T
h
e
U
n
i
t
e
G
r
o
u
p
P
L
C
A
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
1
7
HOME
FOR
SUCCESS
The Unite Group PLC
Annual report and
accounts 2017
OUR PURPOSE
Creating a Home for Success for our students
is what drives us. Creating the best home for
all students, helping them grow and succeed
at University and beyond.
We deliver this through having quality people,
quality service and quality properties, and
behaving in line with our values.
Quality homes
We use our unique insight and experience to deliver quality, secure
homes where students can develop academically and socially.
Going to University is an exciting time, but the big changes moving to
University brings can be stressful. We design our homes and services to
ensure the transition from home to University is as smooth as possible.
Our research shows that students that feel well integrated into their new
environment are better equipped to manage the changes University
brings and get the most from it.
For all students…
We understand not everyone is the same and University experience is
unique. We create an environment where everyone can be at home and
make the choices that are right for them. Social integration is a key focus
of our property and service design.
We offer a variety of accommodation at different price points and
with different payment options enabling students to choose the right
accommodation for them. We also support the Unite Foundation, which
provides accommodation scholarships to young people who have been
in care or are estranged from their families.
Helping them grow
and succeed…
University is where young people build the foundation of the future
they want. We believe we have an important role in helping
them achieve this.
The interpersonal and self-management skills honed at University provide
a critical bridge to adulthood. We believe employability is important and
work to provide our students with the tools for a successful future. We aim
to create a safe and secure environment that is both caring and
supportive, but allows our students to develop their independence.
At University and beyond…
We believe that where a student lives has a material impact on their
academic and social experience of University, and ultimately, their lives.
Through our people, our service and our properties, we are constantly
looking for new and better ways to support students to become well-
equipped adults, ready for life after University. We regularly measure
how well we are meeting student needs through customer surveys and
focus groups.
OUR VALUES
Work together
See it through
Be better
Do what’s right
Have fun
Read more about
Our values p08 and 09
R
O
F
E
M
O
H
S
S
E
C
C
U
S
Strategic report
1 Financial highlights
2 Market drivers
4 Business model and strategy
6 Understanding our stakeholders
8 Quality people
10 Quality partnerships
12 Chairman’s Statement
14 Chief Executive’s Statement
20 Strategy at a glance
22 Key performance indicators
24 Risk management
28 Principal risks and uncertainties
32 Operations review
36 Property review
42 Financial review
46 Responsible business review
Corporate governance
52 Chairman’s Introduction
to Governance
56 Board of Directors
58 Board Statements
59 Shareholder relations
60 Leadership
65 Effectiveness
66 Effectiveness: Nomination
Committee Report
67 Accountability
68 Accountability: Audit Committee
Report
72 Accountability: Health & Safety
Committee Report
75 Annual Statement of the Chair
of the Remuneration Committee
79 Directors’ Remuneration Policy
86 Annual Report on Remuneration
96 Directors’ Report
99 Statement of Directors’
Responsibilities in respect of the
Annual Report and the Financial
Statements
Financial statements
100 Independent Auditors’ Report to the
Members of the Unite Group PLC only
107 Introduction and table of contents
108 Consolidated income statement
108 Consolidated statement of
comprehensive income
109 Consolidated balance sheet
110 Company balance sheet
111 Consolidated statement of changes
in shareholder’s equity
112 Statements of cash flows
113 Notes to the financial statements
155 Financial record
Other information
156 Notice of Annual General Meeting
160 Glossary
162 Company information
Strategic Report
OUR BUSINESS AT A GLANCE
BUILDING QUALITY
NATIONWIDE
Our investment strategy
Having the right properties, in the right locations, aligned
with the best Universities ensures we deliver for our
students and our shareholders.
Read more about
investment strategy on p04
10
Glasgow
Hu ddersfield
7
Liv erpool
Lo ughborough
Bir mingham
Exeter
Plymouth
Our top ten cities
2017 rank City
Completed
beds
(17/18)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
London
Birmingham
Sheffield
Bristol
Leeds
Liverpool
Manchester
Portsmouth
Leicester
Glasgow
Total
Full-time
student
numbers
(16/17)
293,620
59,920
51,080
43,050
53,885
48,545
65,880
19,665
34,365
57,890
9,541
4,846
4,168
3,479
3,458
3,015
2,336
2,222
1,687
1,633
36,385
727,900
Market
share
3.20%
8.10%
8.20%
8.10%
6.40%
6.20%
3.50%
11.30%
4.90%
2.80%
4.90%
Proportion of
Unite portfolio
73%
New openings
Our property pipeline
2017
2,152
new beds
2018
3,074
new beds
Salisbury Court, Edinburgh (Wholly owned)
581 beds
Newgate Court, Newcastle (Wholly owned)
575 beds
Millennium View, Coventry (Wholly owned)
391 beds
Brunel House, Bristol (Wholly owned)
246 beds
St Luke’s View, Liverpool (Wholly owned)
776 beds
Chaucer House, Portsmouth (Wholly owned)
484 beds
Beech House, Oxford (USAF)
167 beds
St Vincent’s, Sheffield (Wholly owned)
598 beds
The Old Printworks, Edinburgh (Wholly owned)
237 beds
International House, Birmingham (Wholly owned)
586 beds
Old Hospital, Durham (USAF)
363 beds
Houghall College, Durham (USAF)
222 beds
85%
of our portfolio is aligned to high
and mid-ranking Universities
Aberdeen
Edinburgh
Newcastle
Durham
Hu ddersfield
5
Leeds
6
Manchester
7
Liv erpool
Lo ughborough
Bir mingham
2
3
Sheffield
Nottingham
9
Leicester
Coventry
Oxford
Reading
Bristol
4
1
London
Bath
8
Portsmouth
Bournemouth
What makes us different
Our quality properties and unique
University relationships, supported by
highly-trained people, utilising a tailor-
made service platform set us apart from
the competition.
Our values and culture
It’s not just about what we do, it’s how
we do it. Our values and culture make
Unite a great place to work.
Read more about
values and culture on p08 and p09
Read more about
what makes us different on p06
Environmental, social
impact and governance
Being a responsible business is central to
everything we do at Unite.
Read more on
environment, social impact and
governance on p46
2019
2,390
new beds
2020
2,973
new beds
2021
1,000
new beds
Skelhorne, Liverpool (Wholly owned)
1,085 beds
Cowley, Oxford (Wholly owned)
887 beds
Battery Park (USAF)
418 beds
Constitution Street, Aberdeen
(Wholly owned)
600 beds
Tower North, Leeds (Wholly owned)
1,019 beds
New Wakefield Street, Manchester
(Wholly owned)
603 beds
Old BRI, Bristol (Wholly owned)
751 beds
Middlesex Street, London (Wholly owned)
1,000 beds
Read more in our
property review on p36
OPERATIONAL AND FINANCIAL HIGHLIGHTS
01
Highlights
- Strong financial position
- Earnings growth underpinned
by nominations agreements
and development pipeline
- Record level of reservations for
18/19 academic year supports
rental growth outlook
- Significant progress with
University partnerships
Earnings per share1,2
pence
30
28
23
17
14
30p
Dividend per share
pence
22.7p
22.7
18.0
15.0
11.2
4.8
13
14
15
16
17
13
14
15
16
17
Total accounting return*
%
37
14%
Profit before tax
£m
388
£229m
15
15
14
10
108
77
229
201
13
14
15
16
17
13
14
15
16
17
Net asset value1
pence per share
720
646
579
434
382
720p
Loan-to-value ratio*
%
49
43
31%
35
34
31
13
14
15
16
17
13
14
15
16
17
1
The financial statements are prepared in accordance with International Financial Reporting Standards
(IFRS). These financial highlights are based on the European Public Real Estate Association (EPRA) best
practice recommendations and these performance measures are published as they are intended to
help users in the comparability of these results across other listed real estate companies in Europe. The
metrics are also used internally to measure and manage the business and align to the performance
related conditions for Directors’ remuneration.*
2 2015 and 2016 EPS is based on an adjusted EPRA earnings. A full reconciliation of the financial
statements to the EPRA performance measures is set out in note 2.2 of the financial statements.
* A full glossary of definitions is available on p160.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 02
MARKET DRIVERS
DEMAND FOR UK HIGHER
EDUCATION REMAINS STRONG
Student numbers
continue to outstrip
accommodation supply.
With more young people choosing to
continue their education and investment
in themselves, there has been a 35-year
period of growing student numbers
throughout the country. Today there
are more than 1.8 million students
studying in the UK.
Most UK Universities offer an
accommodation guarantee for
first year and international students,
but even this is a challenge with current
beds available. UK Higher Education
institutions have c.300,000 beds
available, with a further 280,000
provided by the private sector.
Demand for student accommodation
significantly outstrips supply. Many
Universities have responded to this by
partnering with private accommodation
providers, most notably through
nominations agreements under which
they make up their accommodation
shortfall by reserving rooms in return
for a guaranteed rent.
Unite’s business is focused on addressing
the demand for student accommodation.
In doing so, we aim to provide our University
partners and students with much-needed
certainty and a living environment that
helps some 50,000 students get the best
out of their time at University.
Applications and acceptances (thousands)
International student mobility*
800
700
600
500
400
300
200
100
0
7
6
6
0
0
7
8
1
7
8
1
7
0
0
7
6
9
4
2
1
5
2
3
5
5
3
5
4
3
5
2013
2014
2015
2016
2017
1
2
3
4
5
6
Country of destination
1
2
3
4
United States
United Kingdom
Australia
France
Applications
Acceptances
PBSA beds (thousands)
Source: UCAS
5 Germany
6 Other
* 2017 data
%
19
10
6
6
5
54
Source: OECD
350
300
250
200
150
100
50
0
14%
12%
10%
8%
6%
4%
2%
0%
2014
2015
2016
2017
2018
London
Unite Markets
Non Unite Markets
Growth (rhs)
Source: HESA/CBRE/Unite
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 03
There has been some speculation that
changes in national demographics,
combined with rising tuition fees and the
UK’s decision to leave the EU, could lead
to a decline in student numbers and, by
implication, a reduction in demand for
accommodation.
However, data from the Universities and
Colleges Admission Service (UCAS) shows
that applications for 2018 from the EU rose
by 3.4% and those from international
students rose by 11.1%, to a record level. The
combination of robust EU and international
demand, growth in post-graduates and
more 18-year-olds going to University has
ensured that UK higher education remains
a thriving, vibrant sector.
Most significantly, the number of students
choosing mid- and higher-tariff Universities,
where Unite’s business is concentrated,
increased while the numbers at lower-tariff
institutions fell by 3 per cent in 2017. As a
result, in most cities where we operate,
there remains a substantial shortage of
student accommodation.
A number of factors are likely to further
underpin this demand in the future. Higher
costs lead to a growing focus on the
relative value that different Universities
offer. Driving greater transparency and
accountability will, for example, be a key
priority for the newly established Office for
Students, as under the government’s new
Teaching Excellence Framework, in June
2017 Universities in England and Wales
were ranked for the first time according
to the quality of their teaching.
These developments are likely to bring
an even greater level of scrutiny among
applicants. Against this backdrop,
Universities increasingly consider their
accommodation guarantee as a key
point of competitive differentiation. It
is a core element of providing support
and welfare to students as it is where
they spend more than half their time
while at University. Some are looking to
extend it to second and third year and
all international students.
In many cases, they are increasingly
looking at established accommodation
providers as long-term partners with,
for example, extended nominations
agreements or strategic partnerships
involving their own student housing estate.
In parallel with these developments,
changes beyond the world of higher
education are also having an impact on
student accommodation. The combination
of an uncertain macro-economic climate,
low interest rates and dramatic changes in
the world of retail has brought uncertainty
to the UK’s wider property sector. In some
cases, this has created opportunities
for providers of purpose-built student
accommodation (PBSA), such as Unite, to
expand in locations like London where the
property boom of recent years has made
investing economically challenging. The
success of PBSA, meanwhile, has attracted
significant new investment to the sector
and, in some cities, increased competition.
Our continued investment in our portfolio,
ensuring we have the right properties, in
the right places, and aligned with high
quality Universities, means we are well-
placed for growth.
Full time student numbers (millions)
Demand for accommodation (%)
1
2
1
2
UK
International
%
71
29
Source: HESA
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
UK
EU (ex-UK)
Non-EU
Source: UCAS
Unique applicants by high, medium and low UCAS Tariff (thousands)
1,000
800
600
400
200
0
2016
2017
High
Medium
Low
Source: UCAS
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 04
BUSINESS MODEL AND STRATEGY
In a competitive and changing market, Unite’s business
model and future strategy are focused on leveraging a
unique combination of assets and capabilities to provide
homes for students in the locations where they are most
needed. We call this combination Home for Success. It aims
to drive advocacy among both students and our University
partners, as well as long term earnings and capital
growth for our shareholders.
Thanks to our long experience in
the student accommodation market,
Unite has unrivalled understanding of
what matters most to students. We use
this insight to deliver buildings and
services focused on their needs. Our
understanding of student preferences
represents an important competitive
advantage, continually refreshed by
investing in new research into different
aspects of student living.
Since opening our first building in 1991,
Unite has built the UK’s largest portfolio of
student accommodation. We continuously
work to align this portfolio with mid- and
upper-tier Universities, where demand for
higher education is greatest. Over 85 per
cent of our buildings are currently aligned
with such institutions.
A strong balance sheet, together
with our investment in the Unite Student
Accommodation Fund (USAF) and the
London Student Accommodation Joint
Venture (LSAV) give the company a
flexible range of options for funding
development, investment and future-
funded property acquisitions.
We constantly review opportunities to
enhance both the size and quality of our
property portfolio. In 2017, for example,
the company made acquisitions totalling
3,500 new beds in strategically important
cities, while disposing of 4,800 beds in less
attractive locations.
We will continue to exploit our
understanding of the market and flexible
capital structure to continue growing the
size and quality of our portfolio in cities
where the demand for PBSA is greatest.
Quality
properties
Our buildings are located close to
University campuses and designed
around the priorities of mainstream
students. The majority of our buildings, for
example, are arranged in the preferred
format of clusters of en-suite bedrooms
with shared kitchens and living areas.
Importantly, all our buildings also have
common recreational and study spaces
where students can socialise and work.
Our future strategy involves using our
insight to continue improving the design
and specification of our properties to
make sure they keep in step with
changing student priorities.
Read more about
Our properties on p36
Quality
people
We aim to create an environment that
is supportive but allows students the
independence they want. For example,
all our people receive training in customer
service and active listening and work
closely with Universities to ensure help is
on hand if needed. We are, in addition,
currently rolling out a programme
of Student Ambassadors to provide
additional peer-to-peer support for
our residents. We are proud to be a
Living Wage employer, and retain our
Investors in People Gold accreditation.
Quality service
platform
By combining our student insight
with sustained investment in back
office systems, value-added services
and our 1,400 employees, we have
created a scalable operating platform
that drives operational efficiency,
ensures consistency and enhances
our customers’ experience.
Our rents include all household bills,
contents insurance and high speed Wi-Fi.
Digitalising routine tasks such as room
bookings and payments has made key
administrative processes simpler and easier
for students while simultaneously driving
down costs. New app-based services allow
students to meet their flatmates online
before arriving at University and to quickly
report any issues once checked in.
We will continue to differentiate
our student proposition and brand
by investing in value-added services
for students. We are, in particular,
continuously considering how we can
further exploit our digital capability to
make the vital transition to University as
smooth as possible and make students’
day-to-day lives easier.
Read more about
Our service platform and people on
p08 and p32
In the cities where we operate, we
aim to be the partner of choice for
Universities seeking to optimise their
accommodation strategy.
Quality University
partnerships
Our annual survey of University decision-
makers shows that our investment in
relationships has driven our reputation
within the sector to a record high. As a
result, 60 per cent of our accommodation
is currently allocated to students under
University nominations agreements. We
are working to increase the maturity profile
of these agreements and, in the process,
underpin sustainable earnings growth.
Nearly 70 per cent of our nominated beds
are now covered by multi-year contracted
agreements with occupancy and rental
growth commitments.
As Universities work to underwrite their
long-term accommodation requirements,
we are increasingly focused on identifying
opportunities for deeper partnerships
involving either the transfer of existing
assets or new developments built explicitly
based on a University’s commitment to a
long-term nominations agreement.
Read also about
Quality University partnerships on p10
Through the combination of the UK’s
best portfolio of student accommodation,
the best service platform and the strongest
University relationships, Unite aims to
reinforce its position as the strongest brand
in the PBSA sector. We aim to outperform
our competitors and generate sustainable
long-term earnings growth coupled to
capital appreciation, driving superior
total returns for our shareholders.
Read more about
Sustainability on p48
Read more about
Relationships on p06
Read more about
Principal risks and uncertainties on p24
Read more about
Operations review on p32
Read more about
Property review on p36
Read more about
Up to uS on p48
Read more about
Financial review on p42
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 05
QUALITY
PROPERTIES
QUALITY
SERVICE
PLATFORM
QUALITY
UNIVERSITY
PARTNERSHIPS
QUALITY
PEOPLE
Creating the UK’s
largest portfolio
of student
accommodation
Delivering
high levels
of customer
satisfaction
The partner
of choice for
Universities
Engaged,
committed,
people
HOME FOR
SUCCESS
University
partner of
choice
Best
customer
experience
Earnings &
NAV growth
Growing
dividends
Investment
in growth
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 06
UNDERSTANDING OUR STAKEHOLDERS
SHAPING STRATEGY
THROUGH ENGAGEMENT
Why it’s
important to
engage
Investors
Universities
Students
Employees
Communities
Suppliers
We seek to provide
balanced, clear and
transparent communications
that allow investors to better
understand our business and
our strategy, and how we
deliver long-term shareholder
value through earnings and
capital growth.
We aim to be the partner
of choice to mid and high-
ranking Universities. It is important
Universities understand how our
Home for Success purpose aligns
with their own ambitions for their
students. Quality properties,
in great locations with great
service are an asset to
Universities and can make
their offer more attractive.
Creating a Home for Success
for our students is our purpose.
We engage with the students
who live with us every day.
Students need to know we
understand their needs, and
that our unique insight is being
leveraged to provide them with
a living environment that helps
them get the best out of their
time at University.
Our people are the heart of our student
We operate in 24 cities across the UK,
Unite Students utilises technology
proposition and engagement with all
providing a home for around 50,000
and supplier relationships to be at
our stakeholders. From our emergency
students. Providing a home for our
the forefront of our sector. With the right
contact centre on hand 24/7 in times
students means playing a part in the local
third parties in place, we can deliver
of crisis and for lockouts, to our student
community, whether that’s through being
quality properties and service, while
ambassadors there to help students
responsible neighbours or giving
driving efficiency.
settle in to their new home, together we
something back through volunteering
deliver a Home for Success.
and charity work. We also engage with
local communities around the planning
and building of new properties.
Stakeholder
interests
We hold regular meetings,
Capital Markets Days,
results briefings and trading
updates with institutional
shareholders, equity analysts
and investors. All reports and
presentations are available
on our website.
Universities trust us to provide
a safe and secure home for
students – a key element
of students’ experience at
University, supporting personal
and academic achievement.
Through the Unite Foundation
we work with 28 Universities
to provide scholarships for a
safe and secure home for 170
students. Working together,
we can create better futures
for our students.
Our unique insight allows us to
deliver products and services
our students need. Our My Unite
app helps students connect to
flatmates and services such as
laundry. With all-inclusive bills
and 24/7 maintenance and
support services, we help our
students focus on their studies.
We want them to feel at home
with uS. We also strive to do
what is right by supporting the
Unite Foundation, which
provides accommodation
scholarships to young people
who have been in care or are
estranged from their families.
Our values guide us to deliver a
We support those who need it,
strong internal culture focused on high
whether that be raising £272,000 for
A rigorous tender process ensures
our partners share our corporate
performance, operational efficiency
the British Heart Foundation, or through
commitment to excellence, innovation
and engagement. We strive to be a
responsible and attractive employer,
proud of our high retention rates and
employee volunteering on away days.
and responsible business practices.
We pioneer new ways to work with
We take a leading role in industry
non-profit and charity partners to build
developments.
career development. We are committed
stronger local relationships. We consider
to fostering a diverse and inclusive
community needs in the development of
workforce. We are a Living Wage employer
new buildings, for example by prohibiting
and hold Investors in People Gold status.
cars on site or adding retail facilities
to a planning proposal.
Relevance to
the business
model and
strategy
Investors are a key source
of efficient capital, enabling
the business to invest
and grow.
We continue to grow
the proportion of beds let
through long-term nominations
agreements with Universities,
underpinning security
of earnings.
We strive for the best customer
experience for our students,
delivered by having the best
people, the best service and
the best properties.
Our people are the key to our service-
We work hard to grow and develop local
Working with the right partners ensures we
focused business, delivering for both our
relationships, ensuring our students and
are able to drive efficiencies and improve
customers and our University partners.
employees have a positive impact on
margins, from both an operational and
Employing and training the best people
communities in which we operate.
development perspective while
enables us to provide great customer
service and operational efficiency.
delivering consistently high quality
and innovation.
Read more about
Investors on p59
Read more about
Universities on p11
Read more about
Students on p03
Read more about
Employees on p09
Read more about
Communities on p51
Read more about
Suppliers on p48
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 07
Why it’s
important to
engage
Investors
Universities
Students
Employees
Communities
Suppliers
We seek to provide
balanced, clear and
We aim to be the partner
of choice to mid and high-
Creating a Home for Success
for our students is our purpose.
transparent communications
ranking Universities. It is important
We engage with the students
that allow investors to better
Universities understand how our
who live with us every day.
understand our business and
Home for Success purpose aligns
Students need to know we
our strategy, and how we
with their own ambitions for their
understand their needs, and
deliver long-term shareholder
students. Quality properties,
that our unique insight is being
value through earnings and
in great locations with great
leveraged to provide them with
capital growth.
service are an asset to
Universities and can make
their offer more attractive.
a living environment that helps
them get the best out of their
time at University.
Our people are the heart of our student
proposition and engagement with all
our stakeholders. From our emergency
contact centre on hand 24/7 in times
of crisis and for lockouts, to our student
ambassadors there to help students
settle in to their new home, together we
deliver a Home for Success.
We operate in 24 cities across the UK,
providing a home for around 50,000
students. Providing a home for our
students means playing a part in the local
community, whether that’s through being
responsible neighbours or giving
something back through volunteering
and charity work. We also engage with
local communities around the planning
and building of new properties.
Unite Students utilises technology
and supplier relationships to be at
the forefront of our sector. With the right
third parties in place, we can deliver
quality properties and service, while
driving efficiency.
Stakeholder
interests
We hold regular meetings,
Universities trust us to provide
Our unique insight allows us to
Capital Markets Days,
a safe and secure home for
deliver products and services
results briefings and trading
students – a key element
our students need. Our My Unite
updates with institutional
of students’ experience at
app helps students connect to
shareholders, equity analysts
University, supporting personal
flatmates and services such as
and investors. All reports and
and academic achievement.
laundry. With all-inclusive bills
presentations are available
and 24/7 maintenance and
on our website.
Through the Unite Foundation
support services, we help our
we work with 28 Universities
students focus on their studies.
to provide scholarships for a
We want them to feel at home
safe and secure home for 170
with uS. We also strive to do
students. Working together,
what is right by supporting the
we can create better futures
Unite Foundation, which
for our students.
provides accommodation
scholarships to young people
who have been in care or are
estranged from their families.
Our values guide us to deliver a
strong internal culture focused on high
performance, operational efficiency
and engagement. We strive to be a
responsible and attractive employer,
proud of our high retention rates and
career development. We are committed
to fostering a diverse and inclusive
workforce. We are a Living Wage employer
and hold Investors in People Gold status.
We support those who need it,
whether that be raising £272,000 for
the British Heart Foundation, or through
employee volunteering on away days.
We pioneer new ways to work with
non-profit and charity partners to build
stronger local relationships. We consider
community needs in the development of
new buildings, for example by prohibiting
cars on site or adding retail facilities
to a planning proposal.
A rigorous tender process ensures
our partners share our corporate
commitment to excellence, innovation
and responsible business practices.
We take a leading role in industry
developments.
Relevance to
the business
model and
strategy
Investors are a key source
We continue to grow
We strive for the best customer
of efficient capital, enabling
the proportion of beds let
experience for our students,
the business to invest
through long-term nominations
delivered by having the best
and grow.
agreements with Universities,
people, the best service and
underpinning security
the best properties.
of earnings.
Our people are the key to our service-
focused business, delivering for both our
customers and our University partners.
Employing and training the best people
enables us to provide great customer
service and operational efficiency.
We work hard to grow and develop local
relationships, ensuring our students and
employees have a positive impact on
communities in which we operate.
Working with the right partners ensures we
are able to drive efficiencies and improve
margins, from both an operational and
development perspective while
delivering consistently high quality
and innovation.
Read more about
Investors on p59
Read more about
Universities on p11
Read more about
Students on p03
Read more about
Employees on p09
Read more about
Communities on p51
Read more about
Suppliers on p48
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 08
I
Y
T
L
A
U
Q
E
L
P
O
E
P
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 09
We followed this up in October with 26
roadshows across the country, involving
over 1,000 employees to discuss with them
how we continue to make Home for
Success a reality for all of our students.
Investing in our people
Investment in the training and
development of our people is crucial
to our success. We retain our Investor
in People Gold accreditation, and are
proud to be a Living Wage employer.
We continue to invest in leadership
development, primarily through our
Becoming a Supervisor and Becoming
a Manager programmes.
This year, our focus has been on customer
service training. Service Style, new for 2017,
has been designed to help all employees
to think about the little things they can do
every day to make life better for our
students and each other. It focuses on
what we notice when we’re dealing with
other people and how we act on it.
It’s a critical element of Home for Success,
and aims to ensure we are focused on our
customers and their needs.
ASV acquisition
This year Unite acquired Aston Student
Village in Central Birmingham, our largest
acquisition, comprising 3,067 beds across
five large detached properties located on
Aston University’s campus.
The integration of such a large property
presented a significant operational
challenge. 56 University staff joined Unite
as part of the acquisition. They successfully
completed rigorous training in our brand,
values and operating standards to ensure
a seamless handover of the property
and the best possible experience for
our students.
Office move
In March 2017 Unite moved to South Quay
House in central Bristol.
We carefully examined how other
organisations utilise their working space,
including Philips, IKEA and the Environment
Agency, and how they’re more effectively
using their office space, with agile working
spaces. We designed our new space to
help employees work more flexibly and
collaboratively. Agile working supports the
health and wellbeing of our employees,
making our new office space a great
place to work.
Our continued commitment to our people
is key to who we are and helps us to
deliver Home for Success.
26
Employee roadshows to make Home
for Success a reality for our students
Read more about
Home for Success on p05
Our people make Home for Success a
reality for our students and University
partners. They make Unite a great place
to work and an unmatched provider of
student accommodation.
Our service and commitment to
students grows from our commitment
to our employees. This year we’ve worked
to align our employees’ objectives and
contributions to Home for Success, the
thinking that underpins everything we offer
to students. We’re also making sure we
continue to recruit great people with a
new recruitment website which showcases
why Unite Students is a great place to work.
Recognition
Stars Awards
The Stars Awards is our annual recognition
event where we reward the great work and
brilliant performance of our teams and
employees across the business. This year,
the categories have been redesigned to
reflect Home for Success.
Long service
As well as the award winners, this year there
were also 205 people reaching milestones
of service. We had 35 people reach ten
years’ service, four people at 15 years’
service and one reaching 20 years’ service.
Performance
Team Talk Connect
This event, held at the NEC in Birmingham
in March, brought all our city and
headquarters teams together under one
roof to discuss Unite’s strategic direction,
Home for Success, new values, plans for
the future and latest developments.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 10
I
S
P
H
S
R
E
N
T
R
A
P
I
Y
T
L
A
U
Q
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 11
Thought leadership
The higher education sector values
organisations that can contribute to its
overall success and that truly care
about students.
Our Insight series of research reports
provides data-led insight into what
students expect and want from their
University experiences. We also use
roundtables and launch events to
help share this insight with leaders in
Higher Education.
Providing our partners with
competitive advantage
Universities benefit from nominations
agreements when they do not have
enough of their own beds to meet their
accommodation guarantee. They have
always sought to guarantee residences
to all first years, but many have not been
able to as student numbers have grown.
Some also offer all international students
guaranteed accommodation during
their entire stay at University, while other
Universities are now considering extending
their accommodation guarantee to
second and third year students.
Universities also increasingly recognise the
importance of accommodation to their
overall student experience and seek
long-term trusted partners like Unite.
Contractual agreements to secure
long-term income
Under a nominations agreement,
the University guarantees occupancy
and rents, with a contractual rental uplift
on multi-year agreements that is either
RPI-linked or fixed, with a minimum and
maximum rental uplift achieved by way
of caps and collars.
The rents are either market rents or at a
minimal discount to market rents, while
Unite still operates the building. For
multi-year deals we are increasingly
seeing requests from Universities to
co-brand the nominated buildings.
Unite has also grown the number of
beds on longer-term agreements: 69%
of our nominations agreements, by bed
numbers, are now on a multi-year basis.
Historically, we have renewed 95% of the
annual agreements year on year.
The key benefits of nominations
agreements for Unite include:
- Guaranteed rent through the
occupancy guarantee and rent
review mechanism
- Deepening our relationships with
Universities as we work closely and
become a preferred partner
- Allowing us to identify further
partnership opportunities much
earlier than our competitors.
60%
Beds under long-term
nominations agreements
+29%1
Rise in HR Trust score in last 6 years,
at an all time high
86%
University relationships over five years
in length
Read more about
our partnership with Aston University on p09
Home for Success makes us an
attractive partner for Universities.
Together we create a great University
experience for our students. Our properties,
our service and our people coupled with
our ability to continually invest in our
portfolio means we are a strong strategic
partner for Universities facing the challenge
of long-term accommodation planning.
Our relationships provide long-term security
of income and help to build and grow
our business.
Quality relationships
Developing strong partnerships with
Universities is about building strong
individual relationships with senior leaders
within each institution. This takes time.
Around nine out of ten of our University
relationships across the UK have now
existed for more than five years. This, by
its very nature, is hard to replicate. It also
ensures we have unique insights in to
Universities and their needs and remain
ahead of our competition.
Unique insight
We run student retention workshops
where we share our insight and customer
satisfaction data with University partners.
They also share their own survey findings
to enable us to work together to deliver
the best student experience, increase
satisfaction and aid retention, which are
both key measures of the new Teaching
Excellence Framework (TEF).
Feedback from Universities through our
Reputation Survey also helps inform our
student experience and product
specification. Our approach clearly
demonstrates that we value their
feedback and our partnerships.
1
Independent Higher Education Reputation
Survey, Redbrick Research
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 12
CHAIRMAN’S STATEMENT
F
O
H
T
G
N
E
R
T
S
D
N
A
R
B
R
U
O
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
Board priorities
The highlights of the year included:
- Deepening our University
partnerships
- Continually improving our
customer service
-
- High-quality portfolio aligned
to the strongest Universities
Invest in recruiting, retaining and
developing quality people
Focus on long-term, sustainable
earnings growth
-
Read more about
Building on our core principles on p20
13
Phil White
Chairman
In 2017, the business continued the
positive performance of recent years.
Building on the strength of our brand
and our reputation with customers
and Universities, we entered our first
on-campus University partnership with
Aston University and secured two further
development-led University partnerships
with Oxford Brookes University and in
London with planning support from
King’s College, London.
Financial performance has again
been strong, with a total accounting
return of 14% and growth in EPRA earnings,
up 12% to £70.5 million. Profit before tax
was £229.4 million, which includes property
revaluations and disposal profits of £169.2
million (2016: £201.4 million and £136.3
million respectively). As a result of this
performance, we are declaring a final
dividend of 15.4p to deliver a total dividend
of 22.7p for the full year, an increase of 26%
year on year.
Unite Students is a service brand and the
strong performance we have delivered
for our customers, University partners and
shareholders is only possible because of
the talent and hard work of our teams
across the business. On behalf of the
Board, I would like to thank them for
another excellent year.
I would also like to take this opportunity to
pay tribute to one of our Directors, Manjit
Wolstenholme, who sadly passed away
last November. Manjit was a friend and
colleague and her judgement, insight
and humanity will be greatly missed.
The recent success of the business is
founded on a consistent strategy and we
will continue to focus on delivering its main
elements: providing a great service for our
students and University partners; delivering
quality buildings designed around student
needs; and generating high-quality
earnings and maintaining a strong
capital structure.
The outlook for our market remains
positive, with ongoing structural growth
being generated by the strength of the
world-renowned UK Higher Education
sector, increasing participation rates, the
internationalisation of Higher Education
and the shortage of housing in the UK.
Whilst the ongoing Brexit negotiations
and political landscape in the UK present
a backdrop of some uncertainty, these
sector fundamentals, together with
our high-quality portfolio, University
relationships and market-leading
operating platform, position us to
continue performing well in the
years to come.
Given our confidence in the sector and
the sustainability of our business model,
the Board has agreed to increase our
dividend pay-out ratio to 85 per cent
of EPRA earnings in 2018 onwards.
Phil White
Chairman
21 February 2018
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 14
CHIEF EXECUTIVE’S STATEMENT
S
T
N
E
D
U
T
S
R
O
F
I
G
N
R
E
V
L
E
D
I
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
15
Financial highlights
EPRA earnings
£70.5m 12%
EPRA EPS
£30.3p
7%
Profit before tax
£229.4m 14%
6%
26%
11%
Basic EPS
95.3p
Dividend per share
22.7p
EPRA NAV per share
720p
Total accounting return
14%
Loan-to-value
31%
Richard Smith
Chief Executive Officer
I am pleased to report another strong set
of results for the year ended 31 December
2017. We have maintained our focus on
delivering sustainable growth in recurring
profits and cash flows over the long term,
and on delivering a Home for Success for
all the students who live with us. We do this
by providing great service and operating
brilliant buildings, designed specifically for
students. Our investment discipline ensures
we maintain a robust capital structure and
deliver high-quality earnings.
Performance in 2017 resulted in
another year of growth in EPRA earnings,
like-for-like rents and development profits.
EPRA earnings increased by 12% to £70.5
million and now represents one-third of total
shareholder returns. The focus on delivery
of the ongoing earnings performance of
the business is increasingly underpinned
by University backed contracts giving us
the confidence to increase our dividend
pay-out from 75% to 85% of EPRA EPS
in 2018.
We will continue to focus on growing
earnings, both in absolute terms and as a
proportion of our total return. This is driven
by our ability to maintain full occupancy,
to continue growing rental levels on an
annual basis, the consistent focus on cost
efficiencies and from the completion of
our high-quality development pipeline.
Our PRISM operating platform,
which became fully operational in
2016, coupled with our experienced
management and leadership teams, give
us a unique capability to drive value from
our portfolio through scale efficiencies and
revenue management, supporting our
ongoing income focus.
We have actively prioritised improving
the quality of our portfolio by using
our customer insight and extensive
local knowledge to align with the top
performing Universities. We completed
two important strategic initiatives during
the year with the acquisition of a 3,067-
bed, on-campus portfolio at Aston
University and the sale of 4,800 beds
that did not meet the long-term strategic
goals of our portfolio. These initiatives are
supported by our ongoing development
activity and further University partnership
opportunities to ensure that we are
increasingly focused on the best
Universities in the UK.
Delivering for students
Our business is focused on delivering
a Home for Success: an affordable,
consistent and high quality living
environment that helps students make
the most of their time at University. Going
to University should be more than simply
a stepping stone to employment and
we strongly believe that where a student
lives has a material impact on their social
and academic development. We strive to
ensure that every aspect of our student
proposition is therefore designed to
provide a safe and secure environment
where they can integrate and develop,
academically and socially.
Our student proposition is delivered by
1,400 highly experienced employees,
whose understanding of students is a
cornerstone of our success. As part of our
strategy, we continue to invest in recruiting,
retaining and developing the very best
people. This commitment is reflected in
the results of our employee effectiveness
surveys and the prestigious Investors in
People Gold Standard accreditation and
we are pleased to have achieved the
Living Wage Employer accreditation.
We also recognise that going to University
is a significant investment for young people
and offer a variety of accommodation
at different price points, with the majority
of our rooms concentrated at a mid-
range price point for purpose-built
student accommodation.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 16
CHIEF EXECUTIVE’S STATEMENT CONTINUED
This commitment to the customer is
reflected in average occupancy of
98% and rental growth of 3.5% over
the last five years. Growing numbers
of second and third year students, who
have traditionally preferred to live in private
rented accommodation, are choosing to
return to us and now account for over
two-thirds of our direct-let bookings.
Customer service satisfaction levels, a key
performance indicator for us, remain at
consistently high levels and place us on
a par with some of the best service
companies across Europe.
Partner of choice for Universities
Our focus on customer service is closely
aligned with the priorities of our University
partners, for whom student experience is
now a key performance metric under the
Government’s new Teaching Excellence
Framework. With students spending more
time in their accommodation than on
campus, we can increasingly demonstrate
to Universities how Home for Success
supports their strategic ambitions.
This, combined with a long standing
commitment to building relationships with
key University decision–makers, is reflected
in the latest results of our independently
assessed University trust survey and means
that 60% of our accommodation is now
let to Universities through nominations
agreements. With an average remaining
life of six years, these agreements provide
income and rental growth certainty on
over half of our revenue.
The delivery of great customer service
to students and Universities has translated
into a strong financial performance in 2017,
delivering occupancy of 99% and rental
growth of 3.4% (2016: 98%, 3.8%). With our
new operating system, PRISM, we have also
delivered further improvements to our NOI
margin and overhead efficiency measure.
During 2017, we opened 2,150 new beds,
added 3,067 beds to our portfolio through
the Aston Student Village acquisition and
sold 4,800 beds. Taking into account these
activities, together with valuation
movements, the value of our investment
portfolio (including our share of USAF and
LSAV) is £2.4 billion as at 31 December 2017.
The purpose-built student accommodation
sector continues to attract a significant
level of institutional capital. Over £4 billion
of assets were traded in the year, driving
yield compression across the sector.
The yield movement on our portfolio,
on a like-for-like basis, was 15 basis points
and the portfolio is valued at an average
portfolio yield of 5.2% (2016: £2.1 billion
and 5.45% yield).
Our people, University relationships,
the quality of our portfolio and PRISM,
our operating platform, set us apart from
the other operators in the sector. Going
forward, I am confident they will support
the future growth and financial
performance of the business.
Operating quality buildings
The quality, location and scale of our
portfolio is a key component of our
business model and long-term strategy.
We aim to operate buildings in and
around high quality Universities, where
student demand is highest. We believe
that our focus on these institutions is the
best strategy for driving continued high
levels of occupancy and rental growth.
We are therefore focusing our portfolio
activity on further improving alignment
to high and mid ranked Universities and,
in the process, underpinning rental
growth over the medium and long
term. We currently have 85% of our beds
occupied by students attending such
Universities, which will increase to 90% on
completion of our existing development
pipeline, planned acquisitions
and disposals.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 17
Development pipeline
We also made excellent progress
with our development pipeline during
the year. We completed five new
buildings over the summer and secured
an additional two new development
schemes, which increases our secured
development pipeline for delivery over
the next three years to 7,550 beds. The
construction of all our 2018 openings is
progressing in line with plans. Planning
consents and build contracts are in
place for all of our 2019 deliveries and
we are finalising our plans for schemes
delivering in 2020.
During 2017, USAF completed its two
forward-fund schemes in Oxford and
Edinburgh and acquired three further
forward-fund schemes in Durham and
Birmingham, adding 1,000 beds to the
portfolio on completion in 2018 and 2019.
The anticipated yield on cost of our
secured development pipeline is 8.1%
and prospective returns on new schemes
outside London remain attractive at
around 8.0%. The secured development
pipeline is highly accretive and remains
a significant component of our future
earnings growth and could contribute
10–12 pence per share to EPRA earnings
once built out.
University partnerships
Following the success of the Aston University
transaction, Unite has secured two further
University partnership schemes. Firstly,
during the year, we acquired the former
Cowley Barracks in Oxford. Working with
Oxford Brookes University, we have secured
planning permission to build 887 beds and
agreed terms for a 25-year nominations
agreement with the University, taking our
partnership with them to over 1,365 beds.
The agreement provides the University with
much-needed accommodation and Unite
with income and rental growth certainty
over the long term.
Secondly, following the year
end, Unite recently secured a new
development site in London. Working
with planning support from King’s
College, London we will submit a planning
application to build around 1,000 beds of
cluster-flat accommodation in the second
half of the year. We expect to enter into a
long-term nominations agreement over
this property, providing much needed
capacity in a location where there is a
severe shortage of high quality affordable
student accommodation. This is our first
land acquisition in London since 2013,
facilitated by the correction in land values
seen in certain zone 1 locations and our
ability to unlock value through our
relationships with Universities.
The initial development returns on these
University-backed schemes are 6–7%,
around 100 basis points lower than a
scheme where Unite takes full letting and
rental growth risk. However, total returns are
expected to be 9–10% and given the
University relationships and the security of
income the agreements provide, these
opportunities are strategically important
and remain value enhancing.
We continue to see attractive
development and partnership
opportunities in strong University markets
and we plan to invest selectively in target
markets to enhance portfolio quality and
deliver target returns.
Q&A with the Chief Executive
Richard Smith addresses some topical
questions from our shareholders
Q What is the impact of the new
Teaching Excellence Framework on
your strategy?
A The TEF results reinforce our strategy
of partnering with mid- to high-ranking
Universities. Currently 85% of our beds are
aligned to these types of institutions, and
with new developments such as Cowley
in Oxford and Middlesex Street in London,
we are expecting this to grow to 90%
on completion of our existing
development pipeline.
Student satisfaction and retention
are key measures of TEF, and we
believe our strategy can help our
University partners excel in these areas,
continuing to make us an attractive
accommodation partner.
Q You bought and sold more properties
than in previous years in 2017. Why?
A The quality of our portfolio is a key
differentiator between Unite and our
competitors. We continually review it to
ensure we have the best properties, in the
right locations, and are aligned with mid-
to high-ranking Universities, supporting the
quality earnings profile of the business.
This strategy drives both our acquisitions,
and our disposal activity. By disposing of
properties which no longer fit our quality
criteria, we can continue to invest in
new, exciting opportunities such as our
acquisition of Aston Student Village.
Read more in our
Property review on p36
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 18
CHIEF EXECUTIVE’S STATEMENT CONTINUED
Acquisitions and disposals
We also continue to target acquisitions
of completed assets and portfolios that
enhance the quality of our portfolio and
the earnings profile of the business. These
acquisitions are generally targeted through
our co-investment vehicles due to their
lower cost of capital, allowing us to
generate enhanced returns through our
asset management and acquisition fees.
During 2017, USAF acquired one 437-bed
completed asset in Sheffield for £36 million.
Since the year end, USAF has acquired
a 331-bed investment asset in Edinburgh
for £24 million.
Disposals remain an important part
of our strategy and we will continue
to recycle assets out of our portfolio to
ensure that we can continue increasing
our exposure to the UK’s best Universities,
while generating capital to invest in
further development activity and exciting
opportunities such as the Aston Student
Village acquisition. During 2017, we sold
£181 million of assets at a £5 million
premium to book valuations (Unite share).
We intend to sell £75–125 million (Unite
share) of assets during 2018 to take
advantage of the ongoing strength in
the investment market and to ensure
that we maintain a strong and flexible
balance sheet as we progress our
development pipeline.
High-quality earnings and a strong
capital structure
We have achieved 99% occupancy
across our portfolio and rental growth of
3.4%. With 60% of this income underpinned
by University nominations agreements, we
have a high level of visibility in the ongoing
occupancy and rental growth outlook of
the portfolio. In addition to revenue growth,
a focus on efficiency has resulted in further
improvements in our NOI margin, which is up
to 74.1% (2016: 73.1%), and in our overhead
efficiency which shows that our overheads,
net of management fees, represents 40
basis points of gross asset value (2016: 40
basis points). Having put in place a £5 million
efficiency programme in 2017 (Unite share:
£3.8 million), we remain confident about
achieving further efficiency gains and
delivering our targets of 75% and 25–30 basis
points by the end of 2018 and will continue
to review how to deliver further efficiencies
in 2019 and beyond.
Unite’s share of net debt grew by £27 million
to £803 million in 2017. The majority of our
property and development expenditure
(Unite share £185 million) was funded by our
disposal programme with the remainder
from retained earnings. We reduced LTV to
31% (2017: 34%) as a result of disposals, the
conversion of the convertible bond and
asset value appreciation. This is at the lower
end of our target range, and we expect to
increase back to around the mid-30% level
as we build out the development pipeline.
Our net debt to EBITDA ratio is 6.5 (2016: 6.9),
again within our target level of 6.0–7.0,
which we intend to maintain.
The Group also secured an investment
grade credit rating and arranged a new
£500 million, five-year unsecured debt
facility, providing additional financing
headroom, greater flexibility and a
reduced cost of funding.
Market and strategy
The outlook for the student
accommodation sector remains
positive, with structural factors continuing
to drive a demand-supply imbalance in
the cities where we operate. The UK
Higher Education sector is recognised
globally for the strength of its Universities
and the contribution it makes to research,
innovation, talent development and the
UK economy more broadly. The UK is
the second most popular destination for
international students and has 12 out of
the world’s top 100 Universities and 59 of
Europe’s top 200 Universities. In February
2018, the Government announced a
Funding Review. The details of the review
are yet to be made clear but we do not
believe that it will not have a detrimental
impact on the UK’s globally-renowned
Higher Education sector.
Total student numbers again reached
record levels at over 1.8 million. The
number of applicants and the number
of students accepted into courses in 2017
was at 700,000 and 534,000 respectively
(2016: 725,000 and 540,000). Despite a fall
in applications of 3%, Universities were able
to recruit from the excess of applications,
resulting in intake falling by less than
0.5% with applicants still outstripping
acceptances by 166,000. The small
reduction in applications was driven
principally by changes to funding for
some medical related courses and
a small reduction in EU students.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 19
Going forward, the gap between
the number of applicants and University
places could be impacted by some
external factors, including the impact
of the UK leaving the EU. Since 2015, a
demographic trend has seen a reduction
in the number of 18–21 year olds, and this
trend affects the next three years. However,
participation rates continue to increase
with applicants still outstripping the places
offered by Universities. We expect high and
mid-ranked Universities, where our business
is focused, to continue attracting more
students than those at the lower end of the
league tables and therefore we believe our
portfolio remains well placed to withstand
any potential reductions in applications.
The student accommodation sector
has attracted significant levels of capital
investment over the last four years with
over £16 billion of investment activity. This
increased investment activity has seen the
new supply of accommodation increase
and the total number of purpose-built
beds (including University-owned beds)
grow to 580,000 beds representing around
one-third of the UK’s student population.
At this level, there remains a shortage of
purpose-build accommodation compared
to the numbers of first years, international
and increasingly second and third-year
students. The outlook suggests that the
rate of new supply will continue at a similar
rate of around 25,000 beds in 2018, before
starting to reduce in 2019. Moreover, a large
proportion of the new supply is focused
on the premium end of the market and
we believe the competitive threat that it
poses to our more mainstream
proposition is limited.
We believe our exposure to changes in
student numbers and increases in supply is
mitigated by our alignment and relationship
with high-quality Universities, underpinned
by nominations agreements, and remain
confident that well-located, mid-range,
direct-let student accommodation will
continue to support high levels of
occupancy and rental growth.
Outlook
Building on our consistent
performance record and supportive
market fundamentals the Group remains
well placed to deliver sustainable earnings
growth in the years ahead. UK Universities
continue to demonstrate their ability to
adapt and respond to a changing
landscape and retain their globally
recognised status. The demand for high
quality Higher Education among both
UK and international students continues
to grow. Our development pipeline and
operational expertise provides good
visibility of future rental growth and
increasing recurring earnings. We are
confident that our strategy of aligning
our operations with the best performing
Universities in the UK, combined with our
highly scalable operating platform,
strong brand and reputation makes us
well-positioned to extend our market
leading position.
Richard Smith
Chief Executive Officer
21 February 2018
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 20
STRATEGY AT A GLANCE
BUILDING ON OUR
CORE PRINCIPLES
Our strategy
Our strategy is to build the UK’s largest
portfolio of student accommodation,
with engaged, committed people
delivering high levels of customer
satisfaction, ensuring we are the
partner choice for Universities.
Quality properties
Current strategic focus
Quality service
platform
Quality University
partnerships
- Development and portfolio recycling
to ensure we have the right properties,
in the right locations, aligned to
high-ranking Universities
Ensuring our buildings are safe, secure
and energy efficient
-
Read more about
Quality properties on p16
Current strategic focus
- Maintaining high occupancy rates
- Delivering continuing rental growth
- Deliver ongoing efficiency
improvements through our proprietary
operating platform
- Customers service enhancements
and satisfaction
Read more about
Quality service platform on p32
Current strategic focus
- Continuing to build strong partnerships
with high-quality Universities
- Grow the proportion of Unite beds
aligned to mid- to high-ranking
Universities
- Grow quality of nominations
agreements
Read more about
Quality University partnerships on p10
Quality people
Current strategic focus
-
- Ongoing training to ensure our people
deliver the best customer experience
for our students
Leadership and development
opportunities to ensure a strong
pipeline of talent
Ensure we have a diverse employee
population
-
Read more about
Quality people on p08
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 21
2017 in review
Objectives for 2018
Link to performance
- Opened five new properties
- Acquired ASV, our first on-campus
property
- Continue to increase the quality
of our portfolio through acquisitions
and disposals
- Disposed of £181 million of assets which
- Continue to align our properties with
no longer fit with our strategy
mid- to high-ranking Universities
Earnings per share
- Gross asset value
-
- Higher Education trust score
-
- Customer satisfaction
Safety
2017 in review
Objectives for 2018
- Occupancy rate of 99% and 3.4%
- Maintain high occupancy levels and
rental growth
- Delivered further improvements
in NOI margin and overhead
efficiency measure
rental growth of 3.0–3.5%
Link to performance
-
Earnings per share
- Customer satisfaction
- Gross asset value
2017 in review
Objectives for 2018
- Acquisition of 3,067 beds on-campus
-
at Aston University
Secured two further University
partnership schemes in Oxford and
London, totalling 1,900 beds
- 60% of our beds are under nominations
agreements with an average
remaining life of six years
- Pursuing further University partnership
schemes to deliver further growth and
long term security of income
Increase beds under long-term
nominations agreements
-
Link to performance
- Net asset value
-
Earnings per share
- Higher Education trust
2017 in review
Objectives for 2018
Link to performance
- All employees received Service Style
- Continue to invest in developing
training to ensure the customer is at the
heart of everything we do
Launched new values to guide how we
do things as well as what we do
-
- Refreshed our approach to recruitment
with new tools including a new
recruitment website
and training our people
- Make further progress on raising our
employee effectiveness score towards
the 60% threshold
-
-
-
Employee effectiveness KPI
Safety
Earnings per share
Read more about
Remuneration on p75, KPIs on p22 and
Risks on p24
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 22
KEY PERFORMANCE INDICATORS
FINANCIAL KPIs
Earnings per share*
Pence
Measure
Our EPRA earnings KPI is a
measure of profit per share
in line with EPRA guidelines.
30p
Net asset value*
Pence per share
0
3
8
2
3
2
7
1
4
1
Measure
Our EPRA 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.
4
3
4
2
8
3
720p
0
2
7
6
4
6
9
7
5
Comments
Sustainable growth in earnings
has been driven by high levels
of occupancy and rental
growth supported by a focus
on delivering operational
efficiency. The growth in
earnings underpins our
strategic priorities of delivering
great service and growing
and sustainable earnings.
13
14
15
16
17
Target
Deliver visible and meaningful
growth in EPS by maintaining
high occupancy, rental
growth and delivering the
development pipeline.
13
14
15
16
17
Target
To continue delivering strong
balanced returns, contributing
to a low double-digit
total return.
Remuneration on p75
Comments
Consistent NAV growth has
been delivered through rental
growth, yield compression,
development profits and
retained earnings. Our
sustainable growth in NAV
reflects the implementation
of the business model and
our strategic priority to
operate quality properties.
* Results are based on the European
Public Real Estate Association
Performance measures.
Alignment to
strategy
* Results are based on the European
Public Real Estate Association
Performance measures.
Alignment to
strategy
Total accounting return
%
14%
Loan-to-value ratio
%
7
3
Measure
Our ratio of net debt to
property values.
9
4
3
4
31%
5
3
4
3
1
3
Measure
The total accounting return
to shareholders is the ratio
of growth in EPRA NAV
plus dividends paid as a
percentage of opening
EPRA NAV.
Comments
Total accounting return has
averaged 18% in the last six
years, driven by the growth
in EPRA earnings, yield
compression, rental growth
and development profits.
The performance in 2017
was delivered by focusing
on growing rental levels and
5
1
5
1
4
1
0
1
13
14
15
16
17
the delivery of our high-quality
development pipeline.
Maintaining a strong total
return from our portfolio is
a result of our business
model and delivery of
our strategic priorities.
Target
Continue to deliver strong
balanced returns.
Alignment to
strategy
13
14
15
16
17
Target
To maintain LTV around
the mid 30% level.
Remuneration on p75
Comments
Continued to deliver reduction
in LTV through ongoing focus
on disposals and growing the
value of the property portfolio.
Our LTV reflects our strategy to
maintain the strongest capital
structure in the sector.
Alignment to
strategy
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
OPERATIONAL KPIs
23
Key
Quality properties
Quality service platform
Quality University partnerships
Quality people
Safety
Number of accidents
Measure
The number of reportable
accidents in our Operations
business each year as a
means of assessing our
success in approaching
health and safety.
Comments
Our Accident Incident
Management System (AIMS),
has provided us with greater
visibility on our incident
reporting, enabling us to
implement new ways of
working that have improved
efficiency. Safety is a high
5
Customer satisfaction
%
81%
5
5
5
4
3
Measure
We undertake an independent
survey with TNS twice a year to
understand our relationship
with our customers, the
experience we provide and
their likelihood to rebook and
recommend Unite.
3
8
0
8
1
8
2
7
5
7
13
14
15
16
17
priority within our business and
supports our strategic priority
to offer great service.
Target
We strive to reduce the
number of reportable
incidents year on year.
Comments
This year we have added 1% to
our customer satisfaction score.
We are determined to drive
further improvement through
hard work on our strategic
priority to offer quality service
to our customers.
13
14
15
16
17
Target
We aim to reach the top 10%
of benchmarked companies
within the next three years.
Remuneration on p75
Alignment to
strategy
Alignment to
strategy
Employee effectiveness
%
54%1
9
5
4
5
3
5
1
5
Measure
This year we did not conduct
an employee engagement
survey as we reviewed our
approach and supplier.
A survey will be conducted
in Q1 2018.
1 2016 result
Comments
In 2018 we will be surveying our
employees more regularly on
key engagement topics in
order to better respond to their
needs and drive an increase in
our overall engagement score.
We will continue to benchmark
against leading UK companies.
13
14
15
16
Target
We aim to increase the
employee effectiveness
percentage above the
60% threshold.
Alignment to
strategy
Higher Education trust
%
Measure
Annual qualitative research
with our Higher Education
partners to understand their
perception of Unite and the
degree to which we meet
their needs.
Comments
Understanding what
our Higher Education
partners need from us, both for
themselves as institutions and
for their students, is a vital part
of improving our level of
service to offer great service.
The overall score is in line with
last year and whilst our strong
University partnerships were
supported by the ongoing
80%
9
7
9
7
0
8
0
7
9
6
13
14
15
16
17
focus of providing a Home for
Success, we need to continue
to work hard to ensure this is
reflected in the score.
Target
We aim to reach the mid-
80% level within the next
three years.
Remuneration on p75
Alignment to
strategy
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
24
RISK MANAGEMENT
OPERATIONAL EXCELLENCE, ALIGNED WITH RISK
MANAGEMENT, HELPING TO DELIVER GROWING
AND SUSTAINABLE EARNINGS
Chris Szpojnarowicz
Company Secretary and
Head of Legal
A robust framework
for systematically
identifying, monitoring
and managing risk.
The Group has the opportunity to grow
further, uniquely positioned to leverage
our longstanding University partnerships.
To ensure delivery, continued focus on
operational excellence aligned with
effective risk and assurance management
is essential. This is especially so at a time
when the HE sector and the broader
economy is facing uncertainty during
Brexit negotiations.
How we do this, and assess our principal
risks and manage them, are set out on
the following pages.
1
2
3
4
5
Group Board leads review
of risk profile along with assessing principal risks.
Top-down review
wide range of strategic and emerging risks and opportunities.
Bottom-up review
challenging risks identified by operational management and more
technical risks such as information technology, security, continuity, GDPR,
financing and treasury.
Board searching externally for best practice
engaging with senior leaders in the HE sector as well
external technical experts.
External experts
Recruiting expert advice on key issues such as fire safety following Grenfell
Tower and Information Technology ahead of GDPR introduction.
The Group’s principal risks mapped
across these four risk categories, their
impact on our strategic objectives and
how we mitigate these risks are set out
on pages 28 to 31.
Output
Market risks
(supply & demand)
Operational risks
Property/
Development risks
Financing risks
Read more p28
Read more p29
Read more p30
Read more p31
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 25
Key risk developments in 2017
Risk Profile category
Key risk developments in 2017
Unite risk activity/assessment
Operational risks
(major H&S incident
in a property)
Grenfell Tower tragedy
renewed focus on fire
safety, especially in
high-rise residential
properties.
Market risks
(supply increase)
Maturing PBSA sector
and increasing supply
of PBSA beds.
Market risks
(reduction in demand)
Market risks
(supply & demand)
Ongoing Brexit negotiations
and UK’s stance on
immigration creates
uncertainty for HE sector.
2017 student intake was
broadly consistent with
2016, with participation
rates increasing, offsetting
the demographic
reduction.
Customer expectations
increasing. Value for
money and affordability are
increasingly important.
Full fire safety review of all our properties.
Worked closely with Department for Communities and Local Government (DCLG), local fire
authorities and fire safety experts to ensure fire safety and address any remedial actions
following Grenfell Tower learnings.
Ensured aligned national approach through the Avon Fire Authority, our Primary
Fire Authority.
Unite buildings are modern and purpose-built, with ongoing rigorous fire safety and
maintenance regimes, as well as whole-building approach (includes provision of white
goods, fire compartmentation and fire doors).
Read more about
Fire safety and cladding on p41
Active property recycling, with Unite’s portfolio positioned in high-quality locations:
73% in top 10 markets
85% of Unite’s portfolio aligned to high/mid-ranked Universities and TEF Gold/Silver
99% occupancy in 2017/18, underpinned by 60% nominations agreements, with an average
remaining life of 6 years providing income and rental growth certainty.
Read more about
Quality partnerships on p10 and our Property Review on p36
Whilst there was a 4% fall in applications in 2017, University intake was broadly in line with
2016 due to the excess of applications over acceptances.
Read more about
Market drivers on p02
Enhanced PRISM, our innovative and proprietary digital platform.
Strong service delivery evidenced by record high customer satisfaction and Higher
Education trust scores.
Wi-Fi upgraded to 70Mbps. Enhanced our Unite apps to improve connectivity with our
digital native customers.
Rolled out Student Ambassador programme and University-adopted Welcome programme.
GDPR compliance review of our digital offering.
Read more in our
Operations Review on p32
Our risk appetite
The Group’s risk appetite is considered as
a fundamental part of the Board’s strategy
setting and annual budget – it does not
happen in isolation. Our risk appetite is
underpinned by our principal financial
aim to continue delivering low double-
digit total returns and sustainable,
growing earnings.
During the year, the Board
reviewed our risk appetite in light of
the key in-year risk developments (set out
above). This considered both threats to –
and opportunities in – our business in the
context of macro and minor developments,
not only in the PBSA sector, but also the
broader HE sector, property market
and economy.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 26
RISK MANAGEMENT CONTINUED
Stress testing our strategic planning
Each year, the Board develops and refreshes the
Group’s Strategic Plan. This is based on detailed
three-year strategic/financial projections (with related
scenario planning) and rolls forward for a further two
years using more generic assumptions. The Board maps
our strategic objectives against our risk profile. Then,
always conscious that risk events do not necessarily
happen in isolation, the Board stress tests these
projections against multiple combined risk events.
Through this process, a base case and stress-tested
Strategic Plan is developed.
During 2017, consistent with prior years, this stress-
tested scenario planning considered a material
reduction in the number of European and international
students, a material rise in long-term interest rates and
yield expansion, together with a combination of all
these events occurring at the same time.
Our strategic objectives compared to our risk profile
Strategic
objective
Risk profile
category
Principal
risks
Increase in
interest rates
Yield
expansion
The influences
of multiple
combined
risk events
Reduction in EU/
international
students
Quality properties
Property/Development
Increasing competition and customer expectations underlines the importance to constantly Improve the
quality of our portfolio, whilst navigating site selection, development/planning risks and build cost inflation
as well as disposal risks.
Quality service platform
Market
(supply & demand)
Operational
(H&S)
The health, safety, wellbeing and security of the 50,000 students who make Unite Students their home is
the foundation of our reputation and continued focus on H&S is key to building and maintaining this trust.
Affordability and value for money are increasingly critical in the increasingly competitive market place. Delivering
the highest service levels in the sector continues to be critical to our sustainable and longer-term success.
Quality University
partnerships
Market
(supply & demand)
With the increasing supply and maturing PBSA sector enhancing strong and sustainable University relationships
is increasingly important.
Quality people
Market
(supply & demand)
In an increasingly competitive market with more demanding customers developing and retaining our talent is
critical to ensure market leadership.
Property/Development
Earnings & NAV growth
Financing
Critical to maintain a timely approach in arranging new debt and extending debt maturities, reducing the cost of
funding, diversifying our funding sources and introducing new lenders to the Group. We ensure we secure a strong
balance sheet with appropriate levels of leverage and liquidity so the business can withstand the property cycle.
Creating the right corporate culture for
effective risk management
The Group’s risk management framework is
designed to identify the principal risks and
ensure that risks are being appropriately
monitored, controls are in place and
required actions have clear ownership
with requisite accountability.
The organisation has an open and
accountable culture, led by a stable and
experienced leadership team operating
in the sector for a number of years. This
culture is set by the Board in the way it
conducts its Board and Committee
meetings and cascades through the
organisation enabling the same culture
for risk management.
The culture of the organisation recognises –
and accepts – that risk is inherent in
business and encourages an open and
proactive approach to risk management
as opposed to a blame culture. By viewing
our risks through the lens of our 5 strategic
objectives, the Group is able to ensure risk
management is pro-active and pre-
emptive and not a tick box exercise.
The Board has the overall responsibility for
the governance of risks and ensures there
are adequate and effective systems in
place. It does this in various ways:
- Risks are considered by the Board as
an intrinsic part of strategy setting and
consideration of new opportunities –
risk is recognised as an inherent part
of each opportunity
- A twice yearly formal review by the
Board of principal risks, how they are
changing and considering any
emerging risks
-
- Risk Committee reviews the principal
risks that the Group is facing or should
consider
Specific risk management in dedicated
Board sub-Committees allowing focus
on specific risk areas (for example, the
Audit Committee and Health & Safety
Committee)
- Risk Committee scrutiny and challenge
of management activity allowing a
focused forum for risk identification
and review
- Risk assurance through external and
internal auditors as well as specialist
third party risk assurance where
appropriate (e.g. British Safety Council
providing specialist independent
health and safety assurance)
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
27
Composition
of Risk Committee
Chris Szpojnarowicz
Company Secretary
and Head of Legal and Chair
of Risk Committee
Joe Lister
Chief Financial Officer and MD
of People and Communications
Richard Smith
Chief Executive Officer
Richard Simpson
Group Property Director
Our risk management framework
The Board
Risks assessed as part
of strategy setting
and risk oversight
- Owned by the Board and its Committees
-
Twice yearly formal risk review and ongoing
monitoring of risk integral to Board meetings
Risk management
Policies and controls
- Owned by the Risk Committee
and the Management Board
- Monthly risk tracker review
at Management Board
- Risk Committee review and
challenge of all risk trackers and
related risk and opportunity activity.
Underpinning risk management
(such as Capital Operating
Guidelines; Treasury Policy; Anti-
Bribery Policy; Major Investment
Approvals Committee and the
internal controls framework)
People and culture
Embedded risk
management culture
Openness, transparency and clear ownership of
risk management (through risk trackers) cascades
through the organisation
Key Risk Indicators (KRIs) linked to our
KPIs and our strategic objectives
Strategic objective
KPIs
Quality properties
Gross asset value
Asset age
Occupancy
Rental growth
Quality service platform Safety
Quality University
partnerships
Customer satisfaction
Occupancy
Safety
University trust
Customer satisfaction
% Noms v. Direct Let
Quality people
Safety
Employee
engagement
Customer satisfaction
University trust
Earnings & NAV growth
EPS
Total accounting
return
Net debt
LTV
Net debt : EBITDA
Robust assessment of principal risks
The directors confirm that they have
conducted a robust assessment of the
principal risks facing the Group. The
process for how the Board determined
these principal risks is explained above
and the specific principal risks are set out
on pages 28 to 31.
Viability statement
The Directors have assessed the viability
of the Group over a three-year period to
December 2020, taking account of the
Group’s current position and the potential
impact of the principal risks. The Directors
consider the three-year lookout period
to be the most appropriate as this aligns
with the Group’s own strategic planning
period combined with the levels of
planning certainty that can be derived
from the development pipeline. Based
on this assessment, the Directors have
a reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over the
period to December 2020.
As explained above, the Group has
developed an annual business planning
process, which comprises a Strategic Plan,
a financial forecast for the current year
and a financial projection for the
forthcoming three years (which includes
stress testing and scenario planning and
also rolls forwards for a further two years).
This plan is reviewed each year by the
Board as part of its strategy setting process.
Once approved by the Board, the plan is
cascaded down across the Group and
provides the basis for setting all detailed
financial budgets and strategic actions
that are subsequently used by the Board
to monitor performance. The forecast
performance outlook is also used by the
Remuneration Committee to establish the
targets for both the annual and longer-
term incentive schemes.
The financing risks of the Group are
considered to have the potential greatest
impact on the Group’s financial viability.
The two principal financing risks for the
Group are: the Group’s ability to arrange
new debt / replace expiring debt facilities;
and any adverse interest rate movements.
The Group has secured funding for the
committed future development pipeline,
which included the first Group unsecured
loan facility, and prepares its Strategic Plan
on a fully funded basis in line with the
three-year outlook period. To hedge
against the potential of adverse interest
rate movements the Group manages its
exposure with a combination of fixed-rate
facilities and using interest rate swaps for
its floating-rate debt. During the year,
the Group has complied with all
covenant requirements attached
to its financing facilities.
Read more in the
Financial Review on p42
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
28
PRINCIPAL RISKS AND UNCERTAINTIES
Market risks
1. Demand reduction (driven by Government policy or other macro events)
Brexit impacting numbers of EU students coming to study in the UK
Possible events
-
- Changes in Government policy on Higher Education funding
-
Immigration policy changes affecting international student numbers
and behaviour.
Impact
-
Potential reduction in demand and hence profitability and asset values
- Departure from EU impacting EU research grants and EU students coming
to the UK.
What happened in 2017
-
Brexit uncertainty continues. Whatever the terms of Brexit – “hard” or “soft” – its complexity is very
time-consuming, resulting in distractions from other policy initiatives.
UK continues as 2nd most popular international destination for students (after the US).
-
- Government undertaking a review of University funding and student finance.
-
2017 student intake broadly in line with 2016. Participation rates have increased, offsetting the 5%
reduction in applications. Unite has limited exposure to these reduced applications due to relationships
with high and mid-tariff Universities.
2017 saw stronger growth in the high and mid-tariff Universities.
EU students funding arrangements for duration of study confirmed for 2017/2018 and 2018/2019.
Increased focus on quality and length of nominations agreements. 60% secured through nominations
agreements with 6 years average maturity.
Immigration: the Government has commissioned an independent review of the costs and benefits of
international students. The review of international student “over stayers” showed the number is around
4,600 rather than in the 100,000’s as reported in the media before. This is widely seen as good news for
the HE sector and may result in the removal of international students from the highly politicised net
migration targets.
-
-
-
-
Risk management
Ongoing monitoring of Brexit implications,
Government policy and its impact on UK,
EU and international student numbers studying in
the UK. Regularly reviewing our portfolio to ensure
we have the highest quality portfolio, appropriately
sized and in the right locations.
Read more about Market drivers on p02 and Quality partnerships on p10
Risk mitigation in 2017
Implement our Brexit Readiness Plan
Through implementation of Home for Success – our core purpose to provide environments that help
students achieve more during their time at University – we are seeing consistently high customer satisfaction
and Higher Education trust scores.
Read more about Key performance indicators (KPIs) on p22
Strategic objective
Offering great service is key to helping us sustain
any reduction in demand. Ensuring we have high
quality properties and growing and sustainable
earnings to manage any demand deficit.
Read more about
Business model and strategy on p04
Focus for 2018
Continued engagement with the Higher Education sector to understand and be ready for the impact of Brexit and other HE policy changes.
2. Demand reduction (due to societal change)
Possible events
- Concerns over the costs of a University education – affordability and
Impact
- More competition for value and reduced demand for year round
value for money
- Alternative course delivery (such as Massive Open Online Courses)
-
Shorter/more semester-led courses.
student accommodation in the longer term resulting in lower profitability
and asset values.
What happened in 2017
-
-
Strong service delivery evidenced by high customer satisfaction and University trust scores.
Increasing proportion of second and third-years choosing PBSA. 65% of Unite’s direct lets are
returning students.
Enhanced PRISM, our innovative and proprietary operating platform.
-
- Wi-Fi upgraded to 70Mbps. Enhanced our Unite apps to improve connectivity with our digital
native customers.
Rolled out Student Ambassador programme and University-adopted Welcome programme.
-
Read more about our Quality service platform on p04
Risk mitigation activity in 2017
Ensured the successful roll out of PRISM, enabling online and more flexible tenancies.
Continued investment in market knowledge and building on our relationships with the strongest Universities,
driven by Home for Success and our University partnerships team.
Focus for 2018
PRISM to drive enhanced customer service and value for money, through its scalability and digital efficiency.
Continued focus on Home for Success and our partnerships with the stronger Universities.
Risk management
Ongoing monitoring of affordability and value for
money and the evolution of digital learning and
ensuring we partner with the stronger Universities
with properties in the best locations.
Strategic objective
Offering quality service is key to ensuring we
have relationships with the higher and medium-
tariff Universities (the ones most likely to sustain
a reduction in demand). PRISM helps us deliver
the best customer service efficiently.
Read more about
Business model and strategy on p04
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
29
Key
Quality properties
Quality people
Quality service platform
Earnings & NAV growth
Quality University partnerships
3. Supply increase (due to increasing interest in the performance and appeal of the PBSA sector)
Possible events
- New supply as sustained high levels of investment demand filter into the
development market, primarily through investors providing forward
commitments to smaller developers.
Impact
- More competition for the best sites
-
Potential impact on rental growth and occupancy.
What happened in 2017
- Over £4bn of PBSA assets traded in 2017, up from the £3.5bn in 2016.
PBSA sector maturing and becoming increasingly professionalised.
-
Unite secured 99% occupancy for the 2017/2018 academic year, underpinned by 60% nominations agreements.
-
5 development properties delivered in 2017. Active property recycling, resulting in higher-quality Unite portfolio.
-
Read more about Property Review on p36 and our Operations Review on p32
Risk mitigation in 2017
We continue with our focus and strategy on:
- Markets with supply/demand imbalance
-
Exposure to the best Universities underpinned with new developments secured with
nominations agreements
Read more about Operations Review on p32
-
Investment in our brand and student experience – creating better environments within our new
developments through Home for Success
- Maintaining strong relationships with key Higher Education partners.
Strategic objective
Offering great service as well as having high-quality
properties is critical to mitigating any supply surplus.
Focus for 2018
Continued focus on our portfolio in the towns and cities with the strongest growth prospects and using PRISM, our scalable operating platform, to differentiate
our brand and offer consistently high levels of service to students and Universities alike.
Ensuring a strong yet flexible capital structure so we can adapt appropriately as supply grows.
Operational risks
4. Major health & safety (H&S) incident in a property or a development site
Possible events
Fatality or major injury from a fire or other incident at a property
-
- Multiple contractor injuries at a development or operational site.
Impact
-
-
Impact to students living with us, contractors working on-site and visitors
Reputational damage and trust in Unite Students as a reliable partner.
What happened in 2017
-
-
The Grenfell Tower tragedy renewed focus on fire safety, especially in high-rise residential buildings.
Unite conducted a full fire safety review of all our properties. Worked closely with DCLG, local fire
authorities and fire safety experts to ensure fire safety and address any remedial actions following
Grenfell Tower tragedy learnings.
Read more about Fire safety and cladding on p41
Ensured aligned national approach through the Avon Fire Authority, our Primary Fire Authority.
Reviewed our specification for new builds and developments.
-
-
- Continued good performance against our KPIs.
Read more about KPIs in H&S Committee Report on p72
Risk mitigation activity in 2017
Our ongoing internal inspections of our properties, with external assurance sought through:
-
-
British Safety Council, our external safety auditor
Physical security review through WSP Parsons Brinckerhoff
Risk management
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.
Read more about
H&S Committee Report on p72
H&S is also actively reviewed in the Management
Board, ensuring that H&S is top of mind in our day
to day operations and regularly assessed and
validated.
Strategic objective
Ensuring the H&S of our customers, contractors
and employees is fundamental to us offering
quality service.
Working in partnership with the Avon Fire Authority, our Primary Fire Authority, to ensure best practice in
fire safety.
Read more about
Business model and strategy on p04
Student safety campaigns: 3 safety focused campaigns for students during their first 6 weeks living with Unite.
These were run in conjunction with local fire and rescue services and Police Community Support Officers.
1. Student fire safety
2. Alcohol awareness
3. Student personal safety
Focus for 2018
Continued focus on fire safety and education, reinforcing fire as our biggest safety risk.
Finalise ACM cladding replacement requirements, based on further testing, and complete existing current cladding replacement plans.
Integrating Wellbeing into the H&S Management System.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
30
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Property/development
5. Inability to secure the best sites on the right terms. Failure or delay to complete a development
within budget and on time for the scheduled academic year
Possible events
-
Site acquisition risk – increasing competition for the best sites pushes
up prices.
Planning risk – delays or failure to get planning.
-
- Construction risk – build cost inflation as the economy improves.
Impact
- NAV and EPS affected by aborted schemes and/or reduced financial
returns, with cash tied up in development.
What happened in 2017
-
-
-
2017 schemes delivered, on time and to budget.
Increased our second development pipeline for delivery over the next three years to 7,550 beds.
2018 openings progressing in line with plans. Planning consents and build contracts in place for
all 2019 deliveries.
Read more about Property Review on p36
Risk management
Experienced development team with extensive site
selection and planning expertise, coupled with
strong track record and focus on project delivery
and strong relationships with construction partners
with appropriate risk sharing. Group Board approval
for commitments above a certain threshold.
Financial investment in schemes carefully
managed prior to grant of planning.
To ensure we have the highest quality portfolio, we
are pursuing new opportunities on a conditional
basis, but with a limited number of sites contracted
not conditional on planning following a detailed risk
assessment of that opportunity.
Risk mitigation in 2017
Regular development team and property review, with Group Board director oversight to ensure failure to
secure sites or complete on time are managed in the budget.
Strategic objective
Quality properties.
Detailed planning pre-applications and due diligence before site acquisition.
Read more about Development activity on p39
Build cost inflation regularly appraised and refreshed. Mid-sized framework contractors used and longer
term relationships established to mitigate cyclical swings.
Focus for 2018
Main focus will be on delivering multi-location developments and securing pipeline for 2020.
Read more about Secured development pipeline on p39
Read more about
Business model and strategy on p04
6. Property markets are cyclical and performance depends on general economic conditions
Possible events
-
Buying or selling properties at the wrong point in the cycle.
Impact
-
Reduction in asset values reducing financial returns.
What happened in 2017
- Over £4bn of PBSA assets traded in 2017, up from the £3.5bn in 2016.
-
The value of the Group’s investment portfolio (including our share of co-investment vehicles) increased
to £2,595 million as at December 2017 (31 December 2017: £2.277 million) with the average portfolio
yield falling 15bps to 5.20%.
- During 2017 we continued to maximise our portfolio value through a programme of selective
developments, acquisitions and disposals.
Read more about Asset disposals on p41
- Customer satisfaction continues at high levels supporting rental growth and our portfolio value.
Risk management
Group Board and Management Board ongoing
monitoring of property market, direction
and values.
Forecast rental growth and recurring profit offsets
any yield movement.
Ensuring we have a strong yet flexible capital
structure so we can adapt appropriately to
market conditions.
Read more about Property portfolio on p36
Clear and active asset management strategy.
Risk mitigation activity in 2017
Disposals – ongoing monitoring of our entire portfolio with selective disposals to benefit from keener prices
in the market. We sold £472 million of assets in 2017.
Strategic objective
Quality properties.
Acquisitions – disciplined acquisitions strategy exercising caution over portfolio premiums being paid in
the market.
Careful management of net debt and LTV.
Maintaining disciplined approach to new development transactions by maintaining Group hurdle rates
Focus for 2018
Ongoing monitoring of the property market and general economic conditions.
Ensuring a strong yet flexible capital structure to manage the property cycle.
Continued focus on Home for Success and our partnerships with the stronger Universities.
Read more about
Business model and strategy on p04
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
31
Key
Quality properties
Quality people
Quality service platform
Earnings & NAV growth
Quality University partnerships
Financing risks
7. Unable to arrange new debt or expiring debt facilities cannot be replaced or only
at high cost. Adverse interest-rate movements
Possible events
-
-
Unite breaches a loan covenant or fails to replace debt on expiry
Interest rate increase.
What happened in 2017
The 2.5% Guaranteed Convertible Bonds due 2018 fully converted. Unite assigned
an investment-grade corporate rating of BBB from Standard & Poor’s and Baa2
from Moody’s. This reflects the strength of the Group’s capital position, cash flows
and track record.
This credit rating underpinned our transition to an unsecured capital structure with
a new £500 million unsecured debt facility, reducing our average cost of debt to
3.9% when fully drawn.
At as 31 December 2017, LTV 31% (December 2016: 34%) and net debt of £803m
(31 December 2016: £776m).
80% of debt at fixed rate/swapped.
Read more about Financial Review on p42
Impact
-
If unable to replace debt, then possible forced sale of assets potentially
leading to sales below valuation. Slowdown of development activity.
Reduced level of profitability
- Adverse rate movements can lead to reduced profitability and reduction
in property values (through resulting expansion of valuation yields and
lower valuations).
Risk management
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.
Interest rates monitored by the funding team as an integral part of our
refinancing activity – owned by the CFO and with Group Board oversight.
Gearing ratios defined in our Capital Operating Guidelines.
Hedge exposure with interest rate swaps and refinance facilities with fixed rates.
Risk mitigation in 2017
Regular and reliable engagement with lenders.
With a benign interest rate environment, we have continued to take advantage of historically low rates
(both on new debt and also entering into forward-starting interest rate swaps locking in rates for our 2018–2020
development pipeline).
Strategic objective
Earnings and NAV growth.
Read more about
Business model and strategy on p04
Read more about Debt financing and interest rate hedging arrangements and cost of debt on p44
Focus for 2018
Transition to unsecured capital structure and funding future development acquisitions beyond 2020.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 32
OPERATIONS REVIEW
Creating a Home
for Success for our
students is delivered
by our engaged,
highly-trained
people working
with a quality service
platform across our
quality portfolio.
The Group reports on an IFRS basis and
presents its performance in line with best
practice recommended by EPRA. The
Operations and Property reviews focus on
EPRA measures as these are our key
internal measures and aid comparability
across the real estate sector.
Sales, rental growth and profitability
The key strengths of our operating
business are our people, our PRISM
operating platform, our brand and the
strength of our relationships with Universities.
Summary EPRA income statement
Rental income
Property operating expenses
Net operating income (NOI)
NOI margin
Management fees
Operating expenses
Finance costs
Acquisition and net performance fees
Development and other costs
EPRA earnings
EPRA EPS
We have continued to build on these
throughout 2017, resulting in a 12% increase
in EPRA earnings to £70.5 million (2016: £62.7
million). This growth has again been driven
by high occupancy, rental growth and the
impact of portfolio movements, as well as
further operational efficiencies and
ongoing cost discipline.
2017
£m
170.8
(44.3)
126.5
74.1%
14.1
(24.6)
(45.2)
4.3
(4.6)
70.5
30.3p
2016
£m
159.1
(42.8)
116.3
73.1%
14.0
(23.1)
(45.9)
6.9
(5.5)
62.7
28.4p
A full reconciliation of Profit before tax to EPRA earnings is set out in note 2.2 of the financial statements.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 33
Q&A with Simon Jones
Operations Director
Simon Jones addresses some topical
questions from our shareholders
Q What is happening with rental growth
and occupancy?
A Like-for-like rental growth of 3.4% was
achieved on our stabilised portfolio, with
occupancy at 99%.
Reservations for the 2018/9 academic
year currently stand at 75%, which is
encouraging. We anticipate rental
growth for the 2018/19 academic year
to be in the region of 3.0–3.5%.
Q How do you drive operational
effectiveness?
A We are on track to deliver our NOI
margin target of 75% and overhead
efficiency target of 25–30bps in 2018.
The introduction of PRISM has allowed
us to use technology solutions to free
up time and allow us to focus more
on customer service.
Rental income has increased by
£11.7 million, up 7%, as a result of new
openings and sustained rental growth,
after the impact of disposals made in
the year. NOI margin improved to 74.1%
(December 2016: 73.1%), reflecting further
operating efficiencies from the PRISM
operating platform. PRISM provides us
with the ability to differentiate ourselves
from other operators, driving efficiencies
through the use of technology, which also
provides enhanced levels of service for our
customers. We maintain our expectation
that NOI margins will improve to 75% in 2018
whilst ensuring that we remain focused on
service level enhancements.
In 2017, we implemented an efficiency
programme which will deliver £5 million
of savings (Unite share: £3.8 million).
These savings were driven by streamlined
processes and procedures as a result of
our student insight, PRISM and the scale
of the business and will reduce the £24.6
million of operating costs incurred during
2017. These savings mean that we are on
track to deliver our overhead efficiency
target in 2018. Recurring management
fee income from joint ventures remained
at £14.1 million (2016: £14.0 million), as a
result of the valuation growth of assets
under management in USAF and LSAV
offset by disposal activity. In addition to
the recurring asset management fees, a
further £4.3 million of net performance and
acquisition fees were generated from USAF
and LSAV (2016: £6.9 million). The USAF net
performance fee is based on USAF’s
cumulative total return at 31 December
2017 and is payable in USAF units.
Finance costs decreased to £45.2 million
(2016: £45.9 million). An increase in net
debt of £27 million to £803 million (2016:
£776 million) was offset by a lower average
cost of finance of 4.1% (2016: 4.2%) as we
have added new debt facilities at lower
average rates, taking advantage of the
historically low cost of debt. The increase
in net debt was driven largely by spend on
development activities which has, in turn,
led to an increase to £7.4 million in the
amount of interest that is capitalised into
development schemes, up from £5.9 million
in 2016. We expect the level of interest
capitalisation to remain at around
this level given the ongoing level of
development activity in 2018 and 2019.
Development (pre-contract) and other
costs fell to £4.6 million (2015: £5.5 million),
reflecting the levels of site acquisition, the
earnings impact of share-based incentives
and our contribution to our charitable trust,
the Unite Foundation.
Occupancy, reservations
and rental growth
Occupancy across Unite’s portfolio
for the 2017/18 academic year stands at
99% and like-for-like rental growth of 3.4%
was achieved on our portfolio. We have
continued to grow the proportion of beds
let to Universities, with 60% of rooms under
nominations agreements (2016/17: 58%),
up by 5,000 beds over the last three years.
Enhanced service levels and our extensive
understanding of student needs have
resulted in longer-term and more robust
partnerships with Universities.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 34
OPERATIONS REVIEW CONTINUED
Agreement length
Single year
2–10 years
11–20 years
20+ years
Total
Beds
9,038
12,017
3,783
4,225
29,063
Rental
income
£’000
52,357
80.795
25,517
24,515
%
31
41
13
15
%
29
44
14
13
100
183,183
100
We expect the proportion of beds let to
Universities to remain at or around this level
in the future. This balance of nominations
and direct-let beds provides the benefit of
having income secured by Universities, as
well as the ability to offer rooms to returning
students and to determine market pricing
on an annual basis.
Reservations for the 2018/19 academic
year are encouraging, at 75% (73% at
the same point last year) as a result of our
continued focus of working alongside the
UK’s best Universities, as well as the success
of our online marketing strategy and further
progress through our local marketing
operation in China. The structural growth
within the cities we operate, together
with our differentiated service offering,
provides us with further confidence in
future occupancy and supporting rental
growth for the 2018/19 academic year,
which we expect to be in the region of
3.0–3.5%.
Home for Success
Our popularity with students and
relationship with Universities are both
consequences of continuous investment in
our purpose: Home for Success.
During the year, we continued to drive
value from our proprietary PRISM operating
platform, delivering both the anticipated
operational efficiencies and a better
experience for students. Building on this
and our unique insight into student life, we
introduced some significant enhancements
to our service with a range of new digital
services, including uChat, which provides
the opportunity for students to meet their
flatmates before arriving at University and
logged over 80,000 messages in the first
three months of operation. The enhanced
app, which has been downloaded by over
40,000 customers and allows app-based
reporting of noise complaints and
maintenance requests, has been
introduced together with a more
comprehensive pack of pre-arrival
information and a smoother booking
system for in-house services, such as
laundry. We also enhanced our Wi-Fi
provision, upgrading both bandwith and
access to ensure satisfaction. The range
and quality of our digital services now
represents a key point of competitive
differentiation for Unite and, going forward,
we will continue to invest in technology to
provide a living experience tailored to the
needs and preferences of today’s student.
Working closely with our University
partners, we are enhancing our service
to make the sometimes challenging
transition to University life as smooth and
painless as possible and increase student
retention. As part of this, during the year
we expanded our network of paid
student Ambassadors, who provide
valuable peer-to-peer support for
students at critical points in their
journey through University.
Our student insight tells us that employability
is a key driver of student satisfaction. With
this in mind, we recently entered a joint
venture with The National Centre for
Universities and Business (NCUB) and digital
education specialists Jisc to launch Placer,
an app-based service that matches
students with potential employers that will
be fully launched in the next few months.
Placer is working with 22 Universities and
over 200 employers, of whom half have
already signed up to the service.
We strongly believe that University is an
opportunity that should be open to all,
regardless of their background. During
the year, we have significantly expanded
our commitment to the Unite Foundation
which now provides scholarships for
170 young people from disadvantaged
backgrounds who may not have otherwise
gone to University. The Foundation works
in partnership with 28 Universities up
and down the country, for whom it
forms an important part of their
efforts to widen participation.
Placer
we have developed the Placer
app in a joint venture with NCUB
and JISC. It matches students seeking
quality work experience to registered
employers with available openings.
The app makes career-enhancing
opportunities available to students
from any social background.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 35
The Unite Foundation is our flagship social
investment and complements a wide
range of grass roots charitable activity,
community engagement and employee
volunteering. Together with programmes
to drive deeper levels of diversity and
inclusion across the organisation and
reduce waste and energy use, it is a key
cornerstone of our Up to uS responsible
business programme.
At the heart of Home for Success are
1,400 highly experienced and dedicated
people with a passion for helping students.
Developing our teams remains a priority for
us and we have implemented new Service
Style training to the whole organisation
over the year. This programme ensures
that we are providing our teams with
the training required to deliver excellent
customer service as well as developing
their careers. Our approach to training and
development has been an integral part of
our Investors in People Gold accreditation
and we remain committed to remaining a
Living Wage Employer.
We also continue to invest in our
reputation and relationships within the
Higher Education sector. Our Universities
Partnerships and Engagement team is
dedicated to building strong working
relationships with key University partners.
This systematic approach has seen us
integrate specific University requirements
into new developments and, in the process,
helped drive the growth in the number and
length of our nominations agreements. Our
Insight Reports, meanwhile, look at different
aspects of the student experience and
have become a valuable source of
thought leadership within the sector.
In China, our marketing office is
well established and benefitting from a
local online presence. We are building
on our relationships with both local
and British Universities in China, as well
as providing important support to our
Chinese customers before they travel
to the UK and to their parents while their
children are overseas. We are confident
that this investment will deliver long-term
benefits to the business, as well as to
Chinese students and UK Universities.
Simon Jones
Operations Director
21 February 2018
Student Ambassador Programme
After a successful pilot, the
Student Ambassador Programme
is rolling out to all direct-let and
nominated properties across the UK
to enhance the student experience.
The programme was formulated in
response to student feedback,
where a need for a greater sense
of belonging, community and
connection was highlighted.
Students apply and then work
as paid Student Ambassadors,
helping new students settle in
at first after arrival, answering
questions, organising community
events and acting as peer support.
They themselves are mentored
by Unite employees, and the
experience and training gained
from the position can support
job applications.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 36
PROPERTY REVIEW
We continue
to improve the
quality of our
market-leading
portfolio.
Property portfolio
The valuation of our property portfolio
at 31 December 2017, including our share
of gross assets held in USAF and LSAV, was
£2,595 million (31 December 2016: £2,277
million). The £318 million increase in
portfolio value (Unite share) was
attributable to:
- Valuation increases of £168 million
on the investment and development
portfolios, with like-for-like rental growth
of 3.4% and yield compression of
15 basis points
- Capital expenditure on developments
of £155 million and £16 million on
investment assets relating to
refurbishment
- Acquisitions of £122 million – primarily
Aston Student Village
- Disposals of £176 million
-
Increased share of USAF of £33 million,
as a result of the performance fee
earned in 2016 and acquisitions of units
purchased in the secondary market
EPRA NAV growth
EPRA NAV per share increased by 11% to
720 pence at 31 December 2017, up from
646 pence at 31 December 2016. In total,
EPRA net assets were £1,740 million at 31
December 2017, up from £1,557 million a
year earlier.
The main factors behind the 74 pence per
share growth in EPRA NAV per share were:
-
-
-
The growth in the value of the Group’s
share of investment assets (+53 pence),
as a result of rental growth (+26 pence)
and yield compression (+27 pence)
The value added to the development
portfolio (+16 pence)
EPRA earnings for the period
(+30 pence)
- Dividends paid of 18 pence and debt
exit costs of 5 pence both reduced NAV
Looking forward, our portfolio is
well placed to deliver continued
value growth. Our focus on the strongest
University locations underpins rental growth
prospects and we will continue to deliver
meaningful upside from our development
activity. In total, our secured pipeline is
expected to deliver 69 pence per share
of NAV uplift and, together with future
rental growth and planned disposals,
13 to 17 pence of earnings per share
once completed.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 37
Summary balance sheet
Wholly
owned
£m
2017 £m
Share of
Fund/JV
£m
Total
£m
1,261
1,118
2,379
206
1,467
10
1,128
216
2,595
Wholly
owned
£m
1,062
185
1,247
2016 £m
Share of
Fund/JV
£m
Total
£m
1,023
2,085
7
1,030
192
2,277
(462)
(341)
(803)
(432)
(344)
(776)
(35)
–
970
(17)
–
770
(52)
–
1,740
(15)
85
885
(14)
–
672
(29)
85
1,557
Rental properties
Properties under
development
Adjusted net debt
Other assets/
(liabilities)
Convertible bond
EPRA net assets
* A reconciliation of the IFRS balance sheet to EPRA net assets is set out in section 2.3 of the
financial statements
The proportion of our property portfolio
that is income generating is 92%, which is
in line with December 2016, with 8% under
development. We will continue to manage
the development weighting of our balance
sheet and expect it to remain at around
these levels, well within our internal cap of
20% going forward.
Q&A with Richard Simpson
Group Property Director
Richard Simpson addresses some
topical questions from our shareholders
Q The yield targets for University
partnership developments are lower than
for direct-let developments. Why is this?
A It’s true the initial returns on our
Cowley, Oxford and Middlesex Street
developments are around 100bps lower
than where we take full letting and rental
growth risk.
Both of these developments are
supported by University partners,
and we have already signed a 25-year
nominations agreement on Cowley. We
expect to achieve a similar outcome on
Middlesex Street with another University.
Given the strength of these University
relationships, and the security of income
the agreements will provide, we believe
these developments are strategically
important, and significantly
value-enhancing.
Q What is driving the valuation growth
of the investment portfolio?
A We have delivered rental growth of
3.4% in the year, which flows through to
higher valuations. Recent transactions in
the PBSA market demonstrate the strong
demand for our assets and the external
valuers have reflected that in their
appraisal of our valuations.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 38
PROPERTY REVIEW CONTINUED
Unite investment portfolio analysis at 31 December 2017
London
Major provincial
Provincial
Total
Unite ownership share
Unite ownership (£m)
Value (£m)
Beds
Properties
Value (£m)
Beds
Properties
Value (£m)
Beds
Properties
Value (£m)
Beds
Properties
USAF
350
1,886
7
1,517
18,222
50
324
4,804
16
2,191
24,912
73
24.6%
539
LSAV
915
5,406
13
244
3,067
1
–
–
–
1,159
8,473
14
50%
579
Wholly
owned
466
1,989
6
566
7,000
16
229
3,336
9
1,261
12,325
31
100%
1,261
Lease
–
260
1
–
2,577
7
–
1,059
3
–
3,896
11
–
–
Total
1,731
9,541
27
2,327
30,866
74
553
9,199
28
4,611
49,606
129
2,379
Unite
share
1,009
42%
1,062
45%
308
13%
2,379
100%
The sale of two high-value London studio schemes during the year has reduced our overall London exposure to 42%, down from 47% in
2016. The regional focus of our development pipeline means that the London weighting is likely to fall to around 40% as the portfolio is
built out.
Student accommodation yields
The level of transactions in the student
accommodation sector has remained high
in 2017 following the trend seen over the
last few years, with over £4 billion of assets
trading during the year. The majority of
buyers have been supported by global
institutional capital.
As a result of this ongoing investor appetite
and subsequent transactions, there has
been a modest level of yield compression
across the sector. This movement has been
most notable in London, where there has
been the strongest level of demand for
assets. This yield compression has been
reflected in our portfolio and the average
yield at 31 December 2017 was 5.2%, an
inward movement of 15 basis points on a
like-for-like basis over the year.
Indicative valuation yields
London
Prime
provincial
Provincial
31 December
2017
31 December
2016
4.25–4.5%
4.5–5.0%
5.0–5.5% 5.25–5.75%
6.0–6.5%
6.0–6.5%
Buildings designed for students
The focus of our property activity is to
provide buildings designed specifically
around the needs of today’s student, in the
best locations alongside high-performing
Universities. We involve our University
partners in the design and planning
process to ensure that we are delivering
buildings that meet the requirements of
their students. We also look to continually
enhance the specification of our estate,
using technology to enhance customer
service and drive efficiency savings
through energy and water savings,
enhanced Wi-Fi speeds and new features
to improve the living experience. Our
development and portfolio activity is
designed to support this strategic
approach to ensure that the portfolio is
best placed to drive full occupancy and
rental growth in the medium term.
Cowley, Oxford – 887 beds,
wholly owned
Working closely with Oxford Brookes
University, we acquired an 887-bed
property in Oxford, and have agreed
a 25-year nominations agreement with
the University. Our partnership with
Oxford Brookes was instrumental in the
council granting planning consent for
development. We are focused on
identifying opportunities for deeper
partnerships based on Universities’
commitments to long-term nominations
agreements, thus improving sustainable
earnings growth. This development will
be delivered for the 2019/20 academic
year with total development costs
expected to be circa £73 million.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 39
Development activity
Development activity continues to be a
significant driver of growth in future
earnings and NAV. We have added two
sites in Leeds and Manchester, representing
1,600 beds, to our development pipeline
during the year and secured planning on
three new buildings. We are continuing to
see opportunities to secure sites for delivery
in 2020 and 2021 in strong regional
locations alongside high-quality Universities
within our target range of around 8.0%
yield on cost. Returns on potential new
direct-let projects in London still remain
below our hurdle rate of 7.0% due
principally to higher alternative use values
for prospective sites and planning levies.
2017 and 2018 completions
We completed five schemes during 2017
in line with budget and programme. Over
70% of these beds are let to Universities
under nominations agreements for the
2017/18 academic year, with an average
duration of 10 years.
The 2018 pipeline is progressing well. We
are on track to deliver five wholly-owned
schemes in Bristol, Newcastle, Sheffield,
Portsmouth and Birmingham and, in USAF,
two forward-funded developments, both in
Durham, adding a total of 3,062 beds. We
expect all of the schemes to be fully let for
the 2018/19 academic year.
Regional development pipeline
During the year, we have continued
to add to our 2019 and 2020 regional
pipeline and have a total of five schemes
secured which are expected to deliver
approximately 4,000 beds in addition to
our ongoing 2018 projects. All new regional
developments are being undertaken
wholly on-balance-sheet and prospective
returns for the secured pipeline are very
attractive at an average 8.1% yield on cost.
Planning is in place on all but two of
the schemes in the pipeline. During the
year, we have reorganised the phasing
of deliveries, bringing Liverpool forward
to 2019 and Aberdeen and Bristol being
pushed back to 2020. The two new
schemes, in Leeds and Manchester,
will be delivered in 2020.
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
%
Newcastle
Bristol
Portsmouth
Sheffield
Birmingham
575
246
484
598
586
Liverpool
1,085
Leeds
Aberdeen
Manchester
Bristol
1,019
600
603
751
6,547
40
30
41
49
50
96
107
50
76
98
637
37
22
33
38
38
74
83
42
56
79
11
3
15
16
23
11
1
0
12
2
18
8
11
21
14
49
82
35
44
61
501
95
343
5
2
3
4
5
13
24
3
11
20
91
8.0%
8.5%
8.0%
8.2%
8.0%
8.0%
8.0%
8.4%
8.2%
8.4%
8.1%
2018 completions
Newgate Street
Brunel House
Chaucer House
St Vincent’s
International House
2019 completions
Skelhorne
2020 completions
Tower North
Constitution Street
New Wakefield Street
Old BRI1
Total (wholly owned)
1 Subject to obtaining planning consent
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 40
PROPERTY REVIEW CONTINUED
Secured forward-fund pipeline (USAF)
USAF completed two forward-fund assets in 2017, adding new operational beds in Oxford and Edinburgh. USAF also secured three
further assets on a forward-fund basis in Durham and Birmingham and acquired two investment assets in Sheffield and Edinburgh.
These acquisitions are consistent with its strategy to increase exposure to high-quality Universities and to expand its presence in markets
to take advantage of scale. USAF has around £50 million of acquisition capacity which it intends to invest in the first half of the year.
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
%
USAF
2018 completions
Old Hospital
Houghnall College
2019 completions
Battery Park
Total USAF
Unite share of USAF
Durham
Durham
Birmingham
363
222
418
1,003
n/a
37
20
43
100
25
32
16
37
85
21
21
8
9
39
10
11
8
28
46
11
5
4
6
15
4
6.3%
6.3%
University partnerships
In addition to growing the value of income underpinned by University-backed nominations agreements, we have made further progress
with our strategy of delivering ongoing growth through partnerships with Universities. In February, we acquired Aston University’s entire
accommodation provision, Aston Student Village, totalling 3,067 beds, for £227 million (Unite share: £113 million) in our LSAV joint venture.
The acquisition, which was supported by Aston University, demonstrates the depth of our relationship with the University and the strength
of the Unite Students brand amongst Universities. The refurbishment works to common areas and shared kitchens are complete and,
along with the lettings performance and cost efficiencies, are supporting financial performance ahead of plan.
Unite has recently secured two further University partnership schemes. Firstly, during the year, we acquired the former Cowley Barracks in
Oxford. Working with Oxford Brookes University, we have secured planning permission to build 887 beds and agreed terms for a 25-year
nominations agreement with the University, taking our partnership with them to over 1,250 beds. The agreement provides the University
with much-needed accommodation in a location where new development is difficult and Unite with income and rental growth
certainty over the long term.
Secondly, following the year end, Unite secured a new development site, our first in London since 2013, in Middlesex Street, E1. Working
with King’s College London, we will submit a planning application to build around 1,000 beds of cluster-flat accommodation in the
second half of the year. We expect to enter into a long-term nominations agreement over this property, providing much needed,
capacity in a location where there is a severe shortage of high quality affordable student accommodation.
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
£m
Oxford
887
91
London
1,000
1,887
250
341
73
195
268
1
1
2
72
194
266
18
55
73
6.5%
6.25%
6.3%
2019 completions
Cowley Barracks
2021 completions
Middlesex Street1
Total (wholly owned)
1 Subject to obtaining planning consent
We are currently reviewing a range of funding options to provide the financing for these schemes and will ensure that this is in place prior
to committing to the build phase.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 41
The cost of replacing the cladding is
expected to be £3–4 million and a
provision has been included in the 2017
financial results. If we are successful in
claims under build contracts, the cost for
Unite could be lower than the provision.
Where cladding needs to be replaced,
work is on track and we expect all buildings
to be open for the 2018/19 academic year.
The loss of income from the closure of Sky
Plaza has been reflected in the 2017 results.
The safety of our customers and staff
remains our primary responsibility. Our
buildings are modern, well maintained and
built with advanced fire management
specifications, and have rigorous fire safety
management and maintenance regimes.
We work in partnership with the Avon Fire
Authority, as our primary fire authority, in
the development of our fire systems and
management strategies and have been
externally audited by the British Safety
Council in the last 18 months.
Richard Simpson
Group Property Director
21 February 2018
Asset disposals
During 2017, £472 million of assets were sold
in third-party transactions (Unite share: £181
million), generating £5 million profit on
a Unite share basis.
The assets were selected for disposal based
on their relative performance and forecast
future rental growth. The disposals form part
of our strategy to align our portfolio to high
and mid-ranked Universities and to focus on
more affordable accommodation in the
best locations in the cities in which we
operate. Following the completion of
the disposals, 92% of the Group’s beds
are in shared apartments, also known
as cluster flats.
We will continue to recycle assets in the
portfolio to maintain our focus on quality
and to maintain capital discipline as we
continue to see further growth
opportunities.
Fire safety and cladding
Following the tragic events caused by
the fire at Grenfell Tower, we completed
a full review of fire safety across our
estate. Working with the Department
of Communities and Local Government
(DCLG), we undertook testing of cladding
materials from an estate of 132 buildings.
Samples from six buildings did not meet
the standards as set out in the initial test.
Following the initial test, samples from three
of the buildings have been submitted for
retesting to ensure that the full cladding
system (rather than a sample) is subject
to test. We expect results in the next
few weeks.
Following the receipt of the initial test
results, experts from local fire and rescue
authorities undertook a detailed inspection
of the overall design of all six properties and
the safety measures and procedures in
place. We took the decision to close one
of the buildings, Sky Plaza in Leeds, for the
2017/8 academic year. We worked closely
with the two Universities and our customers
in Leeds and were able to find alternative
accommodation for all affected customers
across our estate in Leeds. We thank them
for their understanding and support during
this challenging period. The local fire
and rescue authorities concluded that
the remaining five properties remain
safe for occupation, subject to some
minor improvements that have all
been implemented.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 42
FINANCIAL REVIEW
Our confidence in our
earnings outlook has
led us to increase our
dividend pay-out to
85% of EPRA earnings
in 2018 from the
current level of 75%.
Income statement and profit measures
A full reconciliation of profit before tax
to EPRA earnings measures is set out in
summary below and expanded in section
2 of the financial statements.
EPRA earnings
Valuation gains and profit on disposal
Changes in valuation of interest rate swaps and debt
break costs
Minority interest and tax included in EPRA earnings
Profit before tax
EPRA earnings per share
Basic earnings per share
The increase in profit before tax is primarily
the result of a higher level of unrealised
valuation gains of £168.1 million being
recognised in 2017 compared with the
£136 million recognised in 2016. As part
of the new unsecured debt facility, the
Group cancelled £200 million of interest-
rate swaps at a cost of £11.3 million.
2017
£m
70.5
169.2
(12.3)
2.0
2016
£m
62.7
136.3
(1.0)
3.4
229.4
201.4
30.3
95.3
28.4p
101.3p
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 43
Q&A with Joe Lister
Chief Financial Officer and
Managing Director of People
and Communications
Joe Lister addresses some topical
questions from our shareholders
Q During the year you agreed the first
unsecured debt facility, what does this
mean for the Group?
A In 2017, the Group was assigned an
investment grade corporate rating of
BBB from Standard & Poor’s and Baa2
from Moody’s which reflected the
strength of Unite’s capital position,
cash flows and track record. The
credit rating underpinned the transition
to an unsecured capital structure with a
new £500 million debt facility that will
reduce the average cost of debt for
the Group as it is drawn to fund the
development pipeline.
The unsecured facility provides us
with greater flexibility and additional
firepower to fund our developments. The
investment-grade credit rating will make
it easier to raise finance in the future.
Q The Group’s Loan to Value (LTV) ration
seems low at 31%. Why is that?
A The 31% LTV at 31 December 2017 is
at the lower end of our target range of
maintaining LTV at the mid-30% level. LTV
has benefitted during the year from the
value growth across the portfolio together
with the impact of the conversion of the
£90m convertible bond. We expect LTV to
return to the mid-30% level as we build out
the development pipeline.
Subject to approval at Unite’s
Annual General Meeting on 10 May
2018, the dividend will be paid in either
cash or new ordinary shares (a “scrip
dividend alternative”) on 18 May 2018
to shareholders on the register at close
of business on 13 April 2018. The last
date for receipt of scrip elections will
be 26 April 2018.
Further details of the scrip scheme,
the terms and conditions and the process
for election to the scrip scheme will be
provided to shareholders with the Annual
General Meeting documentation when it
is sent to shareholders in March 2018.
Cash flow and net debt
The Operations business generated
£63.2 million of net cash in 2017 (2016: £61.3
million) and net debt increased marginally
to £803 million (2016: £776 million). The key
components of the movement in net
debt were the operational cash flow,
convertible bond and the disposal
programme (generating total inflows
of £332 million) offset by total capital
expenditure of £288 million, USAF unit
acquisitions of £18 million and debt exit
costs of £11 million and dividends paid
of £42 million. In 2018, we expect net
debt to increase as capital expenditure
on investment and development activity
will exceed anticipated asset disposals.
Dividend
We are declaring a fully covered final
dividend payment of 15.4 pence per
share (2016: 12.0 pence), making 22.7
pence for the full year (2016: 18.0 pence).
All of the 15.4 pence dividend will be
comprised of a Property Income
Distribution (PID).
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 44
FINANCIAL REVIEW CONTINUED
Interest rate hedging arrangements and
cost of debt
Our cost of debt has come down
marginally to 4.1% (2016: 4.2%). Following
the shift to an unsecured structure, there is
an opportunity to reduce the cost of debt
over time as we add new debt to build out
the development pipeline, replacing
expensive legacy facilities. Following the
cancellation of interest rate swaps, the
Group has 80% of its share of investment
debt subject to a fixed interest-rate (2016:
100%) for an average term of 5.3 years.
Convertible bond
The Group’s £90 million convertible bond
fully converted into equity in June. The
conversion has resulted in a reduction in
net debt of £90 million and the issue of
18,593,589 ordinary shares in Unite Group
plc. The reduction in net debt has reduced
LTV by 4% points. The additional shares
were reflected in the calculation of NAV
per share in December 2016.
Key debt statistics
Net debt
LTV
Net debt: EBITDA
ratio
Average debt
maturity
Average cost of
debt
Proportion of
investment debt at
fixed rate
2017
2016
£803m
31%
£776m
34%
6.5
6.5
5.3 years 4.9 years
4.1%
4.2%
80%
100%
LTV improved to 31% at 31 December 2017,
from 34% at the end of 2016 as a result
of the value growth of the portfolio
exceeding the increase in net debt
and the impact of the conversion of the
convertible bond. We will continue to
manage our gearing proactively and
intend to maintain our LTV around the
mid-30% level going forward, assuming
current yields. With greater focus on the
earnings profile of the business, we are
also now monitoring our net debt to
EBITDA ratio, which was 6.5 times in 2017
and we plan to keep this in line with
current levels going forward.
As a result of the quality predictable
earnings outlook for the business, we are
planning to increase our dividend pay-out
to 85% of EPRA earnings in 2018 from the
current level of 75%.
Tax and REIT conversion
The Group converted to REIT status and
is exempt from tax on its property business,
with effect from 1 January 2017. The
deferred tax liability relating to unrealised
gains on joint venture investments of £20.6
million, which are not exempt from tax,
exceeds the deferred tax asset relating to
tax adjusted losses carried forward of £11.3
million. As the losses can be set against
gains as they arise, the deferred tax asset
relating to the losses can be recognised in
full against deferred tax liabilities.
Certain activities, primarily the
fees generated from the investment
management of joint ventures, are
subject to tax which we expect to be
in the region of £2–3 million per annum.
Debt financing
The Group has continued to maintain
a disciplined approach to managing
leverage, with LTV of 31% at 31 December
2017 at the lower end of our target range.
The Unite Group plc was assigned an
investment grade corporate rating of BBB
from Standard & Poor’s and Baa2 from
Moody’s, reflecting the strength of Unite’s
capital position, cash flows and track
record. The credit rating underpinned the
transition to an unsecured capital structure
with a new £500 million unsecured debt
facility that will reduce the average cost
of debt to 3.9% when fully drawn.
Funds and joint ventures
The table below summarises the key financials for each vehicle:
Vehicle
USAF
LSAV
Property
assets
£m
2,233
1,159
Net
debt
£m
(588)
(394)
Other
assets
£m
Net
assets
£m
Unite
share of
NAV
£m
Total
return
Maturity
(33)
(24)
1,612
741
399
371
10.8%
16.0%
Infinite
2027
Unite
share
25%
50%
USAF and LSAV have continued to perform well in 2017. LSAV’s higher total return is driven by stronger yield compression in London. USAF
has over £50 million of acquisition capacity following the forward fund acquisitions and will continue to monitor acquisition opportunities.
Following the acquisition of the Aston Student Village, LSAV does not have any acquisition capacity. The development phase of the joint
venture expired at the end of 2017. Any further acquisitions or investments would require mutual consent from both Unite and GIC.
Unite has increased its share in USAF to 24.6% through the additional units issued from the performance fee and third-party acquisition
of £19 million of units during 2017.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 45
Fees
During the year, the Group recognised net fees of £18.4 million (2016: £21.9 million) from
its fund and asset management activities as follows:
USAF
Asset management fee
Acquisition fee
Net performance fee
LSAV
Asset and property management fee
Acquisition fee
Development management fee
Total fees
31
December
2017
£m
31
December
2016
£m
10.1
0.4
3.4
4.0
0.5
–
10.0
0.4
6.5
4.0
-
1.0
18.4
21.9
* A full breakdown of the net performance fee is in note 3.4(c) of the notes to the financial statements.
The asset management fees from both
USAF and LSAV have remained at similar
levels to prior years as a result of the
valuation growth in the portfolios under
management during the year being
offset by disposal activity.
A net performance fee of £3.4 million
was earned from USAF and this fee was
paid in units in early February. The level
of the fee is sensitive to movements in
property valuations and is therefore lower
than in 2016 due to the high level of yield
compression in 2015 and 2016.
Responsibility statement of the Directors
in respect of the annual financial report
We confirm that to the best of
our knowledge:
-
The financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the
Company and the undertakings
included in the consolidation taken
as a whole
-
The strategic report includes a
fair review of the development
and performance of the business
and the position of the 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
- We consider the annual report and
accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.
Richard Smith
Chief Executive Officer
Joe Lister
Chief Financial Officer
21 February 2018
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 46
RESPONSIBLE BUSINESS REVIEW
Our purpose is to
provide a Home
for Success for all
students, helping
them grow and
succeed at University
and beyond.
At Unite, we have a unique opportunity to
help our students adopt responsible living
and embed habits that will last a lifetime,
encouraging the next generation to make
positive social, environmental and
economic contributions.
As a company we are committed to
being a responsible business in all aspects
of our operation, acting with integrity and
fairness. We work hard to create a diverse
and highly skilled workforce that feels
valued and engaged and delivers positive
social impact to the communities we
operate in, with specific focus on improving
access to education. Management and
accountability for our responsible business
activity is embedded in our day-to-day
operations, and our acquisition and
development programme, and is
overseen by a steering group chaired
by our CFO, Joe Lister.
Read more about our
Business model on p04
Our three areas of focus are:
Great Workplace
The Environment
Social Impact
Gender diversity
Total Employees
1
1,378
Total
2
Senior Management
1
54
Total
2
Board
1
2
8
Total
1 Male
2 Female
702
676
1 Male
2 Female
34
20
1 Male
2 Female
7
1
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 47
Great Workplace
We want Unite to continue to be
a great place to work, and we are
committed to continuing improvement
to ensure this. You can read more about
our commitment to our people on p08.
Diversity & inclusion
In 2017 we hosted the first action group
meeting to share our ambition to improve
diversity and inclusion within Unite.
Since this original meeting, members of the
group have been working hard to identify
best practice and assess the priorities for
our business. Our initial discussions have
focused on LGBT+, disability, women and
BAME (Black, Asian, and minority ethnic)
groups and our findings will be collated into
a road map of activity for 2018, ensuring
Unite takes a leading role in inclusion.
Our new Diversity, Equality & Inclusion
eLearning course is available through our
eLearning Portal and must be completed
by all employees. This training ensures that
everyone at Unite understands their role in
delivering on our ongoing commitment to
Diversity, Equality and Inclusion. It is also
designed to reinforce our determination
to attract and retain the very best people
from a variety of backgrounds by creating
an environment where everyone feels
comfortable to be themselves through
respect and encouragement.
Unconscious bias
As part of our commitment to diversity,
equality and inclusion, we are employing
training tools and workshops to help line
managers make better decisions when
recruiting, developing and retaining
talent. Research has shown that the
beliefs and values that we gain from
family, culture and experiences heavily
influence how we view and evaluate both
others and ourselves.
Our new Unconscious Bias workshop is
designed to raise awareness of how
unconscious bias effects and underpins
many of the decisions line managers
make in recruitment, and to help them
recognise the potential for unconscious
bias in their day-to-day responsibilities.
Bristol Pride
Bristol hosted its seventh annual Pride Day
in 2017, with Unite as the headline sponsor.
Bristol Pride Day was the culmination of a
week-long festival in the city celebrating
the LGBT+ community and the diversity
and inclusiveness of Bristol as a whole.
We were proud to be involved
and show our support for the event as
headline sponsor, promoting a message of
inclusiveness with the ‘Room for Everyone’
theme. Lots of Unite employees turned out
to ensure our presence was a success, while
our very own Shaun the Sheep also turned
up to show support for the cause.
Joe Lister
Chief Financial Officer and
Managing Director of People
and Communications
Health and safety
Health and safety has always been an
essential and integral part of our business,
but following the tragic events of the
Grenfell Tower fire, we have renewed our
focus on this critical area. All employees
must complete mandatory health and
safety training appropriate for their role and
related to the properties they work in. We
regularly run employee communications
campaigns across a range of key areas,
including personal responsibility, fire safety
and student welfare, including substance
and alcohol misuse. You can read our
Health and Safety Committee Report
on p72.
Human rights
Unite believes that human rights are
universal and recognises that the UN
Guiding Principles on Business and Human
Rights set a standard of conduct expected
of companies. We do our best to ensure
that everyone involved or associated with
our business is protected, treated fairly and
subject to our anti-bribery and corruption,
health and safety, anti-slavery and other
policies including those covering data
protection, performance management,
flexible working, grievances, leave, and
equality and diversity.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 48
RESPONSIBLE BUSINESS REVIEW CONTINUED
Anti-bribery and corruption
It is important our employees act with
the utmost integrity. We have robust
anti-bribery and corruption policies
and procedures in place and require
our suppliers to have the same. We also
implement mandatory anti-bribery and
corruption training for all employees on
an annual basis.
The Environment
We want to reduce our impact on the
environment and actively encourage
responsible behaviours in our employees,
students and suppliers.
Highlights and commitments
In 2017 we continued to improve on our
environmental performance. As a result,
we were recognised in the 2017 Energy
Awards for our Sustainability Engagement
Programme, and shortlisted in the 2017 and
2018 EDIE Sustainability Leaders Awards.
We reduced our total carbon emissions
by 8.8% from 2016 to 2017 using the UK
national grid average emissions intensity
(Scope 1+2 location based emissions),
from 53,162 tonnes CO2e down to 48,478
tonnes CO2e. We also reduced our water
consumption by 17% across the business.
We achieved Green Star status in
the Global Real Estate Sustainability
Benchmark (GRESB) for the third year
running, receiving a four-star rating and
were ranked second in our peer group. We
also retained our listing on the FTSE4Good
Index, reflecting improvements in our ESG
reporting and disclosure.
We have made significant advances
in recycling, with estate-wide rollout
of recycling bins in flats and the
appointment of a single national
contractor for commercial waste.
From May onwards, we also began
purchasing 100% renewable energy.
Good management
Good management ensures we measure,
manage, procure and report effectively
on energy and water usage and waste
management. In 2017 we simplified our
supplier arrangements in order to focus on
delivering further efficiencies in 2018.
We appointed a single national water
supplier, Source for Water, and appointed
BIFFA as our single national waste
contractor. Working with a single
waste-management provider will
deliver improvements in consistency
and coverage of recycling provision
across our estate. It also delivers improved
data on waste generation and landfill
diversion to help us to continue to improve
and report in these areas.
A major achievement in 2017 was
an agreement with our electricity
supplier Npower to purchase 100%
REGO (Renewable Energy Guarantee
of Origin certificates) backed
renewable energy. We also made
further improvements in reporting of our
environmental performance by launching
a new online reporting system aligned with
the new GRI Standards, available in the
“Responsibility” section of our corporate
website. We also retained our listing on the
FTSE4Good index, and improved both our
GRESB (Global Real Estate Sustainability
Benchmark) and CDP scores.
Efficient buildings
2017 saw the completion of detailed
energy surveys of each individual property,
highlighting energy efficiency opportunities
across the estate. Working with our partners
at Sustain, we have developed a bespoke
data analysis and modelling tool to help
produce fully costed, individual energy
efficiency plans for each property,
which informs our five-year energy
efficiency programme.
In January, we also joined the
Innovation Gateway, a network
of leading organisations including
Universities, committed to finding the best
transformational approaches to reducing
the environmental impacts of their estates.
During 2017 we also made further
progress to improve the environmental
performance of our new buildings, through
BREEAM’s environmental assessment
methodology. We appointed 3Adapt to
advise on the environmental performance
of our new construction projects, and
achieved a BREEAM Excellent rating for our
Salisbury Court development and BREEAM
Very Good ratings for St Luke’s View and
Millennium View.
We also made significant progress
improving the performance of our existing
buildings, including:
- Continued installing LED lights and
controls as part of our estate-wide LED
lighting programme, completing
over 120 buildings to date.
- Commenced energy efficiency
improvement works to a small
number of sites to ensure they
comply with the 2018 Minimum
Energy Efficiency Standards.
- Retrofitting high-pressure CO2 air-
source heat pumps to provide hot
water as part of a major refurbishment
of Sidney Webb House.
Installed networked heating
and hot water controls system
in Waverley House.
-
Sustainable behaviour
Our Up to uS Sustainability Engagement
Programme is now in its fourth year and
continues to grow. It was recognised at
the 2017 Energy Awards, winning the
Behavioural Change & Employee
Engagement Award. We are committed to
helping our employees and students adopt
lasting, responsible living and working
habits. Aligned with the NUS Green Impact
Awards, the programme uses individual,
national and local initiatives to maximise
engagement. In 2017 our network of
Sustainability Champions worked with over
117 student volunteers, with our city teams
achieving 27 NUS Green Impact Awards,
including 8 Gold Awards.
Calculation of Market Based Emissions Factor for grid electricity supplied under contract by nPower (for period Jan–May 2017
before purchasing REGO backed power)
Energy Source
Coal
Natural Gas
Nuclear
Renewables
Other Fuels
Overall market-based emissions factor
nPower’s residual
fuel mix
Carbon Dioxide
Emissions for each
fuel source
(kg/kWh)
Residual Fuel Mix x CO2
emissions
(kg/kWh)
1.0%
79.7%
0.9%
18.0%
0.4%
0.9100
0.3900
0.0000
0.0000
0.5900
0.0091
0.3108
0.0000
0.0000
0.0024
0.3223 kgCO2e/kWh
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report 49
Carbon
Contributions
Year-end bed numbers
Carbon contributing bed numbers
Carbon contributing floor area (m2)
45,447
43,084
48,637
45,926
1,097,060 1,282,018
7.02% Increase
6.60% Increase
54,274
46,871
16.86% Increase 1,308,738
11.59% Increase
2.06% Increase
2.08% Increase
2015
Data
Data
2016
Change vs
prior year
2017
Data
Change vs
prior year
Energy and water consumption
2015
2016
Consumption
Consumption
Change vs prior year
Consumption
Electricity
Absolute (kWh)
Relative to bed numbers (kWh/bed)
Relative to floor area (kWh/m2)
Natural gas Absolute (kWh)
Relative to bed numbers (kWh/bed)
Relative to floor area (kWh/m2)
110,948,791 112,513,419
2,450
1.4% Increase 116,698,699
2,490
-4.9% Decrease
89.2
87.8 -13.2% Decrease
2,575
101.1
26,977,762
626
24.6
29,075,659
633
22.7
7.8% Increase
1.1% Increase
-7.8% Decrease
30,706,741
655
23.5
2017
Change vs
prior year
3.7% Increase
1.6% Increase
1.6% Increase
5.6% Increase
3.5% Increase
3.5% Increase
Water
Absolute (m3)
Relative to bed numbers (m3/bed)
Relative to floor area (m3/m2)
1,819,569
42.2
1.659
2,218,231 21.9% Increase
48.3 14.4% Increase
4.3% Increase
1.730
1,838,420
39.2
1.405
-17.1% Decrease
-18.8% Decrease
-18.8% Decrease
Greenhouse gas emissions
2015
Emissions
Emissions
2016
Change vs
prior year
Absolute (tonnes CO2e)
Relative to bed numbers (kg CO2e/bed)
Relative to floor area (kg CO2e/m2)
Absolute (tonnes CO2e)
Relative to bed numbers (kg CO2e/bed)
Relative to floor area (kg CO2e/m2)
5,373
125
5
5,825.12
127
5
8.4% Increase
1.7% Increase
-7.2% Decrease
52,382
1,216
48
47,337
1,031
37
-9.6% Decrease
-15.2% Decrease
-22.7% Decrease
2017
Change vs
prior year
1.2% Increase
-0.8% Decrease
-0.9% Decrease
-10.0% Decrease
-11.9% Decrease
-11.9% Decrease
Emissions
5,895
126
5
42,583
909
33
Absolute (tonnes CO2e)
Relative to bed numbers (kg CO2e/bed)
Relative to floor area (kg CO2e/m2)
48,489
1,125
44
46,982
1,023
37
-3.1% Decrease
-9.1% Decrease
-17.1% Decrease
20,994
448
16
-55.3% Decrease
-56.2% Decrease
-56.2% Decrease
Absolute (tonnes CO2e)
Relative to bed numbers (kg CO2e/bed)
Relative to floor area (kg CO2e/m2)
57,755
1,341
53
53,162
1,158
41
-8.0% Decrease
-13.6% Decrease
-21.2% Decrease
48,478
1,034
37
-8.8% Decrease
-10.6% Decrease
-10.7% Decrease
Absolute (tonnes CO2e)
Relative to bed numbers (kg CO2e/bed)
Relative to floor area (kg CO2e/m2)
53,862
1,250
49
52,807
1,150
41
-2.0% Decrease
-8.0% Decrease
-16.1% Decrease
26,889
574
21
-49.1% Decrease
-50.1% Decrease
-50.1% Decrease
Total Scope 1
emissions
Total Scope 2
emissions
(location-
based)
Total Scope 2
emissions
(market-
based)
Total Scope
1+2 emissions
(location-
based)
Total Scope
1+2 emissions
(market-
based)
Total Scope 3
emissions
(location-
based)
Absolute (tonnes CO2e)
Relative to bed numbers (tonnes
CO2e/bed)
Relative to floor area (kg CO2e/m2)
15,489
15,299
-1.2% Decrease
17,912
17.1% Increase
0
14
0
12
-7.3% Decrease
-15.5% Decrease
0
14
14.7% Increase
14.7% Increase
• Scope 1 emissions include gas consumption and business vehicles use.
• Scope 2 emissions include grid electricity and heat.
• Scope 3 emissions include supply-chain emissions such as water and paper use, business travel, and energy supply-chain emissions (transmission and
distribution losses and well-to-tank emissions).
• Location-based emissions are calculated using DEFRA 2017 emissions factors.
• “per bed” emissions use pro rata bed numbers, taking into account the length of time the site was under our ownership.
• Market-based emissions are calculated using market-based emissions factor based on supplier’s stated residual fuel mix shown on the previous page.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
50
RESPONSIBLE BUSINESS REVIEW CONTINUED
Scope 1 and 2 emissions have been
calculated in line with the DEFRA
Environmental Reporting Guidelines
2013. DEFRA 2015 emissions factors
have been used, except for market-
based emissions which have been
calculated using an emissions factor
reflective of our electricity supplier’s
generation mix, as shown below:
Scope 1+2 (location based) kgCO2e
Emissions per bed
1,341 1,158
1,035
1,600
1,400
1,200
1,000
800
600
400
200
0
kgCO2e/bed/yr
15
16
17
Scope 1
Scope 2
Scope 1+2 (location based) kgCO2e
Emissions per m2 of floor area
42
53
38
60.0
50.0
40.0
30.0
20.0
10.0
0
kg CO2e/m2/yr
15
16
17
Scope 1
Scope 2
MahaDevi Yoga Centre, Stapleton House
Social Impact
We are committed to delivering positive
impacts to help young people succeed
in further education and build sustainable
lives, while supporting the communities
we work in.
In 2017, we donated £1.6 million to
charities, including the Unite Foundation,
and our charity of the year, the British
Heart Foundation. We have now
exceeded a total of £1 million in giving to
charities through facilitated and in-kind
donations since we commenced activity
in this area in 2014.
2017 has seen our strategic partnership
develop extensively with Into University
through the development of lifeskills
sessions, and the introduction of two
community charity partnerships through
the use of commercial spaces.
Supporting charitable organisations that
align with our Home for Success purpose
and our values is very important to Unite.
We have a unique opportunity to raise
awareness of charitable giving and actions
with the future generation of supporters.
Working with charities also provide
fulfilling engagement opportunities for our
employees, students and Universities alike.
Unite Foundation
Unite is the founder of and major donor
to the Unite Foundation, a charitable trust
established to support talented students
facing challenging circumstances through
the provision of free accommodation
annual scholarships. The Foundation has
so far provided scholarships for 250 young
people working in close collaboration
with 28 Universities, an increase from
10 University partners in 2016. Currently
44 scholars have graduated with
support from the Foundation.
Charity of the Year Programme
Each year our city teams and head
office nominate local charities to
support for the academic year,
and work to engage students and
employees with the charity through
fundraising events and volunteering.
British Heart Foundation
This year we began a partnership
with BHF to offer donation stations
throughout our properties and
offices, giving our students and
employees an easy way to
recycle their unwanted items,
while contributing to a great cause.
In its first year of partnership, these
donations have raised more than
£272,000, providing enough funding
for a two-year research programme
into overcoming heart disease.
BHF has also worked with us to
deliver provide CPR training in all
of our 24 cities, training more than
500 students and employees in
life-saving techniques.
“We are delighted to be working with
Unite Students. On behalf of the BHF
I would like to say a huge thank you to
everyone who has contributed to the
partnership, encouraging your customers
to donate their unwanted items for us to
sell throughout our network of shops,
which so far has help raised an incredible
£272,000, which has far exceeded our
expectations for the first year. This money
will help fund vital research into cardio-
vascular disease in Universities across
the UK. I look forward to continuing our
partnership for the 2017/18 academic year
and hearing more about Unite Students’
fantastic success.”
Mike Taylor
BHF Retail Director
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report
Supporting charities in the community
We know that local charities are
having a tougher than ever time
with funding. Finding affordable
commercial premises that meet the
needs of their operation is an uphill
struggle for many. In 2017, we worked
with two charities, in London and
Bristol, to provide suitable premises
at a nominal rent compared to the
commercial market.
MahaDevi Yoga Centre, Eden Grove
Community Centre, London
Mahadevi Yoga offer dedicated yoga
therapy treatments to children and
adults with special needs. This new
centre, located at our Stapleton House
building, is the culmination of a
partnership between Unite Students
and Islington Council. The space we
have provided at a reduced rent
enables the centre to increase the
number of local families they are able
to support. The larger premises also
provide space for commercial yoga
sessions, which funds a bursary to allow
low-income families to access the
centre’s resources.
“We have been delivering this pioneering
Yoga Method - Yoga for the Special Child
- to families across Islington for the last six
years. Our new centre will allow us to offer
up to 150 one-to-one sessions per week,
that’s three times more contact hours than
we were able to provide at our previous
centre. It’s fantastic being able to work with
even more people because we know what
a difference it makes in our community. We
are immensely grateful to Unite Students
and Islington Council for supporting us to
help so many deserving families across the
borough. This initiative really showcases
what local business, working with local
authorities, can do to help support charities
like ours and the wider community.”
Denisa Nenova
Founder, MahaDevi Yoga Centre
51
Lifeskills and preparedness
This year we have begun to trial lifeskills
sessions with 16–18 year olds, following
feedback from students living with us
and our own research insights. The focus
of these sessions is to introduce younger
students to shared accommodation,
and prepare them for the communal
living that is common to most
University experiences.
More than 100 students have taken part
in the trial and the feedback has been
overwhelmingly positive. In 2018, we
intend to build on this initial first phase,
incorporating delivery of these sessions
into our employee management training
programmes, and developing a peer-led
model to allow students already living in
shared accommodation to get involved.
Affordability
Unite Students recognises that going to
University now represents a big investment
for students, and their accommodation is a
significant component of those costs. We
have a responsibility to ensure that the
living environment we offer our students
represents good quality accommodation
at the best possible value for money.
To meet the students’ needs, we offer
a choice of room types at different price
points, in purpose-built environments, which
include common spaces and, wherever
possible, a quiet study room and outdoor
space. Our proposition further differs from
traditional House in Multiple Occupation
(HMO) properties, where we believe we
represent better value in a number of key
areas. These include not charging booking
or administration fees, and offering a range
of flexible payment plans. Our rents also
include a range of value-added
components such as all-inclusive utility
bills; high-speed broadband access; a
fortnightly cleaning service for shared
spaces; comprehensive contents insurance;
on-site laundry services; 24-hour security;
a 24-hour helpline service centre; and
discounts with well-known high-
street retailers.
In setting our rents, we will continue
to routinely work with Universities’
accommodation services, through
nominations agreements and more widely,
to ensure that the living environment we
offer our students represents the best
possible value for money.
Our 2017 Strategic Report from pages 1–51
has been reviewed and approved by the
Board of Directors on 21 February 2018.
1625 Independent People,
Nelson Drake House, Bristol
1625 Independent People (1625ip)
supports young people aged
16–25 who are at risk of becoming
homeless or are already homeless.
Unite Students has provided premises
at a reduced rent to house a new
service. 1625ip and Bristol City
Council work in partnership to deliver
an innovative youth homelessness
prevention service which aims to help
young people to stay at home with
their families as well as learning to
live independently.
“This support from Unite Students means we
are able to concentrate more resources on
helping families to prevent homelessness in
the first place and is an excellent example
of a successful business caring about and
helping with the needs of a city it works in.”
Dom Wood
CEO, 1625ip
Volunteering
Volunteering provides a great opportunity
for both our employees and our students
to engage with local communities in a
rewarding way. By providing our resources
and expertise to organisations, we can
make a tangible difference, while
encouraging team building, motivation
and engagement among employees.
Similarly, our students also develop skills
outside the lecture theatre, which they
take with them beyond University.
Now in its third year, our employee
volunteering programme has gone
from strength to strength. Each year, our
employees are able to take one day, or 7.5
hours, out of their schedule to volunteer for
local charities that support young people.
Since its launch in 2015, our employees
have volunteered more than 5,000 hours to
charitable organisations, with an average of
19% of our employees taking part annually.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 52
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
DRIVING PERFORMANCE
THROUGH CULTURE
Our governance
framework continues
to support our strategy
and ensure our long-
term, sustainable
success.
Phil White
Chairman
along with our dedicated Health & Safety
Committee, has led a comprehensive fire
safety review in the year. We have worked
with fire safety experts on the ACM
cladding identified on 6 of our properties,
with the Committee overseeing our
remedial plan see page 41.
Ross Paterson joined the Board as
a Non-Executive Director in September.
We welcome his valuable FTSE 250
operational and financial experience.
The year ended sadly with the sudden
and tragic passing of Manjit Wolstenholme,
our Senior Independent Director and Audit
Committee Chair. Manjit helped ensure the
Group’s financial rigour and delivery and
will be sorely missed.
The importance of effective governance
continues, especially now with the maturing
PBSA sector and the broader uncertainties
due to Brexit and its impact on the UK’s
higher education sector, real estate
and economy.
Unite’s overall governance framework
has been designed to help us manage
these external and internal changes,
enabling the Board to provide the
necessary oversight and challenge to
secure the Group’s long-term success.
The following pages offer insight into
how we are building on our decades
of experience in the sector and creating
a sustainable and successful business.
This is built on our well-established and
long-term University partnerships, which
we’ve developed over more than 25 years
operating in the higher education sector.
The Board has overseen the Group’s
portfolio strategy with a substantial
investment in quality properties. This
has required delivery of a complex
development pipeline on time and to
budget, large acquisitions (such as
Aston Student Village, our first University
partnership transaction secured in 2017)
and disposals (such as our portfolio sale
and Woburn House, London). This strategy
has been well executed, with 85% of our
properties now nominated at mid/
high-tariff Universities or those ranked
Gold or Silver by the Teaching
Excellence Framework.
At the same time, the Board has led
the roll-out of a broad range of diversity,
equality and inclusion initiatives as well as
Service Style training. This ensures we keep
both our people and our service levels at
the highest standard.
The Board has also overseen the transition
of our financial structure, with a £500m
unsecured facility announced in 2017.
This, along with longer-term University
partnerships securing revenue and rental
growth coupled with our digital operating
platform, ensures continued delivery of
quality income and sustainable earnings.
The Grenfell Tower tragedy underlines
the critical importance of fire safety,
something we have always recognised as
our biggest safety risk. The Group Board,
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement
53
The Board’s governance role in developing and implementing our strategy
Governance overview
Governance framework
Leadership
Effectiveness
Accountability
Remuneration
Our governance framework, underpinned by the UK Corporate Governance Code, continues
to support our strategy and ensure our long-term sustainable success. Like our risk management
framework (described on page 24), our governance framework is driven by an open and
collaborative Board and broader Unite Students culture, creating an environment for people
to have confidence to challenge the norm.
Below and on the next two pages, we cover how governance has supported our strategy during
2017 and how this is linked to our principal risks. We also describe our governance priorities for 2018.
Read more on p54
On pages 56 and 57, we describe the composition of the Board and explain their skills and
experience. Pages 60 to 61 explain how the Board is collectively responsible for the long-term
sustainable success of Unite, its clear division of responsibilities and the role of the Non-Executives
in constructively challenging and developing our strategy.
Read more on p56
Page 65 describes how our governance framework ensures the effectiveness of the Board.
The results of this year’s externally facilitated board evaluation are on page 65. The Nomination
Committee report (page 66) describes how we ensure we have the right skills and experience
on the Group Board as well as how we develop our future leaders, integral to succession planning.
Read more on p65
The Audit Committee report (pages 68 to 71), together with our risk management framework
and principal risks (pages 24 to 31), describe how we ensure a fair, balanced and understandable
assessment of Unite’s position and prospects, the assessment of our principal risks and their
alignment with our strategic objectives. This section also notes how we maintain an appropriate
relationship with Deloitte, our external auditors, consistent with the Code and statutory requirements.
Read more on p68
In what is an increasingly complicated regulatory area, our “Remuneration at a Glance” section
(page 78) is intended to provide an overview of this complex area. The detailed remuneration report
(pages 75 to 95) describes how we ensure Executive Director remuneration is designed to promote
the long-term success of the Company and how we develop these remuneration policies.
Shareholder relations
and engagement
Page 59 describes how we engage with shareholders, which during 2017 included a Capital
Markets Day in April, and a second Capital Markets Day in November at Aston Student Village.
Read more on p59
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
54
CHAIRMAN’S INTRODUCTION TO GOVERNANCE CONTINUED
HOW GOVERNANCE SUPPORTED
OUR STRATEGY DURING 2017
Link to
Principal Risk
2017 Board activity
Strategic
objective
Quality
properties
Board’s governance role
Active property recycling
Board oversight on portfolio recycling activity
– ensuring value obtained and proceeds
recycled efficiently.
Development pipeline
Board scrutiny of city and site selection for new
developments against backdrop of increasing
competition for the best sites. Governance
of developments/acquisitions to ensure they
run to budget and schedule and are
earnings accretive.
Health & Safety
As we develop our brand through the
implementation of Home for Success, the risk
of a health & safety incident damaging our
reputation increases. The Board’s governance of
the health & safety, wellbeing and security of the
50,000 students who make Unite Students their
home is critical to the Group’s continued success
and trusted reputation.
Read more about
Property market
cycle risk on p30
Read more about
Property/
Development
risk on p30
Read more about
Operational risk
– Major health &
safety incident
in a property or
a development
site on p29
Quality
service
platform
PRISM
Governance to ensure our market-leading
service platform is robust, reliable and also
developed further to meet our customers’
increasing expectations.
Read more about
Market risks
– supply and
demand on p28
Affordability and value for money
Information security and keeping our customers’
and employees’ personal data safe and secure
Quality
University
partnerships
Board scrutiny of our developments and portfolio
recycling to ensure we partner with the right
Universities and enhance our long standing
relationships.
Read more about
Market risks
– supply and
demand on p28
Read more about
Market risks
– supply and
demand on p28
Read more about
Market risks
– supply and
demand and
Property/
Development
risk on p28
Read more about Asset disposals on p41
Read more about Development activity on p39
The Board reviews the safety of our students, visitors and
employees, as well as contractors at our development sites,
at each Board meeting.
H&S Committee, a sub-Committee of the Board, focuses on:
-
fire, our biggest safety risk, and our work with the Avon Fire
Authority, our Primary Fire Authority lead
- external safety assurance through The British Safety Council,
our external safety auditor
- physical security review of our properties by WSP Parsons
Brinckerhoff.
Read more about H&S Committee Report on p72
Board review of our digital strategy.
Oversight that PRISM delivers:
- a robust booking system
- an improved and scalable platform for revenue
management and customer engagement
- enhanced service levels for both Universities and students
- market differentiation.
Read more about Operations Review on p32
Analysis of the HE accommodation sector and ensuring we
continue to offer an affordable and value-for-money product.
Read more about Affordability on p51
As our engagement with our digital native customers moves
increasingly online - and we develop apps to enhance this – it’s
more important than ever that we keep their personal data safe.
As part of our Digital Media strategy, the Board led a review of
our information security and its governance, in particular having
regard to General Data Protection Regulations (GDPR) and our
readiness for when GDPR comes into effect in May 2018.
The Audit Committee also reviewed our information security/
GDPR compliance matrix as part of its remit to review our risk
management and controls framework.
Higher Education review and our Growth Strategy having regard
to developing new University partnerships transactions.
Read more about Quality partnerships on p10
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement
55
Key
Quality properties
Quality people
Quality service platform
Earnings & NAV growth
Quality University partnerships
Strategic
objective
Quality
people
Board’s governance role
Leadership development & succession planning/
talent pipeline. D&I Initiatives
Link to
Principal Risk
2017 Board activity
Read more about
Market risks
– supply and
demand on p28
The Nomination Committee focuses not only on
Board succession, but also our broader talent pipeline
and leadership development.
Read more about Quality people on p09 and
Nomination Committee Report on p66
High-quality, growing earnings
Oversight of operational performance, rental
growth and University partnerships transactions
along with dividend growth.
Earnings &
NAV growth
Capital structure
Group Board focus on a strong and flexible
capital structure, which can adapt to market
conditions, and reducing and diversifying the
cost of funding.
Tax strategy/REIT conversion
Group Board review of our tax strategy published
in 2017. Board oversight of our REIT compliance
framework, following our conversion to a REIT at
the start of 2017.
Read more about
Market risks
and Property/
Development
risks on p28
Read more about
Financing risk
– Unable to
arrange new
debt or expiring
debt facilities
cannot be
replaced or only
at high cost.
Adverse interest
rate movements
on p31
Read more about Quality partnerships on p10
Board oversight on transition to unsecured lending and
continued focus on locking in debt at historically low rates for
new debt facilities and forward starting interest-rate swaps for
future borrowings for secured development pipeline.
At the end of 2017:
Loan to value 31% (31 December 2016: 34%)
-
- Average cost of debt 4.1% (31 December 2016: 4.2%)
Read more about Debt financing and interest rate
hedging arrangements and cost of debt on p44
Board review of the Group’s tax position and strategy.
Governance of on-going REIT conditions and headroom for
operating within the “Balance of Business” REIT tests.
2018 governance priorities
Continued delivery of high-quality, growing earnings with oversight and assurances of:
Quality
properties
Choosing, securing and developing the right
sites in the best locations. Securing income
coupled with rental growth through high-
quality properties with quality long-term
University partnerships.
Financial
structure
Growing our unsecured lending and funding
our developments.
Quality
service
Quality
people
Fire safety in a post-Grenfell world.
Enhancing our digital offering for our digital
native customers – where next for PRISM? How
should our product proposition evolve? Market
differentiation – but focused on affordability
and value for money.
Market
dynamics
Impact of Brexit on higher education and UK
plc more generally. How will this impact the
maturing PBSA sector? What are the risks –
and equally what opportunities – does this
bring for Unite?
Developing our talent pipeline and future
leaders to help ensure a sustainable future.
Renewed focus on our diversity, equality and
inclusivity initiatives.
Phil White
Chairman of the Board
21 February 2018
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 56
BOARD OF DIRECTORS
Phil White
Chairman
Richard Smith
Chief Executive Officer
N
R
Relevant skills
and experience
Phil has served as Chairman since May 2008.
He was Chief Executive of National Express Group
plc from 1997 to 2006 and led the business through
growth in the UK and overseas. He gained
extensive executive experience in the public-
transport sector during the period of deregulation
and privatisation. He is the Non-Executive Chair
of Lookers plc as well as a Non-Executive Director
of VP plc.
H
Relevant skills
and experience
Richard was appointed Chief Executive in
June 2016. Prior to this, he was Unite’s Managing
Director of Operations from 2011, a role that
involved Richard leading the service provided
to our customers, and managing 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, working in the UK, Europe,
Australia and North America. Richard spent 13
years at National Express Group where he held a
range of senior finance, strategy and operations
roles, including Group Development Director and
Chief Financial Officer, North America.
Joe Lister
Chief Financial Officer and Managing
Director of People and Communications
Relevant skills
and experience
Joe joined Unite in 2002 having
qualified as a chartered accountant with
PricewaterhouseCoopers. He was appointed
as Chief Finance Officer in January 2008 having
previously held a variety of roles including
Investment Director and Corporate Finance
Director. In addition to managing the Group’s
finance function and investment strategy, Joe is
also responsible for People and Communications.
Joe is a member of the Council at the University
of Essex.
Professor Sir Tim Wilson
Non-Executive Director
Elizabeth McMeikan
Senior Independent Director
H
A R N
Relevant skills
and experience
R
A N H
Relevant skills
and experience
Tim was appointed to the board in December
Liz was appointed a Non-Executive Director in
2010. He was appointed Knight Bachelor
February 2014. She has significant experience
for services to Higher Education and to business
in customer-focused businesses Tesco and
in the 2011 New Year’s honours list. He is a strong
Colgate Palmolive, where she was successful
advocate of the role of Universities in economic
in driving growth through an understanding
development and is acknowledged as one of the
of customer needs and an innovative
leading thinkers in University-business collaboration.
marketing approach.
He is the author of the government-commissioned
Wilson Review of Business–University Collaboration,
Liz is Senior Independent Director at FTSE 250
published in March 2012.
pub group JD Wetherspoon and Chairman of the
Remuneration Committee at FlyBe plc. She is a
Formerly Vice-Chancellor of the University of
Non-Executive Director at import/export fruit and
Hertfordshire, Tim served on the Board of the
vegetable company, Fresca Group Ltd, and CH &
Higher Education Funding Council for England
Co Ltd, a privately-owned catering company.
(HEFCE), was Deputy Chair of the CBI Innovation,
Science and Technology Committee and a
In November 2012, Liz was appointed Chairman
trustee of the Council for Industry and Higher
of Moat Homes Ltd, a leading housing association
Education (CIHE). He has extensive experience in
working in the South-East.
both UK and international Higher Education.
Richard Simpson
Group Property Director
Andrew Jones
Non-Executive Director
Ross Paterson
Non-Executive Director
Chris Szpojnarowicz
Company Secretary
Relevant skills
and experience
Richard sets the strategic direction for all aspects
of Unite’s 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 a qualified
chartered surveyor and a Fellow of the Royal
Institution of Chartered Surveyors.
Richard has been a Non-Executive Director
of CityWest Homes since January 2017.
R N
Relevant skills
and experience
Andrew Jones is Chief Executive Officer of
LondonMetric Property, following the 2013 merger
of London & Stamford and Metric. Andrew was
a co-founder of Metric and Chief Executive
Officer since its inception 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.
Andrew was appointed to the Board in 2013.
A
R N
Relevant skills
and experience
Ross was appointed as a Non-Executive Director
in September 2017. He is Finance Director of
Stagecoach Group plc, and as a member of
Stagecoach’s Board is responsible for finance,
technology and compliance. In addition, he is a
Non-Executive Director and the Audit Committee
Chair of Virgin Rail Group Holdings Limited, and a
member of the Business Policy Committee of the
Institute of Chartered Accountants of Scotland.
Relevant skills
and experience
Chris was appointed Company Secretary and
Head of Legal in 2013, following General Counsel
roles at GE, MTV Networks and other multinationals.
He was previously an M&A/corporate and
commercial lawyer at Clifford Chance and
Baker McKenzie. Chris uses his general counsel
and corporate/commercial legal experience to
fuse our corporate and risk governance with our
business activity. In this way, Chris links his Company
Secretary and governance leadership role with
that of Head of Legal.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 57
Board committee key
N Nomination Committee
A Audit Committee
H Health & Safety Committee
R Remuneration Committee
Chairman of committee
Phil White
Chairman
N
R
Relevant skills
and experience
of VP plc.
Richard Smith
Chief Executive Officer
H
Relevant skills
and experience
Joe Lister
Chief Financial Officer and Managing
Director of People and Communications
Relevant skills
and experience
Phil has served as Chairman since May 2008.
Richard was appointed Chief Executive in
Joe joined Unite in 2002 having
He was Chief Executive of National Express Group
June 2016. Prior to this, he was Unite’s Managing
qualified as a chartered accountant with
plc from 1997 to 2006 and led the business through
Director of Operations from 2011, a role that
PricewaterhouseCoopers. He was appointed
growth in the UK and overseas. He gained
involved Richard leading the service provided
as Chief Finance Officer in January 2008 having
extensive executive experience in the public-
to our customers, and managing maintenance
previously held a variety of roles including
transport sector during the period of deregulation
and facilities management across the
and privatisation. He is the Non-Executive Chair
Group’s portfolio.
of Lookers plc as well as a Non-Executive Director
Investment Director and Corporate Finance
Director. In addition to managing the Group’s
finance function and investment strategy, Joe is
Richard joined Unite as Deputy Chief Financial
also responsible for People and Communications.
Officer in 2010. Prior to this, he spent 18 years in
Joe is a member of the Council at the University
the transport industry, working in the UK, Europe,
of Essex.
Australia and North America. Richard spent 13
years at National Express Group where he held a
range of senior finance, strategy and operations
roles, including Group Development Director and
Chief Financial Officer, North America.
Professor Sir Tim Wilson
Non-Executive Director
Elizabeth McMeikan
Senior Independent Director
H
A R N
Relevant skills
and experience
Tim was appointed to the board in December
2010. He 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 is acknowledged as one of the
leading thinkers in University-business collaboration.
He is the author of the government-commissioned
Wilson Review of Business–University Collaboration,
published in March 2012.
Formerly Vice-Chancellor of the University of
Hertfordshire, Tim 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.
R
A N H
Relevant skills
and experience
Liz was appointed a Non-Executive Director in
February 2014. She has significant experience
in customer-focused businesses Tesco and
Colgate Palmolive, where she was successful
in driving growth through an understanding
of customer needs and an innovative
marketing approach.
Liz is Senior Independent Director at FTSE 250
pub group JD Wetherspoon and Chairman of the
Remuneration Committee at FlyBe plc. She is 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 Chairman
of Moat Homes Ltd, a leading housing association
working in the South-East.
Richard Simpson
Group Property Director
Andrew Jones
Non-Executive Director
Ross Paterson
Non-Executive Director
Chris Szpojnarowicz
Company Secretary
Relevant skills
and experience
R N
Relevant skills
and experience
A
R N
Relevant skills
and experience
Richard sets the strategic direction for all aspects
Andrew Jones is Chief Executive Officer of
Ross was appointed as a Non-Executive Director
of Unite’s property portfolio, oversees the fund
LondonMetric Property, following the 2013 merger
in September 2017. He is Finance Director of
management of Unite’s co-investment vehicles
of London & Stamford and Metric. Andrew was
Stagecoach Group plc, and as a member of
and leads the property development activities.
a co-founder of Metric and Chief Executive
Stagecoach’s Board is responsible for finance,
Richard joined Unite in 2005 and has held a variety
Officer since its inception in March 2010. Andrew’s
technology and compliance. In addition, he is a
of senior roles within the Group. He is a qualified
previous roles include Executive Director and
Non-Executive Director and the Audit Committee
chartered surveyor and a Fellow of the Royal
Head of Retail at British Land. He joined British
Chair of Virgin Rail Group Holdings Limited, and a
Institution of Chartered Surveyors.
Land in 2005 following the acquisition of Pillar
member of the Business Policy Committee of the
Property where he was on the main Board, with
Institute of Chartered Accountants of Scotland.
Richard has been a Non-Executive Director
responsibilities for their retail portfolio and the
of CityWest Homes since January 2017.
Hercules Unit Trust.
Andrew was appointed to the Board in 2013.
Relevant skills
and experience
Chris was appointed Company Secretary and
Head of Legal in 2013, following General Counsel
roles at GE, MTV Networks and other multinationals.
He was previously an M&A/corporate and
commercial lawyer at Clifford Chance and
Baker McKenzie. Chris uses his general counsel
and corporate/commercial legal experience to
fuse our corporate and risk governance with our
business activity. In this way, Chris links his Company
Secretary and governance leadership role with
that of Head of Legal.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 58
BOARD STATEMENTS
Under the Code, the Board is required to make a number of statements. These statements are set out below:
Requirement
Board statement
The Board confirms that, in its view, the Company has
applied the main principles and has complied with all of
the provisions set out in the Code during 2017.
Compliance with
the Code
The Unite Group plc is listed
on the London Stock Exchange
and subject to the requirements
of the 2016 UK Corporate
Governance Code. The Board
is required to comply with the
provisions of the Code and
where it does not, explain the
reasons for non-compliance.
More information
Details on how the
Company complies with
the Code can be found
throughout this Corporate
Governance section of the
Annual Report.
Going Concern
The Board is required to confirm
that the Group has adequate
resources to continue in operation
for the foreseeable future.
The Directors are satisfied that the Group has adequate
resources to continue to be operational as a going concern
for the foreseeable future and therefore have adopted the
going concern basis in preparing the Group’s 2017 financial
statements.
More details on the Going
Concern statement can
be found on page 67.
The Directors have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the three year period to
December 2020.
More details on the
Viability statement can be
found on page 27.
A robust assessment of the principal risks facing the
Company was undertaken during the year, including those
that would threaten its business model, future performance,
solvency or liquidity. The significant risks facing the Company,
and how these are mitigated, are set out on pages 28 to 31.
Information around key
risks and risk management
processes can be found
on pages 28 to 31, and on
page 70 of the Audit
Committee report.
The Board conducted a review of the effectiveness of the
systems of risk management and internal control during the
year, and considers that there is a sound system of internal
control which accords with the ‘Financial Reporting
Council’s Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.’
Details on the systems
of risk management and
internal control can be
found on pages 24 to 31.
The Directors consider, to the best of each person’s
knowledge and belief, that the annual report, taken as a
whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
See the Audit Committee
report on pages 68 to 71 and
the Statement of Directors’
responsibilities on page 99.
Viability Statement
The Board is required to assess
the viability of the Company
taking into account the current
position and the potential
impact of the current position
and the potential impact of the
principal risks and uncertainties
set out on pages 28 to 31.
Principal risks facing
the Group
The Board is required to
confirm that a robust assessment
of the principal risks facing the
Company has been carried out
and should describe those risks
and explain how they are being
managed or mitigated.
Risk management and
internal control
The Board is required to
monitor the Company’s risk
management and internal
control systems and, at least
annually, carry out a review
of their effectiveness.
Fair, balanced and
understandable
The Board should confirm
that it considers the annual
report, taken as a whole, is fair,
balanced and understandable
and provides the information
necessary for shareholders to
assess the Company’s position
and performance, business
model and strategy.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement SHAREHOLDER RELATIONS
The Board prioritises effective
communication with shareholders and
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 and
other providers of capital and senior
management were held throughout 2017.
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. These will
continue throughout 2018.
The Board, together with its professional
advisers, actively analyses the Register
of the Company with a view to ensuring
its long-term stability.
The Company maintains a corporate
website containing extensive information
of interest to both 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 Meeting 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 Meeting, together with details of
the level of proxy votes lodged for each
resolution is made available on a regulatory
information service and on the Company’s
website at www.unite-group.co.uk.
Notice of the Annual General Meeting
is set out on page 156 to 159.
Results of 2017 AGM
Resolution
1
2
3
Receive Annual Reports and Accounts
Directors’ Remuneration Report
Declare Final Dividend
For
Against
% Votes Cast
% Votes Cast
99.9
99.5
100.0
0.1
0.5
0.0
4–11 Re-elect Directors
89.8–99.8
0.2–10.3
12
13
14
15
16
17
18
Re-appoint Auditor
Auditor’s Remuneration
Authority to Allot Shares
Dis-apply Pre-emption Rights – 1st 5% (general)
Dis-apply Pre-emption Rights – 2nd 5% (acquisition
or specified capital Investment)
Article 94 of the Articles of Association
Allow General Meeting on 14 days’ notice
1 0.0001 rounded to 0.0 for consistency
100.0
100.0
87.0
100.0
98.9
99.6
86.9
0.01
0.01
13.0
0.0
1.1
0.4
13.1
59
Overview of capital markets
day, Aston Student Village,
September 2017
Each year we hold a capital markets
day to provide financial analysts and
investors with further insight into our
strategy and business plans.
The 2017 event was held at Aston
Student Village, our largest ever
acquisition and our first on campus.
Key themes included the importance
of our unique University partnerships
in delivering growth, the UK higher
education landscape, the quality of
our current and future property
portfolio and how we respond to
changing customer needs through
our service proposition.
Shareholders by geography
4
1
2
England, Wales and Scotland
North America & Canada
Rest of Europe
Rest of World
3
1
2
3
4
Top Ten Shareholders
10
1
9
2
3
5
4
APG Asset Management NV
BlackRock Inc
8
7
6
1
2
3 Old Mutual Plc
%
40
35
20
5
%
8.0
7.7
4.2
Royal London Asset Management Ltd 4.1
4
5
6
7
8
Standard Life Aberdeen
The Vanguard Group Inc
Cohen & Steers Inc
State Street Global Advisors Ltd
9 CBRE Clarion Securities
10 Principal Financial Group
3.7
3.7
3.2
3.1
2.9
2.7
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
60
LEADERSHIP
Corporate culture and governance
leadership
The Group is home to 50,000 students
during a crucial stage of their personal
development and with Universities right
across the UK. The Board has ultimate
responsibility to Unite Students’ shareholders
for all the Group’s activities as well as a
broader responsibility extending to
environmental and social issues.
To discharge this broader responsibility
effectively, the Group needs to operate in
an open, harmonious and transparent
manner, ensuring open communication
between the Board and senior leaders.
This is why various members of the senior
leadership team regularly present to the
Board. During 2017, Unite’s Operations
Director, Student Experience Director,
Head of Digital, Area Managers,
Development Director, Funds Director
(representing our various co-investment
vehicles), University Partnerships Director
and Head of Legal & Company Secretary
(among others) presented to the Board.
This direct access to management
opens dialogue beyond the boardroom.
Additionally, with Board meetings taking
place in cities across the UK, the Board
visits both new developments and existing
properties and meets with our Operations
teams. This gives it a grounded insight to
the implementation of our overall
business strategy.
Board structure
Nomination
Committee
Chair: Phil White
Andrew Jones
Elizabeth McMeikan
Sir Tim Wilson
Ross Paterson
Audit
Committee
Chair: Ross Paterson
Elizabeth McMeikan
Sir Tim Wilson
Board
Unite
Management
Board
Unite Executive
Committee
Health & Safety
Committee
Chair: Sir Tim Wilson
Richard Smith
Elizabeth McMeikan
Remuneration
Committee
Risk Committee
Chair:
Chair: Elizabeth McMeikan
Christopher Szpojnarowicz
Andrew Jones
Phil White
Sir Tim Wilson
Ross Paterson
Richard Smith
Joe Lister
Richard Simpson
See the
Nomination
Committee
Report on p66
See the
Audit
Committee
Report on p68
See the
Health & Safety
Committee
Report on p72
See the
Remuneration
Committee Report
on p75
The Remuneration
Committee Report is
incorporated into this
Corporate Governance
Statement by reference.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 61
Details of the number of Board and
Committees meetings held during the
year, and Director attendance, is available
in the table on page 64.
How the Board operates
Board operating rhythm – linked to
strategy and business oversight
The Board has an annual operating
rhythm with an agenda of items for the
forthcoming year built around our strategic
objectives. The Board’s meetings are split
between strategy (considered in light of
emerging risks and the approval of specific
investments above certain thresholds) and
routine operational, property and financial
updates (providing context for the strategic
discussions as well as governance oversight
of in-year activity).
Meetings take place throughout the
UK, often at Universities so the Board
can meet Vice-Chancellors and learn
about their experiences with Unite, their
accommodation requirements more
generally and broader developments
in the higher education sector.
The Board is able to oversee the setting and
implementation of the Group‘s strategy
due to a flat management structure; three
members are Executive Directors and
therefore actively involved in day-to-day
implementation. This executive perspective
is balanced by five Non-Executive
Directors, including the Chairman, who
bring a depth and breadth of experience
in senior management, higher education,
finance, customer service and real estate.
Senior leaders are regularly invited to
attend meetings and present to the
Board. This provides the Board, and in
particular the Non-Executives Directors,
with direct and open access to leaders
throughout the Group and helps build a
culture of openness and directness. In
addition, external experts are also invited
to present to the Board (such as University
Vice-Chancellors and property valuers) to
give the Directors a broader and
independent perspective.
Board operating rhythm
Regular updates from the Board
Committees on their activities
and recommendations
Ensure that the detailed work performed in the Board Committees is considered
by the Board as a whole.
Operational, property and
financial updates
Provide the Board with the necessary information to track the Group’s
performance and challenge any problems with performance.
Market and Higher Education
sector updates
Ensure the Board is equipped with the most up-to-date knowledge and
understanding of the industry and environment in which we operate.
Strategy and five-year plan
Discuss, review and approve our strategy and five-year plan, and track how we
are performing against our current strategy and five-year plan.
Risk
Review and discuss our principal risks at a Group level and also review 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 correctly managed
with clear actions and ownership).
New development schemes
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 new development schemes.
Training
Review of the Board’s training needs and ensure that the Board is up to date on
key legal and regulatory changes. During 2017, this was focused on social media,
information technology and Corporate Governance developments.
Review of Group policies
Review of key Group policies, such as the Anti-Bribery Policy, to ensure they are
appropriate and implemented effectively.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 62
LEADERSHIP CONTINUED
Board activity and annual programme
February
March
Growth strategy
Service style
Property
– approval of
portfolio sale
Preliminary
results
Treasury
Policy review
Post-completion
review – review
of 2016 property
completions
Property
- approval of
development
(Liverpool) and
site acquisition
(Manchester)
Nomination
Committee
– leadership,
development
and succession
planning
May
June
July
September
November
December
Development
Strategy
Higher
Education
review
Internal audit
plan
Assess auditors
Review internal
controls
H & S Committee
(Safety priority
and KPIs)
Digital/IT strategy Growth strategy Half-year
valuation
preview
Principal
risks review
Interim results
Group Board and
H & S Committee
- Grenfell Tower/
fire safety review
Strategic plan
and talent review
Property
- approval site
acquisition
(Leeds) and
development
(Bristol)
Funding growth
2018 budget
themes
Nomination
Committee
- Board
appointments
(Ross Paterson)
Tax review and
REIT compliance
Sales cycle
review and
customer
demographics
Capital
operating
guidelines
review
Internal Audit
(ITSC/GDPR;
Procure to Pay;
Revenue &
Receivables)
Customer
satisfaction
Principal risks
review - Brexit
Readiness Plan
Approve
2018 budget
Prospective
year end
out-turn
Whistleblowing
review
Anti-bribery
review
Training:
Corporate
Governance
update
H & S Committee
(fire safety
review)
Strategy
Financial
and risk
management
Operational
Commercial
Investor
relations
Governance
Quality properties
Quality service platform
University partnerships
Quality people
Earnings & NAV growth
* No board activity in January, April, August and October
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement
63
Composition and appointments
The composition of the Board during 2017
is set out in the table on page 64.
The Board currently consists of the
Chairman, three Executive Directors and
four Non-Executive Directors.
In accordance with the requirements of
the Code, each of the current Directors
offers themselves for re-election at the
Annual General Meeting to be convened
on 10 May 2018. Brief biographies of all the
Directors are set out on pages 56 and 57.
Following the individual performance
evaluations of each of the Non-Executive
Directors seeking re-election, 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.
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.
Board composition
1
2
8
Total
3
1 Chairman
2 Executive
Directors
3 Non-Executive
Directors
1
3
4
Role
Chairman
Chief Executive
Senior Independent Director
Description
Phil White’s principal responsibilities are:
-
to establish, in conjunction with the Chief Executive, the strategic objectives
of the Group for approval by the Board
to organise the business of the Board
to enhance the standing of the Company by communicating with shareholders,
the financial community and the Group’s stakeholders generally.
-
-
Richard Smith 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.
-
-
As Senior Independent Director, Elizabeth McMeikan’s principal
responsibilities are to:
- act as Chairman of the Board if the Chairman is conflicted
- act as a conduit to the Board for the communication of shareholder concerns
if other channels of communication are inappropriate
- ensure that the Chairman is provided with effective feedback on his performance.
Responsibility and delegation
A schedule of specific matters is reserved
for the Board. Those include:
These topics are scheduled as part
of the Board’s annual operating rhythm
and forward agenda or brought to the
Board on an ad hoc basis.
- 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
- approving policies relating to
Directors’ remuneration.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 64
LEADERSHIP CONTINUED
Directors’ attendance at meetings in 2017
Current Directors
Status
Date of Appointment
to the Board
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Health & Safety
Committee
Phil White
Chairman
21 January 2009
Sir Tim Wilson
Independent
01 December 2010
Andrew Jones
Independent
01 February 2013
Elizabeth McMeikan
Independent
01 February 2014
Joe Lister
Executive
02 January 2008
Richard Simpson
Executive
01 January 2012
Richard Smith
Executive
01 January 2012
Ross Paterson
Independent
21 September 2017
Manjit Wolstenholme1
Independent
01 December 2011
9
9
9
9
9
9
9
3
8
N/A
5
N/A
5
N/A
N/A
N/A
2
4
3
3
3
3
N/A
N/A
N/A
1
2
2
2
2
2
N/A
N/A
N/A
0
2
N/A
3
N/A
3
N/A
N/A
3
N/A
N/A
1 Passed away, November 2017.
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 in the chart on
page 60.
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 will submit
themselves for re-election by shareholders.
The chart to the right shows the current
tenure of the Non-Executive Directors
(rounded up to the nearest year),
including the Chairman.
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
that Board processes and corporate
governance practices are followed.
Insurance
The Company maintains Directors and
Officers liability insurance, which is
renewed on an annual basis.
Board tenure
4
15
26
Total
3
2
Years
1 Phil White
2 Sir Tim Wilson
3 Andrew Jones
4 Elizabeth
McMeikan
5 Ross Paterson
9
7
5
4
1
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 65
throughout the organisation to help them
form their own independent views on the
Group, its performance and the sector we
operate in. In addition, they are given the
opportunity to meet with representatives of
the Company’s key advisors.
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. During 2017, we conducted
an externally facilitated evaluation. The
framework and output from this year’s
external evaluation is summarised below.
Chairman and Non-Executive Directors
The Board considers each of its four 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.
Training
The Board considered it important
that the Committee Chairs continue to
receive sector and relevant functional
training (such as on accounting, corporate
governance and executive remuneration
reporting developments) and accordingly
the Committee Chairs attend relevant
external seminars. The Board as a
whole receives ongoing training on
corporate governance and other
relevant developments.
EFFECTIVENESS
Induction
On appointment to the Board, each
Director takes part in a comprehensive
and personalised induction programme.
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.
Ross Paterson, who joined the Board in
September 2017, underwent an induction
programme following this framework:
-
-
-
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
The 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 with which we partner. Also, they
meet with key senior executives, so from the
outset they have access to managers
External Board Evaluation
Conducted by Aretai LLP during Q4, 2017
Approach and
Review Framework
Outputs
- Based on Corporate Governance
Code: Leadership, Effectiveness,
Accountability, Remuneration and
Relations with Shareholders
- A 360 degree perspective: interview
feedback from all Board members and
external advisers; Board and
Committee meeting observation;
documentation review
- Core areas of Board business
and focus: strategy and business
performance, people and talent, risk
management, core governance and
compliance, strategic investments/
divestments
- Relationships and communication:
quality of discussion and decision
making processes, raising and handling
of difficult issues, Board/Executive Team
interaction.
What the Board does well
- Respect and value the diverse skills and
perspectives of each other. Strong
belief that the whole is greater than the
sum of the parts
- Good debates and reaches consensus
on the business issues facing the Group.
Confidence that the quality of
discussion results in the Group following
the best course of action
- Clear engagement with strategy,
values and people and commitment to
continuous improvement in operating
as a Board.
-
The future
-
Important to be bold and take
necessary action to maintain
market leadership
- Be purposefully challenging and
actively guard against complacency.
- Develop plan for future succession to
ensure resilience and sustain the
Board’s positive culture and leadership.
- Continued refinement of
performance metrics – transparency,
alignment and rigour (both financial
and non-financial)
Evolving landscape for remuneration
and corporate culture
- Nurture the overall “health” of the
Board; look after what it values - the
balance of the Board and its positive,
collaborative culture.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 66
EFFECTIVENESS: NOMINATION COMMITTEE REPORT
Succession planning
and talent pipeline
development
continued as a key
area of focus for the
Committee. This
extends to developing
high-performing
individuals beyond
the Board to help
secure the business’s
long-term
sustainability.
Nomination Committee Chair’s overview
The Committee’s focus this year has been
on our talent development and succession
planning. The Committee mapped the
business’s strategic objectives and growth
ambitions against our wider leadership
and high performing high-potential
individuals. Where gaps are identified,
the Committee ensures a suitable
programme is in place to deliver our
leaders of tomorrow with the right
skills and experience.
The year ended sadly with the sudden
and tragic passing of Manjit Wolstenholme,
our Senior Independent Director and
Audit Committee Chair. Manjit had been
instrumental to the sustainable growth
and financial delivery of the business over
the last six years we had the pleasure of
working with her, and she will be sorely
missed. The Committee decided to wait
until the New Year before it considered
potential appointees for these two key
positions. Following a review in January
2018, Elizabeth McMeikan and Ross
Paterson were appointed as our
Senior Independent Director and
Audit Committee Chair respectively.
I am confident they will be able to
continue the excellent work that
Manjit had done.
Phil White
Chair – Nomination Committee
21 February 2018
Phil White
Chairman
Committee overview
Composition
The Committee is comprised entirely
of Non-Executive Directors. The members
of the Committee are set out on page 60
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 that appropriate procedures
are adopted and followed in the
nomination, selection, training,
evaluation and re-election of Directors
and for succession planning, with due
regard in all cases to the benefits of
diversity on the Board, including gender
- Regularly review the structure, size,
composition, skills and experience
of the Board and to make
recommendations with regard to any
adjustments considered necessary
- When it is agreed that an appointment
to the Board should be made, lead a
selection process that is formal, rigorous
and transparent
- Be responsible for identifying, reviewing
and recommending candidates for
appointment to the Board.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 67
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 mis statement.
The provisions of the Code in
respect of internal controls require that
Directors review and monitor 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 Board
(the Management 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 on pages
68 to 71. 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 principal 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 2018 is set
out on pages 24 to 31.
Business model
For a description of the Group’s
Business Model, see page 4 and 5 of the
Strategic Report.
-
-
Introduced Diversity, Equality and
Inclusion eLearning for all employees,
to be repeated annually
Ensuring all customer-facing teams are
diverse and appropriately
representative of our local community
and our students
- Actively supporting our high potential
-
female employees
Ensuring all leadership roles have
diverse candidates on the short list
- Working with Stonewall, Business in the
Community and the Business Disability
Forum to raise our awareness
- Reviewing our HR policies and
procedures to be more inclusive with
related line-manager training
In 2018, we will focus on:
- Development and growth of our
-
Diversity in Action Group
Focus groups and Pulse Surveys across
the organisation to understand more
about our employee needs
Launch of Women’s Network followed
by further networks as appropriate
- Use of specialist job boards to support
-
-
-
sourcing diverse candidates
Further recruitment training for all
hiring managers
Continue to work with Stonewall,
Business in the Community and the
Business Disability Forum
- Work Equality Index completed and
recommended actions taken
We have set diversity targets for our People
with 40% female in leadership roles by 2020.
We are currently at 37%.
Read more about
Diversity and inclusion on p47
As regards to the Board itself, the
Nomination Committee considered
during 2017 whether it wanted to set
specific targets for female representation
on the Board. The Committee believes
the current focus of diversity and inclusivity
should be on the Group as a whole
with the development of a diverse and
inclusive talent pipeline incorporating the
initiatives outlined above. The Committee
is not currently considering setting diversity
targets for the Board itself, believing this is
not necessarily in the best interests of the
Group and its stakeholders. However,
gender diversity, along with all other
aspects of diversity and inclusivity, will be
considered, along with its more general
remit to consider the balance of skills,
experience, independence and
knowledge when reviewing
appointments to the Board.
Activities in 2017
Review of Board composition
The Committee reviewed the
Board’s composition to ensure it has
the correct balance of skills, experience,
independence and knowledge.
Recognising that the average tenure
of the Non-Executive Directors was just
over 6 years and to help ensure orderly
succession planning, the Committee
believed it was timely to consider an
additional Non-Executive Director. The
Committee felt that someone currently
serving as an Executive Director in a listed
business with strong financial expertise
would be a useful addition to the Board.
Based on this remit, the Committee led a
recruitment process, which resulted in the
appointment of Ross Paterson in
September 2017.
Succession planning
As per prior years, the Committee reviewed
the Board’s succession planning, to ensure
we have a deep talent pipeline for future
Board appointments. As an integral part of
our executive succession planning, the
Committee oversees the Senior Leadership
Development Programme (part of a
broader Skills Development Programme) to
ensure we are growing and nurturing our
talent and developing our high-potential,
high-performers.
Board diversity
The Board recognises that diversity,
equality and inclusivity at Board level
and throughout the Group is a critical
component of our long-term sustainability.
We are 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 experiences,
perspectives and skills.
Beyond the boardroom and within
Unite Students more generally, we have
continued to review our approach to
diversity, equality and inclusion during 2017.
We recognise this as a key building block
of our People strategy and that the UK
workforce and our students are increasingly
diverse. To remain competitive, we need to
develop a diverse, equal and inclusive
workplace which will in turn best represent
and support our customers in creating a
Home for Success.
During 2017, our D&I initiatives have
focused on:
-
Launching our Diversity in Action
Group led by, and for, employees
- Widening our recruitment channels to
-
bring in increased diversity
Training all recruiting managers and
the resourcing team on unconscious
bias, to ensure that we are recruiting
the best person for the job
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 68
ACCOUNTABILITY: AUDIT COMMITTEE REPORT
During the year,
the Audit Committee
continued its key
oversight role for
the Board with its
specific duties as
set out in its terms of
reference to reassure
shareholders that their
interests are properly
protected in respect of
the Group’s financial
management
and reporting.
Following the extremely tragic and
sudden death of Manjit Wolstenholme
on 24 November 2017, Ross Paterson was
appointed to the role of Chair of the Audit
Committee on 1 February 2018. Ross is the
current Finance Director at Stagecoach
Group plc, a member of the FTSE 250, he
also chairs the Audit Committee at Virgin
Rail Group Holdings Limited so is well
placed to chair the Audit Committee
of the Group.
The Committee is very grateful for Manjit’s
effective chairmanship and contribution
to the work of the Committee.
Audit Committee Chair’s overview
During the year, the Audit Committee
continued its key oversight role for the
Board with its specific duties as set out
in its terms of reference to reassure
shareholders that their interests are
properly protected in respect of the
Group’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 2017, the Committee has continued
to monitor the integrity of the Group’s
financial statements and supported the
Board with its ongoing monitoring of the
Group’s risk management and internal
control systems in line with the enhanced
requirements from 2015 under the
Corporate Governance Code.
Ross Paterson
Chairman
The Committee also determined
the focus of the Group’s internal audit
activity and reviewed its findings and
verified that recommendations were being
appropriately implemented. In addition,
recognising the value of an effective
whistleblowing channel, the Committee
again reviewed arrangements for the
Group’s employees to raise concerns
in confidence.
During 2017, the Audit Committee
undertook the second full evaluation
exercise of the Deloitte audit approach to
ascertain the effectiveness of the external
audit function. Further to the completion
of the evaluation of the external audit
process we are satisfied with both the
auditor’s independence and audit
approach and have recommended to
the Board that Deloitte be re-appointed
as auditor in 2018.
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 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
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement office and at the Annual General Meeting,
and can also be found on the Group
website at http://www.unite-group.co.uk/
about-us/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 support the Board with its ongoing
monitoring of the effectiveness of the
Group’s system of internal controls and
risk management systems
To monitor the effectiveness of the
Group’s internal audit function and
review its material findings
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 60 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 and serving Finance Director
of a FTSE 250 company, I have recent and
relevant financial experience.
Meetings are attended, by invitation, by
the Chief Financial Officer, the Deputy
Chief Financial Officer and the Group
Financial Controller.
I also invite our external auditor, Deloitte,
to each meeting. The Committee regularly
meets separately with Deloitte without
others being present. As appropriate, I also
invite our internal auditor, PwC, to attend
the meetings. Deloitte and PwC meet
independently of management to ensure
alignment, to update on respective
findings and consider the impact on
the relative approaches of their work.
Committee meetings
The Committee met five times during the
year and attendance at those meetings is
shown on page 64 of this Corporate
Governance Statement.
Main activities of the Committee during
the year
Meetings of the Committee generally
take place just prior to a Group Board
meeting and 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 its work. At its five meetings
during the year, the Committee focused
on the following activities.
The Committee reviewed the half-year
and annual financial statements and the
significant financial reporting judgements.
As part of this review, the Committee
supported the Board by reviewing the
financial viability and the basis for
preparing the accounts on a going
concern basis as outlined below. The
Committee also reviewed and challenged
the external auditor’s report on these
financial statements.
As discussed above, the effectiveness
of the external audit function was
considered during 2017. During the
evaluation process the Committee
considered: the independence and
objectivity of the external auditor; the
make-up and quality of the audit team;
the proposed audit approach and the
scope of the audit; the execution of the
audit and the quality of the audit report to
the shareholders; as well as ultimately the
fee structure.
The Committee discussed reports from
PwC as the Group’s internal auditor on
their audit and assessment of the control
environment. The Committee reviewed
and proposed areas of focus for the
internal audit programme of review
including the approach to ensure that
the internal audit activity continues to be
aligned to the principal Group risks.
Financial reporting
The primary focus of the Committee, in
relation to financial reporting in respect of
the year ended 31 December 2017, 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
where there has been discussion with
the external auditor
- 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 Group’s
position and performance, business
model and strategy.
The Committee’s assessment of the annual
report to ensure that it is fair, balanced
and understandable took into account
the following considerations:
-
- A review of what fair, balanced and
understandable means for Unite
The high level of input from the Chief
Executive Officer and Chief Financial
Officer with early opportunities for the
Board to review and comment on the
annual report
69
-
Ensuring consistency in the reporting
of the Group’s performance and
management information (as
described on pages 22 to 23), risk
reviews (as described on pages 24 to
31), business model and strategy (as
described on pages 4 and 5 A cross-
check between Board Minutes and the
annual report is undertaken to ensure
that reporting is balanced
- Whether information is presented in a
clear and concise manner, illustrated
by appropriate KPIs to facilitate
shareholders’ access to relevant
information
To aid our review, the Committee considers
reports from the Group Financial Controller
and also reports from the external auditor
on the outcomes of their half-year review
and annual audit. As a Committee, we
support Deloitte in displaying the necessary
professional scepticism their role requires.
The Committee’s assessment of the annual
report to ensure that it is fair, balanced
and understandable took into account
the following considerations:
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 2017 financial statements
related to:
- Property valuations
- REIT compliance
-
Joint venture accounting
Property valuations
The Group’s principal assets are
investment properties and investment
properties under development that are
either owned on balance sheet or in USAF
or LSAV. 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
RICS 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
receives detailed reports from the valuers
and performed a detailed review of the
valuations to ensure that management
considers the valuations to be appropriate.
The valuation report is reviewed by the
Chief Financial Officer and the Group
Property Director prior to sign-off.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 70
ACCOUNTABILITY: AUDIT COMMITTEE REPORT CONTINUED
During the year, the Committee and/or
the Board met with members of the
Group’s valuer panel 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 PID requirement will be satisfied. The
combined PID from the distributions made
during 2017 comprise 78% of the Group’s
forecast tax-exempt property rental
business profit, leaving a small amount
that can be paid as part of the May
2018 distribution.
The Committee questioned the external
valuers on market trends and transactional
evidence that supports the valuations. 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 the audit
procedures to test the valuation
of investment and development
properties 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.
Further analysis and detail on asset
valuations is set out on page 36.
REIT compliance
With effect from 1 January 2017, the Group
converted to REIT status. As a REIT, profits
from the Group’s property rental business
and gains on disposal of property assets are
exempt from UK corporation tax. As a result,
the Group does not recognise a deferred
tax liability in relation to unrealised gains
on investment properties, or accelerated
capital allowances on property rental
business assets. Maintaining REIT status
involves significant judgement about the
future performance of the business and
compliance with the REIT rules and there
would be a material impact on the Group’s
tax charge and financial results of not
remaining compliant with the REIT regime.
The Group monitors compliance with
the REIT requirements on a quarterly
basis to confirm that the interest cover test
and balance of business test in relation to
income are met. The balance of business
test relating to assets is determined
based on figures at 1 January 2017
and so compliance has already
been confirmed for the year.
The Group has modelled tax adjusted
property business profits for five years and
declared PIDs in respect of the May 17 and
November 17 distributions to ensure that
Joint venture accounting
Two of Unite’s significant assets are its
investments in USAF and LSAV which the
Group has historically accounted for as
joint ventures.
The Group reports under IFRS 10 – 12
which provides guidance on how
an investor should account for its
interests in other entities, including a
definition of control and guidance on
how to classify and account for jointly
controlled arrangements. During the
year, management undertook a detailed
review of its classification for both USAF
and LSAV, and following that analysis
concluded that both USAF and LSAV
should continue to be treated as joint
ventures. The Committee considered
this and agreed there was no material
change and accordingly it was
appropriate to continue to account for
USAF and LSAV as a joint venture under
IFRS 11, with Unite recording its 24.58%
share of the results and net assets of
USAF as a joint venture using equity
accounting and likewise 50% for LSAV.
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, chaired by Joe Lister, Chief
Financial Officer. 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 28 to 31.
The Board also formally reviewed
the Group’s principal risks at two
meetings during the year. Through
these reviews, the Committee
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 controls
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. Internal controls are designed to
provide reasonable assurance regarding
(among other things) 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, supported by the work of the
internal auditor and their reports to the
Audit Committee. The feedback from the
Group’s internal auditor on specific areas
of control is tested on a periodic basis and
our external auditor is requested to provide
specific feedback and assessment of the
Group’s financial controls and highlight
any areas of weakness. No significant
weaknesses were identified through the
course of the Committee’s reviews.
Internal audit
The Group engages PwC to perform
internal audit activity, with this internal
audit function reporting directly to the
Audit Committee.
The Committee considered and approved
the scope of the internal audit activity to
be undertaken during 2017 and looking
forward on a twelve month basis to ensure
that the internal audit approach is more
adaptable to the risk environment. The
Committee also discussed and challenged
the output from the internal audit reviews
undertaken in the prior year and concluded
that the reviews provided good support for
statements made by management and
that the control environment is robust in
the areas tested over the last three years.
During the year, PwC focused their
internal audit work on revenue and
receivables, procure to pay, project
management and IT service continuity.
All areas of internal audit were being
reviewed for the first time in 2017, aside
from procure to pay, and, overall, PWC
concluded that there were no significant
issues and controls were well designed,
but noted there were some areas of
improvement to be made to maximise
controls and operational efficiency,
which management is in the process
of implementing.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 71
External audit
The effectiveness of the external audit
process is facilitated by appropriate audit
risk identification at the start of the audit
cycle which we receive from Deloitte in
a detailed audit plan, identifying their
assessment of these key risks.
For the 2017 financial year, the significant
risks identified were in relation to one
valuation of properties, REIT compliance,
revenue recognition, management
override, and the classification of joint
ventures. These focus areas were
discussed at the Committee and it was
agreed that they should be the principal
areas of focus as they represent the areas
with the greatest level of judgement and
materially impact the overall performance
of the Group. These risks are tracked
through the year and we challenged
the work done by the auditor 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
Deloitte at both the half-year and
year-end and also reports from
management on how these risks
are being addressed.
For the 2017 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
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 their audit
- How they have exercised professional
scepticism
I also meet with the external lead
audit partner outside the formal
Committee process.
Independence and external
audit tender
The Committee considers the re-
appointment of the external auditor,
including the rotation of the audit partner
which is required every five years, each
year and also assesses their independence
on an ongoing basis. The Group put the
external audit out to tender in May 2015
and appointed Deloitte as the external
auditor following a robust review; the 2015
year-end was the first year with Deloitte as
the Group auditor and as such we are in
year three of the audit cycle with
Deloitte in 2017.
During 2017, Deloitte acquired a
consultancy business, Market Gravity,
which at the time had already been
engaged to provide advisory services to
the Group. Market Gravity’s work with the
Group related to supporting the services
offered to our students and as such did
not constitute any management decision
making or financial reporting which the
Audit Committee therefore felt
comfortable to approve this work to
continue. Subsequent to their acquisition
and the initial activity detailed above, the
Audit Committee gave their approval for
the second and third phases of the work.
The combined fees for the non-audit
services performed by Deloitte, were
£0.4m which virtually all related to the
Market Gravity work referred to above.
During the year, Deloitte charged the
Group £0.3 million for audit services.
While the level of non-audit fees is greater
than the audit fees charged to the Group,
the Committee is comfortable that the
auditor’s objectivity and independence
has not been compromised due to the
nature of the work undertaken by Market
Gravity not involving management
decision-making, preparation of financial
data or the design and implementation
of internal controls.
The Committee approved the fees for
audit services for 2017 after a review of the
level and nature of work to be performed,
including the impact of the convertible
bond, REIT conversion and accounting
standard changes, and after being
satisfied by Deloitte 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.
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’.
Ross Paterson
Chair – Audit Committee
21 February 2018
The Committee reviewed Deloitte’s audit
work and determined that appropriate
plans are in place to carry out an effective
and high quality audit. Deloitte confirmed
to the Committee that it maintained
appropriate internal safeguards to ensure
its independence and objectivity. As part
of the Committee’s assessment of the
on-going independence of the auditor,
the Committee receives details of any
relationships between the Group and
Deloitte that may have a bearing on their
independence and receives confirmation
that they are independent of the Group.
As discussed above, an assessment of
Deloitte’s effectiveness, its processes, audit
quality and performance was undertaken
in May 2017 following completion of the
2016 audit.
The Committee confirms compliance
with the provisions of CMI Order 2014.
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 Deloitte
from providing certain services, such as
valuation work or the provision of
accounting services.
For certain specific permitted services
(such as reporting accountant activities
and compliance work), the Committee
has pre-approved that Deloitte 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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
72
ACCOUNTABILITY: HEALTH & SAFETY COMMITTEE REPORT
Sir Tim Wilson
Chairman
Alongside this fire safety work, we also
embarked on a bold student safety
campaign. This targeted student fire
safety, alcohol awareness and student
personal safety. More on this student
safety campaign below.
Unite Students is home to 50,000 young
people. For many, this is their first time
living away from home. As such, it is
crucial that health and safety is at the
heart of everything we do to ensure the
safety and wellbeing of all our customers,
employees, contractors and other visitors
to our properties.
Sir Tim Wilson
Chair – Health and Safety Committee
Health and safety is
a cornerstone of our
business – providing
quality, secure
homes for our students.
It came into even
sharper focus in 2017
as we responded to
the impact of the
Grenfell Tower tragedy.
Health and Safety Committee
Chair’s overview
Fire has always been identified as
our biggest safety risk and the Grenfell
Tower tragedy underlines the critical
importance of effective health and
safety governance. There are always
lessons to be learnt and room for
continuous improvement. The Health
and Safety Committee is committed to
ensuring this happens within our business.
Immediately after the Grenfell Tower
tragedy, we undertook a fire safety
review of all our properties. This identified
Aluminium Composite Material (ACM)
cladding on 6 of our properties. We worked
with the DLCG, local fire services and fire
safety experts to ensure the safety of these
properties in light of the fast developing
circumstances. This activity was co-
ordinated with our Primary Fire Authority,
the Avon Fire & Rescue Services, to ensure
we implemented an appropriate and
co-ordinated response. This resulted in us
closing one of our properties (Sky Plaza in
Leeds), removing the ACM cladding on
two other properties (Waverly House,
Bristol and Concept Place, Leeds) and
working with the local fire services and fire
safety experts on the right remedial plans
for the others.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 73
Student safety campaign
During 2017, we launched a student
safety campaign. This focused on fire
safety, alcohol awareness and personal
student safety.
The campaign was targeted to run soon
after student check in and was co-
ordinated with local fire & rescue services
and Police Community Service Officers.
The aim of the alcohol awareness
campaign was harm reduction, with
bottles of water provided to students
on their way out to promote safe drinking
and destigmatising drinking soft drinks on a
night out. We ran a Student Personal Safety
Week during the week of 2 October 2017.
We saw a marked reduction in alcohol
and safety-related incidents via AIMS
(our Accident and Incident
Management system).
External audit
In addition to fire safety experts, we also
work with The British Safety Council to
provide independent external assurance
on our health and safety effectiveness.
During 2017, The British Safety Council
completed an Interim Review of their
2016 ‘Five Star Occupational H&S Audit’.
The primary objective of this interim review
was to determine the progress made by
the organisation in respect of areas that
required ‘significant’ improvements. The
review was carried out through a desktop-
based process which involved detailed
discussion with the Health and Safety team
and sampling of relevant documentation.
This review showed we are making steady
improvements in our Health and Safety
Management System and safety culture;
however there are still several areas that
require attention in order to see an
increase in the score for the next audit,
scheduled for May 2018.
Activities in 2017
Fire Safety
Following Grenfell and the heightened
focus from regulatory authorities on fire
safety, we carried out additional fire
safety inspections of our properties
and subsequently assembled a team
to complete actions in light of learnings from
the Grenfell Tower tragedy. In addition, we
are working with The British Safety Council
(our safety auditor) to obtain assurance of
our end-to-end processes. Additional fire
safety training is being carried out across all
our teams, again building on the lessons
learned from Grenfell.
Committee overview
Composition
-
-
- Richard Smith
Sir Tim Wilson (Chair)
Elizabeth McMeikan
Role
The role of the Health and Safety
Committee is to:
-
-
Ensure that the Group’s Health and
Safety policies and procedures are
reviewed annually and effectively
implemented to ensure legal
requirements are met, as well as
striving for best practice
Ensure that the business is aware of
regulatory changes and understands
the impact upon the business
- Remain updated on performance and
any major health and safety incidents
so as to ensure management identifies
and implements appropriate
corrective actions.
Student safety campaign timeline
Student checks in
Information about
planned fire drills and
fire assembly point
Fresher’s week
Hydration
stations at the
reception
W/C 24 October
Fire Kills – fire
safety campaign
Email with property-
specific Health and
Safety information
W/C 2 October
PCSO visit to
property
Content campaign
Student Life Hub/Social Media/Digital screens
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 74
ACCOUNTABILITY: HEALTH & SAFETY COMMITTEE REPORT CONTINUED
Crisis management
During the year, we refreshed
our crisis management procedures,
including our Crisis Management Plan,
Incident Management Plan and Crisis
Communications Plan to ensure they keep
up to date with emerging threats and risks.
As part of this refresh, we also conducted
some live crisis management tests, both in
our head office in Bristol and in another
city, to really challenge the effectiveness
and resilience of our crisis management
procedures. This provided some valuable
learnings. We will continue to run crisis
management tests with different scenarios,
to help us prepare as best as possible for
crisis events. We are also including our city
team Supervisors and ECC (Emergency
Contact Centre) teams in the next roll-out
of training on the procedures.
Mental health and wellbeing
Mental health issues are an increasing
concern for the Higher Education sector
and also to us at Unite, especially since we
are home to so many young people while
they are at University. Employees receive
mental health first-aid training to look for
signs and signpost help. The student
support services team provide support to
employees and students alike and work
closely with University support teams.
Incidents
Incidents involving our employees,
customers or visitors:
-
Five reportable injuries (under RIDDOR)
involving employees and customers
(classed as members of the public)
- 310 minor (non-reportable) incidents -
involving employees, customers and
contractors.
In our development activity during 2017,
there were four RIDDOR reportable
incidents and 13 minor incidents. This
performance is within our Unite Students
internal benchmarks – beating the
industry standard – as follows:
Incidents
4 RIDDOR
13 Minor
KPI*
Benchmark
0.24
0.79
0.30
5.00
* KPI calculated as: No. of incidents worked x
100,000 hours/hours worked
1.6 million hours worked delivering positive
results against our KPIs.
Priorities for 2018
Fire safety
Fire safety continues to be a priority across
the business. Our existing fire training
offering has been improved with renewed
fire safety e-learning and classroom style
training for our employees. The Health and
Safety team are working closely with the
Estates team and City teams to ensure any
remedial work highlighted in Fire Risk
Assessments and Health and Safety
Inspections are completed within
designated timescales.
Employee wellness
This year will see a focus on employee
wellness including a renewed approach
to DSE (Display Screen Equipment) training
and workplace assessments. We have also
proposed a series of employee health and
wellbeing initiatives in a joint campaign
with the HR team.
Asbestos and water hygiene
The Health and Safety team, alongside
the Estates team, will be updating our
Water Hygiene procedures, training and
assessments. The Group Asbestos Register
is also being reviewed and employees will
receive training on any asbestos hazards
present in their properties.
Accident and incident reporting
We will conduct a review of our AIMS
(Accident and Incident Management
System) to ensure we are using the most
effective system to capture accident and
incident-related information required by
the business. We will also roll-out training to
city teams that focuses on the accuracy
of reporting and the importance of
thorough accident/incident investigation.
Upskilling of City team supervisors
Our City team supervisors will receive
training on our incident management
plans and dealing with the ‘scene’ of an
incident. In addition to this, our service
and safety supervisors will receive conflict
management training and counter-
terrorism awareness training.
Sir Tim Wilson
Chairman
21 February 2018
Total reportable incidents to date 2017
Project
Man Hours
Reportable Incidents Non Reportable Incidents
Tara House
St Leonards
Millenium View
Chaucer House
International House
St Vincents
Skelhorne
Brunel
Beech House
Lutton Court
Newgate
Durham
Durham Hoghall
292,537
190,717
213,099
139,581
173,924
78,740
39,729
48,835
107,882
159,562
95,592
58,800
45,360
Totals
1,644,358
1
0
0
0
0
2
1
0
0
0
0
0
0
4
0
2
3
0
0
2
4
2
0
0
0
0
0
13
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement ANNUAL STATEMENT OF THE CHAIR OF THE REMUNERATION COMMITTEE
DIRECTORS’ REMUNERATION REPORT
75
Ensuring Directors’
remuneration is
aligned to the
performance
of the business
and shareholders’
interests.
Dear Shareholder,
On behalf of the Board, it is my pleasure
to present the Directors’ Remuneration
Report for 2017.
As in previous years, this report is split
into three sections: this Annual Statement,
the Policy Report and the Annual Report
on Remuneration. Our remuneration
policy, detailed on pages 79 to 85,
remains consistent with that approved by
shareholders at the last binding vote at the
2016 AGM, and is reproduced in full for both
ease of reference and in order to provide
context to the decisions taken by the
Committee during the year.
As evidenced by the operational and
financial highlights earlier in this report, 2017
was another strong year for Unite. Financial
performance was headlined by 7% and
11% increases in EPRA EPS and NAV
respectively, with a further reduction in our
LTV and 4.7 pence increase in our annual
dividend. A £100 investment in Unite shares
in December 2014 was worth £180 as at
year end, far exceeding the £111 for a
similar investment in the FTSE 350 Real
Estate ‘Super Sector’ Index. From an
operational perspective, both our
customer satisfaction and Higher
Education trust scores increased this
year, leaving the Group well placed to
achieve its stretching three-year targets
in these areas.
Elizabeth McMeikan
Chair
In light of this, the Committee’s key
decisions during the year related to the
following areas:
Annual bonus outcomes for
the financial year
Executive Directors will each receive
bonuses of 63.6% of maximum opportunity
in respect of 2017 performance. Overall
bonus outcomes reflect solid financial
performance by the Group and the
contributions made by each of the
Executive Directors over the last year.
The overall 2017 bonus outcome was
above target, with strong financial
performance under the Earnings Per
Share (EPS) and Total Accounting Return
(TAR) elements offset slightly by the net
debt to EBITDA element coming in just in
line with threshold. On the non-financial
element, performance under both the
customer satisfaction measure and the
newly introduced University reputation
measure was in line with plan – a strong
outcome against what the Committee
recognises as particularly stretching
targets. Finally, and reflecting significant
progress in their new and expanded roles,
each Executive Director was rated as
‘Above Target’ for the purposes of the
personal performance multiplier (1.1x cf.
the maximum 1.2x multiplier).
Further details, including annual bonus
targets, outcomes and details of personal
achievements, are included on page 78.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 76
ANNUAL STATEMENT OF THE CHAIR OF THE REMUNERATION COMMITTEE CONTINUED
Long-term incentives
Executive Directors were each granted an
award under the LTIP in April 2017 based
on performance over the three financial
years to 31 December 2019. These awards
will vest to the extent that challenging EPS,
TAR and relative Total Shareholder Return
(TSR) targets are achieved over the period,
with any award vesting required to be
held for an additional two-year period.
Performance share awards made
in April 2015 vested on performance
to 31 December 2017. These awards
were similarly based on EPS, TAR and
TSR outperformance of the FTSE 350
Real Estate ‘Super Sector’ Index. Over
the three-year performance period, the
Company exceeded maximum targets
for the relative TSR and TAR elements and
ended just under the stretch target for
the EPS element, resulting in 96.14% of the
original award vesting. The Committee is
satisfied that this vesting level reflects the
underlying performance of the Company
and the progress made over the last three
years. Consistent with the rules of the plan
at the time of grant, these awards shares
will vest in tranches with two-thirds released
on the third anniversary of grant in April
2018, and the remaining one-third being
released after a further year-long holding
period. This is the final LTIP award
outstanding which is subject to this
phased vesting approach, with all
subsequent awards subject to the
mandatory two-year holding period
introduced during the last policy review.
Overall pay for 2017
The Committee is satisfied that overall
pay outcomes are appropriate and
reflect Unite’s performance across the
various time horizons covered. Fixed pay
levels are competitive but not excessive
when taking into account similar roles
at comparable companies, individual
contributions, experience and overall
levels of responsibility. Annual bonus
outcomes reflect another solid year,
with strong financial, operational and
individual performance leading to an
overall outcome of 63.6% of maximum.
This compares favourably with 2016 (43.4%
of maximum) but is below the outcomes in
2013, 2014 and 2015, which the Committee
believes is appropriate taking all factors
into account. Vesting of the 2015 LTIP –
which constitutes the largest part of
each Executive Director’s single figure
for the year – reflects strong financial
and operational performance, and
further significant value creation over
the three-year measurement period.
Implementation of policy for 2018
The Committee has reviewed the current
remuneration policy and is confident that
it continues to effectively support Unite’s
short- and long-term strategic objectives
and promote management and
shareholder alignment.
For 2018, the annual bonus will operate
on the same basis as last year, with a
maximum opportunity of 144% of salary
and performance assessed against a
corporate scorecard of key financial and
non-financial measures and an individual
performance multiplier. The operation of
the LTIP will be similarly unchanged, with
awards of 200% of salary vesting based on
stretching three-year EPS, TAR and relative
TSR targets and a mandatory two-year
holding period applying.
Further details, including proposed
salary and fee increases, are included
on page 83.
Areas for future consideration
The 2019 AGM will mark the third
anniversary of the adoption of the
current Directors’ Remuneration Policy
and, in line with UK reporting regulations,
Unite will need to submit a new Policy
to shareholders for approval at this time.
Given this, the Committee is planning
to conduct a full review of the existing
remuneration arrangements over the
course of the year and will look to engage
major shareholders to seek their input in
due course. The review will take into
account recent market trends and
developments in best practice, with the
ultimate aim of ensuring the Company’s
remuneration arrangements are able to
attract, motivate and retain executives of
the calibre required to continue to deliver
against Unite’s longer-term strategy.
Elizabeth McMeikan
Chair of Remuneration Committee
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 77
Overview of Unite Remuneration Policy and implementation
y
r
l
a
a
s
e
s
a
B
s
t
i
f
e
n
e
b
,
n
o
i
s
n
e
P
s
u
n
o
b
l
a
u
n
n
A
P
I
T
L
Overview of policy
Remuneration in respect of 2017
Implementation of policy in 2018
- 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 Director
Salaries increased by 2% effective
1 March 2017, as follows:
• CEO, Richard Smith = £438,600
• CFO, Joe Lister = £357,000
• Group Property Director, Richard
-
Simpson = £331,500
Salaries increased by 2% in line with
the broader employee population
effective 1 March 2018, as follows:
• CEO, Richard Smith = £447,370
• CFO, Joe Lister = £364,140
• Group Property Director, Richard
Simpson = £338,130
Read more on p80
Read more on p87
Read more on p91
- Pension contributions of up to 20%
of salary or an equivalent cash
allowance
- Benefits typically consist of the
provision of a company car or a
car allowance, and private health
care insurance
-
In line with policy
- No change to pension contribution
rates or benefits for 2018
Read more on p80
Read more on p87
Read more on p91
- Maximum annual bonus
- Annual bonuses of 63.6% of
- Maximum annual bonus
opportunity for all Executive
Directors of 144% of salary
- Performance measures typically
maximum opportunity for each
Executive Director based on:
• a Corporate scorecard
include both financial and
non-financial metrics, as well as
the achievement of individual
objectives
- Payments delivered in cash,
except where an individual has
not met their shareholding
guidelines, in which case up to
50% is deferred in shares for
three years
- Malus and clawback
provisions apply
outcome of 83.2% of salary (out
of 120%)
• Individual performance
multipliers of 1.1x (cf. 1.2x
maximum)
- Bonuses to be paid in cash in early
2018 as each Executive Director
has met their shareholding
guidelines
opportunities to remain at 144%
of salary
- Payments to be determined
taking into consideration a
Corporate scorecard based on
75/25 on financial/non-financial
performance, and after applying
an individual performance
multiplier of up to 1.2x
Read more on p81
Read more on p87
Read more on p91
- Maximum award size for all
Executive Directors of 200% of
salary in normal circumstances
- Awards vest subject to
performance over a three-year
period. Vested shares are typically
subject to an additional two-year
holding period
- Malus and clawback
provisions apply
- 2015 LTIP vested at 96.14% based on:
• 2017 adjusted EPS of 30.3 pence
vs. a stretch target of 31.5 pence
• Total Accounting Return over the
period 2015–17 of c.21% p.a. vs.
a stretch target of 15% p.a.; and
• Relative TSR outperformance
of the FTSE 350 Real Estate Index
of 17.3% p.a. vs. a stretch
target of 9% p.a.
-
- Awards of 200% of salary to be
made to each Executive Director
in April 2018
- Performance to be measured
over the period 1 January 2018
to 31 December 2020 against EPS,
Total Accounting Return and
relative TSR
Two-year holding period will apply
to vested shares
Read more on p81
Read more on p89
Read more on p92
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
78
ANNUAL STATEMENT OF THE CHAIR OF THE REMUNERATION COMMITTEE CONTINUED
2017 Remuneration at a glance
2017 Single total figure of remuneration for current Executive Directors
Salary
Taxable benefits
Pension benefit
Annual bonus
LTIP
Other
Total
2017 Annual bonus outcomes
Corporate targets
Measure
Adjusted EPS
TAR per share
Net debt to EBITDA ratio
Customer satisfaction
University Reputation
Overall
Executive
Richard Smith
Joe Lister
Richard Simpson
2015–2017 LTIP outcomes
Targets
Measure
2017 Adjusted EPS
TAR p.a. (2015–2017)
Relative TSR outperformance
Overall vesting
Executive
Richard Smith
Joe Lister
Richard Simpson
Richard
Smith
437,167
16,089
84,506
401,407
476,619
–
Joe Lister
355,833
16,255
63,156
326,726
528,296
2,249
Richard
Simpson
330,417
16,065
58,645
303,389
476,619
4,500
1,415,787 1,292,515 1,189,634
‘Threshold’
‘Target’
50% of
salary
27.8p
47p
7.1x
80
79
70% of
salary
29.0p
54p
6.9x
81
80
100% of
salary
30.7p
61p
6.6x
82
81
Weight
25%
25%
25%
12.5%
12.5%
‘Stretch’
120% of
salary
31.9p
67p
6.3x
84
82
Actual
30.3p
93p
7.1x
81
80
Vest
(% salary)
Corporate
vesting
23.2
30.0
12.5
8.8
8.8
83.2%
Overall bonus outcome
Corporate
vesting
Personal
multiplier
% of
salary
% of
maximum
83.2%
1.1x
1.1x
1.1x
91.52
91.52
91.52
63.6
63.6
63.6
£
401,407
326,726
303,389
Threshold
Stretch
Weight
25% vest
100% vest
Actual
% vest
1/3
1/3
1/3
23.7p
9%
Index
31.5p
15%
Index
+9% p.a.
30.3p
21%
Index
+17.3% p.a.
88.4
100
100
Overall %
vest
96.14
Overall % vest
Interests vesting
Date vesting
96.14
62,665 2 April 2018 (2/3)
69,314 2 April 2019 (1/3)
62,665
Estimated value
(incl. dividends)
£476,619
£528,296
£476,619
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement
79
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)
Regulations 2008 (as amended). 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 87 to 95),
scheme interests awarded during the
financial year (page 90), payments to past
directors (page 91), payments for loss of
office (page 79) and the statement of
directors’ shareholdings and share
interests (pages 93 to 95). The remaining
sections of the report are not subject
to audit.
Unite’s Remuneration Policy was
approved by shareholders at the 2016
AGM on 12 May 2016. The report below,
save for a number of minor changes,
is as disclosed in the 2016 Directors’
Remuneration Report, which is available
to download from the Company’s website
at www.unite-group.co.uk/investors. The
following changes have been made:
- References to financial years have
been updated where appropriate
- Pay for performance scenario charts
have been updated to reflect 2018
salaries
- Current Non-Executive Director
appointment expiry dates have
been updated
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, while 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 plans
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
approved at the 2016 AGM and which
came into effect from that date.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 80
DIRECTORS’ REMUNERATION POLICY CONTINUED
Policy table
Function
Operation
Opportunity
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 companies1, to
individual contribution to
performance, and to the
experience of each Executive.
Any base salary increases are applied in line with
the outcome of the 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 that they remain market competitive. This
was the case for salary increases awarded during
the course of 2016.
Performance
metrics
None
Pension
To provide an
opportunity for
executives to build
up income upon
retirement.
Benefits
To provide non-cash
benefits which are
competitive in the
market in which the
executive is
employed.
SAYE
To encourage the
ownership of shares
in Unite.
All Executive Directors 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.
Executive Directors receive
benefits which consist primarily
of the provision of a company
car or a car allowance, and
private health care insurance,
although 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 years. Options granted at a
20% discount.
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 are reviewed periodically.
None
The Committee retains the discretion to approve a
higher cost in certain 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
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 Committee reviews comparator groups periodically to ensure they remain appropriate and retains the discretion to change companies.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 81
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.
LTIP
To drive sustained
long-term
performance that
supports the
creation of
shareholder value.
Performance measures,
targets and weightings are
set at the start of the year.
The scheme has two
elements: a ‘corporate’
element and an ‘individual’
multiplier element. At the end
of the year, the Remuneration
Committee determines the
extent to which targets have
been achieved.
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 Executive
Director is satisfied by an
allocation of shares in the
Company, which are held in
its Employee Share
Ownership Trust.
Awards under the
Performance Related
Annual Bonus are subject to
malus and clawback
provisions, further details of
which are included as a
note to the policy table.
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.
Awards under the LTIP
are subject to malus and
clawback provisions, further
details of which are included
as a note to the policy table.
.
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 0 to 1.2.
Performance is assessed on an annual basis,
as measured against specific objectives set at the
start of each year. The measures typically include
both 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 EPS, Total
Accounting Return growth, the ratio of net debt to
EBITDA 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.
For Threshold level
performance, the bonus will
be 50% of base salary.
The individual element is based on the Committee’s
assessment of an Executive Directors’ personal
performance over the course of the year, as measured
by the Performance Development Programme review.
The LTIP provides for an
award up to a normal
aggregate limit of 200% of
salary for Executive Directors,
with an overall limit of 300%
of salary in exceptional
circumstances. The current
intention is to award each
Executive Director awards
equivalent to 200% of salary.
Awards may include a grant
of HMRC approved options
not exceeding £10,000 per
annum, valued on a fair
value exchange (currently
50–60% of a PSP award).
A payment equal to the
value of dividends which
would have accrued on
vested shares will be made
following the release of
awards to participants,
either in the form of cash
or as additional shares.
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
management control. The Committee also considers
measures outside 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 pages 81, 87 and 91.
Vesting of LTIP awards is subject to continued
employment and performance against three equally-
weighted measures, which are currently as follows:
- Adjusted Earnings per Share (EPS)
Total Accounting Return (TAR) and
-
Relative Total Shareholder Return (TSR)
-
The Committee has the discretion to adjust the
performance measures to ensure that 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 basis 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. A proportion of vested awards may, at the
discretion of the Committee, be subject to a mandatory
holding period following the end of a three-year vesting
period. The Committee’s intention is that, under future
LTIP cycles, all awards will be required to be held for an
additional two-year period post-vesting.
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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 82
DIRECTORS’ REMUNERATION POLICY CONTINUED
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
Measures used under the Performance
Related Annual Bonus and LTIP are
selected annually to reflect the Group’s
main short- and long-term objectives and
reflect both financial and non-financial
priorities, as appropriate.
The Committee considers that EPS
(used in both the short- and long-term
incentive) is an objective and well-
accepted measure of the Company’s
performance which reinforces the strategic
objective of achieving profitable growth,
while a focus on Total Accounting Return
(also used in both the short- and long-term
incentive) is consistent with one of our
stated objectives and a key indicator of
company performance in the real estate
sector. The use of relative TSR is strongly
aligned with shareholders and ensures
that executives are rewarded only if they
exceed the returns which an investor
could achieve elsewhere in our sector.
Targets applying to the Performance
Related Annual 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 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. The
Company is also now a fully
accredited Living Wage employer.
In terms of variable incentives, all
employees are eligible to participate in
an annual bonus scheme with business
area-specific metrics incorporated where
appropriate. Senior managers are eligible
to participate in the LTIP with annual
awards currently up to 75% of salary.
Performance conditions are consistent for
all participants, while award sizes vary by
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.
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 that
remain subject to performance conditions)
equivalent to 250% of base salary for the
Chief Executive and 200% of base salary
for each of the other Executive Directors.
Until the relevant shareholding levels are
acquired, up to 50% of the annual bonus
payable to the relevant Executive Director
will be subject to deferral into shares and
are transferable to the Executive Director
after three years. Details of the Executive
Directors’ current personal shareholdings
are provided in the Annual Report
on Remuneration.
Malus and clawback
Awards under the Performance Related
Annual Bonus and the LTIP are subject to
malus and, from 2016, clawback provisions
which can be applied to both vested and
unvested awards. Clawback provisions will
apply for a period of at least two years
post-vesting. Circumstances in which
malus and clawback may be applied
include a material misstatement of the
Company’s financial accounts, gross
misconduct on the part of the award-
holder and errors in calculating the
award vesting outcome.
Non-Executive Director remuneration
NED
Date of service contract
P M White
R J T Wilson
A Jones
10 January 2009
1 December 2010
18 October 2012
E McMeikan
13 November 2013
R Paterson
21 September 2017
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 2018 in the
case of Phil White; at the annual general
meeting in 2019 in the case of Andrew
Jones, and at the annual general meeting
in 2020 in the case of Elizabeth McMeikan
and Sir Tim Wilson. 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.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 83
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function
Operation
Opportunity
Performance metrics
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, while 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 & 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.
None
Non-Executive Director
fee increases are applied in
line with the outcome of the
annual fee review. Fees for the
year commencing 1 January
2018 are set out in the Annual
Report on Remuneration.
Fee levels will be next
reviewed during 2018,
with any increase effective
1 January 2019.
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 the base salaries effective 1 March 2018. The
annual bonus and LTIP are based on the maximum opportunities set out under the remuneration policy for normal circumstances,
being 144% of salary and 200% of salary respectively. 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).
£2,000
£1,500
£1,000
£500
£553
)
0
0
0
’
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£2,092
42.8%
30.8%
£1,090
20.5%
28.8%
£1,706
42.7%
30.7%
£1,585
42.7%
30.7%
£828
20.4%
28.6%
£422
£890
20.5%
28.6%
£453
£0
100.0%
50.7%
26.4%
100.0%
50.9%
26.6%
100.0%
50.9%
26.6%
Minimum
On-target
Maximum Minimum
On-target
Maximum Minimum On-target
Maximum
Richard Smith
Joe Lister
Richard Simpson
LTIP
Annual bonus
Salary, pension, benefits
The ‘minimum’ scenario reflects base salary, pension and benefits (i.e. fixed remuneration) which are the only elements of the
Executive Director’s remuneration packages not linked to performance.
The ‘on-target’ scenario reflects fixed remuneration as above, plus bonus payout of 70% of salary and LTIP threshold vesting at 25%
of maximum award.
The ‘maximum’ scenario reflects fixed remuneration, plus full payout of all incentives.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
84
DIRECTORS’ REMUNERATION POLICY CONTINUED
Approach to recruitment remuneration
External appointment to the Board
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 not greater than the 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.
144% of salary
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 200% of
salary will apply, save in exceptional circumstances, where up to 300% of salary
may be awarded.
300% 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 that 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 to the Board
In cases of appointing a new Executive Director by way of internal promotion, the policy of 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 82. 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 84.
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 and/or as Chairman of the Board’s Committees.
Service contracts and treatment for leavers and change of control
Executive
J J Lister
R C Simpson
R S Smith
Date of service contract
1 June 2016
1 June 2016
1 June 2016
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, benefits and any other statutory payments only.
Executive Director service contracts are available to view at the Company’s registered office.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 85
The Remuneration Committee will exercise discretion in making appropriate payments in the context of outplacement, settling legal
claims or potential legal claims by a departing Executive Director, including any other amounts reasonably due to the Executive
Director, for example to meet the legal fees incurred by the Executive Director in connection with the termination of employment,
where the Company wishes to enter into a settlement agreement and where the individual must seek independent legal advice.
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:
Reason for leaving
Calculation of vesting/payment
Annual bonus
Resignation
‘Good’ leaver1
Change of control
LTIP
Resignation
‘Good’ leaver1
Change of control
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.
Outstanding awards lapse.
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.
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
Group People 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.
Consideration of shareholder views
The Remuneration Committee
maintains a regular dialogue with its
major shareholders, and consulted with
investors representing around two-thirds
of Unite’s issued share capital in forming
the existing remuneration policy. 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.
The treatment of shares subject to deferral
or holding periods will be subject to the
Remuneration Committee’s discretion and
will take into account the circumstances
at the time.
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. Joe Lister is currently a member
of the Council of the University of Essex for
which he does not receive a fee. Richard
Simpson is on the Board of CityWest Homes
for which he receives a fee of £3,500.
Richard Smith does not currently hold
an external appointment.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
86
ANNUAL REPORT ON REMUNERATION
The following section provides details of
how Unite’s remuneration policy was
implemented during the financial year
ended 31 December 2017.
Remuneration Committee membership
in 2017
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
and ensure that pay outcomes reflect
the performance of the Company
- 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 2017, the Remuneration
Committee comprised five independent
Non-Executive Directors:
Elizabeth McMeikan (Committee Chair)
-
- Phil White
Sir Tim Wilson
-
- Andrew Jones
- Ross Paterson (from 21 September 2017)
been, from time to time, invited to attend
meetings of the Committee, and the
Company Secretary, Christopher
Szpojnarowicz, acts as secretary to
the Committee. No individuals are
involved in decisions relating to their
own remuneration. The Remuneration
Committee met four times during the year
and details of members’ attendance at
meetings are provided in the Corporate
Governance section on page 64.
Key activities of the Remuneration
Committee in 2017 included:
- Reviewed and approved the Executive
Directors’ performance against annual
objectives and LTIP targets; determined
bonuses payable (including balance
between cash and shares), and
approved LTIP vesting
- Considered remuneration market
trends and corporate governance
developments
- Reviewed and approved salary
increases for the Executive Directors
and senior management for 2018
- Determined the Executive Directors’
bonus and LTIP performance targets
for 2018 in line with the strategic plan
- Reviewed and approved the
Chairman’s fee
- Prepared the Directors’
Remuneration Report.
Prior to her death in late 2017, Manjit
Wolstenholme was a member of the
Committee. Certain Executives, including
Richard Smith (Chief Executive) and Ruth
George (Group People Director), have
Advisers
Kepler Associates, a brand of
Mercer (Kepler) was appointed as
the Committee’s independent adviser
following a competitive tender process
in 2014, and was retained during the
year. The Committee undertakes due
diligence periodically to ensure that
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 2017, Kepler provided independent
advice, including updates on the
external remuneration environment
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. Its total fees
for the provision of remuneration services to
the Committee in 2017 were £29,360 on the
basis of time and materials.
Summary of shareholder voting at AGMs
The following table shows the results of the
advisory vote on the 2016 Annual Report
on Remuneration at the 2017 AGM as well
as the results of the binding vote on the
2015 Directors’ Remuneration Policy, which
was last approved by shareholders at the
2016 AGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
2016 Annual Report
on Remuneration
2015 Directors’
Remuneration Policy
172,055,505
904,419
172,959,924
9,433,701
182,393,625
99.5% 186,101,530
2,088,144
0.5%
98.9%
1.1%
188,189,674
300,425
188,490,099
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 87
Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received for 2016 and 2017 by each Executive Director who served in
the year ended 31 December 2017:
Salary
Taxable benefits1
Pension benefit2
Annual bonus3
LTIP4
Other5
Total
Richard Smith
Joe Lister
Richard Simpson
2017
£
437,167
16,089
84,506
401,407
476,619
0
2016
£
359,617
15,256
60,863
227,083
575,741
0
2017
£
355,833
16,255
63,156
326,726
528,296
2,249
2016
£
322,702
15,854
55,979
203,385
637,993
0
2017
£
330,417
16,065
58,645
303,389
476,619
4,500
2016
£
298,367
15,236
55,604
188,802
575,741
0
1,415,787
1,238,560
1,292,515
1,235,913
1,189,634
1,133,750
1
Taxable benefits for 2017 consist primarily of company car or car allowance and private health care insurance. The figures above include car benefits
of £15,000 for Messrs Smith, Lister and Simpson.
2 Pension figures include contributions to the Unite Group Personal Pension Scheme and cash allowances, where applicable.
3 Payment for performance during the year. Having already reached their share ownership guidelines, each Executive Director will receive 100% of their 2017
bonus award in cash.
4 2016 figures: LTIP awards granted in 2014, and which vested based on performance to 31 December 2016, are valued using the market price at the date of
vesting (10 April 2017) of 642.0 pence. These amounts have been revised from last year’s report to reflect the actual share prices on the dates of vesting. 2017
figures: For the 2015 awards, the market price on the date of vesting is currently unknown and so the value shown is estimated using the average market value
over the last quarter of 2017 of 727.9 pence. See following sections for further details. For both 2016 and 2017, LTIP figures include cash payments in lieu of
dividends for vested awards. Awards in the form of HMRC approved options are valued based on the embedded gain at vesting (i.e. subtracting the
applicable exercise price).
‘Other’ includes the embedded value of SAYE options at grant.
5
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received for 2016 and 2017 by each Non-Executive Director who
served in the year ended 31 December 2017:
P M White
R J T Wilson
A Jones
E McMeikan
R Paterson1
M Wolstenholme2
Base fee
Committee Chair fees
SID fee
2017
£
185,000
45,900
45,900
45,900
12,711
45,900
2016
£
129,650
45,000
45,000
45,000
–
45,000
2017
£
–
6,750
–
9,550
–
9,550
2016
£
–
6,600
–
9,350
–
9,350
2017
£
–
–
–
–
–
5,400
2016
£
–
–
–
–
–
5,250
Total
2017
£
185,000
52,650
45,900
55,450
12,711
60,850
2016
£
129,650
51,600
45,000
54,350
–
59,600
1 Ross Paterson joined the Board on 21 September 2017.
2 Manjit Wolstenholme served as Non-Executive Director until her death in November 2017.
Incentive outcomes for the year ended 31 December 2017 (audited)
Performance related annual bonus in respect of 2017 performance
The 2017 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 0 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 Executive 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 2017 reflect corporate bonuses of 83.2% of base salary. After applying
individual multipliers, actual performance related bonus payments awarded to the Executive Directors were 63.6% of their maximum
bonus opportunities. Further details, including the targets set and performance against each of the metrics, are provided in the
following tables.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
88
ANNUAL REPORT ON REMUNERATION CONTINUED
Corporate element outcomes
As disclosed in last year’s report, the Committee supplemented customer satisfaction with a measure based on University Reputation
for 2017 annual bonuses to reflect the equal importance of Unite’s relationships with Higher Education partners, together with the
opinions of our student customers directly. The corporate element otherwise operated as in previous years.
Financial
Non-financial
Measure
Adjusted EPS
TAR per share
Net debt to EBITDA ratio
Customer satisfaction
University Reputation
Weight
25.0%
25.0%
25.0%
12.5%
12.5%
Total corporate vesting (% of salary)
Original performance targets
‘Threshold’
‘Target’
50%
of salary
70%
of salary
100%
of salary
27.8p
47p
7.1x
80
79
29.0p
54p
6.9x
81
80
30.7p
61p
6.6x
82
81
‘Stretch’
120%
of salary
31.9p
67p
6.3x
84
82
1 Adjusted upwards for the impact of the convertible bond, which was not included in the original targets.
Individual element outcomes
Executive
Key achievements during the year included:
Actual
30.3p
93p
7.1x1
81
80
Vest
(% salary)
23.2
30.0
12.5
8.75
8.75
83.2
Personal multiplier
R S Smith
J J Lister
-
-
Successful delivery of Group KPIs
Led the successful development, communication and implementation of the Group’s
Strategy in response to anticipated changes in the competitive environment and HE sector
- Continued strong performance in the Chief Executive role, providing clear and valued
leadership to the Group while engaging investors to ensure the strategy is understood
and valued
- Continued to oversee the successful development of the other two Executive Directors.
-
-
Supported in the development and communication of the Group Strategy
Led the financing of new unsecured debt and secured an investment grade credit rating,
to ensure the efficient funding of the Group’s forward pipeline
- Oversaw the launch of a Business Intelligence system to become more insight led, to better
serve our customers and improve the operational and financial performance of the Group.
- Continued to embrace additional areas of responsibility, including the successful launch of
our Diversity in Action Group and the embedding of Up to uS.
R C Simpson
-
-
Supported in the development and communication of the Group Strategy
Successful delivery of high quality growth through a secured development pipeline and
strategic acquisition and disposal, with the acquisition of Aston Student Village as our first
venture into on campus
- Continued to embrace additional areas of responsibility, including procurement, which has led
to increased performance and efficiency across the business.
1.1x
1.1x
1.1x
The individual element of the 2017 annual bonus saw greater emphasis on shared objectives, reflecting the reshaped executive
team’s collaborative ethos. Against these stretching objectives, the Committee considers that Executive Directors continued to
develop strongly in their new and expanded roles, particularly in light of a number of external challenges throughout the year.
Overall bonus outcomes
Executive
R S Smith
J J Lister
R C Simpson
Corporate vesting
Personal multiplier
(% of salary)
(% of maximum)
Overall bonus outcome
83.2%
1.1x
1.1x
1.1x
91.52
91.52
91.52
63.6
63.6
63.6
£
401,407
326,726
303,389
The Committee is satisfied that the overall bonus outcomes are appropriate. 2017 financial performance was strong, evidenced in
particular by the above-target EPS and TAR performances, while against both the customer satisfaction measure and the newly
introduced University reputation measure, the Group delivered in line with its stretching plan and remains on track to achieve its longer-
term goals. An overall bonus outcome of 63.6% of maximum is an improvement on 2016, which the Committee feels is appropriate taking
into account the underlying performance of the Group and the strong individual progress of our Executive Directors.
Having already reached their respective share ownership guidelines, each Executive Director will receive 100% of their bonus
awards in cash.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 89
2015 LTIP vesting (vested on performance to 31 December 2017)
Awards in 2015 were made under the new LTIP, consisting of the Unite Group plc Performance Share Plan and the Unite Group plc
Approved Employee Share Option Scheme. Vesting of the awards was dependent on three equally weighted measures over a
three-year performance period: Total Accounting Return per share, Earnings Per Share and TSR outperformance of the FTSE 350 Real
Estate ‘Super Sector’ Index. There was no retest provision. Further details, including vesting schedules and performance against each
of the metrics are provided in the table below:
Measure
Weighting
Targets
Outcome
Vest %
2017 Adjusted EPS
1/3
TAR per share p.a.
(2015–2017)
TSR outperformance of
the FTSE 350 Real Estate
(‘Super Sector’) Index
1/3
1/3
0% vesting below 23.7 pence
25% vesting for 23.7 pence
100% vesting for 31.5 pence or more
Straight-line vesting between these points
0% vesting below 9%
25% vesting for 9%
100% vesting for 15% 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 Index by 9% p.a.
Straight-line vesting between these points
30.3 pence
88.45
21%
100
Index +17.3% p.a.
(79.7% return)
100
Total LTIP vesting (sum product of weighting and vest %)
96.14
The performance period for the each of the elements ended on 31 December 2017. Two-thirds of awards 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.
Executive Director
Interests held1
Vesting %
Interests vesting
Date vesting Assumed market price
Estimated value2
R S Smith
J J Lister
R C Simpson
65,179
72,094
65,179
96.14
62,665
69,314
62,665
2 April 2018 (2/3)
2 April 2019 (1/3)
727.9p
£446,537
£494,935
£446,537
In each case, interests held include 1,713 HMRC approved options under the ESOS.
1
2 Estimated value of HMRC approved options is based on embedded gain (i.e. after subtracting 583.5 pence exercise price).
In line with regulations, the value disclosed above and in the single total figure of remuneration table on page 78 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 2017 of 727.9 pence. The actual
value at vesting will be trued-up in the 2018 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
‘LTIP’ in the single total figure of remuneration table on page 78, and amounted to £30,082, £33,360 and £30,082 for Messrs Smith,
Lister and Simpson respectively.
Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration from the prior year compared with the average percentage
change in remuneration for all employees.
The CEO’s remuneration includes base salary, taxable benefit and annual bonus and for 2016 is calculated as an aggregate of
the remuneration of Mark Allan until 31 May 2016 and of Richard Smith thereafter (annual bonus relates to Richard Smith full year).
The pay for all other employees is calculated using the increase in the earnings of full-time employees for tax years 2016 and 2017.
The analysis excludes part-time employees and is based on a consistent set of employees, i.e. the same individuals appear in the
2016 and 2017 populations.
Base salary
Taxable benefits
Annual bonus
CEO
All employees
2017
£
2016
£
% change
2016–17
% change
2016–2017
437,167
16,089
401,407
433,837
17,079
227,083
0.8
(5.8)
76.8
2.0
7.3
53.1
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
90
ANNUAL REPORT ON REMUNERATION CONTINUED
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 2016 and 31 December 2017, along with the percentage change in both.
Total employee pay expenditure
Distributions to shareholders
2017
£m
40.8
45.3
2016
£m
% change
2016–17
39.2
35.3
4.1%
28.3%
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 15.4 pence per ordinary
share. Employee remuneration excludes social security costs.
Review of past performance
The following graph charts the TSR of the Company and the FTSE 350 Real Estate ‘Super Sector’ Index over the nine-year period from
1 January 2009 to 31 December 2017. While there is no comparator index or group of companies that truly reflects the activities of the
Group, the FTSE 350 Real Estate ‘Super Sector’ Index (the constituent members of which are all property holding and/or development
companies or real estate investment trusts within the UK) was chosen as it reflects trends within the UK property market generally and
tends to be the index against which analysts judge the performance of the Company. The table below details the Chief Executive’s
single figure remuneration over the same period.
8
0
0
2
r
e
b
m
e
c
e
D
1
3
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
700
600
500
400
300
200
100
0
Dec-2008
Dec-2009
Dec-2010
Dec-2011
Dec-2012
Dec-2013
Dec-2014
Dec-2015
Dec-2016
Dec-2017
Unite
FTSE 350 Real Estate ‘Super Sector’ Index
CEO single figure of
remuneration (£’000)
STI award rates against
maximum opportunity
LTI award rates against
maximum opportunity
2009
2010
2011
2012
2013
2014
2015
2016
2017
M C Allan
M C Allan
M C Allan
M C Allan
M C Allan
M C Allan
M C Allan
M C Allan
R S Smith
£222,860
R S Smith
£665,313
£687,175 £1,475,577
£993,754 £1,943,734 £2,987,402 £2,381,885
£1,238,560 £1,415,787
42.0%
43.4%
75.8%
63.4%
84.0%
89.4%
88.2%
0.0%
0.0%
82.4%
26.3%
83.1%
95.2%
100.0%
n/a
43.4%
n/a
100.0%
63.6%
96.1%
Scheme interests awarded in 2017 (audited)
LTIP
In April 2017, Executive Directors were granted awards under the LTIP with a maximum face value of c.200% of their respective salaries.
The three-year performance period over which performance will be measured began on 1 January 2017 and will end on 31 December
2019. Any awards vesting for performance will be subject to an additional two-year holding period.
Executive Director
R S Smith
J J Lister
R C Simpson
Date of grant
Shares over which
awards granted1
Market price
at date of award
10 April 2017
137,454
112,033
104,089
642.0p
Face value
£882,455
£719,252
£668,251
1
Combination of HMRC approved options under the ESOS (934) and nil cost options under the PSP calculated using a share price of 642 pence, being the
closing mid-market price on the day the awards were calculated.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement
91
Vesting of 2017 awards is dependent on three equally weighted measures over a three-year performance period: Total Accounting
Return per share, Earnings per share and TSR outperformance of the FTSE 350 Real Estate ‘Super Sector’ Index. There is no retest
provision. 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
Weighting
Targets
2019 Adjusted EPS
TAR per share p.a.
(2017–2019)
TSR outperformance of the
FTSE 350 Real Estate ‘Super
Sector’ Index (2017–2019)
1/3
1/3
1/3
0% vesting below 36 pence
25% vesting for 36 pence
100% vesting for 42 pence or more
Straight-line vesting between these points.
0% vesting below 7% p.a.
25% vesting for 7% p.a.
100% vesting for 13% p.a. or more
Straight-line vesting between these points.
0% vesting if Group underperforms the Index
25% vesting for matching the Index
100% vesting for outperforming Index by 9% p.a.
Straight-line vesting between these points.
SAYE
During the year under review, both Richard Simpson and Joe Lister participated in the three year 2017 Sharesave plan. Details of awards
under this plan are included in the table on page 95.
Exit payments made in the year (audited)
As disclosed in last year’s report, as part of the leaver arrangements for former Chief Executive, Mark Allan, the Committee preserved
the first two-thirds of his 2013 LTIP award (which vested in full based on performance to 31 December 2015). These awards became
capable of exercise on 1 April 2017, being an increased deferral period from the original vesting date, with the resultant value on that
date shown below.
Award cycle
2013 LTIP
Interests
vesting
131,209
Vesting
date
1 April 2017
Market price
on vesting
636.5p
Value
£835,145
Following vesting of this award, Mark Allan holds no further interests in the Unite LTIP.
Payments to past directors (audited)
Save for Mark Allan’s outstanding LTIP awards detailed above, there were no further payments to past directors during the year.
Implementation of Executive Director Remuneration Policy for 2018
Base salary
The Committee has approved the following salary increases with effect from 1 March 2017:
Executive Director
R S Smith
J J Lister
R C Simpson
Base salary from
1 March 2016 to
28 February 2017
£438,600
£357,000
£331,500
Base salary from
1 March 2017 to
28 February 2018
£447,370
£364,140
£338,130
Proposed salary increases are consistent with the average increase applied across the Group (c.2.0%).
Pension
Executive Directors will continue to receive a pension contribution of up to 20% of salary or an equivalent cash allowance.
Performance related annual bonus
Financial (75%)
Non-financial (25%)
Corporate
measures
Adjusted EPS
TAR per share
Net debt to EBITDA ratio
Customer satisfaction
University Reputation
Percentage
increase
2.0%
2.0%
2.0%
Wgt.
25.0%
25.0%
25.0%
12.5%
12.5%
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 92
ANNUAL REPORT ON REMUNERATION CONTINUED
The Performance Related Annual Bonus for the 2018 financial year will operate on the same basis as in 2017. 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 2018, 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. University Reputation, which was included in the annual bonus for the first time in 2017, will
maintain a 12.5% weighting. As with last year’s bonus, it is intended that the majority of 2018 objectives under the individual performance
multiplier will be shared across each of the Executive Directors. Proposed target levels have been set to be challenging relative to 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, and the key achievements by each Executive Director, retrospectively in the 2018 Directors’ Remuneration Report.
Annual bonuses will continue to be paid in cash, unless the recipient has not met their shareholding guidelines, in which case up to
50% of the amount payable will be satisfied by an allocation of shares in the Company deferred for three years. Clawback and malus
provisions apply to all awards.
LTIP
For 2018, the LTIP will continue to operate broadly on the same basis as in the 2017 financial year. The Committee, having considered
the performance of the Company and other relevant factors, intends that Executive Directors will each receive an award equivalent
to a maximum of 200% 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, TAR and TSR, as follows:
Measure
Weighting
Targets
2020 Adjusted Earnings Per Share (EPS)
1/3
Total Accounting Return (TAR)
per share p.a. (2018–2020)
1/3
TSR outperformance of the FTSE 350 Real
Estate ‘Super Sector’ Index (2018–2020)
1/3
0% vesting below 40 pence
25% vesting for 40 pence
100% vesting for 46 pence or more
Straight-line vesting between these points.
0% vesting below 7% p.a.
25% vesting for 7% p.a.
100% vesting for 13% p.a. or more
Straight-line vesting between these points.
0% vesting if Group underperforms the Index
25% vesting for matching the Index
100% vesting for outperforming Index by 9% p.a.
Straight-line vesting between these points.
Targets have been set with reference to internal and external reference points, including our strategic plan and broker consensus
estimates, and are designed to be stretching but achievable for participants. Full vesting under each element will require continued
exceptional performance over the next three years. Any awards vesting for performance will be subject to an additional two-year
holding period, during which time clawback provisions will also apply. Further details of the grant date and number of interests
awarded will be disclosed in the 2018 Annual Report on Remuneration.
Implementation of Non-Executive Director Remuneration Policy for 2018
Chairman and Non-Executive Director fees
During the final quarter of 2017, the Board undertook its annual review of Non-Executive Director fees. Following consideration
of salary increases across the Group and indicative fee increases at sector and FTSE comparators, the Board determined that the
basic fee should be increased from £45,900 p.a. to £46,800 p.a. and that additional fees should be increased by a similar rate. The
Committee, in considering similar factors, determined that the fee payable to the Chairman of the Board should be increased from
£185,000 to £188,700. Each of these fee increases is in line with increases applied to the broader employee population.
A summary of the fee increases, which are effective 1 January 2018, is set out in the table below.
Position
Base fees
Chairman
Non-Executive Director
Additional fees
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Nomination Committee Chair1
Health and Safety Committee Chair
1 As Chairman of the Board, Mr White does not receive any additional fee in respect of chairing this Committee.
2016
fees
2017
fees
2018
fees
£129,650
£185,000
£188,700
£45,000
£45,900
£46,820
£5,250
£5,400
£5,510
£9,350
£9,550
£9,750
£9,350
£9,550
£9,750
n/a
n/a
n/a
£6,600
£6,750
£6,900
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 93
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
2017 is set out below.
R S Smith
J J Lister
R C Simpson
P M White
R J T Wilson
A Jones
E McMeikan
R Paterson
Ordinary Shares
of 25 pence each at
31 December 2017
Ordinary Shares
of 25 pence each at
31 December 2016
233,730
466,588
226,410
10,952
6,275
15,000
5,000
5,856
166,346
410,936
159,026
10,952
6,275
15,000
5,000
n/a
None of the Directors has a beneficial interest in the shares of any other Group company. Since 31 December 2017, there have been
no changes in the Directors’ interests in shares.
Details of Directors’ share options are set out in the tables below.
Share price information
As at 31 December 2017, the middle market price for ordinary shares in the Company was 805.0p per share. During the course of the
year, the market price of the Company’s shares ranged from 571.5 pence to 805.0 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 2017.
R S Smith
J J Lister
R C Simpson
P M White
R J T Wilson
A Jones
E McMeikan
R Paterson
Interests
Subject to
deferral/holding
period1
58,016
31,918
28,855
Owned
outright
233,730
466,588
226,410
10,952
6,275
15,000
5,000
5,856
Unvested and/or
subject to perf.
conditions
Shareholding
requirement
% salary/fee
Current
shareholding %
salary/fee2
Requirement
met?
334,999
291,285
268,899
250
200
200
Yes
Yes
Yes
485
1090
587
48
110
263
88
103
Includes shares subject to a holding period under the 2014 LTIP and deferred bonus shares, where applicable.
1
2 Based on share price as at 31 December 2017 of 805 pence. Shares subject to deferral/holding periods are taken on a ‘net of tax’ basis for the purposes of the
current shareholding calculation.
Richard Smith
250%
485%
Joe Lister
Richard Simpson
200%
200%
587%
1090%
0
250
500
750
1000
Shareholding requirement
Current shareholding
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
94
ANNUAL REPORT ON REMUNERATION CONTINUED
Directors’ interests in shares and options under Unite incentives (audited)
Deferred bonus
Executive
R C Simpson
R S Smith
LTIP awards
Executive
J J Lister
R C Simpson
R S Smith
Interests
held at
1 January
2017
Granted
during
the year
Market
price per
share
at grant
Interests
vested
during the
year
Interests
lapsed
during the
year
Interests
held at
31 December
2017
32,777
32,777
32,777
29,161
61,438
–
–
–
–
–
442.0p
–
32,777
32,777
442.0p
32,777
533.5p
–
–
32,777
–
–
–
–
–
–
–
–
29,161
29,161
Interests
held at
1 January 2017
Interests awarded
during the year
(ordinary shares of
25p each in the
Company)
Market price per
share when
awarded/ESOS
exercise price
Interests vested
during the year
Interests lapsed
during the year
Outstanding at
31 December 2017
(ordinary shares of
25p each in the
Company)
95,753
72,094
109,941
–
277,788
86,566
65,179
102,147
–
253,892
86,566
65,179
134,882
–
286,627
–
–
–
112,033
112,033
–
–
–
104,089
104,089
–
–
–
137,454
137,454
428.6p
95,7531
583.5p
641.5p
642.0p
–
–
–
–
95,753
428.6p
86,5661
583.5p
641.5p
642.0p
–
–
–
–
86,566
428.6p
86,5661
583.5p
641.5p
642.0p
–
–
–
–
86,566
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
72,094
109,941
112,033
294,068
–
65,179
102,147
104,089
271,415
–
65,179
134,882
137,454
337,515
Deferral
period
07.03.14
– 06.03.17
–
07.03.14
– 06.03.17
24.02.15
– 23.02.18
–
Period of
qualifying
conditions
10.04.14
–10.04.17
02.04.15
–02.04.18
23.06.16
–23.06.19
10.04.17
–10.04.20
–
10.04.14
–10.04.17
02.04.15
–02.04.18
23.06.16
–23.06.19
10.04.17
–10.04.20
–
10.04.14
–10.04.17
02.04.15
–02.04.18
23.06.16
–23.06.19
10.04.17
–10.04.20
–
1 One-third of awards vested for performance are subject to an additional one-year holding period, i.e. 31,918, 28,855 and 28,855 shares in respect
of Messrs Lister, Simpson and Smith respectively.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 95
Granted
during the
year
Exercised
during the
year
Option
price per
share
Options
held at
31 December
2017
Maturity date
–
–
–
–
–
–
205.5p
527.6p
556.4p
345.1p
556.4p
527.6p
7,299
01 December 2017
1,705
01 December 2018
1,617
01 December 2020
5,216
01 December 2017
3,235
01 December 2020
3,411
01 December 2018
Options
held at
1 January
2017
7,299
1,705
–
–
–
1,617
5,216
–
–
3,235
3,411
–
SAYE
Executive
J J Lister
R C Simpson
R S Smith
The highest, lowest and closing share prices for 2017 are shown on page 93.
Details of the qualifying performance conditions in relation to the above referred to awards made in 2015 and 2017 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 2016 awards were set out in the 2016 Directors’ Remuneration Report.
Awards made in 2014, 2015, 2016 and 2017 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
J J Lister
R C Simpson
R S Smith
2017
£
2016
£
257,993
312,135
235,998
337,697
272,809
407,570
The Directors’ Remuneration Report has been approved by the Remuneration Committee and signed on its behalf by:
Elizabeth McMeikan
Chair, Remuneration Committee
21 February 2018
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
96
DIRECTORS’ REPORT
As at 21 February 2018, the Company had
received notifications from the following
companies and institutions of the voting
interests of themselves and their clients in
3% or more of the issued ordinary share
capital of the Company.
Shareholder
APG Asset Management NV
BlackRock Inc
Old Mutual Plc
Royal London Asset
Management Ltd
Standard Life Aberdeen
The Vanguard Group Inc
Cohen & Steers Inc
State Street Global Advisors Ltd
Percentage
of Share
Capital
8.0
7.7
4.2
4.1
3.7
3.7
3.2
3.1
Share capital
At the date of this report, there are
240,843,551 ordinary shares of 25p each in
issue, all of which are fully paid-up and
quoted on the London Stock Exchange.
During the year and through to the date of
this report, 151,670 ordinary shares of 25p
each were allotted and issued pursuant to
the exercise of options under The Unite
Group plc Savings-Related Share Option
Scheme, 50,476 ordinary shares of 25p
each were allotted and issued pursuant to
the exercise of options under the Approved
Scheme and 18,593,589 ordinary shares of
25p each were allotted and issued
following the conversion of the 2.50%
Guaranteed Convertible Bonds due 2018.
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 Market Abuse
Regulations, 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.
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 and viability statement
The going concern statement and viability
statement is set out on pages 67 and 27
respectively 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/
herself aware of any relevant audit
information and to establish that
the Company’s auditor is aware of
that information.
Directors’ conflicts of interest
The Company has procedures in
place for managing conflicts of interest.
A Director must notify the Chairman (and
the Chairman notifies the Chief Executive)
if he/she become aware that he/she, or
any of his/her 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 2017.
Other information incorporated
by reference
The following information in the Strategic
Report is incorporated into this Directors’
Report by reference:
Results and Dividend
Page 1
Post-balance sheet events
Page 111
Greenhouse Gas Emissions
Page 49
Financial instruments and
financial risk management
Page 31
Employment of disabled
persons/Employee
involvement
Page 47
The Corporate Governance Statement
on pages 52 to 95 and the Statement
of Directors’ responsibilities on page 99
are incorporated into this Directors’
report by reference.
Management Report
This Directors’ report together with the
Strategic report and other sections from
the Annual report forms the Management
report for the purposes of DTR 4.1.8 R.
Annual General Meeting
The annual general meeting of the
Company will be held at the Company’s
registered office at South Quay, Temple
Back, Bristol, BS1 6FL at 9.30am on 10 May
2018. Formal notice (the Notice) of the
Meeting is given on pages 156 to 159.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement 97
Resolution 17 additionally authorises
the Directors to allot new shares for cash,
without the shares first being offered to
existing shareholders in proportion to their
existing holdings, in connection with the
financing (or refinancing, if the authority
is to be used within six months of the
original transaction) of an acquisition
or specified capital investment which is
announced contemporaneously with the
allotment or which has taken place in
the preceding six-month period and is
disclosed in the announcement of the
allotment. The authority under Resolution 17
is limited to the aggregate amount stated
in the Notice (which represents 5% of the
nominal value of the issued share capital of
the Company as at the date of the Notice).
Taken together, these disapplication
of pre-emption rights resolutions will
allow the Directors to issue new shares
for cash without offering the shares first
to existing shareholders in proportion
to their existing holdings under the
following circumstances:
-
-
-
in connection with a rights issue or
other pre-emptive issue, with a nominal
value equivalent to two-thirds of the
issued share capital as at the date of
the Notice (which will allow the
Directors to make exclusions or such
other arrangements as may be
appropriate to resolve legal or
practical problems which, for example,
might arise with overseas shareholders);
for any other purpose, with a nominal
value equivalent to 5% of the issued
share capital as at the date of the
Notice; and
in connection with the financing
or refinancing of an acquisition or
specified capital investment which is
announced contemporaneously with
the allotment or which has taken place
in the preceding six-month period and
is disclosed in the announcement of
the allotment, with a nominal value
equivalent to 5% of the issued share
capital as at the date of the Notice,
but subject to an overall aggregate
limit equivalent to two-thirds of the
issued share capital as at the date
of the Notice.
Resolution 4: Scrip Dividend Scheme
In addition to the ordinary business of the
meeting, the Directors wish to offer
shareholders the option of receiving
ordinary shares, credited as fully paid,
instead of cash in respect of the whole (or
part, as determined by the Directors) of
any dividend declared (‘Scrip Dividend
Scheme’). Shareholders who elect to
participate in the Scrip Dividend Scheme
will be able to increase their shareholding
in the Company without incurring dealing
costs or stamp duty. The Scrip Dividend
Scheme also gives the Company greater
flexibility in managing its capital resources
by retaining cash in the business which
would otherwise be paid out as
a dividend.
Article 142 of the Company’s articles of
association permits the provision of this
scrip dividend alternative, as long as it is
authorised by an ordinary resolution of
the Company, and Resolution 4 seeks
this authorisation. Under the articles of
association, this authorisation may be for a
period of up to five years from the date of
such authorisation, and may be in respect
of dividends declared during the period
starting on the date of the authorisation
and ending at the beginning of the fifth
Annual General Meeting of the Company
following such authorisation. In line with
investor protection guidelines, the authority
contained in Resolution 4 is sought for three
years and starting on the date of the
authorisation and ending at the beginning
of the third Annual General Meeting of the
Company following such authorisation.
In accordance with Article 142(b) of the
articles of association, the entitlement of
each shareholder to receive new ordinary
shares under the Scrip Dividend Scheme
shall be such that the relevant value of
the entitlement shall be nearly as possible
equal to the cash amount that such
shareholder would have received by way
of dividend. For these purposes, ‘relevant
value’ would have the same meaning as
in the articles of association, and shall be
calculated by reference to the average
of the middle market quotations for the
ordinary shares on the London Stock
Exchange as derived from the Daily
Official List, for the day on which the
ordinary shares are first quoted ‘ex’ the
relevant dividend and the four subsequent
dealing days, or in such other manner as
the Directors may determine on such basis
as it considers to be fair and reasonable.
The articles of association permit this, as
long as it is authorised by an ordinary
resolution of the Company.
Full details of the terms and conditions
of the Scrip Dividend Scheme and
instructions on how to participate will be
set out in a shareholder circular and guide.
Resolution 15: Authority to allot shares
Resolution 15 will be proposed as an
ordinary resolution to grant the Directors
authority to allot shares in the Company,
and grant rights to subscribe for, or to
convert, any security into shares of the
Company, up to the aggregate amount
stated in the Notice (which represents
one-third of the nominal value of the
issued share capital of the Company as
at the date of the Notice). In accordance
with guidelines issued by the Investment
Association, this resolution also grants the
Directors authority to allot further equity
securities up to the aggregate amount
stated in the Notice (which represents
one-third of the nominal value of the
issued share capital of the Company as
at the date of the Notice). This additional
authority may only be applied to fully
pre-emptive rights issues.
Resolutions 16 and 17: Disapplication of
pre-emption rights resolutions
If the Directors wish to allot new shares and
other equity securities for cash (other than
in connection with an employee share
scheme), company law requires that these
shares are offered first to the shareholders,
in proportion to their existing holdings. The
Directors consider it desirable to have the
maximum flexibility permitted by corporate
governance guidelines to respond to
market developments and to enable
allotments to take place to finance
business opportunities without making a
pre-emptive offer to existing shareholders.
This cannot be done under the Companies
Act 2006 unless the shareholders have first
waived their pre-emption rights. The
purpose of Resolutions 16 and 17 (together
the ‘disapplication of pre-emptions rights
resolutions’) is to enable shareholders to so
waive their pre-emption rights.
Resolution 16 authorises the Directors to
allot new shares pursuant to the authority
given by Resolution 15 (the allotment
resolution) for cash:
(a) in connection with a rights issue or
pre-emptive issue; and/or
(b) otherwise up to the aggregate amount
stated in the Notice (which represents
5% of the nominal value of the issued
share capital of the Company as at the
date of the Notice),
in each case without the shares first being
offered to existing shareholders in
proportion to their existing holdings.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 98
DIRECTORS’ REPORT CONTINUED
The Directors intend to adhere to the
provisions in the Pre-Emption Group’s
Statement of Principles, as updated in
March 2015, and not to allot shares for cash
on a non-pre-emptive basis pursuant to the
authority in Resolution 16 either in excess of
an amount equal to 5% of the total issued
ordinary share capital of the Company or
in excess of an amount equal to 7.5% of the
total issued ordinary share capital of the
Company within a rolling three-year
period, without prior consultation with
shareholders. Adherence to the principles
would not preclude issuances under the
authority sought under Resolution 17.
The allotment and the disapplication of
pre-emption rights resolutions comply with
the Share Capital Management Guidelines
issued by the Investment Association in July
2016 and the disapplication of pre-emption
rights resolutions follow the resolution
templates issued by the Pre-Emption
Group in May 2016.
If the resolutions are passed, the authorities
will expire at the end of the next Annual
General Meeting of the Company or, if
earlier, 9 August 2019, this being the date
15 months from the passing of the
resolutions, whichever is the earlier.
Resolution 18: Notice of
General Meetings
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 days. At the Annual General
Meeting of the Company held in 2017,
shareholders authorised the calling of
General Meetings, other than an Annual
General Meeting, on not less than 14 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 days’
notice. The flexibility offered by Resolution
18 will be used where, taking into account
the circumstances, the Directors consider it
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 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
21 February 2018
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Corporate governance statement STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT
AND THE FINANCIAL STATEMENTS
99
The Directors are responsible for preparing
the Annual Report and Accounts and the
Group and parent company financial
statements in accordance with
applicable law and regulations.
Company law requires the Directors to
prepare Group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements in
accordance with IFRSs as adopted by the
EU and applicable law and have elected
to prepare the parent company financial
statements on the same basis.
Under company law, the Directors must
not approve the financial statements
unless they are satisfied that they give a
true and fair view of the state of affairs of
the Group and parent company and of
their profit or loss for that period.
In preparing each of the Group and
parent company financial statements, the
Directors are required to:
-
Select suitable accounting policies
and then apply them consistently
- Make judgments and estimates that
-
are reasonable and prudent
State whether they have been
prepared in accordance with IFRSs
as adopted by the EU
- Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the parent company will
continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose with
reasonable accuracy at any time the
financial position of the parent company
and enable them to ensure that its
financial statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard
the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Directors’ Report, Directors’
Remuneration Report and Corporate
Governance Statement that comply
with that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Each of the Directors, the name of whom
are set out on pages 56 and 57, 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 position and
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
The Directors’ Report includes a
fair review of the development
and performance of the business
and the position of the issuer and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties
that they face.
R Smith
Director
21 February 2018
J Lister
Director
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 100
Report on the audit of the financial statements
Opinion
In our opinion:
-
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December
2017 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
(IFRSs) as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union 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.
-
-
-
We have audited the financial statements of The Unite Group plc (the ‘parent company’) and its subsidiaries (the ‘Group’)
which comprise:
-
-
-
-
-
-
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated and parent company balance sheets;
the consolidated and parent company statements of changes in equity;
the consolidated and parent company statements of cash flow; and
the related sections 1 to 7.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Investment and development property valuation;
-
- Accounting for Joint Ventures; and
- Real Estate Investment Trust (‘REIT’) compliance.
Within this report, any new key audit matters are identified with
which are the same as the prior year identified with
.
and any key audit matters
Last year our report included a key audit matter relating to the Group’s REIT transition; this is
no longer relevant in the current year as the Group elected to become a REIT from 1
January 2017. In the current year, we have a new key audit matter relating to the Group’s
compliance with the REIT provisions as this is the first year that the Group is required to
operate in accordance with the REIT regulations.
The materiality that we used for the Group financial statements was £17.5m which was
determined on the basis of net assets. However, we use a lower threshold of £3.5m for
balances which impact European Public Real Estate Association (‘EPRA’) earnings.
Consistent with our approach in the prior year, our Group audit scope focussed on the
audit work of The Unite Group plc as well as the Joint Ventures, The Unite UK Student
Accommodation Fund (‘USAF’) and The London Student Accommodation Venture (‘LSAV’).
All audit work was completed by the Group audit team.
There have been no significant changes in our audit approach in the current year, with the
exception of the key audit matter changes relating to REIT as set out in the ‘key audit
matters’ section above.
Materiality
Scoping
Significant changes
in our approach
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE UNITE GROUP PLC ONLYTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements 101
Conclusions relating to going concern, principal risks
and viability statement
We confirm that we have nothing material
to report, add or draw attention to in
respect of these matters.
We confirm that we have nothing material
to report, add or draw attention to in
respect of these matters.
Going concern
We have reviewed the directors’ statement in Section 1 to the financial statements
about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them and their identification of any material uncertainties
to the Group’s and company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw
attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report
if the statement is materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they
were consistent with the knowledge we obtained in the course of the audit,
including the knowledge obtained in the evaluation of the directors’ assessment
of the Group’s and the company’s ability to continue as a going concern, we are
required to state whether we have anything material to add or draw attention to
in relation to:
-
-
-
the disclosures on pages 28–31 that describe the principal risks and explain how
they are being managed or mitigated;
the directors’ confirmation on page 99 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; or
the directors’ explanation on page 27 as to how they have assessed the
prospects of the Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the
prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Last year our report included a key audit matter relating to the Group’s REIT transition; this is no longer relevant in the current year as
the Group elected to become a REIT from 1 January 2017. In the current year, we have a new key audit matter relating to the Group’s
compliance with the REIT provisions as this is the first year that the Group is required to operate in accordance with the REIT regulations.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 102
Investment property and development property valuation
Key audit matter description
How the scope of our
audit responded to the
key audit matter
Key observations
The Group’s principal assets are investment properties (2017: £1,261.4m; 2016: £1,016.6m)
and investment properties under development (2017: £205.7m; 2016: £184.6m). The Group
also holds investments in the joint ventures, USAF and LSAV, whose principal assets are investment
properties. The investment properties are carried at fair value based on an appraisal by the
Group’s independent external valuers. Valuations are carried out at six-monthly intervals for the
Group in accordance with the Royal Institution of Chartered Surveyors (‘RICS’) Valuation –
Professional Standards (the ‘Red Book’), taking into account transactional evidence during
the year.
Management conduct a detailed exercise twice annually to assess the valuation of the Group’s
property portfolio. The valuation is underpinned by a number of judgements and assumptions as it
requires the estimation of property yields, rental growth, occupancy and property management
costs. A small change in these assumptions could have a significant impact on the valuation of
properties and there is an associated fraud risk due to the risk of management override of controls.
With regards to the valuation of the USAF properties, small changes could also have a significant
impact on a key input to the calculation of the performance fee recognised for the year ended
31 December 2017 as this is based on the net asset value of the fund.
With regards to the investment properties under development, additional judgement is required
to forecast discounted cash flows with a deduction for construction costs to complete.
Refer to page 69 (Audit Committee Statement) and section 3.1: Wholly owned property assets
and section 3.4 Investments in joint ventures.
We performed testing on the property valuations and critically assessed the judgements and
estimates that had been made. This work included:
- Understanding and documenting the underlying business process and then evaluating
the design, determining implementation and testing operating effectiveness of the
relevant controls;
- Understanding and challenging the assumptions taken in relation to key drivers such as rental
income and growth, occupancy, yields and costs with reference to the trends at the end of
the year and the following year’s budget;
- Meeting with the Group’s valuers to understand the assumptions being taken and consistency
of the judgements with prior year;
- Working with our valuation experts within our Deloitte Real Estate team to benchmark the
assumptions used against market data; and
- Assessing the Group’s development appraisal process through meeting with the development
team and assessing the forecast cost to complete against budget and substantive testing of
costs incurred to date.
We are satisfied with the approach and methodology adopted in valuing the property
portfolio and consider the valuations to be suitable for inclusion in the financial statements at
31 December 2017.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE UNITE GROUP PLC ONLY CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements 103
Accounting for Joint Ventures
Key audit matter description A significant proportion of the Group’s assets is held within USAF and LSAV, jointly owned entities
that are accounted for under the equity method as joint ventures (2017: £793.5m; 2016: £692.9m),
on the basis that Unite does not control the entities. At 31 December 2017 Unite had a 24.6%
(2016: 23.0%) ownership of USAF and 50.0% (2016: 50.0%) ownership of LSAV, and acts as manager
of both joint venture vehicles.
Due to the complexity of the contractual arrangements, and the Group’s role as manager
of the joint venture vehicles, the assessment of control involves judgements around a number
of significant factors, particularly with regards to USAF given that it is a multi-investor fund and
the Unite ownership stake is subject to change. In accordance with the requirements of IFRS,
there is a need to assess control with regards to the ability to direct relevant activities, to have
exposure to variable returns and the ability to use power to affect returns at each reporting period.
Management have assessed (in line with the prior year) that Unite does not have control over USAF
and LSAV, but has joint control. Consequently Management have accounted for the joint ventures
under the equity method rather than consolidating them within the Group’s financial statements.
How the scope of our
audit responded to the
key audit matter
Refer to page 70 (Audit Committee Statement) and section 3.4: Investments in joint ventures
Our audit procedures on this area focussed on assessing the activities of the businesses,
understanding the contractual agreements in place and identifying the methodology
applied by Management in reaching their business decisions in order to consider the
appropriateness of the classification of these arrangements as joint ventures in
accordance with the requirements of IFRS.
With regards to both USAF and LSAV, we have:
- Understood and documented the underlying business process and evaluated the design,
determined implementation and tested operating effectiveness of the relevant controls;
- Critically assessed the key activities and how they impact the returns to the Group from
the funds and challenged Management’s own consideration of these factors in their
application of IFRS;
- Assessed the Group’s monitoring of its role and the three key factors relating to control
and its exercise in accordance with the judgement required under IFRS; and
- Reviewing the new fund agreements.
Given the particular focus on USAF, we have:
- Assessed the role of the USAF Advisory Committee and concluded that Unite do not
have sole power to direct the activities that are likely to most significantly affect the returns
of USAF in the future, and therefore Unite do not have control of USAF; and
- Critically evaluated the impact of the percentage ownership on a regular basis.
There has been no change to the structure and the role played by Unite as investor and asset /
development manager in the year. Changes to the underlying fund agreements in the year
have not significantly altered the level of control exercised by Unite, or the USAF Advisory
Committee or LSAV Board.
We consider Management’s conclusion that Unite does not have control of the JVs to be consistent
with our conclusion. Therefore, treatment as joint ventures is considered to be appropriate.
Key observations
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 104
REIT compliance
Key audit matter description On 1 January 2017, the Group converted to a Real Estate Investment Trust ‘REIT’, with HMRC
confirming that the election to REIT status has been validly made. The primary tax consequences
of conversion and ongoing maintenance of REIT status are that future UK property business
profits and gains on investment properties are not subject to UK corporation (or income) tax.
Most notably, this means that the Group no longer recognises deferred tax in relation to the
valuation gains on the investment property portfolio.
In order to maintain REIT status, the Group must comply with certain tests and other conditions
to ensure its continuation under the regime. Due to the material impact on the Group’s financial
results of remaining in compliance with the REIT regime requirements, we consider REIT
compliance to be a key audit matter.
Refer to page 70 (Audit Committee Statement) and section 2.5: Tax
Our audit procedures included:
- Understanding and documenting the underlying business process and then evaluating
the design, determining implementation and testing operating effectiveness of the
relevant controls;
- Utilising tax audit specialists, including REIT specialists, to assess whether the key judgements
relating to REIT compliance are understood;
- Considering the clarity and presentation of the Group’s disclosures of its tax balances and
effective tax rate reconciliation; and
Testing the Group’s current and forecast compliance with the REIT regime rules.
-
How the scope of our
audit responded to the
key audit matter
Key observations
We are satisfied with Management’s calculations and compliance with the REIT regime.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Net Assets: £17.5m (2016: £14.8m)
£16.5m (2016: £14.2m)
Group financial statements
Parent company financial statements
Basis for
determining
materiality
Rationale for the
benchmark
applied
EPRA Impacting Measures: £3.5m (2016: £3.0m)
1% of Net Assets
5% of EPRA Earnings
1% of Net Assets
We determined materiality for the Group based on
1% of net assets (2016: 1% of net assets) as the
balance sheet is considered to be a key driver of a
property group.
As the parent holding company the principal
activity is to hold the investments in subsidiaries.
Therefore, the net assets balance is considered to
be the key driver of the company’s performance
and the most relevant benchmark for materiality.
In addition to net assets, we consider the EPRA
earnings measure to be a critical financial
performance measure for the Group and we have
applied a lower threshold based on 5% of EPRA
earnings (2016: 5% of EPRA earnings) for testing of
revenue, cost of sales, operating expenses, loan
interest and similar charges, finance income, share
of joint venture profit and taxation.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £176,250 (2016: £153,000)
for the Group and the Parent Company, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE UNITE GROUP PLC ONLY CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements 105
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level.
The Group is audited by one audit team, led by the Senior Statutory Auditor. The audit is performed centrally at the Bristol head office,
as the books and records for each entity within the Group are maintained at this location. The Group only operates within the United
Kingdom – this includes Unite as well as the two joint ventures, USAF and LSAV.
We also tested the consolidation process and carried out analytical review procedures to confirm our conclusion that there were no
significant risks of material misstatement of the aggregated financial information. We audit all of the Group’s subsidiaries and joint
ventures which are subject to audit at statutory materiality level, which in many cases is substantially lower than Group materiality.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
-
Fair, balanced and understandable – the statement given by the directors that they consider 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 position and
performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
- Audit committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
- Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor
in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Responsibilities of directors
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, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 106
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
-
-
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; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect
of these matters.
- we have not received all the information and explanations we require for our
audit; or
- 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 are not in agreement with the
accounting records and returns.
-
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made or the part of
the directors’ remuneration report to be audited is not in agreement with the
accounting records and returns.
We have nothing to report in respect
of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board on 10 June 2015 to audit the financial
statements for the year ending 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 3 years, covering the years ending 31 December 2015 to 31 December 2017.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
Judith Tacon (Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
21 February 2018
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE UNITE GROUP PLC ONLY CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements INTRODUCTION AND TABLE OF CONTENTS
107
These financial statements are prepared in accordance with IFRS. The Board of Directors also present the Group’s performance
on the basis recommended for real estate companies by the European Public Real Estate Association (EPRA). The reconciliation
between IFRS performance measures and EPRA performance measures can be found in Section 2.2 b) for EPRA earnings
and 2.3 c) for EPRA net asset value (NAV). The adjustments to the IFRS results are intended to help users in the comparability
of these results across other listed real estate companies in Europe and reflect how the directors monitor the business.
We have grouped the notes to the financial statements under six main headings:
- Results for the year, including segmental information, EPRA earnings and EPRA NAV
- Asset management
- Funding
- Working capital
- Key management and employee benefits
- Company subsidiaries and joint ventures
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 Earnings
2.3 Net assets
2.4 Revenue and costs
2.5 Tax
2.6 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 and cash equivalents
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
Section 7: Company subsidiaries and joint ventures
INTRODUCTION AND TABLE OF CONTENTSStrategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
108
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2017
Rental income
Property sales and other income
Total revenue
Cost of sales
Operating expenses
Results from operating activities
Profit on disposal of property
Net valuation gains on property
Profit before net financing costs
Loan interest and similar charges
Swap cancellation and loan break costs
Finance costs
Finance income
Net financing costs
Share of joint venture profit
Profit before tax
Current tax
Deferred tax
Profit for the year
Profit for the year attributable to
Owners of the parent company
Minority interest
Earnings per share
Basic
Diluted
All results are derived from continuing activities.
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2017
Profit for the year
Movements in effective hedges
Deferred tax in relation to movements in effective hedges
Share of joint venture movements in effective hedges
Deferred tax in relation to share of joint venture movements in effective hedges
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Attributable to
Owners of the parent company
Minority interest
All other comprehensive income may be classified as profit and loss in the future.
Note
2.4
2.4
2.4
3.1
4.3
4.3
4.3
4.3
4.3
3.4b
2.5
2.5
2.2c
2.2c
2.2c
Note
4.2
2.5d
3.4b
2.5d
2017
£m
99.7
19.6
119.3
(41.1)
(26.9)
51.3
0.6
103.1
155.0
(17.3)
(11.5)
(28.8)
0.1
(28.7)
103.1
229.4
(1.7)
(3.9)
223.8
221.6
2.2
223.8
95.3p
93.6p
2017
£m
223.8
10.8
–
2.1
–
12.9
236.7
234.5
2.2
236.7
2016
£m
97.1
23.6
120.7
(44.9)
(25.0)
50.8
0.4
77.2
128.4
(20.9)
(1.0)
(21.9)
0.1
(21.8)
94.8
201.4
(2.3)
27.3
226.4
224.0
2.4
226.4
101.3p
94.7p
2016
£m
226.4
(9.2)
(1.1)
(1.4)
(0.5)
(12.2)
214.2
211.8
2.4
214.2
CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2017THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
CONSOLIDATED BALANCE SHEET
At 31 December 2017
Assets
Investment property
Investment property under development
Investment in joint ventures
Other non-current assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Borrowings
Trade and other payables
Current tax liability
Total current liabilities
Borrowings
Interest rate swaps
Deferred tax liability
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
109
2017
£m
2016
£m
1,261.4
205.7
793.5
32.4
2,293.0
4.5
82.9
51.2
138.6
2,431.6
(1.3)
(152.1)
(4.1)
(157.5)
(511.5)
(0.8)
(7.6)
(519.9)
(677.4)
1,061.6
184.6
692.9
29.8
1,968.9
2.9
77.9
42.7
123.5
2,092.4
(1.3)
(123.7)
(2.4)
(127.4)
(473.5)
(11.6)
(4.4)
(489.5)
(616.9)
1,754.2
1,475.5
60.2
579.5
40.2
1,051.2
(2.1)
–
1,729.0
25.2
1,754.2
55.5
493.6
40.2
867.9
(15.0)
9.4
1,451.6
23.9
1,475.5
Note
3.1
3.1
3.4b
3.3
3.2
5.2
5.1
4.1
5.4
4.1
4.2
2.5d
4.8
4.8
4.1
These financial statements of The Unite Group plc, registered number 03199160, were approved by the Board of Directors on 21 February
2018 and were signed on its behalf by:
R S Smith
Director
J J Lister
Director
CONSOLIDATED BALANCE SHEETAt 31 December 2017Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
110
COMPANY BALANCE SHEET
At 31 December 2017
Assets
Investments in subsidiaries
Total investments
Loan to group undertaking
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
Current tax liability
Total current liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Merger reserve
Retained earnings
Equity portion of intercompany loan
Total equity
Note
3.5
3.5
5.2
5.1
4.1
5.4
5.4
4.1
2017
£m
926.6
926.6
90.0
1,016.6
912.1
–
912.1
1,928.7
(2.9)
(2.5)
(3.2)
–
(8.6)
(267.6)
(267.6)
(276.2)
2016
£m
725.4
725.4
179.9
905.3
686.4
–
686.4
1,591.7
(0.1)
(1.3)
(3.0)
–
(4.4)
(175.3)
(175.3)
(179.7)
1,652.5
1,412.0
60.2
579.5
40.2
972.6
–
1,652.5
55.5
493.6
40.2
813.3
9.4
1,412.0
Total equity is wholly attributable to equity holders of The Unite Group plc.
These financial statements of The Unite Group plc, registered number 03199160, were approved by the Board of Directors on 21 February
2018 and were signed on its behalf by:
R S Smith
Director
J J Lister
Director
COMPANY BALANCE SHEETAt 31 December 2017THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
For the year ended 31 December 2017
111
At 1 January 2017
Profit for the year
Other comprehensive
income for the year
Total comprehensive
income for the year
Shares issued
Deferred tax on share
based payments
Fair value of share based
payments
Redemption of
convertible bond
Own shares acquired
Dividends paid to owners
of the parent company
Dividends to minority
interest
At 31 December 2017
At 1 January 2016
Profit for the year
Other comprehensive loss
for the year
Total comprehensive
income for the year
Shares issued
Deferred tax on share
based payments
Fair value of share based
payments
Own shares acquired
Dividends paid to owners
of the parent company
Dividends to minority
interest
At 31 December 2016
Issued
share capital
£m
55.5
Share
premium
£m
493.6
Merger
reserve
£m
40.2
Retained
earnings
£m
867.9
Hedging
reserve
£m
(15.0)
Equity portion of
convertible
instrument
£m
9.4
Attributable
to owners
of the parent
£m
1,451.6
Minority
interest
£m
23.9
Total
£m
1,475.5
–
–
–
4.7
–
–
–
–
–
–
–
–
83.0
–
–
2.9
–
–
–
–
–
–
–
–
–
–
–
221.6
–
–
12.9
221.6
–
12.9
–
0.7
1.5
5.8
(1.9)
(44.4)
–
–
–
–
–
–
60.2
–
579.5
–
40.2
–
1,051.2
–
(2.1)
–
–
–
–
–
–
(9.4)
–
–
–
–
221.6
2.2
223.8
12.9
234.5
87.7
0.7
1.5
(0.7)
(1.9)
(44.4)
–
2.2
–
–
–
–
–
–
12.9
236.7
87.7
0.7
1.5
(0.7)
(1.9)
(44.4)
–
1,729.0
(0.9)
25.2
(0.9)
1,754.2
Issued
share capital
£m
55.5
Share
premium
£m
493.3
Merger
reserve
£m
40.2
Retained
earnings
£m
679.5
Hedging
reserve
£m
(2.8)
Equity portion of
convertible
instrument
£m
9.4
Attributable
to owners
of the parent
£m
1,275.1
Minority
interest
£m
22.6
Total
£m
1,297.7
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
55.5
–
493.6
–
40.2
224.0
–
–
(12.2)
(12.2)
–
–
–
–
–
224.0
(0.1)
1.2
(2.5)
(34.2)
–
867.9
–
–
–
–
–
–
–
–
224.0
2.4
226.4
(12.2)
–
(12.2)
211.8
0.3
(0.1)
1.2
(2.5)
(34.2)
2.4
–
214.2
0.3
–
–
–
–
(0.1)
1.2
(2.5)
(34.2)
–
(15.0)
–
9.4
–
1,451.6
(1.1)
23.9
(1.1)
1,475.5
The notes on pages 114 to 154 form part of the financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFor the year ended 31 December 2017Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
112
COMPANY STATEMENT OF CHANGES IN
COMPANY STATEMENT OF CHANGES
SHAREHOLDERS’ EQUITY
IN SHAREHOLDERS’ EQUITY
For the year ended 31 December 2017
For the year ended 31 December 2017
At 1 January 2017
Profit for the year & other comprehensive income
Shares issued
Redemption of convertible bond
Dividends to shareholders
At 31 December 2017
At 1 January 2016
Profit for the year & other comprehensive income
Shares issued
Dividends to shareholders
At 31 December 2016
Issued
share capital
£m
55.5
–
4.7
–
–
60.2
Issued
share capital
£m
55.5
–
–
–
55.5
Share
premium
£m
493.6
–
83.0
2.9
–
579.5
Share
premium
£m
493.3
–
0.3
–
493.6
Merger
reserve
£m
40.2
–
–
–
–
40.2
Merger
reserve
£m
40.2
–
–
–
40.2
Retained
earnings
£m
813.3
Equity portion of
intercompany loan
£m
9.4
197.9
–
5.8
(44.4)
972.6
–
–
(9.4)
–
–
Retained
earnings
£m
633.8
Equity portion of
intercompany loan
£m
9.4
213.7
–
(34.2)
813.3
–
–
–
9.4
Total
£m
1,412.0
197.9
87.7
(0.7)
(44.4)
1,652.5
Total
£m
1,232.2
213.7
0.3
(34.2)
1,412.0
The notes on pages 114 to 154 form part of the financial statements.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
STATEMENTS OF CASH FLOWS
For the year ended 31 December 2017
Cash flows from operating activities
Cash flows from taxation
Investing activities
Proceeds from sale of investment property
Payments to/on behalf of subsidiaries
Payments from subsidiaries
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
Interest paid in respect of financing activities
Swap cancellation costs
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
Note
5.1
Group
2017
£m
58.4
2016
£m
70.3
(2.1)
(2.2)
Company
2017
£m
(0.3)
–
30.8
–
–
31.6
0.1
(27.0)
(5.7)
(116.4)
(4.4)
(91.0)
(23.2)
(9.5)
0.6
(1.9)
254.0
(133.6)
(42.3)
(0.9)
43.2
8.5
42.7
51.2
126.1
–
–
29.2
0.1
–
(8.2)
(131.0)
(3.1)
13.1
(23.7)
(1.0)
0.3
(2.5)
99.0
(102.3)
(34.2)
(1.1)
(65.5)
15.7
27.0
42.7
–
(172.5)
39.0
–
–
–
–
–
–
(133.5)
(5.8)
–
0.6
–
178.5
–
(42.3)
–
131.0
(2.8)
(0.1)
(2.9)
113
2016
£m
(2.6)
–
–
(157.4)
59.1
139.3
–
–
–
–
–
41.0
(5.5)
–
0.3
–
2.3
–
(34.2)
–
(37.1)
1.3
(1.4)
(0.1)
STATEMENTS OF CASH FLOWSFor the year ended 31 December 2017Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
114
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 in accordance with International
Financial Reporting Standards as adopted by the EU (Adopted IFRS) and approved by the Directors. 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 been applied consistently to all periods presented in these consolidated financial statements.
The Company is a public company and is registered in England, United Kingdom, where it is also domiciled.
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 1 to 51. 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 three years forward to December 2020 and the Group has sufficient headroom to
meet all its commitments. The Group secured an investment grade credit rating and arranged a new £500 million unsecured debt facility
during 2017 and this together with existing facilities will be sufficient to fund the Group’s commitments over the next three years. The Group
maintains positive relationships with its lending banks and has historically secured new facilities before maturity dates and remained within
its covenant levels. The Group is in full compliance with its covenants at 31 December 2017 and expects to remain so. Our debt facilities
include loan-to-value, interest cover and asset class ratio, all of which have a high level of headroom. 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 transactions are agreed.
The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future.
Measurement convention
The financial statements are prepared on the historical cost basis except for investment property, investment property under development,
investments in subsidiaries and interest rate swaps 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 an existing right that gives it the current
ability to direct the relevant activities of the subsidiary, has exposure or right to variable returns from its involvement in the subsidiary and has
the ability to use its power to affect its returns. 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
the value of fixed assets.
Impact of accounting standards and interpretations in issue but not yet effective
At the balance sheet date there are a number of new standards and amendments to existing standards in issue but not yet effective,
the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers – effective for periods beginning on or after 1 January 2018
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing
revenue recognition guidance, including IAS 18 Revenue.
The Group earns revenue from the following activities (see Note 2.4):
-
Rental income
- Management fees
-
USAF performance fee
Based on its assessment to date, the Group does not expect the application of IFRS 15 to result in a significant impact on revenue
recognition within its consolidated financial statements.
NOTES TO THE FINANCIAL STATEMENTSTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
115
Section 1: Basis of preparation continued
IFRS 9 Financial Instruments – effective for periods beginning on or after 1 January 2018
IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for
hedge accounting and a new impairment model for financial assets.
It is not expected that the transition will have any impact on the carrying value of the relevant assets and liabilities within the consolidated
financial statements of the Unite Group plc.
The Group believes that its current hedge relationships will qualify as continuing hedges upon the adoption of IFRS 9.
IFRS 16 Leases – effective for periods beginning on or after 1 January 2019
The International Accounting Standards Board issued a new lease standard IFRS 16 to replace existing lease standard (IAS 17) from
1 January 2019, with early adoption possible before that date for entities that have also early adopted IFRS 15 the new revenue standard
which comes into effect from 1 January 2018.
A key change arising from IFRS 16 is that lessees are required to recognise a lease liability reflecting future lease payments and a right-of-
use asset for lease contracts, subject to exceptions for short term leases and leases of low-value assets.
An initial assessment of the impact of IFRS 16 has been reviewed by management and a number of leases currently in operation within the
Unite Group plc will fall under the scope of IFRS 16.
The standard gives the option to either fully restate or recognise an asset equal to the value of the liability on the date of transition.
The choice of transition method will affect the materiality of the potential impact on adoption of the new standard.
The Group continues to assess the full impact of IFRS 16 on both IFRS and EPRA measures and intends to adopt the new standard for
the financial year ending 31 December 2019. The impact of the new standard will depend on the transition approach adopted and the
contracts in effect at the time of adoption. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the
Group’s consolidated results. More guidance will be given in the 2018 financial statements.
Other standards
The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated
financial statements:
-
-
IFRS 2 (amendments) ‘Classification and Measurement of Share-based Payment Transaction’
IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’
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:
-
valuation of investment property and investment property under development (note 3.1)
The accounting policy descriptions set out the areas where judgement needs exercising, the most significant of which is as follows:
-
classification of joint venture vehicles (note 3.4)
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
116
Section 2: Results for the year
This section focuses on the results and performance of the Group and provides a reconciliation between the primary
statements and EPRA performance measures. On the following pages you will find disclosures explaining the Group’s
results for the year, segmental information, taxation, earnings and net asset value per share.
The Group uses EPRA earnings and NAV movement as key comparable indicators across other real estate companies
in Europe.
Performance measures
Earnings basic
Earnings diluted
Basic earnings per share (pence)
Diluted earnings per share (pence)
Net assets basic
Basic NAV per share (pence)
EPRA performance measures
EPRA earnings
EPRA earnings per share (pence)
Adjusted EPRA earnings
Adjusted EPRA earnings per share (pence)
EPRA NAV
EPRA NAV per share (pence)
EPRA NNNAV
EPRA NNNAV per share (pence)
Note
2.2c
2.2c
2.2c
2.2c
2.3c
2.3d
Note
2.2a
2.2c
2.2a
2.2c
2.3a
2.3d
2.3c
2.3d
2017
£221.6m
£223.0m
95.3p
93.6p
£1,729.0m
717p
2017
£70.5m
30.3p
£70.5m
30.3p
£1,740.4m
720p
£1,673.9m
692p
2016
£224.0m
£227.7m
101.3p
94.7p
£1,451.6m
653p
2016
£62.7m
28.4p
£61.3m
27.7p
£1,557.3m
646p
£1,517.3m
630p
2.1 Segmental information
The Board of Directors monitors the business along two activity lines, Operations and Property. The reportable segments for the years ended
31 December 2017 and 31 December 2016 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 Group therefore has one geographical segment.
2.2 Earnings
EPRA earnings amends IFRS measures by removing principally the unrealised investment property valuation gains and losses such that
users of the financials are able to see the extent to which dividend payments (dividend per share) are underpinned by earnings arising
from purely operational activity. The reconciliation between Profit attributable to owners of the parent company and EPRA earnings is
available in note 2.2 (b).
The Operations segment manages rental properties, owned directly by the Group or by joint ventures. Its revenues are derived from rental
income and asset management fees earned from joint ventures. The way in which the Operations segment adds value to the business is
set out in the Operations review on pages 32 to 35. The Operations segment is the main contributor to EPRA earnings and EPRA EPS and
these are therefore the key indicators which are used by the Board to monitor the Operations business.
The Board does not manage or monitor the Operations segment through the balance sheet and therefore no segmental information for
assets and liabilities is provided for the Operations segment.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
117
Section 2: Results for the year continued
2.2 Earnings continued
a) EPRA earnings
2017
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Operations segment result
Property segment result
Unallocated to segments
EPRA earnings
UNITE
Total
£m
99.7
(28.4)
71.3
21.0
(23.9)
(12.6)
(17.2)
38.6
(1.5)
2.4
39.5
Share of joint ventures
LSAV
£m
34.2
(5.7)
28.5
(4.0)
(0.4)
–
(9.7)
14.4
–
(0.4)
14.0
USAF
£m
36.9
(10.2)
26.7
(2.9)
(0.3)
–
(5.7)
17.8
–
(0.8)
17.0
Group on
EPRA
basis
Total
£m
170.8
(44.3)
126.5
14.1
(24.6)
(12.6)
(32.6)
70.8
Total
£m
71.1
(15.9)
55.2
(6.9)
(0.7)
–
(15.4)
32.2
–
(1.5)
(1.2)
31.0
1.2
70.5
* Operating lease rentals arise from properties which the Group has sold and is now leasing back. These properties were sold to generate financing and
they now contribute to the Group’s rental income and incur property operating expenses. Therefore the Group considers these lease costs to be a form
of financing.
Included in the above is rental income of £19.9 million and property operating expenses of £7.5 million relating to sale and
leaseback properties.
The unallocated to segments balance includes the fair value of share based payments of (£1.5 million), UNITE Foundation of (£0.7 million),
fees received from USAF relating to acquisitions of £0.9 million, USAF performance fee of £3.4 million (net of adjustment related to trading
with joint ventures), deferred tax of £0.6 million and current tax charges of (£1.5 million).
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
118
Section 2: Results for the year continued
2.2 Earnings continued
a) EPRA earnings continued
2016
Rental income
Property operating expenses
Net operating income
Management fees
Operating expenses
Operating lease rentals*
Net financing costs
Operations segment result
Property segment result
Unallocated to segments
EPRA earnings
Yield related USAF performance fees
Adjusted EPRA earnings
UNITE
Total
£m
97.1
(29.3)
67.8
20.8
(22.4)
(13.5)
(20.8)
31.9
(1.0)
2.4
33.3
(1.4)
31.9
Share of joint ventures
LSAV
£m
25.1
(2.8)
22.3
(4.0)
(0.3)
–
(5.9)
12.1
–
–
12.1
–
12.1
USAF
£m
36.9
(10.7)
26.2
(2.8)
(0.4)
–
(5.7)
17.3
–
–
17.3
–
17.3
Group on
EPRA
basis
Total
£m
159.1
(42.8)
116.3
14.0
(23.1)
(13.5)
(32.4)
61.3
(1.0)
2.4
62.7
(1.4)
61.3
Total
£m
62.0
(13.5)
48.5
(6.8)
(0.7)
–
(11.6)
29.4
–
–
29.4
–
29.4
* Operating lease rentals arise from properties which the Group has sold and is now leasing back. These properties were sold to generate financing and
they now contribute to the Group’s rental income and incur property operating expenses. Therefore the Group considers these lease costs to be a form
of financing.
Included in the above is rental income of £18.5 million and property operating expenses of £5.9 million relating to sale and
leaseback properties.
The unallocated to segments balance includes the fair value of share based payments of (£1.2 million), UNITE Foundation of (£1.0 million),
fees received from USAF relating to acquisitions of £0.4 million, net USAF performance fee of £6.5 million, deferred tax of (£0.3 million) and
current tax charges of (£2.0 million).
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
119
2016
£m
62.7
77.2
0.3
58.8
–
(1.0)
–
Section 2: Results for the year continued
2.2 Earnings continued
b) IFRS reconciliation to EPRA earnings
EPRA earnings excludes movements relating to changes in values of investment properties and interest rate swaps, profits from the
disposal of properties and property impairments, which are included in the profit reported under IFRS. EPRA earnings reconcile to the
profit attributable to owners of the parent company as follows:
EPRA earnings
Net valuation gains on investment property
Property disposals and write downs
Share of joint venture gains on investment property
Share of joint venture property disposals and write downs
Swap cancellation and loan break costs
Share of joint venture swap cancellation costs
Deferred tax relating to properties
Minority interest share of reconciling items*
Profit attributable to owners of the parent company
Note
2.2a
3.1
3.4b
3.4b
2.5d
2017
£m
70.5
103.1
0.6
65.0
0.5
(11.5)
(0.8)
(4.5)
27.6
(1.3)
221.6
(1.6)
224.0
* 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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
120
Section 2: Results for the year continued
2.2 Earnings continued
c) Earnings per share
The Basic EPS calculation is based on the earnings attributable to the equity shareholders of The Unite Group plc and the weighted
average number of shares which have been in issue during the year. Basic EPS is adjusted in line with EPRA guidelines in order to allow users
to compare the business performance of the Group with other listed real estate companies in a consistent manner and to reflect how the
business is managed and measured on a day to day basis. EPRA EPS and EPRA EPS pre yield related USAF performance fee are calculated
using EPRA earnings.
The calculations of basic and EPRA EPS for the year ended 31 December 2017 is as follows:
Earnings
Basic
Diluted
EPRA
Adjusted EPRA (excluding yield related USAF performance fee)
Weighted average number of shares (thousands)
Basic
Dilutive potential ordinary shares (convertible bond and share options)
Diluted
Earnings per share (pence)
Basic
Diluted
EPRA EPS
Adjusted EPRA EPS (excluding yield related USAF performance fee)
Note
2.2a
2.2a
2017
£m
221.6
223.0
70.5
70.5
2016
£m
224.0
227.7
62.7
61.3
232,503
5,627
238,130
221,013
19,315
240,328
95.3p
93.6p
30.3p
30.3p
101.3p
94.7p
28.4p
27.7p
Movements in the weighted average number of shares have resulted from the issue of shares arising from the employee share based
payment schemes.
In 2017 there are no options excluded from the potential dilutive shares. In 2016 there were 16,838 options excluded that did not affect the
diluted weighted average number of shares.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
121
Section 2: Results for the year continued
2.3 Net assets
EPRA Net Asset Value per share makes adjustments to IFRS measures by principally removing some items that are not expected to
materialise in normal circumstances like items of deferred tax and the fair value of financial derivatives. The reconciliation between
IFRS NAV and EPRA NAV is available in note 2.3 (c).
The Group’s Property business undertakes the acquisition and development of properties. The Property segment’s revenue comprises
revenue from development management fees earned from joint ventures. The way in which the Property segment adds value to the
business is set out in the property review on pages 36 to 41.
a) EPRA net assets
2017
Investment properties
Investment properties under development
Total property portfolio
Debt on properties
Cash
Net debt
UNITE
Total
£m
1,261.4
205.7
1,467.1
(512.9)
51.2
(461.7)
Share of joint ventures
Group on EPRA basis
USAF
£m
538.7
10.2
548.9
(169.5)
25.0
(144.5)
LSAV
£m
579.3
–
579.3
(212.3)
15.6
(196.7)
Total
£m
1,118.0
10.2
1,128.2
(381.8)
40.6
(341.2)
Total
£m
2,379.4
215.9
2,595.3
(894.7)
91.8
(802.9)
Other assets/(liabilities)
(34.7)
(5.2)
(12.1)
(17.3)
(52.0)
EPRA net assets (pre convertible)
970.7
399.2
370.5
769.7
1,740.4
Convertible bond*
–
–
–
–
–
EPRA net assets
Loan to value
970.7
399.2
370.5
769.7
1,740.4
31%
26%
34%
30%
31%
* During the year Unite redeemed the full principal value of £89.9m of the convertible bond in exchange for 18,593,589 shares.
2016
Investment properties
Investment properties under development
Total property portfolio
Debt on properties
Cash
Net debt
UNITE
Total
£m
1,061.6
184.6
1,246.2
(474.8)
42.7
(432.1)
Share of joint ventures
Group on EPRA basis
USAF
£m
518.7
7.2
525.9
(173.6)
9.6
(164.0)
LSAV
£m
504.5
–
504.5
(190.7)
13.5
(177.2)
Total
£m
1,023.2
7.2
1,030.4
(364.3)
23.1
(341.2)
Total
£m
2,084.8
191.8
2,276.6
(839.1)
65.8
(773.3)
Other assets/(liabilities)
(14.6)
(9.8)
(7.0)
(16.8)
(31.4)
EPRA net assets (pre convertible)
799.5
352.1
320.3
672.4
1,471.9
Convertible bond
85.4
–
–
–
85.4
EPRA net assets
Loan to value
884.9
352.1
320.3
672.4
1,557.3
35%
31%
35%
33%
34%
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
122
Section 2: Results for the year continued
2.3 Net assets continued
b) Movement in EPRA NAV during the year
Contributions to EPRA NAV by each segment during the year is as follows:
2017
Operations
Operations segment result
Property
Rental growth
Yield movement
Disposals and acquisition gains
Investment property gains
Development property gains
Pre-contract/other development costs
Total property
Unallocated
Shares issued
Investment in joint ventures
Convertible bond
Dividends paid
USAF performance fee
JV property acquisition fee
Swap cancellation and debt break costs
Other
Total unallocated
Total EPRA NAV movement in the year
Total EPRA NAV brought forward
Total EPRA NAV carried forward
UNITE
Total
£m
38.6
41.0
23.6
0.6
65.2
38.5
(1.5)
102.2
87.7
(3.7)
(85.4)
(44.4)
4.0
1.6
(11.5)
(3.3)
(55.0)
85.8
884.9
970.7
USAF
£m
17.8
10.3
11.8
(1.2)
20.9
0.6
–
21.5
–
8.8
–
–
(0.6)
(0.2)
–
(0.2)
7.8
47.1
352.1
399.2
Share of joint ventures
LSAV
£m
14.4
10.0
30.8
1.8
42.6
–
–
42.6
–
(5.1)
–
–
–
(0.5)
(0.8)
(0.4)
(6.8)
50.2
320.3
370.5
Group on
EPRA
basis
Total
£m
70.8
61.3
66.2
1.2
128.7
39.1
(1.5)
166.3
87.7
–
(85.4)
(44.4)
3.4
0.9
(12.3)
(3.9)
(54.0)
Total
£m
32.2
20.3
42.6
0.6
63.5
0.6
–
64.1
–
3.7
–
–
(0.6)
(0.7)
(0.8)
(0.6)
1.0
97.3
672.4
769.7
183.1
1,557.3
1,740.4
The £3.9 million charge that comprises the other balance within the unallocated segment includes a tax charge of £0.9 million, fair value
of share options charge of £1.4 million, £0.7 million relating to the redemption of convertible bond, purchase of own shares £0.3m and
£0.7million for the UNITE Foundation.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
Section 2: Results for the year continued
2.3 Net assets continued
b) Movement in EPRA NAV during the year continued
2016
Operations
Operations segment result
Property
Rental growth
Yield movement
Disposals and acquisition gains
Investment property gains
Development property gains
Pre-contract/other development costs
Total property
Unallocated
Shares issued
Investment in joint ventures
Convertible bond
Dividends paid
USAF performance fee
USAF property acquisition fee
Swap cancellation costs
Other
Total unallocated
Total EPRA NAV movement in the year
Total EPRA NAV brought forward
Total EPRA NAV carried forward
UNITE
Total
£m
31.9
35.8
4.9
1.0
41.7
36.5
(1.0)
77.2
0.3
3.5
2.3
(34.2)
6.5
0.4
(1.0)
(6.3)
(28.5)
80.6
804.3
884.9
USAF
£m
17.3
14.8
7.2
–
22.0
0.4
–
22.4
–
7.1
–
–
–
–
–
–
7.1
46.8
305.3
352.1
LSAV
£m
12.1
12.0
7.5
–
19.5
14.5
–
34.0
–
(10.6)
–
–
–
–
–
–
(10.6)
35.5
284.8
320.3
123
Group on
EPRA
basis
Total
£m
61.3
62.6
19.6
1.0
83.2
51.4
(1.0)
133.6
0.3
–
2.3
(34.2)
6.5
0.4
(1.0)
(6.3)
(32.0)
Share of joint ventures
Total
£m
29.4
26.8
14.7
–
41.5
14.9
–
56.4
–
(3.5)
–
–
–
–
–
–
(3.5)
82.3
590.1
672.4
162.9
1,394.4
1,557.3
The £6.3 million charge that comprises the other balance within the unallocated segment includes a tax charge of £2.3 million, fair value
of share options charge of £3.0 million and £1.0 million for the UNITE Foundation.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
124
Section 2: Results for the year continued
2.3 Net assets continued
c) Reconciliation to IFRS
To determine EPRA NAV net assets reported under IFRS are amended to exclude the mark to market valuation of swaps, deferred tax
liabilities and to recognise all properties at market value.
The Group also manages NAV using EPRA NNNAV, which adjusts EPRA NAV to include the fair value of swaps and debt. Under EPRA best
practice guidelines this is considered to give stakeholders the most relevant comparable information on the current fair value of all the
assets and liabilities in the Group.
The Net Assets reported under IFRS reconcile to EPRA NAV and EPRA NNNAV as follows:
Net asset value reported under IFRS
Mark to market interest rate swaps
Deferred tax
EPRA NAV (pre convertible)
Convertible bond
EPRA NAV
Mark to market of fixed rate debt
Mark to market interest rate swaps
Deferred tax
EPRA NNNAV
Note
2.3a
2017
£m
1,729.0
2.1
9.3
1,740.4
–
1,740.4
(55.1)
(2.1)
(9.3)
1,673.9
2016
£m
1,451.6
14.9
5.4
1,471.9
85.4
1,557.3
(19.7)
(14.9)
(5.4)
1,517.3
d) NAV per share
Basic NAV is based on the net assets attributable to the equity shareholders of The Unite Group plc and the number of shares in issue at the
end of the year. The Board uses EPRA NAV and EPRA NNNAV to monitor the performance of the Property segment on a day to day basis.
Net assets
Basic
EPRA
EPRA diluted
EPRA NNNAV (diluted)
Number of shares (thousands)
Basic
Convertible bond shares
Outstanding share options
Diluted
Net asset value per share (pence)
Basic
EPRA
EPRA (fully diluted)
EPRA NNNAV (fully diluted)
Note
2.3c
2.3a
2017
£m
2016
£m
1,729.0
1,740.4
1,743.0
1,676.5
241,279
–
919
242,198
717p
721p
720p
692p
1,451.6
1,557.3
1,559.9
1,520.0
222,268
18,426
762
241,456
653p
647p
646p
630p
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
Section 2: Results for the year continued
2.4. Revenue and costs
The Group earns revenue from the following activities:
Rental income
Management fees
Development fees
USAF performance fee
Operations segment
Operations segment
Property segment
Unallocated
Impact of minority interest on management fees
Total revenue
125
Note
2.2a
2017
£m
99.7
16.5
–
3.4
119.6
(0.3)
119.3
2016
£m
97.1
16.0
1.0
7.0
121.1
(0.4)
120.7
The cost of sales included in the consolidated income statement includes property operating expenses of £28.5 million (2016: £30.3 million),
operating lease rentals of £12.6 million (2016: £13.5 million) and costs associated with development fees of £nil million (2016: £1.1 million).
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.
Management and performance fees
The Group acts as asset and property manager for the joint ventures and receives management fees in relation to these services.
In addition, the Group is entitled to performance fees from USAF and LSAV if the joint ventures outperform certain benchmarks.
The Group receives an enhanced equity interest in the JVs as consideration for the performance fee.
Management and performance fees are recognised, in line with the management contracts, in the period to which they relate
as services are provided.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
126
Section 2: Results for the year continued
2.5 Tax
As a REIT, rental profits and gains on disposal of investment properties are exempt from corporation tax. The Group pays UK corporation
tax on the profits from its residual business, including profits arising on construction operations and management fees received from joint
ventures, together with UK income tax on rental income that arises from investments held by offshore subsidiaries in which the Group holds
a minority interest.
Accounting policies
The tax charge for the year 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.
As a REIT, rental profits and gains on disposal of investment properties are exempt from corporation tax. As a result, no deferred tax
provision has been recognised at the balance sheet date in respect of property assets (revaluation and capital allowances).
The Group’s investments in unit trusts are not exempt from tax as a REIT and, where they remain within the charge to tax, a deferred tax
liability has been recognised as appropriate. The Group will be able to utilise its tax adjusted losses against gains arising on the disposal
of its investments in unit trusts. As the deferred tax liability on non-property business investments exceeds the asset relating to the losses,
the deferred tax asset in respect of the tax adjusted losses has been recognised in full.
a) Tax – income statement
The total taxation charge/(credit) in the income statement is analysed as follows:
Corporation tax on residual business income arising in UK companies
Income tax on UK rental income arising in non-UK companies
Current tax charge
Reversal of deferred tax provision in respect of REIT property business assets
Origination and reversal of temporary differences
Effect of change in tax rate
Deferred tax charge/(credit)
2017
£m
1.7
–
1.7
–
4.5
(0.6)
3.9
2016
£m
–
2.3
2.3
(39.8)
13.7
(1.2)
(27.3)
Total tax charge/(credit) in income statement
5.6
(25.0)
The Group elected to be taxed as a REIT with effect from 1 January 2017. As a result of this, the Group’s investment properties are exempt
from tax and no deferred tax is required on the balance sheet in relation to these assets. Accordingly, the Group’s deferred tax now only
relates to non-property investments (being primarily its interests in joint ventures) and historic tax losses.
The movement in deferred tax provided is shown in more detail in note 2.5 d) below.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
127
Section 2: Results for the year continued
2.5 Tax continued
a) Tax – income statement continued
In the income statement, a tax charge of £5.6 million arises on a profit before tax of £229.4 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 19.25% (2016: 20%)
Release of deferred tax balances due to REIT conversion
Property rental business profits exempt from tax in the REIT Group
Property revaluations not subject to tax
Effect of indexation on investments
Effect of statutory tax reliefs
Income due to Unite Foundation
Effect of tax deduction transferred to equity on share schemes
Rate difference on deferred tax
Prior years adjustments
Total tax charge/(credit) in income statement
2017
£m
229.4
44.2
–
(11.2)
(25.0)
(1.1)
(0.6)
–
0.5
(0.5)
(0.7)
5.6
2016
£m
201.4
40.3
(39.8)
–
(20.4)
(2.1)
(1.5)
(1.0)
0.4
(1.2)
0.3
(25.0)
The main rate of corporation tax reduced from 20% to 19% with effect from 1 April 2017. Accordingly, the reconciliation above has been
calculated at a rate of 19.25% (2016: 20%).
As a UK REIT, the Group is exempt from UK corporation tax on the profits from its property rental business. Accordingly, the element of the
Group's profit before tax relating to its property rental business has been separately identified in the reconciliation above.
Although the Group does not pay UK corporation tax on the profits from its property rental business, it is required to distribute 90% of the
profits from its property rental business after accounting for tax adjustments as a Property Income Distribution ("PID"). PIDs are charged to
tax in the same way as property income in the hands of the recipient. For the year ended 31 December 2017 the required PID is expected
to be £40.7m of which £36.7m has been distributed at the year end, with the remainder to be distributed in May 2018.
The UK corporation tax rate will reduce from 19% to 17% with effect from 1 April 2020. This will reduce the Group’s future current tax
charge accordingly.
b) Tax – other comprehensive income
Within other comprehensive income a tax charge totalling £nil (2016: £1.6 million credit) has been recognised representing deferred tax.
An analysis of this is included in the deferred tax movement on page 128.
c) Tax – statement of changes in equity
Within the statement of changes in equity a tax credit totalling £0.7 million (2016: £0.1 million charge) has been recognised representing
deferred tax. An analysis of this is included in the deferred tax movement on page 128.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
128
Section 2: Results for the year continued
2.5 Tax continued
d) 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:
2017
Investments
Property, plant and machinery
Share schemes
Tax value of carried forward losses recognised
Net tax liabilities/(assets)
At 31 December
2016
£m
Charged/(Credited)
in income
£m
(Credited)
in equity
£m
At 31 December
2017
£m
17.2
(0.1)
(0.9)
(11.8)
4.4
3.4
(0.7)
0.1
1.1
3.9*
–
–
(0.1)
(0.6)
(0.7)
20.6
(0.8)
(0.9)
(11.3)
7.6
* The £3.9 million balance (above) includes two tax movements (Property, plant and machinery and Share schemes) which are included in EPRA, which is why
they are not included in the IFRS reconciliation in Note 2.2 b); removing them results in achieving the £4.5 million movement which is excluded per EPRA’s best
practice recommendations.
2016
Investments
Investment property (REIT property business assets)
Property, plant and machinery
Share schemes
Interest rate swaps
Interest rate swaps relating to joint ventures
Tax value of carried forward losses recognised
Net tax liabilities/(assets)
At 31 December
2015
£m
14.7
41.1
(0.3)
(1.6)
(1.1)
(0.5)
(22.3)
30.0
(Credited)
in income
£m
2.5
(41.1)
0.2
0.1
–
–
11.0
(27.3)*
Charged
in equity
£m
–
–
–
0.5
1.1
0.5
(0.4)
1.7
At 31 December
2016
£m
17.2
–
(0.1)
(0.9)
–
–
(11.8)
4.4
* The £27.3 million balance (above) includes two tax movements (Property, plant and machinery and Share schemes) which are included in EPRA, which is
why they are not included in the IFRS reconciliation in Note 2.2 b); removing them results in achieving the £27.6 million movement which is excluded per
EPRA’s best practice recommendations.
The deferred tax liability at 31 December 2017 has been calculated based on the rate at which it is expected to reverse.
As a REIT, disposals of investment property are exempt from tax and as a result no deferred tax liability has been recognised in relation to
these assets. The Group's investments in property unit trusts (being primarily its interests in joint ventures) are not exempt from tax as a REIT.
Where they remain within the charge to tax, a deferred tax liability has been recognised on the excess of the market value of these assets
over their historic tax base cost. At 31 December 2017 the deferred tax liability in relation to these investments was £20.6m.
Company
Deferred tax has not been recognised on temporary differences of £165.9 million (2016: £118.9 million) in respect of revaluation
of subsidiaries and investment in joint ventures as it is considered unlikely that these investments will be divested.
2.6 Audit fees
Disclosures in respect of fees paid to the auditors can be found in the Audit Committee Report, page 68.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
129
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 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 two groups on the balance sheet at the carrying values detailed below.
In the Group’s EPRA 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.
The assets are held at fair value in the balance sheet with changes in fair value taken to the income statement.
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.
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 6.1% (2016: 6.4%).
The external valuation of property assets involves significant judgement and changes to the core assumptions; market conditions,
rental income, occupancy and property management costs, could have a significant impact on the carrying value of these assets.
See below for more details of the valuation process.
Valuation process
The valuations of the properties are performed twice a year on the basis of valuation reports prepared by external, independent valuers,
having an appropriate recognised professional qualification. The fair values are based on market values as defined in the RICS Appraisal
and Valuation Manual, issued by the Royal Institution of Chartered Surveyors. CB Richard Ellis Ltd, Jones Lang LaSalle Ltd and Messrs Knight
Frank, Chartered Surveyors were the valuers in the years ended 31 December 2017 and 2016.
The valuations are based on both:
-
-
Information provided by the Group such as current rents, occupancy, operating costs, terms and conditions of
leases and nomination agreements, capital expenditure, etc. This information is derived from the Group’s financial
systems and is subject to the Group’s overall control environment.
Assumptions and valuation models used by the valuers – the assumptions are typically market related, such as
yield and discount rates. These are based on their professional judgement and market observation.
The information provided to the valuers – and the assumptions and the valuation models used by the valuers – are reviewed by the
Management Board and the CFO. This includes a review of the fair value movements over the year.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
130
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 2017 are shown
in the table below. The fair value of the Group’s wholly owned properties at the year ended 31 December 2017 is also shown below.
2017
At 1 January 2017
Cost capitalised
Interest capitalised
Transfer from investment property under development
Transfer from work in progress
Disposals
Valuation gains
Valuation losses
Net valuation gains
Carrying and market value at 31 December 2017
Investment property
£m
1,061.6
7.6
–
156.3
–
(28.7)
78.6
(14.0)
64.6
1,261.4
Investment property
under development
£m
184.6
130.7
7.4
(156.3)
0.8
–
43.6
(5.1)
38.5
205.7
Total
£m
1,246.2
138.3
7.4
–
0.8
(28.7)
122.2
(19.1)
103.1
1,467.1
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
131
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 2016 are shown in
the table below. The fair value of the Group’s wholly owned property portfolio at the year ended 31 December 2016 is also shown below:
2016
At 1 January 2016
Cost capitalised
Interest capitalised
Transfer from investment property under development
Transfer from work in progress
Disposals
Valuation gains
Valuation losses
Net valuation gains
Carrying and market value at 31 December 2016
Investment property
£m
1,024.4
7.6
–
36.6
–
(44.0)
44.9
(7.9)
37.0
1,061.6
Investment property
under development
£m
149.8
101.7
5.9
(36.6)
8.0
(84.4)
41.2
(1.0)
40.2
184.6
Total
£m
1,174.2
109.3
5.9
–
8.0
(128.4)
86.1
(8.9)
77.2
1,246.2
Included within investment properties at 31 December 2017 are £30.5 million (2016: £31.5 million) of assets held under a long leasehold
and £9.0 million (2016: £8.9 million) of assets held under short leasehold.
Total interest capitalised in investment and development properties at 31 December 2017 was £41.5 million (2016: £34.9 million) on a
cumulative basis. Total internal costs relating to construction and development costs of Group properties amount to £54.6 million at
31 December 2017 (2016: £51.1 million) on a cumulative basis.
Recurring fair value measurement
All investment and development properties are classified as Level 3 in the fair value hierarchy.
Class of asset
London – Rental properties
Major provincial – Rental properties
Other provincial – Rental properties
Major provincial – Development properties
Other provincial – Development properties
Market value
2017
£m
465.9
566.7
228.8
178.7
27.0
1,467.1
2016
£m
424.9
440.2
196.5
158.4
26.2
1,246.2
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
Capital expenditure
Disposals
Closing fair value
2017
£m
1,246.2
103.1
146.5
(28.7)
1,467.1
2016
£m
1,174.2
77.2
123.2
(128.4)
1,246.2
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
132
Section 3: Asset management continued
3.1 Wholly owned property assets continued
Quantitative information about fair value measurements using unobservable inputs (Level 3)
2017
London
– rental properties
Major provincial
– rental properties
Other provincial
– rental properties
Major provincial
– development properties
Other provincial
– development properties
Fair value
£m
Valuation
technique
465.9
Discounted
cash flows
566.7
Discounted
cash flows
228.8
Discounted
cash flows
178.7
Discounted
cash flows
27.0
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) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
Range
£183 – £345
1% –6%
4.2%–5.0%
£100–£157
1% – 6%
4.5% –7.0%
£94 – £164
2% – 8%
5.2%–13.5%
£8.1m–£81.9m
3%
5.3% –6.0%
£11.4m
3%
5.7%
Fair value at 31 December 2017
1,467.1
2016
London
– rental properties
Major provincial
– rental properties
Other provincial
– rental properties
Major provincial
– development properties
Other provincial
– development properties
Fair value
£m
Valuation
technique
424.9
Discounted
cash flows
440.2
Discounted
cash flows
196.5
Discounted
cash flows
158.4
Discounted
cash flows
Discounted
cash flows
26.2
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) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
Estimated cost to complete (£m)
Estimated future rent (%)
Discount rate (yield) (%)
Range
£179–£327
1%–6%
4.5%–5.2%
£105–£162
1%–7%
5.2%–7.0%
£95–£153
2%–8%
5.5%–12.0%
£10.5m–£59.5m
3%
4.8%–5.9%
£12.3m–£26.5m
3%
5.7%–5.8%
Weighted
average
£255
3%
4.5%
£134
3%
5.5%
£134
4%
6.0%
£47m
3%
5.6%
£11.4m
3%
5.7%
Weighted
average
£249
4%
4.7%
£129
4%
5.7%
£126
3%
6.2%
£36.1m
3%
5.6%
£20.1m
3%
5.7%
Fair value at 31 December 2016
1,246.2
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 inter-relationships between these
rates as they are partially determined by market rate conditions.
3.2 Inventories
Interests in land
Other stocks
Inventories
At 31 December 2017 the Group has interests in one piece of land (2016: one piece of land).
2017
£m
0.9
3.6
4.5
2016
£m
0.8
2.1
2.9
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
133
Section 3: Asset management continued
3.3 Other non-current assets
Accounting policies
Property, plant and equipment
Other than land and buildings; property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses (see below). Land and buildings are stated at fair value on the same basis as investment properties. Property, plant and
equipment mainly comprise leasehold improvements at the Group’s head office and London office as well as computer hardware
and software at these sites.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and
equipment. Freehold land is not depreciated. The estimated useful lives are as follows:
-
Leasehold
improvements
- Other assets
Shorter life of lease and economic life
4–20 years
Intangible assets
Intangible assets predominately comprise internally developed computer software which allows customers to book online
and processes transactions within the sales cycle. The expenditure capitalised includes the cost of materials, direct labour and an
appropriate proportion of overheads. Expenditure on research activities is recognised in the income statement as an expense incurred,
2017: £nil, (2016: £nil). The assets are amortised on a straight-line basis over 4 to 7 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 within operating expenses.
The Group’s other non-current assets can be analysed as follows:
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
Impairment*
Disposals
At 31 December
Carrying value at 1 January
Carrying amount at 31 December
Property, plant
and equipment
£m
2017
Intangible
assets
£m
22.0
4.4
(6.3)
20.1
12.6
2.3
0.5
(6.3)
9.1
9.4
11.0
41.3
5.7
–
47.0
20.9
4.7
–
–
25.6
20.4
21.4
Property, plant
and equipment
£m
2016
Intangible
assets
£m
18.9
3.1
–
22.0
9.4
1.6
1.6
–
12.6
9.5
9.4
33.1
8.2
–
41.3
18.1
2.8
–
–
20.9
15.0
20.4
Total
£m
63.3
10.1
(6.3)
67.1
33.5
7.0
0.5
(6.3)
34.7
29.8
32.4
Total
£m
52.0
11.3
–
63.3
27.5
4.4
1.6
–
33.5
24.5
29.8
* Being write down of leasehold improvements on variation of lease.
Intangible assets include £2.0 million (2016: £3.9 million) of assets not being amortised as they are not yet ready for use. Property, plant
and equipment assets include £0.7m (2016: £1.1m) of assets not being depreciated as they are not ready for use. At 31 December 2017
the Group had capital commitments amounting to £1.9 million relating to intangible assets and £nil million relating to Property, plant
and equipment.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
134
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.
USAF and LSAV are jointly owned entities that are accounted for as joint ventures. Due to the complexity of the contractual
arrangements and Unite’s role as manager of the joint venture vehicles, the assessment of joint control following changes to
accounting standards (IFRS10) involves judgements around a number of significant factors. These factors include how Unite as fund
manager has the ability to direct relevant activities such as acquisitions, disposals, capital expenditure for refurbishments and funding
whether through debt or equity. This assessment for USAF is complex because of the number of unitholders and how their rights are
represented through an Advisory Committee. For some of the activities it is not clear who has definitive control of the activities: in some
scenarios the Group can control, in others the Advisory Committee. However, for the activities which are considered to have the
greatest impact on the returns of USAF, acquisitions and equity financing, it has been determined that the Group and the Advisory
Committee has joint power in directing these activities and that on balance, it is appropriate to account for USAF as a joint venture.
The assessment for LSAV is more straightforward because the Group and GIC each own 50% of the joint venture and there is therefore
much clearer evidence that control over the key activities is shared by the two parties.
The Group has two joint ventures:
Group’s share
of assets/results 2017
(2016)
26.2%* (24.6%)
50% (50%)
Joint venture
The UNITE UK Student
Accommodation Fund
(USAF)
London Student
Accommodation Venture
(LSAV)
Objective
Invest and operate
student accommodation
throughout the UK
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
Legal entity in which
Group has interest
UNITE UK Student
Accommodation Fund,
a Jersey Unit Trust
LSAV Unit Trust, a Jersey Unit
Trust and LSAV (Holdings) 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 24.6% (2016: 23.0%) of USAF.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
135
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 year, and the Group’s share of these joint ventures are as follows:
2017
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Net assets
Minority Interest
Swap liabilities
EPRA net assets
Gross
2,232.7
101.5
(689.3)
0.4
28.5
(61.6)
1,612.2
–
(0.4)
1,611.8
USAF
£m
LSAV
£m
Total
£m
MI
35.2
1.6
(10.9)
–
0.4
(1.2)
25.1
(25.1)
–
–
Share
548.9
25.0
(169.5)
0.1
7.0
(12.2)
399.3
–
(0.1)
399.2
Gross
1,158.6
31.1
(424.6)
(2.8)
1.5
(25.5)
738.3
–
2.8
741.1
Share
579.3
15.6
(212.3)
(1.4)
0.7
(12.8)
369.1
–
1.4
370.5
Gross
3,391.3
132.6
(1,113.9)
(2.4)
30.0
(87.1)
2,350.5
–
2.4
2,352.9
Share
1,163.4
42.2
(392.7)
(1.3)
8.1
(26.2)
793.5
(25.1)
1.3
769.7
Profit/(loss) for the year
163.7
2.5
42.1
117.1
58.5
280.8
103.1
2016*
Investment property
Cash
Debt
Swap liabilities
Other current assets
Other current liabilities
Net assets
Minority Interest
Swap liabilities
EPRA net assets
Gross
2,287.9
41.8
(755.5)
0.7
3.5
(55.3)
1,523.1
–
(0.7)
1,522.4
USAF
£m
LSAV
£m
Total
£m
MI
36.3
0.7
(12.0)
–
0.1
(1.2)
23.9
(23.9)
–
–
Share
525.9
9.6
(173.6)
0.2
0.7
(10.5)
352.3
–
(0.2)
352.1
Gross
1,009.0
27.0
(381.4)
(7.1)
0.8
(14.8)
633.5
–
7.1
640.6
Share
504.5
13.5
(190.7)
(3.5)
0.4
(7.4)
316.8
–
3.5
320.3
Gross
3,296.9
68.8
(1,136.9)
(6.4)
4.3
(70.1)
2,156.6
–
6.4
2,163.0
Share
1,066.7
23.8
(376.3)
(3.3)
1.2
(19.1)
693.0
(23.9)
3.3
672.4
Profit/(loss) for the year
164.7
2.9
43.4
97.0
48.5
261.7
94.8
*Table has been restated for comparative purposes.
Net assets and profit for the year above include the minority interest, whereas EPRA net assets exclude the minority interest.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
136
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 £100.6 million during the year ended 31 December 2017
(2016: £82.3 million), resulting in an overall carrying value of £793.5 million (2016: £692.9 million). The following table shows how the increase
has been achieved.
Recognised in the income statement:
Operations segment result
Minority interest share of Operations segment result
Management fee adjustment related to trading with joint venture
Net revaluation gains
Loss on cancellation of interest rate swaps
Profit on disposal of properties
Other
Recognised in equity:
Movement in effective hedges
Other adjustments to the carrying value:
Profit adjustment related to trading with joint venture
Additional capital invested in USAF
Performance fee units issued in USAF
Additional capital invested in LSAV
USAF performance fee
Distributions received
Increase in carrying value
Carrying value at 1 January
Carrying value at 31 December
2017
£m
32.2
1.1
5.7
65.0
(0.8)
0.5
(0.6)
103.1
2016
£m
29.4
1.2
5.4
58.8
–
–
–
94.8
2.1
(1.4)
(7.4)
18.5
8.1
8.5
(0.7)
(31.6)
100.6
692.9
793.5
(6.3)
–
25.6
–
(1.2)
(29.2)
82.3
610.6
692.9
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
137
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 continued
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.
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 performance fees from USAF and LSAV if the joint ventures outperform certain benchmarks. The Group
receives an enhanced equity interest in the joint ventures as consideration for the performance fee. The Group has recognised the
following fees in its results for the year.
USAF
LSAV
Asset and property management fees
LSAV
Development management fees
USAF performance fee
USAF acquisition fee
LSAV acquisition fee
Investment management fees*
Total fees
2017
£m
13.1
7.9
21.0
–
–
4.0
0.7
1.0
5.7
2016
£m
12.8
8.0
20.8
1.0
1.0
8.1
0.5
–
8.6
26.7
30.4
* Included in the movement in EPRA NAV is a USAF performance fee of £3.4million (2016: £6.5 million). This is the gross fee of £4.0 million (2016: £8.1 million) paid
by USAF net of advisory fee costs of £nil million (2016: £0.5 million) and a £0.6 million (2016: £1.1 million) adjustment related to trading with joint ventures. The
USAF performance fee will be settled in units in The UNITE UK Student Accommodation Fund rather than cash. Full details of the USAF performance fees are
set out in the Strategic Report on pages 1 to 51.
Included in share of joint venture profit in the income statement is a share of joint venture property management fee costs of £1.2 million
(2016: £1.6 million). On an EPRA basis these costs are deducted from the property management fees shown above, plus an adjustment
for the minority interest of £0.2 million (2016: £0.4 million). This results in the net fees included in the Operating Segment result (note 2.2a)
of £14.1 million (2016: £14.0 million). Development management fees are included in the Property Segment result (note 2.2a). Investment
management fees are included within the unallocated to segments (note 2.2a).
Included in the movement in EPRA NAV is a USAF property acquisition fee of £0.4 million (2016: £0.4 million). This is the gross fee of £1.0 million
(2016: £0.5 million) paid by USAF net of a £0.3 million (2016: £0.1 million) adjustment related to trading with joint ventures and a £0.3 million
(2016: £nil) adjustment relating to other acquisition costs paid to a third party.
Included in the movement in EPRA NAV is an LSAV property acquisition fee of £0.5 million (2016: £nil). This is the gross fee of £1.0 million
(2016: £nil) paid by LSAV net of a £0.5 million (2016: £nil) adjustment related to trading with joint ventures.
During the year the Group has paid operating lease rentals to USAF relating to one property under a sale and leaseback agreement
amounting to £0.7 million (2016: £2.2 million).
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
138
Section 3: Asset management continued
3.4 Investments in joint ventures (Group) continued
c) Transactions with joint ventures continued
During the year the Group recognised additional proceeds of £2 million in relation to the sale of a property to LSAV in 2015 under the
terms of the original sale agreement. At the balance sheet date the proceeds had not been settled and therefore no cash flows have
been disclosed. In 2016 the Group sold two properties to USAF for £88.4 million. Both properties had been held on the balance sheet
as investment property under development within non-current assets, the proceeds and carrying value of the property are therefore
recognised in profit on disposal of property and the cash flows in investing activities. The profits relating to sales and associated disposal
costs and related cash flows are set out below:
Included in profit on disposal of property (net of joint venture trading adjustment)
Profit on disposal of property
Gross proceeds
Net cash flows included in cash flows from investing activities
Profit and loss
2017
Profit and loss
2016
LSAV
£m
1.0
1.0
Cash flow
2017
LSAV
£m
–
–
USAF
£m
3.2
3.2
Cash flow
2016
USAF
£m
88.4
88.4
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
139
Section 3: Asset management continued
3.5 Investments in subsidiaries (Company)
Accounting policies
In the financial statements of the Company, investments in subsidiaries are held at fair value. Changes in fair value are recognised
in other comprehensive income and presented in the revaluation reserve in equity.
Carrying value of investment in subsidiaries
The movements in the Company’s interest in unlisted subsidiaries and joint ventures during the year are as follows:
At 1 January
Revaluation
At 31 December
Investment in subsidiaries
2017
£m
725.4
201.2
926.6
2016
£m
648.3
77.1
725.4
The carrying value of investment in subsidiaries has been calculated using the equity attributable to the owners of the parent company
from the consolidated balance sheet adjusted for the fair value of fixed rate loans. This includes investment property, investment property
under development and swaps at a fair value calculated by a third party expert. 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 132. 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 140.
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 (2016: £90.0 million). A further loan of £89.9
million (2016: £89.9 million) was provided to LDC (Holdings) plc with interest chargeable at 5.0%; this loan was fully repaid during the year.
A full list of the Company’s subsidiaries and joint ventures can be found in note 7.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
140
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.
The Merger reserve arose on the acquisition of the Unilodge portfolio in June 2001.
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 paid a coupon of 2.5%. In accordance with IFRS,
the equity and debt components of the bond were accounted for separately. 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 was amortised through the income statement
from the date of issue. Issue costs of £2.0m were allocated between equity and debt and the element relating to the debt component
was amortised over the life of the bond. The issue costs apportioned to equity of £0.2 million were not amortised.
The full principal value of the Group’s convertible bond (£89.9 million) converted into equity in June with the issue of 18,593,589 ordinary
shares in Unite Group plc.
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
Company
2017
2016
2017
2016
Carrying value
£m
Carrying value
£m
Carrying value
£m
Carrying value
£m
1.3
1.3
2.9
0.1
1.4
379.4
130.7
511.5
512.8
108.1
126.3
239.1
473.5
474.8
–
267.6
–
267.6
270.5
85.3
90.0
–
175.3
175.4
In addition to the borrowings currently drawn as shown above, the Group has available undrawn facilities of £327.0 million (2016: £245.0
million). A further overdraft facility of £10.0 million (2016: £10.0 million) is also available.
Properties with a carrying value of £609.1 million (2016: £998.0 million) have been pledged as security against the Group’s drawn down borrowings.
The carrying value of borrowings is considered to be approximate to fair value, except for the Group’s fixed rate loans as analysed below:
Level 1 IFRS fair value hierarchy
Level 2 IFRS fair value hierarchy
Other loans
2017
2016
Carrying value
£m
Fair value
£m
Carrying value
£m
Fair value
£m
90.0
239.1
183.7
96.1
263.8
183.7
176.2
240.3
58.3
212.5
215.0
54.7
Total borrowings
512.8
543.6
474.8
482.2
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
141
Section 4: Funding continued
4.1 Borrowings continued
The fair value of loans classified as Level 1 in the IFRS fair value hierarchy is determined using quoted prices in active markets for
identical liabilities.
The fair value of loans classified as Level 2 in the IFRS fair value hierarchy has been calculated by a third party expert discounting estimated
future cash flows on the basis of market expectation of future interest rates.
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
2017
£m
–
0.8
0.8
2016
£m
–
11.6
11.6
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.
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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
142
Section 4: Funding continued
4.3 Net financing costs continued
Recognised in the income statement:
Finance income
– Interest income on deposit
Finance income
Gross interest expense on loans
Interest capitalised
Loan interest and similar charges
Swap cancellation and loan break costs
Finance costs
Net financing costs
2017
£m
(0.1)
(0.1)
24.7
(7.4)
17.3
11.5
28.8
28.7
2016
£m
(0.1)
(0.1)
26.8
(5.9)
20.9
1.0
21.9
21.8
The average cost of the Group’s wholly owned investment debt at 31 December 2017 is 4.3% (2016: 4.4%). The overall average cost
of investment debt on an EPRA basis is 4.1% (2016: 4.2%).
4.4 Gearing
The Group’s adjusted gearing ratio is a key indicator that the Group uses to manage its indebtedness. EPRA 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)
Gearing (EPRA net debt/EPRA net asset value)
Loan to value (EPRA net debt/Total property portfolio)
Note
5.1
4.1
4.1
4.2
2.3c
2.3c
2.3a
2.3a
2017
£m
51.2
(1.3)
(511.5)
(0.8)
(462.4)
2016
£m
42.7
(1.3)
(473.5)
(11.6)
(443.7)
0.8
11.6
(461.6)
1,729.0
1,740.4
(432.1)
1,451.6
1,557.3
27%
27%
46%
31%
31%
28%
50%
34%
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
143
Section 4: Funding continued
4.5 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risks – primarily interest rate risk, credit risk and liquidity risk. The Group’s
treasury policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial
performance. Details on credit risk can be found in note 5.3.
a) Interest rate risk
Interest rate risk is the risk that the Group is impacted by significant changes in interest rates. Borrowings issued at or swapped to floating
rates expose the Group to interest rate risk. The Group’s policy is separated into two main areas:
i) Development and refinancing
The Group had no specific development borrowings as at 31 December 2017 (2016: £nil).
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 will continue to review the level of its hedging in the light of the current low interest rate environment. The Group’s policy allows
this exposure to be managed through the use of forward starting swaps.
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. The Group’s policy guideline has been to hedge 75% and 95% of the Group’s exposure for terms of approximately 2–10 years.
At 31 December 2017, after taking account of interest rate swaps, 64% (2016: 100%) of the Group’s medium and long-term investment
borrowing was held at fixed rates; however further contracted hedging with a forward start state and planned fixed rate funding will
increase the hedge ratio to above 90% over the next 18 months. Excluding the £4.7 million (2016: £92.9 million) of swaps the fixed
investment borrowing is at an average rate of 5.2% (2016: 4.6%) for an average period of 4.5 years (2016: 5 years), including all debt
with current or forward starting swaps the average rate is 4.0% (2016: 4.4%).
The Group holds interest rate swaps at 31 December 2017 against £4.7 million (2016: £92.9 million) of the Group’s borrowings.
The maturity of these swaps and the applicable interest rates are as follows:
Within one year
Between one and two years
Between two and five years
More than five years
2017
Nominal
amount hedged
£m
–
–
4.7
–
2017
Applicable
interest rates
%
–
–
2.1
–
2016
Nominal
amount hedged
£m
–
–
47.6
45.3
2016
Applicable
interest rates
%
–
–
1.8
2.2
During the year, if interest rates had increased/decreased by 1%, pre-tax profit for the year would have been £0.8 million (2016: £0.6 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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
144
Section 4: Funding continued
4.5 Financial risk factors continued
b) Liquidity risk continued
2017
Bank and other loans*
Trade and other payables
Interest rate swaps – effective**
2016
Bank and other loans*
Convertible bonds
Trade and other payables
Interest rate swaps – effective
Total contractual
cash flows
£m
600.5
152.1
3.8
756.4
Total contractual
cash flows
£m
490.2
93.8
123.7
15.7
723.4
Less than
1 year
£m
21.7
152.1
0.1
173.9
Less than
1 year
£m
19.7
2.2
123.7
0.8
146.4
Between
1 and 2 years
£m
21.8
–
Between
2 and 5 years
£m
420.1
–
0.3
22.1
3.4
423.5
Between
1 and 2 years
£m
40.9
91.6
–
Between
2 and 5 years
£m
172.8
–
–
2.7
135.2
8.2
181.0
Over
5 years
£m
136.9
–
–
136.9
Over
5 years
£m
256.8
–
–
4.0
260.8
* The contractual undiscounted cash flows include £293.9m (2016: £108.8m) in relation to the Company.
** The contractual undiscounted cash flows in relation to interest rate swaps include £3.5m (2016: £nil) in relation to the Company.
The full principal value of the Group’s convertible bond (£89.9 million) fully converted into equity in June 2017 with the issue of 18,593,589
ordinary shares in Unite Group plc.
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 2017, 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 available cash within net debt.
Loan to value
Interest cover
31 December 2017
31 December 2016
Weighted
covenant
65%
1.9
Weighted
actual
36%
4.2
Weighted
covenant
74%
1.5
Weighted
actual
15%*
4.04
* Calculated on the basis that available cash is used to reduce debt and available property can be used as additional security.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
145
Section 4: Funding continued
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 Group has a number of sale and leaseback properties which are accounted for as operating leases.
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
2017
£m
13.1
52.7
152.0
217.8
2016
£m
13.8
56.2
171.0
241.0
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 12 and 17 years and subject to annual RPI-based rent review. The total operating lease expenditure
incurred during the year was £14.5 million (2016: £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
2017
£m
131.0
177.5
262.3
570.8
2016
£m
77.1
140.4
267.2
484.7
4.7 Capital management
The capital structure of the Group consists of shareholders’ equity and adjusted net debt, including cash held on deposit. The Group’s
equity is analysed into its various components in the Statement of Changes in Equity. The components and calculation of adjusted net
debt is set out in note 4.4. Capital is managed so as to continue as a going concern and to promote the long-term success of the business
and to maintain sustainable returns for shareholders and joint venture partners.
The Group uses a number of key metrics to manage its capital structure:
adjusted net debt (4.4)
adjusted gearing (4.4)
LTV (2.3a)
-
-
-
- weighted average cost of investment debt (4.5aii)
In order to manage levels of adjusted gearing over the medium term, the Group seeks to deliver NAV growth and to recycle capital
invested in lower performing assets into new assets and property developments. £29.6 million of property assets were sold in 2017 and
we plan to sell an average of £75 – £125 million of property each year. The Group targets a yield on cost of approximately 8%. 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 £63.2 million (2016: £61.3 million) during the year, thereby covering the combined paid interim dividend and proposed
final dividend of £54.8 million, 1.2 times (2016: £40.0 million, 1.5 times).
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
146
Section 4: Funding continued
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:
Called up, allotted and fully paid ordinary shares
of £0.25p each
At start of year
Share placing
Shares issued from Convertible Bond
Share options exercised
At end of year
2017
Ordinary
shares
£m
55.5
–
4.7
0.0
60.2
No. of shares
222,047,816
–
18,593,589
188,876
240,830,281
Share
Premium
£m
No. of shares
493.6 221,930,911
–
–
116,905
579.5 222,047,816
–
85.3
0.6
2016
Ordinary
shares
£m
55.5
–
–
–
55.5
Share
Premium
£m
493.3
–
–
0.3
493.6
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Company. All shares rank equally with regard to the Company’s residual assets.
4.9 Dividends
Accounting policies
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
During the year, the Company declared and paid an interim dividend of £17.7 million – 7.3p per share (2016: £13.2 million – 6.0p per share)
and paid a £26.7 million final dividend – 12.0p per share relating to the year ended 31 December 2016 (2015: £21.0 million – 9.5p per share).
After the year end, the Directors proposed a final dividend per share of 15.4p (2016: 12.0p), bringing the total dividend per share for the
year to 22.7p (2016: 18.0p). No provision has been made in relation to this dividend.
The Group has modelled tax adjusted property business profits for five years and declared PIDs in respect of the May 2017 and
November 2017 distributions to ensure that the PID requirement will be satisfied. The combined PID from the distributions made during
2017 comprise 78% of the Group’s forecast tax exempt property rental business profit, leaving a small amount that can be paid as part
of the May 2018 distribution.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
147
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 and cash equivalents
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 2017 was £51.2 million (2016: £42.7 million).
At 31 December 2017 the Company had an overdraft of £2.9 million (2016: overdraft £0.1 million).
The Group’s cash balances include £3.1 million (2016: £13.4 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
Dividends received
Change in value of investment property
Change in value of investments
Net finance costs
(Profit) on disposal of investment property
Share of joint venture profit
Trading with joint venture adjustment
Tax charge/(credit)
Cash flows from operating activities before
changes in working capital
Decrease in trade and other receivables
Decrease/(increase) in inventories
Increase in trade and other payables
Cash flows from operating activities
Note
3.3
6.1
3.1
3.5
4.3
3.4b
2.5a
Group
2017
£m
223.8
7.0
1.5
–
(103.1)
–
28.7
(0.6)
(103.1)
7.2
5.6
67.0
(13.2)
(2.3)
6.9
58.4
2016
£m
226.4
4.4
1.2
–
(77.2)
–
21.8
(0.4)
(94.8)
7.5
(25.0)
63.9
(20.4)
0.7
26.1
70.3
Company
2017
£m
197.9
–
–
–
–
(201.2)
0.5
–
–
–
–
(2.8)
–
–
2.5
(0.3)
2016
£m
213.8
–
–
(139.3)
–
(77.1)
(0.3)
–
–
–
–
(2.9)
–
–
0.3
(2.6)
£8.1 million of the brought forward trade and other receivables was settled in units in USAF rather than cash.
Cash flows consist of the following segmental cash inflows/(outflows): Operations £63.2 million (2016: £61.3 million), property £27.7million
(2016: (£6.0 million)) and unallocated (£82.4million) (2016: £39.6 million). The unallocated amount includes Group dividends (£42.3 million)
(2016: (£34.2 million)), tax payable (£2.1 million) (2016: (£2.2 million)), investment in joint ventures (£27.0 million) (2016: (£nil)), contributions to
UNITE Foundation (£0.1 million) (2016: (£1.0 million)), purchase of own shares (£1.9 million) (2016: (£2.5 million)) and amounts received from
shares issued £0.6 million (2016: £0.3 million).
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
148
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
USAF performance fee
Other receivables
Trade and other receivables
The USAF performance fee will be settled in units in USAF.
Group
Company
2017
£m
19.4
–
41.8
11.0
4.0
6.7
82.9
2016
£m
17.8
–
36.3
8.4
8.1
7.3
77.9
2017
£m
–
912.1
–
–
–
–
912.1
2016
£m
–
686.4
–
–
–
–
686.4
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.
2017
Rental debtors
Commercial tenants (past due and impaired)
Individual tenants (past due and impaired)
Provisions carried
Trade receivables
2016
Rental debtors
Commercial tenants (past due and impaired)
Individual tenants (past due and impaired)
Provisions carried
Trade receivables
Amounts receivable from joint ventures are not past due or impaired.
Ageing by academic year
Total
£m
0.3
20.6
(1.5)
19.4
2017/18
£m
2016/17
£m
Prior years
£m
0.3
19.3
(0.2)
19.4
–
0.5
(0.5)
–
–
0.8
(0.8)
–
Ageing by academic year
Total
£m
0.4
18.8
(1.4)
17.8
2016/17
£m
2015/16
£m
Prior years
£m
0.3
17.4
(0.1)
17.6
0.1
0.9
(0.8)
0.2
–
0.5
(0.5)
–
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
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
2017
£m
1.4
0.5
(0.1)
1.8
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 maximum exposure to credit risk was as follows:
Cash
Trade receivables
Amounts due from joint ventures (excluding loans that are capital in nature)
Note
5.1
5.2
5.2
2017
£m
51.2
19.4
41.8
112.4
149
2016
£m
2.1
0.7
(1.4)
1.4
2016
£m
42.7
17.8
36.3
96.8
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 two groups – (i) students (individuals) and (ii) commercial organisations including Universities.
The Group’s exposure to credit risk is influenced by the characteristics of each customer. The Group holds tenant deposits of £9.0 million
(2016: £8.5 million) as collateral against individual customers. Based on the Group’s experience and historical low level of bad debt the
Group views these receivables as recoverable balances with a low risk of default.
c) Joint ventures
Amounts receivable from joint ventures fall into two categories – working capital balances and investment loans. The Group has strong
working relationships with its joint venture partners and therefore views this as a low credit risk balance.
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
2017
£m
19.7
7.8
–
67.1
57.5
152.1
2016
£m
16.8
5.8
–
45.8
55.3
123.7
2017
£m
–
–
2.5
3.2
–
5.7
2016
£m
–
–
1.3
3.0
–
4.3
Other payable and accrued expenses include £9.0million (2016: £8.5 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.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
150
Section 5: Working capital continued
5.5 Transactions with other group companies
During the year, the Company entered into various interest free loans with its subsidiaries, the aggregate of which are disclosed in
the cash flow statement. In addition, the Company was charged by Unite Integrated Solutions plc for corporate costs of £2.4 million
(2016: £2.5 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
UNITE Jersey Issuer Ltd
Amounts due from Group undertakings
Unilodge Holding Ltd
Unilodge Holdings (UK) Ltd
UNITE Jersey Issuer Ltd
Amounts due to Group undertakings
2017
£m
77.1
835.0
–
912.1
–
–
–
–
2016
£m
70.7
615.7
–
686.4
–
–
(1.3)
(1.3)
The Company has had a number of transactions with its joint ventures, which are disclosed in note 3.4c.
The Company has guaranteed £nil million of its subsidiary companies’ borrowings (2016: £121 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.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
151
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
2017
328
934
1,262
2017
£m
39.6
3.8
1.2
1.5
46.1
2016
325
881
1,206
2016
£m
38.0
3.6
1.2
1.2
44.0
The wages and salaries costs include redundancy costs of £1.2 million (2016: £1.0 million).
Full details of the USAF performance fees are set out in the Strategic Report on pages 1 to 51.
There are no employees employed directly by the Company.
Accounting policies
The Group operates a defined contribution pension scheme. Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
6.2 Key management personnel
The Board considers that the key management personnel within the Group are those appointed to the Board. As such, the remuneration
of key management personnel is contained within the Remuneration Report on pages 86 to 95, which covers the requirements of
schedule 5 of the relevant legislation.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
152
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’
}
Details can be found in the Directors’
Remuneration Report
Executive Long-Term Incentive Plan (LTIP)
Save As You Earn Scheme (SAYE)
Employee Share Ownership Trust (ESOT)
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
2017
£1.32
£4.04
£0.86
£1.52
£1.40
Number of
options
(thousands)
2017
2,113
(130)
(779)
749
1,953
Weighted average
exercise price
2016
£0.91
£0.80
£0.40
£1.47
£1.32
Number of
options
(thousands)
2016
2,774
(495)
(845)
679
2,113
Exercisable at 31 December
£2.15
87
£1.67
70
For those options exercised in the year, the average share price during 2017 was £6.64 (2016: £6.24).
For those options still outstanding, the range of exercise prices at the year end was 0p to 642p (2016: 0p to 642p) and the weighted
average remaining contractual life of these options was 2.1 years (2016: 1.6 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. As at 31 December 2017 the number of shares
held by the ESOT was 742,682 (2016: 1,165,592).
The accounting is in accordance with the relevant standards. No further information is given as the amounts for share based payments
are immaterial.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
153
Section 7: Company subsidiaries and joint ventures
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries and equity accounted investments as at 31 December
2017 is disclosed below. Unless otherwise stated, the Group’s ownership interest represents 100% of the ordinary shares, units or partnership
capital held indirectly by Unite Group plc. No subsidiary undertakings have been excluded from the consolidation. All subsidiaries have
a year end of 31 December with the exception of The UNITE Foundation which has a year end of 30 September to facilitate academic
year reporting.
Registered office: South Quay House, Temple Back, Bristol, BS1 6FL
Hiremaxi Limited (03128294)**
LDC (Oxford Road Bournemouth) Limited (04407309)**
LDC (AIB Warehouse) Limited (04872419)
LDC (Alscot Road) Limited (06176428)
LDC (Brunel House) Limited (09760628)**
LDC (Camden Court Leasehold) Limited (5140620)**
LDC (Pitwines) Limited (05918624)**
LDC (Portfolio 100) Limited (07989369)
LDC (Portfolio 20) Limited (08803996)
LDC (Portfolio Five Nominee) Limited (06017949)**
LDC (Camden Court) Limited (05082671)**
LDC (Portfolio Five) Limited (06079581)**
LDC (Capital Cities Nominee no. 1) Limited ((05347228)
LDC (Portfolio Four) Limited (04985603)
LDC (Capital Cities Nominee no. 2) Limited (05359457)
LDC (Portfolio One) Limited (03005262)
LDC (Capital Cities Nominee no. 3) Limited (08792780)
LDC (Portfolio Ten) Limited (06877517)**
LDC (Capital Cities Nominee no. 4) Limited (08792688)
LDC (Portfolio) Limited (08419375)**
LDC (Capital Cities) Limited (05347220)
LDC (Project 110) Limited (05083580)
LDC (Causewayend) Limited (08895966)**
LDC (Chantry Court Leasehold) Limited (05140258)**
LDC (Chaucer House) Limited (09898020)**
LDC (Constitution Street) Limited (09210998)**
LDC (Construction Two) Limited (04847268)**
LDC (Cowley) Limited (10848961)**
LDC (Curzon Street) Limited (04628271)**
LDC (Euro Loan) Limited (06623603)**
LDC (Far Gosford) Limited (09150149)**
LDC (Ferry Lane 2) GP 3 Limited (07503842)**
LDC (Ferry Lane 2) GP 4 Limited (07503913)**
LDC (Ferry Lane 2) Holdings Limited (07504099)
LDC (Finance) Limited (09760806)**
LDC (Frogmore Street) Limited* (03389585)**
LDC (Greetham Street) Limited (08895825)**
LDC (Gt Suffolk St) Limited Partnership
LDC (Gt Suffolk St) Management Limited Partnership
LDC (Gt Suffolk Street) GP1 Limited (07274156)
LDC (Gt Suffolk Street) GP2 Limited (07274000)
LDC (Gt Suffolk Street) Holdings Limited (07353946)
LDC (Gt Suffolk Street) Management GP1 Limited
(07354719)
LDC (Gt Suffolk Street) Management GP2 Limited
(07354728)
LDC (Hampton Street) Limited (06415998)**
LDC (Hillhead) Limited (06176554)**
LDC (Holdings) Ltd (02625007)*
LDC (Imperial Wharf) Limited (04541678)**
LDC (International House) Limited (10131352)**
LDC (James Watson Leasehold) Limited (03928026)**
LDC (Kelham Island) Limited (05152229)**
LDC (Leasehold A) Limited (04066933)**
LDC (Leasehold B) Limited (05978242)**
LDC (Loughborough) Limited (04207522)
LDC (Project 111) Limited (05791650)
LDC (Radmarsh Road) Limited (05435290)
LDC (River Street) Limited (10564295)**
LDC (Skelhorne) Limited (09898132)**
LDC (Smithfield) Limited (03373096)**
LDC (St Leonards) Limited (08895830)**
LDC (St Pancras Way) GP1 Limited (07359501)
LDC (St Pancras Way) GP2 Limited (07359428)
LDC (St Pancras Way) GP3 Limited (07503268)
LDC (St Pancras Way) GP4 Limited (07503251)
LDC (St Pancras Way) Holdings Limited (07360734)**
LDC (St Pancras Way) Limited Partnership**
LDC (St Pancras Way) Management Limited Partnership**
LDC (St Vincents) Limited (10218310)**
LDC (Swindon NHS) Limited (04027502)**
LDC (Tara House) Limited (09214177)**
LDC (Thurso Street) GP1 Limited (07199022)**
LDC (Thurso Street) GP2 Limited (07198979)**
LDC (Thurso Street) GP3 Limited (07434001)**
LDC (Thurso Street) GP4 Limited (07434133)**
LDC (Thurso Street) Limited Partnership
LDC (Thurso Street) Management Limited Partnership**
LDC (Tower North) Limited (10950123)**
LDC (Ventura) Limited (0444628)**
LDC (Vernon Square) Limited (06444132)**
LDC (William Morris II) Limited (05999281)
LDC Capital Cities Two (GP) Limited (08790742)
LSAV (Angel Lane) GP3 Limited (08646359)**
LSAV (Angel Lane) GP4 Limited (08646929)**
LSAV (Aston Student Village) GP3 Limited (10498217)
(50.00%)
LSAV (Aston Student Village) GP4 Limited (10498484)
(50.00%)
LSAV (Stratford) GP3 Limited (08751654)
LDC (Magnet Court Leasehold) Limited (05140255)**
LSAV (Stratford) GP4 Limited (08751629)
LDC (Mansfield) Limited (06546446)
LSAV (Wembley) GP3 Limited (08725127)**
LDC (Millennium View) Limited (09890375)**
LSAV (Wembley) GP4 Limited (08725235)**
LDC (MTF Portfolio) Limited (05530557)
LDC (Nairn Street) GP 3 Limited (07808933)
LDC (Nairn Street) GP 4 Limited (07808919)
LSAV Rent Collection Limited (08496230)
LSAV (Stapleton) GP3 Limited (08646819)
LSAV (Stapleton) GP4 Limited (08647019)
LDC (Nairn Street) Holdings Limited (07579402)**
Railyard GP Limited (06016486)**
LDC (Newgate) Limited (08895869)**
Railyard Student Accommodation Limited Partnership**
LDC (New Wakefield Street) Limited (10436455)**
Stardesert Limited (04437102)
LDC (Old Hospital) Limited (09702143)**
The UNITE Foundation
Unite Accommodation Management 16 Limited
(07061314)**
Unite Accommodation Management 18 Limited
(08328484)**
Unite Accommodation Management 19 Limited
(08790504)
Unite Accommodation Management 2 Limited
(05193166)**
Unite Accommodation Management 20 Limited
(08790642)
Unite Accommodation Management 6 Limited (05077346)
Unite Accommodation Management 8 Limited (05077315)
Unite Accommodation Management 9 Limited
(06190863)**
Unite Accommodation Management Limited (06190905)**
Unite Accommodation Management One Hundred
Limited (07989080)
UNITE Capital Cities Holdings Limited (08801242)
UNITE Construction (Angel Lane) Limited (08792704)**
UNITE Construction (Stapleton) Limited (09023406)**
UNITE Construction (Wembley) Limited (09023474)**
Unite Finance Limited* (04353305)**
UNITE Finance One (Accommodation Services) Limited
(04332937)**
Unite Finance One (Holdings) Limited (04316207)**
UNITE Finance One (Property) Limited (04303331)**
UNITE FM Limited (06807562)**
UNITE For Success Limited (05157263)**
Unite Holdings Ltd* (03148468)**
UNITE Homes Limited (05140262)**
Unite Integrated Solutions plc (02402714)
Unite Modular Solutions Limited (05140259)**
Unite Rent Collection Limited (0598935)**
UNITE Student Living Limited (06204135)**
USAF GP No 11 Management Limited (07351883)
USAF LP Limited (05860874)**
USAF Management GP No 14 Limited (09130985)**
USAF Management GP No.15 Limited (09749946)
USAF Management GP No.16 Limited (09750068)
USAF Management GP No.17 Limited (09750061)
USAF Management 10 Limited (06714695)
USAF Management 11 Limited (07082782)
USAF Management 12 Limited (07365681)
USAF Management 14 Limited (09232206)
USAF Management 18 Limited (10219775)
USAF Management 6 Limited (06225945)
USAF Management 8 Limited (06387597)
USAF Management Limited (05862721)
LDC (Ferry Lane 2) GP 1 Limited (07359448) (50.00%)
LDC (Ferry Lane 2) GP 2 Limited (07359481) (50.00%)
LDC (Ferry Lane 2) Limited Partnership (50.00%)
LDC (Ferry Lane 2) Management Limited Partnership
(50.00%)
LDC (Stratford) GP1 Limited (07547911) (50.00%)
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
154
Section 7: Company subsidiaries and joint ventures continued
Registered office: South Quay House, Temple Back, Bristol, BS1 6FL
LDC (Stratford) GP2 Limited (07547994) (50.00%)
USAF No 15 Limited Partnership (24.90%)
LDC (Stratford) Limited Partnership (50.00%)
LSAV (Angel Lane) GP1 Limited (08593689) (50.00%)
LSAV (Angel Lane) GP2 Limited (08593692)(50.00%)
LSAV (Angel Lane) Limited Partnership (50.00%)
LSAV (Angel Lane) Management Limited Partnership
(50.00%)
LSAV (Aston Student Village) GP1 Limited (10498478)
(50.00%)
LSAV (Aston Student Village) GP2 Limited (10498481)
(50.00%)
LSAV (Aston Student Village) Limited Partnership (50.00%)
LSAV (Aston Student Village) Management Limited
Partnership (50.00%)
LSAV (Stapleton) Limited Partnership (50.00%)
LSAV (Stapleton) Management Limited Partnership
(50.00%)
LSAV (Stratford) Management Limited Partnership (50.00%)
LSAV (Wembley) GP1 Limited (08635735) (50.00%)
LSAV (Wembley) GP2 Limited (08636051)(50.00%)
LSAV (Wembley) Limited Partnership (50.00%)
LSAV (Wembley) Management Limited Partnership
(50.00%)
LSAV(Stapleton) GP1 Limited (08593695)(50.00%)
LSAV(Stapleton) GP2 Limited (08593699) (50.00%)
Unite Capital Cities Limited Partnership (50.00%)
Unite Capital Cities Two Limited Partnership (50.00%)
USAF Management No. 15 Limited Partnership (24.90%)
USAF Management No. 16 Limited Partnership (24.90%)
USAF Management No. 17 Limited Partnership (24.90%)
Filbert Village Student Accommodation Limited Partnership
(24.60%)
Forster Hall Limited Partnership (24.60%)
Student Hall Nominees Limited (24.60%)
USAF No 1 Limited Partnership (24.60%)
USAF No 10 Limited Partnership (24.60%)
USAF No 11 Limited Partnership (24.60%)
USAF GP No 6 Limited (05897755) (16.20%)
USAF GP No 8 Limited (06381914) (16.20%)
USAF Holdings B Limited (06324325) (16.20%)
USAF Holdings C Limited (06381882) (16.20%)
USAF Holdings F Limited (07074623) (16.20%)
USAF Holdings G Limited (07365712) (16.20%)
USAF Holdings H Limited (09089805) (16.20%)
USAF Holdings I Limited (09581882) (16.20%)
USAF No 11 Management Limited Partnership (24.60%)
USAF Holdings J Limited (10215997) (16.20%)
USAF No 12 Limited Partnership (24.60%)
USAF No 14 Limited Partnership (24.60%)
USAF No 14 Management Limited Partnership (24.60%)
USAF No 18 Limited Partnership (24.60%)
USAF No 6 Limited Partnership (24.60%)
USAF No 8 Limited Partnership (24.60%)
LDC (Nairn Street) Limited Partnership (24.50%)
LDC (Nairn Street) Management Limited Partnership
(24.50%)
Filbert Village GP Limited (16.20%)
LDC (Nairn Street) GP 1 Limited (16.20%)
LDC (Nairn Street) GP 2 Limited (16.20%)
USAF Finance II Limited (16.20%)
USAF GP No 1 Limited (05897875) (16.20%)
USAF GP No 10 Limited (06714734) (16.20%)
USAF GP No 11 Limited (07075210) (16.20%)
USAF GP No 12 Limited (07368735) (16.20%)
USAF GP No 14 Limited (09189977) (16.20%)
USAF GP No 15 Limited (09585201) (16.20%)
USAF GP No 18 Limited (10219336) (16.20%)
USAF Holdings Limited (05870177) (16.20%)
USAF Nominee No 1 Limited (05855598) (24.90%)
USAF Nominee No 10 Limited (06714690) (24.90%)
USAF Nominee No 10A Limited (06714615) (24.90%)
USAF Nominee No 11 Limited (07075251) (24.90%)
USAF Nominee No 11A Limited (07075251) (24.90%)
USAF Nominee No 12 Limited (07368733) (24.90%)
USAF Nominee No 12A Limited (07368753) (24.90%)
USAF Nominee No 14 Limited (09231609) (24.90%)
USAF Nominee No 14A Limited (09231604) (24.90%)
USAF Nominee No 18 Limited (10218595) (24.90%)
USAF Nominee No 18A Limited (10219339) (24.90%)
USAF Nominee No 1A Limited (05835512) (24.90%)
USAF Nominee No 6 Limited (05855599) (24.90%)
USAF Nominee No 6A Limited (05885802) (24.90%)
USAF Nominee No 8 Limited (06381861) (24.90%)
USAF Nominee No 8A Limited (06381869) (24.90%)
USAF RCC Limited (05983554)(16.20%)
Registered office: 13 Castle Street, St Helier, Jersey, JE4 5UT
LDC (Gt Suffolk St) Unit Trust
USAF Jersey Investments Limited
LDC (St Pancras Way) Unit Trust
LDC (Thurso Street) Unit Trust
LSAV (Jersey Manager) Limited
Unite (Capital Cities) Jersey Limited
UNITE Jersey Issuer Limited*
USAF Jersey Manager Limited
LDC (Ferry Lane 2) Unit Trust (50.00%)
LDC (Stratford) Unit Trust (50.00%)
LSAV (Holdings) Limited (50.00%)
LSAV (Trustee) Limited (50.00%)
LSAV Unit Trust (50.00%)
LSAV (Aston Student Village) Unit Trust (50.00%)
UNITE Capital Cities Unit Trust (50.00%)
USAF Portfolio 18 Unit Trust (24.60%)
LDC (Nairn Street) Unit Trust (24.50%)
UNITE UK Student Accommodation Fund (16.2%)
Registered office: Third Floor, La Plaiderie Chambers, St Peter Port, Guernsey, GY1 1WG
USAF Feeder Guernsey Limited (45.20%)
USAF Portfolio 16 Unit Trust (24.90%)
USAF Portfolio 15 Unit Trust (24.90%)
USAF 15 NRL Limited (24.8%)
USAF Portfolio 17 Unit Trust (24.90%)
Registered office: Third Floor, Barclays House, Victoria Street, Douglas, Isle of Man, IM1 2LE
Filbert Street Student Accommodation Unit Trust (24.60%)
The Railyard Student Accommodation Unit Trust
Registered office: Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2 EN
LSAV (GP) Limited (50.00%)
LSAV (Property Holdings) LP (50.00%)
* Held directly by the Company.
** The company is exempt from the requirements of the Companies Act relating to the audit of individual financial statements by virtue of s479A for the
financial year ended 31 December 2017.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Financial statements
FINANCIAL RECORD
EPRA NAV per share (pence)
IFRS NAV per share (pence)
EPRA net assets (£m)
IFRS net assets (£m)
Managed portfolio value (£m)
LTV (%)
EPRA earnings (£m)
Profit/(loss) before tax (£m)
EPRA earnings per share (pence)
Adjusted EPRA earnings per share (pence)
IFRS earnings per share (pence)
2017
720
717
1,740
1,729
4,612
31%
71
229
30
30
95.3
2016
646
653
1,557
1,452
4,327
34%
61
201
28
28
101
2015
579
574
1,394
1,275
3,827
35%
50
388
29
23
164
2014
434
416
881
843
2,951
43%
33
108
17
17
53
155
2013
382
370
682
653
2,736
49%
23
77
18
14
46
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
156
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 Company’s
registered office at South Quay, Temple Back, Bristol, BS1 6FL at 9.30 a.m. on 10 May 2018 for the purpose of considering and, if thought
fit, passing Resolutions 1 to 15 as ordinary resolutions and Resolutions 16 to 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 2017 together with the Directors’ report,
the strategic report and the auditor’s report on those annual accounts (the Annual Report and Accounts).
Directors’ Remuneration Report
2. To approve the Directors’ Remuneration Report contained within the Annual Report and Accounts.
Final dividend
3. To declare a final dividend for the year ended 31 December 2017 of 15.4p per ordinary share payable on 18 May 2018 to
shareholders on the register of members of the Company at the close of business on 13 April 2018.
Scrip dividend
4. THAT the Directors be and are generally and unconditionally authorised to exercise the power contained in Article 142 of the
Company’s Articles of Association so that they may offer to any holders of ordinary shares of the Company the right to elect
to receive ordinary shares credited as fully paid, in whole or in part instead of cash in respect of the whole or some part of any
dividend declared or to be declared by the Company on such terms and conditions as may be determined by the Directors, and
that such authority commence from the date of approval of this resolution and expire at the beginning of the third Annual General
Meeting of the Company after the date on which this resolution is passed.
Re-election of Directors
5. To re-elect Mr P M White as a Director of the Company.
6. To re-elect Mr R S Smith 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 Sir Tim Wilson as a Director of the Company.
10. To re-elect Mr A Jones as a Director of the Company.
11. To re-elect Ms Elizabeth McMeikan as a Director of the Company.
12. To elect Mr R Paterson as a Director of the Company.
Auditors
13. To reappoint Deloitte LLP as auditor of the Company to hold office until the conclusion of the next General Meeting at which
accounts are laid before the Company.
14. To authorise the Directors to determine the remuneration of the auditor.
Authority to allot shares
15. THAT, in substitution for any equivalent authorities and powers granted to the Directors prior to the passing of this Resolution, the
Directors be and are generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 (the Act):
(a) To exercise all powers of the Company to allot shares in the Company, and grant rights to subscribe for or to convert any security
into shares of the Company (such shares, and rights to subscribe for or to convert any security into shares of the Company being
“relevant securities”), up to an aggregate nominal amount of £21,920,868 (representing approximately one third of the nominal
value of the issued ordinary share capital of the Company as at the date of this notice), such amount to be reduced by the
nominal amount of any allotments or grants made under paragraph (b) below in excess of £21,920,868;
(b) To allot equity securities (as defined in Section 560(1) of the Act) up to an aggregate nominal amount of £43,841,737
(representing approximately two thirds of the nominal value of the issued ordinary share capital of the Company as at the date
of this notice) (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.
(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.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Other information 157
Special resolutions
Authority to disapply pre-emption rights
16. That if Resolution 15 (Authority to allot shares) is passed, the Board be authorised to allot equity securities (as defined in the
Companies Act 2006) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as
treasury shares for cash as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority to
be limited:
(a) to allotments for rights issues and other pre-emptive issues; and
(b) to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (a) above) up to a nominal
amount of £3,288,130 (this amount representing not more than 5 per cent of the nominal value of the issued ordinary share
capital of the Company as at the date of this notice),
such authority to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business
on 9 August 2019, this being the date which is fifteen months after the date of this meeting) but, in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Board may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
17. That if Resolution 15 (Authority to allot shares) is passed, the Board be authorised in addition to any authority granted under Article
16 to allot equity securities (as defined in the Companies Act 2006) for cash under the authority given by that resolution and/or to
sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Companies Act 2006 did not apply to
any such allotment or sale, such authority to be:
(a) limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £3,288,130 (this amount
representing not more than 5 per cent of the nominal value of the issued ordinary share capital of the Company as at the
date of this notice); and
(b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original
transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment of a
kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption
Group prior to the date of this notice,
such authority to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business on
9 August 2019, this being the date which is fifteen months after the date of this meeting) but, in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Board may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
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
26 February 2018
Registered office:
South Quay House
Temple Back
Bristol
BS1 6FL
Registered in England and Wales with registered number 03199160
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 158
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
Notes
1. A member of the Company who wishes to attend the meeting in person should arrive at South Quay, Temple Back, Bristol, BS1 6FL
6GD in good time before the meeting, which will commence at 9.30 a.m. In order to gain admittance to the meeting, members
may be required to produce their attendance card, which is attached to the form of proxy enclosed with this document, or
otherwise prove their identity.
2. A member of the Company who is 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 09.30 a.m. on 8 May 2018.
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 09.30 a.m. on 8 May 2018. 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.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Other information 159
12. The statement of the rights of shareholders in relation to the appointment of proxies above does not apply to Nominated Persons.
These rights can only be exercised by shareholders of the Company.
13. Pursuant to Part 13 of the Companies Act 2006 and Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), the
Company specifies that only those shareholders registered in the register of members of the Company at 5.00 p.m. on 8 May 2018 (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 the date of this notice, the Company’s issued share capital comprised 263,050,423 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 the date of this notice are 263,050,423.
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 9.15 a.m. on the day of the meeting until its conclusion:
(a) copies of the executive directors’ service contracts with the Company and any of its subsidiary undertakings; and
(b) letters of appointment of the non-executive directors.
Strategic reportCorporate governanceFinancial statementsOther informationTHE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 160
GLOSSARY
Adjusted EPRA earnings
Adjusted EPRA earnings are prepared on
the basis of EPRA earnings excluding the
yield related element of the USAF
performance fee.
Adjusted EPRA earnings per share
The earnings per share based on adjusted
EPRA earnings.
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 gearing
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 change, and equates to 0.01%.
Direct let
Properties where short-hold tenancy
agreements are made directly between
Unite and the student.
EBITDA
The Group’s EPRA earnings before charging
interest, tax, depreciation and amortisation.
The profit number is used to calculate the
ratio to net debt.
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 earnings per share
The earnings per share based on
EPRA earnings.
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 measure of net assets.
EPRA net asset value per share
The diluted NAV per share figure based
on EPRA NAV.
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 asset value
The Group’s wholly owned property portfolio
together with the share of the Joint Ventures
property portfolio.
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.
Like-for-like rental growth
Like-for-like rental growth is the growth
in net operating income on properties
owned throughout the current and
previous years under review.
Loan to value (LTV)
The Loan to value (LTV) ratio is the
debt on properties as a proportion of
the carrying value of the total property
portfolio. This ratio is calculated on the basis
of EPRA net assets.
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 pipeline
projects until such time as its capital
investment targets are met. LSAV and UCC
were merged during 2012 and the new
combined entity is referred to as LSAV.
Net debt
The Group debt, net of cash and
unamortised debt raising costs on the
basis of EPRA net assets
Net debt: EBITDA
The Group debt, net of cash and
unamortised debt raising costs and
excluding mark to market of interest rate
swaps as a proportion of EBITDA.
Net initial yield (NIY or yield)
The net operating income generated by
a property expressed as a percentage of
its value, taking into account notional
acquisition costs.
Net operating income (NOI)
The rental income from rental properties
less those operating costs directly related
to the property, therefore excluding
central overhead.
Net rental growth
The annual growth in net operating
income (measured on a like-for-like basis,
ie excluding impact of completion
and disposals).
Nominations
Properties where Universities have entered
into a contract to guarantee occupancy.
The Universities nominate students to live in
the building and Unite enters into short-hold
tenancies with the students.
Non-core assets
Properties that do not fit with the Group’s
long-term investment strategy because
of their location or their size.
Overhead efficiency
The Group’s overhead efficiency
measure shows operating expenses,
net of management fees, as a proportion
of the total property portfolio.
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 that 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.
Total accounting return
This is the growth in EPRA NAV per share plus
dividends paid, and this is expressed as a
percentage of EPRA NAV per share at the
beginning of the period.
USAF/THE FUND
The Unite UK Student Accommodation Fund
(USAF) is Europe’s largest fund that purely
focuses on completed income providing
student accommodation investment assets.
The fund is an open-ended infinite life vehicle
which has unique buying access to Unite’s
development pipeline. Unite acts as fund
manager for the fund, as well as owning a
significant minority stake.
THE UNITE GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017Other information Other information
COMPANY INFORMATION
Unite Group Executive Team
Richard Smith
Chief Executive Officer
Joe Lister
Chief Financial Officer
Richard Simpson
Group Property Director
Registered Office
South Quay House, Temple Back, Bristol
BS1 6FL
Registered Number in England
03199160
Company Secretary
Christopher Szpojnarowicz
Auditor
Deloitte LLP
2 New Street Square, London EC4 3BZ
Financial Advisers
J.P. 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
Powerscourt
1 Tudor Street, London, EC4Y OAH
THIS REPORT IS COMPLEMENTED BY A RANGE OF ONLINE INFORMATION ABOUT OUR
BUSINESS INCLUDING OUR OPERATIONS AND PROPERTY DIVISIONS, OUR MARKETS,
AND CORPORATE RESPONSIBILITY AND SUSTAINABILITY.
Find out more online at www.unite-group.co.uk
T
h
e
U
n
i
t
e
G
r
o
u
p
P
L
C
A
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
1
7
The Unite Group plc
South Quay House
Temple Back
Bristol BS1 6FL
+44 (0) 117 302 7000
info@unite-students.com
www.unite-group.co.uk
www.unitestudents.com