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: 020 7902 5097

Mark Allan

Joe Lister

Caroline Mallin

 

Financial Dynamics                                                                                         Tel: 020 7831 3113

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

164.3

 143.8

81.9

50%

78.2

54%

(24.7)

(26.2)

Net operating income

57.2

52.0

NOI margin

70%

66%

5.9

4.9

(43.0)

(42.3)

(13.9)

(13.7)

6.2

0.9

  (5.6)

  (6.3)

     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

0.6

(5.4)

(16.8)

(27.5)

(3.0)

(4.8)

(9.6)

(0.6)

0.1

(0.4)

         -

  (6.1)

(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

 

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

 

-

 

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

Capital Cities

 

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

4,308

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











 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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