Final Results

RNS Number : 9937H

Unite Group PLC

03 March 2010

 



3 March 2010

THE UNITE GROUP PLC

("UNITE" / "Group" / the "Company")

FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2009

UNITE REPORTS PROFITABLE OPERATING BUSINESS AND INCREASED FINANCIAL FLEXIBILITY

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today announces its full year results for the 12 months ended 31 December 2009.

HIGHLIGHTS:

Profitable operating business and robust financial performance:

·    Profit at a net portfolio contribution level of £0.6 million (2008: loss of £5.4 million), as a result of strong like-for-like rental growth and reduction of operating costs. Adjusted loss (after write downs in the value of development and investment properties) for the period of £28.7 million (2008: £44.8 million), and IFRS loss of £34.5 million (2008: £116.3 million)

·    Adjusted fully diluted NAV per share down 13% to 265 pence (31 December 2008: 306 pence restated for the impact of the Placing and Open Offer in October). Adjusted NAV in second half of 2009 broadly flat save for the impact of two one-off items previously flagged

·    Like-for-like rental growth of 9.7% and 96.5% occupancy across the operating and investment portfolio for the 2009/10 academic year

·    Completion of Blueprint operational change programme delivering annualised cost savings of £12 million, of which £10 million achieved in 2009

·    As at the end of February 2010, reservations in place for the 2010/11 academic year across 59% of the portfolio, compared to 63% at the same time in 2009.

Balance sheet strength and flexibility improved:

·    Significant reduction in net debt - adjusted net debt reduced to £390 million (2008: £531 million) with adjusted gearing reduced to 92% (2008: 131%), as a result of proactive steps taken:

-    £246 million of asset sales completed in 2009 at prices ahead of target

-    Joint venture created with Oasis Capital Bank to develop the Group's 2010 development programme

-    Successful equity raise through a Placing and Open Offer raised £82 million, with minimal dilution to shareholders, to capitalise on development opportunities over the next two to three years

           ·    Ongoing investor appetite for direct let assets confirmed through successful £167 million capital raise by the
              UNITE UK Student Accommodation Fund ('USAF') in December 2009, providing the Fund with further capacity
              to acquire assets from UNITE and explore other acquisition opportunities.

Group well positioned for growth:

           ·    Demand-supply fundamentals in sector remain solid with university applications up and the supply of new
              accommodation down

           ·    UNITE and USAF well capitalised and able to pursue acquisition opportunities at attractive prices

           ·    UNITE strategy evolving to take advantage of opportunities arising from Higher Education funding cuts.

Phil White, Chairman of The UNITE Group, commented:

"In my first set of full year results as Chairman of UNITE, I am delighted to report a robust financial performance for the business against a backdrop of the most challenging financial conditions I have ever experienced.  We have responded carefully and decisively to the conditions we faced, focusing on moving the Group's operating business into profit, selling non-core assets at sensible prices, managing our borrowings and securing growth capital from a range of sources only when we felt the time was appropriate.  

"We believe that the actions we have undertaken leave the business well positioned, based on its sound financial platform and its market leading position, to adapt to any changes in the market. This will enable us to take advantage of the opportunities that are emerging in 2010 for the benefit of the Group's shareholders, partners and investors and to establish further the foundations for longer term profitable growth."

Mark Allan, Chief Executive of The UNITE Group, commented:

"Having responded to the challenges of 2009, we determined that the significantly different market environment in which we are now operating required a further evolution of our strategy and business model. Our focus for growth in the medium term will be driven by targeted development activity, proactive asset management of our existing portfolio and the acquisition of properties by USAF where UNITE sees opportunities to add value. We also see a clear opportunity to leverage UNITE's expertise and market-leading position to work in partnership with Universities to develop, upgrade and manage their on-campus accommodation as they adapt to a new funding environment. This multi-tiered strategy will allow the Group to increase both profitability and net asset value in a balanced way in the coming years."

Enquiries

The UNITE Group plc                                                                                      Tel: [phone]

Mark Allan

Joe Lister

Caroline Mallin

Financial Dynamics                                                                                         Tel: [phone]

Stephanie Highett / Dido Laurimore

Rachel Drysdale / Laurence Jones

CHAIRMAN'S STATEMENT

Introduction

In my first set of full year results as Chairman of UNITE, I am delighted to report a robust financial performance for the business against a backdrop of the most challenging financial conditions I have ever experienced.

Much of 2009 was characterised by considerable uncertainty.  At UNITE we responded carefully and decisively to the conditions we faced.  We focused on moving the Group's operating business into profit, selling non-core assets at sensible prices, managing our borrowings and securing growth capital from a range of sources only when we felt the time was appropriate.   In addition, we have carefully evaluated and refined our business model in the face of the emerging market conditions to ensure that our business is best placed to continue to deliver growth.

Financial results

Increasing balance sheet flexibility and moving our operating business into profit were our two key financial objectives for 2009. Both were successfully achieved.

·    The Group reported a Net Portfolio Contribution of £0.6 million for the year, a significant improvement over the loss of £5.4 million recorded at this level in 2008.  This improvement was mainly attributable to strong like-for-like rental growth (+9.7%) and the successful reduction of operating costs.  This was achieved despite the dilutive impact of the Group's effective ownership share of its operating portfolio income reducing from 54% to 50% as a result of the full year effect of assets being sold to USAF in late 2008;

·    Group adjusted net debt fell from £531 million to £390 million and adjusted gearing from 131% to 92%, as a result of a programme of asset sales, the establishment of a joint venture with Oasis Capital Bank to build out our 2010 development programme and the Group's successful Placing and Open Offer.   Importantly, the Group was not forced to raise capital at a time when it would have been significantly dilutive to shareholders and all asset sales and capital raising initiatives were secured at prices which minimised any dilutive impact.

The Group's adjusted fully diluted NAV per share fell by 13% during the year to 265 pence (2008: 306 pence restated for the impact of the Placing and Open Offer in October), predominantly as a result of rising yields causing a decline in the valuation of the Group's investment and development portfolios in spite of the strong rental growth secured. 

Investment yields for direct let student accommodation, which accounts for 88% of the Group's investment portfolio, have yet to show the extent of compression evident across the broader commercial property sector.  As a result of this, and the fact that the majority of rental growth tends to be booked in the first half of each year, the Group's net asset value was broadly flat in the second half of 2009 save for two one-off items, each of which has been previously disclosed to shareholders:

·    £10 million (6pps) of swap break costs incurred following the sale of a portfolio of assets to USAF in December and the repayment of associated senior debt.  Following this, the Group's average cost of investment debt reduced to 5.6%.

·    £4 million (3pps) of costs expensed in the second half relating to the final element of the 'Blueprint' restructuring and the cost of overcapacity at UMS, our modular manufacturing facility.

After taking these items into account, adjusted diluted net asset value declined by 11 pence per share from the restated position at 30 June 2009 of 276 pence per share.

The student accommodation market

Overview

The student accommodation market demonstrated remarkable resilience throughout 2009, despite the wider challenges faced by the UK economy.  Following record applications, full-time student numbers increased by approximately 50,000 to 1.55 million whilst the net new supply of purpose built bed spaces was restricted to approximately 9,000 (source: King Sturge), the demand-supply gap in purpose built student accommodation is widening.  These fundamentals contributed to another strong rental growth performance across UNITE's portfolio (+9.7%) and helped offset yield expansion of 50bps over the year.

The investment market

In common with all parts of the UK commercial property sector, the value of student accommodation assets fell during the first half of 2009.  However, the fall in values was far less marked than in other sectors as strong rental growth helped offset the impact of rising yields.  As a result, between January and June 2009, UNITE's investment portfolio fell in value by 2%, compared to a decline in general commercial property values of 13%, as measured by IPD.

In the broader commercial property sector, asset values showed clear signs of stabilisation in the third quarter before recovering strongly in the fourth quarter, driven by sharp compression in yields rather than rental growth.  In the student sector, similar characteristics were evident for assets with long term lease agreements in place, where revenue risk is effectively underwritten by the university.  Whilst the Group's focus on direct let assets has allowed it to deliver annual rental growth, the recovery in values has so far been less pronounced in direct let student accommodation, with the result that UNITE's portfolio value grew less strongly than the broader property market in the second half of 2009, with the average NOI yield moving in only 10bps to 6.7% from 6.8% at 30 June. We consider this an undemanding valuation, particularly as the yield shift was mostly attributable to an increased London weighting in the investment portfolio.

It is important to note that investor demand for diversified exposure to well managed direct let assets remains strong, as evidenced by USAF's successful £167 million capital raise in December.  In 2010, with its significant investment capacity, USAF is likely to be one of very few large scale purchasers of purpose built direct let student accommodation assets.  Much of the historic investment in the student accommodation sector has been funded with high levels of debt. We expect the lack of available high leverage today to restrict investment activity in the near term and possibly lead to buying opportunities for USAF and/or UNITE later in 2010.  We are keen to see how this unfolds before we form a firmer view on investment yields.

The occupational market

UK student numbers continued to grow in 2009, driven by strong growth in accepted applications from both UK and international students, up 5% and 10% respectively.  This provides a solid background for sector fundamentals although regional variations are continuing to emerge and a good understanding of these is critical to ongoing success.  UNITE achieved 96.5% occupancy for the 2009/10 academic year, with like-for-like rental growth of 9.7%.

As at the end of February 2010, UNITE had reservations in place for the 2010/11 academic year across 59% of its portfolio, compared to 63% at the same time in 2009.  Part of this lower reservations level is attributable to a higher direct let weighting in the portfolio (88% vs 85% in 2008) but we are also seeing evidence of consumers delaying buying decisions.  However, with the significant demand-supply imbalance still prevalent in student accommodation and UNITE's proven sales and marketing capability, we believe that this will reverse substantially in the coming months.

Looking forward there are a number of planned or potential changes likely to have an impact on the future occupational market.  These relate mainly to university and student funding.  In the case of university funding, cuts amounting to £450 million have already been announced and more may follow.  On balance, in light of the Group's strong reputation, specialist expertise and financial strength, we see this as presenting a new opportunity as Universities increasingly seek ways to release capital from their estates or provide 'non-core' services, such as accommodation, more efficiently, by seeking a solid and experienced financial and operational partner.

The future of student funding is the subject of the Browne review, which is scheduled to report later in 2010.  Many commentators expect this to lead to a further rise in tuition fees.  A rise in tuition fees, were it to occur, may have some impact on domestic university applications.  However,  with applications currently well in excess of available places and the continued high demand from international students to study in the UK, we consider it unlikely that overall student numbers will fall in the near term.  As a result, the demand-supply imbalance for purpose built accommodation is likely to remain significant.

Our strategy

UNITE has secured an enviable market leading position in the UK student accommodation sector.  In doing so, it has developed skills and expertise that leave it well placed to succeed in the coming years and extend its market-leading credentials:

·    In-depth knowledge of the sector on a national and local level, informed by detailed research, which helps it to focus investment on locations that display the most attractive fundamentals;

·    A professional and scalable operating platform from which it can deliver a consistent level of customer service and derive economies of scale as its portfolio of properties grows;

·    A strong financial foundation, based upon a diverse range of capital sources, which has enabled the Group to grow without excessive reliance on any one source of capital and to have navigated the turbulent financial market conditions of the past two years;

·    The potential to lock in higher returns through its 'developer and co-investing manager' business model.  USAF provides its investors with access to a highly diversified, professionally managed portfolio in a resilient sector and provides UNITE with a dedicated, well funded purchaser of its completed and let development assets, and an ongoing management fee stream.

Looking forward, we have determined that the significantly different market environment in which we are now operating requires a further evolution of our strategy and business model.  Development activity, traditionally our primary source of growth, will continue to provide attractive opportunities but we also recognise there is the potential to grow our business in other ways, particularly as our operating platform is more scalable than our balance sheet.  We have identified four drivers of growth in the medium term:

·     Targeted development activity

Following our successful Placing and Open Offer in October 2009, we have made solid progress in identifying new development sites in London, securing contractual or exclusive positions on three sites that we expect to deliver approximately 900 bed spaces for occupation in 2012 and 2013, in line with our target returns.  The market for good development sites in London has proven to be extremely competitive and our strategy has been, and will remain, to pursue off-market transactions and avoid competitive bidding situations in order to protect shareholder returns.  Additionally opportunities which we believe offer good value are beginning to emerge in a small number of locations outside London where UNITE has an existing operational presence and we intend to pursue these as part of a balanced development strategy.  Our plans remain to develop 4,000 to 5,000 new bed spaces for delivery and occupation between 2012 and 2014.

·     Proactive asset management of existing student accommodation investments

We estimate that the wider student accommodation sector is likely to deliver rental growth in the region of 2% to 3% per annum in the medium term.  By focusing carefully on the quality and location of its investment and operational portfolio, refurbishing and upgrading selected facilities profitably and further developing its market-leading on-line sales and marketing platform, the Group is well placed to outperform this sector benchmark significantly. We believe annual rental growth of 3% to 5% to be achievable.

·     Acquisition and repositioning of existing student accommodation assets

Following its successful £167 million capital raise in December, USAF now has sufficient investment capacity to consider the acquisition of non-UNITE properties.  Such acquisitions will be restricted to assets where UNITE is able to add value by applying its operating platform and expertise and may include assets where existing owners are forced to consider disposal as a result of unresolved financing concerns.  Initially in 2010 the Group is seeking to acquire up to £100 million of such assets through USAF.  UNITE will benefit from these acquisitions through its significant minority stake in USAF and increased management fees.

·     Working in partnership with Universities to develop, upgrade and manage their on-campus accommodation

At present we are aware of approximately 20,000 bed spaces where Universities are considering outsourcing and we expect this number to rise further during 2010 as funding cuts prompt alternative strategies.  UNITE would source the majority of capital for such opportunities from third parties, co-investing a smaller amount itself and acting and receiving fees as property and asset manager for the investing entity.  With our proven track record in raising third party capital into the sector and our scalable operating platform, we are ideally placed to provide valuable solutions to Universities in this area. 

We believe that the above multi-tiered strategy will allow the Group to increase both profitability and net asset value in a balanced way in the coming years.

Dividend

In light of market conditions and the Group's decision to invest in development opportunities, we are not proposing a dividend for the year.  We will consider re-instating the dividend as soon as the business is generating a meaningful level of profits such that any dividend would be properly covered.

People and organisation

Over the past two years we have pursued and recently completed a large scale programme of business change.  We have re-engineered our core business processes, invested in technology to support these, up-skilled many of our customer-facing roles and invested heavily in training and development to sustain and build on these changes.  As a result, we now have a highly professional and scalable national operating platform; something that I am confident is unique in our sector and a significant source of competitive advantage.

The financial impact of these changes is impressive, with £12 million of annual operating cost savings now secured.  However, it is our targeted improvement in customer service quality that will ultimately be the most important outcome from this initiative and hold most resonance for students, Universities and investors.  We expect these results to become evident during 2010 and 2011 as our improvements are embedded.

The scale of change was considerable, with nearly 350 roles being materially affected and over 1,500 training days being provided through our dedicated facility in support of the new organisation.  I am immensely proud of the way this change was planned and managed but, most importantly, embraced across the business.  My thanks to our teams for their continued dedication and commitment.

We also experienced change at Board level in 2009.  After ten years of dedicated service and counsel, Geoffrey Maddrell retired as Chairman in May and, at the same time, Nick Porter (who founded the Group in 1991) stepped down from his role as Non-Executive Deputy Chairman.  I am grateful to both Geoffrey and Nick for their enormous contribution to UNITE and for their support to me as incoming Chairman.

Outlook

Following its actions in response to extremely challenging market conditions, UNITE has emerged from 2009 as a stronger business with an increased competitive advantage in its specialist sector. 

The environment in which UNITE will be operating in the future is fundamentally different to that of the past.  As a result we expect to see significant changes in the ways Universities approach their accommodation requirements, the demands of students as consumers and the nature of competition in the sector.  I am confident that our strategy anticipates and understands these changes and, as a result, we are well placed to succeed.

We have four key priorities for 2010, closely aligned to our strategy:

·    To deliver solid rental growth and occupancy across our portfolio for the 2010/11 academic year, through the continued application of our market leading on-line platform and proactive asset management and, as a result, grow profits.  With demand/supply dynamics still favourable and our unrivalled sector expertise, we remain confident of securing annual rental growth in the region of 3% to 5%;

·    To secure a development programme for delivery and occupation between 2012 and 2014, with a strong focus on London.  We currently have three sites secured which we expect to deliver approximately 900 beds in London for 2012 or 2013 occupation.  We aim to have 4,000 to 5,000 bed spaces of development secured by March 2011, of which the significant majority are expected to be in London.  Development profits from this activity in 2010 are likely to be limited, taking into account the lead time required to secure planning consents.  We would expect development profits to accrue from 2011 onwards;

·    To acquire, through USAF, high quality existing student accommodation investments that the Group can then reposition and seek to add value.  We expect USAF to acquire up to £[100] million of such assets during 2010;

·    To pursue a small number of university partnership opportunities, provided that the potential for the Group to add value and secure sustainable profits is clear and properly aligned with our strategy.

With our strategy in place, I believe 2010 will see the Group further establish the foundations for long term profitable growth.

BUSINESS REVIEW

Overview

During 2009 there was significant uncertainty in the economy and both the property and higher education sectors, all of which had an impact on UNITE. The business responded carefully and decisively to these challenges at the beginning of the year, with the result that, in the latter part of the year, the Group was able to position itself to take advantage of the improved market sentiment and subsequent capital flows.

UNITE significantly strengthened its financial position in 2009 through a number of 'self-help' measures.  It continued to focus on its operational performance to deliver a profit for the year at the net portfolio contribution level, selling non-core assets at valuations ahead of its targets, securing a significant joint venture with a new partner, Oasis Capital Bank, and renegotiating maturities for a small number of debt facilities. These actions strengthened the Group's financial position and consequently enabled it to raise £82 million from shareholders, at a small discount to net asset value, to fund its future development business. In December, the Group successfully raised £167 million of capital into the UNITE UK Student Accommodation Fund ('USAF'), providing the Fund with further capacity to acquire assets from UNITE and explore other acquisition opportunities.

Looking forward, it is evident that the environment in which UNITE operates has changed considerably and, indeed, is still changing. Conditions that have existed for much of the past ten years, such as the availability of cheap and abundant debt, rapid growth in student numbers and university funding and consistent economic growth can no longer be assumed for the future.  However, this change in environment will also present new opportunities for a strong financial and operating partner such as UNITE and, using its sector expertise, the Group is refining its business strategy to ensure that it is best positioned to exploit these opportunities.

Having raised capital at a sensible price and reduced gearing to conservative levels, and unlike the majority of our peers in the student sector, UNITE and USAF are both now in a good position to invest in sector opportunities; UNITE specifically by acquiring development sites and USAF by securing direct let investment assets from parties other than UNITE.   We believe that good acquisition opportunities exist as yields for direct let assets (an average of 6.7% for the UNITE portfolio at 31 December 2009) have not yet contracted to the same degree as yields in the broader commercial real estate sector or for student accommodation assets subject to long term leasing agreements with universities.  However, for good quality assets that are well-managed, direct let rents continue to offer good growth prospects.  This is clearly understood by investors, as demonstrated by the strong take-up for the USAF equity raise in December.

These decisive steps leave UNITE well positioned to take advantage of the opportunities that are emerging from this changing landscape.

The student accommodation market

Despite the dramatic deterioration in economic conditions and the financial markets in 2008 and the first half of 2009, the market for student accommodation has continued to demonstrate strong fundamentals with growing demand and limited new supply throughout 2009.

There was a further year of growth in the number of students attending university in 2009 with full time student numbers increasing by 50,000 to 1.55 million. By contrast, the new supply of beds delivered by corporate providers in the year was approximately 9,000 according to King Sturge thereby adding to the strong demand-supply imbalance prevalent in the UK market. 

With the exception of the ongoing supply shortfall, the outlook, however, is less clear. Whilst the growth in the number of applications is continuing, with applications for the 2010/11 academic year up 23% according to UCAS figures released on 8 February 2010, there is clear emerging pressure on Higher Education budgets. The Higher Education Funding Council announced on 1 February 2010 that university funding would be cut for the 2010/11 academic year by £450 million. Of this, £215 million relates to teaching budgets representing a reduction of 1.6% in real terms which we believe is likely to lead to a reduction in the number of UK students being accepted onto courses in 2010. However, a CBRE report into university funding, issued in February 2010, has estimated that a substantial part of any fall is likely to be offset by growth in the numbers of overseas and post-graduate students and that the net fall in intake will be only between 3,000 and 4,000. The CBRE report also suggests that because the reduction in student numbers will be thinly spread across the UK and that there will be an increased trend for more affluent students to attend university, there should only be a limited impact on student accommodation in the 2010/11 academic year.

The Browne Review of Higher Education funding and Student Finance, commissioned by Lord Mandelson, is also due to report later in 2010. There is a reasonable expectation that this could lead to an increase in the cap on tuition fees currently set at £3,225 per annum. However, any impact will be contingent on the result of the election later in 2010.

It is the Company's strong belief that, although the Higher Education budgetary pressures raise inevitable uncertainty about student numbers, this shift in funding patterns will actually create new opportunities for UNITE. Regional variances will begin to emerge and UNITE's research-led approach, in-depth market knowledge and sector leading position will ensure it will be well placed to take advantage of these opportunities. UNITE will also look to work closely in partnership with certain universities who are looking for innovative ways to fund and manage their existing and ongoing accommodation requirements in order to reduce costs and who will be attracted by UNITE's financial strength and operational reputation - especially compared to the majority of its peers.

Alongside the changing nature of the demand for student accommodation, there is an ongoing shift in the supply landscape.  Whilst there is less activity from traditional competitors, the relative outperformance of the sector over the past few years has resulted in more capital targeting the sector. This is being seen most evidently through increased demand for investment properties subject to long term leases and for development sites in London that have planning permission in place.

By contrast a number of our traditional competitors are managing high levels of debt and gearing which has led to lower levels of investment activity from these parties.   We will continue to monitor the position of these highly leveraged competitors closely in order to establish whether any investment opportunities might emerge.

Business strategy

UNITE is the UK's leading developer and co-investing manager of purpose built student accommodation, having developed and now operating a portfolio of approximately 38,300 purpose built bed spaces across the UK. From a financial perspective, the Group's objectives are twofold:

·    To increase, over time, the value of its student accommodation related investments.  These take the form of properties owned outright by the Group and stakes owned by the Group in various joint ventures and funds which themselves own student accommodation properties operated by the Group.  We seek to grow value through proactive asset management, increasing the annual rent of completed investment properties, and through the targeted development of new properties.  The key measure of value of our investments is Net Asset Value (NAV) per share.

·    To profit from the management of the Group's operational portfolio.  Returns take the form of rent receivable from wholly owned properties less interest payable on associated borrowings; dividends receivable from the Group's various stakes in funds and joint ventures and management fees receivable from third party investors in these funds and joint ventures.  These sources of income are required to cover our central overhead costs and we measure profitability in the form of Net Portfolio Contribution.

Historically, the Group's business model has been to develop new purpose built accommodation in carefully selected locations and let the property directly to students.  Thereafter, it has sold the completed and let assets to funds or joint ventures managed by the Group and in which it has a significant minority stake. The Group has then reinvested a proportion of the proceeds into new development activity and continued to provide management services across the entire operational portfolio for the long term. We refer to this as the Group's 'developer and co-investing manager' business model.

Looking forward, this will continue to form a significant proportion of the Group's growth strategy.  However, as the sector matures, we believe that the level of new development opportunities offering sufficient shareholder returns may start to reduce.  In addition, we believe that the dramatic change in the economic environment affords us the opportunity to grow our business in other ways that will generate strong recurring income.

Taking the above into account we have identified four drivers of growth in the medium term:

1. Targeted development of new purpose built student accommodation

In October 2009 the Group raised £82 million of equity from its shareholders to pursue a London focused development strategy. We are committed to achieving strong returns from our development activities and believe that, in London, this is best achieved through pursuing 'off-market' transactions rather than competitive bidding situations, where competition is currently very high and pricing levels above what the Group is prepared to pay.

The Group is making solid progress in its identification of appropriate London sites at present.  However, having given careful consideration to prospective returns, we also believe that opportunities are beginning to emerge in a small number of carefully selected locations outside London where we already have an existing presence and infrastructure and where a demand-supply imbalance remains. 

We plan to develop between 4,000 and 5,000 new bed spaces for delivery and occupation between 2012 and 2014.

2. Proactive asset management of existing student accommodation investments

Taking into account anticipated demographic changes over the next few years, we believe that average rental growth in the UK student accommodation sector generally will be in the region of 2% to 3% per annum in the medium term.

However, by focusing carefully on the quality and location of its investment and operational portfolio, by refurbishing and upgrading selected facilities and by further developing its market-leading on-line sales and marketing platform, the Group will be well placed to outperform this sector benchmark.  We believe annual rental growth of between 3% and 5% to be achievable across the Group's portfolio.

3. Acquisition and repositioning of existing student accommodation assets

The Group has a clear track record of raising third party capital into the student accommodation sector, most notably through the establishment and evolution of USAF.  As the student accommodation sector matures across the UK, the Group will seek to acquire operational assets from third parties; predominantly through USAF, where it believes an opportunity exists to add value through the application of its proven property and asset management capabilities.  Acquisition opportunities may also arise as a result of the high levels of debt secured against assets owned and operated by some of our competitors and which might therefore be classified as 'distressed'. 

The Group will benefit financially through its stake in the acquiring entity (such as USAF) and through fees received subsequently as property and asset manager. Initially in 2010, the Group is seeking to acquire up to £100 million of such property, using existing investment capacity within USAF.

4. Working in partnership with universities to develop, upgrade and manage their on-campus accommodation

UK universities are facing the prospect of further funding cuts over the next few years as the Government seeks to address its significant borrowing through reductions in public sector spending. 

It is becoming clear that universities are increasingly seeking ways to generate capital from their estates and to provide 'non-core' services, such as accommodation, in a more efficient manner.  At present, we believe that universities across the UK are actively considering the outsourcing of a combined 20,000 bed spaces and we expect this number to rise in the future.

With its proven track record in raising third party capital into the student accommodation sector and its professional and scalable operating platform, the Group is ideally placed to be able to provide universities with a valuable solution in this regard.  The Group itself would benefit financially from management fees receivable as well as receiving an appropriate return on any of its own capital that it chooses to co-invest into such opportunities.

The scale of opportunity in this area, in terms of bed spaces, could be significantly larger than the Group's ongoing development programme.

Financial results

The Group's financial performance, in common with the market generally, has been affected by the difficult market conditions experienced during the year.  However, as a result of the strong sales and rental growth performance and the successful conclusion of the Blueprint programme (to re-engineer core processes, reduce operating costs and improve service quality), UNITE has delivered a profit at the net portfolio contribution level. These initiatives have also been an important factor in partially offsetting the impact of outward yield movements on net asset value.

Despite the resilience of the student accommodation market and the Group's strong operational performance, UNITE was not immune to the severe deterioration in valuations experienced across the commercial property market. In recognition of this and the impact of the current economic downturn, the Company acted quickly to accelerate or initiate a number of important measures to strengthen its financial position. In 2008, UNITE scaled back its development activity substantially and in 2009, it delivered £246 million of asset sales, including the assets sold to the joint venture it created with OCB, and secured £12 million of annualised operational cost savings.

Together these factors ensured UNITE was ultimately well placed to be able to raise capital through its Placing and Open Offer in October 2009.  The issue was priced at a small discount to net asset value, thereby minimising the dilutive impact to its shareholders, and was sized at £82 million to allow the business to capitalise on development opportunities, predominantly in London, over the next two to three years. The continuing institutional investor appetite for the sector was further demonstrated in December, when USAF raised £167 million of new equity, thereby providing UNITE with further take-out capacity for its development programme.

Income statement

The Group uses a net portfolio contribution profit measure to assess its operational business performance and this improved to £0.6 million for 2009 compared to a loss of £5.4 million in 2008. This measure has become increasingly important to the Group as it has focused on delivering a profit from this segment of its business.  This follows a number of years when its performance was affected by the impact of selling significant volumes of assets, and thereby reducing its rental income streams, in order to realise profits for the development segment of its business and generate capital to fund further growth.

The strong sales and rental growth performance in 2009, together with new openings, underpinned the increase in total income from its managed portfolio to £164.3 million, an increase of 14% from 2008. In addition, the Group also generated £5.9 million from management fees as assets under management in joint ventures increased to £1,432 million as at 31 December 2009 from £1,345 million as at 31 December 2008.  The Group's rental income was also affected by the dilution of UNITE's share of income from its total portfolio to 50% in 2009 from 54% in 2008 as a result of the £171 million asset disposal to USAF in December 2008.

	2009 £m	2008 £m
Total income from managed portfolio	164.3	143.8
UNITE's share of rental income UNITE share of total income	81.9 50%	78.2 54%
UNITE's share of operating costs	(24.7)	(26.2)
Net operating income	57.2	52.0
NOI margin	70%	66%
Management fee income	5.9	4.9
Finance costs*	(43.0)	(42.3)
Operational overheads	(13.9)	(13.7)
Investment segment result	6.2	0.9
Corporate costs and share of joint venture overheads	(5.6)	(6.3)
Net portfolio contribution	0.6	(5.4)

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

The Group's Blueprint programme was completed in 2009. The programme has delivered annualised cost savings of £12 million, of which £10 million arose in 2009. Of these savings, £5 million have been recognised in the income statement.

These savings have offset an increase in the proportion of the Group's overhead costs being expensed through the income statement as the level of development activity (and therefore overhead capitalisation into projects) has declined. The cost savings were an important component behind the improvement in the Group's margin from 66% in 2008 to 70% in 2009.

The Group's gross financing costs (before interest capitalised) have reduced to £54.4 million from £65.2 million as a result of both the quantum of debt and the average interest rate during 2009. The amount of interest capitalised into development projects reduced to £10.9 million for 2009 (2008: £20.4 million).

The Group reported an adjusted loss for the period of £28.7 million (2008: £44.8 million). The components of this result are outlined in the following table:

	2009 £m	2008 £m
Net portfolio contribution	0.6	(5.4)
Development segment	(16.8)	(27.5)
Restructuring  costs	(3.0)	(4.8)
Swap and loan break costs	(9.6)	(0.6)
Other	0.1	(0.4)
Provision against Landsbanki cash deposit	-	(6.1)
Adjusted loss	(28.7)	(44.8)

The principal components of the Development segment performance relate to the write-down in value of development property and land as a result of movements of yields during the year and the loss incurred by UMS as a result of its surplus capacity. These amounts were offset by development management fees from the OCB joint venture and profits on the sale of certain development assets.

As indicated in the Interim Statement for the six months to 30 June 2009, the conclusion of the Blueprint programme resulted in restructuring costs related to the implementation of changes to our customer-facing team structures.  These amounted to £3 million in the year.

Following the sale of properties to USAF in December 2009, UNITE took the decision to pay down related swaps. This lead to a one-off £9.6 million charge, but has reduced the Group's average cost of investment debt from 6.2% to 5.6%.

On an IFRS basis, the Group reported a loss after tax of £34.5 million (2008: £116.3 million).

Balance sheet

The dramatic falls in commercial property values in 2008 continued into the first half of 2009, with the IPD Index showing that UK commercial property values fell by an average of 13.2% in the six months to June 2009. As a result of UNITE's strong reservations and rental growth performance in the first half of 2009, the value of the Group's investments fell by a much smaller amount, an average of 2% over the same period.

In the second half of the year, this trend reversed with the IPD index showing that values increased by 8.7% as a result of yield compression, rather than rental growth. In the same period the value of UNITE's investments increased by 1% taking the overall reduction in values over the 12 month period to £14 million, representing a 1% fall over the year.

The average yield of UNITE's portfolio moved from 6.8% at 30 June 2009 to 6.7% at 31 December 2009, although approximately half of this movement reflects the impact of the greater London weighting of the investment portfolio following the completion of the 2009 development programme. As the value of UNITE's property did not fall as rapidly as in the broader property sector, so the recovery in values was also less marked. The second half NAV performance was also affected by the lower levels of occupancy in London as a result of stabilisation which meant that more conservative rents and occupancy assumptions were used to derive valuations. In our experience the impact of this should unwind as the assets stabilise.

Reported net asset value attributable to UNITE shareholders was £366 million at 31 December 2009 (31 December 2008: £320 million). The Group's adjusted net asset value was £423 million or 265 pence per share on a fully diluted basis. This compares to 325 pence per share reported at 31 December 2008 and 286 pence per share at 30 June 2009. Adjusting for the dilutive impact of the Placing and Open Offer, the adjusted net asset value at 31 December 2008 and 30 June 2009 on a restated basis was 306 pence per share and 276 pence per share respectively.

As set out in the graph below, the main factors behind the reduction in adjusted net assets per share over the year were:

-      A fall of 9 pence per share due to the revaluation of investment properties;

-      A valuation reduction of 26 pence per share as a result of the downward revaluation or loss on disposal of development properties and land. The majority of this amount, 24 pence, was recognised in the first half of 2009;

-      The cancellation of swaps  reduced NAV by 6 pence per share;

-      Restructuring costs associated with the Blueprint programme and the loss incurred by UMS as a result of over capacity reduced NAV by 3 pence per share;

-      The dilutive impact of the Placing and Open Offer reduced NAV per share by 10 pence.

NAV (pence per share)

http://www.rns-pdf.londonstockexchange.com/rns/9937H_-2010-3-3.pdf 

UNITE has proactively managed and consequently strengthened its balance sheet in 2009 such that it is now in a position to grow its business. The Group has reduced adjusted gearing from 131% to 92%, reduced adjusted net debt (adjusted to add back mark to market valuation) from £531 million as at 31 December 2008 to £390 million and dramatically improved covenant headroom across the key measures of loan to value, interest cover and minimum net worth.

The Operating and Investment Portfolio

For the 2009/10 academic year, UNITE is operating 38,300 bed spaces across 129 properties. The Group's interest in these assets ranges from wholly owned, part-ownership through USAF, UCC or USV or as manager of properties held under long leaseholds.

	USAF*	UCC*	USV*	Wholly Owned	Leased	Total	UNITE %
London
- Value	£94m	£329m	-	£245m	-	£668m	£358m
- Beds	573	2,433	-	2,191	260	5,457	39%
Major provincial
- Value	£618m	-	£59m	£225m	-	£902m	£356m
- Beds	12,962	-	1,383	4,433	2,036	20,814	38%
Other provincial
- Value	£221m	-	-	£121m	-	£342m	£157m
- Beds	5,129	-	-	2,981	1,785	9,895	17%
Varsity
- Value	£70m	£41m	-	£34m	-	£145m	£58m
- Beds	798	437	-	545	316	2,096	6%
Total at 31 December 2009
- Value	£1,003m	£370m	£59m	£625m	-	£2,057m	£929m
- Beds	19,462	2,870	1,383	10,150	4,397	38,262	-
UNITE investment	16%	30%	51%	100%

*The value of properties represents the gross value; UNITE share is shown in the right hand column

The Group delivered like for like rental growth of 9.7% and 96.5% occupancy across the operating and investment portfolio for the 2009/10 academic year compared to 9.5% rental growth and 99% occupancy in 2008/09. The sales growth performance over the past two years has been exceptional, driven by the demand-supply imbalance and the professional focus of the Group's sales and marketing activities. Given the pressures on Higher Education funding, a more normalised level of rental growth of approximately 3-5% is anticipated over the next few years although this should still deliver outperformance in comparison to the student accommodation sector generally.

The overall level of occupancy across the portfolio has been affected by the impact of stabilisation in London. UNITE opened 1,526 new beds in London during 2009, a 39% increase in the number of beds under management in the city within a single year, along with a further 1,829 new beds being brought to market by competitors. The impact of stabilisation was more significant than we anticipated, but is in line with our previous experiences in other cities where the portfolio has increased significantly in size within a single year. We would expect new assets to stabilise, in terms of occupancy and rent levels, within one to two years of opening. Partially in response to the increased void rate caused by stabilisation, UNITE has successfully developed its approach to selling beds to students and universities in London on a semester basis which will provide additional revenue in the stabilising properties.

As at the end of February 2010, reservations had been received for 59% of the portfolio compared to 63% a year earlier.  As set out in the Chairman's statement, there is evidence of consumers delaying buying decisions, which will always be more noticeable for the direct let market at this stage in the letting cycle.  However, with the significant demand-supply imbalance still prevalent in student accommodation and our proven sales and marketing expertise, we expect this to reverse substantially in the coming months.

	Beds	% Reserved 10/11 year	% Reserved 09/10 year	Like for like rental growth 09/10
USAF	19,462	56%	58%	9.9%
UCC	2,870	41%	48%	4.4%
USV	1,383	37%	54%	9.9%
Wholly owned/OCB	11,269	54%	65%	15.5%
Leased	4,397	99%	98%	5.3%
Total	39,381	59%	63%	9.7%

Operating costs and overhead

During 2009 the Group completed its Blueprint change programme, which has been running since late 2007. The programme will deliver £12 million of annualised cash savings of which £10 million has been recognised in 2009. Of these savings, £5 million will be reflected in the Group's income statement.  These savings have offset an increase in the proportion of the Group's overhead costs being expensed through the income statement as the level of development expenditure (and therefore central overhead capitalised into development projects costs) has reduced.

The programme resulted in restructuring costs of £3.0 million being incurred in 2009. The Group does not expect any further exceptional restructuring costs to be incurred in 2010.

Investment portfolio valuation

The valuation of the Group's investment properties as at 31 December 2009, including its share of gross assets held in USAF and joint ventures was £929 million compared to £796 million at 31 December 2008. Valuation yields expanded significantly over the first six months of 2009, from an average of 6.2% across UNITE's assets at 31 December 2008 to 6.8% at 30 June 2009, thereby causing asset values to fall. Whilst not as marked as in other segments of the commercial real estate sector, yields began to stabilise and then contract over the second half of 2009, taking the average yield to 6.7% at 31 December 2009. The rental growth performance was an important factor in partially offseting the outward movement of yields over the year, leading to relative outperformance against other types of real estate.  Over the full year, UNITE's portfolio fell in value by an average of 1%, compared to a fall for the broader sector of 5.6%, as measured by IPD.

UNITE vs IPD All Property NIY

http://www.rns-pdf.londonstockexchange.com/rns/9937H_1-2010-3-3.pdf 

The following table shows the movement in asset values by portfolio over the course of the year.

	31 Dec 2008 £m	Yield movement £m	Rental growth     £m	Disposals/ Completions £m	31 Dec 2009      £m	Avg NOI yield            %
Wholly owned	484	(50)	44	147	625	6.6%
USAF	897	(58)	69	95	1,003	6.8%
UCC	390	(45)	25	-	370	6.4%
USV	58	(5)	6	-	59	6.9%
Total portfolio	1,829	(158)	144	242	2,057	6.7%
UNITE share	796	(72)	63	141	929	6.7%

There has been a significant increase in the volume of investment transactions undertaken by the Group in the second half of 2009. UNITE has sold £217 million of assets since June, at an average valuation yield of 6.4% compared to the average yield across its portfolio of 6.7%.  The higher average yield in the December valuation when compared to transactional evidence partly reflects geographic differences but also a more conservative approach to valuing stabilising assets at the year end. We would expect both the gap between transaction and portfolio yields and the stabilisation impact on valuations to unwind over time.

During 2009, UNITE sold a total of £150 million of investment properties at an average yield of 6.4%, of which £95 million were sold to USAF and the remainder to external parties. In addition, UNITE sold its 2010 development pipeline to the joint venture it formed with OCB for £88 million and a further £8 million of land previously held for development. The evidence from transactions that have taken place since 30 June 2009 indicates that there is a gap emerging between yields for direct let assets and assets subject to leases or nominations agreements as investors are prepared to pay a premium for assets with secured income streams equivalent to a 50-75 bps keener yield. UNITE has focused increasingly on direct let assets over the past few years allowing it to drive consistent annual increases in rents.  Investor demand for diversified direct let exposure is strong, as evidenced by USAF's successful equity raise and we believe this will translate to asset values over time.

	Valuation at  Dec '08/Jun '09  £m *	Gross proceeds   £m	Loss on disposal* £m
Investment assets	55	54	3
Land	13	8	4
Sales to joint ventures	187	184	4
	255	246	11

*Based on market value at December or June prior to sale, including any subsequent costs.

Development

Following the Group's decision in 2008 to significantly reduce its forward development pipeline commitments, the Group has focused on the delivery of its 2009 programme and the timely commencement of works on its remaining 2010 projects. The Group delivered 2,853 beds across 14 properties for letting in the 2009/10 academic year, of which 1,526 beds are in London.  The construction of the 1,119 beds that were sold to the OCB joint venture is progressing well. The assets are fully funded and on track to be delivered on time and to budget for occupation in September 2010 with a further £3 million of NAV (UNITE's share) to be recognised in 2010.

The Group has started to make progress in re-building its development pipeline.  As at 1 March 2010, it has exchanged an option for one site and entered exclusive negotiations for a further two sites, comprising approximately 900 beds in total. The market for acquiring land in London, especially sites with planning permission, became more competitive over the second half of 2009. UNITE is unlikely to acquire sites in highly competitive bid situations, particularly where the product mix is studio biased or the location is not within our core target zones.

In order to address the currently high levels of competition for consented land in London, UNITE has focused on securing more sites 'off-market' from owner occupiers and, as a result, the acquisition of the pipeline is likely to continue into early 2011. Whilst taking longer than previously anticipated to secure sites, this approach will provide UNITE with greater opportunity to add value through the planning process. We will also review existing land holdings, valued at an aggregate of £33 million at 31 December 2009, excluding sites exchanged for sale, to review the feasibility of delivering beds in 2011. Capital expenditure in 2010 will be limited to option monies or deposits for land and for construction of any sites chosen for 2011 delivery and should not exceed £50 million in aggregate.

Banks have, to date, generally played a supportive role to their borrowers but this may well change in 2010. We will therefore maintain an active dialogue with the banks to assess what opportunities might arise from distressed assets as the leading specialist operator in this sector. In addition, certain cities outside of London are becoming more attractive from a development perspective as land prices continue to fall and the competition for sites is considerably less intense. The Group will continue to monitor a small number of key target cities outside London and consider acquisition opportunities during 2010.

UNITE Modular Solutions ('UMS')

To counter the impact of the recession, and specifically the scaling back of UNITE's development programme, UMS has been actively pursuing a number of opportunities to establish an external market for its modular units, both within and beyond the student accommodation sector.  It was therefore encouraging to report earlier this year that UMS had secured its first third party contract in 2009, with Berkeley First Student, to supply and install 483 modules for a student accommodation development in Oxford.  The contract has a total value of £5.8 million.

As outlined in November's Interim Management Statement, there has been a change in the accounting treatment for UMS as a result of the creation of the OCB joint venture, such that all trading is essentially now external and recognised in the income statement. As the factory is running below full capacity, a net loss of £1.1 million arises which has been taken through the income statement.

Looking forward, the level of UNITE driven production demand for UMS is likely to remain low until late 2011.  There are a number of external contract opportunities that UMS is pursuing and we would expect to secure a proportion of these in the second half of 2010, which will utilise some of the plant's surplus capacity.  However, given the high level of competition in the construction sector at present and consequently the pressure on margins, it is likely that UMS will remain loss making in 2010.

The commercial viability and advantages of UMS's products are proven and well understood.  As a result, we are confident that the business will be well placed to benefit from a recovery within the next 18 months.  At that time, with third party demand established and increasing, we will review the Group's long term investment in the business.

Livocity - accommodation for graduates

In March 2007 the Group stated its intention to pilot a new business, providing professionally managed rental accommodation for young professionals in London under the brand name 'Livocity'.  Three projects, comprising 130 bed spaces, have since been completed and lettings progressed well.  However, as outlined in the Interim Statement, taking into account the severe contraction in available financing over the past year, the likely continued rationing of capital for the foreseeable future and the impact of the economic downturn on graduate recruitment, the Group has decided not to extend this pilot programme further. The three Livocity assets are now being managed as part of our operational portfolio and, as such, there has been no significant impact on earnings or net asset value.

Co-investing asset management

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

				31 December 2009
Vehicle	Fund/JV	Established	Property assets £m	Net Debt £m	Other Liabilities  £m	Adjusted net assets £m	UNITE share of adjusted net assets  £m
USAF	Fund	2006	1,003	(393)	(14)	596	97
UCC	JV	2005	370	(247)	(5)	118	35
OCB	JV	2009	124	(50)	(12)	62	16
USV	JV	2004	59	(40)	(5)	14	7

UNITE UK Student Accommodation Fund

USAF generated a total return of 8% in 2009, placing it as the sixth best performing fund in the IPD Index for Pooled Funds. The Fund successfully raised £167 million of equity in December 2009 from a range of existing and new investors. Following the completion of the fund raise, USAF acquired a £95 million portfolio of assets from UNITE, at an average yield of 6.4%, and has capacity to acquire approximately £200 million of further assets, based on the Fund's target leverage, either from UNITE or third parties.

It has been confirmed that the Fund will be treated as a Priority Creditor in relation to its deposit in Landsbanki. Following the publication of a statement of recoverable assets and liabilities, it has been announced that Priority Creditors should recover the substantial part of their deposit. The timing of a recovery, and any legal challenge to the priority status remain as areas of uncertainty and therefore the full provision of £30 million within the Fund remains in place.  UNITE's share of this provision is £6 million.

UNITE Capital Cities Joint Venture

UCC generated a total return of -14% in 2009. This was impacted by the stabilisation effect in London.  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.  Its return on equity since inception in 2005 is 18% per annum.

Oasis Capital Bank Joint Venture

In August, UNITE established a five year joint venture with Oasis Capital Bank, a Bahrain-based investor, to develop three student accommodation properties in London with an estimated value on completion of £194 million.  Having invested £13 million, UNITE has a 25% stake in the vehicle with OCB holding the remaining 75%.

The three properties to be developed in the joint venture, amounting to 1,119 bed spaces, represent the Group's entire 2010 development programme.  The joint venture acquired the three projects for a consideration of £88 million, reflecting an anticipated development yield of approximately 8%, and will fund the remaining costs to complete them, anticipated at £69 million as at the transaction date.  As part of the financing of the transaction, UNITE's existing banking facilities relating to each property were reduced by an aggregate of £14 million and transferred to the joint venture.  As a result, the joint venture has access to total debt facilities of £109 million, of which £59 million was drawn as at 31 December 2009. 

The transaction, completed in a very challenging market environment, clearly demonstrated both UNITE's ability to attract co-investment and grow its management business, building on the previous successes of UCC and USAF, and highlighted the relative resilience of the student accommodation market versus the wider commercial market. 

The Group has been retained by the Joint Venture, and will receive fees, both as development manager for the duration of construction (a fee equivalent to 5% of build costs) and property and asset manager thereafter (70bps of gross asset value).  A performance fee of up to £2.5 million is also payable at exit.

UNITE Student Village Joint Venture

USV, which owns one building located in Sheffield, generated a total return of 16% in 2009. Lehman Brothers, which owns the remaining 49% stake in USV, was placed in administration in October 2008. The administrators marketed the 49% shareholding in the joint venture during 2009 but were unable to meet their price aspirations. UNITE has certain pre-emptive rights with regards to the joint venture and will continue to monitor the situation going forward.

Financing

As a result of the proactive steps it has taken, the Group has significantly improved its financing position during the year to 31 December 2009 as follows:-

-      Adjusted net debt has been reduced from £531 million to £390 million;

-      Adjusted gearing has reduced from 131% to 92%;

-      Covenant headroom has increased across the key covenant measures; loan to value, interest cover and minimum net worth;

-      Debt maturity has been extended, with facilities repayable before 2012 being reduced from £208 million to £nil;

-      Debt capacity has been increased from £110 million to £220 million.

Key debt ratios for UNITE Group

	31 December 2009 £m	31 December 2008 £m
Group net debt (adjusted)	390	531
Adjusted gearing	92%	131%
Adjusted net debt to property assets	59%	65%
Weighted average debt maturity	4 years	4 years
Weighted average cost of investment debt	5.6%	6.2%
Proportion of investment debt hedged	75%	87%

The reduction in net debt has been driven by asset sales concluded during the year and the cash raised through the Placing and Open Offer in October.  Going forward, the Group anticipates that adjusted gearing will increase as equity and debt are deployed into its development pipeline, but will seek to manage gearing within a strategic range of 100-130%.

The Group has extended the maturity of its loan facilities, such that the first maturity date has been extended until 2012. The Group currently has £220 million of debt capacity, of which £150 million can be used for development. A further £150 million of new debt will therefore be required during 2011 in order to deliver the Group's development plans. The Group paid careful attention to its banking relationships during 2009 and will continue to work closely with key lenders and build new relationships in order to deliver its funding strategy, enhance further the quality of its lenders, secure the requisite £150 million of new development capacity and renew or extend facilities over the next three years.

On balance sheet debt maturity

http://www.rns-pdf.londonstockexchange.com/rns/9937H_2-2010-3-3.pdf 

The Group is actively managing its interest cost base. During the course of the year, the Group terminated £80 million of interest rate swaps in order to benefit from the significantly reduced market rates and to ensure its hedging position more adequately reflects the risks of the business.  An exceptional charge of £9.6 million arose from these terminations. As a result of these actions, 75% of the Group's investment debt was at fixed rates and the average cost of investment debt at 31 December 2009 was 5.6% compared with 6.2% at 31 December 2008. The Group has used £37 million of surplus cash to pay down revolving investment facilities that can be redrawn on demand.

The Group is in full compliance with all of its borrowing covenants at 31 December 2009 and continues actively to monitor all of its covenants. The covenant headroom position has improved on the three covenant measures as outlined in the following table.

	31 December 2009		31 December 2008
	Weighted covenant	Weighted actual	Weighted covenant	Weighted actual
Loan to Value	74%	59%**	76%	71%
Interest Cover	1.08	1.63	1.10	1.35
Minimum Net Worth	£250m*	£423m	£250m	£406m

* based on greatest minimum net worth covenant

** if available cash is used to pay down debt, otherwise 68%

Debt facilities in co-investment vehicles

The break-down of debt facilities in co-investment vehicles is outlined in the following table.

	Debt at 31 Dec 09 £m	Average interest rate	% fixed/ capped	Average maturity (years)	First maturity
USAF	477	5.4%	100%	3.9	Dec 2012
UCC	253	5.5%	100%	4.7	Sep 2014
OCB	58	3.9%	100%	2.7	Sep 2011
USV	45	5.5%	100%	2.6	Sep 2011

Co-investment vehicle debt maturities

http://www.rns-pdf.londonstockexchange.com/rns/9937H_3-2010-3-3.pdf 

The funds and joint ventures are in full compliance with all of their borrowing covenants at 31 December 2009. USAF currently has £20 million of undrawn facilities and will require £130 million of new debt to utilise its full acquisition capacity and maintain its LTV at 50%. The other joint ventures are fully funded and do not require any new debt.

Dividend

In light of the market conditions and the Group's decision to invest in development opportunities, it will not re-instate a dividend until such point that the business is generating a meaningful level of profits such that any dividend would be properly covered.

People and organisation

UNITE's ability to adapt to changing circumstances continues to be underpinned by a strong values-based culture which, together with our commitment to first class people practices, makes our organisation a place to achieve a challenging, rewarding and meaningful career.  Leadership and learning featured heavily across the organisation through 2009 as new processes and ways of working were embedded to provide improved customer focus throughout UNITE's buildings and working practices.  The role of our people in delivering the strategic priorities of the business is clearly recognised through our approach to talent management and development. Throughout 2009 we focused our organisational development approach around ensuring our organisation is effectively designed to execute our strategy through the completion of our transformational change programmes. Key initiatives included:

·     Organisation design - through both strategic and detailed organisation design initiatives, we redesigned the business around our core competencies of Property Development, Property Management, Asset Management and Fund Management. The detailed design work covered a number of areas including work processes, role accountabilities, information flows, key interactions, decision boundaries and skills and capability requirements. We also redesigned our key support functions (Finance, HR, Procurement, IT) to ensure lean, value-add support service delivery aligned to the goals of our core business units.

·     Change management - through the delivery of our Property Management and Property Development change programmes, we continued to instill effective change management skills into our business. These core skills will stand us in good stead as we move to an environment of continuous improvement and strategic evolution through 2010.

·     Employee engagement - we continued to work hard to engage our people with the priorities and change required across the business. Our employee survey benchmarked our organisation within the top 30% of UK companies. UNITE also featured in the Britain's Top Employers 2009 for Best Examples of HR Management.

·     Ensuring our strategy is clear from the boardroom to the front line - we have embedded a high quality business planning process to provide individual employees with a clear line of sight to our strategic goals. Our framework ensures that we have an aligned set of goals and clear performance measures, with a more integrated risk and resource planning process.

·     Learning and development - we established our Property Management learning and development programme through our Training Academy in Birmingham. This purpose built facility, within our flagship student accommodation, is designed for inducting and training our customer facing teams in the consistent delivery of our customer service standards.

·     Leadership development - we delivered a new programme to all managers on effective execution of strategy. We continued the roll-out of our core Leadership and Mentoring programmes ensuring leadership excellence.

·     Performance management and reward - through our Personal Development Plans, we developed a consistent approach to performance measurement and management and clearly linked our reward structures to performance against key strategic priorities.

·     Values / competency model - we used and further developed our core competency framework (Job Fitness Model) aligned to our values, for our business unit operations and support functions.

·     Aligning our talent strategy to our business strategy - to ensure that we have the right mix of skills and expertise in senior roles. We are committed to investing in high performing individuals who exert the greatest degree of influence on company performance and we have tailored development plans for potential successors. We have added three new roles to our Leadership Executive with a focus on developing our business for growth and engaging our people with our strategic goals.

Looking ahead

The Group's actions during 2009 have moved the business on to a stronger footing.  Consequently it is now well placed to adapt to a changing market environment and to take advantage of the opportunities that we expect to emerge as a result of funding cuts in UK Higher Education.

2010 seems likely to be a period of further uncertainty for the UK economy, not least because of the impending election and lack of clarity regarding the impact and future of the Government's stimulus package.

However, demand for student accommodation is based on strong fundamentals and with the Group's sound financial base and established operating platform, it is well placed to weather any near term volatility and prosper for the long term.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2009

	Note	2009	2008
			Restated
		£'000	£'000
Revenue	2	265,352	133,594
Cost of sales	2	(246,960)	(121,765)
Administrative expenses	2	(23,097)	(31,115)
		(4,705)	(19,286)
Loss on disposal of property		(3,416)	(12,396)
Loss on part disposal of investment in joint venture		-	(2,464)
Net valuation losses on property		(15,337)	(25,342)
Loss before net financing costs		(23,458)	(59,488)
Loan interest and similar charges	3	(13,308)	(28,843)
Changes in fair value of interest rate swaps	3	(6,737)	(32,414)
Finance costs		(20,045)	(61,257)
Finance income	3	891	2,211
Net financing costs		(19,154)	(59,046)
Share of joint venture profit / (loss)	6	6,929	(10,319)
Loss before tax		(35,683)	(128,853)
Tax	4	1,233	12,511
Loss for the year		(34,450)	(116,342)
Loss for the period attributable to
Owners of the parent company		(34,861)	(115,942)
Minority Interest	6	411	(400)
		(34,450)	(116,342)
Earnings per share
Basic	11	(25.9p)	(92.4p)
Diluted	11	(25.9p)	(92.4p)
The restatement of the comparatives has no impact on loss for the year and is explained in notes 6 and 11.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

		2009	2008
		£'000	£'000
Loss for the period		(34,450)	(116,342)
Revaluation of investment property under development		-	1,510
Movements in effective hedges		1,854	(5,825)
Gains on hedging instruments transferred to income statement		-	1,142
Share of joint venture valuation gain on investment property under development		-	1,309
Share of joint venture movements in effective hedges		574	(9,960)
Other comprehensive income for the period		2,428	(11,824)
Total comprehensive income for the period		(32,022)	(128,166)
Attributable to
Owners of the parent company		(32,553)	(127,366)
Minority Interest		531	(800)
		(32,022)	(128,166)

All movements above are shown net of deferred tax.

Consolidated Balance Sheet

At 31 December 2009

	Note	2009	2008	2007
			Restated	Restated
		£'000	£'000	£'000
Assets
Investment property	5	403,600	403,700	597,747
Investment property under development	5	-	52,989	102,180
Property, plant and equipment		7,351	8,030	9,094
Investment in joint ventures	6	148,344	125,481	130,218
Joint venture investment loans	6	12,239	5,618	5,107
Intangible assets		6,542	7,219	8,089
Other receivables		-	-	1,103
Total non-current assets		578,076	603,037	853,538
Completed property	5	204,113	75,214	-
Properties under development	5	38,097	249,124	121,936
Inventories	7	8,166	10,311	104,557
Trade and other receivables		44,714	55,395	48,374
Cash and cash equivalents		48,764	111,845	56,316
Total current assets		343,854	501,889	331,183
Total assets		921,930	1,104,926	1,184,721
Liabilities
Borrowing and financial derivatives	8	(179)	(136,876)	(240,234)
Trade and other payables		(72,581)	(80,172)	(116,928)
Current tax creditor		(475)	(372)	(873)
Total current liabilities		(73,235)	(217,420)	(358,035)
Borrowings and financial derivatives	8	(467,648)	(552,140)	(363,720)
Deferred tax liabilities	9	-	-	(12,873)
Total non-current liabilities		(467,648)	(552,140)	(376,593)
Total liabilities		(540,883)	(769,560)	(734,628)
Net Assets		381,047	335,366	450,093
Equity
Issued share capital	10	39,902	31,079	30,874
Share premium	10	247,539	176,541	174,333
Merger reserve	10	40,177	40,177	40,177
Retained earnings	10	51,097	85,699	187,957
Revaluation reserve	10	-	1,805	17,644
Hedging reserve	10	(12,827)	(15,135)	(892)
		365,888	320,166	450,093
Minority interest	6	15,159	15,200	-
Total equity		381,047	335,366	450,093
The restatement of the comparatives, which has no impact on net assets, and the presentation of a third balance sheet are explained in note 6.

These financial statements were approved by the Board of Directors on 3 March 2010 and were signed on its behalf by:

MC Allan                                JJ Lister

Director                                  Director

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the 12 months to 31 December 2009

	Issued share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Revaluation reserve £'000	Hedging reserve £'000	Minority interest £'000	Total £'000
At 1 January 2009	31,079	176,541	40,177	85,699	1,805	(15,135)	15,200	335,366
Loss for the period	-	-	-	(34,861)	-	-	411	(34,450)
Other comprehensive income for the period	-	-	-	-	-	2,308	120	2,428
Transfer	-	-	-	1,805	(1,805)	-	-	-
Shares issued	8,823	70,998	-	-	-	-	-	79,821
Fair value of share based payments	-	-	-	413	-	-	-	413
Own shares acquired	-	-	-	(1,959)	-	-	-	(1,959)
Dividends to minority interest	-	-	-	-	-	-	(572)	(572)
At 31 December 2009	39,902	247,539	40,177	51,097	-	(12,827)	15,159	381,047

	Issued share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Revaluation reserve £'000	Hedging reserve £'000	Minority interest £'000	Total £'000
At 1 January 2008	30,874	174,333	40,177	187,957	17,644	(892)	-	450,093
Loss for the year	-	-	-	(115,942)	-	-	(400)	(116,342)
Other comprehensive income for the year	-	-	-	-	2,819	(14,243)	(400)	(11,824)
Investment received from minority interest	-	-	-	-	-	-	16,000	16,000
Transfer on completion or disposal of investment property	-	-	-	18,658	(18,658)	-	-	-
Shares issued	205	2,208	-	-	-	-	-	2,413
Fair value of share based payments	-	-	-	308	-	-	-	308
Own shares acquired	-	-	-	(2,192)	-	-	-	(2,192)
Dividends to shareholders	-	-	-	(3,090)	-	-	-	(3,090)
At 31 December 2008	31,079	176,541	40,177	85,699	1,805	(15,135)	15,200	335,366

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2009

	Note
		2009	2008
			Restated
		£'000	£'000
Operating activities
Loss for the year		(34,450)	(116,342)
Adjustments for:
Depreciation and amortisation		3,359	3,356
Fair value of share based payments		413	308
Change in value of investment property		15,337	25,342
Net finance costs	3	19,154	59,046
Loss on disposal of investment property		3,416	12,396
Loss on part disposal of joint venture		-	2,464
Share of joint venture profit	6	(6,929)	10,319
Trading with joint venture adjustment		(2,243)	2,402
Tax credit	4	(1,233)	(12,511)
Cash flows from operating activities before changes in working capital		(3,176)	(13,220)
Increase in trade and other receivables		(15,263)	(9,653)
Increase in property under development		82,128	(202,402)
Decrease / (increase) in inventories		2,145	94,246
(Decrease) / increase in trade and other payables		(845)	(27,375)
Cash flows from operating activities		64,989	(158,404)
Cash flows from Taxation		(476)	(396)
Investing activities
Proceeds from sale of investment property		52,695	251,553
Equity invested in joint ventures and subsidiaries		-	(16,117)
Advances on loans to joint ventures		(306)	-
Dividends received		6,923	5,258
Interest received		480	1,877
Acquisition of intangible assets		(1,645)	(1,182)
Acquisition of property, plant and equipment		(24,212)	(766)
Acquisition and construction of investment property		-	(53,371)
Cash flows from investing activities		33,935	187,252
Financing activities
Total interest paid		(21,564)	(51,141)
Interest capitalised into inventory & property under development		9,532	16,219
Interest paid		(12,032)	(34,922)
Bond and loan redemption costs		(24)	(478)
Proceeds from the issue of share capital		79,821	2,413
Payments to acquire own shares		(1,959)	(2,192)
Proceeds from non-current borrowings		260,433	347,865
Repayment of borrowings		(462,119)	(320,762)
Payment of finance lease liabilities		-	(35)
Investment received from minority interest		-	16,000
Dividends paid		(572)	(3,090)
Cash flows from financing activities		(136,452)	4,799
Net (decrease)/increase in cash and cash equivalents		(38,004)	33,251
Cash and cash equivalents at start of year		86,768	53,517
Cash and cash equivalents at end of year		48,764	86,768

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 2009 or 2008 but is derived from those accounts. Statutory accounts for 2008 have been delivered to the registrar of companies, and those for 2009 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 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

Going concern

The Annual report has been prepared on a going concern basis, which assumes the Group will be able to meet its liabilities as they fall due, for the foreseeable future. The Directors have prepared cash flow forecasts on the basis of which they expect that the Group will continue as a going concern. These forecasts show that the Group has improved its headroom in covenant compliance and its cash position during the year following the issue of new shares, sales of properties and various cost saving initiatives.

In preparing those forecasts, including incorporating the outcomes of various down-side scenarios, the Directors have taken into account various risks and uncertainties as outlined here and in more detail on the Chairman's Statement and Business Review. The principle areas of risk and uncertainty are: the impact of further falls in property valuations resulting in breaches of covenants that cannot be avoided by payments from cash resources; and the achievement of operating targets, in particular projected occupancy levels and rental increases.

2.            Segment reporting

Segment information for the Group's 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 are 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. Many of the Group's properties are acquired with a view to a future sale to the UNITE UK Student Accommodation Fund.  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) Segment revenues and costs
	31 December 2009	Note	Investment segment	Development segment	Unallocated corporate costs	Total
			£'000	£'000	£'000	£'000
	Revenue		64,405	200,947	-	265,352
	Cost of sales		(29,416)	(197,935)	-	(227,351)
	Write down of work in progress, property under development and completed property		-	(19,609)	-	(19,609)
	Total cost of sales		(29,416)	(217,544)	-	(246,960)
	Administrative expenses		(13,875)	(657)	(8,565)	(23,097)
			21,114	(17,254)	(8,565)	(4,705)
	Loan interest and similar charges		(13,284)	-	-	(13,284)
	Interest rate swap payments on ineffective hedges		(9,684)	-	-	(9,684)
	Finance income		480	-	-	480
	Share of joint venture investment segment result		7,430	-	-	7,430
	Adjust asset management fee for minority interest		160	-	-	160
	Adjust property sales for minority interest		-	430	-	430
	Segment result / corporate costs	2 (b)	6,216	(16,824)	(8,565)	(19,173)
	31 December 2008
	Revenue		63,080	70,514	-	133,594
	Cost of sales		(30,028)	(60,248)	-	(90,276)
	Write down of land held for development and property under development		-	(31,489)	-	(31,489)
	Total cost of sales		(30,028)	(91,737)	-	(121,765)
	Administrative expenses		(13,680)	(6,300)	(11,135)	(31,115)
			19,372	(27,523)	(11,135)	(19,286)
	Loan interest and similar charges		(28,365)	-	-	(28,365)
	Interest rate swap receipts		1,409	-	-	1,409
	Finance income		1,877	-	-	1,877
	Share of joint venture investment segment result		6,654	-	-	6,654
	Segment result / corporate costs	2 (b)	947	(27,523)	(11,135)	(37,711)

2.             Segment reporting (continued)

	Investment segment revenue
		31 Dec 2009	31 Dec 2008
		£'000	£'000
	Management fees (note 2c)	6,404	5,237
	Adjust asset management fee for minority interest	(160)	-
	Management fees per income statement	6,244	5,237
	Rental income from wholly owned and leased assets (note 2c)	58,161	57,843
	Investment segment revenue	64,405	63,080

	Development segment revenue
		31 Dec 2009	31 Dec 2008
		£'000	£'000
	Property sales from completed properties and properties under development	189,973	69,713
	Manufacturing revenue	9,902	-
	Development management fee	1,072	801
	Development segment revenue	200,947	70,514

	(b) Segment results and adjusted loss
	The Group reports an adjusted loss, on the basis recommended for real estate companies by EPRA, the European Public Real Estate Association, which 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 components of this loss are shown below together with a reconciliation to the loss reported under IFRS. The items shown in this table represents the amounts attributable to the parent company shareholders, hence excluding any minority interest. Items affected in this way have been marked as "net of minority interest".
			Note	31 Dec 2009	31 Dec 2008
				£'000	£'000
	Investment segment result (net of minority interest)		2(c)	6,216	947
	Development segment result (net of minority interest)			(16,824)	(27,523)
	Other unallocated items
	Corporate costs (excluding share option fair value charges)			(5,118)	(6,018)
	Share option fair value charges			(412)	(308)
	Restructuring costs			(3,035)	(4,809)
	Share of joint venture overheads (net of minority interest)			(464)	(290)
	Share of joint venture Landsbanki provision			-	(6,120)
	Loan break costs and costs written off on refinancing			(24)	(478)
	Share of joint venture loan break costs			-	(137)
	Swap loss realised on cancellation			(9,560)	-
	Share of joint venture current tax credit			683	-
	Current tax charge (net of minority interest)			(201)	(24)
	Adjusted loss for the year attributable to owners of the parent company			(28,739)	(44,760)
	Reconciliation of adjusted loss to IFRS reported loss
	Adjusted loss for the year attributable to owners of the parent company			(28,739)	(44,760)
	Net valuation losses on properties			(15,337)	(25,342)
	Loss on sale of property			(3,416)	(12,396)
	Share of joint venture valuation losses			(1,472)	(10,360)
	Minority interest share of valuations (losses) / gains			(71)	480
	Loss on part disposal of investment in joint venture			-	(2,464)
	Share of joint venture profit / (loss) on disposal			62	(56)
	Changes in fair value of interest rate swaps			2,823	(32,414)
	Share of joint venture changes in fair value of interest rate swaps			(55)	-
	Interest rate swap payments / (receipts) on ineffective hedges allocated to investment segment			9,684	(1,409)
	Deferred tax			1,619	12,535
	Share of joint venture deferred tax			41	244
	Loss for the year attributable to owners of the parent company			(34,861)	(115,942)

2.            Segment reporting (continued)

The Group measures its operational performance by considering the income generated from properties compared with its overhead and can be calculated as follows:

	Net portfolio contribution
				31 Dec 2009	31 Dec 2008
				£'000	£'000
	Investment segment result			6,216	947
	Corporate costs (excluding share option fair value charges)			(5,118)	(6,018)
	Share of joint venture overheads			(464)	(290)
				634	(5,361)

The Group's wholly owned properties are split between several categories of fixed and current assets. Those held as fixed assets are carried at fair value with profits or losses on disposal shown separately in the income statement. Whereas properties in current assets are carried at cost unless fair value is lower and disposals are included in sales and cost of sales. Additionally revaluation and disposal profits or losses of properties held by joint ventures are accounted for separately as part of the Group's share of joint ventures. The overall impact of the movement in property valuations and profits or losses on disposals on the interests of the parent company shareholders is summarised below:

	Property valuation movements in income statement
		Current assets		Fixed assets
	31 December 2009	Cost of sales impairments	Revenue / cost of sales disposal	Net valuation movement	Loss on disposal	Total
		£'000	£'000	£'000	£'000	£'000
	Development
	Property under development	(11,691)	(5,686)	-	-	(17,377)
	Investment property under development	-	-	(6,682)	-	(6,682)
	Completed property	(5,330)	9,963	-	-	4,633
	Share of joint venture	-	-	1,997	-	1,997
	Work in progress write downs	(2,588)	-	-	-	(2,588)
		(19,609)	4,277	(4,685)	-	(20,017)
	Investment
	Investment property	-	-	(8,460)	-	(8,460)
	Share of joint venture	-	-	(3,540)	62	(3,478)
	Loss on disposal of investment property	-	-	-	(3,416)	(3,416)
		-	-	(12,000)	(3,354)	(15,354)
	Tangible fixed assets	-	-	(195)	-	(195)
		(19,609)	4,277	(16,880)	(3,354)	(35,566)
	Impact of unbooked NAV:
	- from property completion	-	2,695	-	-	2,695
	- arising from development	-	(13,646)	-	-	(13,646)
		(19,609)	(6,674)	(16,880)	(3,354)	(46,517)

2.            Segment reporting (continued)

		Current assets		Fixed assets
	31 December 2008	Cost of sales impairments	Revenue / cost of sales disposal	Net valuation movement	Loss on disposal	Total
		£'000	£'000	£'000	£'000	£'000
	Development
	Property under development	(19,487)	-	-	-	(19,487)
	Investment property under development	-	-	(4,638)	-	(4,638)
	Completed property	(1,228)	10,518	-	-	9,290
	Share of joint venture	-	-	2,222	-	2,222
	Land write downs	(10,774)	-	-	-	(10,774)
		(31,489)	10,518	(2,416)	-	(23,387)
	Investment
	Investment property	-	-	(20,379)	-	(20,379)
	Share of joint venture	-	-	7,658	(56)	7,602
	Loss on disposal of investment property	-	-	-	(12,396)	(12,396)
		-	-	(12,721)	(12,452)	(25,173)
	Tangible fixed assets	-	-	(325)	-	(325)
		(31,489)	10,518	(15,462)	(12,452)	(48,885)
	Impact of unbooked NAV:
	- from property completion	-	-	-	-	-
	- arising from development	-	(9,789)	-	-	(9,789)
		(31,489)	729	(15,462)	(12,452)	(58,674)

2.            Segment reporting (continued)

	(c) 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.
	31 December 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
			£'000	£'000		£'000		£'000		£'000		£'000		£'000		£'000		£'000
	Rental income		43,200	14,961		58,161		14,522		6,610		2,587		-		23,719		81,880
	Property operating expenses (excl. lease rentals)		(12,921)	(5,767)		(18,688)		(4,016)		(1,266)		(759)		-		(6,041)		(24,729)
	Net operating income		30,279	9,194		39,473		10,506		5,344		1,828		-		17,678		57,151
	Management fees		-	6,404		6,404		-		(446)		-		-		(446)		5,958
	Administrative expenses		-	(13,875)		(13,875)		-		-		-		-		-		(13,875)
	Investment segment result before interest and operating lease rentals		30,279	1,723		32,002		10,506		4,898		1,828		-		17,232		49,234
	Operating lease rentals		-	(10,728)		(10,728)		-		-		-		-		-		(10,728)
	Loan interest and similar charges		(13,284)	-		(13,284)		(4,970)		(3,614)		(1,270)		-		(9,854)		(23,138)
	Interest rate swap payments		(9,684)	-		(9,684)		-		-		-		-		-		(9,684)
	Finance income		480	-		480		22		12		16		2		52		532
			(22,488)	(10,728)		(33,216)		(4,948)		(3,602)		(1,254)		2		(9,802)		(43,018)
	Investment segment result		7,791	(9,005)		(1,214)		5,558		1,296		574		2		7,430		6,216

Property operating expenses and operating lease rentals are shown as cost of sales in note 2(a). 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.

2.    Segment reporting (continued)

	(c) Segment (see through basis - continued)
	31 December 2008											Group on see through basis
		100% Unite			Share of co-invested joint ventures
		Wholly Owned	Leased/Other	Total	USAF		Capital Cities	Student Village		Total		Total
		£'000	£'000	£'000	£'000		£'000	£'000		£'000		£'000
	Rental income	44,895	12,948	57,843	13,032		5,016	2,343		20,391		78,234
	Property operating expenses (excl. lease rentals)	(15,209)	(5,710)	(20,919)	(3,990)		(708)	(568)		(5,266)		(26,185)
	Net operating income	29,686	7,238	36,924	9,042		4,308	1,775		15,125		52,049
	Joint venture management fees	-	5,237	5,237	-		(336)	-		(336)		4,901
	Administrative expenses	-	(13,680)	(13,680)	-		-	-		-		(13,680)
	Investment segment result before interest and operating lease rentals	29,686	(1,205)	28,481	9,042		3,972	1,775		14,789		43,270
	Operating lease rentals	-	(9,109)	(9,109)	-		-	-		-		(9,109)
	Loan interest and similar charges	(28,365)	-	(28,365)	(4,505)		(2,646)	(1,561)		(8,712)		(37,077)
	Interest rate swap receipts	1,409	-	1,409	-		-	-		-		1,409
	Finance income	1,877	-	1,877	342		95	140		577		2,454
		(25,079)	(9,109)	(34,188)	(4,163)		(2,551)	(1,421)		(8,135)		(42,323)
	Investment segment result	4,607	(10,314)	(5,707)	4,879		1,421	354		6,654		947

Property operating expenses and operating lease rentals are shown as cost of sales in note 2(a). 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.

2.    Segment reporting (continued)

	(d) Segment assets and liabilities (see through basis)
	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
			£'000	£'000	£'000		£'000		£'000		£'000		£'000
	Investment property		403,600	163,747	110,922		29,495		-		304,164		707,764
	Investment property under development		-	-	150		-		30,938		31,088		31,088
	Completed property		204,113	-	-		-		-		-		204,113
	Property under development		38,097	-	-		-		-		-		38,097
	Investment & development property		645,810	163,747	111,072		29,495		30,938		335,252		981,062
	Cash - investment		48,429	13,684	2,043		2,241		2,047		20,015		68,444
	Other assets - investment		54,239	160	183		80		-		423		54,662
	Other assets - development		12,535	-	2		-		730		732		13,267
	Other assets		115,203	13,844	2,228		2,321		2,777		21,170		136,373
	Debt - investment		(276,020)	(77,834)	(76,004)		(22,735)		-		(176,573)		(452,593)
	Debt - development		(162,406)	-	-		-		(14,493)		(14,493)		(176,899)
	Other liabilities - investment		(45,040)	(2,376)	(1,750)		(1,920)		-		(6,046)		(51,086)
	Other liabilities - development		(27,832)	-	(267)		-		(3,717)		(3,984)		(31,816)
	Interest rate swaps		(29,401)	(1,756)	(6,148)		(1,302)		(546)		(9,752)		(39,153)
	Total liabilities		(540,699)	(81,966)	(84,169)		(25,957)		(18,756)		(210,848)		(751,547)
	Net assets attributable to owners of the parent company		220,314	95,625	29,131		5,859		14,959		145,574		365,888
	Minority Interest		150	15,009	-		-		-		15,009		15,159
	Net assets		220,464	110,634	29,131		5,859		14,959		160,583		381,047
	Adjusted net assets
	Net assets attributable to owners of the parent company		220,314	95,625	29,131		5,859		14,959		145,574		365,888
	Mark to market of interest rate swaps		29,533	1,756	6,148		1,302		546		9,752		39,285
	Valuation gain not recognised on property held at cost		17,986	-	-		-		-		-		17,986
	Deferred tax		-	-	-		(33)		-		(33)		(33)
	Adjusted net assets		267,833	97,381	35,279		7,128		15,505		155,293		423,126
	Reconciliation of segment assets and liabilities to balance sheet
	Investment assets		506,268	177,591	113,148		31,816		2,047		324,602		830,870
	Development assets		254,744	-	152		-		31,668		31,820		286,564
	Assets attributable to minority interest		335	-	-		-		-		-		335
	Total assets		761,347	177,591	113,300		31,816		33,715		356,422		1,117,769
	Interest in joint ventures		160,583
			921,930
	Investment liabilities		(477,760)	(81,966)	(83,902)		(25,957)		(546)		(192,371)		(670,131)
	Development liabilities		(62,938)	-	(267)		-		(18,210)		(18,477)		(81,415)
	Liabilities attributable to minority interest		(185)	-	-		-		-		-		(185)
	Total liabilities		(540,883)	(81,966)	(84,169)		(25,957)		(18,756)		(210,848)		(751,731)

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

Development  assets include completed property as these are held for resale.

2.            Segment reporting (continued)

	(d) Segment assets and liabilities (see through basis)
	31 December 2008 (Restated  - see note 6)	100% Unite Wholly Owned					Group on see through basis
			Share of co-invested joint ventures
			USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment property	403,700	166,381	116,919	29,040	312,340	716,040
	Investment property under development	52,989	-	150	-	150	53,139
	Completed property	75,214	-	-	-	-	75,214
	Property under development	249,124	-	-	-	-	249,124
	Investment & development property	781,027	166,381	117,069	29,040	312,490	1,093,517
	Cash	111,845	3,998	2,310	3,576	9,884	121,729
	Other assets - investment	65,971	586	142	3,505	4,233	70,204
	Other assets - development	14,934	-	166	-	166	15,100
	Other assets	192,750	4,584	2,618	7,081	14,283	207,033
	Debt - investment	(381,587)	(89,132)	(74,989)	(22,972)	(187,093)	(568,680)
	Debt - development	(259,653)	-	-	-	-	(259,653)
	Other liabilities - investment	(53,272)	(3,040)	(1,354)	(7,337)	(11,731)	(65,003)
	Other liabilities - development	(27,272)	-	(1,926)	-	(1,926)	(29,198)
	Interest rate swap	(47,776)	(2,001)	(7,046)	(1,027)	(10,074)	(57,850)
	Total liabilities	(769,560)	(94,173)	(85,315)	(31,336)	(210,824)	(980,384)
	Net assets attributable to owners of the parent company	204,217	76,792	34,372	4,785	115,949	320,166
	Minority Interest	50	15,150	-	-	15,150	15,200
	Net assets	204,267	91,942	34,372	4,785	131,099	335,366
	Adjusted net assets
	Net assets attributable to owners of the parent company	204,217	76,792	34,372	4,785	115,949	320,166
	Mark to market of interest rate swaps	46,668	2,001	7,046	1,027	10,074	56,742
	Valuation gain not recognised on property held at cost	28,937	-	-	-	-	28,937
	Deferred tax	-	-	-	85	85	85
	Adjusted net assets	279,822	78,793	41,418	5,897	126,108	405,930
	Reconciliation of segment assets and liabilities to balance sheet
	Investment assets	581,516	170,964	119,371	36,121	326,456	907,972
	Development assets	392,261	-	316	-	316	392,577
	Assets attributable to minority interest	50	-	-	-	-	50
	Total assets	973,827	170,964	119,687	36,121	326,772	1,300,599
	Interest in joint ventures	131,099
		1,104,926
	Investment liabilities	(486,544)	(94,172)	(83,389)	(31,336)	(208,897)	(695,441)
	Development liabilities	(283,016)	-	(1,926)	-	(1,926)	(284,942)
	Total liabilities	(769,560)	(94,172)	(85,315)	(31,336)	(210,823)	(980,383)

See through gearing is calculated on an adjusted basis at 174%.

Development assets include completed property as these are held for resale.

2.     Segment reporting (continued)

	(d) Segment assets and liabilities (see through basis - continued)
	31 December 2007 (Restated - see note 6)	100% Unite	Share of co-invested joint ventures				Group on see through basis
		Wholly Owned	USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment property	597,747	167,042	67,593	31,826	266,461	864,208
	Investment property under development	102,180	-	36,001	-	36,001	138,181
	Property under development	121,936	-	-	-	-	121,936
	Investment and development property	821,863	167,042	103,594	31,826	302,462	1,124,325
	Cash	56,316	4,158	2,522	3,910	10,590	66,906
	Other assets - investment	58,386	509	1,113	95	1,717	60,103
	Other assets - development	111,728	-	365	-	365	112,093
	Interest rate swaps	1,103	-	-	338	338	1,441
	Other assets	227,533	4,667	4,000	4,343	13,010	240,543
	Debt - investment	(409,253)	(78,398)	(43,696)	(23,552)	(145,646)	(554,899)
	Debt - development	(185,898)	-	(20,458)	-	(20,458)	(206,356)
	Other liabilities - investment	(62,471)	(3,293)	(1,228)	(3,895)	(8,416)	(70,887)
	Other liabilities - development	(55,330)	-	(4,247)	-	(4,247)	(59,577)
	Interest rate swaps	(8,803)	(228)	(434)	-	(662)	(9,465)
	Other liabilities - unallocated	(12,873)	-	-	(718)	(718)	(13,591)
	Total liabilities	(734,628)	(81,919)	(70,063)	(28,165)	(180,147)	(914,775)
	Net assets	314,768	89,790	37,531	8,004	135,325	450,093
	Adjusted net assets
	Net assets attributable to owners of the parent company	314,768	89,790	37,531	8,004	135,325	450,093
	Mark to market of interest rate swaps	6,828	228	434	(338)	324	7,152
	Valuation gain not recognised on property held at cost	38,726	-	-	-	-	38,726
	Deferred tax	12,873	-	-	718	718	13,591
	Adjusted net assets	373,195	90,018	37,965	8,384	136,367	509,562
	Reconciliation of segment assets and liabilities to balance sheet
	Investment assets	713,552	171,709	71,228	36,169	279,106	992,658
	Development assets	335,844	-	36,366	-	36,366	372,210
	Total assets	1,049,396	171,709	107,594	36,169	315,472	1,364,868
	Interest in joint ventures	135,325
		1,184,721
	Investment liabilities	(480,527)	(81,919)	(45,358)	(27,447)	(154,724)	(635,251)
	Development liabilities	(241,228)	-	(24,705)	-	(24,705)	(265,933)
	Unallocated liabilities	(12,873)	-	-	(718)	(718)	(13,591)
	Total liabilities	(734,628)	(81,919)	(70,063)	(28,165)	(180,147)	(914,775)

  See through gearing is calculated on an adjusted basis as 136%.

3.             Net financing costs

Group

	2009	2008
Recognised in the income statement:		Restated
	£'000	£'000
Finance income - Interest income on deposit	(480)	(1,877)
- Impact of discounting on interest free joint venture investment loans (note 6)	(411)	(334)
Finance income	(891)	(2,211)
Gross interest expense on loans	24,183	48,789
Interest capitalised	(10,899)	(20,424)
Loan break costs	24	478
Loan interest and similar charges	13,308	28,843
Changes in fair value of interest rate swaps
- transferred from equity	-	1,586
- relating to ineffective hedges	6,737	30,828
	6,737	32,414
Finance costs	20,045	61,257
Net financing costs	19,154	59,046
Recognised directly in equity:
Changes in fair value of interest rate swaps
- transferred to income statement	-	(1,586)
- relating to effective hedges	(3,473)	7,604
	(3,473)	6,018

4.            Tax credit

Recognised in the income statement:
			2009		2008
			£'000		£'000
Current tax expense
Current year			-		-
Income tax on UK rental income arising in overseas group company			461		301
Corporation tax in respect of UK rental income arising in overseas group company			-		101
Adjustments for prior years			(75)		(378)
			386		24
Deferred tax credit
Origination and reversal of temporary differences			(333)		(12,093)
Adjustments for prior years			(1,286)		(442)
			(1,619)		(12,535)
Total tax credit in income statement			(1,233)		(12,511)
Reconciliation of effective tax rate	2009			2008
	%	£'000		%	£'000
Loss before tax	(100.0)%	(35,683)		(100.0)%	(128,853)
Income tax using the domestic corporation tax rate	(28.0)%	(9,991)		(28.5)%	(36,723)
Effect of indexation on investment and development property	0.9%	317		0.8%	986
Non-deductible expenses	9.0%	3,210		3.4%	4,433
Share of joint venture profit	(1.1)%	(375)		0.5%	639
Movement on unprovided deferred tax asset	22.3%	7,962		19.1%	24,613
Effect on property disposals to USAF	(2.8)%	(995)		(4.7)%	(6,053)
Adjustments for prior years - deferred tax	(3.6)%	(1,286)		(0.3)%	(442)
Adjustments for prior years - current tax	(0.2)%	(75)		(0.3)%	(378)
Rate difference on deferred tax	0.0%	-		0.3%	414
	(3.5)%	(1,233)		(9.7)%	(12,511)
Deferred tax recognised in equity:
			2009		2008
			£'000		£'000
Relating to hedging reserve movements			1,619		(1,579)
Relating to net valuation gains recognised directly in equity			-		797
			1,619		(782)

Effects of other comprehensive income:
	2009			2008
	Gross	Tax	Net	Gross	Tax	Net
	£'000	£'000	£'000	£'000	£'000	£'000
Revaluation of investment property under development	-	-	-	2,097	(587)	1,510
Movements on effective hedges	3,473	(1,619)	1,854	(7,603)	1,778	(5,825)
Gains on hedging instruments transferred to income statement	-	-	-	1,142	-	1,142
Share of other comprehensive income of joint ventures	497	77	574	(8,242)	(409)	(8,651)
	3,970	(1,542)	2,428	(12,606)	782	(11,824)

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

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Balance at start of year	403,700	52,989	75,214	249,124	781,027
Cost capitalised	3,401	13,063	-	95,415	111,879
Interest capitalised	138	1,229	-	9,255	10,622
Transfer from property under development	-	-	214,898	(214,898)	-
Transfer from investment property under development	60,599	(60,599)	-	-	-
Transfer from work in progress	-	-	-	503	503
Disposals	(55,778)	-	(80,669)	(89,611)	(226,058)
Net realisable value provision	-	-	(5,330)	(11,691)	(17,021)
Valuation gains	5,670	486	-	-	6,156
Valuation losses	(14,130)	(7,168)	-	-	(21,298)
Net valuation losses	(8,460)	(6,682)	-	-	(15,142)
Balance at end of year	403,600	-	204,113	38,097	645,810
Carrying value of properties on which borrowings are secured	392,660	-	164,339	22,240	579,239

2008	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Balance at start of year	597,747	102,180	-	121,936	821,863
Cost capitalised	4,577	37,808	-	146,833	189,218
Interest capitalised	311	3,894	-	15,011	19,216
Transfer from property under development	-	-	87,757	(87,757)	-
Transfer from land held for development	-	-	-	70,297	70,297
Transfer from investment property under development	88,352	(88,352)	-	-	-
Transfer from work in progress	-	-	40,119	2,291	42,410
Disposals	(266,908)	-	(51,434)	-	(318,342)
Net realisable value provision	-	-	(1,228)	(19,487)	(20,715)
Valuation gains	15,387	3,389	-	-	18,776
Valuation losses:
- Recognised in equity	-	(1,292)	-	-	(1,292)
- Recognised in the income statement	(35,766)	(4,638)	-	-	(40,404)
Net valuation losses	(20,379)	(2,541)	-	-	(22,920)
Balance at end of year	403,700	52,989	75,214	249,124	781,027
Carrying value of properties on which borrowings are secured	402,190	52,989	75,214	249,124	779,517

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 £38.907m (2008 : £249.124m) and Completed property of £204.113m (2008 : £75.214m) 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:

5.            Investment and development property (continued)

At 31 December 2009 property under development comprised entirely of properties where planning has been obtained but the development process has not yet reached the construction stage.

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Balance at end of year	403,600	-	204,113	38,097	645,810
Valuation gain not recognised on property held at cost	-	-	17,177	809	17,986
Fair value at end of year	403,600	-	221,290	38,906	663,796

2008	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Balance at end of year	403,700	52,989	75,214	249,124	781,027
Valuation gain not recognised on property held at cost	-	-	5,026	23,911	28,937
Fair value at end of year	403,700	52,989	80,240	273,035	809,964

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

2009	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Valuation and net book value
Long leasehold	43,200	-	-	-	43,200
Short leasehold	10,380	-	-	-	10,380
	53,580	-	-	-	53,580

2008	Investment property	Investment property under development	Completed property	Property under development	Total
	£'000	£'000	£'000	£'000	£'000
Valuation and net book value
Long leasehold	46,170	-	-	-	46,170
Short leasehold	10,660	-	-	-	10,660
	56,830	-	-	-	56,830

The total interest included in investment and development properties at 31 December 2009 was £36.385m (2008: £40.772m). 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 £48.995m at 31 December 2009 (2008 : £56.119m).

6.            Investments in subsidiaries and joint ventures

Reclassification of joint venture loans and investments

The Group finances its joint ventures through a mixture of interest free loans and capital contributions.  The group has reclassified certain of the loans and capital contributions it makes to its joint ventures from current other receivables to non-current asset joint venture investment loans and investment in joint ventures to reflect their respective terms. 

All partners finance the joint ventures on the same terms, hence the finance income now arising on these receivables equals the increase in the share of joint venture loss.  This adjustment therefore has no effect on the result for the year or net assets. 

The amounts reclassified from current other receivables (2008: £51.913m and 2007: £45.645m)  have been taken to joint venture investment loans (2008: £2.157m and 2007: £1.961m) and investment in joint ventures (2008: £49.756m and 2007: £43.684m). The Group has also now discounted the joint venture loans already held as non-current other receivables, of £3.667m in 2008 and 2007 reducing those amounts by £207,000 and £521,000 in those years respectively and increasing the investment in joint ventures by the same amount. These loans are now amalgamated with the other reclassified receivables in joint venture investment loans

The unwinding of the discount on the interest free loans has increased the Group's finance income in 2008 by £334,000.  As noted above this is offset by an increase in the share of joint venture loss and so has no effect on the result for the year.

As a result of these reclassifications restated balance sheets for 2007 have been presented as required by IAS1 Presentation of Financial Statements.

6.             Investments in subsidiaries and joint ventures (continued)

	2009			2008 (Restated)
	Investment in joint venture	Joint venture investment loan	Total interest	Investment in joint venture	Joint venture investment loan	Total interest
	£'000	£'000	£'000	£'000	£'000	£'000
Share of profit:
-       investment segment result	7,430	-	7,430	6,654	-	6,654
-       minority interest share of investment segment result	1,150	-	1,150	80	-	80
-       overheads	(499)	-	(499)	(293)	-	(293)
-       net revaluation loss	(1,473)	-	(1,473)	(10,360)	-	(10,360)
-       current tax	683	-	683	-	-	-
-       deferred tax	41	-	41	244	-	244
-       share of Landsbanki provision	-	-	-	(6,120)	-	(6,120)
-       Impact of discounting on interest free loans	(411)	411	-	(334)	334	-
-       other	8		8	(190)		(190)
	6,929	411	7,340	(10,319)	334	(9,985)
Share of items recognised directly in reserves:
-       valuation gains	-	-	-	1,309	-	1,309
-       deferred tax on valuation gains	-	-	-	210	-	210
-       movement in effective hedges	497	-	497	(9,960)	-	(9,960)
-       deferred tax on movement in effective hedges	77	-	77	199	-	199
Additions	25,825	6,082	31,907	24,585	-	24,585
Disposals	-	-	-	(2,924)	-	(2,924)
Profit adjustment related to trading with joint venture	(3,542)	128	(3,414)	(2,579)	177	(2,402)
Distributions received	(6,923)	-	(6,923)	(5,258)	-	(5,258)
	22,863	6,621	29,484	(4,737)	511	(4,226)
At start of year	125,481	5,618	131,099	130,218	5,107	135,325
At end of year	148,344	12,239	160,583	125,481	5,618	131,099

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

6.            Investments in subsidiaries and joint ventures (continued)

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 £16m 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(d) 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:

	2009 profit	2009 Gains/(losses) recognised directly in equity	2008 profit	2008 Gains/(losses) recognised directly in equity
			Restated	Restated
	£'000	£'000	£'000	£'000
Capital Cities JV	(5,109)	898	3,093	(5,082)
Student Village JV
- LDC (Project 110) Ltd	1,722	(198)	(2,507)	-
- LDC (Project 170) Ltd	3	-	108	(987)
UNITE UK Student Accommodation Fund	8,608	365	(11,013)	(2,173)
OCB	1,705	(491)	-	-
	6,929	574	(10,319)	(8,242)

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 and USAF GP No.11 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 (2008: 13) properties into the joint venture for £95.440m (2008: £171.915m), this includes £95.440m (2008: £64.492m) of completed property held as stock. The profits relating to sales and associated disposal costs are set out below:

	Profit and loss 2009		Profit and loss 2008
	£'000		£'000
Included in turnover (net of joint venture trading adjustment)	92,839		61,890
Included in cost of sales	(83,645)		(51,481)
Loss relating to the sale of investment properties to USAF pre disposal costs	-		(5,080)
Disposal costs	(91)		(268)
Goodwill impairment	-		(64)
Profit on disposal of property	9,103		4,997
	Cash flow 2009		Cash flow 2008
	£'000		£'000
Completed property
Gross proceeds	95,440		64,492
Part settled by:
Investment in joint venture	(18,601)		-
Net cash flows included in cash flows from operations	76,839		64,492
Investment property
Gross proceeds	-		107,423
Part settled by:
Investment in joint venture	-		(6,268)
Equity redeemed on reduction of percentage holding	-		1,698
Disposal costs	-		(268)
Net cash flows included in cash flows from investing activities	-		102,585

The goodwill impairment charged against the loss on disposal relates to synergistic benefits associated with the disposed properties.

During the year the Group's interest in the UNITE UK Student Accommodation Fund was diluted from 22.2% to 18.9% as a result of new equity raised from external unit holders. 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 (2008: 18.5%).

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 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.

6.            Investments in subsidiaries and joint ventures (continued)

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 3 properties under development into the joint venture for £88.172m. The profits relating to sales and associated disposal costs are set out below:

	Profit and loss 2009		Profit and loss 2008
	£'000		£'000
Included in turnover (net of joint venture trading adjustment)	88,602		-
Included in cost of sales	(89,777)		-
Disposal costs	(116)		-
Loss on disposal of property	(1,291)		-
	Cash flow 2009		Cash flow 2008
	£'000		£'000
Gross proceeds	88,172		-
Part settled by:
Investment in joint venture	(3,643)		-
Investment loan to joint venture	(9,357)		-
Net cash flows included in cash flows from operations	75,172		-

6.            Investments in subsidiaries and joint ventures (continued)

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 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.

The Capital Cities JV properties are partly funded with debt totalling £253.347m (2008 : £249.963m) which equates to 68.4% (2008 : 64.1%) of the market value of these properties. The Group has guaranteed its share, 30%, of this debt amounting to £76.004m (2008 : £74.989m). 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 held in LDC (Project 110) Ltd and LDC (Project 170) Ltd, companies incorporated in England and Wales, whose principal activity is the construction and letting of investment property. Under the Articles of Association, the Group cannot exercise control over these companies 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. Under the articles of LDC (Project 170) Ltd, the Group is additionally entitled to the first £1.250m of net assets on any winding up of the company. The impact of amounts charged to LDC (Project 110) Ltd and LDC (Project 170) Ltd in respect of fees and construction costs on the Groups results is summarised below.

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

	2009		2008
	£'000		£'000
Management Fees
UNITE UK Student Accommodation Fund	3,368		2,758
Capital Cities JV	2,801		2,479
	6,169		5,237
Development Sales
Capital Cities	166		698
Student Village JV's
- LDC (Project 110) Ltd	-		42
OCB JV	947		-
	1,113		740

6.            Investments in subsidiaries and joint ventures (continued)

Summary financial information on joint ventures

	100%			UNITE share
	2009	2008	2007	2009	2008	2007
		Restated	Restated		Restated	Restated
	£'000	£'000	£'000	£'000	£'000	£'000
UNITE UK Student Accommodation Fund				18.9%	22.2%	20.1%
Non-current assets	1,002,860	897,126	834,544
Current assets	84,779	24,713	22,175
Current liabilities	(16,610)	(22,100)	(17,992)
Non-current liabilities	(487,461)	(487,043)	(392,585)
Net assets/equity	583,568	412,696	446,142
Represented by:
Net assets attributable to the USAF fund unitholders	524,771	371,033	400,925	52,198	50,526	44,646
Direct interest in partnership reserves	56,424	39,505	43,256	56,063	39,258	43,183
Total equity / joint venture carrying value	581,195	410,538	444,181	108,261	89,784	87,829
Minority partnership loans (classified as debt)	2,373	2,158	1,961	2,373	2,158	1,961
Underlying capital employed	583,568	412,696	446,142	110,634	91,942	89,790
Profit / (loss) for the period	25,438	(64,521)
Capital Cities joint venture				30%	30%	30%
Non-current assets	370,345	366,848	343,990
Current assets	7,324	8,573	12,831
Current liabilities	(6,724)	(10,884)	(17,872)
Non-current liabilities	(273,842)	(249,963)	(213,847)
Net assets/equity	97,103	114,574	125,102	29,131	34,372	37,531
(Loss) / profit for the period	(17,030)	10,310
Student Village JV - LDC (Project 110) Limited				51%	51%	51%
Non-current assets	58,990	56,026	63,600
Current assets	1,859	2,274	2,787
Current liabilities	(6,128)	(7,459)	(6,100)
Non-current liabilities	(51,579)	(49,251)	(51,421)
Net assets/equity	3,142	1,590	8,866	1,571	795	4,433
Profit / (loss) for the period	3,444	(5,014)
Student Village JV - LDC (Project 170) Limited				51%	51%	51%
Non-current assets	-	-	-
Current assets	2,718	5,123	5,951
Current liabilities	(1,815)	(4,063)	(5,101)
Non-current liabilities	-	-	-
Net assets/equity	903	1,060	850	452	530	425
Profit for the period	6	216
OCB joint venture				25%
Non-current assets	123,750	-	-
Current assets	11,111	-	-
Current liabilities	(15,269)	-	-
Non-current liabilities	(83,878)	-	-
Net assets/equity	35,714	-	-	8,929	-	-
Profit for the period	6,820	-
Investments in joint ventures per balance sheet				148,344	125,481	130,218

7.            Inventories

	2009	2008
	£'000	£'000
Land held for development	-	5,000
Finished goods	5,206	-
Work in progress	1,364	3,664
Raw materials and consumables	1,596	1,647
	8,166	10,311

The land held for development at 31 December 2008 was written down by £10.774m to market value in 2008 and has subsequently been sold.

At 31 December 2008, security had been given by way of a first charge over the land held for development to secure the Group's borrowings.

During the year, interest totalling £0.277m (2008 : £1.208m) was capitalised into land held for development.

8.            Borrowings and financial derivatives

			Group
			2009	2008
			£'000	£'000
Non-current
Bank and other loans			438,247	507,739
Interest rate swaps			29,401	44,401
			467,468	552,140
Current
Overdrafts			-	25,077
Bank and other loans			179	108,424
Interest rate swaps			-	3,375
			179	136,876

Maturity analysis

Borrowings fall due as follows:

2009	Carrying value	Within 1 year	1-2 years	2-5 years	More than 5 years
	£'000	£'000	£'000	£'000	£'000
Bank and other loans	438,426	179	190	408,214	29,843

2008	Carrying value	Within 1 year	1-2 years	2-5 years	More than 5 years
	£'000	£'000	£'000	£'000	£'000
Bank and other loans	616,163	108,424	1,252	257,269	249,218
Bank overdrafts	25,077	25,077	-	-	-

8.            Borrowings and financial derivatives (continued)

The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 December 2009 in respect of which all conditions precedent had been met at that date were as follows:

	2009	2008
	£'000	£'000
Expiring in two to five years
Investment loan facilities	37,252	-
Expiring in one year or less
Working capital facilities	23,000	56
	60,252	56

In addition, there are further committed facilities available where not all conditions precedent have yet been met amounting to £277m (2008 : £268m). Of this amount £57m (2008 : £8m) remains available only for completed properties and £32m (2008 : £20m) only for development properties, the remaining £187m (2008 : £240m) 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 £244.805m of its subsidiary companies borrowings (2008 : £311.435m). 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:

	Note	2009	2008
		£'000	£'000
Net debt per balance sheet:
Cash and cash equivalents		48,764	111,845
Current borrowings	18	(179)	(133,501)
Non-current borrowings	18	(438,247)	(507,739)
Interest rate swaps liabilities	18	(29,401)	(47,776)
		(419,063)	(577,171)
Mark to market of interest rate swaps		29,533	46,668
Adjusted net debt		(389,530)	(530,503)
Basic net asset value		365,888	320,166
Adjusted net asset value (note 2(d))		423,126	405,930
Basic gearing		115%	180%
Adjusted gearing		92%	131%

9.            Deferred tax liabilities

	Assets		Liabilities		Net
	2009	2008	2009	2008	2009	2008
	£'000	£'000	£'000	£'000	£'000	£'000
Investment property	-	-	2,834	9,988	2,834	9,988
Investment property under development	-	-	-	(156)	-	(156)
Development property held as stock	(2,911)	(4,883)	-	-	(2,911)	(4,883)
Property, plant and machinery	(326)	-	-	282	(326)	282
Investments in joint ventures	-	-	7,409	7,504	7,409	7,504
Financial instruments	(7,006)	(12,735)	-	-	(7,006)	(12,735)
Tax (asset) / liabilities	(10,243)	(17,618)	10,243	17,618	-	-
Set off of tax	10,243	17,618	(10,243)	(17,618)	-	-
Net tax liabilities	-	-	-	-	-	-

At 31 December 2009 the Group has calculated a potential deferred tax asset as shown below, however, due to the uncertainty of future taxable profits against which this asset could be realised, it is not appropriate to recognise this asset in the financial statements.

	2009	2008
	£'000	£'000
Tax value of losses	33,265	24,613
Tax value of temporary timing differences	3,478	2,866
	36,743	27,479

Movement in temporary timing differences during the year:

Year ended 31 December 2009	At 31 Dec 2008	Transfers	Recognised in income	Recognised in equity	At 31 Dec 2009
	£'000	£'000	£'000	£'000	£'000
Investment property	9,988	(156)	(6,998)	-	2,834
Investment property under development	(156)	156	-	-	-
Development property held as stock	(4,883)	-	1,972	-	(2,911)
Property, plant and machinery	282	-	(608)	-	(326)
Investments in joint ventures	7,504	-	(95)	-	7,409
Financial instruments	(12,735)	-	4,110	1,619	(7,006)
	-	-	(1,619)	1,619	-

Year ended 31 December 2008	At 31 Dec 2007	Transfers	Recognised in income	Recognised in equity	At 31 Dec 2008
	£'000	£'000	£'000	£'000	£'000
Investment property	11,563	5,067	(6,642)	-	9,988
Investment property under development	5,182	(5,067)	(858)	587	(156)
Development property held as stock	(457)	-	(4,426)	-	(4,883)
Property, plant and machinery	(390)	-	672	-	282
Investments in joint ventures	7,266	-	(171)	409	7,504
Financial instruments	(2,048)	-	(8,909)	(1,778)	(12,735)
Tax value of losses carried forward	(8,243)	-	8,243	-	-
	12,873	-	(12,091)	(782)	-

10.          Capital and reserves

	Issued share capital	Share premium	Merger reserve	Retained earnings	Revaluation reserve	Hedging reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	30,874	174,333	40,177	187,957	17,644	(892)	450,093
Loss for the year	-	-	-	(116,342)	-	-	(116,342)
Investment property under development
- revaluation	-	-	-	-	2,097	-	2,097
- deferred tax	-	-	-	-	(587)	-	(587)
Effective hedges        - movements	-	-	-	-	-	(7,604)	(7,604)
- deferred tax	-	-	-	-	-	1,779	1,779
Gains on hedging instruments transferred to income statement	-	-	-	-	-	1,586	1,586
Deferred tax on gains transferred	-	-	-	-	-	(444)	(444)
Share of joint venture valuation gain (net of related tax)	-	-	-	-	1,309	-	1,309
Share of joint venture movements in effective hedges (net of related tax)	-	-	-	-	-	(9,960)	(9,960)
Transfer on completion or disposal of investment property	-	-	-	18,658	(18,658)	-	-
Shares issued	205	2,208	-	-	-	-	2,413
Fair value of share based payments	-	-	-	308	-	-	308
Own share acquired	-	-	-	(2,192)	-	-	(2,192)
Dividends to shareholders	-	-	-	(3,090)	-	-	(3,090)
Transfer to minority interest	-	-	-	400	-	400	800
At 31 December 2008 and 1 January 2009	31,079	176,541	40,177	85,699	1,805	(15,135)	320,166
Loss for the year	-	-	-	(34,450)	-	-	(34,450)
Effective hedges        - movements	-	-	-	-	-	3,473	3,473
- deferred tax	-	-	-	-	-	(1,619)	(1,619)
Share of joint venture movements in effective hedges (net of related tax)	-	-	-	-	-	574	574
Transfer on completion or disposal of investment property	-	-	-	1,805	(1,805)	-	-
Shares issued	8,823	70,998	-	-	-	-	79,821
Fair value of share based payments	-	-	-	413	-	-	413
Own share acquired	-	-	-	(1,959)	-	-	(1,959)
Transfer to minority interest	-	-	-	(411)	-	(120)	(531)
At 31 December 2009	39,902	247,539	40,177	51,097	-	(12,827)	365,888

Share capital
			Number of Ordinary shares
			2009		2008
Authorised shares of 25p each			174,000,000	155,000,000
Issued at start of year - fully paid			124,315,841	123,495,242
Firm placing, placing & open offer			32,819,972	-
Shares issued to long term incentive plan			2,041,059	707,612
Share options exercised			430,070	112,987
Issued at end of year - fully paid			159,606,942	124,315,841

10.          Capital and reserves (continued)

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

The following dividends were declared and paid during the year:

	2009	2008
	£'000	£'000
Final dividend for 2008 of nil (2007 : 1.67p) per 25p ordinary share	-	2,061
Interim dividend of nil (2008 : 0.83p) per 25p ordinary share	-	1,029
	-	3,090

No final dividend has been proposed in respect of 2009.

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	2009	2008
			Restated (for share issue)	As previously reported
		£'000	£'000	£'000
Earnings
Basic (and diluted)		(34,861)	(115,942)	(115,942)
Adjusted	2(b)	(28,739)	(44,760)	(44,760)
Weighted average number of shares (thousands)
Basic		134,747	125,485	124,095
Dilutive potential ordinary shares (share options)		3	303	303
Diluted		134,750	125,788	124,398
Earnings per share (pence)
Basic		(25.9)	(92.4)	(93.4)
Diluted		(25.9)	(92.4)	(93.4)
Adjusted		(21.3)	(35.6)	(36.0)

Movements in the weighted average number of shares have resulted from the firm placing, placing and open offer in October 2009 and the issue of shares arising from the employee share based payment schemes.

In addition to the potential dilutive ordinary shares (share options) shown above there were a further 874,000 share options in existence at 31 December 2009 (2008 : 1,304,000)  which are anti-dilutive.

The calculation of earnings per share for the year-ended 31 December 2008 and the net asset value per share as at 31 December 2008 have been restated in accordance with the retrospective adjustment requirements of IAS 33 Earnings per Share with regard to the firm placing, placing and open offer in October 2009.  The issue comprised 32,819,972 shares and gave rise to proceeds of £82.050m, £77.272m net of issue costs. The adjustments arising from the reclassification of joint venture investment loans explained in note 6 have no impact on earnings or net asset value per share.

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

	Note	2009	2008
			Restated (for share issue)	As previously reported
		£'000	£'000	£'000
Net assets attributable to ordinary shareholders
Basic		365,888	397,438	320,166
Adjusted pre dilution	2(d)	423,126	483,202	405,930
Outstanding share options		1,514	2,985	2,985
Adjusted diluted		424,640	486,187	408,915
Number of shares (thousands)
Basic		159,607	157,436	124,316
Outstanding share options		778	1,560	1,560
Diluted		160,385	158,996	125,876
Net asset value per share (pence)
Basic		229	252	258
Adjusted pre dilution		265	307	327
Adjusted diluted		265	306	325

 

END

 

 

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