalisation
and joint ventures due to the inherent management judgement
required in these areas. These risks are tracked through the year and
we challenged the work done by the auditors to test management’s
assumptions and estimates around these areas. We assess the
effectiveness of the audit process in addressing these matters
through the reporting we receive from KPMG Audit Plc at both the
half-year and year end. In addition we performed a review of auditor
effectiveness. We perform this through the use of a questionnaire
and discussion with management. We use this approach to gain
comfort that the external auditor is duly qualified, independent
and carries out its audit strategy appropriately.
For the 2013 financial year, the Committee was satisfied that there
had been appropriate focus and challenge on the primary areas of audit
risk and assessed the quality of the audit process to be good. We hold
private meetings with the external auditor at each Committee meeting
to provide additional opportunity for open dialogue and feedback from
the Committee and the auditor without management being present.
Matters typically discussed include:
• The auditor’s assessment of business and financial statement risks
and management activity thereof
Audit of the Company’s
accounts
Audit of subsidiaries
• The transparency and openness of interactions with management,
confirmation that there has been no restriction in scope placed on
them by management and the independence of its audit, and
Tax compliance services
Tax advisory services
• How they have exercised professional scepticism.
Corporate finance services
I also meet with the external lead audit partner outside the formal
committee process throughout the year.
Total fees
Audit and audit related
Non-audit related
Independence and external audit tender
The Committee considers the re-appointment of the external auditor,
including the rotation of the audit partner, each year and also assesses
their independence on an ongoing basis. To maintain the objectivity of
the audit process, the Group supports audit partner rotation and the
external auditor is required to rotate the audit partner responsible for
the Group audit every five years. The current lead audit partner, Bill
Meredith, has been in place for two years. KPMG Audit Plc has been
the Company’s external auditor since its stock market listing in
1999 (14 years).
While the Group has not formally tendered the audit since then, the
audit partner has been regularly rotated after five years of service on
the Audit and Bill Meredith was instated prior to the launch of the
revised Code. The transitional guidance suggests that the audit is
tendered at the end of the current audit partner’s five-year term, so in
2013
£m
2012
£m
2011
£m
0.2
0.1
0.2
0.1
–
0.6
0.3
0.3
0.2
0.1
0.2
0.2
0.1
0.8
0.3
0.5
0.1
0.1
0.2
0.2
–
0.6
0.2
0.4
1420-1 UNITE AR_2.Gov_v6.indd 65
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The UNITE Group plc Annual Report and Accounts 2013 65
Strategic report Corporate governance Financial statements Other information Corporate governance
Accountability continued
During the year KPMG Audit Plc charged the Group £0.3 million for
audit and audit related services. The Committee approved the fees for
audit services for 2013 after a review of the level and nature of work
to be performed, including the impact of acquisitions, and after being
satisfied by KPMG Audit Plc that the fees were appropriate for the
scope of the work required. These fees are also benchmarked against
other listed real estate companies of comparable size and complexity.
In addition to the statutory audit fee and fees for the audit of subsidiaries,
KPMG Audit Plc charged the Group a further £0.2 million for taxation
compliance and £0.1 million for tax advisory services. While non-audit
services amount to approximately 100% of the audit services, the Audit
Committee considers this appropriate given that a significant portion of
the non-audit services relate to the provision of tax compliance services
(principally assistance with corporation tax returns). The Committee
considers that these services are most suitably performed by the
external auditor and could not be provided as cost effectively by another
professional auditing firm. No valuation or accounting services are
provided by KPMG Audit Plc.
The Audit Committee recognises that, to help ensure external auditor
objectivity and independence, the level of fees for non-audit services
as compared to fees for audit services going forward needs to be
reduced. To address this, the Company will (as mentioned above) put
its external audit contract out to tender within the next two years.
Following the results of this tender, the Audit Committee will then
consider what further steps are needed, if any, to reduce the level
of fees for non-audit services charged by the external auditor as
compared with the fees for its audit services.
Further details of the fees paid, for both audit and non-audit services,
can be found in note 3 to the consolidated financial statements.
KPMG LLP
KPMG has informed us that for administrative reasons and to instigate
the orderly wind down of business, they wish to formally change the
entity which conducts our audit from KPMG Audit Plc to KPMG LLP.
KPMG Audit Plc has indicated that it will not stand for re-appointment
at our 2014 annual general meeting, however, KPMG LLP will seek
election at this meeting. Our Board has decided to recommend KPMG
LLP to be appointed as external auditor to the Company at the 2014
annual general meeting and an authority for the Directors to set the
remuneration of the auditor will also be sought.
Committee evaluation
The Committee’s activities formed part of the evaluation of Board
effectiveness performed in the year. Details of this process can be
found under ‘Performance evaluation’ on page 59.
66 The UNITE Group plc Annual Report and Accounts 2013
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Annual Statement of the Chair
of the Remuneration Committee
Directors’ Remuneration
Report
Richard Walker
Chair of Remuneration Committee
Dear shareholder,
It is my pleasure to present the Directors’ Remuneration Report for
the year ended 31 December 2013. We continue to operate a simple
remuneration structure made up of base salary and benefits, a bonus
plan and a single long-term incentive plan, which provides a clear link
between pay and our strategic objectives.
Performance of the Company in 2013
2013 was another excellent year for the Group as we continued to
deliver sustainable returns and growth for our shareholders. The key
highlights are as follows:
• Recurring profits, measured as adjusted earnings per share,
increased by 37.4% to 13.6 pence
• NAV per share increased by 9.1% to 382 pence
• See-through LTV ratio reduced to 49% from 52%
• See-through cost of debt reduced to 4.7% from 5.5%
• The Group invested £73.6 million (on a see-through basis; £83.9
million gross) in continuing development projects and improvements
to the existing investment portfolio
• Largely completed our non-core asset disposal programme with
£60 million of disposals (of which £19 million are wholly owned
assets, £34 million UCC assets and £7 million USAF assets)
completed/exchanged unconditionally since our 2012 results
and a further £15 million conditionally exchanged
• Increased our dividend by 20% for the full financial year.
Aligning Remuneration Policy with Company
principles and strategy
Building on its market leading position, the Group has been pursuing
a clear and consistent strategy to grow recurring profits and cash flow,
enhance the portfolio quality and establish a sustainable capital
structure. We operate one simple annual bonus plan and LTIP where
performance is assessed against a range of financial, operational and
long-term returns ensuring value is delivered to our shareholders and
participants are rewarded for the successful delivery of the key
strategic objectives of the Company. Remuneration is heavily weighted
towards variable pay, which is dependent on performance, ensuring
a clear link between the value created for shareholders and the
amount paid to our Directors.
Remuneration decisions for 2013
The basic salaries for Executive Directors will increase by 2.5%, in line
with the rest of the organisation, effective 1 March 2014.
Following an outstanding year for the Group, Executive Directors will
receive bonuses of 121% of their respective base salaries (out of a
maximum 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.
Under the LTIP, performance share awards made in 2011 vested
on performance to 31 December 2013. These awards were based
on net asset value, net portfolio contribution and total shareholder
return (TSR) outperformance of the FTSE 350 Real Estate. The
Company exceeded maximum targets for both the NPC and TSR
elements, whilst strong NAV performance resulted in around half
of that element vesting.
During 2013, UNITE raised £50 million through a successful placing
of new shares. Following the placing, the Remuneration Committee
evaluated the potential impact on the outcomes of the performance
related annual bonus and LTIP in respect of 2013. Given the quantum
(less than 5% impact) and the consistent improved performance of
the business as a whole, the Committee decided against amending
the targets for the Executive Directors and other senior personnel.
During the year, soft clawback was introduced to the Executive
Directors’ bonuses and LTIPs reflecting feedback from our
shareholders. The Committee also agreed to evolve the metrics on
both the annual bonus and LTIP for 2014, reflecting feedback from
shareholders as we continue to simplify our business model and
reporting. Earnings per share and total return will replace NPC and
NAV on the LTIP and we will move to an earnings per share metric
for the annual bonus (from adjusted earnings).
Remuneration policy for 2014
The Directors’ Remuneration Policy is set out for shareholder approval
in the policy report on pages 68 to 75. Details on how the policy will
be applied in practice for the 2014 financial year are set out in the
Annual Report on Remuneration on pages 76 to 87. The Committee
will continue to review the annual bonus and LTIP and will welcome
feedback from our shareholders as we remain committed to an
open and transparent dialogue.
New Chair
After nine years as a Non-Executive Director for UNITE, I will be
retiring from the Board at the AGM. At that stage, Elizabeth McMeikan
will become Chair of the Remuneration Committee and I wish her well
in her new role at UNITE.
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The UNITE Group plc Annual Report and Accounts 2013 67
Strategic report Corporate governance Financial statements Other information Corporate governance
Directors’ Remuneration Policy
This report has been prepared in accordance with the provisions of
the Companies Act 2006 and Schedule 8 of the Large and Medium-
sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013. It also meets the requirements of the UK Listing
Authority’s Listing Rules and the Disclosure and Transparency Rules.
In accordance with the Regulations, the following sections of the
Remuneration Report are subject to audit: the single total figure of
remuneration for Directors and accompanying notes (pages 77 to 81),
scheme interests awarded during the financial year (pages 82 to 83),
payments to past Directors (page 83), payments for loss of office
(page 83) and the statement of Directors’ shareholdings and share
interests (pages 85 to 87). The remaining sections of the report are
not subject to audit.
Directors’ 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.
Policy table
Function
Operation
Opportunity
Performance metrics
Base salary
To recognise the individual’s skills and experience and to provide a
competitive base reward.
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.
Pension
To provide an opportunity for Executives to build up income on retirement.
Benefits
To provide non-cash benefits which are competitive in the market in which
the Executive is employed.
All Executives are either members of the UNITE Group
Personal Pension Scheme or receive a cash pension
allowance.
Salary is the only element of remuneration that is pensionable.
Executives receive benefits which consist primarily of the
provision of a company car or a car allowance, and private
healthcare insurance, although they can include any such
benefits that the Committee deems appropriate.
SAYE
To encourage the ownership of shares in UNITE.
An HMRC approved scheme whereby employees (including
Executive Directors) may save up to the maximum monthly
savings limit (as determined by prevailing HMRC guidelines)
over a period of three or five years. Options granted at a
20% discount.
1 Remuneration peer companies have historically included the constituents of the FTSE 350 Real Estate Index and UK-listed companies of similar market capitalisation.
The Remuneration Committee reviews comparator groups periodically to ensure they remain appropriate and retains the discretion to change companies.
68 The UNITE Group plc Annual Report and Accounts 2013
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Any base salary increases are applied in line with the
None
outcome of the review as part of which the Committee
also considers average increases across the Group.
In respect of existing Executive Directors, it is anticipated
that salary increases will generally be in line with those of
salaried employees as a whole. In exceptional circumstances
(including, but not limited to, a material increase in job size
or complexity) the Committee has discretion to make
appropriate adjustments to salary levels to ensure they
remain market competitive.
Executive Directors receive a pension contribution of 20% of
None
salary or an equivalent cash allowance.
Benefits vary by role and individual circumstances; eligibility
None
and cost is reviewed periodically.
The Committee retains the discretion to approve a
higher cost in exceptional circumstances (e.g. relocation)
or in circumstances where factors outside the Company’s
control have changed materially (e.g. increases in
insurance premiums).
Savings are capped at the prevailing HMRC limit at the time
None
employees are invited to participate.
• 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.
This section of the report sets out the policy for Executive Directors
which shareholders are asked to approve at the 2014 AGM. The
Committee intends that the policy will come into effect from the
financial year starting 1 January 2015.
To recognise the individual’s skills and experience and to provide a
to salary levels for similar roles at comparable companies, to
competitive base reward.
individual contribution to performance; and to the experience
Base salaries are reviewed from time to time, with reference
Any base salary increases are applied in line with the
outcome of the review as part of which the Committee
also considers average increases across the Group.
None
Operation
Opportunity
Performance metrics
In respect of existing Executive Directors, it is anticipated
that salary increases will generally be in line with those of
salaried employees as a whole. In exceptional circumstances
(including, but not limited to, a material increase in job size
or complexity) the Committee has discretion to make
appropriate adjustments to salary levels to ensure they
remain market competitive.
Executive Directors receive a pension contribution of 20% of
salary or an equivalent cash allowance.
None
Benefits vary by role and individual circumstances; eligibility
and cost is reviewed periodically.
None
The Committee retains the discretion to approve a
higher cost in exceptional circumstances (e.g. relocation)
or in circumstances where factors outside the Company’s
control have changed materially (e.g. increases in
insurance premiums).
Savings are capped at the prevailing HMRC limit at the time
employees are invited to participate.
None
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The UNITE Group plc Annual Report and Accounts 2013 69
Policy table
Function
Base salary
Pension
Benefits
of each Executive.
All Executives are either members of the UNITE Group
allowance.
Salary is the only element of remuneration that is pensionable.
Executives receive benefits which consist primarily of the
healthcare insurance, although they can include any such
benefits that the Committee deems appropriate.
An HMRC approved scheme whereby employees (including
Executive Directors) may save up to the maximum monthly
savings limit (as determined by prevailing HMRC guidelines)
over a period of three or five years. Options granted at a
20% discount.
To provide an opportunity for Executives to build up income on retirement.
Personal Pension Scheme or receive a cash pension
To provide non-cash benefits which are competitive in the market in which
provision of a company car or a car allowance, and private
the Executive is employed.
SAYE
To encourage the ownership of shares in UNITE.
1 Remuneration peer companies have historically included the constituents of the FTSE 350 Real Estate Index and UK-listed companies of similar market capitalisation.
The Remuneration Committee reviews comparator groups periodically to ensure they remain appropriate and retains the discretion to change companies.
Strategic report Corporate governance Financial statements Other information
Corporate governance
Directors’ Remuneration Policy continued
Function
Operation
Opportunity
Performance metrics
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.
For Executive Directors, the maximum annual bonus
Performance is assessed on an annual basis, as measured against specific
opportunity is 144% of base salary, comprising:
objectives set at the start of each year. The measures include financial and
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.
Bonus payments are delivered in cash unless an individual’s
shareholding requirements have not been met, in which
case up to 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 (ESOT)
and are subject to clawback provisions.
• A maximum bonus under the corporate element of 120%
non-financial metrics as well as the achievement of personal objectives.
of salary; achieving on-target performance warrants a
Corporate measures will be weighted appropriately each year according to
bonus equivalent to 70% of salary
• A maximum multiplier under the individual element of
1.2, with a range of zero to 1.2
For threshold level performance, the bonus will be 50%
of base salary.
business priorities. Measures may include, but are not limited to, adjusted
earnings, EPS, NAV growth, cash flow, LTV gearing and customer satisfaction.
Weightings of individual measures may vary between 10% and 50%, with the
range of performance required under each measure calibrated with reference
to UNITE’s internal budgets. Financial measures will make up at least 75% of
the total opportunity under the corporate element.
LTIP
To drive sustained long-term performance that supports the creation of
shareholder value.
The LTIP provides for an award up to a normal aggregate
Vesting of LTIP awards is subject to continued employment and performance
limit of 150% of salary for Executive Directors, with an overall
against three equally-weighted measures, which are currently as follows:
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.
Clawback will apply on unvested LTIP shares in the
event 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 Committee
considers appropriate.
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 may include a grant of HMRC approved options not
exceeding £10k per annum, valued on a fair value exchange
(currently 50-60% of a PSP award).
The Committee has the discretion to authorise a payment, in
cash or shares, equal to the value of dividends which would
have accrued on vested shares during the vesting period.
• Adjusted EPS
• TR, and
• Relative TSR.
The individual element is based on the strength of an Executives’ personal
performance over the course of the year, as measured by the twice-annual
Performance Development Programme review.
The Committee has discretion to adjust the formulaic bonus outcomes
both upwards (within the plan limits) and downwards (including down to
zero) to ensure alignment of pay with performance, e.g. in the event of one
of the targets under the bonus being significantly missed or unforeseen
circumstances outside of management control. The Committee also
considers measures outside of the bonus framework (e.g. H&S) to
ensure there is no reward for failure.
Further details of the measures, weightings and targets applicable are
provided on page 78.
The Committee has the discretion to adjust the performance measures
to ensure they continue to be linked to the delivery of Company strategy.
Under each measure, threshold performance will result in 25% of maximum
vesting for that element, rising on a straight line to full vesting.
Awards made under the LTIP will have a performance period of at least
three years and a minimum vesting period of three years. If no entitlement
has been earned at the end of the relevant performance period, awards will
lapse. 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 Company’s current policy is for awards to vest
two-thirds after three years with the remaining one-third deferred for an
additional year.
As under the Performance Related Annual Bonus, the Committee has
discretion to adjust the formulaic LTIP outcomes to ensure alignment of pay
with performance, i.e. to ensure the outcome is a true reflection of the
performance of the Company.
Details of the targets to be used in future LTIP grants are included in the
Annual Report on Remuneration.
70 The UNITE Group plc Annual Report and Accounts 2013
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Performance Related Annual Bonus
Performance measures, targets and weightings are set at the
To incentivise and reward strong performance against financial and non-
start of the year.
financial annual targets, thus delivering value to shareholders and being
consistent with the delivery of the strategic plan.
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.
Bonus payments are delivered in cash unless an individual’s
shareholding requirements have not been met, in which
case up to 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 (ESOT)
and are subject to clawback provisions.
Function
Operation
Opportunity
Performance metrics
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
For threshold level performance, the bonus will be 50%
of base salary.
Performance is assessed on an annual basis, as measured against specific
objectives set at the start of each year. The measures include financial and
non-financial metrics as well as the achievement of personal objectives.
Corporate measures will be weighted appropriately each year according to
business priorities. Measures may include, but are not limited to, adjusted
earnings, EPS, NAV growth, cash flow, LTV gearing and customer satisfaction.
Weightings of individual measures may vary between 10% and 50%, with the
range of performance required under each measure calibrated with reference
to UNITE’s internal budgets. Financial measures will make up at least 75% of
the total opportunity under the corporate element.
To drive sustained long-term performance that supports the creation of
an approved Employee Share Option Scheme (ESOS).
The LTIP comprises a Performance Share Plan (PSP) and
LTIP
shareholder value.
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.
Clawback will apply on unvested LTIP shares in the
event 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 Committee
considers appropriate.
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 may include a grant of HMRC approved options not
exceeding £10k per annum, valued on a fair value exchange
(currently 50-60% of a PSP award).
The Committee has the discretion to authorise a payment, in
cash or shares, equal to the value of dividends which would
have accrued on vested shares during the vesting period.
The individual element is based on the strength of an Executives’ personal
performance over the course of the year, as measured by the twice-annual
Performance Development Programme review.
The Committee has discretion to adjust the formulaic bonus outcomes
both upwards (within the plan limits) and downwards (including down to
zero) to ensure alignment of pay with performance, e.g. in the event of one
of the targets under the bonus being significantly missed or unforeseen
circumstances outside of management control. The Committee also
considers measures outside of the bonus framework (e.g. H&S) to
ensure there is no reward for failure.
Further details of the measures, weightings and targets applicable are
provided on page 78.
Vesting of LTIP awards is subject to continued employment and performance
against three equally-weighted measures, which are currently as follows:
• Adjusted EPS
• TR, and
• Relative TSR.
The Committee has the discretion to adjust the performance measures
to ensure they continue to be linked to the delivery of Company strategy.
Under each measure, threshold performance will result in 25% of maximum
vesting for that element, rising on a straight line to full vesting.
Awards made under the LTIP will have a performance period of at least
three years and a minimum vesting period of three years. If no entitlement
has been earned at the end of the relevant performance period, awards will
lapse. 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 Company’s current policy is for awards to vest
two-thirds after three years with the remaining one-third deferred for an
additional year.
As under the Performance Related Annual Bonus, the Committee has
discretion to adjust the formulaic LTIP outcomes to ensure alignment of pay
with performance, i.e. to ensure the outcome is a true reflection of the
performance of the Company.
Details of the targets to be used in future LTIP grants are included in the
Annual Report on Remuneration.
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Strategic report Corporate governance Financial statements Other information Corporate governance
Directors’ Remuneration Policy continued
Shareholding guidelines
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 (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 provided in the
Annual Report on Remuneration.
Non-Executive Director remuneration
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 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 and 2017 in the case of Elizabeth McMeikan. The appointment
and re-appointment and the remuneration of Non-Executive Directors
are matters reserved for the full Board.
The Non-Executive Directors are not eligible to participate in the
Company’s performance related bonus plan, long-term incentive
plans or pension arrangements.
Non-Executive Director
Date of service contract
P M White
R S Walker
R J T Wilson
M J Wolstenholme
A Jones
E McMeikan
10 January 2009
3 November 2005
1 December 2010
1 December 2011
18 October 2012
13 November 2013
Notes to the policy table
The Committee is satisfied that the above Remuneration Policy is in
the best interests of shareholders and does not promote excessive
risk-taking.
Performance measure selection and approach to target setting
The measures used under the annual bonus plan are selected annually
to reflect the Group’s main objectives for the year and reflect both
financial and non-financial priorities. Following a review, and consistent
with changes made to performance measures under the LTIP, the
Committee determined that the adjusted earnings measure under the
annual bonus would be replaced with EPS from 2014 onwards.
The Committee considers the combination of measures in the LTIP
to be appropriate. As disclosed in our Annual Report last year, the
Committee reviewed the performance measures during 2013 to ensure
they are fully aligned with our strategy and with shareholders’ interests.
Following the review, the Committee concluded that an adjusted EPS
measure would be more closely aligned with the Group’s strategic plans
and with the profit attributable to shareholders. Similarly, the Committee
resolved that a Total Return measure would improve alignment between
Executives’ and shareholders’ interests. Consequently, for LTIP awards
made from 2014, the NPC and NAV growth measures will be replaced
by measures of adjusted EPS and Total Return respectively. Relative
TSR is considered to remain the best measure to capture creation of
shareholder value and rewards management for outperformance of
the Company’s peers.
Targets applying to the bonus and LTIP are reviewed annually, based
on a number of internal and external reference points. Performance
targets are set to be stretching but achievable, with regard to the
particular strategic priorities and economic environment in a given
year. Under the annual bonus, target performance typically requires
meaningful improvement on the previous year’s outturn, and for
financial measures, targets are typically in line with the upper end
of market consensus.
Remuneration policy for other employees
UNITE’s 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. Specific cash incentives are
also in place to motivate, reward and retain staff below Board level.
All employees are eligible to participate in the Company’s SAYE
scheme on the same terms.
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Performance
metrics
None
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function
Operation
Opportunity
Fees
To attract and
retain Non-
Executive
Directors of the
highest calibre
with broad
commercial and
other experience
relevant to the
Company.
Fee levels are reviewed annually, with any
adjustments effective 1 January in the year
following review.
The fees paid to the Chairman are determined by
the Committee, whilst the fees of the Non-Executive
Directors are determined by the Board.
Additional fees are payable for acting as Senior
Independent Director and as Chairman of any of
the Board’s Committees (Audit, Remuneration,
Nomination and Health and Safety).
Fee levels are benchmarked against sector
comparators and FTSE-listed companies of
similar size and complexity. Time commitment
and responsibility are taken into account when
reviewing fee levels.
Non-Executive Director fee increases are applied
in line with the outcome of the annual fee review.
Fees for the year commencing 1 January 2014
are set out in the Annual Report on Remuneration.
Fee levels will be next reviewed during 2014, with
any increase effective 1 January 2015.
It is expected that increases to Non-Executive
Director fee levels will be in line with salaried
employees over the life of the policy. However, in
the event that there is a material misalignment
with the market or a change in the complexity,
responsibility or time commitment required to fulfil
a Non-Executive Director role, the Board has
discretion to make an appropriate adjustment to
the fee level.
Pay for performance scenarios
The charts below provide an illustration of the potential future
reward opportunities for the Executive Directors, and the potential
split between the different elements of remuneration under three
different performance scenarios: ‘minimum’, ‘on-target’ and ‘maximum’.
Potential reward opportunities are based on UNITE’s Remuneration
Policy, applied to 2014 base salaries. The annual bonus and LTIP are
based on the level of maximum opportunities applied in FY2013. Note
that the LTIP awards granted in a year do not normally vest until the
third anniversary of the date of grant, and the projected value is based
on the face value at award rather than vesting (i.e. the scenarios
exclude the impact of any share price movement over the period).
Richard Simpson
Maximum
On-target
Minimum
30%
34%
36%
54%
30%
16%
100%
Salary, pension
and benefits
Annual bonus
Long-term incentive
Richard Smith
Maximum
On-target
30%
34%
36%
54%
30%
16%
30%
34%
36%
£1,784k
Minimum
100%
£1,013k
£563k
£303k
£1,014k
£564k
£304k
Mark Allan
Maximum
On-target
Minimum
54%
30%
16%
100%
Salary, pension
and benefits
Annual bonus
Long-term incentive
Joe Lister
Maximum
On-target
Minimum
30%
34%
36%
54%
30%
16%
100%
Salary, pension
and benefits
Annual bonus
Long-term incentive
£994k
£539k
£1,124k
£625k
£337k
Salary, pension
and benefits
Annual bonus
Long-term incentive
The ‘minimum’ scenario reflects base salary, pension and benefits
(i.e. fixed remuneration) which are the only elements of the Executive’s
remuneration packages not linked to performance.
The ‘on-target’ scenario reflects fixed remuneration as above, plus
bonus pay-out of 70% of salary and LTIP threshold vesting at 25%
of maximum award.
The ‘maximum’ scenario reflects fixed remuneration, plus full pay-out
of all incentives.
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Strategic report Corporate governance Financial statements Other information Corporate governance
Directors’ Remuneration Policy continued
Approach to recruitment remuneration
External appointment
In the cases of hiring or appointing a new Executive Director from outside the Company, the Remuneration Committee may make use of all the
existing components of remuneration, as follows:
Component
Approach
Maximum annual
grant value
Base salary
Pension
Benefits
SAYE
The base salaries of new appointees will be determined by reference to relevant market data,
experience and skills of the individual, internal relativities and their current basic salary. Where new
appointees have initial basic salaries set below market, any shortfall may be managed with phased
increases over a period of two to three years subject to the individual’s development in the role.
New appointees will receive pension contributions or an equivalent cash supplement in line with
existing policy.
New appointees will be eligible to receive benefits which may include (but are not limited to) the
provision of a company car or cash alternative, private medical insurance and any necessary relocation
expenses. New appointees will also be eligible to participate in all-employee share schemes.
Performance
Related Annual
Bonus
The structure described in the policy table will apply to new appointees with the relevant maximum
being pro-rated to reflect the proportion of employment over the year. Targets for the individual
element will be tailored to each Executive.
LTIP
New appointees will be granted awards under the LTIP on the same terms as other Executives, as
described in the policy table. The normal aggregate limit of 150% of salary will apply, save in
exceptional circumstances where up to 200% of salary may be awarded.
144% of salary
200% of salary
In determining appropriate remuneration, the Remuneration Committee
will take into consideration all relevant factors (including quantum,
nature of remuneration and the jurisdiction from which the candidate
was recruited) to ensure arrangements are in the best interests of both
UNITE and its shareholders. The Committee may make an award in
respect of a new appointment to ‘buy out’ incentive arrangements
forfeited on leaving a previous employer on a like-for-like basis, which
may be awarded in addition to the remuneration structure outlined in
the table above. In doing so, the Committee will consider relevant
factors including time to vesting, any performance conditions attached
to these awards and the likelihood of those conditions being met. Any
such ‘buy-out’ awards will typically be made under the existing annual
bonus and LTIP schemes, although in exceptional circumstances the
Committee may exercise the discretion available under Listing Rule
9.4.2 R to make awards using a different structure. Any ‘buy-out’
awards would have a fair value no higher than the awards forfeited.
Internal promotion
In cases of appointing a new Executive Director by way of internal
promotion, the Remuneration Committee and Board will be consistent
with the policy for external appointees detailed above. Where an
individual has contractual commitments made prior to their promotion
to Executive Director level, the Company will continue to honour these
arrangements. The Remuneration Policy for other employees is set out
on page 72. Incentive opportunities for below Board employees are
typically no higher than Executive Directors, but measures may vary
to provide better line-of-sight.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Remuneration
Committee will utilise the policy as set out in the table on page 73. A
base fee in line with the prevailing fee schedule would be payable for
Board membership, with additional fees payable for acting as Senior
Independent Director or as Chairman of the Board’s Committees.
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Service contracts and treatment for leavers
and change of control
Executive Director service contracts, including arrangements for early
termination, are carefully considered by the Committee. 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. Executive Director service contracts are available
to view at the Company’s registered office.
When considering exit payments, the Committee reviews all potential
incentive outcomes to ensure they are fair to both shareholders
and participants. The table below summarises how the awards
under the annual bonus and LTIP are typically treated in specific
circumstances, with the final treatment remaining subject to the
Committee’s discretion:
External appointments
With the approval of the Board in each case, and subject to the
overriding requirements of the Group, Executive Directors may
accept external appointments as Non-Executive Directors of other
companies and retain any fees received. None of the Executive
Directors currently hold such an appointment. Details of any external
directorships held by Executive Directors, including associated fees,
will be provided in future reports where applicable.
Consideration of conditions elsewhere
in the Company
When making decisions on Executive Director remuneration, the
Committee considers pay and conditions across UNITE. Prior to
the annual salary review, the Operations HR Director provides the
Committee with a summary of the proposed level of increase for
overall employee pay. The Remuneration Committee does not formally
consult with employees on the executive Remuneration Policy
and framework.
Executive
M C Allan
J J Lister
R C Simpson
R S Smith
Date of service contract
31 October 1999
28 March 2002
28 September 2011
28 September 2011
Consideration of shareholder views
The Remuneration Committee maintains a regular dialogue with
its major shareholders. Following feedback from shareholders,
and as disclosed in last year’s Remuneration Report, the Committee
has replaced NPC with adjusted EPS in the LTIP for awards going
forward. The Committee will continue to monitor trends and
developments in corporate governance and market practice to ensure
the structure of the executive remuneration remains appropriate.
Reason for leaving
Calculation of vesting/payment
Annual bonus
Resignation
No annual bonus payable.
Cash bonuses will only be paid to the extent that financial and individual objectives set at the beginning of the plan year
have been met. Any resulting bonus will be pro-rated for time served during the year.
‘Good’ leaver1
Change of control
LTIP
Resignation
Outstanding awards lapse.
‘Good’ leaver1
Change of control
The Committee determines whether and to what extent outstanding awards vest based on the extent to which
performance conditions have been achieved and the proportion of the vesting period worked.
The determination of vesting will be made as soon as reasonably practical following the end of the performance period
or such earlier date as the Committee may agree (within 12 months in the event of death).
In the event of a change of control, UNITE awards may alternatively be exchanged for new equivalent awards in the
acquirer where appropriate.
1
‘Good’ leaver is defined as a participant ceasing to be employed by the Group by reason of death, disability, ill health, redundancy, retirement or any other reason that the
Committee determines in its absolute discretion.
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The UNITE Group plc Annual Report and Accounts 2013 75
Strategic report Corporate governance Financial statements Other information Advisors
Kepler Associates (‘Kepler’) was originally appointed by the
Committee in 2010 as its executive remuneration advisor and was
retained during the most recent financial year. The Committee
undertakes due diligence periodically to ensure Kepler remains
independent and that the advice provided is impartial and objective.
Kepler is a founding member and signatory of the Code of Conduct
for Remuneration Consultants, details of which can be found at
www.remunerationconsultantsgroup.com. In 2013 Kepler provided
independent advice on Remuneration Policy and the external
remuneration environment; salary benchmarking data; and
performance testing for long-term incentive plans. Kepler reports
directly to the Chairman of the Remuneration Committee and does
not advise the Company on any other issues. Their total fees for the
provision of remuneration services in 2013 were £69,865 on the
basis of time and materials.
Summary of shareholder voting at the 2013 AGM
The following table shows the results of the advisory vote on the 2012
Remuneration Report at the 2013 AGM:
Total number of votes
% of votes cast
For (including discretionary)
128,121,060
Against
269,669
Total votes cast (excluding
withheld votes)
Votes withheld
Total votes cast (including
withheld votes)
128,390,729
53,395
128,444,124
99.79 %
0.21%
100.0%
0.04%
Corporate governance
Annual Report on Remuneration
Annual Report on Remuneration
The following section provides details of how UNITE’s Remuneration
Policy was implemented during the financial year ending 31
December 2013.
Remuneration Committee membership in 2013
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. As of 31 December 2013, the Remuneration Committee
comprised five independent Non-Executive Directors:
• Richard Walker (Committee Chairman)
• Phil White
• Sir Tim Wilson
• Manjit Wolstenholme
• Andrew Jones.
In addition, certain Executives, including Mark Allan (Chief Executive),
are, from time to time, invited to attend meetings of the Committee.
Nicola Yates (former Group HR Director) also attended three
meetings during the year prior to her departure from the Company
during 2013. No individuals are involved in decisions relating to their
own remuneration. The Remuneration Committee met five times
during the year and details of members’ attendance at meetings
are provided in the corporate governance section on page 57.
Key activities of the Remuneration Committee in 2013 were
as follows:
• Review of executive remuneration and Department for Business,
Innovation and Skills proposals on executive pay
• Considered remuneration market trends and corporate governance
developments
• Conducted a benchmarking exercise on Executive Directors’
salaries and other benefits
• Consulted with major shareholders on executive remuneration
• Reviewed and approved the Executive Directors’ performance
against 2013 annual objectives and determined the bonuses
payable
• Approved Share Awards for 2013
• Reviewed and approved salary increases for the Executive
Directors and senior management for 2014
• Determined the Executive Directors bonus and LTIP performance
targets for 2014 in line with the Company’s strategic plan
• Reviewed and approved the Chairman’s fee
• Reviewed the revised remuneration reporting regulations and
prepared the Directors’ Remuneration Report.
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Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Director for the year ended 31 December 2013 and the
prior year:
M C Allan
J J Lister
R C Simpson
R S Smith
2013
£
2012
£
2013
£
2012
£
2013
£
2012
£
2013
£
2012
£
Salary
411,396
401,333
260,313
250,833
234,791
230,000
234,791
230,000
Taxable benefits1
Pension benefit2
31,084
72,303
31,855
70,533
15,045
47,308
14,929
50,167
13,000
46,958
13,696
46,000
13,787
46,005
13,000
46,000
Annual bonus3
499,950
367,939
316,350
232,815
285,330
190,900
285,330
209,990
LTIP4
Other5
Total
909,874
122,094
532,498
69,768
228,561
82,814
245,227
24,167
–
14,144
3,750
6,071
–
6,513
–
–
1,948,774
993,754
1,185,658
622,262
814,711
563,410
831,653
498,990
1
2
3
4
Taxable benefits consist primarily of a company car or car allowance and private healthcare insurance. Mark Allan is provided with a company car of £30,293 in value. Joe Lister,
Richard Simpson and Richard Smith are entitled to company car allowances of £14,000, £13,000 and £13,000 respectively.
During the year, three of the Directors (Joe Lister, Richard Simpson and Richard Smith) participated in the UNITE Group Personal Pension Scheme, which is a money purchase
scheme, in relation to whom the Company contributed around 20% of salary. The Company also paid Mark Allan a cash pension allowance of £72,303 (2012: £70,533).
Payment for performance during the year. For 2012 and 2013, Mark Allan and Joe Lister, having already reached their share ownership guidelines, received 100% of their bonus
awards in cash. Richard Simpson and Richard Smith received 50% of their 2012 and 2013 bonus awards by way of a deferred allocation of shares through the Company’s ESOT.
See following sections for further details.
LTIP awards granted prior to 2011 were partially based on a TSR performance measure which ran for three years from the grant date (typically April to April). In order to allow
better comparability going forward, the figure for 2012 represents the value of the 2010 award which was substantially, but not fully, completed by the end of the 2012 financial
year. 2010 awards are valued using the market price at the date of vesting (12 April 2013) of 324.2p. For the 2011 awards, the market price on the date of vesting is currently
unknown; the value is estimated using the average market value over the last quarter of 2013 of 397.2p. See following sections for further details.
5
‘Other’ includes the embedded value of SAYE options at grant and cash payments in lieu of dividends for vested 2011 LTIP awards.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 December
2013 and the prior year:
Base fee
Committee fees
SID fee
P M White
S R H Beevor1
R S Walker
R J T Wilson
M K Wolstenholme
A Jones2
E McMeikan3
2013
£
2012
£
118,000
118,000
15,449
41,000
41,000
41,000
37,583
–
41,000
41,000
41,000
41,000
–
–
2013
£
–
2,581
10,566
6,000
8,500
–
–
2012
£
–
2013
£
–
2012
£
Total
2013
£
2012
£
–
118,000
118,000
6,850
1,790
4,750
–
6,000
8,500
–
–
–
–
3,166
–
–
–
–
–
–
–
19,820
51,566
47,000
52,666
37,583
–
52,600
41,000
47,000
49,500
–
–
1
The fees paid to Stuart Beevor for 2013 relate to the period 1 January 2013 to 16 May 2013 when he stepped down from the Board. Stuart was replaced by Richard Walker as
Chairman of the Remuneration Committee and by Manjit Wolstenholme as Senior Independent Director (SID).
2 The fees paid to Andrew Jones in 2013 relate to the period 1 February 2013 (when he joined the Board) to 31 December 2013.
3 Elizabeth McMeikan joined the Board on 1 February 2014.
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Annual Report on Remuneration continued
Incentive outcomes for the year ended 31 December 2013 (audited)
Performance Related Annual Bonus in respect of 2013 performance
The 2013 annual bonus consists of two elements, corporate and individual. The corporate element of the bonus is calculated on a sliding scale
up to a maximum of 120% of base salary, in accordance with which ‘on-target’ performance by the Group results in a corporate bonus of an
amount equivalent to 70% 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.
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. Target
performance typically requires meaningful improvement on the previous year’s outturn, and for financial measures, targets are typically in line
with the upper end of market consensus.
The performance related bonuses awarded in respect of 2013 reflect corporate bonuses of 100.9% of base salary. After applying individual
multipliers, actual performance related bonus payments awarded to the Executive Directors were 121% of their respective base salaries (and
around 84% of their maximum bonus opportunities). Further details, including the targets set and performance against each of the metrics,
are provided the tables below:
Corporate element outcomes
Measure
Financial
Adjusted earnings
NAV per share
(incl. dividends)
Operating cash flow
LTV gearing
Non-financial
Weighting
25.0%
25.0%
12.5%
12.5%
25.0%
Original performance targets
‘Threshold’
50% of salary
‘Target’
70% of salary
100% of salary
‘Stretch’
120% of salary
Actual
Vest
(% salary)
£18.5m
£19.9m
£22.0m
£23.4m
£23.1m
374p
381p
391p
398p
387p
£13.9m
£14.9m
£16.5m
£19.8m
£15.3m
50%
65
49%
67
48%
70
47%
72
48.6%
72
Total corporate vesting (sum product of weighting and vest %)
Individual element outcomes
Executive
Achievements during the year
M C Allan
• Exceptional performance in meeting or exceeding all Group objectives
• Successful development of Group long-term strategic plan
28.9%
22.0%
9.7%
10.3%
30.0%
100.9%
Personal
multiplier
1.2x
• Strong management in establishing brand identity though development of ‘Home for Success’ programme
J J Lister
• Exceptional performance in ensuring delivery of finance-related objectives and capital operating guidelines;
1.2x
• Refinancing activities delivered significantly ahead of plan
• Successful establishment of longer-term capital strategy
• Continued development of Group finance function
R C Simpson
• Excellent performance in delivering business unit objectives, particularly NAV, gearing and safety targets
1.2x
• Successful leadership in updating and integrating the Property business strategic plan
• Successful delivery of development pipeline, including rapid mobilisation of regional capability
R S Smith
• Strong delivery against Operations business objectives
1.2x
• Successful update of the Operations strategic plan and mobilisation of ‘Home for Success’ programme
• Successful delivery of efficiency savings coupled with marked improvements in customer service scores
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Overall bonus outcomes
Executive
M C Allan
J J Lister
R C Simpson
R S Smith
Corporate vesting
Personal multiplier
(% salary)
(% of maximum)
Overall bonus outcome
100.9%
1.2x
1.2x
1.2x
1.2x
121%
121%
121%
121%
84%
84%
84%
84%
£
£499,950
£316,350
£285,330
£285,330
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.
During the year, UNITE raised £50 million through a successful
placing of new shares. Following the placing, the Remuneration
Committee evaluated the potential impact on the outcomes of the
Performance Related Annual Bonus and LTIP in respect of 2013
performance. The Committee concluded that the placing would, in
the short term, lead to:
• A dilution of NAV per share due to the placing price being below
NAV and the lag factor before proceed deployment
• An increase in NPC of £1 million as a result of using the cash to
repay debt and save interest costs
• A corresponding improvement in operating cash flow, and
• A reduction in see-through LTV as a result of the lower level of
net debt.
The impact of the placing on the Performance Related Annual Bonus
and LTIP outcomes in respect of 2013 performance was estimated to
contribute a small increase in total remuneration (in the order of 3% to
5% of salary for Executive Directors). Following careful consideration,
the Committee determined that no changes would be made to the
corporate element of Performance Related Annual Bonus as the
impact would be felt by a broader participant population than the
Executive Directors. However, amongst other factors, the Committee
also considered the impact of the placing when adjudicating the
personal performance multiplier for Executive Directors. The
Committee is satisfied that the overall bonus outcomes detailed above
are a fair reflection of each individual’s performance during the year.
2010 LTIP vesting (vested on performance to 12 April 2013)
Long-term incentive awards in 2010 were made under the 2005
LTIP. For Mark Allan and Joe Lister, vesting of awards was dependent
on two equally-weighted measures over a three-year performance
period; actual net asset value (NAV) and TSR relative to the
constituents of the FTSE 350 Real Estate (Super Sector) Index. For
Richard Simpson, who was not an Executive Director at the time the
awards were granted, an additional performance measure – net
portfolio contribution (NPC) in 2012 – applied to one-third of the
awards, with NAV and relative TSR also accounting for one-third of the
award each. There were no retest provisions under any of the awards.
Further details, including vesting schedules and performance against
each of the metrics is provided the table below:
Measure
NAV
Weighting
M C Allan
J J Lister
R C Simpson
Targets
50%
33% 0% vesting below 311.2 pence per share
30% vesting for 311.2 pence per share
100% vesting for 431.5 pence per share or more
Straight-line vesting between these points
Outcome
350 pence per
share
Vest %
52.6%
NPC in 2012
–
33% 0% vesting below £15 million
£19.1 million
100%
30% vesting for £15 million
100% vesting for £17.4 million or more
Straight-line vesting between these points
TSR relative to the
constituents of the FTSE 350
Real Estate Supersector Index
50%
33% 0% vesting below median
30% vesting for performance in line with median
100% vesting for performance in line with 75 centile
Straight-line vesting between these points
Total LTIP vesting (sum product of weighting and vest %)
13th out of
18 companies
0%
M C Allan
J J Lister
26.3%
R C Simpson
50.9%
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Strategic report Corporate governance Financial statements Other information Corporate governance
Annual Report on Remuneration continued
The performance period for the NAV and NPC elements of the awards ended on 31 December 2012, while the performance period for the
TSR element ran for three years from the date of grant, ending on 12 April 2013. To allow for comparability going forward, the Committee has
elected to capture the vesting of the 2010 LTIP in the financial year ending 31 December 2012 for the purposes of the single total figure of
remuneration, as follows:
Executive
M C Allan
J J Lister
R C Simpson
Interests held
Vesting %*
Interests vesting*
Date vested
Market price
on vesting
158,436
90,534
55,555
23.77%
37,660
21,520
12 April 2013
324.2p
45.98%
25,544
Value*
£122,094
£69,768
£82,814
* Interests vesting and corresponding values are shown after deductions for employer national insurance contributions.
Each of the LTIP awards shown above was granted on 13 April 2010. The market price of the shares on that date was 243 pence. The
aggregate gain made on these exercises was £274,675 of which £122,094 related to the gain of the highest paid Director. The market
price of the shares at 31 December 2012 was 276.3 pence and the range during the year was 164 pence to 287.4 pence.
As mentioned above, the Company’s placing during the year had a small positive impact on incentive outcomes for 2013. Following careful
consideration, the Committee decided that in the interests of simplicity and transparency, no adjustment should be made to the 2010 LTIP
formulaic outcome as it is a fair reflection of the Company’s performance over the three-year performance period.
2011 LTIP vesting (vested on performance to 31 December 2013)
Awards in 2011 were made under the New LTIP, consisting of the UNITE Group plc 2011 Performance Share Plan and the UNITE Group plc
2011 Approved Employee Share Option Scheme. Vesting of the awards was dependent on three equally-weighted measures over a three-year
performance period; NAV per share growth, net portfolio contribution (NPC) and TSR outperformance of the FTSE 350 Real Estate
Supersector Index. There was no retest provision. Further details, including vesting schedules and performance against each of the metrics
is provided the table below:
Weighting
Targets
Measure
NAV
NPC in 2013
TSR relative to the constituents of
the FTSE 350 Real Estate
Supersector Index
1/3
1/3
1/3
0% vesting below 7% p.a. (361 pence)
25% vesting for 7% p.a. (361 pence)
100% vesting for 13% p.a. (426 pence) or more
Straight-line vesting between these points
0% vesting below £9 million
25% vesting for £9 million
100% vesting for £20 million or more
Straight-line vesting between these points
Outcome
Vest %
382 pence
49.2%
£25.6m
100%
0% vesting if Group underperforms the Index
25% vesting for matching the Index
100% vesting for outperforming the Index by 9% p.a.
Straight-line vesting between these points
Index
+10% p.a.
100%
Total LTIP vesting (sum product of weighting and vest %)
83.08%
The performance period for each of the elements ended on 31 December 2013. Two-thirds of the awards for Mark Allan and Joe Lister will
vest on the third anniversary of the date of grant, with the remaining one-third vesting after an additional holding period of one year. Richard
Simpson and Richard Smith were granted awards under the 2011 LTIP prior to their respective Board appointments and consequently all
interests will vest on the third anniversary of the date of grant in October 2014.
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Executive Director
Interests held
Vesting %
Interests vesting
Date vested
Assumed
market price
Estimated value
M C Allan
J J Lister
R C Simpson
R S Smith
275,725
161,366
69,262
74,313
83.08%
229,072
134,063
57,543
61,739
22 June 2014 (2/3)
22 June 2015 (1/3)
5 October 2014
397.2p
£909,874
£532,498
£228,561
£245,227
In line with regulations, the value disclosed above and in the single total figure of remuneration table on page 77 captures the full number of
interests vesting (i.e. excluding the one-year holding period). As the market price on the date of vesting is unknown at the time of reporting, the
value is estimated using the average market value over the last quarter of 2013 of 397.2p. The actual value at vesting will be trued-up in the
2014 Annual Report on Remuneration. Executives also became entitled to cash in lieu of the dividends payable on vested LTIP shares over the
three-year performance period. These payments are included in the row entitled ‘Other’ in the single total figure of remuneration table on page
77, and amounted to £24,167, £14,144, £6,071 and £6,513 for Mr Allan, Mr Lister, Mr Simpson and Mr Smith respectively.
Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration
from the prior year compared to the average percentage change in
remuneration for all employees.
The CEO’s remuneration includes base salary, taxable benefit and
annual bonus. The pay for all other employees is calculated using the
increase in the earnings of full-time employees for tax years 2012 and
2013. The analysis excludes part-time employees and is based on a
consistent set of employees, i.e. the same individuals appear in the
2012 and 2013 populations. The decrease in taxable benefits for all
employees primarily reflects a reduction in company car benefits
(as more employees take up car allowances which are classified
differently in place of company cars) and the shift to a more CO2
efficient fleet.
Relative importance of spend on pay
The table below shows shareholder distributions (i.e. dividends and
share buybacks) and total employee pay expenditure for the financial
years ended 31 December 2012 and 31 December 2013, along with
the percentage change in both.
Total employee pay expenditure
Distributions to shareholders
2013
£
31.6
8.5
2012
£m
% change
2012-2013
34.9
6.4
(9)%
33%
The Directors are proposing a final dividend in respect of the financial
year ended 31 December 2013 of 3.2 pence per ordinary share.
On 13 June 2013, UNITE raised c.£50 million through a successful
placing of new shares.
CEO
All employees
Employee remuneration excludes social security costs.
2013
£
2012
£
% change
2012-2013
% change
2012-2013
Base salary
411,396
401,333
2.5%
2.5%
Taxable benefits
31,084
31,855
(2.4)%
(9.0)%
Annual bonus
499,950
367,939
35.9%
2.6%
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Strategic report Corporate governance Financial statements Other information
Corporate governance
Annual Report on Remuneration continued
Review of past performance
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 2009 to 31 December 2013. Whilst there is no comparator
index or group of companies that truly reflects the activities of the
Group, the FTSE 350 Real Estate Supersector 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. The table below details the Chief
Executive’s ‘single figure’ remuneration over the same period.
Historical TSR performance
Growth in the value of a hypothetic £100 holding over the five years to
31 December 2013.
8
0
0
2
c
e
D
1
3
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
l
e
u
a
V
300
250
200
150
100
50
0
UNITE
FTSE 350 Real Estate Supersector Index
31-Dec-08
31-Dec-09
31-Dec-10
31-Dec-11
31-Dec-12
31-Dec-13
CEO single figure of remuneration (£’000)
£665,313
£687,175
£1,475,577
£993,754
£1,948,774
STI award rates against maximum opportunity
LTI award rates against maximum opportunity
42.0%
0.0%
43.4%
0.0%
75.8%
82.4%
63.4%
26.3%
84.0%
83.1%
2009
2010
2011
2012
2013
Where applicable, LTI award rates are shown before deductions for employer National Insurance contributions; single figure values are shown after such deductions.
Scheme interests awarded in 2013 (audited)
LTIP
In April 2013, Executive Directors were granted awards under the LTIP with a face value of c.150% of their respective 2013 salaries. The
three-year performance period over which performance will be measured began on 1 January 2013 and will end on 31 December 2015.
Two-thirds of each Executive’s awards is eligible to vest on the third anniversary of the date of grant (i.e. 10 April 2016), with the remaining
one-third vesting after an additional holding period of one year.
Executive Director
Date of grant
Shares over which awards granted1
Market price at date of award
M C Allan
J J Lister
R C Simpson
R S Smith
10 April 2013
196,814
125,482
113,432
113,432
321.0p
Face value
£631,773
£402,797
£364,117
£364,117
1
Combination of HMRC approved options under the ESOS (3,134) and nil cost options under the PSP calculated using a share price of 319p, being the closing mid-market price on
the day the awards were calculated.
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As in 2012, vesting of the LTIP awards is dependent on three equally-weighted measures over a three-year performance period; NAV per
share growth, net portfolio contribution and TSR outperformance of the FTSE 350 Real Estate Supersector Index. There is no retest provision.
The performance range for NAV was reduced from 7-13% to 6-12% for the 2013 cycle as a result of lower development activity and a higher
dividend pay-out ratio. The Committee considers that the targets applying under each of the performance measures are no less stretching than
in previous years. Details of the vesting schedules are provided below:
Measure
NAV
NPC in 2015
TSR outperformance of the
FTSE 350 Real Estate
Supersector Index
Weighting
Targets
1/3
1/3
1/3
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 below £28 million
25% vesting for £28 million
100% vesting for £34 million or more
Straight-line vesting between these points
0% vesting if Group underperforms the Index
25% vesting for matching the Index
100% vesting for outperforming the Index by 9% p.a.
Straight-line vesting between these points
Exit payments made in the year (audited)
No exit payments were made in the year.
Payments to past Directors (audited)
John Tonkiss ceased to be an employee and a Director of the Company by reason of redundancy on 31 December 2011. All outstanding share
awards made to John Tonkiss have been treated in accordance with the terms of the relevant schemes. LTIP awards have been pro-rated for
the period of employment, with performance measured at the end of the normal vesting period.
Details of awards vesting during the year are disclosed below:
Award cycle
2010 LTIP
2011 LTIP
Interests held
Vesting %
98,765
171,890
23.77%*
83.08%
Period
worked %
57.3%
33.3%
Interests vesting
Date vesting
Market price
on vesting
Value
13,443
47,605
12 April 2013
324.2p
£43,582
22 June 2014 (2/3)
22 June 2015 (1/3)
397.2p**
£189,087**
*
Interests vesting and corresponding values are shown after deductions for employer National Insurance contributions.
** As the market price on the date of vesting is unknown at the time of reporting, the value is estimated using the average market value over the last quarter of 2013 of 397.2p.
Implementation of Executive Director Remuneration Policy for 2014
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 2014:
Executive Director
M C Allan
J J Lister
R C Simpson
R S Smith
Base salary from 1 March 2013 to
28 February 2014
Base salary from 1 March 2014 to
28 February 2015
Percentage increase
£413,075
£261,375
£235,750
£235,750
£423,400
£267,900
£241,650
£241,650
2.5%
2.5%
2.5%
2.5%
A salary increase averaging 2.5% across the Group was awarded at the annual pay review.
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Annual Report on Remuneration continued
Pension
Executive Directors will continue to receive a pension contribution of 20% of salary or an equivalent cash allowance.
Performance Related Annual Bonus
The Performance Related Annual Bonus for the 2014 financial year will operate on the same basis as in 2013. The Committee has approved a
maximum bonus opportunity for each Executive of 144% of salary, consisting of a maximum of 120% of salary under the ‘corporate’ element
and a maximum individual multiplier of 1.2x.
For 2014, the ‘corporate’ element of the annual bonus will continue to be based on a combination of financial and non-financial measures,
weighted 75% and 25% respectively. Proposed target levels have been set to be challenging relative to the 2014 business plan, although
specific targets are deemed to be commercially sensitive at this time. It is the Committee’s current intention to disclose these targets
retrospectively in the 2014 Directors’ Remuneration Report.
Financial (75%)
Adjusted EPS
Measure
Total Return per share
Operating cash flow
LTV gearing
Non-financial (25%)
Customer satisfaction
Weighting
25.0%
25.0%
12.5%
12.5%
25.0%
LTIP
For 2014, the LTIP will continue to operate on the same basis as in the 2013 financial year. Executive Directors will each receive an award
equivalent to 150% of salary delivered through a combination of the PSP and ESOS, with the final level of vesting dependent on the
achievement of three-year performance targets relating to EPS, TR and TSR, as follows:
Measure
Adjusted EPS
Weighting
1/3
TR per share
TSR outperformance of the
FTSE 350 Real Estate
Supersector Index
1/3
1/3
Targets
0% vesting below 18.1 pence
25% vesting for 18.1 pence
100% vesting for 23.5 pence or more
Straight-line vesting between these points
0% vesting below 8.5% p.a.
25% vesting for 8.5% p.a.
100% vesting for 14.5% p.a. or more
Straight-line vesting between these points
0% vesting if Group underperforms the Index
25% vesting for matching the Index
100% vesting for outperforming the Index by 9% p.a.
Straight-line vesting between these points
Any awards vesting will be released two-thirds after three years with the remaining one-third deferred for an additional year. Further details of
the grant date and number of interests awarded will be disclosed in the 2014 annual report on remuneration.
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Implementation of Non-Executive Director Remuneration Policy for 2014
Chairman and Non-Executive Director fees
In November 2013 the Board undertook its biennial review of Non-Executive Director fees. Following consideration of actual and proposed
salary increases across the Group, the increase in time commitment resulting from the growth of the Company and indicative fee increases
at sector and FTSE comparators, the Board determined that the basic fee should be increased from £41,000 p.a. to £43,000 p.a. and that
additional fees should be increased by a similar rate. In the case of the Remuneration Committee Chair, it was determined that the time
commitment and responsibilities warranted a fee increase to bring such fee in line with the Chair of the Audit Committee. The Committee, in
considering similar factors, determined that the fee payable to the Chairman of the Board should be increased from £118,000 p.a. to £124,000
p.a. A summary of the fee increases, which are effective 1 January 2014, is set out in the table below. Fee levels will be subject to annual
review going forward.
Position
Base fees
Chairman
Non-Executive Director
Additional fees
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Nomination Committee Chair
Health& Safety Committee Chair1
1 Committee was established in June 2012.
2012/13 fees
2014 fees
£118,000
£41,000
£4,750
£8,500
£6,850
£6,000
£6,000
£124,000
£43,000
£5,000
£8,925
£8,925
£6,300
£6,300
Directors’ interests (audited)
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at 31 December 2013 is
set out below.
None of the Directors has a beneficial interest in the shares of any other Group company. Since 31 December 2013, 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 in the tables below.
Ordinary shares of 25p each
at 31 December 2013
Ordinary shares of 25p each
at 31 December 2012
M C Allan
J J Lister
R C Simpson
R S Smith
P M White
R S Walker
R J T Wilson
M J Wolstenholme
A Jones
E McMeikan
429,397
269,862
67,639
4,685
10,000
10,000
5,730
7,300
–
–
380,287
245,382
43,718
–
10,000
10,000
5,730
7,300
–
–
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Strategic report Corporate governance Financial statements Other information Corporate governance
Annual Report on Remuneration continued
Share price information
As at 31 December 2013 the middle market price for ordinary shares in the Company was 402.6 pence per share. During the course of the
year, the market price of the Company’s shares ranged from 272.1 pence to 408.5 pence per ordinary share.
Executive Directors’ shareholding requirements (audited)
The table below shows the shareholding of each Executive Director against their respective shareholding requirement as at 31 December 2013:
Shares held
Options held
Owned outright
or vested
Vested but
subject to
holding period1
Unvested and
subject to
performance
conditions
Vested
but not exercised
Shareholding
requirement
% salary/fee
Current
shareholding
% salary/fee2
Requirement
met?
M C Allan
J J Lister
R C Simpson
R S Smith
P M White
R S Walker
R J T Wilson
M J Wolstenholme
A Jones
E McMeikan
429,397
229,072
526,761
–
269,862
134,063
335,758
58,662
57,543
61,739
272,489
272,489
–
–
67,639
4,685
10,000
10,000
5,730
7,300
–
–
Yes
Yes
No
No
200%
150%
150%
150%
419%
416%
116%
8%
34%
98%
56%
72%
0%
0%
1 Awards vested under the 2011 LTIP.
2 Based on share price as at 31 December 2013 of 402.6p.
Directors’ interests in shares and options under UNITE long-term incentives (audited)
Share options
Executive
J J Lister
As at
31.12.12
Granted during
the year
Exercised during
the year*
Lapsed during
the year
As at
31.12.13
Exercise
price
Normal exercise dates
3,154
5,235
58,662
–
–
–
3,154
5,235
–
–
–
–
–
–
158.5p
25.09.2006 – 24.09.2013
191.0p
04.05.2007 – 03.05.2014
58,662
232.5p
16.09.2007 – 15.09.2014
* On the date of exercise (24 September 2013), the closing mid-market share price was 382.0p.
The highest, lowest and closing share prices for 2013 are shown above.
86 The UNITE Group plc Annual Report and Accounts 2013
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All options referred to in the table above were granted pursuant to the Unapproved Scheme. All options were granted for nil consideration.
Vesting of half the options granted prior to 2004 under the Unapproved Scheme is based on the TSR of the Company against companies
included in the FTSE Small Companies Index (excluding investment trusts) over the three-year period from the date of grant. Vesting of the
other half is based on the Company’s NAV growth exceeding the average NAV growth of companies included in the FTSE Small Companies
Index (excluding investment trusts) over the three-year period from the date of grant. Options granted under the Unapproved Scheme after
1 January 2004 are subject to performance criteria based solely on TSR against companies included in the FTSE Small Companies Index
(excluding investments trusts).
Executive
M C Allan
J J Lister
R C Simpson
R S Smith
Interests
held at
01.01.13
158,436
275,725
329,947
90,534
161,366
210,276
55,555
69,262
159,057
74,313
159,057
Interests awarded
during the year
(ordinary shares of
25p each in the
Company)
Market price
per share
when awarded
Interests vested
during the year
Interests
lapsed during
the year
Interests held
at 31.12.13
(ordinary
shares of 25p
each in the
Company
Period of qualifying conditions
243.0p
213.8p
185.5p
319.0p
243.0p
213.8p
185.5p
319.0p
243.0p
156.8p
185.5p
319.0p
156.8p
185.5p
319.0p
41,650*
116,786
–
14.04.10 – 14.04.13
–
–
–
–
–
–
275,725
22.06.11 – 22.06.14
329,947
10.04.12 – 10.04.15
196,814
10.04.13 – 10.04.16
23,799*
66,735
–
14.04.10 – 14.04.13
–
–
–
–
–
–
161,366
22.06.11 – 22.06.14
210,276
10.04.12 – 10.04.15
125,482
10.04.13 – 10.04.16
28,254*
27,301
–
14.04.10 – 14.04.13
–
–
–
–
–
–
–
–
–
–
–
–
69,262
05.10.11 – 05.10.14
159,057
10.04.12 – 10.04.15
113,432
10.04.13 – 10.04.16
74,313
05.10.11 – 05.10.14
159,057
10.04.12 – 10.04.15
113,432
10.04.13 – 10.04.16
196,814
125,482
113,432
113,432
*
The number of shares transferred to each Director after deductions for income tax and all National Insurance liabilities was 19,960, 11,406 and 13,538 to Mark Allan, Joe Lister
and Richard Simpson respectively. Details of the qualifying performance conditions in relation to the above referred to awards made in 2010 (under the 2005 LTIP), and in 2011
and in 2013 (under the 2011 LTIP) are set out earlier in this report. Those details should also be taken as forming part of the ‘auditable part’ of this report. Details of performance
conditions applying to the 2012 awards were set out in the 2012 Directors’ Remuneration 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 and 2013 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:
Executive
M C Allan
J J Lister
R C Simpson
R S Smith
2013
£
318,651
190,878
143,513
121,510
2012
£
371,789
197,504
131,312
73,715
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The UNITE Group plc Annual Report and Accounts 2013 87
Strategic report Corporate governance Financial statements Other information Corporate governance
Directors’ Report
Directors’ Report
As at 6 March 2014 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.
On the date of this report, the Company announced a Firm Placing
and Placing and Open Offer of 24,500,000 ordinary shares of 25
pence. This Firm Placing and Placing and Open Offer is anticipated
to close on 24 March 2014 after which the enlarged share capital
of the Company will be 201,158,479.
Shareholder
FIL Limited/FMR LLC
Old Mutual Asset Management Limited
Lloyds Banking Group plc
BlackRock Inc.
Royal London Asset Management Limited
Franklin Resources Inc.
APG Algemene Pensioen Groep N.V.
Aberforth Partners
Legal & General Investment Management
Limited
Norges Bank Investment Management
Principal Financial Group
Percentage of
share capital
9.05
6.00
5.04
5.03
4.60
4.39
4.30
3.54
3.35
3.12
3.00
Share capital
At the date of this report, there are 176,658,479 ordinary shares of
25 pence each in issue, all of which are fully paid-up and quoted on
the London Stock Exchange.
During the year, a total of 72,797 ordinary shares of 25 pence each
were allotted and issued pursuant to the exercise of options under The
UNITE Group plc Savings Related Share Option Scheme (7,688 at a
price of 138.5 pence per share, 51,919 at a price of 162 pence per
share and 13,190 at a price of 221.5 pence per share). In addition, a
total of 21,753 ordinary shares of 25 pence each were allotted and
issued pursuant to the exercise of options under the Approved Scheme
(14,874 at a price of 156.8 pence per share, 6,452 at a price of 185.5
pence per share and 427 at a price of 319 pence per share) and a total
of 101,932 ordinary shares of 25 pence each were allotted and issued
pursuant to the exercise of options under the Unapproved Scheme
(16,227 at a price of 158.5 pence per share, 35,705 at a price of 191
pence per share and 50,000 at a price of 232.5 pence per share).
Further, 16,000,000 ordinary shares of 25 pence each were allotted
and issued pursuant to the share placing which took place during
June 2013.
In October 2013, UNITE Jersey Issuer Limited issued £90 million
of convertible bonds guaranteed by the Company to contribute to the
funding of the Group’s development pipeline. The convertible bonds
have a coupon of 2.5% per annum and are convertible at the option
of the holder at any time (subject to certain conditions) into fully paid
ordinary shares of the Company. The initial conversion price has been
set at 509.73 pence per ordinary share resulting in a requirement to
issue up to 17,656,406 ordinary shares.
88 The UNITE Group plc Annual Report and Accounts 2013
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.
Following a change of control of the Company, the convertible bonds
issued by UNITE Jersey Issuer Limited and referred to above (Share
capital) become redeemable and/or convertible into ordinary shares
of the Company (at the option of the holder).
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’.
Going concern
The going concern statement is set out on page 62 under
Accountability and is incorporated into this Directors’ report
by reference.
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.
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Directors’ conflicts of interest
The Company has procedures in place for managing conflicts of
interest. A Director is to notify the Chairman (and the Chairman
notifies the Chief Executive) if they become aware that they, or any
of their connected parties, may have an interest in an existing or
proposed transaction with the Company or the Group. Directors
have a continuing duty to update any changes to these conflicts.
Political donations
No political donations were made during the year ending 2013.
Other information incorporated by reference
The following information in the strategic report is incorporated into
this Directors’ report by reference:
Results and Dividend
Greenhouse Gas Emissions
Employee relations and Equal Opportunities
pages 12 to 13
page 43
page 49
The corporate governance statement on pages 50 to 87 and the
Statement of Directors’ responsibilities on page 90 are incorporated
into this Directors’ report by reference.
Management report
The Directors’ Report, together with the strategic report and other
sections from the annual report, which are incorporated by reference,
collectively comprise the ‘management report’, for the purposes of
DTR 4.1.5 R.
Annual general meeting
The annual general meeting of the Company will be held at The Core, 40
St Thomas Street, Bristol BS1 6JX at 9.30am on 15 May 2014. Formal
notice of the meeting is given on pages 135 to 138.
Resolution 14 proposes that KPMG LLP be appointed as the Company’s
auditor, following a decision to wind down the Company’s current auditor,
KPMG Audit Plc, as part of a KPMG internal reorganisation. Pursuant to
section 519 of the Companies Act 2006, KPMG Audit Plc has informed
the Company that it is not seeking reappointment and has provided a
statutory statement of circumstances upon ceasing to hold office. In
accordance with section 520 of the Companies Act 2006, a copy of
this statement is set out below:
Dear Sirs
Statement to The UNITE Group plc (no. 03199160) on
ceasing to hold office as auditors pursuant to section
519 of the Companies Act 2006
The circumstances connected with our ceasing to hold office are that
our company, KPMG Audit Plc, has instigated an orderly wind down of
business. KPMG LLP, an intermediate parent, will immediately be
seeking appointment as statutory auditor.
We request that any correspondence in relation to this statement be sent
to our registered office, 15 Canada Square, London, E14 5GL, marked
for the attention of the Audit Regulation Department.
Yours faithfully
KPMG Audit Plc
The Company understands this change is administrative in nature and
will not have any impact on audit processes or timelines. The Company
further understands that KPMG LLP and KPMG Audit Plc are both
assured entities under the KPMG group insurance arrangements and
the proposed change from KPMG Audit Plc to KPMG LLP will have no
effect on any limit within the insurance cover available. Consequently, the
Company believes that the proposed change does not adversely affect
the interests of shareholders.
In addition to the other ordinary business of the meeting, Resolution
16 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 £16,763,206.58 (representing
approximately one-third of the issued share capital of the Company
as at 31 March 2014). 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 £16,763,206.58, again representing approximately one
third of the nominal value of the issued ordinary share capital of
the Company as at 31 March 2014. This additional authority may
only be applied to fully pre-emptive rights issues..
Resolution 17 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 £2,514,480.99 (representing
approximately five per cent of the issued share capital of the
Company as at 31 March 2014).
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 2013,
shareholders authorised the calling of general meetings, other than
an annual general meeting, on not less than 14 clear days’ notice.
Resolution 18 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 18
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
Christopher Szpojnarowicz
Company Secretary
6 March 2014
The UNITE Group plc Annual Report and Accounts 2013 89
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Strategic report Corporate governance Financial statements Other information Corporate governance
Directors’ responsibilities
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
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 pages 52 and
53, confirms that to the best of his or her knowledge:
• The Annual Report and Accounts taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy
• 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
• Make judgments and estimates that are reasonable and prudent;
• The Directors’ report includes a fair review of the development
• State whether they have been prepared in accordance with IFRSs
as adopted by the EU, and
• 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 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.
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 2014
J J Lister
Director
90 The UNITE Group plc Annual Report and Accounts 2013
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Independent auditor’s report to the members of
the UNITE Group plc
Strategic report
Corporate governance
Financial statements
Other information
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of The UNITE Group plc for the year ended 31 December 2013 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 Consolidated and Company Statements
of Cash Flows and the related notes. In our opinion:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
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 2013 and of the Group’s profit for the year then ended
the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards as adopted by the European Union (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, and
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.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our
audit were as follows.
Valuation of investment properties and investment properties under development (£863.1 million)
Refer to the Audit Committee Report and note 3.1for the accounting policy and financial disclosures.
(cid:1)
The risk – Investment properties and investment properties under development are held at fair value in the Group’s
financial statements, and at every period end the change in fair value is reflected in the income statement of the Group.
The valuation models applied are complex and require consideration of the existing market conditions, estimates regarding
rental income, occupancy and property management costs. Valuing investment properties under development can be
further complicated by the need to forecast discounted cash flows with a deduction for costs to complete (which are likely
to require significant judgement).
(cid:1) Our response – In this area our audit procedures included, among others, evaluating the competency of the external
experts engaged by the Group to value the investment and development properties, in the context of their ability to
generate a reliable estimate of the fair value. The assessment of the external experts included but was not limited to,
assessing their professional qualifications, experience and independence from the Group. We met with all the external
valuation experts to discuss their valuation methodology. We used our own valuation specialists to assist us in critically
assessing the valuation methodology applied, and considered whether it is in line with accounting requirements and
best practice. We challenged all key assumptions, including rental income, occupancy and property operating costs.
Specifically, we performed our own assessment of these inputs and compared rental income to current tenancy contracts
on a sample basis, occupancy to sales reports and property operating costs for a sample of properties through to actual
costs for the year.
In addition, for investment properties under development, we compared the costs to complete used in the valuations to internal
budgets and business plans and considered the historical accuracy of such budgets and business plans.
We assessed whether the Group’s disclosures (see note 3.1) in respect of the inputs into the valuations properly reflected the
assumptions used and met the requirements of the relevant accounting standards.
Deferred tax assets (£22.4 million)
Refer to the Audit Committee Report and note 2.6 for the accounting policy and financial disclosures.
(cid:1)
The risk – The Group has recognised deferred tax assets of £22.4 million in respect of tax losses considered to be
recoverable against deferred tax liabilities and future taxable profits. In addition a deferred tax asset of £9.6 million has not
been recognised due to the uncertainty of future taxable profits and the ability to offset losses against them. The estimate
of future taxable profits requires judgement and interpretation of tax laws as well as estimating future profits. The
recoverability of assets recognised could vary significantly if different assumptions are applied in estimating future taxable
profits and the ability to utilise the tax losses. The risk is that the amount recognised on the balance sheet may be over- or
under-estimated and any adjustment would directly affect the profit and the effective tax rate for the period.
(cid:1) Our response – In this area our audit procedures included, among others, testing the principles and integrity of the model
used to forecast taxable profits, comparison of the key input assumptions (such as rental income, property operating costs,
administration costs, capital expenditure) to business plans and considered the historical accuracy of such business plans.
We used our own tax specialists to consider the appropriateness of the application of tax laws, the appropriateness of tax
deductions and the ability to offset projected tax profits against the brought forward losses. We also considered whether
the Group’s disclosures (see note 2.6) met the requirements of the relevant accounting standards.
The UNITE Group plc Annual Report and Accounts 2013 91
Independent auditor’s report to the members of
the UNITE Group plc continued
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £5 million. This has been determined with reference to a
benchmark of Group total assets (of which it represents 0.5%) which we consider to be one of the principal considerations for members
of the Company in assessing the financial performance of the Group.
We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identified through our audit with a
value in excess of £0.25 million, in addition to other audit misstatements below that threshold that we believe warranted reporting on
qualitative grounds.
The Group consists of a number of components, all of which are accounted for at the Group’s head office in Bristol. The Group audit
team performed the audit of the all these components at the Group level as if it was a single aggregated set of financial information.
The audit was performed using the materiality level set out above.
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
(cid:1)
(cid:1)
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 Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
5. We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a
material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
(cid:1) we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s performance, business
model and strategy, or
the Audit Committee report does not appropriately address matters communicated by us to the Audit Committee.
(cid:1)
Under the Companies Act 2006 we are required to report to you if, in our opinion:
(cid:1)
(cid:1)
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, or
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, or
(cid:1)
certain disclosures of directors’ remuneration specified by law are not made, or
(cid:1) we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
(cid:1)
(cid:1)
the directors’ statement, set out in the Directors’ Report, in relation to going concern, and
the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the
2010 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the
company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our
website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to
provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
William Meredith (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
06 March 2014
92 The UNITE Group plc Annual Report and Accounts 2013
Introduction and table of contents
Strategic report
Corporate governance
Financial statements
Other information
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. The adjusted results are also aligned with the European Real Estate Association (EPRA) best
practice recommendations.
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 2013 93
Financial statements
Consolidated income statement
For the year ended 31 December 2013
Rental income
Property sales and other income
Total 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
2.4
3.1
3.1
4.3
4.3
4.3
4.3
4.3
3.4b
2.6
2.2b
2.2b
2.2b
2013
£m
81.0
20.6
101.6
(41.8)
(23.4)
36.4
(1.0)
35.4
–
70.8
(19.3)
0.7
(18.6)
15.7
(2.9)
9.2
77.1
2.2
79.3
78.0
1.3
79.3
46.0p
46.0p
2012
£m
79.4
135.2
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
Included above is £nil (2012: £49.7 million) 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 2013
Profit for the period
Movements in effective hedges
Gains on hedging instruments transferred to income statement
Share of joint venture movements in effective hedges
Share of joint venture movement on hedging instruments transferred to income statement
Other comprehensive income for the period
Total comprehensive income for the period
Attributable to
Owners of the parent company
Minority interest
2013
£m
79.3
0.7
–
3.6
2.9
7.2
86.5
84.9
1.6
86.5
2012
£m
127.2
0.6
2.5
2.7
–
5.8
133.0
131.4
1.6
133.0
All movements above are shown net of deferred tax. All other comprehensive income may be classified as profit and loss in the future.
94 The UNITE Group plc Annual Report and Accounts 2013
Consolidated balance sheet
At 31 December 2013
Strategic report
Corporate governance
Financial statements
Other information
Assets
Investment property
Investment property under development
Investment in joint ventures
Joint venture investment loans
Other non-current assets
Deferred tax asset
Total non-current assets
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 portion of convertible instrument
Equity attributable to the owners of the parent company
Minority interest
Total equity
Note
3.1
3.1
3.4b
3.4b
3.3
2.6c
3.1
3.2
5.2
5.1
4.1
4.2
5.4
2.5
4.1
4.2
2.5
2013
£m
2012
£m
767.6
95.5
237.2
10.2
7.3
0.6
1,118.4
61.5
3.2
50.0
43.2
157.9
762.8
37.6
194.8
11.2
5.0
–
1,011.4
26.5
1.7
53.5
75.4
157.1
1,276.3
1,168.5
(29.7)
(2.0)
(85.2)
–
(0.3)
(117.2)
(483.7)
(3.4)
–
(487.1)
(604.3)
(100.2)
(0.7)
(82.0)
(0.5)
(0.5)
(183.9)
(427.7)
(23.0)
(0.2)
(450.9)
(634.8)
672.0
533.7
44.2
295.3
40.2
266.0
(1.8)
9.4
653.3
18.7
672.0
40.1
249.2
40.2
195.0
(8.7)
–
515.8
17.9
533.7
These financial statements were approved by the Board of Directors on 6 March 2014 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
The UNITE Group plc Annual Report and Accounts 2013 95
Financial statements
Company balance sheet
At 31 December 2013
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
Equity portion of intercompany loan
Total equity
Note
3.5a
3.5a
3.5a
3.5a
5.2
5.1
4.1
5.4
5.4
4.1
2013
£m
2012
£m
323.8
–
323.8
179.9
–
503.7
393.5
–
393.5
897.2
(4.9)
(59.4)
(3.0)
(67.3)
(169.0)
(169.0)
(236.3)
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)
660.9
515.8
44.2
295.3
40.2
13.7
258.1
9.4
660.9
40.1
249.2
40.2
23.6
162.7
–
515.8
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 2014 and were signed on its behalf by:
M C Allan
Director
J J Lister
Director
96 The UNITE Group plc Annual Report and Accounts 2013
Consolidated statement of changes in
shareholders’ equity
For the year ended 31 December 2013
Strategic report
Corporate governance
Financial statements
Other information
Issued
share capital
£m
40.1
Share
premium
£m
249.2
Merger
reserve
£m
40.2
Retained
earnings
£m
195.0
Hedging
reserve
£m
(8.7)
Equity
portion of
convertible
instrument
£m
–
Attributable
to owners
of the parent
£m
515.8
Minority
interest
£m
17.9
Total
£m
533.7
–
–
–
4.1
–
–
–
–
–
–
–
46.1
–
–
–
–
–
–
–
–
–
–
–
–
78.0
–
78.0
–
1.1
(0.6)
–
(7.5)
–
6.9
6.9
–
–
–
–
–
–
–
–
–
–
–
78.0
6.9
84.9
50.2
1.1
(0.6)
9.4
9.4
–
(7.5)
1.3
0.3
1.6
–
–
–
–
–
79.3
7.2
86.5
50.2
1.1
(0.6)
9.4
(7.5)
–
44.2
–
295.3
–
40.2
–
266.0
–
(1.8)
–
9.4
–
653.3
(0.8)
18.7
(0.8)
672.0
Issued
share capital
£m
40.1
Share
premium
£m
249.0
Merger
reserve
£m
40.2
Retained
earnings
£m
72.8
Hedging
reserve
£m
(14.5)
Equity
portion of
convertible
instrument
£m
–
Attributable
to owners
of the parent
£m
387.6
Minority
interest
£m
17.1
Total
£m
404.7
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
125.6
–
125.6
–
1.5
(1.3)
(3.6)
–
5.8
5.8
–
–
–
–
–
40.1
–
249.2
–
40.2
–
195.0
–
(8.7)
–
–
–
–
–
–
–
–
–
125.6
1.6
127.2
5.8
–
5.8
131.4
0.2
1.6
–
133.0
0.2
1.5
(1.3)
(3.6)
–
–
–
1.5
(1.3)
(3.6)
–
515.8
(0.8)
17.9
(0.8)
533.7
At 1 January 2013
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
Equity arising on issue of
convertible bond
Dividends paid to owners
of the parent company
Dividends to minority
interest
At 31 December 2013
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
The UNITE Group plc Annual Report and Accounts 2013 97
Financial statements
Company statement of changes
in shareholders’ equity
At 31 December 2013
At 1 January 2013
Issued
share capital
£m
40.1
Share
premium
£m
249.2
Merger
reserve
£m
40.2
Retained
earnings
£m
23.6
Revaluation
reserve
£m
162.7
Loss for the period
Equity arising on intercompany loan
Revaluation of investments in subsidiaries
Shares issued
Dividends to shareholders
At 31 December 2013
–
–
–
4.1
–
44.2
–
–
–
46.1
–
295.3
–
–
–
–
–
40.2
(2.4)
–
–
–
(7.5)
13.7
–
–
95.4
–
–
258.1
At 1 January 2012
Issued
share capital
£m
40.1
Share
premium
£m
249.0
Merger
reserve
£m
40.2
Retained
earnings
£m
25.4
Revaluation
reserve
£m
48.8
Equity
portion of
intercompany
loan
£m
–
–
9.4
–
–
–
9.4
Equity
portion of
intercompany
loan
£m
–
Loss for the period
Transfer on sale of joint venture
Revaluation of investments in subsidiaries
Shares issued
Dividends to shareholders
At 31 December 2012
–
–
–
–
–
40.1
–
–
–
0.2
–
249.2
–
–
–
–
–
40.2
(0.7)
2.5
–
–
(3.6)
23.6
–
(2.5)
116.4
–
–
162.7
–
–
–
–
–
–
Total
£m
515.8
(2.4)
9.4
95.4
50.2
(7.5)
660.9
Total
£m
403.5
(0.7)
–
116.4
0.2
(3.6)
515.8
98 The UNITE Group plc Annual Report and Accounts 2013
Statements of cash flows
For the year ended 31 December 2013
Strategic report
Corporate governance
Financial statements
Other information
Cash flows from operating activities
Group
2013
£m
5.9
2012
£m
58.4
Company
2013
£m
(2.5)
2012
£m
(2.4)
Note
5.1
Cash flows from taxation
(0.7)
(0.9)
–
–
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
Loan to joint ventures
Dividends received
Interest received
Investment in joint ventures
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 property under development included
in cash flows from operating activities
Interest paid in respect of financing activities
Ineffective swap payments
Proceeds from the issue of share capital
Payments to acquire own shares
Proceeds from non-current borrowings
Repayment of borrowings
Dividends paid to the owners of the parent company
Dividends paid to minority interest
Cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
5.1
11.8
–
–
–
–
(1.4)
9.9
0.3
(11.8)
(2.2)
(38.4)
(2.3)
(34.1)
27.5
–
–
–
–
–
9.6
0.2
–
(1.6)
(49.5)
(0.2)
(14.0)
–
(84.9)
42.6
–
(89.9)
–
–
6.8
–
–
–
–
(125.4)
–
(13.2)
14.1
3.9
(90.0)
–
–
–
–
–
–
–
(85.2)
(24.2)
(21.1)
(6.9)
(0.3)
3.2
(21.0)
(16.7)
59.6
(0.6)
149.8
(166.1)
(7.5)
(0.8)
(3.3)
(32.2)
75.4
43.2
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
–
(6.9)
–
50.2
–
88.4
–
(7.5)
–
124.2
(3.7)
(1.2)
(4.9)
–
(0.3)
–
0.2
–
90.0
–
(3.6)
–
86.3
(1.3)
0.1
(1.2)
The UNITE Group plc Annual Report and Accounts 2013 99
Financial statements
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 Strategic
Report on pages 24 to 49. 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 2015. Following the significant level of financing activity that was
completed during 2012 and 2013, the Group has significant levels of cash headroom. The Group has two facilities maturing in the
second half of 2015 and plans to initiate discussions with banks about their renewal around twelve months before the maturity dates.
The Group has historically maintained positive relationships with its lending banks and has always secured new facilities before maturity
dates and remained within its covenant levels. The Group is in full compliance with its covenants at 31 December 2013 as set out on
page 39. In order to manage future financial commitments, the Group operates a formal approval process, through its Major Investment
Approvals Committee, to ensure appropriate review is undertaken before any land is acquired or build contracts are agreed.
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
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:
(cid:1)
IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements (2011), IFRS 11 Joint Arrangements,
IAS 28 Investments in Associates and Joint Ventures (2011) 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.
(cid:1) Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 is mandatory for years commencing on or
after 1 January 2014 and clarifies the offsetting criteria for assets and liabilities.
(cid:1) Continuing hedge accounting after derivative novations – Amendments to IAS 39 is effective for years commencing on or
after 1 January 2014 and allows an entity not to discontinue hedge accounting where there has been a swap novation.
100 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 1: Basis of preparation continued
Accounting estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying the Group’s accounting policies.
It also requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis with revisions recognised in the period in which the estimates are revised
and in any future periods affected.
The areas involving a higher degree of judgement of complexity are set out below and are explained in more detail in the related notes to
the financial statements.
The 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:
(cid:1)
(cid:1)
(cid:1)
Valuation of investment property, investment property under development, completed property and properties under
development (note 3.1)
Taxation (note 2.6)
Valuation of interest rate swaps (note 4.2).
The accounting policy descriptions set out the areas where judgement needs exercising, the most significant of which are as follows:
(cid:1) Classification of joint venture vehicles (note 3.4).
The UNITE Group plc Annual Report and Accounts 2013 101
Financial statements
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. The Group’s adjusted earnings and
net asset value are also aligned with the European Public Real Estate Association (EPRA) best practice recommendations.
EPRA performance measures
EPRA earnings
EPRA earnings per share (pence)
EPRA NAV
EPRA NAV per share (pence)
EPRA NNNAV
EPRA NNNAV per share (pence)
Note
2.2b
2.3c
2.3c
2013
£m
30.6m
18.0p
681.6m
382p
665.5m
373p
2012
£m
15.9m
9.9p
566.5m
350p
523.0m
323p
2.1 Segmental information
The Board of Directors monitor the business along two activity lines. The reportable segments for the years ended 31 December 2013
and 31 December 2012 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.
2013
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Net portfolio contribution
UNITE
Total
£m
81.0
(25.1)
55.9
13.7
(18.5)
51.1
(13.7)
(23.1)
14.3
Share of joint ventures
USAF
£m
19.1
(5.5)
13.6
(1.4)
(0.2)
12.0
–
(4.7)
7.3
UCC
£m
8.4
(1.0)
7.4
(1.1)
(0.1)
6.2
–
(3.6)
2.6
LSAV
£m
2.1
(0.4)
1.7
(0.3)
(0.1)
1.3
–
(0.5)
0.8
OCB
£m
2.8
(0.4)
2.4
(0.3)
(0.1)
2.0
–
(1.4)
0.6
Group on see-
through basis
Total
£m
113.4
(32.4)
81.0
Total
£m
32.4
(7.3)
25.1
(3.1)
(0.5)
21.5
–
(10.2)
11.3
10.6
(19.0)
72.6
(13.7)
(33.3)
25.6
USV
£m
–
–
–
–
–
–
–
–
–
Included in the UNITE total above is rental income of £19.7 million and property operating expenses of £6.4 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.
102 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 2: Results for the year continued
2.1 Segmental information continued
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
Share of joint ventures
USAF
£m
18.8
(5.6)
13.2
(1.4)
(0.1)
11.7
–
(5.3)
6.4
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
Group on see-
through basis
Total
£m
111.4
(32.3)
79.1
Total
£m
32.0
(7.7)
24.3
(2.9)
(0.3)
21.1
–
(11.0)
10.1
10.3
(21.8)
67.6
(12.8)
(35.7)
19.1
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.
* 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.
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
Property segment result
2013
£m
(3.3)
(3.3)
2012
£m
(3.7)
(3.7)
The UNITE Group plc Annual Report and Accounts 2013 103
Financial statements
Notes to the financial statements continued
Section 2: Results for the year continued
2.1 Segmental information continued
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 EPRA NAV contributed by each segment during the period.
Contributions to EPRA NAV by each segment during the year is as follows:
Note
2.1a
2013
£m
2012
£m
25.6
19.1
28.1
(0.7)
(2.8)
1.3
25.9
24.1
(3.3)
46.7
50.2
(7.5)
9.4
2.3
7.5
(17.9)
–
(0.6)
(0.6)
42.8
115.1
566.5
681.6
33.8
(6.1)
(1.4)
1.8
28.1
23.7
(3.7)
48.1
–
(3.6)
–
2.9
–
(10.6)
(1.7)
(1.3)
(0.9)
(15.2)
52.0
514.5
566.5
2.3a
Operations
Net portfolio contribution
Property
Rental growth
Specific property write downs
Disposals and acquisition costs
Capital expenditure and refurbishments
Rental property gains
Development property gains
Pre-contract and other development costs
Total property
Unallocated
Shares issued
Dividends paid
Equity portion of convertible instruments
Share of monies received from Landsbanki
UCC promote fee
Swap losses and debt exit costs
LSAV set-up costs
Purchase of own shares
Other
Total unallocated
Total EPRA NAV movement in the period
Total EPRA NAV brought forward
Total EPRA NAV carried forward
104 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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.
a) EPRA earnings and reconciliation to IFRS
EPRA earnings exclude movements relating to changes in values of investment properties and interest rate swaps, which are included in
the profit reported under IFRS. In addition a further adjusted profit is shown below to demonstrate the non-recurring impact of the UCC
promote fee recognised in 2013. The adjusted profit reconciles to the profit reported under IFRS as follows:
Operations segment result – net portfolio contribution
Property segment result
Unallocated to segments
Adjusted profit pre UCC promote fee
UCC promote fee
EPRA earnings
Net valuation gains on investment property
Valuation gains realised on transfer of completed property
Property disposals and write downs
LSAV set up costs
Debt exit 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
Share of joint venture debt exit costs
Mark to market changes in interest rate swaps*
Interest rate swap payments on ineffective hedges*
Share of joint venture interest rate swaps charges
Deferred tax relating to interest rate swap movement
Share of joint venture deferred tax credit
Minority interest share of reconciling items**
Profit attributable to owners of the parent company
Note
2.1a
2.1b
3.1
3.1
3.4b
3.4b
4.3
3.4b
3.4b
2013
£m
25.6
(3.3)
0.8
23.1
7.5
30.6
35.4
–
(1.9)
–
(0.4)
13.5
(0.1)
–
(2.2)
0.7
4.4
(3.8)
2.1
–
(0.3)
78.0
2012
£m
19.1
(3.7)
0.5
15.9
–
15.9
29.8
49.7
14.7
(1.3)
–
14.9
0.3
(0.4)
–
(7.6)
9.0
(0.6)
1.6
0.4
(0.8)
125.6
* Within IFRS reported profit, there is a £0.7 million profit (2012: £7.6 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, £4.4 million (2012: £9.0 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 £2.3 million (2012: £2.9 million), current
tax charges of £0.4 million (2012: £0.4 million), deferred tax credit of £0.6 million (2012: £nil), contributions to the UNITE Foundation of
£0.5 million (2012: £0.2 million) and share option fair value charges of £1.1 million (2012: £1.5 million).
The UNITE Group plc Annual Report and Accounts 2013 105
Financial statements
Notes to the financial statements continued
Section 2: Results for the year continued
2.2 Adjusted profit and EPS continued
b) Earnings per share
EPS is the amount of post-tax profits attributable to each share. Basic EPS is adjusted in line with EPRA guidelines 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. EPRA EPS and adjusted EPS are calculated using EPRA earnings and adjusted profit as set out above.
The calculations of basic and adjusted EPS for the year ended 31 December 2013 are as follows:
Earnings
Basic (and diluted)
EPRA
Adjusted pre UCC promote fee
Weighted average number of shares (thousands)
Basic
Dilutive potential ordinary shares (share options)
Diluted
Earnings per share (pence)
Basic
Diluted
EPRA EPS
Adjusted pre UCC promote fee
Note
2.2a
2.2a
2013
£m
78.0
30.6
23.1
2012
£m
125.6
15.9
15.9
169,561
255
169,816
160,319
136
160,455
46.0p
46.0p
18.0p
13.6p
78.3p
78.3p
9.9p
9.9p
Movements in the weighted average number of shares have resulted from the placing in June 2013 and the issue of shares arising from
the employee share based payment schemes.
The placing comprised 16,000,000 shares and gave rise to proceeds of £51.2 million, £49.9 million net of issue costs.
Excluded from the potential dilutive shares (share options) are 3,697,000 options in existence at 31 December 2013 (2012: 3,176,000)
which do not affect the diluted weighted average number of shares.
2.3 Adjusted net assets and NAV per share
EPRA NAV 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 performance of the Property segment.
a) EPRA 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
Wholly owned
£m
767.6
–
767.6
2013
Share of JVs
£m
407.6
–
407.6
95.5
15.1
84.3
179.8
947.4
–
15.1
422.7
Total
£m
1,175.2
–
1,175.2
110.6
84.3
194.9
1,370.1
Wholly owned
£m
762.8
–
762.8
2012
Share of JVs
£m
399.3
–
399.3
37.6
0.2
45.5
83.1
845.9
–
0.2
399.5
Total
£m
1,162.1
–
1,162.1
37.8
45.5
83.3
1,245.4
Debt on properties (net of cash)
(470.2)
(195.9)
(666.1)
(452.6)
(195.1)
(647.7)
Other assets/(liabilities)
(24.4)
2.0
(22.4)
(23.1)
(8.1)
(31.2)
EPRA net assets
452.8
228.8
681.6
370.2
196.3
566.5
Loan-to-value (%)
50
46
49
53
49
52
106 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 2: Results for the year continued
2.3 Adjusted net assets and NAV per share continued
b) Reconciliation to IFRS
EPRA NAV reconciles to NAV reported under IFRS and EPRA triple net asset value (NNNAV) as follows:
EPRA NAV
Mark to market interest rate swaps
Valuation gain not recognised on property held at cost
Net asset value reported under IFRS
Recognise valuation gain on property held at cost
Mark to market of fixed rate debt
EPRA NNNAV
Note
2.3a
3.1
2013
£m
681.6
(5.5)
(22.8)
653.3
22.8
(10.6)
665.5
2012
£m
566.5
(31.7)
(19.0)
515.8
19.0
(11.8)
523.0
c) Net asset value per share
The Board regularly monitors the adjusted NAV attributable to its shareholders. NAV per share as at 31 December 2013 is calculated
as follows:
Net assets
Basic (as reported under IFRS on the balance sheet)
EPRA (pre-dilution)
EPRA diluted (takes into account the dilutive effect of all share options being exercised)
Note
2.3b
2.1c
EPRA NNNAV (diluted)
Number of shares (thousands)
Basic
Outstanding share options
Diluted
Net asset value per share (pence)
Basic
Adjusted pre dilution
EPRA (fully diluted)
EPRA NNNAV (fully diluted)
2013
£m
653.3
681.6
683.7
667.6
2012
£m
515.8
566.5
568.4
524.9
176,658
2,457
179,115
160,461
2,111
162,572
370p
386p
382p
373p
321p
353p
350p
323p
The UNITE Group plc Annual Report and Accounts 2013 107
Financial statements
Notes to the financial statements continued
Section 2: Results for the year continued
2.4. Revenue
The Group earns revenue from the following activities:
Rental income
Management fees
Development revenue
Manufacturing revenue
Property sales
UCC promote fee
Operations segment
Operations segment
Property segment
Property segment
Unallocated
Unallocated
Impact of minority interest on management fees
Impact of minority interest on property sales
Total revenue
Note
2.1a
2013
£m
81.0
11.2
2.1
–
–
7.5
101.8
(0.2)
–
101.6
2012
£m
79.4
10.9
–
12.5
112.1
–
214.9
(0.2)
(0.1)
214.6
The revenue above excludes the Group’s share of revenue from joint ventures; this can be seen in note 2.1a.
Revenue has decreased because of the reduction in planned sales of completed property mitigated by an increase in rental income and
the UCC promote fee receivable.
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 2013
Provisions utilised in the year
At 31 December 2013
At 1 January 2012
Provisions utilised in the year
At 31 December 2012
108 The UNITE Group plc Annual Report and Accounts 2013
Current
liability
£m
Non-current
liability
£m
Total liability
£m
0.5
(0.5)
–
0.2
(0.2)
–
0.7
(0.7)
–
Current
liability
£m
Non-current
liability
£m
Total liability
£m
6.3
(5.8)
0.5
4.7
(4.5)
0.2
11.0
(10.3)
0.7
Strategic report
Corporate governance
Financial statements
Other information
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 charge/(credit) in the income statement is analysed as follows:
Income tax on UK rental income arising in non-UK companies
Current tax charge
Origination and reversal of temporary differences
Effect of change in tax rate
Recognition of previously unrecognised asset
Deferred tax charge/(credit)
2013
£m
0.5
0.5
(1.8)
(0.3)
(0.6)
(2.7)
2012
£m
0.6
0.6
(1.3)
(0.3)
–
(1.6)
Total tax credit in income statement
(2.2)
(1.0)
In order to understand how, in the income statement, a tax credit of £2.2 million arises on a profit before tax of £77.1 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 23.3% (2012: 24.5%)
Effect of indexation on investment and development property
Non-deductible items
Effect of transferring property from current to non-current assets
Share of joint venture profit
Movement on unprovided deferred tax asset
Profits chargeable at lower rate
Effect of property disposals
Rate difference on deferred tax
Recognition of previously un-recognised deferred tax asset
Total tax credit in the income statement
2013
£m
77.1
17.9
(3.0)
(6.9)
–
–
(8.0)
(0.1)
(0.2)
(1.3)
(0.6)
(2.2)
2012
£m
126.2
30.9
(3.3)
0.8
(10.8)
(0.1)
(13.1)
–
(4.3)
(1.1)
–
(1.0)
b) Tax – other comprehensive income
Within other comprehensive income a tax charge totalling £0.3 million (2012: £0.8 million) has been recognised representing deferred
tax. An analysis of this is included below in the deferred tax movement table.
The UNITE Group plc Annual Report and Accounts 2013 109
Financial statements
Notes to the financial statements continued
Section 2: Results for the year continued
2.6 Tax continued
c) Tax – balance sheet
The table below outlines the deferred tax liabilities/(assets) that are recognised in the balance sheet, together with their movements
in the year:
2013
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
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
At 31 December
2012
£m
15.9
–
(0.7)
7.1
(4.2)
(1.9)
(16.2)
–
At 31 December
2011
£m
8.8
(1.3)
(1.2)
7.6
(8.0)
(2.7)
(3.2)
–
Transfers
£m
–
–
–
–
–
–
–
–
Transfers
£m
–
–
–
–
–
–
–
–
(Credited)
in income
£m
1.0
–
(0.1)
(0.5)
3.1
–
(6.2)
(2.7)
(Credited)
in income
£m
7.1
1.3
0.5
(0.5)
3.0
–
(13.0)
(1.6)
Charged
in equity
£m
–
–
–
–
0.3
1.8
–
2.1
At 31 December
2013
£m
16.9
–
(0.8)
6.6
(0.8)
(0.1)
(22.4)
(0.6)
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)
–
A deferred tax asset of £9.6 million (2012: £20.0 million) in respect of losses of £47.9 million (2012: £86.9 million) has not been
recognised. Complexities in the Group structure mean these losses may be inaccessible and the Group is considering converting to REIT
status in the medium term. Accordingly, the recognised deferred tax asset has been restricted to those losses which are likely be utilised
in the next three years.
A reduction in the UK corporation tax rate from 24% to 23% (effective 1 April 2013) was substantively enacted on 3 July 2012. Further
reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This
will reduce the Group’s future current tax charge accordingly. The deferred tax asset at 31 December 2013 has been calculated based
on the rates of 20% and 21% substantively enacted at the balance sheet date.
Company
Deferred tax has not been recognised on temporary timing differences of £51.6 million (2012: £44.1 million) in respect of revaluation
of subsidiaries and investment in joint ventures as it is probable that the temporary timing difference will not reverse in the
foreseeable future.
2.7 Audit fees
Disclosures in respect of fees paid to the auditors can be found in the Audit Committee Report, page 65.
110 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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.
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 6.3% (2012: 5.9%).
Valuation process
The valuation of the properties are performed twice a year on the basis of valuation reports prepared by external, independent valuers,
having an appropriate recognised professional qualification. The fair values are based on market values as defined in the RICS Appraisal
and Valuation Manual, issued by the Royal Institution of Chartered Surveyors. CB Richard Ellis Ltd, Jones Lang LaSalle and Messrs
Knight Frank, Chartered Surveyors were the valuers in the years ending 31 December 2013 and 2012.
The reports are based on both:
(cid:1)
Information provided by the Group such as current rents, occupancy, operating costs, terms and conditions of leases and
nomination agreements, capital expenditure, etc. This information is derived from the Group’s financial systems and is
subject to the Group’s overall control environment.
(cid:1) Assumptions and valuation models used by the valuers – the assumptions are typically market related, such as yields and
discount rates. These are based on their professional judgement and market observation.
The information provided to the valuers – and the assumptions and the valuation models used by the valuers – are reviewed by the
Property Board and the CFO. This includes a review of fair value movements over the period.
The UNITE Group plc Annual Report and Accounts 2013 111
Financial statements
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 2013 were
as follows:
2013
At 1 January 2013
Cost capitalised
Interest capitalised
Transfer from investment property
Disposals
Valuation gains
Valuation losses
Net valuation gains
Carrying value at 31 December 2013
Investment
property
£m
762.8
8.0
–
(8.7)
(12.8)
23.6
(5.3)
18.3
767.6
Investment
property under
development
£m
37.6
29.2
2.9
8.7
–
17.4
(0.3)
17.1
95.5
Completed
property
£m
–
–
–
–
–
–
–
–
–
Property under
development
£m
26.5
31.8
3.2
–
–
–
–
–
61.5
Total
£m
826.9
69.0
6.1
–
(12.8)
41.0
(5.6)
35.4
924.6
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 2013 is as follows:
Carrying value at 31 December 2013 (above)
Valuation gains not recognised under IFRS but included in
Adjusted NAV
Brought forward
Valuation gain in year
Market value at 31 December 2013
Investment
property
£m
767.6
Investment
property under
development
£m
95.5
Completed
property
£m
–
Property under
development
£m
61.5
–
–
–
767.6
–
–
–
95.5
–
–
–
–
19.0
3.8
22.8
84.3
Total
£m
924.6
19.0
3.8
22.8
947.4
112 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 3: Asset management continued
3.1 Wholly owned property assets continued
The movements in the carrying value of the Group’s wholly owned property portfolio during the year ended 31 December 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
The fair value of the Group’s wholly owned property portfolio 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
730.1
56.8
77.6
6.0
–
–
1.4
(124.3)
(0.2)
49.7
37.0
(7.2)
29.8
826.9
Total
£m
826.9
76.1
–
(49.7)
(26.0)
18.6
19.0
845.9
During 2012 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.
Included within investment properties are £30.8 million (2012: £29.7 million) of assets held under a long leasehold and £11.3 million
(2012: £12.7 million) of assets held under short leasehold.
Total interest capitalised in investment and development properties at 31 December 2013 was £37.9 million (2012: £32.1 million)
on a cumulative basis. Total internal costs relating to manufacturing, construction and development costs of Group properties
amount to £48.1 million at 31 December 2013 (2012: £46.7 million) on a cumulative basis.
Recurring fair value measurement
All investment and development properties are classified as Level 3 in the fair value hierarchy. Whilst completed property and property
under development are held at cost in the balance sheet, the Group discloses the fair value of these assets and includes them at fair
value in adjusted NAV. Completed property and property under development fair value measurements are categorised as Level 3 in the
fair value hierarchy and their fair value is measured using the same techniques as for investment properties and investment properties
under development.
The UNITE Group plc Annual Report and Accounts 2013 113
Financial statements
Notes to the financial statements continued
Section 3: Asset management continued
3.1 Wholly owned property assets continued
Class of asset
London – rental properties
Major provincial – rental properties
Other provincial – rental properties
London – development properties
Major provincial – development properties
Other provincial – development properties
Market value
2013
£m
274.5
332.5
160.6
149.6
17.9
12.3
947.4
2012
£m
273.7
328.7
160.4
75.8
7.3
–
845.9
The valuation technique for investment properties is a discounted cash flow using the following inputs: net rental income, estimated
future costs, occupancy and property management costs.
Where the asset is leased to a University, the valuations also reflect the length of the lease, the allocation of maintenance and insurance
responsibilities between the Group and the lessee, and the market’s general perception of the lessee’s credit worthiness.
The resulting valuations are cross-checked against the initial yields and the capital value per bed derived from actual
market transactions.
For development properties, the fair value is usually calculated by estimating the fair value of the completed property (using the
discounted cash flow method) less estimated costs to completion.
Fair value using unobservable inputs (Level 3)
Opening fair value
Gains and losses recognised in income statement
Gains and losses not recognised on properties under development
Acquisitions
Capital Expenditure
Disposals
Closing fair value
2013
£m
845.9
35.4
3.8
–
75.1
(12.8)
947.4
Quantitative information about fair value measurements using unobservable inputs (Level 3)
London
– rental properties
Major provincial
– rental properties
Other provincial
– rental properties
London
– development properties
Major provincial
– development properties
Other provincial
– development properties
Fair
value
£m
274.5
332.5
160.6
149.6
17.9
12.3
Valuation technique
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Fair value at 31 December 2013 974.4
114 The UNITE Group plc Annual Report and Accounts 2013
Unobservable inputs
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Range
187 – 326
1 – 3
6.15 – 6.50
93 – 135
2 – 3
6.40 – 6.90
78 – 124
2 – 3
6.40 – 8.40
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
8.7m – 12.2m
3
6.10 – 6.50
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
22.9m
3
6.25 – 7.00
5.7m
3
6.75
2012
£m
806.2
29.6
18.6
56.8
85.0
(150.3)
845.9
Weighted
average
£220
3
6.24
£109
3
6.68
£106
3
6.83
10.9m
3
6.35
22.9m
3
6.64
5.7m
3
6.75
Strategic report
Corporate governance
Financial statements
Other information
Section 3: Asset management continued
3.1 Wholly owned property assets continued
London
– rental properties
Major provincial
– rental properties
Other provincial
– rental properties
London
– development properties
Major provincial
– development properties
Fair value
273.7
Valuation technique
Discounted
cash flows
328.7
160.4
75.8
7.3
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Discounted
cash flows
Unobservable inputs
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Net rental income (£ per week)
Estimated future rent (%)
Discount rate (yield) (%)
Range
181 – 317
1 – 3
6.15 – 6.35
86 – 135
2 – 3
6.40 – 7.25
73 – 119
2 – 3
6.40 – 8.25
Estimated cost to complete (£m) 27.7m – 43.0m
3
6.50
Estimated future rent (%)
Discount rate (yield) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
21.7m
3
6.50 – 7.00
Weighted
average
£214
3
6.28
£106
3
6.80
£103
3
6.84
37.4m
3
6.50
21.7m
3
6.77
Fair value at 31 December 2012
845.9
A decrease in net rental income, estimated future rents or occupancy will result in a decrease in the fair value, whereas a decrease in the
discount rate (yield) or the estimated costs to complete will result in an increase in fair value. There are interrelationships between these
rates as they are partially determined by market rate conditions.
3.2 Inventories
Interests in land
Other stocks
Inventories
2013
£m
–
3.2
3.2
2012
£m
0.6
1.1
1.7
The movement in other stock is caused by an increase in activity during the year relating to costs incurred in connection with the
acquisition of assets for the LSAV joint venture.
The UNITE Group plc Annual Report and Accounts 2013 115
Financial statements
Notes to the financial statements continued
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:
(cid:1)
Leasehold
improvements Shorter life of lease and economic life
(cid:1) Other assets 4-20 years
Intangible assets
Intangible assets predominately comprise internally developed computer software which allows customers to book online and
processes transactions within the sales cycle. The expenditure capitalised includes the cost of materials, direct labour and an
appropriate proportion of overheads. Expenditure on research activities is recognised in the income statement as an expense
incurred. The assets are amortised on a straight-line basis over 4 to 5 years being the estimated useful lives of the intangible
assets, from the date they are available for use. Amortisation is charged to the income statement.
The Group’s other non-current assets can be analysed as follows:
Property, plant
and equipment
£m
2013
Intangible
assets
£m
Total
£m
Property, plant
and equipment
£m
2012
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
At 31 December
Carrying value at 1 January
Carrying amount at 31 December
7.7
2.3
–
10.0
6.5
0.7
–
7.2
1.2
2.8
17.5
2.2
–
19.7
13.7
1.5
–
15.2
3.8
4.5
25.2
4.5
–
29.7
20.2
2.2
–
22.4
5.0
7.3
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
Total
£m
39.3
1.8
(15.9)
25.2
32.5
2.9
(15.2)
20.2
6.8
5.0
116 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 3: Asset management continued
3.4 Investments in joint ventures (Group)
Accounting policies
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The
consolidated financial statements include joint ventures initially at cost subsequently increased or decreased by the Group’s share of
total gains and losses of joint ventures on an equity basis. Interest free joint venture investment loans are initially recorded at fair
value – the difference between the nominal amount and fair value being treated as an investment in the joint venture. The implied
discount is amortised over the contracted life of the investment loan.
The Directors consider that the agreements integral to its joint ventures result in the Group having joint control; a significant degree
of judgement is exercised in this assessment due to the complexity of the contractual arrangements.
The Group has four joint ventures:
Joint venture
The UNITE UK Student
Accommodation Fund
(USAF)
UNITE Capital Cities
(UCC)
Group’s share of
assets/results 2013 (2012)
18.9%* (18.9%)
30% (30%)
London Student
Accommodation Venture
(LSAV)
50% (50%)
OCB Property Holdings
(OCB)
25% (25%)
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
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
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
Develop and operate three
investment properties
located in London
Oasis Capital Bank 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% (2012: 16.4%) of USAF.
The UNITE Group plc Annual Report and Accounts 2013 117
Financial statements
Notes to the financial statements continued
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
a) Net assets and results of the joint ventures
The summarised balance sheets and results for the period, and the Group’s share of these joint ventures are as follows:
2013
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Investment loans
UCC promote
Net assets
Profit/(loss) for the
period
USAF
£m
UCC
£m
LSAV
£m
OCB
£m
Total
£m
Gross
1,354.7
62.4
(645.5)
(3.5)
11.8
(26.9)
753.0
–
–
753.0
Share
256.5
11.8
(122.2)
(0.6)
2.3
(5.1)
142.7
–
–
142.7
Gross
389.9
11.3
(223.1)
–
0.3
(7.8)
170.6
–
–
170.6
Share
117.0
3.4
(66.9)
–
–
(2.3)
51.2
–
7.5
58.7
Gross
80.4
7.5
(32.2)
0.8
0.9
(1.5)
55.9
–
–
55.9
Share
40.2
3.7
(16.1)
0.4
0.5
(0.7)
28.0
–
–
28.0
Gross
173.7
8.4
(105.6)
–
0.2
(4.4)
72.3
(40.8)
–
31.5
Share
43.4
2.1
Gross
1,998.7
89.6
(26.4) (1,006.4)
(2.7)
13.2
(40.6)
1,051.8
(40.8)
–
1,011.0
–
–
(1.1)
18.0
(10.2)
–
7.8
Share
457.1
21.0
(231.6)
(0.2)
2.8
(9.2)
239.9
(10.2)
7.5
237.2
62.7
(0.8)
10.2
3.0
13.9
7.0
2.3
–
89.1
9.2
Adjusted net assets
756.5
124.5
170.6
58.7
55.1
27.6
72.3
18.0
1,054.5
228.8
Share of USAF profit is significantly impacted by the unwinding of discounts on interest free loans made by the Group to the joint
venture as disclosed in in note 3.4b.
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)
Share
250.0
9.5
(117.7)
(2.9)
0.3
(4.8)
134.4
(3.2)
Gross
381.2
12.6
(226.7)
(16.9)
0.3
(9.4)
141.1
–
704.5
131.2
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)
Gross
1,925.8
73.0
(985.1)
(35.1)
2.2
(40.9)
939.9
(35.3)
Share
433.0
16.5
(225.9)
(8.2)
0.6
(10.0)
206.0
(11.2)
8.3
904.6
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
Net assets and profit for the period above include the minority interest, whereas adjusted net assets exclude the minority interest.
118 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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 £42.4 million during the year ended 31 December 2013
(2012: £21.8 million), resulting in an overall carrying value of £237.2 million (2012: £194.8 million). The following table shows how the
increase has been achieved.
2013
2012
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 (note 4.3)
Debt exit costs
Loss on cancellation of interest rate swaps
Landsbanki cash received
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
Increase in loan to OCB
Additional capital invested in UCC
Additional capital invested in LSAV
UCC promote
Acquisition of remaining 49% in USV
Acquisition of 50% share in LSAV
Transfer from investment loan to investments
Distributions received
Increase/(decrease) in carrying value
Carrying value at 1 January
Carrying value at 31 December
11.3
1.1
2.4
13.5
–
(15.4)
(2.2)
(3.8)
2.3
–
9.2
8.4
–
(4.2)
–
3.4
8.4
7.5
–
–
19.6
(9.9)
42.4
194.8
237.2
–
–
–
–
–
15.4
–
–
–
–
15.4
–
–
1.8
1.4
–
–
–
–
–
(19.6)
–
(1.0)
11.2
10.2
11.3
1.1
2.4
13.5
–
–
(2.2)
(3.8)
2.3
–
24.6
8.4
–
(2.4)
1.4
3.4
8.4
7.5
–
–
–
(9.9)
41.4
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
206.0
247.4
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
187.1
206.0
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.
During the year three joint venture investment loans to USAF were transferred to investment in joint ventures following a change in the
terms of these loans as a result of the refinancing within USAF. This also resulted in the accelerated unwinding of the discount on the
joint venture interest free loans of £15.4 million in the income statement (note 4.3). This is offset in the income statement by a
corresponding accelerated unwinding of discount through the share of joint venture profit of £15.4 million (note 3.4a).
The UNITE Group plc Annual Report and Accounts 2013 119
Financial statements
Notes to the financial statements continued
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 promote fees from USAF and UCC if the joint ventures outperform certain benchmarks. The Group
receives an enhanced equity interest in the JVs as consideration for the promote fee. The Group has recognised the following
management fees in its results for the year.
USAF
UCC
OCB
LSAV
Property management fees
LSAV
Development management fees
UCC
Promote fees
Total fees
2013
£m
6.6
3.1
0.9
0.4
11.0
0.9
0.9
7.5
7.5
19.4
2012
£m
6.3
3.3
1.0
–
10.6
–
–
–
–
10.6
Included in share of joint venture profit in the income statement is a share of joint venture property management fee costs of £0.6 million
(2012: £0.5 million). On a see-through basis these costs are deducted from the property management fees shown above, plus an
adjustment for the minority interest of £0.2 million (2012: £0.2 million). This results in the net fees included in NPC (note 2.1a) of
£10.6 million (2012: £10.3 million).
No properties have been sold to joint ventures in 2013. During 2012 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. 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
2013
Profit and loss
2012
USAF
£m
–
–
–
Cash flow
2013
USAF
£m
–
–
–
LSAV
£m
–
–
–
LSAV
£m
–
–
–
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
Included within cash flows from financing activities is £nil (2012: (£32.2 million)) relating to the repayment of non-current borrowings on
disposal of properties to joint ventures. £nil (2012: (£9.9 million)) relates to USAF and £nil (2012: (£22.3 million)) relating to LSAV.
UCC properties are partly funded by debt totalling £225.7 million (2012: £226.7 million) which equates to 57.9% (2012: 59.5%)
of the market value of these properties. In 2012 the Group guaranteed its share, 30%, of this debt amounting to £68.0 million. This
guarantee only took effect in the event that the joint venture was unable to repay the debt within nine months of it becoming due. The
Group no longer guarantees any UCC debt. These guarantees were accounted for in accordance with IFRS 4.
120 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
OCB properties are partly funded by debt totalling £106.0 million (2012: £113.0 million) which equates to 61.0% (2012: 64.7%) of the
market value of these properties. In 2012 the Group guaranteed one facility amounting to £50.0 million. The Group had a back to back
guarantee from Oasis Capital Bank for £37.5 million. This guarantee only took effect in the event that the joint venture was unable to
repay the debt within six months of it becoming due. The Group no longer guarantees any OCB debt. These guarantees were accounted
for in accordance with IFRS 4.
3.5 Investments in subsidiaries (Company)
Accounting policies
In the financial statements of the Company, investments in subsidiaries and joint ventures are carried at fair value with movements
in fair value being recognised directly in equity.
a) Carrying value of investment in subsidiaries and joint ventures
The movements in the Company’s interest in unlisted subsidiaries and joint ventures during the year are as follows:
At 1 January
Acquisitions
Transfer from investment in joint ventures
Disposals
Revaluation
At 31 December
Investment in subsidiaries
Investment in joint ventures
2013
£m
228.4
–
–
–
95.4
323.8
2012
£m
112.0
1.8
2.5
(4.3)
116.4
228.4
2013
£m
–
–
–
–
–
–
2012
£m
2.5
–
(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 and properties under development. This includes
investment property, investment property under development and swaps at a fair value calculated by a third party expert. All investment
properties and investment properties under development are classified as level 3 in the IFRS 13 fair value hierarchy and have been
discussed on page 113. The fixed rate loans range between level 1 and level 2 in the IFRS 13 fair value hierarchy and have been
discussed further on page 123.
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 (2012: £90.0 million). A further
loan of £89.9 million was provided to LDC (Holdings) plc in the year with interest chargeable at 5.0%.
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
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
Jersey
Jersey
England and Wales
England and Wales
Guernsey
Jersey
Class of
shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
interest
100%
100%
100%
100%
100%
100%
100%
100%
51%
25%
The UNITE Group plc Annual Report and Accounts 2013 121
Financial statements
Notes to the financial statements continued
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.
On 10 October 2013 the Group issued a convertible bond. The unsecured instrument pays a coupon of 2.5% until 10 October 2018.
In accordance with IFRS, the equity and debt components of the bond are accounted for separately and the fair value of the debt
component has been determined using the market interest rate for an equivalent non-convertible bond. As a result, £80.3 million was
recognised as a liability in the balance sheet on issue and the remainder of the proceeds, £9.6 million, which represents the equity
component, was credited to reserves. The difference between the fair value of the liability and the principal value is amortised through
the income statement from the date of issue. Issue costs of £2.0 million were allocated between equity and debt and the element
relating to the debt component is being amortised over the life of the bond. The issue costs apportioned to equity of £0.2 million are
not amortised.
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
2013
£m
2012
£m
29.7
100.2
Company
2013
£m
4.9
93.2
182.3
208.2
483.7
513.4
65.1
131.8
230.8
427.7
527.9
–
79.0
90.0
169.0
173.9
2012
£m
1.2
–
–
90.0
90.0
91.2
In addition to the borrowings currently drawn as shown above, the Group has available undrawn facilities of £58.2 million (2012: £34.9
million). A further working capital facility of £20 million (2012: £20 million) is also available.
A further £101 million (2012: £146 million) of facilities are available if certain conditions are met. Of this amount £73 million (2012:
£75 million) is only available for rental properties and £15 million (2012: £41 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 £211.0
million (2012: £227.8 million) and the convertible bond carried at £80.7 million (2012: £nil). The convertible bond and £90.0 million
(2012: £90.0 million) of the fixed rate loans are classified as level 1 in the IFRS 13 fair value hierarchy and have a fair value of £188.5
million (2012: £91.5 million).
The remaining £119.5 million (2012: £137.8 million) of the fixed rate loans are classified as level 2 in the IFRS 13 fair value hierarchy.
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 £116.7 million (2012: £145.7 million).
Properties with a carrying value of £657.2 million (2012: £728.1 million) have been pledged as security against the Group’s drawn
down borrowings.
On 31 January 2014 the Group successfully secured a 10 year fixed-rate £124 million debt facility, which has been secured against
four wholly owned properties at 50% loan-to-value. As part of this transaction the Group repaid £120.3 million of existing debt. This is
comprised of amounts being due for payment in less than one year (£28.5 million), between one and two years (£54.1 million), and
between two and five years (£37.7 million).
122 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 4: Funding continued
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 following table shows the fair value of interest rate swaps:
Current
Non-current
Fair value of interest rate swaps
2013
£m
2.0
3.4
5.4
2012
£m
0.7
23.0
23.7
The fair values of interest rate swaps have been calculated by a third party expert, discounting estimated future cash flows on the basis
of market expectations of future interest rates, representing level 2 in the IFRS 13 fair value hierarchy. The IFRS 13 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
2013
£m
(0.3)
(15.4)
(15.7)
25.0
0.4
(6.1)
19.3
(0.7)
18.6
2.9
2012
£m
(0.2)
(0.8)
(1.0)
21.9
0.1
(6.0)
16.0
7.6
23.6
22.6
The Group’s overall average cost of debt as at 31 December 2013 is 5.1% (2012: 5.5%). The average cost of the Group’s investment
debt at 31 December 2013 is 5.1% (2012: 5.5%). The overall average cost of debt on a see-through basis is 4.7% (2012: 5.5%).
The UNITE Group plc Annual Report and Accounts 2013 123
Financial statements
Notes to the financial statements continued
Section 4: Funding continued
4.4 Gearing
The Group’s adjusted gearing ratio is a key indicator that the Group uses to manage its indebtedness. 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)
EPRA net asset value
Gearing
Basic (Net debt/Reported net asset value)
Adjusted gearing (Adjusted net debt/EPRA 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
2013
£m
43.2
(29.7)
(483.7)
(5.4)
(475.6)
2012
£m
75.4
(100.2)
(427.7)
(23.7)
(476.2)
5.4
23.6
(470.2)
(452.6)
653.3
681.6
515.8
566.5
73%
69%
98%
49%
92%
80%
114%
52%
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 specific development borrowings of £17.5 million as at 31 December 2013 (2012: £nil). As at 31 December 2013 all
Group specific development borrowings were unhedged. 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.
124 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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 2013, 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 2013, after taking account of interest rate swaps, 84% (2012: 88%) of the Group’s medium and long-term investment
borrowing was held at fixed rates. Excluding the £133 million of swaps the fixed investment borrowing is at an average rate of 4.7%
(2012: 5.5%) for an average period of 7 years (2012: 9 years), including these swaps the average rate is 4.1%.
The Group holds interest rate swaps at 31 December 2013 against £133 million (2012: £258 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
2013
Nominal
amount hedged
£m
34.0
55.0
38.0
6.0
2013
Applicable
interest rates
%
3.1 – 5.8
2.3
2.6
5.6
2012
Nominal
amount hedged
£m
–
116.2
122.8
1.8
2012
Applicable
interest rates
%
–
2.3 – 5.8
1.7 – 5.3
5.6
During the year, if interest rates had increased/decreased by 1%, pre-tax profit for the year would have been £0.7 million (2012:
£1.2 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.
2013
Bank and other loans
Convertible bonds
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
2012
Bank and other loans
Convertible bonds
Trade and other payables
Interest rate swaps – effective
Interest rate swaps – ineffective
Total contractual
cash flows
£m
542.6
101.1
85.2
Less than
1 year
£m
47.9
2.2
85.2
Between
1 and 2 years
£m
111.7
2.2
–
Between
2 and 5 years
£m
142.8
96.7
–
3.2
4.3
1.4
2.4
1.1
1.2
0.4
0.7
Over
5 years
£m
240.2
–
–
0.3
–
736.4
139.1
116.2
240.6
240.5
Total contractual
cash flows
£m
652.3
–
82.0
Less than
1 year
£m
119.7
–
82.0
Between
1 and 2 years
£m
82.3
–
–
Between
2 and 5 years
£m
175.0
–
–
4.4
11.2
749.9
1.3
5.6
208.6
1.3
3.1
86.7
1.2
2.5
178.7
Over
5 years
£m
275.3
–
–
0.6
–
275.9
During the year the Group issued £89.9 million of convertible bonds. The bonds have a maturity date of 10 October 2018. The
bondholders may exercise the Conversion Right in certain circumstances but this is contingent on a number of factors and therefore
the bonds are shown to maturity in the above disclosure.
The UNITE Group plc Annual Report and Accounts 2013 125
Financial statements
Notes to the financial statements continued
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 2013, 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 the Group is able to use a mixture of available cash and add additional property to banks’ security pools.
Loan-to-value
Interest cover
Minimum net worth
31 December 2013
31 December 2012
Weighted
covenant
70%
1.45
£250m
Weighted
actual
25%*
2.50
£682m
Weighted
covenant
70%
1.38
£250m
Weighted
actual
35%*
2.60
£567m
* Calculated on the basis that available cash is used to reduce debt and available property can be used as additional security.
4.6 Operating leases
a) Payable
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
2013
£m
14.7
56.5
183.2
254.4
2012
£m
15.3
58.2
192.9
266.4
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 £15.0 million (2012: £15.3 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
2013
£m
63.4
47.6
48.0
159.0
2012
£m
48.8
40.1
50.6
139.5
126 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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 Shareholders’ Equity. The components and calculation of
adjusted net debt are 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:
(cid:1) Adjusted net debt (note 4.4)
(cid:1) Adjusted gearing (note 4.4)
(cid:1)
See-through LTV (note 2.3a)
(cid:1) Weighted average cost of investment debt (note 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. £13 million of non-core assets were sold in 2013 and
a further £77.1 million of non-core property disposals are targeted by December 2014. 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. The Operations segment
generated cash of £23.2 million (2012: £17.2 million) during the year, thereby covering the proposed dividend of £8.5 million, 2.7 times
(2012: £6.4 million, 2.7 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 placing
Share options exercised
Issued at end of year – fully paid
2013
2012
160,461,442 160,271,460
–
189,982
176,657,924 160,461,442
16,000,000
196,482
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.
On 13 June 2013 the Group completed a share placing of 16,000,000 shares, which gave rise to proceeds of £51.2 million, £49.9
million net of issue costs.
The Group is in the process of raising gross proceeds of £100.5 million through the issue of 24,500,000 shares through a Placing and
Open Offer, at a price of 410 pence per share.
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 £2.8 million (2012: £1.6 million) and paid a £4.7 million final
dividend relating to the year ended 31 December 2012 (2011: £2.0 million).
After the year end, the Directors proposed a final dividend per share of 3.2 pence (2012: 3 pence), bringing the total dividend per share
for the year to 4.8 pence (2012: 4 pence). No provision has been made in relation to this dividend.
The UNITE Group plc Annual Report and Accounts 2013 127
Financial statements
Notes to the financial statements continued
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 2013 was £43.2 million (2012: £75.4 million).
At 31 December 2013 the Company had an overdraft of £4.9 million (2012: £1.2 million).
The Group’s cash balances include £13.4 million (2012: £12.1 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:
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Fair value of share based payments
UCC promote
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
Cash flows from operating activities before
changes in working capital
Decrease/(increase) in trade and other receivables
(Increase)/decrease in completed property and property
under development
(Increase)/decrease in inventories
Increase/(decrease) in trade and other payables
Decrease in provisions
Cash flows from operating activities
Note
3.3
6.1
3.1
4.3
3.4b
2.6a
Group
Company
2013
£m
79.3
2012
£m
127.2
2013
£m
(2.4)
2.2
1.1
(7.5)
(35.4)
2.9
–
1.0
(9.2)
2.4
(2.2)
34.6
3.6
(35.0)
(1.5)
4.9
(0.7)
5.9
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
–
–
–
–
0.1
–
–
–
–
–
(2.3)
–
–
–
(0.2)
–
(2.5)
2012
£m
(0.7)
–
–
–
–
0.3
(2.2)
–
–
–
–
(2.6)
–
–
–
0.2
–
(2.4)
Cash flows consist of the following segmental cash inflows/(outflows): Operations £23.2 million (2012: £17.2 million), property
(£94.0 million) (2012: £48.3 million) and unallocated £38.6 million (2012: (£6.9 million)). The unallocated amount includes Group
dividends (£7.5 million) (2012: (£3.6 million)), LSAV set-up costs £nil (2012: (£1.3 million)), own shares purchased £nil (2012:
(£1.3 million)), tax payable of (£0.7 million) (2012: (£0.9 million)), investment in JVs (£11.8 million) (2012: £nil), contributions to
the UNITE Foundation (£0.5 million) (2012: £nil) and amounts received from shares issued £59 million (2012: £0.2 million).
128 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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
2013
£m
2.2
–
29.3
15.3
3.2
50.0
2012
£m
7.8
–
27.9
16.7
1.1
53.5
2013
£m
–
393.5
–
–
–
393.5
2012
£m
–
321.5
–
–
–
321.5
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.
2013
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
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
Amounts receivable from joint ventures are not past due or impaired.
Ageing by academic year
Total
£m
2013/14
£m
2012/13
£m
Prior years
£m
1.2
2.4
(1.5)
2.1
0.1
2.2
0.5
1.6
(0.4)
1.7
–
1.7
0.4
0.7
(0.8)
0.3
0.1
0.4
0.3
0.1
(0.3)
0.1
–
0.1
Ageing by academic year
Total
£m
2012/13
£m
2011/12
£m
Prior years
£m
6.2
4.1
(3.4)
6.9
0.9
7.8
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)
–
–
–
The UNITE Group plc Annual Report and Accounts 2013 129
Financial statements
Notes to the financial statements continued
Section 5: Working capital continued
5.2 Trade and other receivables continued
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
2013
£m
3.4
0.5
(2.4)
1.5
2012
£m
5.9
1.4
(3.9)
3.4
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
2013
£m
43.2
2.2
29.3
10.2
84.9
2012
£m
75.4
7.8
27.9
11.2
122.3
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 £8.1 million (2012: £7.9 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
2013
£m
16.5
2.2
–
35.5
31.0
85.2
2012
£m
4.1
2.4
–
41.9
33.6
82.0
2013
£m
–
–
59.4
3.0
–
62.4
2012
£m
–
–
29.7
3.2
–
32.9
Other payable and accrued expenses include £8.1 million (2012: £7.9 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.
130 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
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 £2.2 million
(2012: £2.4 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
UNITE Jersey Issuer Ltd
Amounts due to Group undertakings
2013
£m
81.2
312.3
393.5
(27.7)
(30.5)
(1.2)
(59.4)
2012
£m
74.6
246.9
321.5
(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 £164 million of its subsidiary companies borrowings (2012: £152 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.
The UNITE Group plc Annual Report and Accounts 2013 131
Financial statements
Notes to the financial statements continued
Section 6: Key management and employee benefits
The Group’s greatest resource is its staff and it works hard to develop and retain its people. The remuneration policies in place
are aimed to help recognise the contribution that UNITE’s people make to the performance of the Group.
Over the next couple of pages you will find disclosures on wages and salaries and share option schemes which allow
employees of the Group to take an equity interest in the Group.
6.1 Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Managerial and administrative
Site operatives
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Pension costs
Fair value of share based payments
Number of employees
2013
286
604
890
2013
£m
29.8
3.3
0.7
1.1
34.9
2012
338
628
966
2012
£m
32.8
3.5
0.6
1.5
38.4
The wages and salaries costs include redundancy costs of £0.4 million (2012: £0.3 million).
Accounting policies
The Group operates a defined contribution pension scheme. Obligations for contributions to defined contribution pension plans
are recognised as an expense in the income statement as incurred.
6.2 Key management personnel
The Board considers that the key management personnel within the Group are those appointed to the Board. As such, the remuneration
of key management personnel is contained within the Directors’ Remuneration Report on pages 76 and 87.
132 The UNITE Group plc Annual Report and Accounts 2013
Strategic report
Corporate governance
Financial statements
Other information
Section 6: Key management and employee benefits continued
6.3 Share based compensation
A transaction is classified as a share based transaction where the Group receives services from employees and pays for these in shares
or similar equity instruments. The Group operates a number of share based compensation schemes allowing employees to acquire
shares in the Company.
a) Share schemes
The Group operates the following schemes:
Executive share option scheme – ‘The Approved Scheme’
Executive share option scheme – ‘The Unapproved Scheme’
Executive Long-Term Incentive Plan (LTIP)
Save As You Earn Scheme (SAYE)
Employee Share Ownership (ESOT)
{ Details can be found in the Directors’
Remuneration Report
Open to employees, vesting periods of three to five
years, service condition
Used to award part of Directors’ and senior
managers’ bonuses in shares, vest after three years
continued service
b) Outstanding share options
The table below summarises the movements in the number of share options outstanding for the Group and their average exercise price:
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 31 December
Weighted
average
exercise price
2013
£0.52
£0.18
£1.34
£0.51
£0.48
Number of
options
(thousands)
2013
3,720
(258)
(277)
994
4,179
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
Exercisable at 31 December
£2.21
181
£2.22
256
For those options exercised in the year, the average share price during 2013 was £3.75 (2012: £2.63).
For those options still outstanding, the range of exercise prices at the year end was 0 pence to 319 pence (2012: 0 pence to 299
pence) and the weighted average remaining contractual life of these options was 0.2 years (2012: 0.3 years).
The Group funds the purchase of its own shares by the ‘Employee Share Ownership Trust’ to meet the obligations of the LTIP and
executive bonus scheme. The purchases are shown as ‘Own shares acquired’ in retained earnings.
The accounting is in accordance with the relevant standards. No further information is given as the amounts for share based payments
are immaterial.
The UNITE Group plc Annual Report and Accounts 2013 133
Other information
Five year record
Adjusted diluted NAV per share (pence)
NAV per share (pence)
Adjusted net assets (£m)
IFRS net assets (£m)
Managed portfolio value (£m)
LTV*
NPC (£m)
adjusted see-through (%)
adjusted wholly owned (%)
Adjusted (EPRA) profit/(loss) (£m)
Profit/(loss) before tax (£m)
Earnings per share
adjusted (pence)
adjusted pre exceptional**
basic (pence)
2013
382
370
682
653
2012
350
321
567
516
2011
318
242
515
388
2010
295
242
475
388
2009
265
229
423
366
2,736
2,688
2,502
2,334
2,039
49%
50%
26
23
77
18
14
46
52%
53%
19
16
126
10
10
78
54%
54%
54%
53%
56%
59%
11
(17)
5
(11)
3
1
4
(5)
24
(3)
(3)
12
1
(4)
(35)
(3)
(3)
(26)
* We no longer focus on gearing as a metric, instead we use adjusted LTV as a measure of our debt to gross asset value ratio.
** Excludes UCC promote in 2013 and UMS loss in 2011.
134 The UNITE Group plc Annual Report and Accounts 2013
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Other information
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 9.30am on 15 May 2014 for the purpose of considering and, if thought fit, passing Resolutions 1 to 16 (inclusive) as
Ordinary Resolutions and Resolutions 17 and 18 as Special Resolutions.
Ordinary Resolutions
Annual Report and Accounts
1.
To receive the audited annual accounts of the Company for the year ended 31 December 2013 together with the Directors’ and auditor’s
report on those annual accounts (the Annual Report and Accounts).
Directors’ Remuneration Policy
2. To approve the Directors’ Remuneration Policy set out on pages 68 to 75 (inclusive) in the Annual Report and Accounts.
Annual Report on Remuneration
3. To approve the Annual Statement by the Chairman of the Remuneration Committee and the Annual Report on Remuneration for
the year ended 31 December 2013 set out on page 67 and pages 76 to 87 respectively in the Annual Report and Accounts.
Final dividend
4. To declare a final dividend for the year ended 31 December 2013 of 3.2 pence per ordinary share payable to shareholders on the register
of members of the Company at the close of business on 22 April 2014.
Re-election of Directors (Resolutions 5 to 12)
5. To re-elect Mr P M White as a Director of the Company.
6. To re-elect Mr M C Allan as a Director of the Company.
7. To re-elect Mr J J Lister as a Director of the Company.
8. To re-elect Mr R C Simpson as a Director of the Company.
9. To re-elect Mr R S Smith as a Director of the Company.
10. To re-elect Mrs M K Wolstenholme as a Director of the Company.
11. To re-elect Sir Tim Wilson as a Director of the Company.
12. To re-elect Mr A Jones as a Director of the Company.
Election of Director
13. To elect Ms Elizabeth McMeikan as a Director of the Company.
Auditors (Resolutions 14 and 15)
14. To appoint KPMG LLP as auditors of the Company to hold office from the conclusion of this annual general meeting until the conclusion
of the next general meeting at which accounts are laid before the Company.
15. To authorise the Directors to determine the remuneration of the auditors.
Authority to allot shares
16. 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 (such shares, and rights to subject to subscribe for or to convert any security into shares of the Company
being ‘relevant securities), up to an aggregate nominal amount of £16,763,206.58 (such amount to be reduced by the nominal
amount of any allotments or grants made under paragraph (b) below in excess of £16,763,206.58); and further
(b)
to allot equity securities (as defined in section 560(1) of the Act) up to an aggregate nominal amount of £33,526,413.17 (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
1420-1 UNITE AR_4.Back_v4.indd 135
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The UNITE Group plc Annual Report and Accounts 2013 135
Strategic report Corporate governance Financial statements Other information Other information
Notice of annual general meeting continued
(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 may deem necessary or expedient to deal with in relation
to treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements of any
overseas territory or by virtue of shares being represented by depository receipts or the requirements of any relevant regulatory
body or stock exchange or any other matter whatsoever,
provided that this authority shall expire (unless previously renewed, varied, extended 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 at any time before such expiry make an offer
or enter into an agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot
relevant securities in pursuance of such offer or agreement as if this authority had not expired.
Special Resolutions
Authority to disapply pre-emption rights
17. That, in accordance with section 570(1) of the Act, the Directors be and are empowered to allot equity securities (as defined in Section
560(1) of the Act) of the Company wholly for cash pursuant to the general authority under section 551 of the Act conferred on them by
Resolution 16 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 of, or invitation to apply for, equity securities in favour of ordinary
shareholders in the capital of the Company in the register of members of the Company 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 in the capital of the Company held by them on that date, but subject to such exclusions or
other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal,
regulatory or practical problems arising under the laws or requirements of any overseas territory or by virtue of shares being
represented by depository receipts or the requirements of any relevant regulatory body or stock exchange or any other matter
whatsoever; and
(b)
to the allotment (other than under (a) above) of equity securities having a nominal value not exceeding in aggregate £2,514,480.99,
and, unless previously revoked, varied or extended, 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, at any time 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.
Notice of general meetings
18. 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
Christopher Szpojnarowicz
Company Secretary
Dated 31 March 2014
Registered office:
The Core
40 St Thomas Street
Bristol
BS1 6JX
Registered in England and Wales with registered number 03199160
Notes
1. A member of the Company who wishes to attend the meeting in person should arrive at the offices of the Company, The Core, 40 St
Thomas Street, Bristol BS1 6JX in good time before the meeting, which will commence at 9.30am In order to gain admittance to the
meeting, members may be required to produce their attendance card, which is attached to the form of proxy enclosed with this document,
or otherwise prove their identity.
136 The UNITE Group plc Annual Report and Accounts 2013
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2. A member of the Company who is entitled to attend, speak and vote at the meeting and 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 although voting in person at the meeting will terminate a member’s proxy appointment. A proxy must vote in
accordance with any instructions given by the member by whom the proxy is appointed. A form of proxy which may be used to make such
appointment and give proxy instructions accompanies this notice. You can only appoint a proxy using the procedures set out in these notes
and the notes to the proxy form.
3. To be valid, any form of proxy, and the original or duly certified copy of the power of attorney or other authority (if any) under which it is
signed or authenticated, must be received by hand or by post at Computershare Investor Services PLC, The Pavilions, Bridgwater Road,
Bristol BS99 6ZY, no later than 9.30am on 13 May 2014.
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 following the procedures described in the CREST Manual. CREST Personal Members or other
CREST sponsored members, and those CREST members who have appointed a voting service provider, 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 by means of CREST to be valid, the appropriate CREST message (a CREST Proxy
Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (Euroclear) 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, the revocation of a proxy or is an amendment to the instruction given to a previously appointed
proxy must, in order to be a valid, be transmitted so as to be received by the Company’s agent (CREST ID 3RA50) by the latest time for
receipt of proxy appointments specified in note 3 above. For this purpose, the time of receipt will be taken to be the time (as determined by
the timestamp applied to the message by the CREST Application Host) from which the Company’s agent is able to retrieve the message
by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
6. CREST members and, where applicable, their CREST sponsors or voting service providers, should note that Euroclear does not make
available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation
to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a
CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his/her CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST
system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service
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. If you submit your proxy via the internet it should reach the registrar by 9.30am on 13 May 2014. Should you
complete your proxy form electronically and then post a hard copy, the form that arrives last will be counted to the exclusion of instructions
received earlier, whether electronic or posted. Please refer to the terms and conditions of the service on the website.
9.
In the case of joint holders of shares, 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 has been 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.
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Strategic report Corporate governance Financial statements Other information Other information
Notice of annual general meeting continued
13. Pursuant to Part 13 of the Companies Act 2006 and Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), the
Company specifies that only those shareholders registered in the register of members of the Company at 5.00pm on 13 May 2014 (or, if
the meeting is adjourned, 48 hours before the timed fixed for the adjourned 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. In each case, changes to the register of members of the Company
after such time shall be disregarded in determining the rights of any person to attend or vote at the meeting.
14. As at 31 March 2014 (being the last practicable business day prior to the publication of this Notice), the Company’s issued share capital
comprised 201,158,479 ordinary shares carrying one vote each at a general meeting of the Company. No ordinary shares were held in
treasury and therefore the total voting rights in the Company as at 31 March 2014 are 201,158,479.
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 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.
19. In accordance with section 338 of the Act, a member or members of the Company may (provided that the criteria set out in section 338(3)
of the Act are met) require the Company to give to members notice of a resolution which may properly be moved and is intended to be
moved at the meeting, provided that: (a) the resolution must not be, if passed, ineffective (whether by reason of inconsistency with any
enactment or the Company’s constitution or otherwise); and (b) the resolution must not be defamatory of any person, frivolous or vexatious.
Such a request may be in hard copy form or in electronic form, must be authenticated by the person or persons making it, must identify the
resolution of which notice is to be given and must be received by the Company not later than six weeks before the meeting, or, if later, the
time at which notice is given of the meeting. (In the foregoing sentence, the terms ‘hard copy form’, ‘electronic form’ and ‘authenticated’
bear their respective meanings set out in the Act in relation to a communication, or a document or information sent or supplied,
to a company.)
20. In accordance with section 338A of the Act, a member or members of the Company may (provided that the criteria set out in section
338A(3) of the Act are met) require the Company to include in the business to be dealt with at the meeting a matter (other than a
proposed resolution) which may properly be included in the business of the meeting, provided that the matter is not defamatory of
any person, frivolous or vexatious. A request may be in hard copy form or electronic form, must identify the matter to be included in the
business, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the person or persons
making it and must be received by the Company not later than six weeks before the meeting, or, if later, the time at which notice is given of
the AGM. (In the foregoing sentence, the terms ‘hard copy form’, ‘electronic form’ and ‘authenticated’ bear the respective meanings set out
in the Act in relation to a communication, or a document or information sent or supplied, to a company.)
21. A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone to
represent it. This can be done in one of two ways: either by the appointment of a proxy (as described in the notes above) or of a corporate
representative. Members considering the appointment of a corporate representative should check their own legal position, the Company’s
articles of association and the relevant provisions of the Act.
22. The following documents are available for inspection at the registered office of the Company during the usual business hours on any
weekday (Saturday, Sunday or public holidays excluded) from the date of this notice until the conclusion of the meeting and will also be
available for inspection at the place of the meeting from 9.15am on the day of the meeting until its conclusion:
(a) copies of the Executive Directors’ service contracts with the Company and any of its subsidiary undertakings; and
(b)
letters of appointment of the Non-Executive Directors.
138 The UNITE Group plc Annual Report and Accounts 2013
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Other information
Glossary
Strategic report
Corporate governance
Financial statements
Other information
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.
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%.
Direct let
Properties where short-hold tenancy agreements are made directly
between UNITE and the student.
EPRA earnings
EPRA earnings are 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.
EPRA NAV
EPRA NAV is prepared on the basis recommended for real estate
companies by EPRA, the European Public Real Estate Association.
This includes all property at market value but excludes the mark to
market of interest rate swaps. This is recommended by EPRA as a
going concern measure of net assets.
EPRA NNNAV
As EPRA NAV but includes both debt and interest rate swaps carried
at market value. This is recommended by EPRA as a ‘spot’ fair value
net asset measure.
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.
Lease
Properties which are leased to Universities for a number of years and
have no UNITE management presence.
LSAV
The London Student Accommodation Joint Venture (LSAV) is a 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 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, i.e. excluding impact of completion
and disposals).
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.
Non-core assets
Properties which do not fit with the Group’s long-term investment
strategy, because of either their location or size.
OCB
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 generate net
portfolio contribution.
Sale and leaseback
Properties which have been sold to a third party investor then leased
back to the Company. UNITE is also responsible for the management
of these assets on behalf of the owner.
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The UNITE Group plc Annual Report and Accounts 2013 139
Other information
Glossary continued
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 £240.7 million from properties owned by UNITE and its
co-investment vehicles.
The Group’s share of this gross income is shown in note 2.2(a).
UCC
UNITE Capital Cities was established in 2005 as a joint venture
between UNITE and GIC Real Estate. It is a closed-ended vehicle
due to mature in 2022 and was established by UNITE to develop
and operate student accommodation in London and Edinburgh.
UCC equity is now fully invested and all development projects
have been completed.
USAF/the Fund
The UNITE UK Student Accommodation Fund (USAF) is Europe’s
largest fund that purely focuses on direct let student accommodation
investment assets. The Fund is an open-ended infinite life vehicle
which has unique buying access to UNITE’s portfolio. UNITE act
as Fund Manager of the Fund, as well as owning a significant
minority stake.
140 The UNITE Group plc Annual Report and Accounts 2013
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Company information
UNITE Executive Team
Mark Allan
Chief Executive
Joe Lister
Chief Financial Officer
Richard Simpson
Managing Director of Property
Richard Smith
Managing Director of Operations
Registered office
The Core
40 St Thomas Street
Bristol BS1 6JX
Registered number in England
3199160
Company Secretary
Christopher Szpojnarowicz
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
Pelham Bell Pottinger
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
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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
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