The UK’s leading developer and manager of student accommodation The UK’s leading developer and manager of student accommodation Annual Report & Accounts 2008 The UNITE Group plc Annual Report & Accounts 2008 UNITE Parkway Gate, home to 728 students in Manchester The UNITE Group plc The Core 40 St Thomas Street Bristol BS1 6JX Tel: 0117 302 7000 Fax: 0117 302 7400 [email protected] www.unite-group.co.uk www.unite-students.com www.livocity.co.uk This report is printed on Revive 100 Offset, which is 100% recycled paper. Designed and produced by Proteus www.proteus-uk.com We’re number The UK’s leading developer and manager of student accommodation 1 Contents Section 1: Introduction 2008 Highlights 03 Overview of UNITE 05 Chairman’s statement 07 Section 2: Business review Executing our strategy 11 The student accommodation market 12 Financial results 13 Investment portfolio valuations 15 Co-investing asset management 19 Development activity 20 Livocity 22 Financing 22 Looking ahead 28 Section 3: Business review: Risks and uncertainties 29 Measures and growth Key performance indicators 30 New properties for 2009 31 A sustainable business 33 Livocity 36 Section 4: Reports The Board of Directors 37 Directors’ report 39 Corporate governance 42 Directors’ remuneration report 45 Independent auditors’ report 52 Section 5: Financial statements Consolidated income statement 53 Consolidated balance sheet 54 Company balance sheet 55 Statement of changes in shareholder equity 56 Statement of cash flows 57 Notes to the financial statements 58 Section 6: Further information 5 year financial record 89 Notice of AGM 90 Appendix: Notes of principal changes 91 Glossary 93 Company information and UNITE management 94 2 Taking stock – financial highlights Against an extremely challenging economic backdrop, UNITE has delivered strong operational performance whilst taking a proactive approach to managing its balance sheet. 99% 5% £12m record occupancy drop in portfolio valuation savings in 2009 Record occupancy of 99% achieved for the Investment portfolio valuation fell by only 5%, £12 million identified savings across academic year 2008/09 with year on year rental compared to the IPD index average fall of 27%. the Group’s operations in 2009. growth of 9.5%. 65% of rooms already reserved The outperformance is predominantly attributable for the forthcoming academic year, indicating to rental growth and rental growth prospects. rental growth in the range of 7% to 10%. Adjusted diluted net asset value per share 325pence £531m (pence per share) adjusted fully diluted net asset value net debt, reduced from a peak of £862m The adjusted fully diluted net asset value per share Adjusted net debt reduced from a peak of 425 fell 21% at December 2008 from 410 pence at £862 million in November 2006 to £531 2006 December 2007. million at 31 December. 2007 410 2008 325 In 2008, we were home to some... 036703 , Section 1 Section £57m £325m 1,125 cash available asset sales in 2008 new beds in London for 2010 The Group is in full compliance with all £154 million of non-core assets sold to third Scaled back, fully funded, development pipeline borrowing covenants and has a cash balance parties during 2008 and a further £171 million scheduled to deliver 1,125 new bed spaces in of £57 million for general purposes. Coupled of sales made to USAF in December 2008 2010, all of which will be located in London. with the rental growth, this provides insulation following a successful £58 million capital raise to absorb a further yield expansion of 60bps in October 2008. to 75bps. Net asset value Managed per share portfolio value (pence per share) 2006 391 2006 £1,435m 2007 364 2007 £1,723m 2008 258 2008 £1,829m ...students, and counting. 03670 4 Overview of UNITE UNITE is the UK’s leading developer and manager of student accommodation. Underpinning this is a sound business model, in-depth customer research and a unique online booking system providing a robust platform to drive record occupancy levels and continued rental growth in a challenging economic environment. London, which is home to 21% of all UK students, remains a key focus for UNITE; as such 64% (by value) of the Group’s new bed spaces will be delivered in the Capital in 2009, along with our full pipeline for 2010. Equity investment Acquisition As an active asset manager, UNITE continually By understanding where students want monitors the performance of its portfolio, to live, and focusing on high growth identifying non-core assets for disposal. markets, UNITE’s portfolio is located in The cash generated from this activity, prime locations. coupled with the sale of assets to the Fund, reduces debt. Co-Invest Develop Planning In 2008, UNITE secured 10 planning consents, UNITE UK Student 5 of which were in London. By working Accommodation Fund (‘The Fund’) in partnership with the local councils and The UNITE UK Student Accommodation Fund What we do conducting thorough public consultations, is in a unique position to acquire properties UNITE continue to contribute towards from the UNITE portfolio. UNITE maintains full balanced communities. operational management of these assets as well as having a significant minority stake in the Fund. UNITE also has other joint Project management and off-site venture relationships. modular production Stabilise Working in partnership with UNITE’s project management team, UNITE Modular Solutions are expert in delivering professional purpose- Management UNITE conducts in-depth customer built accommodation. The key benefits of research to ensure its products and utilising modular technology are: services are continually evolving in line Stabilising new assets Marketing and sales 1. Faster build time: typically delivering with customer expectations. As such, Once a new property is opened As the only student accommodation a reduction in build time of 30%-50% UNITE offers dedicated property teams, outside of London, it typically takes provider offering customers the vs. traditional methods 24 hour monitored CCTV and have 1 year to stabilise. This means that ease of online booking, UNITE 2. Reduced waste: UMS is ISO 14001:2004 embarked on a new joint venture to the property is not yet generating is driving occupancy across its accredited for its environmental service all maintenance enquiries. its optimal net income. For those portfolio, achieving 99% for management and reduced waste process. properties delivered in London, the 08/09 academic year. 3. Quality control: ISO 9001:2000 accredited there is generally no stabilisation www.unite-students.com for quality management systems, UMS period required. delivers predictable quality on all products from a controlled environment. Our Market ** Demand / supply imbalance: * 9,200 **source: Savills Net new supply of bed spaces in 2008** 43,197 Additional accepted applications for full time student places across the UK in 2008* *source: UCAS published figures 15 January 2009 5 Our investment portfolio Market segmentation of portfolio under management by value: 1 1 Section With a continued strong focus on London and 1. London the delivery of an 2. Sheffield additional 1,368 3. Liverpool bed spaces in 11 18% 2008, UNITE is 4. Manchester bolstering its 5. Bristol 10 leading position 6. Birmingham 4% 27% in the Capital. 4% 7. Leeds 9 5% 8. Aberdeen 2 9% 9. Leicester 8 5% 10. Glasgow 5% 8% 7% 11. All other markets 7 8% 3 6 4 5 How our portfolio is let: 100% Direct let Lease Nominations 74% 51% 30% 19% 16% 10% 0% 2002 2008 2002 2008 2002 2008 “To reach a mature level of provision, London requires AT LEAST another 100,000student bedrooms.”*** ***source: Knight Frank, London student accommodation review 2009 6 Chairman’s statement We are acutely aware of the extreme unpredictability in the financial markets and are actively and rigorously managing our assets, balance sheet and cost base. Overview and financial co-investment vehicles) fell by 5% during 2008, As a result of the decline in property values, the despite the Group’s success in increasing Group reported a 21% fall in adjusted fully diluted performance occupancy and rent levels. The value of the net asset value per share for the year, to 325 For the academic year 2008/09 UNITE has Group’s investment in this portfolio also fell by pence at December 2008 from 410 pence at achieved record occupancy across its portfolio of 5% and expected margins on the Group’s December 2007. On an IFRS basis, net assets 99% and secured year on year rental growth of development programme have also fallen, the excluding minority interests fell to £320 million 9.5%. This performance is testament to the impact of which has been fully recognised in the (258 pence per share) from £450 million (364 resilience of student accommodation during a independent valuation of the Group’s development pence per share) a year earlier. recession and the professionalism of the Group’s portfolio as at 31 December 2008. It is worth The Group’s adjusted profit for the year to 31 operational business, in particular its on-line noting, however, that this performance is December 2008 reflects the continued shift of platform. However, as a business with investment considerably better than the returns achieved on the Group towards its developer and co-investing in and management responsibility for a £1.8 UK commercial property generally, where capital manager model, in particular the dilution of its billion student accommodation property portfolio, values fell by an average of 27% according to the share in the rental performance of stabilised UNITE has not been immune to the severe IPD index. In addition we have taken a provision assets (the majority of which have been sold to deterioration in the condition of global capital of £28 million against the value of land held for USAF, in which UNITE had an average stake of markets and the resultant impact on valuations development.