Half Yearly Report

RNS Number : 6608R

Unite Group PLC

26 August 2010

 



26 August 2010

THE UNITE GROUP PLC

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

HALF YEAR RESULTS FOR THE SIX MONTHS TO 30 JUNE 2010

UNITE REPORTS GOOD PROGRESS AGAINST STRATEGIC OBJECTIVES

 - Solid growth in NAV and recurring profits -

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today announces its half year results for the six months ended 30 June 2010.

FINANCIAL HIGHLIGHTS:

·      Adjusted fully diluted NAV per share up 8% to 286 pence (31 December 2009: 265 pence)

·      Profit at a net portfolio contribution level increased by 11% to £4.2m (30 June 2009: £3.8m), driven by rental growth achieved in 2009/10 and an increase in the number of beds under management

·      The value of the Group's stabilised property portfolio grew by 3.8%, driven by 2.3% rental growth and 1.5% from yield compression, delivering £27.7m of net valuation uplift

-       A further £9.7m of net valuation uplift relating to properties under construction has been recognised in adjusted net asset value

·      IFRS profit of £9.8m (30 June 2008: loss of £29.7m) and adjusted loss for the period of £4.1m (30 June 2009: loss of £13.3 m)

·      Asset sales to USAF totalling approximately £145m are expected to complete during the second half of 2010, resulting in approximately £40m of cash being released to the Group after the repayment of associated debt

·      Adjusted net debt of £409m (31 December 2009: £390m) with adjusted gearing at 89% (31 December 2009: 92% and 30 June 2009: 161%).  Both measures are expected to fall in the second half as proceeds from asset sales to USAF are likely to exceed development capital expenditure.

OPERATIONAL HIGHLIGHTS

·      Solid progress in reservations for 2010/11, with 87% of the portfolio let as at 25 August 2010 (2009: 87%)

·      Rental growth of 2.3% in the period, with  rental growth of 3-4% expected for the full year

·      2010 development programme of 1,119 beds substantially completed on time and on budget, ready for 2010/11 occupation

·      Strong progress on pipeline assembly: 2,300 beds secured in London for delivery in 2012 and beyond.  This has an average expected total development cost of £95,000 per bed and is expected to deliver a development yield of approximately 9%-9.5%

·      A further 1,158 beds will be delivered in 2011. The three schemes, located in London, Glasgow and Reading, have a total development cost of £79m, with all necessary funding in place.

 

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

"The Group has made substantial progress in the period under review against each of its strategic objectives, delivering positive growth in both our key metrics of net asset value and recurring profits.  Operationally, we have made progress during the period with regard to our current and future development pipeline, the proactive asset management of our existing investments, acquisition and repositioning of assets and ensuring we are best placed to work in partnership with universities.

"Taking into account healthy reservations levels, our progress in securing an attractive development pipeline for the next academic year and beyond and the Group's strong financial position, we are well placed to build on this success over the remainder of 2010 and into 2011. We believe that our strategy positions the Group to deliver growth in a changing market."

There will be a presentation for analysts this morning at 11am. To access the dial in facility for the meeting, please dial: 0808 238 7377

Enquiries

The UNITE Group plc                                                               Tel: [phone]

Mark Allan

Joe Lister

Financial Dynamics                                                                 Tel: [phone]

Stephanie Highett / Dido Laurimore                                              [e-mail] 

Rachel Drysdale / Laurence Jones

Overview

During the first six months of 2010 the Group made good progress against each of its strategic objectives and delivered solid growth in net asset value and recurring profits. The student accommodation sector continues to demonstrate strong fundamentals and, even taking account of potential funding changes for UK Universities, remains well positioned to deliver non-cyclical growth.

-       Adjusted diluted net assets value per share increased by 8% to 286 pence at 30 June 2010 from 265 pence at 31 December 2009. 

-       Net portfolio contribution increased by 11% to £4.2 million in the six months to June 2010 compared to £3.8 million in the six months to June 2009.

-       The value of the Group's stabilised property portfolio grew by 3.8%, driven by 2.3% rental growth and 1.5% from yield compression, delivering £27.7 million of net valuation uplift. A further £9.7 million of profit relating to properties under construction has been recognised in adjusted net asset value.

-       The Group expects to make asset sales totalling approximately £145 million to USAF during the second half of 2010. These sales will release approximately £40 million of cash after the repayment of associated debt.

-       The Group's financing position remains robust.  Adjusted net debt at 30 June 2010 was £409 million and adjusted gearing stood at 89%.  Both measures are expected to fall in the second half as proceeds from asset sales to USAF are likely to exceed development capital expenditure. Taking into account its available capital and planned USAF sales, the Group has sufficient equity capital available to secure approximately a further 1,500 to 2,000 bed spaces.

-       The Group has made good progress in reservations for 2010/11, achieving 87% as at 25 August 2010 compared with 87% in 2009.  Based on the current weekly rate of sales we expect final occupancy for 2010/11 to be in line with 2009/10 (96.5%) and rental growth of 3-4% to be booked for the full year.

-       2010 development programme of 1,119 beds is substantially complete on time and on budget, ready for 2010/11 occupation.

-       The Group has secured a total of 2,300 beds in London for delivery in 2012 and beyond.  This pipeline has an average expected total development cost of £95,000 per bed and is expected to deliver a development yield of approximately 9.0%-9.5%.

-       In addition to these beds, a further 1,158 beds will be delivered in 2011. The three schemes, located in London, Glasgow and Reading, have a total development cost of £79 million and a development yield of between 8.25% and 8.5%. All necessary funding is in place.

The student accommodation market

The student accommodation market continues to benefit from strong and growing underlying tenant demand coupled with a shortage of supply, which underpins it's strong fundamentals. The demand/supply gap will widen in 2010/11.  A capped increase of 10,000 in the first year undergraduate intake will contribute to overall student population growth of approximately 70,000 whilst the supply of new purpose built accommodation for 2010/11 is limited to around 5,000 additional bed spaces.  As at 30 June 2010 applications to study at University were up 12% year on year (source: UCAS).

Much has been written in the press regarding the possible impact of funding cuts in the Higher Education sector. Given the scale of cuts that the coalition Government is seeking, change is inevitable and will be influenced heavily by the Browne Review (findings expected in October 2010).

Despite the discussion this will generate about the future direction of Higher Education, when assessing the potential impact on the student accommodation sector and UNITE, we believe there are four important factors to take into consideration:

1.   The student accommodation market is still not in equilibrium, with demand far outstripping supply.  In the short term we believe this will continue to be the main driver of market performance with the most undersupplied local markets continuing to offer good growth prospects.

2.   We do not expect overall UK student numbers to decline, given the political challenges inherent in such a policy.  We expect UK-based undergraduate intake to be flat from 2011, leading to a slowdown in overall population growth over the next two to three years, but international intake to continue growing strongly.  Particularly in cities with strong international student populations, demand for purpose built accommodation will continue to grow.

3.   Assuming that Higher Education will become more expensive over time, students' study patterns and choices are likely to change.  More students will choose to study from home or by other means.  However, we expect this trend to be most pronounced amongst students who might not have been viewed as traditional University attendees in the past and for whom the total cost of Higher Education is already a stretch.  This demographic tends not to form part of the market that UNITE has historically targeted, nor is it one that it currently caters for. 

4.   Universities will increasingly adopt new strategies for the provision of their own, typically on-campus, accommodation and this will create new opportunities for Universities and private sector providers to work together.  We expect this to provide a new source of liquidity in student accommodation investment stock in the coming years, and to lead to other opportunities such as third party management.

The factors outlined above clearly suggest that Universities and their local markets will be affected in different ways and that understanding market dynamics at a city level is critical to future success.  Given its historic focus on strong local markets and strong University partners, we believe that UNITE's business is well positioned to withstand and, where appropriate, benefit from likely changes to the student accommodation market in the future.

UNITE strategy

We set out the Group's strategy with our full year announcement in March.  Building on the period from 2007 during which we ensured that the Group is on a sustainable and scalable footing, both operationally and financially, the strategy positions the Group to succeed in a changing market.

Our financial objectives are twofold:

1.   To increase the value of the Group's student accommodation investments over time; and

2.   To increase profits generated from the management of the Group's operational portfolio. 

This is based on four strategic drivers against which we have made good progress in the period under review, as set out below:

Strategic drivers	Value driver	Delivered in 2010
Targeted development of 4,000-5,000 purpose built student accommodation rooms, focusing exclusively on strong markets	Add development profit - realised through sale to USAF Increase profits from operation of new beds	Secured 3,458 beds in H1, delivering c.£74m NAV and c.£ 25m NOI when complete Delivered 1,119 beds on  schedule and budget for 2010/11 occupation
Proactive asset management of existing investments	Market knowledge ensures optimal portfolio positioning Rental growth delivers NAV growth Upgrade of existing properties drives further NAV growth	Delivered 2.3% rental growth in H1, with further growth anticipated in H2 Refurbished six assets during  Summer 2010, delivering approximately £4m of NAV (UNITE share £2m) in 2010
Acquisition and repositioning of assets	Increase local market share Add value through the introduction of UNITE operating platform to acquired stock Increase value of assets under management	Exchanged contracts to acquire a £25m asset in Newcastle for USAF
Working in partnership with universities	Increase operational scale Increase value of assets under management Strengthen University relationships	Good progress made in formal tendering for acquisition/management of over 4,000 University beds

We will seek to build on this progress, as set out below, during the remainder of 2010.

Development activity

-       The 2010 development programme will be completed and let and the 2011 and 2012 secured pipeline will be progressed in line with plan.  Further site acquisitions, primarily in London, will be pursued where target returns can be achieved.

-       The Group will sell approximately £145 million of stabilised assets to USAF, releasing cash of £40 million and development profits of £10 million.  These sales relate mainly to assets completed in 2009.

Asset management

-       Reservations for 2010/11 will conclude in early October.  Based on current run rates we expect to achieve occupancy in line with 2009/10 levels (96.5%) and book rental growth of 3-4% for the full year.

-       At this early stage, we expect to deliver a similar level of rental growth for the 2011/12 academic year.

Acquisition opportunities

-       Following the £25 million acquisition referred to above and the planned sales from UNITE, USAF is likely to be close to its full investment capacity.  Having raised capital into USAF regularly since its inception we would anticipate that USAF will continue to raise new capital regularly, provided it continues to deliver attractive returns and the investment climate remains supportive.

University partnership opportunities

-       At the time of its 2009 results, UNITE outlined its intention to explore and where possible pursue opportunities to work in partnership with Universities to develop, upgrade and manage their on campus accommodation.  The opportunity exists through the evident requirement of Universities to manage their estates as efficiently as possible, particularly due to funding pressures.  We believe that this could become a significant trend in the sector and, in the remainder of 2010 we will continue to take part in the  competitive tender processes in which we are involved.   We are pursuing these opportunities on the basis of co-investing a minority stake alongside third party investment partners and acting and receiving fees as property and asset manager and, where appropriate, development manager. We have been short listed on a major transaction and are considering several smaller transactions. We will update shareholders later this year.

Financial review

Income statement

The Group uses a net portfolio contribution ("NPC") profit measure to assess its operational business performance and this improved by 11% to £4.2m in the six months to June 2010 from £3.8m in 2009. Gross margin improved to 73% (from 72%) and operational overheads fell by 11% to £6.8m following the successful conclusion of the Group's "Blueprint" operational change programme. The component parts of NPC are set out below.

Net portfolio contribution

	30 June 2010	30 June 2009
	£m	£m
Total income from managed portfolio	96.0	85.3
UNITE's share of rental income	46.2	41.9
UNITE share of total income	48%	49%
UNITE's share of operating costs	(12.4)	(11.7)
Gross margin	33.8	30.2
	73%	72%
Management fee income	3.8	3.4
Finance costs*	(23.8)	(19.1)
Operational overheads	(6.8)	(7.6)
Investment segment	7.0	6.9
Corporate costs and share of joint venture overheads	(2.8)	(3.1)
Net portfolio contribution	4.2	3.8
* includes loan interest, interest rate swap payments, finance income and operating lease rentals

The growth in NPC has been driven by the rental growth that was achieved in 2009/10 and the increase in the number of beds under management. These increases have been partly offset by cost pressure on utilities, the earlier phasing of maintenance works, (resulting in £1.3 million of spend, that would normally be undertaken over the summer holidays, being brought forward to the first half), increased financing costs on borrowings against newly completed, stabilising properties and a dilution in UNITE's share of total portfolio income to 48% following asset sales to USAF in late 2009.

The Group's financing costs have increased from £19.1 million for the six months to 30 June 2009 to £23.8 million in the six months to June 2010. The increase has been driven largely by the increase in borrowings against completed properties and the lower levels of development activity during 2010 that have reduced the amount of interest capitalised. In addition, finance costs include £0.7 million of lease costs associated with the sale and leaseback of a property in Bristol that was completed in November 2009.

On an adjusted basis (consistent with EPRA guidelines) the loss for the first six months was £4.1 million (2009: loss of £13.3 million). The difference between NPC and the adjusted loss is largely the impact of the Development Segment result. The key components of the Development Segment are  pre-contract costs of £1.3 million, valuation reductions of £2.8 million on assets held as trading stock and losses at UNITE Modular Solutions ("UMS") of £4.6 million arising as a result of its surplus capacity. UMS losses are expected to be substantially lower in the second half of 2010 as production volumes begin to increase.  Nevertheless, current performance at UMS is unsatisfactory and the operation remains under close review.

On an IFRS basis, the Group reported a profit of £9.8 million attributable to UNITE shareholders, compared to a loss of £29.7 million for the six months to June 2009.

EPRA adjusted and IFRS profit

	30 June 2010	30 June 2009
	£m	£m
Net portfolio contribution	4.2	3.8
Development segment	(8.7)	(16.3)
Other costs and income*	0.4	0.1
Restructuring costs	-	(0.9)
Adjusted loss (EPRA)	(4.1)	(13.3)
Net valuation movements on properties / loss on disposal	27.9	(25.4)
Net changes in valuation of swaps	(11.9)	9.7
Deferred tax	(2.1)	(0.7)
Profit / (loss) for the period (IFRS)	9.8	(29.7)

* Other costs and income relate to share option fair value charges and current tax, including UNITE's share of joint ventures

Balance Sheet

The recovery of commercial property values during the second half of 2009 continued into 2010, with the IPD Index showing that UK commercial property values rose by an average of 6% in the six months to June 2010. The value of UNITE's stabilised investment portfolio increased by an average of 3.8% over the same period with this difference largely attributable to less pronounced yield compression in the student accommodation sector. The value increase was driven by rental growth of 2.3% and yield compression of 10 basis points, equivalent to a further 1.5% of capital growth.

Reported net asset value attributable to UNITE shareholders at June 2010 was £371.9 million (31 December 2009: £365.9 million). The Group's adjusted net asset value increased to £459.6 million (286 pence per share) from £423.1 million (265 pence per share) at 31 December 2009. As set out in the graph below, the main factors behind the growth in adjusted net assets were:

-       The growth in value of the Group's share in investment assets as a result of rental growth and yield compression (+16 pence per share)

-       The uplift in value of UNITE's development assets (+5 pence per share)

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

-       The impact of UMS losses (-2 pence per share)

http://www.rns-pdf.londonstockexchange.com/rns/6608R_1-2010-8-25.pdf

Adjusted gearing at 30 June 2010 was 89% compared with 92% at December 2009 and 161% at 30 June 2009. Net debt increased by £19 million to £409 million at 30 June 2010 as the Group started to commit capital to its 2011 pipeline. We would expect net debt to fall over the remainder of 2010 as proceeds from the sale of assets to USAF are likely to exceed development capital expenditure.  Covenant headroom has improved across all key measures (loan to value, interest cover and minimum net worth) such that values could fall by 25% before any of the covenants would be breached.

The operating and investment portfolio

The Group is currently operating 38,083 beds across 128 properties for the 2009/10 academic year. This will increase to 39,728 beds including the USAF acquisition of the Newcastle asset and the three new properties opening for the 2010/11 academic year.   Assets are typically owned either directly or through funds and joint ventures in which the Group has a significant minority stake, as outlined in the following table.

 

Operating and investment portfolio analysis

		USAF	UCC	USV	Wholly owned	Leased	Total	UNITE %
London	Value (£m)	91	334	0	243	0	668	358
	Beds	573	2,433	0	2,191	260	5,457	37%
Major Provincial	Value (£m)	641	0	62	230	0	933	365
	Beds	12,962	0	1,383	4,254	2,036	20,635	39%
Provincial	Value (£m)	240	0	0	125	0	365	164
	Beds	5,129	0	0	2,981	1,785	9,895	17%
Varsity	Value (£m)	72	42	0	38	0	152	63
	Beds	798	437	0	545	316	2,096	7%
Total at 30 June 2010	Value (£m)	1,044	376	62	636	0	2,118	950
	Beds	19,462	2,870	1,383	9,971	4,397	38,083
2010 openings	Value (£m)						217	52
	Beds						1,645
Total for AY	Value (£m)						2,335	1,002
2010/11	Beds						39,728
UNITE ownership share		16%	30%	51%	100%	n/a

In recent years the Group has pursued a clear strategy to increase the proportion of its capital invested in London and other strong markets which offer the best combination of resilience and growth potential.  As a result of this strategy, at 30 June 2010, 83% of the Group's net investment in its portfolio was in London, Varsity or major provincial locations.

Taking into account its wholly owned portfolio, various co-investment stakes in the fund and joint ventures, together with associated liabilities, the Group's net assets at 30 June 2010 are outlined in the following table.

 

NAV breakdown

	Property Assets	Other assets /liabilities	Adjusted NAV	%                             of net assets
	£m	£m	£m
Group assets
Stabilised	443	(263)	180	39%
Stabilising	193	(93)	100	21%
Development	53	(46)	7	2%
Wholly owned assets	689	(402)	287	62%
Share of co-investment assets
USAF	171	(65)	106	23%
UCC	113	(76)	37	8%
OCB	44	(23)	21	5%
USV	31	(22)	9	2%
Group assets	1,048	(588)	460	100%

Reservations

As at 24 August 2010, reservations had been received for 87% of the portfolio compared with 87% of the portfolio at the same time last year. The period between now and the end of September represents an important stage in the sales cycle as places at Universities are confirmed following the announcement of 'A' level results.

The Group has maintained its focus on its on-line sales and marketing activity, driving enquiries and bookings through its on-line platform supported by planned promotional campaigns in certain markets. The Group has also continued to target the overseas market, to drive sales from customers both in their country of origin and when they arrive in the UK. This has included renewed investment in foreign language websites and an increase in foreign language speakers in the Group's contact centre. The timing of University place and visa confirmations means that the majority of these students are unable to secure accommodation until August and September, contributing to the high weekly sales rate experienced by the Group at this time of year.

Reservations at 25 August 2010

	Beds	% Reserved 10/11 year	% Reserved 09/10 year
USAF	19,462	87%	87%
UCC	2,870	68%	76%
USV	1,383	83%	92%
Wholly owned	9,971	87%	86%
Leased	4,397	100%	98%
Total	38,083	87%	87%
2010 openings	1,645	64%	n/a

Investment portfolio valuation

The valuation of the Group's investment portfolio as at 30 June 2010, including its share of gross assets held in USAF and joint ventures, was £950 million compared to £929 million at 31 December 2009 and £827 million at 30 June 2009.

Investment portfolio valuation movement

	31 Dec 09	Yield movement	Rental growth	Disposals / costs	30 Jun 10	Avg NOI yield
	£m	£m	£m	£m	£m	%
Wholly owned
Stabilised	434	5	12	(8)	443	6.5%
Stabilising	191	2	-	-	193	6.5%
	625	7	12	(8)	636	6.5%
USAF	1,003	20	19	2	1,044	6.7%
UCC	370	5	1	-	376	6.3%
USV	59	-	3	-	62	6.8%
Total portfolio	2,057	32	35	(6)	2,118	6.6%
UNITE share	929	12	16	(7)	950	6.6%

Valuation yields have stabilised at an average of 6.6% at 30 June 2010 (31 December 2009: 6.7%) across UNITE's managed portfolio following the rapid expansion from 6.2% to 6.8% in the first half of June 2009. The graph below demonstrates that the yield on UNITE's portfolio has been markedly less volatile than the IPD All Property Yield over the last few years, reflecting the sustained high occupancy and rental growth that the Group has delivered.

Relative yield performance

http://www.rns-pdf.londonstockexchange.com/rns/6608R_-2010-8-25.pdf

Yields across UNITE's operational portfolio range from 6.0% to 7.2%. Keener yields continue to apply to the strongest locations, particularly in London, and to assets where the income stream is underwritten by a University.  The yield differential between direct let assets and those with secure income streams has stabilised at approximately 50 basis points.

Looking forward we expect yields for student accommodation assets to remain at or around current levels, in line with the outlook for UK commercial property generally, with capital growth largely derived from ongoing rental growth.

Property management

During the first half of 2010 the main priority for the Group's property management business was to embed the Group's new operating model, following the implementation of the "Blueprint" change programme in 2009.  Given the scale of change involved there were understandable teething problems in ensuring that the operating model worked as designed and delivered the requisite customer service standards. These challenges have been successfully addressed and the Group will enter the 2010/11 academic year with a properly established operating platform designed to deliver good customer service consistently. 

One element of the Blueprint programme was the outsourcing of maintenance activities to a venture with Connaught plc (UNITE Connaught Services or "UCS").  In terms of maintenance service levels and operating cost efficiency the venture has been a significant success although the Group is now monitoring developments at Connaught itself closely in order to ensure that the challenges being faced by Connaught do not adversely affect service levels at UCS.  In this regard it is important to note that UCS is a largely self contained operation in which UNITE retains a 60% stake and ongoing operational oversight.  Based on current arrangements the Group does not anticipate any significant operational challenges arising in UCS and expects service levels to remain at or above current levels.

Development activity

During the first half of 2010 the Group secured a total of 2,300 beds in London for delivery in 2012 and 2013.  Having initially deployed its capital more slowly than anticipated in the early part of the year the Group gained good traction in the second quarter as site prices eased to sensible levels and the Group was able to contract at prices in line with plan.  Forecast total development cost for the 2012-13 programme is approximately £95,000 per bed and the expected stabilised yield on cost is approximately 9.0%-9.5%.

In addition to its 2012-13 programme the Group has successfully committed to deliver 1,158 beds across three projects for occupation in 2011, for which full funding has been secured.  Total capital expenditure for the 2011 programme will be £79 million with stabilised yields on cost expected to be approximately 8.25%-8.5%.  The three projects are located in Reading, Glasgow and London.

Taken together, the Group's secured 2012-13 development pipeline and 2011 development programme demonstrate the progress made by the Group in deploying the capital it raised from shareholders in 2009 for this purpose.  Taking into account its current uncommitted capital and further capital expected to be realised through asset sales to USAF later this year, the Group has sufficient equity capital available to secure an additional 1,500 to 2,000 beds.  Further debt facilities will be required in due course (see below).

The 2010 development programme, being developed in joint venture with OCB, is largely complete and will be ready for occupation for the 2010/11 academic year as planned. Overall development cost budgets have been met and letting is ongoing.

£9.7 million of development uplift has been recognised in the Group's adjusted net asset value in the first half of the year, in respect of its 2010 and 2011 completions.

Looking forward, we expect site prices to be stable, or even drift down, as banks start to reduce their existing development exposure and the level of new development lending remains limited. Against this backdrop, and with capital available to deploy, we will remain vigilant in ensuring that we do not overpay for sites and plan to retain capacity to acquire further sites in 2011.

The following table summarises the Group's secured development pipeline as at 30 June 2010.

Development pipeline

	Beds	Total completed value	Total development cost	Capex in period	Capex remaining	UNITE NAV remaining	Stabilised yield on cost
		£m	£m	£m	£m	£m	%
2010 - UNITE share	1,119	48	39	8	3	1	8.3%
2011	1,158	92	79	10	53	7	8.25%-8.5%
2012-13	2,300	285	218	-	218	67	9.0%-9.5%
Secure pipeline	3,458	377	297	10	271	74	8.75%-9.25%

The potential future net asset value uplift on the secured development pipeline of £74 million outlined above is equivalent to approximately 46 pence per share.  Stabilised yield on cost is based on 2010/11 net operating income and rental growth of 3% per annum.

Development funding

During the first half of 2010 debt funding was secured for the Group's development programme of 2011 deliveries. Approximately £175 million will be required to build out the secured 2012-2013 beds, of which around £100 million will be funded from existing facilities. New facilities will be required to finance the remaining £75 million. The market for new development finance remains relatively tight with only a small number of banks currently offering terms to favoured partners. The Group has made good progress in its discussions with lenders regarding new facilities and remains satisfied that new debt can be secured on terms in line with plan. The Group does not commit to development projects without having full funding in place.

Development profits and valuation

A key element of the Group's business model and source of competitive advantage is its track record in selling stabilised assets, typically to USAF, and realising development profits.  Since 2006 the Group has sold over £1.2 billion of assets that it has developed at an average profit on cost of 31%, releasing development profits of £291 million.

These sales released significant cash surpluses to the Group which enabled it to manage its balance sheet effectively during the severe downturn of 2008 and 2009.  In the second half of 2010 the Group expects to sell further stabilised assets to USAF of approximately £145 million.  Based on the 30 June 2010 valuation of these assets, the Group would realise a profit on cost of £10 million (7%) and a cash surplus, after repayment of associated debt, of approximately £40 million. These sales relate mainly to assets completed in 2009 and the profit on cost is below historic levels due to the higher land prices paid and subsequent falls in commercial property values experienced in 2008 and 2009. Actual and planned asset sales are summarised in the following table.

 

Realised development profits

	2006  £m	2007          £m	2008          £m	2009          £m	2010 forecast £m
Asset sales	519	238	301	160	145
Development capital expenditure	(387)	(157)	(234)	(149)	(135)
Development profit	132	81	67	11	10
Profit on cost	34%	52%	28%	7%	7%

Following the establishment of USAF, certain of the Group's development assets are classified as current assets and are held at the lower of cost and net realisable value, whilst certain others continue to be held at open market value. However, in recognising the Group's development pipeline we consider it appropriate that all development properties, regardless of accounting classification, are independently valued. A full valuation of the Group's development portfolio has been carried out at 30 June 2010 and is summarised below.

Development portfolio valuation

	30 June 2010           £m	31 December 2009 £m
Property under development	48	38
Share of joint venture investment property under development	44	31
Total	92	69
Valuation gain not recognised on property held at cost	6	1
Value at end of period	98	70

UNITE Modular Solutions ("UMS")

UMS, which manufactures and installs lightweight steel frame modular bedrooms into many of the Group's developments, has been an integral part of the Group's development success; over 17,500 modular units have been deployed with real time, cost and quality benefits.  However, with production volumes now significantly reduced and the facility operating well below capacity, UMS is currently loss-making due to unrecovered overhead and direct labour costs.  In the six months to 30 June, during which production totalled 300 modules, UMS reported a loss of £4.6 million which is included in the Development Segment result. 

Production volumes will increase in the second half of 2010 and UMS losses will reduce substantially.  UMS is also pursuing third party contracts, having secured and successfully delivered its first in 2009/10, which deliver volume over and above the Group's own demand, thereby improving overhead recovery and profitability.  However the construction market remains extremely competitive at this time and no further third party contracts have yet been secured.  Whilst this remains our preferred strategy for UMS, the operation remains under close review.

Co-investing asset management

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

 

Co-investment vehicles

Vehicle	Fund/JV	Maturity	Property assets	Other assets / liabilities	Adjusted net assets	UNITE share of adjusted net assets
			£m	£m	£m	£m
USAF	Fund	infinite life	1,044	(398)	646	106
UCC	JV	2013	376	(252)	124	37
OCB	JV	2014	177	(93)	84	21
USV	JV	2009*	62	(44)	18	9

* Whilst the joint venture agreement technically matured in 2009, any termination is subject to the pre-emption provisions in the agreement.

Fund/JV performance

http://www.rns-pdf.londonstockexchange.com/rns/6608R_3-2010-8-25.pdf

UNITE UK Student Accommodation Fund ("USAF", "the Fund")

Following the £167 million equity raise in December 2009 and the subsequent acquisition of £95 million of assets from UNITE, USAF has exchanged contracts to acquire a direct let asset for £25 million from a third party, which it expects to deliver attractive returns in the future. USAF is also planning to acquire a portfolio of assets of approximately £145 million in the fourth quarter from UNITE, at which point it is likely to be close to fully invested. As usual, the sale of these assets reduces the Group's share of income from stabilised assets and will have a dilutive impact on net portfolio contribution for the year.

The Group has raised fresh equity into USAF in each year since its inception in 2006.  The Fund offers investors diversified exposure to direct let student accommodation assets and is the only institutional vehicle of its type and scale.  Provided that the Fund continues to deliver attractive returns and attractive acquisition opportunities remain, either from UNITE or in the open market, then we would anticipate that USAF will seek to raise new capital regularly provided that the investment climate remains supportive.

There has been limited new information with regard to the USAF's deposit with Landsbanki. As previously stated, USAF has been confirmed as a Priority Creditor and, as such, should recover a substantial part of the deposit. The timing of the recovery remains unclear and is still subject to potential legal challenge from other creditors. USAF continues to carry a full provision against this deposit.

UNITE Capital Cities Joint Venture ("UCC")

Having completed its development programme UCC is now focused on the proactive asset management of its investment portfolio. The joint venture matures in 2013 and UNITE and GIC Real Estate, its joint venture partner, are beginning to consider  the most appropriate future strategy for the venture in this regard.

Oasis Capital Bank Joint Venture ("OCB")

The three development schemes are substantially complete and are being let for the 2010/11 academic year. The joint venture is focused on stabilising the assets over the next one to two years.

UNITE Student Village Joint Venture ("USV")

USV, which owns one building in Sheffield is a joint venture with Lehman Brothers which is now in administration. The administrators marketed their 49% stake in the joint venture in 2009 but were unable to meet their price aspirations and are therefore continuing to hold the investment. Whilst the joint venture agreement technically matured in 2009, any termination is subject to the pre-emption provisions in the agreement.

Financing

The Group's financing position remains robust.  Net debt and gearing are being maintained at sustainable levels, the Group has good investment capacity, plenty of covenant headroom and no near term debt maturities.  Debt market conditions are improving slowly and credit is available selectively, for investment and development purposes, to borrowers with a good track record and a strong balance sheet.  UNITE meets these criteria.

Notwithstanding this improvement in conditions, we continue to believe that the ongoing deleveraging of the UK commercial property sector will take a number of years and that conditions will remain challenging.  As a result we will continue to manage the Group's balance sheet prudently.

The Group has sought and secured terms for approximately £200 million of new investment and development facilities during the period and, based on this experience, we remain satisfied that credit will be available to the Group at levels and pricing in line with expectations.

Key debt ratios for UNITE Group

	30 Jun 10	30 Jun 09	31 Dec 09
Group net debt (adjusted)	£409m	£584m	£390m
Adjusted gearing (adjusted net debt / equity)	89%	161%	92%
Adjusted LTV (adjusted net debt / property assets)	59%	69%	59%
Weighted average debt maturity	4 years	4 years	4 years
Weighted average cost of investment debt	5.5%	6.0%	5.6%
Proportion of investment debt hedged	71%	95%	75%

The small increase in adjusted net debt to £409 million from £390 million is a result of the capital expenditure on the 2011 development schemes. Adjusted gearing has reduced to 89% from 92% at December 2009 as the increased NAV has offset the small growth in net debt.  We expect net debt to fall in the remainder of 2010 as proceeds from asset sales to USAF are expected to exceed capital expenditure.  Over time, however, net debt and gearing are likely to rise from these levels as capital expenditure increases. However, gearing will be managed within a strategic range of 100%-130%.

The Group has a cash balance, net of overdraft, of £55 million and a further £55 million of undrawn committed facilities.  There has been a small reduction in the Group's cost of debt as result of the cancellation of interest rate swaps in 2009 and the impact of lower floating rates.

The Group has no facilities maturing in 2010 or 2011 but recognises the high proportion of maturities in 2013 and 2014 and will begin to address this proactively during 2011.  There is one asset that requires an extension to its £30 million facility late this year and we are confident in our ability to deliver this extension following discussions with the current lender.

On balance sheet facility maturity

http://www.rns-pdf.londonstockexchange.com/rns/6608R_2-2010-8-25.pdf

The Group is in full compliance with all of its borrowing covenants at 30 June 2010. The covenant levels provide headroom for asset values to fall by 25%.

Covenant headroom

Covenants are tested at the facility level.  All of the investment facilities have interest cover covenants, £244 million have loan to value covenants and £41 million have minimum net worth covenants.  The performance against covenants is outlined below.

	30 Jun 10		30 Jun 09					31 Dec 09
	Weighted covenant	Weighted actual	Weighted covenant				Weighted actual	Weighted covenant	Weighted actual
Loan to value	74%	49%**	75%				60%	74%	59%
Interest cover	1.08	1.88	1.10				1.46	1.08	1.63
Minimum net worth	£250m*	£460m	£200m*				£312m	£250m*	£423m
* based on highest minimum net worth covenant
** if available cash is used to pay down debt, otherwise 64%

Debt facilities in co-investment vehicles

The break-down of debt in co-investment vehicles and its maturity is outlined in the following table and graph.

 

Co-investment vehicle facility maturity

http://www.rns-pdf.londonstockexchange.com/rns/6608R_4-2010-8-25.pdf

Key debt ratios for co-investment vehicles

	Debt at  30 Jun 10	Average interest rate	% fixed/ capped	Average maturity (years)	First maturity
	£m
USAF	481	5.4	100%	3.4	Dec-12
UCC	253	5.5	100%	4.2	Sep-14
OCB	89	3.8	100%	2.3	Sep-11
USV	45	5.3	100%	2.1	Sep-11

The Fund and joint ventures are in full compliance with all of their borrowing covenants at 30 June 2010. USAF has received credit approved terms for £135 million of investment debt that will be used to fund the acquisitions from UNITE later in 2010. The other joint ventures are fully funded and do not require any new debt. As with its own debt, the Group will review options for the refinance or extension of medium term maturities in its co-investment vehicles during 2011.

Dividend

The Group suspended its dividend in 2009 in order to conserve capital.  Taking into account the ongoing challenges for the UK economy and investment opportunities available to the Group, the Board does not propose reinstating the dividend at this stage.  However, it is the Board's intention to do so once the Group's net portfolio contribution reaches a level sufficient to provide cover for a meaningful dividend.  The Board will review this in 2011.

Summary and outlook

The Group has made good progress during 2010 against each of its strategic and operational objectives, delivering positive growth in net asset value and recurring profits.  Taking into account reservations levels, progress in securing an attractive development pipeline and its strong financial position the Group is well placed to build on this success over the remainder of 2010 and into 2011.

The outlook for the UK economy and, in particular, the ongoing deleveraging of the commercial property sector remains challenging and we expect capital markets and investment yields to be relatively subdued.  Consequently we will continue to manage the Group's balance sheet prudently.

From a tenant demand perspective, the student accommodation market remains compelling and capable of delivering solid rental growth.  The Higher Education sector is likely to change markedly in the coming years as funding pressures bite but this will create opportunities to outperform provided that our business and portfolio are properly positioned.  With an unquestionable track record and clear, considered strategy we firmly believe this to be the case.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of theDisclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of theDisclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Mark Allan                                             Joe Lister

Chief Executive                                      Chief Financial Officer

26 August 2010

Consolidated Income Statement

For the 6 months to 30 June 2010

	Note	Unaudited 6 months to 30 June 2010	Unaudited 6 months to 30 June 2009	Year to 31 Dec 2009
			Restated
		£'000	£'000	£'000
Revenue	3	48,579	41,360	265,352
Cost of sales	3	(34,079)	(38,170)	(246,960)
Administrative expenses	3	(11,133)	(12,129)	(23,097)
		3,367	(8,939)	(4,705)
Loss on disposal of property		(656)	(2,493)	(3,416)
Net valuation gains / (losses) on property		13,390	(14,542)	(15,337)
Profit / (loss) before net financing costs		16,101	(25,974)	(23,458)
Loan interest and similar charges		(7,469)	(5,953)	(13,308)
Changes in fair value of interest rate swaps		(17,141)	6,140	(6,737)
Finance costs		(24,610)	187	(20,045)
Finance income		482	470	891
Net financing costs		(24,128)	657	(19,154)
Share of joint venture profit / (loss)	8	20,125	(4,062)	6,929
Profit / (loss) before tax		12,098	(29,379)	(35,683)
Tax (charge) / credit		(872)	(951)	1,233
Profit / (loss) for the period		11,226	(30,330)	(34,450)
Profit / (loss) for the period attributable to
Owners of the parent company		9,788	(29,734)	(34,861)
Minority Interest		1,438	(596)	411
		11,226	(30,330)	(34,450)

Consolidated Statement of Comprehensive Income

For the 6 months to 30 June 2010

		Unaudited 6 months to 30 June 2010	Unaudited 6 months to 30 June 2009	Year to 31 Dec 2009
		£'000	£'000	£'000
Profit / (loss) for the period		11,226	(30,330)	(34,450)
Movements in effective hedges		145	1,942	1,854
Share of joint venture movements in effective hedges		(4,506)	3,333	574
Other comprehensive income for the period		(4,361)	5,275	2,428
Total comprehensive income for the period		6,865	(25,055)	(32,022)
Attributable to
Owners of the parent company		5,545	(24,543)	(32,553)
Minority Interest		1,320	(512)	531
		6,865	(25,055)	(32,022)

All movements above are shown net of deferred tax.

Consolidated Balance Sheet

At 30 June 2010

	Note	Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			Restated
		£'000	£'000	£'000
Assets
Investment property	6	412,090	389,955	403,600
Investment property under development	6	-	44,210	-
Property, plant and equipment		7,263	7,749	7,351
Investment in joint ventures	8	161,126	120,995	148,344
Joint venture investment loans	8	12,700	5,771	12,239
Intangible assets		6,015	6,830	6,542
Other receivables		-	497	-
Total non-current assets		599,194	576,007	578,076
Completed property	6	198,825	116,605	204,113
Properties under development	6	47,538	273,243	38,097
Inventories	7	5,829	2,646	8,166
Trade and other receivables		33,764	37,733	44,714
Cash and cash equivalents		65,269	53,686	48,764
Total current assets		351,225	483,913	343,854
Total assets		950,419	1,059,920	921,930
Liabilities
Borrowing and financial derivatives	9	(51,436)	(122,759)	(179)
Trade and other payables		(45,551)	(76,490)	(72,581)
Current tax creditor		(581)	(466)	(475)
Total current liabilities		(97,568)	(199,715)	(73,235)
Borrowings and financial derivatives	9	(464,803)	(549,845)	(467,648)
Total non-current liabilities		(464,803)	(549,845)	(467,648)
Total liabilities		(562,371)	(749,560)	(540,883)
Net Assets		388,048	310,360	381,047
Equity
Issued share capital		40,068	31,589	39,902
Share premium		248,979	177,924	247,539
Merger reserve		40,177	40,177	40,177
Retained earnings		59,758	56,211	51,097
Hedging reserve		(17,070)	(9,944)	(12,827)
Equity attributable to the owners of the parent company		371,912	295,957	365,888
Minority interest		16,136	14,403	15,159
Total equity		388,048	310,360	381,047

Consolidated Statement of Changes in Shareholders' Equity

For the 6 months to 30 June 2010

	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 2010	39,902	247,539	40,177	51,097	-	(12,827)	15,159	381,047
Profit for the period	-	-	-	9,788	-	-	1,438	11,226
Other comprehensive income for the period	-	-	-	-	-	(4,243)	(118)	(4,361)
Shares issued	166	1,440	-	-	-	-	-	1,606
Fair value of share based payments	-	-	-	490	-	-	-	490
Own shares acquired	-	-	-	(1,617)	-	-	-	(1,617)
Dividends to minority interest	-	-	-	-	-	-	(343)	(343)
At 30 June 2010	40,068	248,979	40,177	59,758	-	(17,070)	16,136	388,048

	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	-	-	-	(29,734)	-	-	(596)	(30,330)
Other comprehensive income for the period	-	-	-	-	-	5,191	84	5,275
Transfer	-	-	-	1,805	(1,805)	-	-	-
Shares issued	510	1,383	-	-	-	-	-	1,893
Fair value of share based payments	-	-	-	335	-	-	-	335
Own shares acquired	-	-	-	(1,894)	-	-	-	(1,894)
Dividends to minority interest	-	-	-	-	-	-	(285)	(285)
At 30 June 2009	31,589	177,924	40,177	56,211	-	(9,944)	14,403	310,360

	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

Consolidated Statement of Cash Flows

For the 6 months to 30 June 2010

		Unaudited 6 months to 30 June 2010	Unaudited 6 months to 30 June 2009	Year to 31 Dec 2009
		£'000	£'000	£'000
Operating activities
Profit / (loss) for the period		11,226	(30,330)	(34,450)
Adjustments for non cash / non operating items		(5,048)	23,864	31,274
Cashflows from operating activities before changes in working capital		6,178	(6,466)	(3,176)
Change in property under development		(4,153)	(65,510)	82,128
Change in inventories		2,337	7,666	2,145
Other changes in working capital		(13,239)	17,603	(16,108)
Cashflows from operating activities		(8,877)	(46,707)	64,989
Cashflows from taxation		(191)	(314)	(476)
Cashflows from investing activities		4,210	4,206	33,935
Cashflows from financing activities		10,043	(2,924)	(136,452)
Net increase / (decrease) in cash and cash equivalents		5,185	(45,739)	(38,004)
Cash and cash equivalents at start of period		48,764	86,768	86,768
Cash and cash equivalents at end of period		53,949	41,029	48,764

Cash and cash equivalents are stated net of operational overdrafts which are disclosed in note 9.

Notes to the Consolidated Interim Financial Statements

1.     Basis of preparation

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2009.

The comparative figures for the financial year ended 31 December 2009 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Going Concern

The Interim 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.

The principle area of risk and uncertainty is the impact of further falls in property valuations resulting in breaches of covenants that cannot be avoided by payments from cash resources. The cashflow forecasts show that the Group has improved its headroom in covenant compliance.

2.     Seasonality of operations

The results of the Group's investment division, a separate business segment (see note 3), are closely linked to the level of occupancy achieved in its portfolio of property. Occupancy typically falls over the summer months (particularly July and August) as students leave for the summer holidays. The Group attempts to minimise the seasonal impact by the use of short-term summer tenancies. However, the second half-year typically has lower revenues from the existing portfolio.

Conversely, the Group's build cycle for new properties is to plan to complete construction shortly before the start of the academic year in September each year. The addition of these completed properties in the second half increases the segment's revenues in that period.

3.     Segment reporting

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

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

The Group's Development segment undertakes the acquisition and development of properties, (including the manufacture and sale of modular building components) to practical completion. 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.

  Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(a) Segment revenues and costs
	Unaudited 30 June 2010	Investment segment	Development segment	Unallocated corporate costs	Total
		£'000	£'000	£'000	£'000
	Revenue	37,547	11,032	-	48,579
	Cost of sales	(15,574)	(15,846)	-	(31,420)
	Write down of work in progress, property under development and completed property	-	(2,659)	-	(2,659)
	Total cost of sales	(15,574)	(18,505)	-	(34,079)
	Administrative expenses	(6,767)	(1,247)	(3,119)	(11,133)
		15,206	(8,720)	(3,119)	3,367
	Loan interest and similar charges	(7,469)	-	-	(7,469)
	Interest rate swap payment on ineffective hedges	(5,651)	-	-	(5,651)
	Interest income on deposits	104	-	-	104
	Share of joint venture investment segment result	4,802	-	-	4,802
	Adjust asset management fee for minority interest	81	-	-	81
	Segment result / corporate costs	7,073	(8,720)	(3,119)	(4,766)
	Unaudited 30 June 2009
	Revenue	32,948	8,412	-	41,360
	Cost of sales	(13,852)	(12,685)	-	(26,537)
	Write down of property under development, completed property and work in progress	-	(11,633)	-	(11,633)
	Total cost of sales	(13,852)	(24,318)	-	(38,170)
	Administrative expenses	(7,567)	(427)	(4,135)	(12,129)
		11,529	(16,333)	(4,135)	(8,939)
	Loan interest and similar charges	(5,953)	-	-	(5,953)
	Interest rate swap receipts	(3,554)	-	-	(3,554)
	Interest income on deposits	352	-	-	352
	Share of joint venture investment segment result	4,380	-	-	4,380
	Adjust asset management fee for minority interest	99	-	-	99
	Segment result / corporate costs	6,853	(16,333)	(4,135)	(13,615)
	31 December 2009
	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 payment on ineffective hedges	(9,684)	-	-	(9,684)
	Interest income on deposits	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	6,216	(16,824)	(8,565)	(19,173)

Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(a) Segment revenues and costs (continued)

Investment segment revenue
		Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
		£'000	£'000	£'000
Management fees (note 3c)		4,078	3,615	6,404
Adjust asset management fee for minority interest		(81)	(99)	(160)
Management fee per income statement		3,997	3,516	6,244
Rental income from wholly owned and leased assets (note 3c)		33,550	29,432	58,161
Investment segment revenue		37,547	32,948	64,405
Development segment revenue
		Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
		£'000	£'000	£'000
Property sales from completed properties and properties under development		2,540	8,302	189,973
Manufacturing revenue		7,115	-	9,902
Development management fee		1,377	110	1,072
Development segment revenue		11,032	8,412	200,947

	(b) Segment result 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 profit / (loss) reported under IFRS. The items shown in this table represent 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	Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			£'000	£'000	£'000
	Investment segment result	3(c)	7,073	6,853	6,216
	Development segment result		(8,720)	(16,333)	(16,824)
	Other unallocated items
	Corporate costs (excluding share option fair value charges)		(2,629)	(2,875)	(5,118)
	Share option fair value charges		(490)	(335)	(412)
	Restructuring costs		-	(925)	(3,035)
	Share of joint venture overheads (net of minority interest)		(216)	(178)	(464)
	Loan break costs and costs written off on refinancing		-	-	(24)
	Swap loss realised on cancellation		-	-	(9,560)
	Share of joint venture current tax credit		46	683	683
	Current tax credit / (charge) (net of minority interest)		865	(195)	(201)
	Adjusted loss for the year attributable to owners of the parent company		(4,071)	(13,305)	(28,739)

Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(b) Segment result and adjusted loss (continued)
	Reconciliation of adjusted loss to IFRS reported profit / (loss)
			Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			£'000	£'000	£'000
	Adjusted loss for the year attributable to owners of the parent company		(4,071)	(13,305)	(28,739)
	Net valuation gains / (losses) on properties		13,390	(14,542)	(15,337)
	Loss on sale of property		(656)	(2,493)	(3,416)
	Share of joint venture valuation gains / (loss)		16,160	(9,506)	(1,472)
	Minority interest share of valuations (gains) / losses		(1,012)	1,044	(71)
	Share of joint venture (loss) / profit on disposal		(13)	55	62
	Changes in fair value of interest rate swaps		(17,141)	6,140	2,823
	Share of joint venture changes in fair value of interest rate swaps		(384)	-	(55)
	Interest rate swap payment on ineffective hedges allocated to the investment segment	3(c)	5,651	3,554	9,684
	Deferred tax		(1,681)	(672)	1,619
	Share of joint venture deferred tax		(455)	(9)	41
	Profit / (loss) for the year attributable to owners of the parent company		9,788	(29,734)	(34,861)
	The Group measures its operational performance by considering the income generated from properties compared with its overhead, which can be calculated as follows:
	Net portfolio contribution
			Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			£'000	£'000	£'000
	Investment segment result		7,073	6,853	6,216
	Corporate costs (excluding share option fair value charges)		(2,629)	(2,875)	(5,118)
	Share of joint venture overheads		(216)	(178)	(464)
			4,228	3,800	634
	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 disposal on the interests of the parent company shareholders is summarised on the next page:

Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(b) Segment result and adjusted loss (continued)

	Property valuation movements
		Current assets		Fixed assets
	Unaudited 30 June 2010	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	(526)	-	-	-	(526)
	Completed property	(2,049)	(184)	-	-	(2,233)
	Share of joint venture	-	-	5,310	-	5,310
	Work in progress write downs	(84)	-	-	-	(84)
		(2,659)	(184)	5,310	-	2,467
	Investment
	Investment property	-	-	13,371	-	13,371
	Share of joint venture	-	-	9,838	(13)	9,825
	Loss on disposal of investment property	-	-	-	(656)	(656)
		-	-	23,209	(669)	22,540
	Tangible fixed assets	-	-	19	-	19
		(2,659)	(184)	28,538	(669)	25,026
	Impact of unbooked NAV:
	- post property completion	-	7,418	-	-	7,418
	- arising from development	-	4,963	-	-	4,963
		(2,659)	12,197	28,538	(669)	37,407

	Property valuation movements
		Current assets		Fixed assets
	Unaudited 30 June 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	(7,970)	-	-	-	(7,970)
	Investment property under development	-	-	(5,602)	-	(5,602)
	Completed property	(1,177)	(4,320)	-	-	(5,497)
	Share of joint venture	-	-	(40)	-	(40)
	Work in progress write downs	(2,486)	-	-	-	(2,486)
		(11,633)	(4,320)	(5,642)	-	(21,595)
	Investment
	Investment property	-	-	(8,774)	-	(8,774)
	Share of joint venture	-	-	(8,422)	55	(8,367)
	Loss on disposal of investment property	-	-	-	(2,493)	(2,493)
		-	-	(17,196)	(2,438)	(19,634)
	Tangible fixed assets	-	-	(166)	-	(166)
		(11,633)	(4,320)	(23,004)	(2,438)	(41,395)
	Impact of unbooked NAV:
	- post property completion	-	1,804	-	-	1,804
	- arising from development	-	(6,242)	-	-	(6,242)
		(11,633)	(8,758)	(23,004)	(2,438)	(45,833)

Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(b) Segment result and adjusted loss (continued)

	Property valuation movements
		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:
	- post property completion	-	2,695	-	-	2,695
	- arising from development	-	(13,646)	-	-	(13,646)
		(19,609)	(6,674)	(16,880)	(3,354)	(46,517)

  Notes to the consolidated interim financial statements

	(c) Investment 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.
	Unaudited 30 June 2010																		Group on see through basis
			100% Unite						Share of co-invested joint ventures
			Wholly Owned		Leased/Other		Total		USAF		Capital Cities		Student Village		OCB		Total		Total
			£'000		£'000		£'000		£'000		£'000		£'000		£'000		£'000		£'000
	Rental income		24,138		9,412		33,550		7,763		3,411		1,500		-		12,674		46,224
	Property operating expenses (excl. lease rentals)		(6,194)		(3,361)		(9,555)		(1,895)		(616)		(352)		-		(2,863)		(12,418)
	Net operating income		17,944		6,051		23,995		5,868		2,795		1,148		-		9,811		33,806
	Management fees		-		4,078		4,078		-		(236)		-		-		(236)		3,842
	Administrative expenses		-		(6,767)		(6,767)		-		-		-		-		-		(6,767)
	Investment segment result before interest and operating lease rentals		17,944		3,362		21,306		5,868		2,559		1,148		-		9,575		30,881
	Operating lease rentals		-		(6,019)		(6,019)		-		-		-		-		-		(6,019)
	Loan interest and similar charges		(7,469)		-		(7,469)		(2,167)		(2,025)		(615)		-		(4,807)		(12,276)
	Interest rate swap payments		(5,651)		-		(5,651)		-		-		-		-		-		(5,651)
	Interest income on deposits		104		-		104		28		3		2		1		34		138
	Financing costs		(13,016)		(6,019)		(19,035)		(2,139)		(2,022)		(613)		1		(4,773)		(23,808)
	Investment segment result		4,928		(2,657)		2,271		3,729		537		535		1		4,802		7,073

Property operating expenses and operating lease rentals are shown as cost of sales in note 3(a). Operating lease rental result from sale and leaseback transactions which are considered a form of financing, hence the costs are shown next to interest above.

  Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(c) Investment segment see through basis (continued)
	Unaudited 30 June 2009											Group on see through basis
		100% Unite			Share of co-invested joint ventures
		Wholly Owned	Leased/Other	Total	USAF		Capital Cities	Student Village		Total		Total
		£'000	£'000	£'000	£'000		£'000	£'000		£'000		£'000
	Rental income	21,176	8,256	29,432	7,828		3,286	1,337		12,451		41,883
	Property operating expenses (excl. lease rentals)	(5,804)	(2,774)	(8,578)	(2,127)		(624)	(403)		(3,154)		(11,732)
	Net rental income	15,372	5,482	20,854	5,701		2,662	934		9,297		30,151
	Management fees	-	3,615	3,615	-		(227)	-		(227)		3,388
	Administrative expenses	-	(7,567)	(7,567)	-		-	-		-		(7,567)
	Investment segment result before interest and operating lease rentals	15,372	1,530	16,902	5,701		2,435	934		9,070		25,972
	Operating lease rentals	-	(5,274)	(5,274)	-		-	-		-		(5,274)
	Loan interest and similar charges	(5,953)	-	(5,953)	(2,486)		(1,595)	(654)		(4,735)		(10,688)
	Interest income on deposits	352	-	352	22		10	13		45		397
	Interest rate swap payments	(3,554)	-	(3,554)	-		-	-		-		(3,554)
	Financing costs	(9,155)	(5,274)	(14,429)	(2,464)		(1,585)	(641)		(4,690)		(19,119)
	Investment segment result	6,217	(3,744)	2,473	3,237		850	293		4,380		6,853
	Property operating expenses and operating lease rentals are shown as cost of sales in note 3(a). Operating lease rental result from sale and leaseback transactions which are considered a form of financing, hence the costs are shown next to interest above.

  Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(c) Investment segment see through basis (continued)
	31 December 2009																	Group on see through basis
			100% Unite					Share of co-invested joint ventures
			Wholly Owned	Leased/Other		Total		USAF		Capital Cities		Student Village		OCB		Total		Total
			£'000	£'000		£'000		£'000		£'000		£'000		£'000		£'000		£'000
	Rental income		43,200	14,961		58,161		14,522		6,610		2,587		-		23,719		81,880
	Property operating expenses (excl. lease rentals)		(12,921)	(5,767)		(18,688)		(4,016)		(1,266)		(759)		-		(6,041)		(24,729)
	Net operating income		30,279	9,194		39,473		10,506		5,344		1,828		-		17,678		57,151
	Management fees		-	6,404		6,404		-		(446)		-		-		(446)		5,958
	Administrative expenses		-	(13,875)		(13,875)		-		-		-		-		-		(13,875)
	Investment segment result before interest and operating lease rentals		30,279	1,723		32,002		10,506		4,898		1,828		-		17,232		49,234
	Operating lease rentals		-	(10,728)		(10,728)		-		-		-		-		-		(10,728)
	Loan interest and similar charges		(13,284)	-		(13,284)		(4,970)		(3,614)		(1,270)		-		(9,854)		(23,138)
	Interest rate swap payments		(9,684)	-		(9,684)		-		-		-		-		-		(9,684)
	Interest income on deposits		480	-		480		22		12		16		2		52		532
	Financing costs		(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 3(a). Operating lease rental result from sale and leaseback transactions which are considered a form of financing, hence the costs are shown next to interest above.

  Notes to the consolidated interim financial statements

3.	Segment reporting (continued)
	(d) Segment assets and liabilities (see through basis)
	Unaudited 30 June 2010												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		412,090	170,511	112,878		31,085		-		314,474		726,564
	Investment property under development		-	-	138		-		44,290		44,428		44,428
	Completed property		198,825	-	-		-		-		-		198,825
	Property under development		47,538	-	-		-		-		-		47,538
	Investment & development property		658,453	170,511	113,016		31,085		44,290		358,902		1,017,355
	Cash - investment		65,124	14,861	2,013		2,675		887		20,436		85,560
	Other assets - investment		42,925	225	232		19		-		476		43,401
	Other assets - development		9,943	-	2		-		753		755		10,698
	Other assets		117,992	15,086	2,247		2,694		1,640		21,667		139,659
	Debt - investment		(279,288)	(77,915)	(76,004)		(22,568)		-		(176,487)		(455,775)
	Debt - development		(194,777)	-	-		-		(22,105)		(22,105)		(216,882)
	Other liabilities - investment		(37,475)	(2,207)	(1,901)		(2,365)		-		(6,473)		(43,948)
	Other liabilities - development		(8,490)	-	(49)		-		(2,822)		(2,871)		(11,361)
	Interest rate swaps		(42,174)	(2,493)	(9,258)		(1,517)		(1,694)		(14,962)		(57,136)
	Total liabilities		(562,204)	(82,615)	(87,212)		(26,450)		(26,621)		(222,898)		(785,102)
	Net assets attributable to owners of the parent company		214,241	102,982	28,051		7,329		19,309		157,671		371,912
	Minority Interest		(19)	16,155	-		-		-		16,155		16,136
	Net assets		214,222	119,137	28,051		7,329		19,309		173,826		388,048
	Adjusted net assets
	Net assets attributable to owners of the parent company		214,241	102,982	28,051		7,329		19,309		157,671		371,912
	Mark to market of interest rate swaps		41,976	2,493	9,258		1,517		1,694		14,962		56,938
	Valuation gain not recognised on property held at cost		30,367	-	-		-		-		-		30,367
	Deferred tax		-	-	-		362		-		362		362
	Adjusted net assets		286,584	105,475	37,309		9,208		21,003		172,995		459,579

Development debt shown above comprises all debt relating to the development segment including that secured on completed properties.

  Notes to the consolidated interim financial statements

	(d) Segment assets and liabilities (see through basis)
	Unaudited 30 June 2009 (Restated)	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	389,955	161,168	114,045	28,850	304,063	694,018
	Investment property under development	44,210	-	150	-	150	44,360
	Completed property	116,605	-	-	-	-	116,605
	Property under development	273,243	-	-	-	-	273,243
	Investment and development property	824,013	161,168	114,195	28,850	304,213	1,128,226
	Cash	53,686	4,407	1,730	3,160	9,297	62,983
	Other assets - investment	47,713	108	219	3,505	3,832	51,545
	Other assets - development	7,245	-	5	-	5	7,250
	Interest rate swaps	497	-	-	-	-	497
	Other assets	109,141	4,515	1,954	6,665	13,134	122,275
	Debt - investment	(391,642)	(89,132)	(76,005)	(22,924)	(188,061)	(579,703)
	Debt - development	(245,654)	-	-	-	-	(245,654)
	Other liabilities - investment	(38,858)	(1,545)	(1,153)	(5,799)	(8,497)	(47,355)
	Other liabilities - development	(38,016)	-	(679)	-	(679)	(38,695)
	Interest rate swaps	(35,308)	(1,580)	(5,088)	(1,161)	(7,829)	(43,137)
	Total liabilities	(749,478)	(92,257)	(82,925)	(29,884)	(205,066)	(954,544)
	Net assets attributable to owners of the parent company	183,676	73,426	33,224	5,631	112,281	295,957
	Minority interest	(82)	14,485	-	-	14,485	14,403
	Net assets	183,594	87,911	33,224	5,631	126,766	310,360
	Adjusted net assets
	Net assets attributable to owners of the parent company	183,676	73,426	33,224	5,631	112,281	295,957
	Mark to market of interest rate swaps	33,954	1,580	5,088	1,161	7,829	41,783
	Valuation gain not recognised on property held at cost	24,499	-	-	-	-	24,499
	Deferred tax	-	-	-	56	56	56
	Adjusted net assets	242,129	75,006	38,312	6,848	120,166	362,295

  Notes to the consolidated interim financial statements

3.	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		12,534	-	2		-		730		732		13,266
	Other assets		115,202	13,844	2,228		2,321		2,777		21,170		136,372
	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		(27,831)	-	(267)		-		(3,717)		(3,984)		(31,815)
	Interest rate swaps		(29,401)	(1,756)	(6,148)		(1,302)		(546)		(9,752)		(39,153)
	Total liabilities		(540,698)	(81,966)	(84,169)		(25,957)		(18,756)		(210,848)		(751,546)
	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

Notes to the consolidated interim financial statements

4.	Tax
	Current Tax
	Current tax expense for the periods presented is the estimated tax payable or receivable on the taxable result for the period.
	Deferred Tax
	The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the tax rate expected to apply for the periods in which the assets and liabilities are anticipated to reverse. The primary components of the deferred tax expense are related to increases in deferred tax liabilities, arising primarily from the Group's investment property and interest rate swaps.

5.	Earnings per share and net asset value per share
	Earnings per share
		Note	Unaudited 30 June 2010	Unaudited 30 June 2009		31 Dec 2009
				Restated	As previously reported
			£'000	£'000	£'000	£'000
	Earnings
	Basic (and diluted)		9,788	(29,734)	(29,734)	(34,861)
	Adjusted	3(b)	(4,071)	(13,305)	(13,305)	(28,739)
	Weighted Average number of shares (thousands)
	Basic		159,876	126,564	125,162	134,747
	Dilutive potential ordinary shares		135	-	-	3
	Diluted		160,011	126,564	125,162	134,750
	Earnings  per share (pence)
	Basic		6.1	(23.5)	(23.8)	(25.9)
	Diluted		6.1	(23.5)	(23.8)	(25.9)
	Adjusted		(2.5)	(10.5)	(10.6)	(21.3)

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.

The calculation of earnings per share for the period-ended 30 June 2009 and the net asset value per share as at 30 June 2009 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 8 have no impact on earnings or net asset value per share.

Notes to the consolidated interim financial statements

5.	Earnings per share and net asset value per share (continued)
	Net asset value per share
		Note	Unaudited 30 June 2010	Unaudited 30 June 2009		31 Dec 2009
				Restated	As previously reported
			£'000	£'000	£'000	£'000
	Net assets
	Basic		371,912	373,229	295,957	365,888
	Adjusted - pre dilution	3(d)	459,579	439,567	362,295	423,126
	Outstanding share options		1,422	1,342	1,342	1,514
	Adjusted - diluted		461,001	440,909	363,637	424,640
	Number of shares (thousands)
	Basic		160,268	159,177	126,357	159,607
	Outstanding share options		734	709	709	778
	Diluted		161,002	159,886	127,066	160,385
	Net assets value per share (pence)
	Basic		232	234	234	229
	Adjusted - pre dilution		287	276	287	265
	Adjusted - diluted		286	276	286	265

6.	Investment and development property
	Unaudited 30 June 2010
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at start of period	403,600	-	204,113	38,097	645,810
	Cost capitalised	1,140	-	414	8,365	9,919
	Interest capitalised	-	-	-	469	469
	Transfer from property under development	-	-	(1,133)	1,133	-
	Disposals	(6,021)	-	(2,520)	-	(8,541)
	Net realisable value provision	-	-	(2,049)	(526)	(2,575)
	Valuation gains	14,596	-	-	-	14,596
	Valuations losses	(1,225)	-	-	-	(1,225)
	Net valuation gains	13,371	-	-	-	13,371
	Balance at end of period	412,090	-	198,825	47,538	658,453

Notes to the consolidated interim financial statements

6.	Investment and development property (continued)
	Unaudited 30 June 2009
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at start of period	403,700	52,989	75,214	249,124	781,027
	Cost capitalised	1,137	11,567	308	75,071	88,083
	Interest capitalised	115	766	-	6,308	7,189
	Transfer from investment property under development	15,510	(15,510)	-	-	-
	Transfer from property under development	-	-	42,260	(42,260)	-
	Disposals	(21,733)	-	-	(7,030)	(28,763)
	Net realisable value provision	-	-	(1,177)	(7,970)	(9,147)
	Valuation gains	3,861	-	-	-	3,861
	Valuations losses	(12,635)	(5,602)	-	-	(18,237)
	Net valuation losses	(8,774)	(5,602)	-	-	(14,376)
	Balance at end of period	389,955	44,210	116,605	273,243	824,013

	31 December 2009
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at start of period	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
	Valuations losses	(14,130)	(7,168)	-	-	(21,298)
	Net valuation losses	(8,460)	(6,682)	-	-	(15,142)
	Balance at end of period	403,600	-	204,113	38,097	645,810

Notes to the consolidated interim financial statements

6.	Investment and development property (continued)
	Properties owned by the Group, shown below, and joint ventures, have 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 £47.538m (30 June 2009: £273.243m) and completed property of £198.825m (30 June 2009: £116.605) held in current assets are carried at cost less a net realisable value provision, but their fair value has been determined on the same basis and is disclosed below. Following the formation of the UNITE UK Student Accommodation Fund (USAF) 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 now treated as property under development in current assets, (carried at the lower of cost and NRV), rather than fixed assets, (carried at fair value). The impact if these properties were carried at fair value rather than cost is as follows:
	Unaudited 30 June 2010
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at end of period	412,090	-	198,825	47,538	658,453
	Valuation gain not recognised on property held at cost	-	-	24,595	5,772	30,367
	Fair value at end of period	412,090	-	223,420	53,310	688,820
	Unaudited 30 June 2009
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at end of period	389,955	44,210	116,605	273,243	824,013
	Valuation gain not recognised on property held at cost	-	-	16,145	8,354	24,499
	Fair value at end of period	389,955	44,210	132,750	281,597	848,512
	31 December 2009
		Investment property	Investment property under development	Completed property	Property under development	Total
		£'000	£'000	£'000	£'000	£'000
	Balance at end of period	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 period	403,600	-	221,290	38,906	663,796

Notes to the consolidated interim financial statements

7.	Inventories
			Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			£'000	£'000	£'000
	Finished goods		327	-	5,206
	Work in progress		4,711	1,096	1,364
	Raw materials and consumables		791	1,550	1,596
			5,829	2,646	8,166

8.	Investments in 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.  In the financial statements for the year ended 31 December 2009, following a request for information from the Financial Reporting Review Panel, the Group identified a classification error and 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. In these financial statements the comparative figures for the period to 30 June 2009 have also been restated to correct this misclassification.

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 (30 June 2009: £51.913m) have been taken to joint venture investment loans (30 June 2009: £2.262m) and investment in joint ventures (30 June 2009: £49.651m). The Group has also now discounted the joint venture loans already held as non-current other receivables, of £3.667m in 2009 reducing this amount by £158,000 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 the period to 30 June 2009 by £118,000.  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 period.

Notes to the consolidated interim financial statements

8.	Investments in joint ventures (continued)

	Unaudited 30 June 2010			Unaudited to 30 June 2009 (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	4,802	-	4,802	4,380	-	4,380
Minority interest share of investment segment result	576	-	576	646	-	646
Overheads	(229)	-	(229)	(193)	-	(193)
Net revaluation gain / (loss)	16,160	-	16,160	(9,506)	-	(9,506)
Current tax	46	-	46	683	-	683
Deferred tax	(455)	-	(455)	(9)	-	(9)
Impact of discounting on interest free loans	(378)	378	-	(118)	118	-
Ineffective swaps recognised in income statement	(384)	-	(384)	-	-	-
Other	(13)	-	(13)	55	-	55
	20,125	378	20,503	(4,062)	118	(3,944)
Share of items recognised directly in reserves:
Movement in effective hedges	(4,944)	-	(4,944)	2,329	-	2,329
Deferred tax on movement in effective hedges	60	-	60	38	-	38
Disposals	-	(28)	(28)	-	-	-
Profit adjustment related to trading with joint venture	(738)	111	(627)	(861)	35	(826)
Distributions received	(1,721)	-	(1,721)	(1,930)	-	(1,930)
	12,782	461	13,243	(4,486)	153	(4,333)
At start of period	148,344	12,239	160,583	125,481	5,618	131,099
At end of period	161,126	12,700	173,826	120,995	5,771	126,766

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

Notes to the consolidated interim financial statements

8.	Investments in joint ventures (continued)

	31 December 2009
	Investment in joint venture	Joint venture investment loan	Total interest
	£'000	£'000	£'000
Share of profit:
Investment segment result	7,430	-	7,430
Minority interest share of investment segment result	1,150	-	1,150
Overheads	(499)	-	(499)
Net revaluation loss	(1,473)	-	(1,473)
Current tax	683	-	683
Deferred tax	41	-	41
Impact of discounting on interest free loans	(411)	411	-
Ineffective swaps recognised in income statement	(55)	-	(55)
Other	63	-	63
	6,929	411	7,340
Share of items recognised directly in reserves:
Movement in effective hedges	497	-	497
Deferred tax on movement in effective hedges	77	-	77
Additions	25,825	6,082	31,907
Profit adjustment related to trading with joint venture	(3,542)	128	(3,414)
Distributions received	(6,923)	-	(6,923)
	22,863	6,621	29,484
At start of year	125,481	5,618	131,099
At end of year	148,344	12,239	160,583

9.	Borrowings and financial derivatives
			Unaudited 30 June 2010	Unaudited 30 June 2009	31 Dec 2009
			£'000	£'000	£'000
	Non-current
	Bank and other loans		422,629	516,447	438,247
	Interest rate swaps		42,174	33,398	29,401
			464,803	549,845	467,648
	Current
	Overdrafts		11,320	12,657	-
	Bank loans		40,116	108,192	179
	Interest rate swaps		-	1,910	-
			51,436	122,759	179

Independent review report to The UNITE Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises of the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in shareholders' equity, the consolidated statement of cashflows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

Stephen Bligh for and on behalf of KPMG Audit Plc

Chartered Accountants

London

26 August 2010

 

END

 

 

IR SELEDIFSSELA