Final Results

RNS Number : 1450C

Unite Group PLC

02 March 2011

2 March 2011

THE UNITE GROUP PLC

('UNITE' / 'Group' / 'the Company')

FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2010

UNITE REPORTS STRONG GROWTH IN PROFIT AND NET ASSET VALUE

DRIVEN BY HIGH OCCUPANCY AND CONTINUED RENTAL GROWTH

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today announces its full year results for the year to 31 December 2010.

Financial highlights:

· Strong growth in adjusted fully diluted NAV per share, up 11% to 295 pence (31 December 2009: 265 pence, 30 June 2010: 286 pence). NAV per share on an IFRS basis was 242p (31 December 2009: 229p).

· Profit at a net portfolio contribution ("NPC") level of £4.1 million (2009: £0.6 million), resulting from high occupancy and continued rental growth.

· Adjusted net debt reduced to £335 million (31 December 2009: £390 million) largely as a result of the sale of £146 million of assets to USAF. Adjusted gearing fell to 71% from 92% at December 2009 and on an IFRS basis to 96% from 115%.

· Intention to reinstate dividend in 2011 given the encouraging financial performance and positive outlook for the business.

Development highlights:

· Secured London pipeline increased to 2,800 bed spaces for delivery in 2012-14, expected to deliver future NAV of £69 million and NPC of £14 million.

· Four projects located in London, Manchester, Reading and Glasgow, delivering a further 1,277 beds, remain on track for delivery in summer 2011.

· All required funding and planning consents in place for 2012 pipeline of 1,341 bed spaces.

Operational highlights:

· Like-for-like rental growth of 3.1% for 2010/11 academic year and similar growth expected for 2011/12.

· Reservations for 2011/12 at 62% as at end February, compared to 59% at the same time in 2010, reflecting a successful re-booking campaign and further improvements to the customer service platform.

Phil White, Chairman of The UNITE Group, commented:

"2010 was a year of excellent progress for UNITE. We have made timely and effective improvements to our capital structure and operating platform, which have contributed to a resilient performance in the recent challenging economic times and driven significant improvements in both profitability and Net Asset Value.

"We have a portfolio that is well positioned for continued rental growth, a well funded and attractive development pipeline that will add significantly to earnings in future years, financial capacity to add to this pipeline and carefully considered plans to grow the business further. As a result, we look to the future with a confidence that is clearly illustrated by our intention to reinstate a dividend during 2011."

Enquiries

There will be a presentation for analysts this morning at 10am. The live webcast will be available at www.unite-group.co.uk

The UNITE Group plc	Tel: 020 7659 1837
Mark Allan
Joe Lister
Paul Harris

Financial Dynamics	Tel: 020 7831 3113
Stephanie Highett
Dido Laurimore
Laurence Jones

Chairman's statement

Overview

2010 was a year of excellent progress for UNITE, particularly given the uncertain economic backdrop and the announcement of major changes to University and student funding. The Group saw significant improvements in both profitability (delivering a net portfolio contribution of £4.1 million up from £0.6 million in 2009 and a loss of £5.4 million in 2008) and adjusted net asset value up 11% to 295 pence per share.

Over the past few years we have carefully developed our strategy and business model to address the emerging changes to the environment in which we operate. We have focused our investment in strong University locations, particularly London, delivered lasting operational efficiencies and strengthened our balance sheet through a series of important measures. As a result, the Group withstood the financial crisis and is well positioned to adapt to the forthcoming changes to UK Higher Education.

We expect demand for well located, well managed and high quality student accommodation to remain strong in the years ahead even though we do not expect student numbers themselves to grow significantly due to a number of supply side constraints. Applications to study at University exceeded available places by 160,000 in 2010 and in most major University towns and cities there is still not enough accommodation to house those students that do get a place. Capital constraints and a tough planning environment mean that the level of new supply over the next few years is unlikely to be material. As a result, the outlook for rental growth and selective development opportunities in our sector is positive.

For 2010/11 UNITE again achieved high occupancy levels (97%) and healthy rental growth (3.1%). Looking forward, demand for UNITE's accommodation in 2011/12 looks to be even stronger with reservations at the end of February already at 62% of available rooms, compared to 59% in 2010. We expect rental growth for 2011/12 to be at a similar level to 2010/11.

Strategy

Over the past four years the Group has successfully established itself as a developer and co-investing manager, selling the majority of its operating portfolio to the UNITE UK Student Accommodation Fund ('USAF'), its flagship multi-investor fund, and using the proceeds to reduce borrowings and fund new development activity. This strategy has served the Group well.

Looking forward, in order to increase our share of recurring profits, we plan to retain a higher ownership stake in our current development portfolio as it is completed whilst also enhancing our London portfolio weighting. With USAF also having largely achieved its own objectives in terms of scale, diversity and track record and with a healthy secondary trading market for USAF units emerging, we expect asset sales from the Group to the Fund to be more modest in the coming years.

We believe that this, together with continued good rental growth prospects for the sector, asset management potential across a large and diverse portfolio and further earnings accretive development opportunities (particularly in London) forms a clear basis from which to increase net portfolio contribution ('NPC') and net asset value ('NAV') in the coming years.

Targeted development activity

We are on track to secure and deliver our future London development pipeline in line with plan. The Group now has approximately 2,800 bed spaces secured for delivery in London between 2012 and 2014, of which 1,341 are to be delivered in 2012 and have all the necessary funding and planning consents in place. In addition, our four 2011 projects in London, Manchester, Reading and Glasgow remain on track for summer delivery.

The delivery of our development pipeline will be accretive to earnings and net asset value. The full secured pipeline will account for £69 million of future NAV uplift and a potential £14 million of recurring NPC assuming plan targets are hit and that borrowing against the pipeline is not increased.

Projects in the Group's secured pipeline have been carefully selected to address the areas of greatest market need. Over 90% of our pipeline in London consists of en-suite bedrooms, where the market shortage is most acute, and over half of these are targeted at the value end of the price spectrum, with rents being positioned approximately 20% below the current market average. This value proposition is achieved through a combination of specification, configuration and location factors and leaves the Group well placed to cater for changing customer demands.

In addition to the above, we remain confident that we will secure the remainder of our target London pipeline during 2011, increasing the 2,800 beds currently in place to approximately 4,000 and meaning that the capital currently available to the Group will then be substantially committed. Beyond this we intend to commit between a further £100 million and £150 million to new development activity by the end of 2012, to be funded by the disposal of selected assets from our investment portfolio to a similar value.

Proactive asset management

Our diverse national presence and focus on strong University locations, both through our wholly owned and co-investment portfolios, continues to underpin good rental growth prospects. In addition we see an increasing opportunity to enhance returns further through a range of refurbishment, extension and reversionary initiatives in the coming years as well as pursuing further efficiencies that will improve net operating margin.

Other growth opportunities

In addition to the growth derived from our development and asset management activities, we continue to believe that opportunities will also emerge to acquire and reposition certain assets owned by other operators and also to pursue accommodation partnership projects with Universities. During 2010, for example, USAF acquired a single £25 million asset in Newcastle from a third party and UNITE (together with a consortium of investment partners) pursued, ultimately unsuccessfully, a possible partnership to operate a portfolio of 4,000 beds on behalf of a major UK University. We will continue to examine such opportunities but will only pursue them if we are confident that to do so will not distract from the core objectives of the Group. Furthermore, the majority of any capital required to pursue any such opportunities is likely to be sourced from third parties.

Dividend

In light of the Group's encouraging progress and the generally positive outlook for the business, the Board intends to reinstate a dividend during 2011. Any dividend is likely to represent between one quarter and one half of NPC, with the first payment likely to be confirmed with the Group's half year results. No dividend is proposed for 2010.

Financing

The Group has made excellent progress over the past two years in extending, restructuring and replacing debt facilities both on and off balance sheet. Although it has very few near term maturities and plenty of headroom against covenants the Group has proactively sought to engage with lenders to ensure an appropriate debt structure in the medium term both for itself and its various co-investment vehicles. As a result of this and the continued support of a broad range of lenders, during 2010 the Group arranged £200 million of new facilities and extended or restructured a further £120 million of borrowings. We will continue this approach of proactive engagement to liability management throughout 2011, well ahead of debt maturities, ensuring appropriate integration with the Group's underlying asset management strategies.

In addition to enhancing the Group's debt structure, we also intend to develop a clear strategy to replace, restructure or extend the Group's various joint venture vehicles. Working in conjunction with our joint venture partners, finalising this strategy will be a priority for 2011.

People and operations

Within our organisation we have made a number of important changes, improvements and appointments which will ensure our employees are able to provide the highest levels of customer service. Continued improvements to our online booking system, refocused marketing activity and renewed accountabilities for our city-based staff have improved our service levels and our working environment.

We have put our business units at the heart of our planning and resourcing processes, brought our maintenance business back in house, strengthened our operating teams and have made three new appointments to our leadership team. Perhaps most significantly, with the appointment of Professor Sir Tim Wilson to our Board of Directors, we now have additional senior expertise from the Higher Education sector at a time of considerable change for UK Universities.

UNITE Modular Solutions ('UMS')

After a disappointing start to the year our modular construction business, UMS, scaled up production in the latter part of 2010 and has secured a number of external contracts for the year ahead, most notably in the budget hotel sector, and is reporting a healthy pipeline of other opportunities. Overall for 2010, UMS recorded a loss of £4.8 million, of which £4.6 million arose in the first half of the year, meaning that the facility was close to break-even in the second half. Taking into account this improved level of activity, we expect losses at UMS to narrow substantially and for the business to be marginally cash positive in 2011, although production will again be skewed to the second half of the year. With the viability of UMS's proposition proven externally and market conditions improving, the Group intends to review its ownership stake in the business in the short to medium term.

Outlook

In recent years the Group has made timely and effective improvements to its capital structure and operating platform. These changes have contributed to a resilient performance in the recent challenging economic times and also leave the Group well placed for sustainable growth.

UNITE has a portfolio that is well positioned for continued rental growth, a well-funded and attractive development pipeline that will add significantly to earnings in future years, financial capacity to add to this pipeline and carefully considered plans to grow the business further. 2010 has been an excellent year for UNITE and as we continue to work with our partners in the sector we look forward to 2011 and beyond with confidence.

Phil White

Chairman

2 March 2011

Business Review

Our market

Overview

Since the early 1990s UNITE and the student accommodation sector as a whole have benefitted from rapid growth in student numbers, driven by a combination of demographics, Government policy and international student demand. This, coupled with the relative lack of capital available to Universities to meet the housing needs created by this surge in demand, resulted in a structural demand/supply imbalance in almost every University town or city.

Today this structural shortage of accommodation remains evident in many major University towns and cities and whilst UNITE does not expect the growth in student numbers to be significant over the next ten years due to a variety of factors explained below, this structural shortage and the latent demand for UK Higher Education (evidenced by the excess of undergraduate applications over available places) means that demand for well-managed, well located student accommodation will remain strong.

Student numbers grew once again in 2010, largely as a result of the Government's decision to fund an additional 10,000 undergraduate places. Looking forward the Group expects underlying demand for UK Higher Education to remain strong, but resultant growth in student numbers to be limited by a combination of funding constraints, University capacity and immigration controls. UNITE is forecasting student numbers to remain flat over the next five years and therefore expects growth opportunities to be strongest in those towns and cities where the current structural shortage of accommodation remains most significant. This is the principal reason for the Group's continued focus in London.

UNITE considers the flat growth assumption to be prudent and robust but it is also important to acknowledge the extent of unsatisfied demand for UK University places. Over the past three years as many as 160,000 applicants each year have been unable to secure a place meaning that not only is there not enough accommodation for those who get a place, there are not enough places for those that want them.

Demand characteristics

The Group's research and understanding of market dynamics suggests that the student demographic will continue to evolve, with more mature and part-time students applying for University places, and international student numbers remaining strong.

The increased debt burden on future students is likely to lead to changing patterns and behaviour, most obviously in terms of where students decide to study. However there are several factors which suggest student demand for UNITE's product will remain high, namely the continued growth in non-EU student numbers (who are not affected by the funding changes) and the Group's business model and market positioning, with properties located in strong University cities across the UK and a core customer base that is the least likely to be affected by increased tuition fees.

46% of UNITE's customer base is international (rising to 70% in London) and, of the Group's UK customer base, over 45% come from the most affluent backgrounds. UNITE considers that both of these market segments will prove resilient to the increasing cost of University education.

Profile of UNITE UK students

http://www.rns-pdf.londonstockexchange.com/rns/1450C_2-2011-3-1.pdf

Notwithstanding the anticipated resilience of UNITE's core customer base, the Group also sees an attractive opportunity to develop an accommodation product at a lower price point in London. This will be focused on those London locations which are outside Zone 1 but still offer direct, fast access into Central London.

Supply characteristics

There was limited new stock brought to the market in 2010 with UNITE delivering 1,100 new beds out of a total of approximately 5,000 across the UK. This follows a period of relatively limited supply in 2008 and 2009 when approximately 9,000 beds were delivered in each year of which UNITE built a third. Whilst there has been some increase in development activity in 2010, predominantly in London, it is doubtful that net new supply will increase meaningfully over the next few years. The combination of limited capital availability, a challenging planning environment and the unviable nature of many existing consented schemes creates a powerful constraint on new supply for many private providers. Indeed, much of the increased activity in London is characterised by new entrants to the market pursuing a finite number of sites where planning consents are already in place or expected. The Group does not see this activity increasing new supply above its existing estimates.

Furthermore, with University capital budgets under significant pressure for the foreseeable future, it is expected that only limited funding will be available for new capital projects. Alongside this, the age of existing University stock could lead to functional obsolescence in some cases and we do not expect Universities to account for net increases in accommodation supply for the foreseeable future.

Changes to funding

During 2010 significant changes were announced to future funding structures for the Higher Education sector. The outcome of the Government-commissioned Browne Review into University funding was a vote in favour of raising the cap on tuition fees from £3,275 to as much as £9,000, from the start of the 2012/13 academic year. This additional revenue will go directly to Universities, mitigating much of the impact of planned cuts to teaching budgets, while graduates will only start repaying the Government provided loans for these fees when they are earning a salary of at least £21,000 per annum.

These changes build on the introduction of fees in 1998 and the subsequent increase in 2006. UNITE has continued to monitor and respond proactively over time to the implications of these changes on the market, and believes that its growth strategy is fully aligned with the changing nature of the sector. The policy developments have highlighted the importance of maintaining effective relationships with UK Universities, and of understanding and anticipating the drivers of student behaviour and choice. UNITE's track record of investing only in central locations in the strongest University cities and developing long term relationships with those Universities underpins the resilience of its long-term business model.

Development and investment market

Land prices have been relatively stable during 2010 as the market continues to emerge from the effects of the recession, and this has allowed UNITE to make good progress building its development pipeline at an attractive return on cost. The Group is also continuing to see opportunities to acquire additional sites in line with return hurdles. Furthermore, given the continuing shortage of development finance, UNITE is comfortable that these opportunities will remain available for the next six to nine months in London, during which time it expects to secure the remainder of its target pipeline, and for a longer period outside London where the Company believes that land prices will take more time to recover. Build cost inflation remains relatively benign although we expect some upward pressure towards the end of the year.

In the investment market, activity has picked up in 2010 with investor appetite for student accommodation being strongest for prime assets throughout the year, most notably assets in London and/or those subject to University agreements. The Group has also seen good demand for USAF units in the secondary market, which offer diversified direct let exposure. Approximately £30 million of units were traded in the last 12 months at a small premium to NAV. UNITE expects this demand for prime assets and diversified direct let exposure to continue to be a feature in 2011 whilst also anticipating increased activity driven by lenders with highly leveraged exposure to the sector.

We are confident that the Group's strategy positions it to benefit from the combined impact of these market factors. Our strategy aims to capitalise on the Group's market-leading position, national presence and stable operating platform as a basis to grow sustainable profits whilst also focusing its new capital investment on selective developments in London and other high growth markets that will further boost future earnings.

Our business

Proactive asset management

Operating portfolio

The Group is operating 39,739 beds across 131 properties for the 2010/11 academic year and has delivered rental growth of 3.1% on a like for like basis and occupancy of 97%, compared with 9.7% and 96.5% respectively in 2009/10. At the end of February 2011, reservations had been received for 62% of the portfolio, up from 59% at the same time a year earlier, reflecting a successful re-booking campaign and further improvements to the customer service platform. From this encouraging start and the record level of applications to study in September 2011, the Group remains confident that rental growth for 2011/12 will be similar to last year.

Following the release of the Browne Review and the Higher Education Bill, the need to provide high levels of customer service and value for money will become increasingly important. During 2010 the Group fully embedded its new operating model following the implementation of major changes in 2009. A change programme of this scale and nature inevitably required a small period of adjustment to ensure the operating model worked as designed and these challenges have been successfully addressed. The Group has entered the 2010/11 academic year with its operating platform delivering good quality customer service on a consistent basis.

The Group's maintenance operation has been brought back in house and integrated within its property management operations. Disruption to the supply chain and service levels were successfully contained and following a systems upgrade the maintenance operation is well placed to improve its service further whilst maintaining costs in line with previous levels.

UNITE has also recently signed a contract with the London Organising Committee of the Olympic Games ("LOCOG") to provide around 3,600 rooms in support of the 2012 Olympics for a period of eight weeks over the summer next year. UNITE will be offering its customers leases of 42 weeks on the rooms being taken by LOCOG for the 2011/12 academic year. The positive profit impact of the LOCOG contract will become clearer as operational plans are finalised and the Group will provide more clarity on this later in 2011.

Property portfolio

The valuation of the Group's investment portfolio as at 31 December 2010, including its share of gross assets held in USAF and joint ventures was £884 million (31 December 2009: £929 million) following the sale of £146 million assets to USAF, the completion of the development assets in the joint venture with Oasis Capital Bank (UNITE's share being £45 million) and increases in the value of the portfolio amounting to £32 million. The Group's development assets have been independently valued at £138 million, which includes £25 million of valuation gain that is included in adjusted net assets but not recognised in the IFRS reported net asset value.

UNITE property portfolio

		31 December 2010				31 December 2009
	Average		Wholly owned	Share of JVs	Total	Wholly owned	Share of JVs	Total
	NOI yield		£m	£m	£m	£m	£m	£m

London	6.25%		162	172	334	245	113	358

Major Provincial	6.5%		204	179	383	259	155	414

Provincial	6.75%		127	40	167	121	36	157

Investment portfolio			493	391	884	625	304	929

Development			138	-	138	39	31	70

Property portfolio			631	391	1,022	664	335	999


Total beds			8,267	31,472*	39,739	10,150	28,112*	38,262

*Includes 4,397 leased beds

In recent years, the Group has pursued a clear strategy to increase the proportion of its capital invested in London and other strong markets which offer the best combination of resilience and growth potential. As a direct result of this strategy, at 31 December 2010, 38% of UNITE's investment portfolio was in London compared with 19% at December 2007. Following the completion of its secured pipeline, set out below, the proportion of the Group's assets in London will increase to approximately 50%, assuming that the new assets are retained.

The Group has also made progress stabilising its 2008 and 2009 openings, reducing its brought forward stabilising assets from £191 million at 31 December 2009 to £109 million at the year end. UNITE's share of the assets completed in 2010 in the Oasis Capital Bank ('OCB') joint venture add a further £45 million to the stabilising portfolio. Stabilising assets typically generate two-thirds of the stabilised level of net operating income.

Rental growth was the main driver in the growth of the investment portfolio valuation. After the expansion of yields in 2009 from 6.2% to 6.7%, property yields on student accommodation were broadly stable during 2010 and averaged 6.6% across UNITE's portfolio at the year end (31 December 2009: 6.7%) following a movement of 13 basis points, the majority of which was seen in the first half of the year.

The Group completed the refurbishment of six assets in 2010 with UNITE's share of capital expenditure amounting to £3 million, and will extend this programme into 2011 and beyond to enhance the quality of the portfolio and contribute to further uplifts of value in the future.

The following graph compares the yields on UNITE's completed portfolio and the IPD All Property Yield over the last few years and demonstrates the relative stability of UNITE's yield as a result of the sustained high occupancy levels and the year on year rental growth achieved.

Historic NOI yields

http://www.rns-pdf.londonstockexchange.com/rns/1450C_1-2011-3-1.pdf

In common with the commercial real estate market, there was a recovery in the level of transactions in 2010 with investor appetite for student accommodation strongest for prime assets. Assets located in London and/or with University agreements have traded at yields 50-75 basis points lower than for provincial direct let assets, typically being sold to institutional funds or private family trusts. Whilst a number of smaller funds have acquired direct let assets, USAF appears to remain the favoured route for institutions to gain access to direct let stock. We anticipate that the market will become more liquid as banks start to tackle their de-leveraging requirements over the next few years. This may present opportunities for USAF or UNITE to acquire further stock at attractive prices.

Targeted development activity

Development

The Group has a total secured pipeline of 4,070 beds as shown below. Importantly, all of the 2012 schemes now have planning consents and funding in place, which provides greater certainty over the delivery of future uplifts in net asset value and profitability.

The Group is on track to deliver 1,277 beds in 2011 on time and to budget. The four sites, located in London, Reading, Glasgow and Manchester will be open for occupation in September 2011.

Development pipeline

	Beds	Total completed value	Total development cost	Capex in period	Capex remaining	NAV remaining	Yield on cost
		£m	£m	£m	£m	£m	%

2011	1,277	100	85	36	26	6	8.3%
2012	1,341	172	127	37	90	29	9.2%
2013-14	1,452	152	118	-	118	34	9.0%
Total	4,070	424	330	73	234	69	9.0%

Taken together, the deliveries in 2011 through to 2014 demonstrate the progress made by the Group in deploying capital it raised from shareholders in 2009. The Group's estimated built-out NAV shown below highlights that it has more than sufficient cash to complete its secured development pipeline and maintain gearing within its strategic target of 100-130%. The secured pipeline is expected to add approximately £69 million of future NAV (43 pence per share) based on independent valuations and £14 million of NPC assuming plans are achieved.

Estimated built-out NAV

	31 December 2010	Development Pipeline	Built out
	£m	£m	£m

Property	631	303	934
Share of JV's adjusted net assets	172	-	172

Cash headroom (equity)	83	(39)	44
Borrowings	(418)	(195)	(613)
Net debt	(335)	(234)	(569)
Other	6	-	6
Adjusted NAV	474	69	543

Adjusted NAV per share	295p	43p	338p
Adjusted gearing	71%		105%

In addition to the above, the Group is confident of deploying its remaining capital into selective development opportunities in line with plan over the next six to nine months. Beyond that, we intend to invest an additional £100 million to £150 million into further development opportunities over the next two to three years, to be funded from the proceeds of disposals to a similar value over the same timeframe.

The three 2010 schemes developed through the joint venture with OCB, comprising 1,129 beds, have been successfully delivered within budget and on time for the start of the 2010/11 academic year. The schemes are 90% let for the current academic year and occupancy and rental levels are expected to stabilise over the next 12 to 24 months.

Affordability of accommodation is likely to be an increasingly important factor in our market in the coming years. As a result, UNITE has and will continue to target its development activity towards locations and products that meet this demand. Approximately 1,500 beds of the 2012-14 pipeline are focused on a lower rent offering and have been appraised at rents of less than £150 per week (based on 2010/11 prices) which is around 20% below the current market average.

Development funding

The Group has continued to make good progress with its lenders to secure funding for its 2011 and 2012 pipeline, through a combination of existing and new facilities. The Group also has sufficient capacity in its existing facilities to build out the secured pipeline of 2013-2014 developments. Further funding will be required to acquire and build additional schemes, but given the progress made with banks over the last two years the Group remains satisfied that it can secure new debt on terms in line with plan.

UNITE Modular Solutions

UMS, which manufactures and installs lightweight steel frame modular bedrooms into many of the Group's developments, has been an important part of the Group's development success given its ability to provide greater certainty over delivery time and quality, which was critical during the Group's period of rapid growth. However, with the Group's decision to scale back development in recent years, together with the wider slowdown in construction activity, production volumes were low in 2010 and the facility has been operating well below capacity. As a result, it made a loss of £4.8 million in 2010 (2009: £1.1 million) which is included in the Development Segment loss. Production volumes did however recover in the latter part of 2010 and losses for the second half were substantially below those for the first half at £0.2 million.

The outlook for 2011 is more positive. So far this year, UMS has secured two external contracts to build modules for Travelodge hotels and is in advanced discussions to secure a number of other external contracts. UMS will also supply approximately 800 modules to UNITE for its 2012 pipeline taking its forecast production to 1,800 modules for 2011 compared to 1100 for 2010. Demand will again be seasonal with revenues anticipated to be much higher in the second half than the first. Year on year performance at UMS should, however, be materially better.

Our financial position

The Group has delivered growth against each of its key financial targets in 2010 with a £3.5 million improvement in net portfolio contribution and an 11% growth in adjusted net asset value per share (fully diluted). This positive performance has been driven by an improvement in occupancy rates and further rental growth, which increased the value of the investment portfolio. In addition, the Group has recognised development profits from some of the new developments that it has added to its pipeline. As expected, the yield compression that has been experienced in the broader commercial real estate sector has been less marked in the student accommodation sector, with yields broadly stable during the year. This follows the credit crisis when student accommodation yields did not expand as rapidly as other sectors and continues the trend of more stable yields within student accommodation, reflecting its largely non-cyclical nature.

Income Statement

The Group has continued to place greater emphasis on growing its profit from the operational business which it measures through net portfolio contribution. This has improved to £4.1 million in 2010 from £0.6 million in 2009 and a loss of £5.4 million in 2008. This strong progress reflects our continued focus on building a robust and scaleable operational platform that, together with the ongoing growth of the portfolio, will continue to improve the profitability of the Group. The highlights from the income statement are as follows:

§ Growth in income from the managed portfolio of 15% driven by higher occupancy, rental growth and new beds;

§ Growth in UNITE's share of rental income up 9%, despite its share of total income reducing to 47% from 50% following the sale of assets to USAF;

§ Gross margin remained at 70% as increased utility costs were offset with other savings;

§ Management fees received increased to £8.4 million from £5.9 million as assets under management grew to £1.9 billion from £1.6 billion in 2009;

§ Financing costs increased from £43.0 million to £46.8 million due to higher levels of investment borrowings, a full year of new lease commitments and a higher average cost of debt;

§ Overheads have been held in line with the 2009 position, and we anticipate that no further significant increases will be required to manage the secured development pipeline once it is completed.

Net portfolio contribution

	2010	2009
	£m	£m

Total income from managed portfolio	188.9	164.3
UNITE's share of rental income	89.0	81.9
UNITE share of total income	47%	50%
UNITE's share of operating costs	(26.9)	(24.7)
Net operating income	62.1	57.2
NOI margin	70%	70%
Management fee income	8.4	5.9
Finance costs*	(46.8)	(43.0)
Operational overheads	(13.8)	(13.9)
Investment segment result	9.9	6.2
Corporate costs and share of joint venture overheads	(5.8)	(5.6)
Net portfolio contribution	4.1	0.6

*Includes loan interest, interest rate swap payments, finance income and operating lease rentals

The Group reported an adjusted profit for the year of £2.4 million (2009: adjusted loss of £28.7 million). The difference between NPC and the adjusted profit/loss is largely the impact of the Development Segment. The key components of the Development Segment are pre-contract costs of £3.2 million which are up from £0.7 million in 2009 due to the increase in development activity, losses at UNITE Modular Solutions of £4.8 million as a result of its surplus capacity, and profits generated from the sale of assets to USAF, net of write-downs of trading assets, amounting to £6.9 million.

Adjusted profit

	2010	2009
	£m	£m

Net portfolio contribution	4.1	0.6
Development pre-contract costs	(3.2)	(0.7)
UMS losses	(4.8)	(1.1)
Development trading profits / write-downs	6.9	(15.3)
Restructuring costs	-	(3.0)
Loan and swap break costs	-	(9.6)
Other	(0.6)	0.4
Adjusted profit /(loss)	2.4	(28.7)

On an IFRS basis, which includes property and interest rate swap valuation movements, the Group reported a profit of £19.6 million attributable to UNITE shareholders, compared to a loss of £34.9 million in 2009.

Balance Sheet

Adjusted net asset value has increased to £474 million or 295 pence per share at 31 December 2010, up from £423 million or 265 pence per share at 31 December 2009. The growth in value has been driven by rental growth on stabilised properties of 3.1% in the year and value added to the development pipeline from planning consents received and construction progress across the pipeline.

Reported net asset value, which includes interest rate swap values and some properties at cost, attributable to UNITE shareholders was £388 million at 31 December 2010 (31 December 2009: £366 million).

The main factors behind the 30 pence per share growth in adjusted net assets were:

§ The growth in the value of the Group's share of investment assets as a result of rental growth and yield compression (+19 pence per share)

§ The value added to the development portfolio after pre-contract costs (+15 pence per share);

§ The loss on disposal of land, non-core assets and other investment assets (-3 pence per share);

§ The positive impact of net portfolio contribution (+2 pence per share);

§ The impact of UMS losses (-3 pence per share).

NAV bridge

http://www.rns-pdf.londonstockexchange.com/rns/1450C_3-2011-3-1.pdf

Adjusted gearing at 31 December was 71% compared with 92% at December 2009 and 131% at December 2008. Adjusted net debt (excluding mark to market valuations) fell to £335 million at 31 December 2010 compared to £390 million at 31 December 2009 as a result of the sales to USAF in November 2010.

Going forward, UNITE will continue to manage gearing towards the lower end of its strategic range of 100-130%. The Board is satisfied that this target level of gearing, which is above that of many other listed real estate companies, is appropriate for UNITE's business. Student accommodation valuations have historically been significantly less volatile than those for general commercial property; for example, they only fell by approximately 13% during the financial crisis compared to a wider fall in commercial property values of 44% over the same period. Consequently, the Board believes that UNITE's portfolio is able to support a slightly higher level of gearing than other commercial real estate companies.

Financing

By working closely with its banking partners, UNITE has been able to make significant progress against its core financing objectives of extending debt maturities and securing new development finance.

The Group and its co-investment vehicles secured over £65 million of new development facilities and £135 million of new investment debt in 2010 of which £75 million was from new lenders. Importantly, the Group has also extended the maturity of £120 million of existing facilities. UNITE is continuing to see the benefits of working closely with key relationship banks who have continued to place great importance on the UNITE brand and track record of delivering schemes on time and to budget, and stabilising assets in the first 12 to 24 months of operation, together with its strong balance sheet.

In doing so, the Group has reduced the level of refinancing requirements in 2013 and 2014 from £360 million to £260 million and demonstrated its ability to continue to access appropriate forms of funding. Looking forward, the Group and its co-investment vehicles will continue to focus on extending debt maturities and will look to structure longer term facilities around core property holdings to provide greater certainty over funding arrangements.

Key debt statistics

	31 December 10	31 December 09

Group net debt (adjusted)	£335m	£390m
Adjusted gearing	71%	92%
See-through gearing	115%	133%
Weighted average cost of investment debt	6.8%	6.6%
Proportion of investment debt hedged	97%	75%
Interest cover	1.6	1.6
Adjusted net debt to property assets	53%	59%

The Group continues to use surplus cash to pay down borrowings in order to maximise savings on interest. As at 31 December, the Group had a total of £60 million of cash being used to pay down unconditionally committed facilities that can be drawn. Taken together with its cash balances, this provides an effective cash balance of £83 million.

The weighted average cost of debt has increased in line with the increase in proportion of investment debt hedged, which has risen following the sale of assets to USAF and the decision to pay down floating rate debt in order to avoid crystallising swap mark to market losses.

The following chart sets out the debt maturity profile of the Group's facilities and shows the progress that has been made over the past three years in reducing the quantum of debt maturing between 2011 and 2014. The chart highlights the £100 million reduction in debt maturing in 2013 and 2014 being replaced by additional capacity in 2015 and 2016. UNITE will continue to work with banks and other providers of debt finance to extend and structure debt in line with asset strategies.

Debt maturity profiles

http://www.rns-pdf.londonstockexchange.com/rns/1450C_4-2011-3-1.pdf

The Group, including its co-investment vehicles, is in compliance with all of its debt covenants at 31 December 2010.

Co-investing asset management

UNITE acts as co-investing manager of four specialist student accommodation vehicles that it has established as outlined in the following table.

Funds / Joint Ventures

	Property £m	Net debt £m	Adjusted net assets £m	UNITE share £m	UNITE share	Average NOI yield
USAF	1,231	(574)	636	104	16%	6.7%
UCC	380	(247)	127	38	30%	6.3%
OCB	180	(97)	78	20	25%	6.3%
USV	63	(41)	19	10	51%	6.8%

Working with our joint venture partners, the Group is placing a strong focus on finalising a long-term strategy to replace, restructure or extend its joint ventures to complement its own growth strategy. Finalising this strategy will be a priority in 2011.

UNITE UK Student Accommodation Fund

USAF generated a total return of 11.2% in 2010, ranking it as the third best performing fund in the IPD Index for Pooled Funds measured over a three year period. The Fund acquired a £25 million asset from a third party in August and a portfolio of £146 million from UNITE in November at an average yield of 6.4%. The Fund is likely to make further selective acquisitions whilst managing its gearing at or around its current level of 50% loan to value. The market for USAF units through the secondary market has continued to develop with approximately £30 million of units traded during the year at an average premium of 2% to net asset value. There have been no requests for unit redemptions.

There has been no material movement on the recovery of the Landsbanki deposit. Whilst USAF has been confirmed as a Priority Creditor and therefore should recover the majority of its deposit, the Resolution Committee that is overseeing the bank has taken longer to determine the status of many creditors and is currently facing a number of 'test' legal cases in the Icelandic Courts. Given the timing and uncertainty as a result of the test cases, the deposit remains fully provided for.

UNITE Capital Cities Joint Venture

UCC generated a total return of 8.4% in 2010. UCC has fully invested all of its equity and will continue to focus on the operation of its investment assets and any asset management opportunities within its estate. As the vehicle matures in 2013, UNITE and GIC Real Estate, its joint venture partner, are beginning to consider the most appropriate future strategy for these investments.

Oasis Capital Bank Joint Venture

The three schemes in the joint venture comprising 1,129 beds were successfully completed within budget and are 90% occupied for the current academic year. The joint venture is focused on ensuring that the assets reach stabilised rental and occupancy levels over the course of the next 12 to 18 months.

UNITE Student Village Joint Venture

USV, which owns one building in Sheffield, is a joint venture with Lehmans Brothers which is now in administration. The administrators have indicated that they intend to continue holding their 49% share in the joint venture whilst an exit strategy is formulated. Whilst the joint venture agreement technically matured in 2009, any termination is subject to the pre-emption provisions in the agreement.

Debt facilities in co-investment facilities

The co-investment facilities have adjusted net debt to property assets of 54%. The 2011 facility maturities relate to a single facility in each of our USV and OCB joint ventures and the Group is comfortable that acceptable terms to extend or replace these facilities will be available.

Debt maturity profile

http://www.rns-pdf.londonstockexchange.com/rns/1450C_5-2011-3-1.pdf

Tax

The Group paid £0.3 million tax in 2010, primarily on profits from USAF. The Group anticipates tax charges will remain low in 2011 and 2012 as only this element of profits is likely to result in a tax charge.

Resources and relationships

UNITE's financial and operational performance has been underpinned by the core systems, processes and approaches developed and fine-tuned over the years. In 2010 the Group upgraded its unique online booking system, which facilitated the check-in process for the largest number of students in the Company's history during September. The data maintained on this system provides UNITE with a comprehensive insight into the make-up of its customer base which enables tailored improvements to the Group's product and service offering.

The strength of the UNITE brand and the Group's reputation for financial stability has further consolidated its position in the market, both in terms of the capacity to raise capital (the £67 million debt facility agreed with Barclays for our Moonraker Alley development was the largest facility of its type approved by the bank during the year), and success in working with planning authorities to receive consent for new and complex development schemes (such as Waterloo Road in Southwark, which achieved consent in only six months).

Through close relationships with several key banks, the Group has also been able to improve its debt maturity profile and refinance existing debt facilities at competitive rates.

While the collapse of Connaught caused some initial difficulties for our maintenance business, UNITE was very quickly able to assimilate a new team within the Group and derive immediate and sustainable synergies to improve maintenance performance. This in-house capability will provide even closer alignment of service functions with the Group's customers.

Undoubtedly the Group's greatest resource is its staff; UNITE has a vibrant, passionate and committed workforce, and works hard to develop and retain its people. The Company's employee engagement figures are measured independently and compare extremely favourably with similar organisations, and a number of activities delivered through the year raised levels of capability and motivation yet higher.

Central to the Group's long-term vision is to create a business which meets and exceeds the expectations of its key stakeholders. Throughout 2010 UNITE has placed a stronger focus on understanding the challenges and needs of students, Universities, employees, communities and investors to ensure it is able to work effectively with and provide value for each group.

Looking forward

It has been clear for some time that the next decade for the student accommodation sector will be very different to the last one. A more modest outlook for student number growth and a dramatically changed financial environment mean that the nature of opportunity in the sector will be quite different.

UNITE's strategy has tackled this effectively and as a result the Group is well placed, both operationally and financially, to prosper:

§ It is on track to deliver its secured development pipeline of 2,800 beds in London over the next couple of years, which will be significantly accretive to both earnings and NAV;

§ It has the capital, expertise and reputation to add to this pipeline further in 2011 with additional enhancements to earnings and NAV expected as a result;

§ It has a well positioned portfolio focused on the strongest student locations that will deliver good sustainable annual rental growth (over 3% expected for 2011/12). Student demand for UNITE's product remains strong and capital constraints will limit the level of new competing supply;

§ The portfolio offers attractive asset management upside through a combination of extension, refurbishment and reversion opportunities that can be realised in the medium term;

§ The Group's brand, reputation and operational and financial position may offer other potential growth opportunities as the sector matures in the coming years.

Taking into account its strategy, its people and its track record the Group looks forward to the future with confidence.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2010

	Note	2010	2009
		£m	£m

Revenue	2(d)	193.4	265.4

Cost of sales	2(d)	(147.0)	(247.0)

Operating expenses	2(d)	(28.5)	(23.1)
		17.9	(4.7)

Loss on disposal of property		(2.9)	(3.4)
Net valuation gains / (losses) on property		15.4	(15.3)

Profit / (loss) before net financing costs		30.4	(23.4)

Loan interest and similar charges	3	(13.8)	(13.4)
Mark to market changes in interest rate swaps	3	(18.6)	(6.7)
Finance costs		(32.4)	(20.1)
Finance income	3	0.9	0.9
Net financing costs		(31.5)	(19.2)

Share of joint venture profit	6	25.3	6.9
Profit / (loss) before tax		24.2	(35.7)

Tax	4	(2.9)	1.2
Profit / (loss) for the year		21.3	(34.5)

Profit / (loss) for the period attributable to
Owners of the parent company	2(e)	19.6	(34.9)
Minority Interest		1.7	0.4
		21.3	(34.5)


Earnings per share
Basic	11	12.2p	(25.9p)
Diluted	11	12.2p	(25.9p)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010

	2010	2009
	£m	£m

Profit / (loss) for the period	21.3	(34.5)

Movements in effective hedges	0.5	1.9
Share of joint venture movements in effective hedges (note 6)	0.1	0.6
Other comprehensive income for the period	0.6	2.5

Total comprehensive income for the period	21.9	(32.0)

Attributable to
Owners of the parent company	20.2	(32.6)
Minority Interest	1.7	0.6
	21.9	(32.0)

All movements above are shown net of deferred tax.

Consolidated Balance Sheet

At 31 December 2010

	Note	2010	2009
		£m	£m

Assets
Investment property	5	375.7	403.6
Property, plant and equipment		6.9	7.4
Investment in joint ventures	6	161.6	148.3
Joint venture investment loans	6	13.2	12.2
Intangible assets		5.8	6.5
Total non-current assets		563.2	578.0

Completed property	5	105.1	204.1
Properties under development	5	113.0	38.1
Inventories	7	2.7	8.2
Trade and other receivables		44.6	44.7
Cash and cash equivalents		23.8	48.8
Total current assets		289.2	343.9
Total assets		852.4	921.9

Liabilities
Borrowing and financial derivatives	8	(0.5)	(0.2)
Trade and other payables		(52.8)	(72.6)
Current tax creditor		(0.5)	(0.5)
Total current liabilities		(53.8)	(73.3)

Borrowings and financial derivatives	8	(394.9)	(467.6)
Total non-current liabilities		(394.9)	(467.6)
Total liabilities		(448.7)	(540.9)

Net Assets		403.7	381.0

Equity
Issued share capital		40.1	39.9
Share premium		249.0	247.5
Merger reserve		40.2	40.2
Retained earnings		70.4	51.0
Hedging reserve		(12.2)	(12.8)
Equity attributable to the owners of the parent company		387.5	365.8
Minority interest		16.2	15.2
Total equity		403.7	381.0

These financial statements were approved by the Board of Directors on 2 March 2011 and were signed on its behalf by:

MC Allan	JJ Lister
Director	Director

CoMPANY Balance Sheet

At 31 December 2010

	Note	2010	2009
		£m	£m

Assets
Investments in subsidiaries	6	106.8	96.8
Investments in joint ventures	6	3.7	1.6
Total investments		110.5	98.4

Joint venture investment loan	6	3.9	3.8
Total non-current assets		114.4	102.2

Trade and other receivables		318.3	304.6
Cash and cash equivalents		0.5	1.0
Total current assets		318.8	305.6
Total assets		433.2	407.8

Current Liabilities
Trade and other payables		(32.0)	(32.3)
Total current liabilities		(32.0)	(32.3)

Net Assets		401.2	375.5

Equity
Issued share capital		40.1	39.9
Share premium		249.0	247.5
Merger reserve		40.2	40.2
Retained earnings		71.9	47.9
Total equity		401.2	375.5

Total equity is wholly attributable to equity holders of The UNITE Group plc.

These financial statements were approved by the Board of Directors on 2 March 2011 and were signed on its behalf by:

MC Allan	JJ Lister
Director	Director

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 December 2010

	Issued share capital £m	Share premium £m	Merger reserve £m	Retained earnings £m	Revaluation reserve £m	Hedging reserve £m	Minority interest £m	Total £m

At 1 January 2010	39.9	247.5	40.2	51.0	-	(12.8)	15.2	381.0

Profit for the period	-	-	-	19.6	-	-	1.7	21.3
Other comprehensive income for the period	-	-	-	-	-	0.6	-	0.6
Total comprehensive income for the period	-	-	-	19.6	-	0.6	1.7	21.9
Shares issued	0.2	1.5	-	-	-	-	-	1.7
Fair value of share based payments	-	-	-	1.3	-	-	-	1.3
Own shares acquired	-	-	-	(1.5)	-	-	-	(1.5)
Dividends to minority interest	-	-	-	-	-	-	(0.7)	(0.7)
At 31 December 2010	40.1	249.0	40.2	70.4	-	(12.2)	16.2	403.7

	Issued share capital £m	Share premium £m	Merger reserve £m	Retained earnings £m	Revaluation reserve £m	Hedging reserve £m	Minority interest £m	Total £m

At 1 January 2009	31.1	176.5	40.2	85.7	1.8	(15.1)	15.2	335.4

Loss for the period	-	-	-	(34.9)	-	-	0.4	(34.5)
Other comprehensive income for the period	-	-	-	-	-	2.3	0.2	2.5
Total comprehensive income for the period	-	-	-	(34.9)	-	2.3	0.6	(32.0)
Transfer	-	-	-	1.8	(1.8)	-	-	-
Shares issued	8.8	71.0	-	-	-	-	-	79.8
Fair value of share based payments	-	-	-	0.4	-	-	-	0.4
Own shares acquired	-	-	-	(2.0)	-	-	-	(2.0)
Dividends to minority interest	-	-	-	-	-	-	(0.6)	(0.6)
At 31 December 2009	39.9	247.5	40.2	51.0	-	(12.8)	15.2	381.0

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 December 2010

	Issued share capital £m	Share premium £m	Merger reserve £m	Retained earnings £m	Total £m

At 1 January 2010	39.9	247.5	40.2	47.9	375.5

Loss for the period	-	-	-	(2.6)	(2.6)
Revaluation of investments in subsidiaries and joint ventures	-	-	-	26.6	26.6
Shares issued	0.2	1.5	-	-	1.7
At 31 December 2010	40.1	249.0	40.2	71.9	401.2

	Issued share capital £m	Share premium £m	Merger reserve £m	Retained earnings £m	Total £m

At 1 January 2009	31.1	176.5	40.2	83.2	331.0

Loss for the period	-	-	-	(2.6)	(2.6)
Revaluation of investments in subsidiaries and joint ventures	-	-	-	(32.7)	(32.7)
Shares issued	8.8	71.0	-	-	79.8
At 31 December 2009	39.9	247.5	40.2	47.9	375.5

STATEMENTS OF CASH FLOWS

For the year ended 31 December 2010

	Note	Group		Company
		2010	2009	2010	2009
		£m	£m	£m	£m

Operating activities
Profit / (loss) for the year		21.3	(34.5)	(2.6)	(2.6)

Adjustments for:
Depreciation and amortisation		3.3	3.4	-	-
Fair value of share based payments		1.3	0.4	-	-
Change in value of investment property		(15.4)	15.4	-	-
Net finance costs	3	31.5	19.2	0.1	0.3
Loss on disposal of investment property		2.9	3.4	-	-
Share of joint venture profit	6	(25.3)	(6.9)	-	-
Trading with joint venture adjustment		3.7	(2.2)	-	-
Tax credit	4	2.9	(1.2)	-	-
Cash flows from operating activities before changes in working capital		26.2	(3.0)	(2.5)	(2.3)
Decrease / (increase) in trade and other receivables		2.5	(15.3)	(0.1)	(0.3)
Decrease in completed property and property under development		24.7	82.1	-	-
Decrease in inventories		4.9	2.1	-	-
Decrease in trade and other payables		(18.2)	(0.8)	(0.3)	(0.2)
Cash flows from operating activities		40.1	65.1	(2.9)	(2.8)

Cash flows from taxation		0.8	(0.5)	-	-

Investing activities
Proceeds from sale of investment property		42.7	52.7	-	-
Payments to / on behalf of subsidiaries		-	-	(34.8)	(472.7)
Payments from subsidiaries		-	-	35.7	413.2
Equity invested in joint ventures and subsidiaries		-	-	-	(14.6)
Advances on loans to joint ventures		-	(0.3)	-	-
Dividends received		5.4	6.9	-	-
Interest received		0.2	0.5	-	-
Acquisition of intangible assets		(1.5)	(1.6)	-	-
Acquisition of property, plant and equipment		(6.2)	(24.2)	-	-
Cash flows from investing activities		40.6	34.0	0.9	(74.1)

Financing activities
Total interest paid		(15.5)	(21.6)	(0.2)	(0.2)
Interest capitalised into inventory & property under development included in cash flows from operating activities		2.5	9.5	-	-
Interest paid in respect of financing activities		(13.0)	(12.1)	(0.2)	(0.2)
Ineffective swap payments		(11.2)	(21.3)	-	-
Proceeds from the issue of share capital		1.7	79.8	1.7	79.8
Payments to acquire own shares		(1.5)	(2.0)	-	-
Proceeds from non-current borrowings		45.4	260.4	-	-
Repayment of borrowings		(127.2)	(440.8)	-	-
Dividends paid		(0.7)	(0.6)	-	-
Cash flows from financing activities		(106.5)	(136.6)	1.5	79.6


Net (decrease) / increase in cash and cash equivalents		(25.0)	(38.0)	(0.5)	2.7
Cash and cash equivalents at start of year		48.8	86.8	1.0	(1.7)
Cash and cash equivalents at end of year		23.8	48.8	0.5	1.0

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the registrar of companies, and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009 or 2010.

Going concern

The Group's business activities, together with the factors likely to affect its future development and position are set out in the Business Review section.

As a result of the disposal of assets into USAF towards the end of 2010 and cash expected to be generated from operating activities, the Group's forecast shows that there will be sufficient cash headroom for the foreseeable future. The Group does not have any significant borrowing facilities expiring in 2011, a detailed breakdown of the maturity of borrowings is provided in note 8. During the year, the Group has been successful in extending and restructuring £120 million of borrowings and the Group will continue negotiations with funders during 2011 to extend debt maturities. The Group is in full compliance with its borrowing covenants at 31 December 2010.

The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.

2. Segment reporting

Segment information for the Group is presented in respect of the Group's business segments based on the Group's management and internal reporting structure. The Group undertakes its Development and Investment activities directly and in joint ventures with third parties. The joint ventures are an integral part of each segment and have similar economic and other characteristics to the Group's direct activities. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis and is reported excluding mark to market and valuation movements.

The Directors do not consider that the group has meaningful geographical segments as it operated exclusively in the United Kingdom in the year.

The Group's Development segment undertakes the acquisition and development of properties, (including the manufacture and sale of modular building components) to practical completion. The Development segment's revenue predominantly comprises the sales proceeds of properties, including those sold to the UNITE UK Student Accommodation Fund; it also includes revenue from the sale of modules to third parties and joint ventures, and development management fees earned from joint ventures.

The Investment segment comprises the asset and property management of completed properties, owned directly by the Group or by joint ventures. Its revenues are derived from net rental income and asset management fees earned from joint ventures.

(a) Adjusted results

The Group reports an adjusted profit / (loss), on the basis recommended for real estate companies by EPRA, the European Public Real Estate Association with the exception of profits and losses relating to sales or impairments to trading properties. EPRA recommends that real estate investment companies exclude these items as they are one off in nature, however the development of properties for future sale is an on-going business activity for the Group and therefore results of this core activity are included in the adjusted result. The adjusted result excludes movements relating to changes in values of investment properties and interest rate swaps, profits on disposal of investment properties and the related tax effects.

The adjusted net assets are shown on the basis recommended for real estate companies by EPRA, the European Public Real Estate Association, which excludes the mark to market valuation of swaps, deferred tax liabilities and recognises all properties at market value.

The segmental analysis set out in detail in notes 2(b) to (e) have been summarised on an adjusted basis below:

Adjusted result	2010			2009
	Wholly owned	Joint venture	Total	Wholly owned	Joint venture	Total
	£m	£m	£m	£m	£m	£m

Rental income	63.5	25.5	89.0	58.2	23.7	81.9
Costs	(20.3)	(6.6)	(26.9)	(18.7)	(6.1)	(24.8)
Net operating income	43.2	18.9	62.1	39.5	17.6	57.1
Management fees	8.9	(0.5)	8.4	6.4	(0.4)	6.0
Administrative expenses	(13.8)	-	(13.8)	(13.9)	-	(13.9)
Finance costs	(36.5)	(10.3)	(46.8)	(33.2)	(9.8)	(43.0)
Investment segment result	1.8	8.1	9.9	(1.2)	7.4	6.2
Corporate and other costs (note 2(e))	(5.4)	(0.4)	(5.8)	(5.1)	(0.5)	(5.6)
Net portfolio contribution	(3.6)	7.7	4.1	(6.3)	6.9	0.6
Development segment result	(1.3)	-	(1.3)	(16.8)	-	(16.8)
Swap losses and restructuring	-	-	-	(12.6)	-	(12.6)
Other	(0.4)	-	(0.4)	(0.6)	0.7	0.1
Adjusted profit / (loss)	(5.3)	7.7	2.4	(36.3)	7.6	(28.7)

Summarised adjusted balance sheet	2010			2009
	Wholly owned	Joint venture	Total	Wholly owned	Joint venture	Total
	£m	£m	£m	£m	£m	£m

Rental properties	493.1	391.1	884.2	624.9	304.1	929.0
Properties under development	137.8	0.2	138.0	38.9	31.1	70.0
	630.9	391.3	1,022.2	663.8	335.2	999.0

Debt on completed properties (net of cash)	(267.9)	(212.5)	(480.4)	(353.3)	(156.6)	(509.9)
Debt on properties under construction	(66.7)	-	(66.7)	(36.7)	(14.5)	(51.2)
	(334.6)	(212.5)	(547.1)	(390.0)	(171.1)	(561.1)

Other assets / (liabilities)	6.5	(7.1)	(0.6)	(6.0)	(8.9)	(14.9)

Adjusted net assets	302.8	171.7	474.5	267.8	155.2	423.0

(b) Segment result (see through basis)

Information on the Group's investment activities on a see through basis (showing the Group's share of joint ventures), including an allocation of interest, is set out below.

2010									Group on see through basis

	100% Unite			Share of co-invested joint ventures
	Wholly Owned	Leased/Other	Total	USAF	Capital Cities	Student Village	OCB	Total	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Rental income	45.7	17.8	63.5	14.9	7.1	2.7	0.8	25.5	89.0
Property operating expenses *	(12.0)	(8.3)	(20.3)	(4.2)	(1.4)	(0.8)	(0.2)	(6.6)	(26.9)

Net operating income	33.7	9.5	43.2	10.7	5.7	1.9	0.6	18.9	62.1

Management fees	-	8.9	8.9	-	(0.5)	-	-	(0.5)	8.4
Operating expenses	-	(13.8)	(13.8)	-	-	-	-	-	(13.8)

	33.7	4.6	38.3	10.7	5.2	1.9	0.6	18.4	56.7
Operating lease rentals	-	(12.1)	(12.1)	-	-	-	-	-	(12.1)
Loan interest and similar charges	(13.6)	-	(13.6)	(4.5)	(4.1)	(1.3)	(0.5)	(10.4)	(24.0)
Interest rate swap payments	(11.0)	-	(11.0)	-	-	-	-	-	(11.0)
Finance income	0.2	-	0.2	0.1	-	-	-	0.1	0.3
Financing costs	(24.4)	(12.1)	(36.5)	(4.4)	(4.1)	(1.3)	(0.5)	(10.3)	(46.8)

Investment segment result	9.3	(7.5)	1.8	6.3	1.1	0.6	0.1	8.1	9.9
Corporate costs	-	(5.4)	(5.4)	-	-	-	-	-	(5.4)
Share of joint venture overhead	-	-	-	(0.1)	(0.2)	-	(0.1)	(0.4)	(0.4)
Net portfolio contribution	9.3	(12.9)	(3.6)	6.2	0.9	0.6	-	7.7	4.1

* Operating lease rentals result from sale and leaseback transactions which are considered a form of financing, hence the costs are shown next to interest above. Property operating expenses and operating lease rentals are shown as cost of sales in Note 2(d).

2009									Group on see through basis

	100% Unite			Share of co-invested joint ventures
	Wholly Owned	Leased/Other	Total	USAF	Capital Cities	Student Village	OCB	Total	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Rental income	43.2	15.0	58.2	14.5	6.6	2.6	-	23.7	81.9
Property operating expenses *	(12.9)	(5.7)	(18.6)	(4.0)	(1.3)	(0.8)	-	(6.1)	(24.7)

Net operating income	30.3	9.3	39.6	10.5	5.3	1.8	-	17.6	57.2

Management fees	-	6.3	6.3	-	(0.4)	-	-	(0.4)	5.9
Operating expenses	-	(13.9)	(13.9)	-	-	-	-	-	(13.9)

	30.3	1.7	32.0	10.5	4.9	1.8	-	17.2	49.2
Operating lease rentals	-	(10.7)	(10.7)	-	-	-	-	-	(10.7)
Loan interest and similar charges	(13.3)	-	(13.3)	(5.0)	(3.6)	(1.3)	-	(9.9)	(23.2)
Interest rate swap payments	(9.7)	-	(9.7)	-	-	-	-	-	(9.7)
Finance income	0.5	-	0.5	0.1	-	-	-	0.1	0.6
Financing costs	(22.5)	(10.7)	(33.2)	(4.9)	(3.6)	(1.3)	-	(9.8)	(43.0)

Investment segment result	7.8	(9.0)	(1.2)	5.6	1.3	0.5	-	7.4	6.2
Corporate costs	-	(5.1)	(5.1)	-	-	-	-	-	(5.1)
Share of joint venture overhead	-	-	-	(0.2)	(0.2)	-	(0.1)	(0.5)	(0.5)
Net portfolio contribution	7.8	(14.1)	(6.3)	5.4	1.1	0.5	(0.1)	6.9	0.6

The Group's balance sheet by segment, together with its share of joint venture assets and liabilities are set out on a see through basis below. The completed properties, which are developed with a view to sale to USAF, generate returns prior to sale that are included within the investment result. As a consequence of the role in both segments these assets have be treated as unallocated in the segmental analysis below.

31 December 2010							Group on see through basis
	100% Unite Wholly Owned
		Share of co-invested joint ventures
		USAF	Capital Cities	Student Village	OCB	Total	Total
	£m	£m	£m	£m	£m	£m	£m

Investment property	375.7	201.1	113.6	31.5	44.9	391.1	766.8
Investment property under development	-	-	0.2	-	-	0.2	0.2
Completed property	105.1	-	-	-	-	-	105.1
Property under development	113.0	-	-	-	-	-	113.0
Investment & development property	593.8	201.1	113.8	31.5	44.9	391.3	985.1

Cash - investment	23.5	5.3	2.0	1.8	1.1	10.2	33.7
Other assets - investment	53.5	0.2	0.1	-	0.5	0.8	54.3
Other assets - development	6.5	-	-	-	-	-	6.5
Other assets	83.5	5.5	2.1	1.8	1.6	11.0	94.5

Debt - investment	(239.4)	(99.1)	(76.0)	(22.4)	(25.2)	(222.7)	(462.1)
Debt - completed property	(52.0)	-	-	-	-	-	(52.0)
Debt - development	(66.7)	-	-	-	-	-	(66.7)
Other liabilities - investment	(43.4)	(3.2)	(1.7)	(1.6)	(1.7)	(8.2)	(51.6)
Other liabilities - development	(9.7)	-	-	-	-	-	(9.7)
Interest rate swaps	(37.3)	(1.8)	(8.1)	(1.2)	(1.6)	(12.7)	(50.0)
Total liabilities	(448.5)	(104.1)	(85.8)	(25.2)	(28.5)	(243.6)	(692.1)

Net assets attributable to owners of the parent company	228.8	102.5	30.1	8.1	18.0	158.7	387.5
Minority Interest	0.1	16.1	-	-	-	16.1	16.2
Net assets	228.9	118.6	30.1	8.1	18.0	174.8	403.7

Adjusted net assets

Net assets attributable to owners of the parent company	228.8	102.5	30.1	8.1	18.0	158.7	387.5
Mark to market of interest rate swaps	36.9	1.8	8.1	1.2	1.6	12.7	49.6
Valuation gain not recognised on property held at cost	37.1	-	-	-	-	-	37.1
Deferred tax	-	-	-	0.3	-	0.3	0.3

Adjusted net assets	302.8	104.3	38.2	9.6	19.6	171.7	474.5


Reconciliation of segment assets and liabilities to balance sheet
Investment assets	452.7	206.6	115.7	33.3	46.5	402.1	854.8
Development assets	119.5	-	0.2	-	-	0.2	119.7
Completed property assets	105.1	-	-	-	-	-	105.1
Assets attributable to minority interest	0.3	-	-	-	-	-	0.3
Total assets	677.6	206.6	115.9	33.3	46.5	402.3	1,079.9
Interest in joint ventures	174.8
	852.4

Investment liabilities	(320.1)	(104.1)	(85.8)	(25.2)	(28.5)	(243.6)	(563.7)
Development liabilities	(76.4)	-	-	-	-	-	(76.4)
Completed property liabilities	(52.0)	-	-	-	-	-	(52.0)
Liabilities attributable to minority interest	(0.2)	-	-	-	-	-	(0.2)
Total liabilities	(448.7)	(104.1)	(85.8)	(25.2)	(28.5)	(243.6)	(692.3)

See through gearing is calculated on an adjusted basis as 115% (2009 : 133%).

31 December 2009							Group on see through basis
	100% Unite Wholly Owned
		Share of co-invested joint ventures
		USAF	Capital Cities	Student Village	OCB	Total	Total
	£m	£m	£m	£m	£m	£m	£m

Investment property	403.6	163.7	110.9	29.5	-	304.1	707.7
Investment property under development	-	-	0.2	-	30.9	31.1	31.1
Completed property	204.1	-	-	-	-	-	204.1
Property under development	38.1	-	-	-	-	-	38.1
Investment & development property	645.8	163.7	111.1	29.5	30.9	335.2	981.0

Cash - investment	48.4	13.7	2.0	2.2	2.0	19.9	68.3
Other assets - investment	54.2	0.2	0.2	0.1	-	0.5	54.7
Other assets - development	12.5	-	-	-	0.7	0.7	13.2
Other assets	115.1	13.9	2.2	2.3	2.7	21.1	136.2

Debt - investment	(276.0)	(77.8)	(76.0)	(22.7)	-	(176.5)	(452.5)
Debt - completed property	(125.7)	-	-	-	-	-	(125.7)
Debt - development	(36.7)	-	-	-	(14.5)	(14.5)	(51.2)
Other liabilities - investment	(45.0)	(2.4)	(1.8)	(1.9)	-	(6.1)	(51.1)
Other liabilities - development	(27.8)	-	(0.3)	-	(3.7)	(4.0)	(31.8)
Interest rate swaps	(29.4)	(1.8)	(6.1)	(1.3)	(0.5)	(9.7)	(39.1)
Total liabilities	(540.6)	(82.0)	(84.2)	(25.9)	(18.7)	(210.8)	(751.4)

Net assets attributable to owners of the parent company	220.3	95.6	29.1	5.9	14.9	145.5	365.8
Minority Interest	0.2	15.0	-	-	-	15.0	15.2
Net assets	220.5	110.6	29.1	5.9	14.9	160.5	381.0

Adjusted net assets

Net assets attributable to owners of the parent company	220.3	95.6	29.1	5.9	14.9	145.5	365.8
Mark to market of interest rate swaps	29.5	1.8	6.1	1.3	0.5	9.7	39.2
Valuation gain not recognised on property held at cost	18.0	-	-	-	-	-	18.0
Deferred tax	-	-	-	-	-	-	-

Adjusted net assets	267.8	97.4	35.2	7.2	15.4	155.2	423.0

Reconciliation of segment assets and liabilities to balance sheet

Investment assets	506.2	177.6	113.1	31.8	2.0	324.5	830.7
Development assets	50.6	-	0.2	-	31.6	31.8	82.4
Completed property assets	204.1	-	-	-	-	-	204.1
Assets attributable to minority interest	0.3	-	-	-	-	-	0.3
Total assets	761.2	177.6	113.3	31.8	33.6	356.3	1,117.5
Interest in joint ventures	160.5
	921.7

Investment liabilities	(350.4)	(82.0)	(83.9)	(25.9)	(0.5)	(192.3)	(542.7)
Development liabilities	(64.5)	-	(0.3)	-	(18.2)	(18.5)	(83.0)
Completed property liabilities	(125.7)	-	-	-	-	-	(125.7)
Liabilities attributable to minority interest	(0.2)	-	-	-	-	-	(0.2)
Total liabilities	(540.8)	(82.0)	(84.2)	(25.9)	(18.7)	(210.8)	(751.6)

See through gearing is calculated on an adjusted basis as 133% (2008 : 174%).

(d) Segment revenues and costs

2010	Note	Investment segment	Development segment	Unallocated corporate costs	Total
		£m	£m	£m	£m

Revenue		72.2	121.2	-	193.4
Cost of sales		(32.4)	(109.9)	-	(142.3)
Write down of work in progress, property under development and completed property		-	(4.7)	-	(4.7)
Total cost of sales		(32.4)	(114.6)	-	(147.0)
Operating expenses - Factory		-	(4.8)	-	(4.8)
Operating expenses - Other		(13.8)	(3.2)	(6.7)	(23.7)
		26.0	(1.4)	(6.7)	17.9
Loan interest and similar charges		(13.6)	(0.2)	-	(13.8)
Interest rate swap payment on ineffective hedges		(11.0)	-	-	(11.0)
Finance income		0.2	-	-	0.2
Share of joint venture investment segment result		8.1	-	-	8.1
Adjust for minority interest		0.2	0.3	-	0.5
Segment result / corporate costs	2(e)	9.9	(1.3)	(6.7)	1.9



2009	Note	Investment segment	Development segment	Unallocated corporate costs	Total
		£m	£m	£m	£m

Revenue		64.4	201.0	-	265.4
Cost of sales		(29.4)	(198.0)	-	(227.4)
Write down of work in progress, property under development and completed property		-	(19.6)	-	(19.6)
Total cost of sales		(29.4)	(217.6)	-	(247.0)
Operating expenses		(13.9)	(0.7)	(8.5)	(23.1)
		21.1	(17.3)	(8.5)	(4.7)
Loan interest and similar charges		(13.3)	-	-	(13.3)
Interest rate swap payment on ineffective hedges		(9.7)	-	-	(9.7)
Finance income		0.5	-	-	0.5
Share of joint venture investment segment result		7.4	-	-	7.4
Adjust for minority interest		0.2	0.5	-	0.7
Segment result / corporate costs	2 (e)	6.2	(16.8)	(8.5)	(19.1)

Investment segment revenue
				31 Dec 2010	31 Dec 2009
				£m	£m

Management fees (note 2b)				8.9	6.4
Adjust asset management fee for minority interest				(0.2)	(0.2)
Management fees per income statement				8.7	6.2
Rental income from wholly owned and leased assets (note 2b)				63.5	58.2
Investment segment revenue				72.2	64.4

Development segment revenue
	31 Dec 2010	31 Dec 2009
	£m	£m

Property sales from completed properties and properties under development	111.9	190.0
Manufacturing revenue	7.2	9.9
Development management fee	2.1	1.1
Development segment revenue	121.2	201.0

Revenue from the sale of property shown above includes £103.5 million (2009 : £92.8 million) of sales to the UNITE UK Student Accommodation Fund, which represents 53% (2009 : 35%) of total revenue.

(e) Reconciliation of segment results and adjusted loss

The components of adjusted profit / (loss) are shown below together with a reconciliation to the profit / (loss) reported under IFRS. The items shown in this table represents the amounts attributable to the parent company shareholders and are, therefore net of any minority interest.

Reconciliation of segment result to adjusted profit / (loss)	Note	31 Dec 2010	31 Dec 2009
		£m	£m

Investment segment result	2(b)	9.9	6.2

Development segment result	2(d)	(1.3)	(16.8)

Other unallocated items
Corporate costs (excluding share option fair value charges)		(5.4)	(5.1)
Share option fair value charges		(1.3)	(0.4)
Restructuring costs		-	(3.0)
	2(d)	1.9	(19.1)
Share of joint venture overheads		(0.4)	(0.5)
Swap loss realised on cancellation		-	(9.6)
Share of joint venture current tax credit		-	0.7
Current tax credit / (charge)		0.9	(0.2)
Adjusted profit / (loss) for the year attributable to owners of the parent company		2.4	(28.7)

Reconciliation of adjusted profit / (loss) to IFRS reported loss

Adjusted profit / (loss) for the year attributable to owners of the parent company	2.4	(28.7)
Net valuation gains / (losses) on properties	15.4	(15.3)
Loss on sale of property	(2.9)	(3.4)
Share of joint venture valuation gains / (losses)	18.1	(1.5)
Minority interest share of valuations gains	(1.3)	(0.1)
Share of joint venture profit on disposal	-	0.1
Mark to market changes in interest rate swaps	(18.6)	2.8
Share of joint venture changes in fair value of interest rate swaps	(0.3)	(0.1)
Interest rate swap payments on ineffective hedges allocated to investment segment	11.0	9.7
Deferred tax	(3.7)	1.6
Share of joint venture deferred tax	(0.5)	-
Profit / (loss) for the year attributable to owners of the parent company	19.6	(34.9)

3. Net financing costs

Group

	2010	2009
Recognised in the income statement:	£m	£m

Finance income
- Interest income on deposit	(0.2)	(0.5)
- Impact of discounting on interest free joint venture investment loans (note 9)	(0.7)	(0.4)
Finance income	(0.9)	(0.9)

Gross interest expense on loans	16.3	24.3
Interest capitalised	(2.5)	(10.9)
Loan interest and similar charges	13.8	13.4

Changes in mark to market of interest rate swaps (ineffective hedges)	18.6	6.7


Finance costs	32.4	20.1

Net financing costs	31.5	19.2

Recognised directly in equity:

Changes in mark to market of interest rate swaps (effective hedges)	0.5	(3.5)

4. Tax credit

Group

Recognised in the income statement:
			2010		2009
			£m		£m
Current tax (credit) / charge
Corporation tax in respect of income			-		-
Income tax on UK rental income arising in overseas group company			0.5		0.5
Adjustments for prior years			(1.3)		(0.1)
			(0.8)		0.4

Deferred tax charge / (credit)
Origination and reversal of temporary differences			2.5		(0.3)
Effect of change in tax rate			(0.1)		-
Adjustments for prior years			1.3		(1.3)
			3.7		(1.6)

Total tax charge / (credit) in income statement			2.9		(1.2)

Reconciliation of effective tax rate	2010			2009
	%	£m		%	£m

Profit / (loss) before tax	100.0%	24.2		(100.0)%	(35.7)

Income tax using the domestic corporation tax rate	28.0%	6.8		(28.0)%	(10.0)
Effect of indexation on investment and development property	(14.4)%	(3.5)		0.9%	0.3
Non-deductible expenses	5.4%	1.3		9.2%	3.3
Share of joint venture profit	(2.9)%	(0.7)		(1.1)%	(0.4)
Movement on unprovided deferred tax asset	(1.2)%	(0.3)		22.4%	8.0
Effect on property disposals to USAF	(2.5)%	(0.6)		(2.8)%	(1.0)
Adjustments for prior years - deferred tax	5.4%	1.3		(3.6)%	(1.3)
Adjustments for prior years - current tax	(5.4)%	(1.3)		(0.3)%	(0.1)
Rate difference on deferred tax	(0.4)%	(0.1)		0.0%	-
	12.0%	2.9		(3.5)%	(1.2)

Effects of other comprehensive income:
	2010			2009
	Gross	Tax	Net	Gross	Tax	Net
	£m	£m	£m	£m	£m	£m
Movements on effective hedges	(0.5)	1.0	0.5	3.5	(1.6)	1.9
Share of other comprehensive income of joint ventures	(2.6)	2.7	0.1	0.6	-	0.6
	(3.1)	3.7	0.6	4.1	(1.6)	2.5

The tax effect shown above on the share of joint venture other comprehensive income represents deferred tax arising in the Group's own balance sheet due to the tax see through nature of some of the Group's interests in joint ventures.

5. Investment and development property

2010	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

At 1 January 2010	403.6	-	204.1	38.1	645.8
Cost capitalised	4.7	-	0.5	76.5	81.7
Interest capitalised	-	-	-	2.5	2.5
Transfer from property under development	-	-	(0.8)	0.8	-
Transfer from work in progress	-	-	-	0.6	0.6
Disposals	(48.0)	-	(96.6)	(3.0)	(147.6)
Net realisable value provision	-	-	(2.1)	(2.5)	(4.6)
Valuation gains	17.4	-	-	-	17.4
Valuation losses	(2.0)	-	-	-	(2.0)
Net valuation gains	15.4	-	-	-	15.4
At 31 December 2010	375.7	-	105.1	113.0	593.8

Carrying value of properties on which borrowings are secured	374.5	-	105.1	102.8	582.4

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

At 1 January 2009	403.7	53.0	75.2	249.1	781.0
Cost capitalised	3.4	13.1	-	95.4	111.9
Interest capitalised	0.1	1.2	-	9.3	10.6
Transfer from property under development	-	-	214.9	(214.9)	-
Transfer from investment property under development	60.6	(60.6)	-	-	-
Transfer from work in progress	-	-	-	0.5	0.5
Disposals	(55.8)	-	(80.7)	(89.6)	(226.1)
Net realisable value provision	-	-	(5.3)	(11.7)	(17.0)
Valuation gains	5.7	0.5	-	-	6.2
Valuation losses	(14.1)	(7.2)	-	-	(21.3)
Net valuation losses	(8.4)	(6.7)	-	-	(15.1)
At 31 December 2009	403.6	-	204.1	38.1	645.8

Carrying value of properties on which borrowings are secured	392.7	-	164.4	22.2	579.3

Property has been valued on the basis of "market value" as defined in the RICS Appraisal and Valuation Manual issued by the Royal Institution of Chartered Surveyors as determined by CB Richard Ellis Ltd, Jones Lang LaSalle Ltd and Messrs King Sturge, Chartered Surveyors as external valuers. Investment property and investment property under development are carried at fair value. Property under development of £113.0 million (2009 : £38.1 million) and Completed property of £105.1 million (2009 : £204.1 million) held in current assets are carried at the lower of cost and net realisable value, but their fair values have been determined as described below.

Following the formation of the UNITE UK Student Accommodation Fund it is likely that the fund will acquire the Group's future developments. Hence properties acquired with the intention of selling them to the UNITE UK Student Accommodation Fund following completion are treated as property under development in current assets (carried at the lower of cost and net realisable value), rather than fixed assets (carried at fair value). The impact if these properties were carried at fair value rather than cost is set out in the table below:

2010	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

At 31 December 2010	375.7	-	105.1	113.0	593.8
Valuation gain not recognised on property held at cost brought forward	-	-	17.2	0.8	18.0
Disposals	-	-	(12.9)	-	(12.9)
Valuation gain not recognised in year	-	-	8.0	24.0	32.0
Fair value at 31 December 2010	375.7	-	117.4	137.8	630.9

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

At 31 December 2009	403.6	-	204.1	38.1	645.8
Valuation gain not recognised on property held at cost brought forward	-	-	5.0	23.9	28.9
Transfer from property under development	-	-	13.4	(13.4)	-
Disposals	-	-	(9.3)	(4.0)	(13.3)
Valuation gain not recognised in year	-	-	8.1	(5.7)	2.4
Fair value at 31 December 2009	403.6	-	221.3	38.9	663.8

Included within investment properties and investment properties under development are the following values in respect of leasehold interests:

2010	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

Valuation and net book value
Long leasehold	44.5	-	-	-	44.5
Short leasehold	10.6	-	-	-	10.6
	55.1	-	-	-	55.1

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£m	£m	£m	£m	£m

Valuation and net book value
Long leasehold	43.2	-	-	-	43.2
Short leasehold	10.4	-	-	-	10.4
	53.6	-	-	-	53.6

The total interest included in investment and development properties at 31 December 2010 was £28.4 million (2009: £36.4 million). Total internal costs relating to manufacturing, construction and development costs of group properties, which have been deducted in arriving at the revaluation uplifts, recognised on these properties, amount to £45.6 million at 31 December 2010 (2009 : £49.0 million).

6. Investments in subsidiaries and joint ventures

Group	2010			2009
	Investment in joint venture	Joint venture investment loan	Total interest	Investment in joint venture	Joint venture investment loan	Total interest
	£m	£m	£m	£m	£m	£m


Share of profit:
Investment segment result	8.1	-	8.1	7.4	-	7.4
Minority interest share of investment segment result	1.0	-	1.0	1.2	-	1.2
Overheads	(0.4)	-	(0.4)	(0.5)	-	(0.5)
Net revaluation gain / (loss)	18.1	-	18.1	(1.5)	-	(1.5)
Current tax	-	-	-	0.7	-	0.7
Deferred tax	(0.5)	-	(0.5)	-	-	-
Impact of discounting on interest free loans	(0.7)	0.7	-	(0.4)	0.4	-
Ineffective swaps recognised in income statement	(0.3)	-	(0.3)	-	-	-
	25.3	0.7	26.0	6.9	0.4	7.3

Share of items recognised directly in reserves:
Movement in effective hedges	(2.6)	-	(2.6)	0.5	-	0.5
Deferred tax on movement in effective hedges	-	-	-	0.1	-	0.1
Other:
Additions	-	-	-	25.8	6.1	31.9
Profit adjustment related to trading with joint venture	(4.0)	0.3	(3.7)	(3.5)	0.1	(3.4)
Distributions received	(5.4)	-	(5.4)	(6.9)	-	(6.9)
	13.3	1.0	14.3	22.9	6.6	29.5
At start of year	148.3	12.2	160.5	125.4	5.6	131.0
At end of year	161.6	13.2	174.8	148.3	12.2	160.5

The impact of discounting the interest free joint venture loans is included in finance income as disclosed in note 3.

During 2008 USAF Feeder (Guernsey) Ltd was formed, as a subsidiary of the Group, to invest in the UNITE UK Student Accommodation Fund. Some of the Group's unit holding in the fund was transferred to this company. In addition, USAF Feeder (Guernsey) Ltd issued a further £16 million of share capital to an investor, the proceeds of which were used to purchase new units in the fund. The investor's interest in USAF Feeder (Guernsey) Ltd is accounted for as a minority interest in the consolidated accounts. Note 2(c) Segment assets and liabilities (see through basis) shows details of the value of the minority interest's investment.

The Group's interests in joint ventures are held at a carrying value equivalent to its share of the underlying net asset value of the undertaking. The Group's share of joint ventures' results are as follows:

	2010 profit	2010 Gains/(losses) recognised directly in equity	2009 profit	2009 Gains/(losses) recognised directly in equity
	£m	£m	£m	£m

Capital Cities JV	3.5	(2.0)	(5.1)	0.9
Student Village JV
- LDC (Project 110) Ltd	2.0	0.1	1.7	(0.2)
- LDC (Project 170) Ltd	0.1	-	-	-
UNITE UK Student Accommodation Fund	16.4	-	8.6	0.4
OCB	3.3	(0.7)	1.7	(0.5)
	25.3	(2.6)	6.9	0.6

The UNITE UK Student Accommodation Fund is the joint venture formed with a consortium of investors in December 2006. This joint venture takes the form of a Jersey unit trust that controls a number of English limited partnerships in which the general partners are USAF GP No.1 Ltd, USAF GP No.4 Ltd, USAF GP No.5 Ltd, USAF GP No.6 Ltd, USAF GP No.8 Ltd, USAF GP No.10 Ltd, USAF GP No.11 Ltd and USAF GP No. 12 Ltd, companies incorporated in England and Wales.

The agreements integral to the above, which include the Group assuming delegated responsibility for property and asset management of the venture, result in the Group having joint control of these entities with the investors.

The Group receives management fees and is entitled to a promote fee if the venture outperforms certain benchmarks. This promote fee takes the form of increasing the Group's capital participation in the joint venture. The impact of these fees on the Group results is summarised below.

During the year the Group sold a further 5 (2009: 5) properties into the joint venture for £146.2 million (2009: £95.4 million), this includes £105.7 million (2009: £95.4 million) of completed property held as stock. The profits relating to sales and associated disposal costs and related cash flows are set out below:

	Profit and loss 2010	Profit and loss 2009
	£m	£m

Included in revenue (net of joint venture trading adjustment)	103.5	92.8
Included in cost of sales	(93.8)	(83.6)
Loss relating to the sale of investment properties to USAF pre disposal costs (net of joint venture trading adjustment)	(1.0)	-
Disposal costs	(0.3)	(0.1)
Profit on disposal of property	8.4	9.1

	Cash flow 2010	Cash flow 2009
	£m	£m
Completed property
Gross proceeds	105.7	95.4
Part settled by:
Investment in joint venture	-	(18.6)
Net cash flows included in cash flows from operations	105.7	76.8

Investment property
Gross proceeds	40.5	-
Disposal costs	(0.2)	-
Net cash flows in investing activities	40.3	-

During the year the Group's interest in the UNITE UK Student Accommodation Fund was 18.9% (2009 - 18.9%). Some of this holding represents the beneficial interest of the minority; the ordinary shareholders of The UNITE Group Plc are beneficially interested in 16.3% of the fund (2009: 16.3%).

OCB is the joint venture formed with Oasis Capital Bank in August 2009. This joint venture takes the form of companies held by OCB Property Holdings (Jersey) Ltd, incorporated in Jersey, in which the Group has a 25% interest.

The agreements integral to the above, which include the Group assuming delegated responsibility for development, property and asset management of the venture, result in the Group having joint control of these entities with the investors.

The Group receives management fees from the joint venture and recharges other costs in relation to the investment property under development. The impact of these fees on the Group results is summarised below.

During the year the Group sold nil (2009 : 3) properties under development into the joint venture for £nil (2009 : £88.2 million). The profits relating to sales and associated disposal costs and related cash flows are set out below:

	Profit and loss 2010	Profit and loss 2009
	£m	£m

Included in revenue (net of joint venture trading adjustment)	-	88.6
Included in cost of sales	-	(89.8)
Disposal costs	-	(0.1)
Loss on disposal of property	-	(1.3)

	Cash flow 2010	Cash flow 2009
	£m	£m

Gross proceeds	-	88.2
Part settled by:
Investment in joint venture	-	(3.6)
Investment loan to joint venture	-	(9.4)
Net cash flows included in cash flows from operations	-	75.2

The Capital Cities JV is the joint venture formed with GIC Real Estate Pte Ltd, a real estate investment vehicle of the Government of Singapore, to develop and operate student accommodation in the capital cities of London, Edinburgh, Dublin and Belfast, in which the Group owns a 30% equity share. This joint venture takes the form of a English limited partnership in which the general partner is LDC (Capital Cities) Ltd, a company incorporated in England and Wales.

The agreements integral to the above, which include the Group assuming primary responsibility for development, property and asset management of the venture, result in the Group having joint control of this entity in conjunction with the majority partner.

The Capital Cities JV properties are partly funded with debt totalling £253.3 million (2009 : £253.3 million) which equates to 66.7% (2009 : 68.4%) of the market value of these properties. The Group has guaranteed its share, 30%, of this debt amounting to £76.0 million (2009 : £76.0 million). This guarantee only takes effect in the event that the joint venture is unable to repay the debt within 9 months of it becoming due. The Group considers the likelihood of the guarantee being invoked to be remote based on the level of debt and the time frames allowed under the arrangements. These guarantees are accounted for in accordance with IFRS4.

The Group's joint venture in student villages with Lehman Brothers is primarily held in LDC (Project 110) Ltd, a company incorporated in England and Wales, whose principal activity is the letting of investment property. Under the Articles of Association, the Group cannot exercise control over this company and its interest amounts to a 51% share of the profits and assets of the joint venture, although it holds a 75% interest in the ordinary shares.

The impact of joint venture management and promote fees and development sales on the Group results is as follows:

	2010	2009
	£m	£m

Management Fees
UNITE UK Student Accommodation Fund	5.3	3.4
Capital Cities JV	2.8	2.8
OCB JV	0.4	-
	8.5	6.2

Development Sales
Capital Cities	-	0.2
OCB JV	2.1	0.9
	2.1	1.1

The summarised financial information showing the balance sheets and profit of the Group's joint ventures together with its interest therein are as follows:

2010	USAF	Capital Cities	Student Village	OCB	Total
	£m	£m	£m	£m	£m

Investment property	1,231.5	379.5	63.0	179.6	1,853.6
Cash	32.7	6.6	3.5	4.3	47.1
Debt	(607.2)	(253.3)	(44.9)	(100.9)	(1,006.3)
Swap liabilities	(11.0)	(27.0)	(2.4)	(6.3)	(46.7)
Other current assets	1.4	0.4	-	2.0	3.8
Other current liabilities	(22.0)	(5.9)	(3.0)	(7.1)	(38.0)
	625.4	100.3	16.2	71.6	813.5
Investment loans	(2.6)	-	(7.8)	(26.2)	(36.6)
	622.8	100.3	8.4	45.4	776.9

UNITE percentage interest	18.9%	30%	51%	25%

UNITE share - equity	116.0	30.1	4.2	11.3	161.6
UNITE investment loan	2.6	-	3.9	6.7	13.2
UNITE total interest	118.6	30.1	8.1	18.0	174.8


Profit for the period	71.9	11.6	4.2	13.2	100.9

2009	USAF	Capital Cities	Student Village	OCB	Total
	£m	£m	£m	£m	£m

Investment property	1,002.9	370.2	59.0	123.8	1,555.9
Cash	83.8	6.8	4.5	8.2	103.3
Debt	(476.7)	(253.3)	(45.4)	(58.0)	(833.4)
Swap liabilities	(10.8)	(20.5)	(2.6)	(2.2)	(36.1)
Other current assets	1.0	0.5	0.1	2.9	4.5
Other current liabilities	(16.6)	(6.6)	(3.8)	(14.9)	(41.9)
	583.6	97.1	11.8	59.8	752.3
Investment loans	(2.4)	-	(7.7)	(24.1)	(34.2)
	581.2	97.1	4.1	35.7	718.1

UNITE percentage interest	18.9%	30%	51%	25%

UNITE share - equity	108.2	29.1	2.1	8.9	148.3
UNITE investment loan	2.4	-	3.8	6.0	12.2
UNITE total interest	110.6	29.1	5.9	14.9	160.5


Profit for the period	25.4	(17.0)	3.4	6.8	18.6

Company

	Unlisted subsidiary undertakings		Investment in joint ventures
	2010	2009	2010	2009
	£m	£m	£m	£m

Cost or valuation
At start of year	96.8	115.8	1.6	0.8
Additions	-	14.6	-	-
Disposals	(14.4)	-	-	-
Impact of discounting on interest free loans	-	-	(0.1)	(0.1)
Revaluation	24.4	(33.6)	2.2	0.9
At end of year	106.8	96.8	3.7	1.6

		Joint venture investment loan

			2010	2009
			£m	£m

Investment loan to Student Village joint venture			3.9	3.8

The Company has the following investments in principal subsidiaries and joint ventures:

	Country of incorporation	Class of Shares held	Ownership
			2010	2009

LDC (Holdings) plc *	England and Wales	Ordinary	100%	100%
UNITE Holdings plc *	England and Wales	Ordinary	100%	100%
UNITE Finance Ltd *	England and Wales	Ordinary	100%	100%
LDC (Portfolio Four) Ltd	England and Wales	Ordinary	100%	100%
UNITE London Ltd	England and Wales	Ordinary	100%	100%
Unilodge Holding Ltd	Guernsey	Ordinary	100%	100%
LDC (Project 110) Ltd *	England and Wales	Ordinary	75%	75%
UNITE Integrated Solutions plc	England and Wales	Ordinary	100%	100%
UNITE Modular Solutions Ltd	England and Wales	Ordinary	100%	100%
USAF LP Ltd	England and Wales	Ordinary	100%	100%
USAF Jersey Investments Ltd	Jersey	Ordinary	100%	100%
UNITE (Capital Cities) Jersey Ltd	Jersey	Ordinary	100%	100%
LDC (Imperial Wharf) Ltd	England and Wales	Ordinary	100%	100%
LDC (MTF Portfolio) Ltd	England and Wales	Ordinary	100%	100%
UNITE Finance One (Property) Ltd	England and Wales	Ordinary	100%	100%
USAF Feeder (Guernsey) Ltd	Guernsey	Ordinary	51%	51%
OCB UNITE Property Holdings (Jersey) Ltd	Jersey	Ordinary	25%	25%
UNITE FM Ltd	England and Wales	Ordinary	100%	60%

*Held directly by the Company

The Company's interest in LDC (Project 110) Ltd gives rise to joint control as explained above.

The Company owns a controlling interest in USAF Feeder (Guernsey) Ltd.

7. Inventories

	2010	2009
	£m	£m

Finished goods	-	5.2
Work in progress	2.2	1.4
Raw materials and consumables	0.5	1.6
	2.7	8.2

During the year, interest totalling £nil million (2009 : £0.277 million) was capitalised into land held for development.

8. Borrowings and financial derivatives

	Group		Company
	2010	2009	2010	2009
	£m	£m	£m	£m

Non-current
Bank and other loans	357.8	438.2	-	-
Interest rate swaps	37.1	29.4	-	-
	394.9	467.6	-	-

Current
Bank and other loans	0.3	0.2	-	-
Interest rate swaps	0.2	-	-	-
	0.5	0.2	-	-

Maturity analysis

Borrowings fall due as follows:

Group

2010	Carrying value	Within 1 year	1-2 years	2-5 years	More than 5 years
	£m	£m	£m	£m	£m

Bank and other loans	358.1	0.3	68.3	260.3	29.2

2009	Carrying value	Within 1 year	1-2 years	2-5 years	More than 5 years
	£m	£m	£m	£m	£m

Bank and other loans	438.4	0.2	0.2	408.2	29.8

The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 December 2010 in respect of which all conditions precedent had been met at that date were as follows:

	2010	2009
	£m	£m
Expiring in two to five years
Investment loan facilities	39.7	37.3

Expiring in one year or less
Working capital facilities	20.0	23.0
	59.7	60.3

In addition, there are further committed facilities available where not all conditions precedent have yet been met amounting to £227 million (2009 : £277 million). Of this amount £44 million (2009 : £57 million) remains available only for completed properties and £99 million (2009 : £32 million) only for development properties, the remaining £84 million (2009 : £187 million) is available for both.

Security for the Group's property development and investment financing is by way of first charges over the properties to which they relate. In certain instances, cross guarantees are provided within the Group.

The Company has guaranteed £192 million of its subsidiary companies borrowings (2009 : £245 million). The guarantees have been entered into in the normal course of business. A liability would only arise in the event of the subsidiary failing to fulfil its contractual obligations. These guarantees are accounted for in accordance with IFRS 4.

The Group's gearing ratios are calculated as follows:

		2010	2009
	Note	£m	£m
Net debt per balance sheet:
Cash and cash equivalents		23.8	48.8
Current borrowings	8	(0.3)	(0.2)
Non-current borrowings	8	(357.8)	(438.2)
Interest rate swaps liabilities	8	(37.3)	(29.4)
		(371.6)	(419.0)

Mark to market of interest rate swaps		36.9	29.5

Adjusted net debt		(334.7)	(389.5)

Basic net asset value		387.5	365.8

Adjusted net asset value (note 2(c))		474.5	423.0

Basic gearing		96%	115%
Adjusted gearing		71%	92%
See-through adjusted gearing		115%	133%

9. Deferred tax liabilities

Group

	Assets		Liabilities		Net
	2010	2009	2010	2009	2010	2009
	£m	£m	£m	£m	£m	£m

Investment property	-	-	7.5	2.8	7.5	2.8
Development property held as stock	(0.7)	(2.9)	-	-	(0.7)	(2.9)
Property, plant and machinery	(0.3)	(0.3)	-	-	(0.3)	(0.3)
Investments in joint ventures	-	-	8.0	7.4	8.0	7.4
Financial instruments	(10.0)	(7.0)	-	-	(10.0)	(7.0)
Financial instruments relating to joint ventures	(2.7)	-	-	-	(2.7)	-
Tax value of carried forward losses recognised	(1.8)	-	-	-	(1.8)	-
Tax (asset) / liabilities	(15.5)	(10.2)	15.5	10.2	-	-
Set off of tax	15.5	10.2	(15.5)	(10.2)	-	-
Net tax liabilities	-	-	-	-	-	-

At 31 December 2010 the Group has calculated a potential deferred tax asset as shown below, however, due to the uncertainty of future taxable profits and the ability to offset these losses against them, it is not appropriate to recognise this asset in the financial statements.

	2010	2009
	£m	£m

Tax value of losses	33.6	33.2
Tax value of temporary timing differences	-	3.5
	33.6	36.7

Movement in temporary timing differences during the year:

2010	At 31 Dec 2009	Transfers	Recognised in income	Recognised in equity	At 31 Dec 2010
	£m	£m	£m	£m	£m

Investment property	2.8	-	4.7	-	7.5
Development property held as stock	(2.9)	-	2.2	-	(0.7)
Property, plant and machinery	(0.3)	-	-	-	(0.3)
Investments in joint ventures	7.4	-	0.6	-	8.0
Financial instruments	(7.0)	-	(2.0)	(1.0)	(10.0)
Financial instruments relating to joint ventures	-	-	-	(2.7)	(2.7)
Tax value of carried forward losses recognised	-	-	(1.8)	-	(1.8)
	-	-	3.7	(3.7)	-

2009	At 31 Dec 2008	Transfers	Recognised in income	Recognised in equity	At 31 Dec 2009
	£m	£m	£m	£m	£m

Investment property	10.0	(0.2)	(7.0)	-	2.8
Investment property under development	(0.2)	0.2	-	-	-
Development property held as stock	(4.9)	-	2.0	-	(2.9)
Property, plant and machinery	0.3	-	(0.6)	-	(0.3)
Investments in joint ventures	7.5	-	(0.1)	-	7.4
Financial instruments	(12.7)	-	4.1	1.6	(7.0)
	-	-	(1.6)	1.6	-

Company

Deferred tax has not been recognised on temporary timing differences of £12.1 million (2009 : £5.1 million) in respect of revaluation of subsidiaries and investment in joint ventures as it is probable that the temporary timing difference will not reverse in the foreseeable future.

10. Capital and reserves

Company

Share capital
	Number of Ordinary shares
	2010	2009

Issued at start of year - fully paid	159,606,942	124,315,841
Firm placing, placing & open offer	-	32,819,972
Shares issued to long term incentive plan	640,000	2,041,059
Share options exercised	21,401	430,070
Issued at end of year - fully paid	160,268,343	159,606,942

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.

Merger reserve

This reserve represents the excess of the fair value over nominal value of shares issued as part consideration for assets acquired.

Revaluation reserve

The revaluation reserve represents revaluations relating to investment properties under development and land and buildings included in property, plant and equipment less any related deferred tax.

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where the hedged transaction has not yet occurred, less any related deferred tax.

Dividends

No dividends were declared or paid during either year.

11. Earnings per share and net asset value per share

The calculations of basic and adjusted earnings per share for the Group are as follows:

	Note	2010	2009
		£m	£m

Net portfolio contribution	2(a)	4.1	0.6

Earnings
Basic (and diluted)		19.6	(34.9)

Adjusted	2(e)	2.4	(28.7)

Weighted average number of shares (thousands)
Basic		160,074	134,747
Dilutive potential ordinary shares (share options)		81	3
Diluted		160,155	134,750

Earnings per share (pence)
Basic		12.2	(25.9)
Diluted		12.2	(25.9)
Adjusted		1.5	(21.3)

Movements in the weighted average number of shares have resulted from the issue of shares arising from the employee share based payment schemes.

The calculations of basic, adjusted and diluted net asset value per share for the Group are as follows:

	Note	2010	2009
		£m	£m
Net assets attributable to ordinary shareholders
Basic		387.5	365.9

Adjusted pre dilution	2(c)	474.5	423.0
Outstanding share options		1.5	1.5
Adjusted diluted		476.0	424.5

Number of shares (thousands)
Basic		160,268	159,607
Outstanding share options		830	778
Diluted		161,098	160,385

Net asset value per share (pence)
Basic		242	229
Adjusted pre dilution		296	265
Adjusted diluted		295	265

In addition to the potential dilutive ordinary shares (share options) shown above there were a further 794,000 share options in existence at 31 December 2010 (2009 : 874,000) which are anti-dilutive.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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