THE UNITE GROUP PLC Annual Report and Accounts 2024 172 FINANCIAL STATEMENTS 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 four groups on the balance sheet at the carrying values detailed below. In the Group’s EPRA NTA all these groups are shown at market value, except where otherwise stated. i) Investment property (owned) These are assets that the Group intends to hold for a long period to earn rental income or capital appreciation. The assets are measured at fair value in the balance sheet with changes in fair value taken to the income statement. ii) Investment property (leased) These are assets the Group sold to institutional investors and simultaneously leased back. These right-of-use assets are measured at fair value in the balance sheet with changes in fair value taken to the income statement. iii) Investment property (under development) These are assets which are currently in the course of construction and which will be transferred to Investment property on completion. The assets are initially recognised at cost and are subsequently measured at fair value in the balance sheet with changes in fair value taken to the income statement. iv) Investment property classified as held for sale These are assets whose carrying amount will be recovered through a sale transaction rather than to hold for long-term rental income or capital appreciation. This condition is regarded as met only when the sale is highly probable and the investment property is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. The assets are measured at fair value in the balance sheet, with changes in fair value taken to the income statement. They are presented as current assets in the IFRS balance sheet. Accounting policies Investment property (owned) and investment property (under development) Investment property (owned) and investment property (under development) are held at fair value. The external valuation of property assets involves significant judgement and changes to the core assumptions: rental income, occupancy and property management costs, as well as estimated future costs, could have a significant impact on the carrying value of these assets. Further details of the valuation process are included below. Construction and 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. 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 6.4% (2023: 6.4%). The recognition of acquisitions of investment property and land occurs at the date when control passes to Unite Group. The recognition of disposals of investment property occurs on legal completion when control passes from Unite Group. In accordance with IFRS 15, gains/(losses) from the disposal of investment property are recognised at a point in time. Contingent consideration receivables are recognised on disposals where the amount of additional consideration is readily identifiable. It is recognised at the constrained value determined by the amount that is highly probable to be receivable at the time of the disposal, and any subsequent change in value is recognised in profit or loss in the later period. The fair value of development properties is determined using a residual method, valuing each property at an estimate of what its fair value would be completed, less the estimated total costs to complete (inclusive of a profit for the developer. Investment property (leased) The Group holds certain investment property under historical sale and leaseback arrangements, acting as an intermediate lessor and subleasing its right-of-use assets. For each leased property, the Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability (see note 4.6a) with respect to all lease arrangements in which it is the lessee. The right-of-use assets are initially measured at cost in accordance with IFRS 16 and subsequently at fair value in the balance sheet with changes in fair value taken to the income statement in accordance with IAS 40. NOTES TO THE FINANCIAL STATEMENTS continued