Interim Results
Unite Group PLC
15 September 2005
Date: 15 September 2005
On behalf of: The UNITE Group plc ('UNITE')
Embargoed until: 0700hrs
THE UNITE Group plc
Interim Results for the six months ended 30 June 2005
Highlights
The first six months of 2005 were characterised by strong performance in both
the investment and development businesses:
• Adjusted fully diluted net asset value per share of 340 pence
(December 2004: 328 pence), representing growth of 3.7% for the six months.
After adjusting for the impact of the removal of stamp duty relief (£27.4m or
23.9 pence per share) underlying growth was 11.0% for the six months.
• Profit for the period under IFRS of £10.3m (2004: £8.9m).
• Operating profit from the investment portfolio of £25.8m, up
20% from £21.5m in 2004.
• Anticipated like-for-like revenue growth of 7.2% (2004: 6.8%)
for the 2005/06 academic year.
• 92.5% of available beds booked for the forthcoming academic
year 2005/06 (September 2004: 92.2%).
• Joint venture transactions with the Government of Singapore
('GIC RE') and Lehman Brothers
Commenting on the Group's interim results, Geoffrey Maddrell, Chairman of The
UNITE Group plc, said:
'Over the past two years UNITE has successfully extended its market leading
position in student accommodation and has been at the forefront of bringing new
investment into the sector. As a result, the Group's competitive position has
been further strengthened, as indeed has its outlook for the future.
The broader real estate market continues to be strong, with yield compression
evident across all sectors in the first six months of 2005, building on the
performance of 2004. This has undoubtedly benefited UNITE to the extent that
real estate investors are more focussed on alternative sectors including student
accommodation. With the evidence of our recent joint ventures and assets
disposals, and the non-cyclical demand and rental growth characteristics of our
market, we are confident that our portfolio continues to be valued
conservatively relative to the broader real estate market and that the Group is
well placed to continue to drive investment into the sector.
Our focus is on delivering high quality, well located accommodation in strong
higher education markets, whilst continuing to innovate in the creation of an
unmissable customer experience. In this context, we are confident of delivering
progressive strong rental growth and we will continue to evolve our strategy for
adding value through our development expertise.'
An analysts' presentation, by invitation only, will be held at 0930hrs on 15th
September 2005. It will be held at Tower 42, 25 Old Broad Street, London EC2N
1HQ.
Enquiries:
The UNITE Group plc T: 020 7902 5055
Nicholas Porter, Chief Executive Officer
Mark Allan, Group Finance Director
Redleaf Communications Ltd T: 020 7955 1410
Wendy Timmons/Emma Kane
A copy of the investor presentation is available on our website:
www.unite-group.co.uk
Publication quality photographs are available on request.
Chairman's Statement
Introduction
In the first half of 2005 demand for UNITE's product remained strong and the
underlying fundamentals of our market place continued to strengthen. In this
context, UNITE delivered robust rental growth and sustained high occupancy
levels, with a combination of these factors contributing to anticipated
like-for-like revenue growth of 7.2% into the forthcoming academic year. The
non-cyclical nature of our asset class is fuelling investor appetite for our
product, which in turn is helping to drive yield compression in our portfolio
valuation.
These interim results to June 2005 are UNITE's first results presented under
International Financial Reporting Standards ('IFRS'). Under these new standards
the profit and loss account is replaced with an income statement, which includes
revaluation gains, and there are a number of important accounting changes, most
notably the requirement to provide in full for deferred tax and the market value
of interest rate swaps.
Net asset value under IFRS at 30 June 2005 was £320m (287p per share). On an
adjusted basis, adding back the new provisions for deferred tax and market value
of interest rate swaps, this was £385m (340p per share fully diluted). This is
after absorbing the full negative valuation impact of the Chancellor's
unexpected removal of stamp duty relief in disadvantaged areas immediately
following this year's Budget, which has reduced net asset value by some £27.4m
(23.9p per share fully diluted). If the impact of the removal of this relief is
ignored, adjusted fully diluted net asset value per share grew by 11.0% in the
six months, reflecting the strong business performance in both our investment
and development portfolios.
Profit for the six months to June 2005, as disclosed in the income statement and
including revaluation movements and charges in relation to ineffective hedges,
was £10.3m, up from £8.9m for the same period in 2004 (restated).
Finally, the introduction of trading and management activity between UNITE and
its joint venture interests, as well as the sale of further non-core elements of
development sites, has introduced a more significant element of non-rental
profits within these results. Overall, these activities contributed £1.4m of
profit before tax (2004: £nil).
Market Update
Year on year we continue to see growing demand for places at UK universities,
whilst growth in the supply of accommodation is not keeping pace. The most
recent July 2005 data from UCAS indicate that applications for full-time
undergraduate courses have increased by 8.2% compared with the same point in
time last year. In particular, the attractiveness of the UK as a university
destination is fuelling demand for good quality student accommodation. With
approximately 220,000 international students studying in the UK, this category
makes up 16% of the full-time higher education student population (Source:
Higher Education Statistics Agency). This year applications for university
places from overseas students have again increased, by 7.8% (UCAS, July 2005).
Net asset value performance
Net asset value at 30 June 2005 was £320m (287p per share). When the impact of
the provision for deferred tax and the market value of interest rate swaps
required under IFRS is excluded, this increases to £385m (31 December 2004:
£373m) or 340p per share fully diluted (2004: 328p). This adjusted measure
represents the most appropriate indicator of Group performance, the key
components of which are:
• Rental growth within the completed investment portfolio contributed to
capital growth of 1.7% or £16m, whilst yield compression across the investment
portfolio delivered further capital growth of £15m (1.5%).
• Our development activity, including that undertaken through joint
ventures, contributed £8m of net asset value growth. The Group continues to work
hard to add value throughout the development process and to deliver attractive
returns for shareholders as a result.
• In March 2005 the Chancellor unexpectedly abolished Stamp Duty relief for
properties in disadvantaged areas. UNITE's portfolio has been at the forefront
of urban regeneration in many cities and much of it was located in such areas.
As a result of the removal of this relief, our investment portfolio valuation
has been adjusted downwards by some £20m on a one-off basis. In addition, a
further £7m downward adjustment has been made against the Group's development
portfolio for the same reason. In both cases, however, the financial impact of
this will only be realised to the extent that properties are sold and the sales
price reduced to reflect the stamp duty liability. Whilst there were some well
publicised anomalies arising from the introduction of this relief in 2003, it
provided a helpful incentive for developers such as UNITE whose businesses are
committed to urban regeneration. Its abolition is therefore disappointing,
although UNITE has continued to successfully secure new development
opportunities subsequently.
The broader real estate market continues to be strong, with yield compression
evident across all sectors in the first six months of 2005, building on the
performance of 2004. This has undoubtedly benefited UNITE to the extent that
relevant investors are more focussed on alternative asset classes such as
student accommodation. With the evidence of our recent joint ventures and asset
disposals, and the proven fundamentals of our market, we are confident that our
portfolio continues to be valued conservatively relative to the broader real
estate sector. UNITE's investment portfolio is valued at an average stabilised
yield of 6.46% (December 2004: 6.56%) and the Group is well placed to continue
attracting investment into the sector.
Development activity
The development market place continues to be challenging. However, despite the
combination of a buoyant investment market, the removal of stamp duty
disadvantaged area relief and an increasingly complex planning process UNITE's
unique proposition and track record helped it secure a further 2,246 bed spaces
for development and delivery in future years. Our pipeline of future
opportunities remains encouraging.
The continued success of the Group's development activities is testament to our
persistent 'cost down' approach with our partner contractors and our commitment
to modular construction, which has been a key component in combating build cost
inflation. We have also been able to bring our significant planning experience
and expertise to bear and have increasingly become involved in prospective
projects at an earlier stage to ensure that appropriate value is delivered
through the planning phase. As a result we are continuing to secure new
opportunities whilst the development pipelines of some competitors appear to be
diminishing. We are confident of further opportunities to capitalise on this
shift in our market place and are evaluating our strategy and approach so as to
take maximum advantage.
Our joint ventures with Lehman Brothers and GIC RE provide an effective
validation of the returns that we are able to deliver and, whilst development
margins of 25% are now less likely to be achieved on a regular basis, we are
consistently delivering margins well in excess of 20% and thereby providing
competitive returns for shareholders.
From a delivery perspective, UNITE has successfully completed, commissioned and
opened a further 4,677 bed spaces into its completed investment portfolio as at
September 2005, of which 1,553 bed spaces will be operated within our joint
ventures. Our ongoing development activity now means that we are confident of
delivering approximately 4,250 further bed spaces in 2006, of which 1,427 will
be within joint ventures, whilst our pipeline of projects for 2007 and 2008 is
robust.
Modular construction remains a critical factor in maintaining development
margins. Expertise at our manufacturing facility continues to increase, as does
the related confidence and abilities of our partner contractors. This summer saw
the completion of our largest modular project to date, the 1,162 bedroom
development at The Forge in Sheffield, which was developed in a joint venture
with Lehman Brothers. In addition to helping contain construction costs on this
project, the use of modular construction enabled the occupation date to be
accelerated by 12 months, thereby providing an additional year of investment
return. Production at the modular facility for the half year to June totalled
1,484 modules representing a record 6 months.
Earnings performance
Investment portfolio
During the first six months of 2005 UNITE operated 26,319 completed bed spaces,
of which 1,246 were operated on behalf of Morley Fund Management and 723 were
transferred into our joint venture with GIC RE in March. Revenues from the
portfolio rose by 27%, compared with the first six months last year, and
portfolio profit (being portfolio operating profit less the attributable
interest charge) rose 4.7% to £4.5m (2004: £4.3m).
The period also saw marketing activity in respect of the 2005/06 academic year
accelerating and, as at 30 June, 78% of our portfolio had already been reserved
for that academic year, with 4,095 rooms being let over tenancy periods of at
least 50 weeks (2004: 3,468). As at 13 September 2005, reservations across our
portfolio for the 2005/06 academic year had increased to 92.5% of available
rooms (2004: 92.2%) following another solid performance through the University
clearing process. Together strong rental growth and sustained high occupancy
levels are expected to deliver like-for-like revenue growth of 7.2% into the
forthcoming academic year.
As in previous years, this consistent strong rental growth has also contributed
to an increase in operating margin. For the portfolio under management,
including assets held in joint ventures, this increased to 65.6%, from 65.3% for
the same period in 2004, after adding back the lease cost associated with those
assets operated on behalf of Morley. The increase in margin would have been more
significant had it not been for a considerable increase in utilities costs
across our portfolio, particularly for electricity. Year on year, electricity
prices increased by some 16%, which we estimate to have had a negative impact on
operating margin of approximately 1 percentage point.
Our customer research data indicates that the 'bills-inclusive' rents that UNITE
offers its customers are a key factor in students choosing to live with us.
However, it does introduce a time lag in our ability to recover increased
utilities costs from our customers, as rents are set approximately nine months
in advance of the academic year commencing. In the current environment these
higher power costs will continue and a further rise was experienced in the
second half of 2005. Consequently, the negative impact on operating margin will
persist for the 2005/06 academic year. However, UNITE has now entered into a two
year fixed price contract for its electricity supply which will allow for these
costs to be properly absorbed during the rent setting process for the 2006/07
and 2007/08 academic years.
Elsewhere, operating costs remain firmly under control and the Group is pursuing
initiatives aimed at improving both customer satisfaction and operational
efficiency. These initiatives include the redeployment of resource from our
centralised head office functions to field based customer-facing roles, as well
as a significant investment in upgraded IT systems aimed at providing true
online functionality and significant self-service components for our customers.
We have also relaunched our Accommodation Services business as Hospitality
Services, reflecting the increased focus on service that is at the core of
UNITE's proposition. These initiatives will have a positive impact during the
financial year 2006.
Other activities
During the period the Group provided management, consultancy and modular
construction services to its joint venture interests, which are accounted for as
external transactions. It also disposed of certain non-core elements of ongoing
developments. Together these items contributed revenues of £19.1m and profits of
£1.4m, and are expected to continue for the foreseeable future, albeit at a
lower level for disposal profits.
Under IFRS, and as set out in our restated 2004 results, the Group is now
required to make provision for movements in the market value of interest rate
swaps which do not meet stringent effectiveness criteria. A non-cash charge of
£2.8m has been made in this regard and it should be noted that the ongoing
reporting under IFRS will result in continued volatility in this area.
Our people
During 2005 UNITE has been recognised as one the UK's leading employers by the
Guardian. The Group also achieved accreditation as an Investor in People, taking
just 12 weeks from deciding to pursue the award to being rated as 'exceeding the
standard'. Both of these awards highlight the focus placed on continuous
professional development across the Group, with effective people practices being
key to our ability to achieve stretching targets.
Our values led approach has also helped build a culture that supports our
strategy and has resulted in employee retention and stability ahead of
comparable sectors. Our employee satisfaction measures place the Group in the
upper quartile of UK companies.
UNITE had 701 employees at the end of June 2005 working across its Hospitality
Services, Development, Modular Construction and Group Services functions.
Financing
It is now 18 months since we introduced our financing strategy, aimed at
increasing the diversity and flexibility of our capital base. We have had
considerable success in this area, with the portfolio disposal to Morley and
first joint venture with Lehman Brothers in 2004, and we have built on this
success in 2005 with our £350 million Capital Cities joint venture with GIC RE
and our second student village joint venture with Lehman Brothers. Both of these
transactions provided valuable further evidence of the clearly emerging
investment market for student accommodation, with the GIC RE transaction
achieving a 5.9% initial yield in respect of the seed portfolio sold by UNITE to
the venture (6.3% on a stabilised basis) and the student village venture
demonstrating approximately 35 basis points of yield compression over the first
joint venture closed in April 2004.
Proceeds from asset disposals and joint venture initiatives have been used to
repay borrowing and provide further capital for our development activities.
Further disposals are likely but, as with our disposals and joint ventures to
date, the nature and type of assets sold will be very clearly defined in order
to ensure that there is no conflict of interest between those assets sold or
joint ventured and those assets retained on UNITE's balance sheet.
The Capital Cities joint venture, details of which were reported at the time of
the preliminary announcement of our 2004 results, has helped us to reduce
gearing levels marginally despite the financing of our ongoing development
programme. Measured against adjusted net asset value, gearing fell to 194% from
197% at 30 June and 31 December 2004. Interest cover remains satisfactory and we
continue to apply a conservative hedging policy, with 87% of our borrowings
either at fixed rate or hedged through interest rate swaps. Long term borrowing
costs remain generally low and our average cost of debt currently stands at 6.6%
(December 2004: 6.6%).
Looking forward, the Group has recently agreed terms with a syndicate of lenders
for a new £225m facility which, together with existing facilities, provides
sufficient borrowing capacity for the Group's development and investment
activities through to December 2007.
Dividend
In line with our stated policy, your Board recommends that the interim dividend
be maintained at 0.83 pence per share (2004: 0.83 pence). The dividend becomes
payable on 11 November 2005 to shareholders on the register at 14 October 2005.
Outlook
Over the past two years, UNITE has successfully extended its market leading
position in student accommodation and has been at the forefront of bringing new
investment into the sector. As a result, the Group's competitive position has
been further strengthened, as indeed has its outlook for the future. Our focus
is on delivering high quality, well located accommodation in strong higher
education markets, whilst continuing to innovate in the creation of an
unmissable customer experience. In this context, we are confident of delivering
progressive strong rental growth.
The popularity of UK universities remain in our favour and growth in demand is
outpacing growth in supply. Our accumulated sector expertise leaves us well
placed to add value through further growth and the significant co-investments of
credible investment partners have demonstrated the attractiveness of our sector
and validated our development returns. Against this backdrop, we will continue
to evolve our strategy for adding further value through our development activity
and also to explore opportunities arising as a result of the sector's increasing
maturity.
Geoffrey Maddrell
Chairman
15th September 2005
Consolidated income statement
For the 6 months to 30 June 2005
Note Unaudited Unaudited Restated
6 months 6 months Year
to to to
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Investment sales 41,820 32,918 66,808
Development sales 19,084 - 7,815
Revenue 60,904 32,918 74,623
Property operating expenses (12,042) (7,591) (18,024)
Development cost of sales (17,719) - (6,654)
Cost of sales (29,761) (7,591) (24,678)
Administrative expenses
- goodwill impairment - - (2,515)
- other (8,712) (7,538) (14,284)
Administrative expenses (8,712) (7,538) (16,799)
Profit on disposal of property 402 (394) 23
Net valuation gains on 6 10,550 9,904 20,869
investment property
Net operating profit before net 33,383 27,299 54,038
financing costs
Loan interest & similar charges (22,190) (17,569) (38,098)
Movements in ineffective hedges (2,829) - -
Finance costs (25,019) (17,569) (38,098)
Finance income 973 402 1,137
Net financing costs (24,046) (17,167) (36,961)
Share of joint venture profit 365 - 30
Profit before tax 9,702 10,132 17,107
Tax credit / (expense) 4 606 (1,196) 233
Profit for the period 10,308 8,936 17,340
Earnings per share
Basic 5 9.3p 8.2p 15.8p
Diluted 5 9.1p 8.2p 15.6p
Profit for the period is wholly attributable to equity holders of
The UNITE Group plc.
Consolidated balance sheet
At 30 June 2005
Note Unaudited Unaudited Restated
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Assets
Investment property 6 952,428 809,557 991,460
Investment property under 7 169,818 244,079 119,732
development
Property, plant and equipment 15,560 16,693 15,971
Investment in joint venture 8 9,195 787 817
Intangible assets 4,619 7,509 4,753
Other receivables 6,579 6,129 6,079
Total non-current assets 1,158,199 1,084,754 1,138,812
Inventories 8,618 2,202 13,401
Trade and other receivables 26,277 18,259 26,246
Cash and cash equivalents 36,728 23,169 37,582
Total current assets 71,623 43,630 77,229
Total assets 1,229,822 1,128,384 1,216,041
Liabilities
Interest-bearing loans and 9 (127,816) (153,944) (106,153)
borrowings
Trade and other payables (63,587) (70,747) (71,675)
Total current liabilities (191,403) (224,691) (177,828)
Interest-bearing loans and 9 (672,487) (555,073) (665,925)
borrowings
Deferred tax liabilities (45,476) (48,115) (50,479)
Total non-current liabilities (717,963) (603,188) (716,404)
Total liabilities (909,366) (827,879) (894,232)
Net Assets 320,456 300,505 321,809
Equity
Issued share capital 27,871 27,116 27,825
Share premium 141,560 137,215 141,324
Merger reserve 40,177 40,177 40,177
Retained earnings 99,489 62,337 96,113
Revaluation reserve 17,590 33,660 16,370
Hedging reserve (6,231) - -
Total equity 320,456 300,505 321,809
Consolidated statement of changes in shareholders equity
For the 6 months to 30 June 2005
Note Unaudited Unaudited Restated
6 months 6 months Year
to to to
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Investment property under development:
- revaluation 7 811 4,411 17,052
- deferred tax (243) (1,323) (5,116)
Effective hedges - movements (5,973) - -
- deferred tax 1,792 - -
Share of joint venture valuation gain 8 794 787 787
(net of related tax)
Share of joint venture movements in 8 (933) - -
effective hedges (net of related tax)
Net (losses) / gains recognised directly (3,752) 3,875 12,723
in equity
Profit for the period 10,308 8,936 17,340
Total recognised income and expense for 6,556 12,811 30,063
the period
Dividends paid (1,861) (1,807) (2,728)
Own shares acquired - (178) (178)
Shares issued 282 341 5,159
Fair value of share options expensed 213 147 302
5,190 11,314 32,618
At start of period 321,809 289,191 289,191
Recognition of hedges under IAS39 at 1 (6,543) - -
January 2005
At end of period 320,456 300,505 321,809
Consolidated statement of cash flows
For the 6 months to 30 June 2005
Unaudited Unaudited Restated
6 months 6 months Year
to to to
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Operating activities
Profit for the period 10,308 8,936 17,340
Adjustments for non cash / non operating 13,595 10,460 20,977
items
Operating profit before changes in 28,903 19,396 38,317
working capital
Changes in working capital 251 1,855 (15,176)
Cash flows from operating activities 24,154 21,251 23,141
Cash flows from investing activities 8 (7,540) (86,941) (113,550)
Cash flows from financing activities 8 (19,464) 61,858 99,245
Net (decrease) / increase in cash and (2,850) (3,832) 8,836
cash equivalents
Cash and cash equivalents at start of 28,496 19,660 19,660
period
Cash and cash equivalents at end of 25,646 15,828 28,496
period
Cash and cash equivalents are stated net of operational overdrafts which are
disclosed in notes 9.
1. Basis of preparation
The UNITE Group plc (the 'Company') is a company domiciled in The
United Kingdom. These condensed consolidated interim financial
statements for the 6 months ended 30 June 2005 comprise the
Company and its subsidiaries (together referred to as the 'Group')
and the Group's interests in its joint ventures.
EU law (IAS Regulation EC 1606/2002) requires that the next annual
consolidated financial statements of the Company for the year
ended 31 December 2005, be prepared in accordance with
International Financial Reporting Standards (IFRS) adopted for use
in the EU ('adopted IFRS').
On 15 June 2005, the Company published unaudited results for the
year ended 31 December 2004 restated in accordance with IFRS (the
'IFRS restatement') which showed the effect of this transition on
the group's 2004 results and on its opening and closing balance
sheets.
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting and on the basis of the accounting policies disclosed
and adopted in the IFRS restatement (which are those expected to
be applied in the year ending 31 December 2005 financial
statements). The condensed consolidated interim financial
statements do not include all of the information required for full
annual financial statements.
From 1 January 2005, the following standards have been applied:
IFRS 5 - Non-current Assets Held for Sale and Discontinued
Operations, IAS 32 - Financial Instruments: Disclosure and
Presentation and IAS 39 - Financial Instruments: Recognition and
Measurement. The effect of transition to IAS32 and IAS39 at 1
January 2005 was shown in the IFRS restatement. No adjustments
have been required in respect of IFRS5.
The comparative figures for the year ended 31 December 2004 have
also been taken from the IFRS restatement and are therefore not
the company's statutory accounts for that financial year. The
statutory accounts, which were prepared under UK GAAP, have been
reported on by the company's auditors and delivered to the
Registrar of Companies. The report of the auditors was
unqualified and did not contain statements under section 237(2) or
(3) of the Companies Act 1985.
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 encouraging the take
up of 52 week tenancies, however, the second half-year typically
has lower revenues for the existing portfolio.
Conversely, the Group's build cycle for new investment property is
planned to complete construction shortly before the start of the
academic year in September each year. The addition of these
properties to the investment division in the second half increases
the division's revenues in the second half of the year.
3. Segment reporting
Segment information is presented in respect of the Group's business segments
based on the Group's management and internal reporting structure. The
Directors do not consider that the group has meaningful geographical segments
as it operated exclusively in the United Kingdom in the year.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
The group comprises the following main business segments:
• Investment
• Development
Unaudited Unaudited Restated
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Segment results
Investment 25,765 21,502 40,951
Development (240) (1,272) (1,215)
Unallocated - corporate costs (2,611) (2,441) (4,075)
- other (12,606) (8,853) (18,321)
Profit for the period 10,308 8,936 17,340
Portfolio profit is calculated as follows:
Investment segment result 25,765 21,502 40,951
Net loan interest payable (21,217) (17,167) (36,961)
Share of joint venture and other (39) - -
4,509 4,335 3,990
4. Tax
Current tax
Current tax expense for the interim periods presented is the expected tax
payable on the taxable income for the period, calculated as the estimated
average annual effective income tax rate (nil for all periods due to the
effect of tax losses) applied to the pre-tax income of the interim 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 estimated average annual effective income tax rate for the interim
periods presented.
As a result of adopting IAS 39 - Financial Instruments: Recognition and
Measurement in the period, the tax credit shown in the income statement for
the six months ended 30 June 2005 includes an additional deferred tax credit
of £806,000 relating to movements in the fair value of ineffective hedges.
The other primary components of the deferred tax credit are related to an
increase in deferred tax liabilities, arising primarily from the group's
investment property.
5. Earnings per share and net asset value per share
Earnings per share
The calculations of basic and adjusted earnings per share are as
follows:-
Unaudited Unaudited Restated
30 June 2005 30 June 2004 31 Dec 2004
Earnings £'000 £'000 £'000
Basic (and diluted) 10,308 8,936 17,340
Adjustments:
Net valuation gains on investment
property (inc. share of joint ventures) (10,946) (9,904) (20,869)
Movements in ineffective hedges 2,829
Deferred tax (606) 1,196 (233)
Adjusted 1,585 228 (3,762)
Weighted Average number of shares
(thousands)
Basic 111,416 108,332 109,478
Dilutive potential ordinary shares 1,552 1,212 1,330
Diluted 112,968 109,544 110,808
Earnings per share (pence)
Basic 9.3 8.2 15.8
Diluted 9.1 8.2 15.6
Adjusted 1.4 0.2 (3.4)
Net asset value per share
The calculations of basic, diluted and adjusted net asset value per share
are as follows:-
Unaudited Unaudited Restated
30 June 2005 30 June 2004 31 Dec 2004
£'000 £'000 £'000
Shareholders' funds
Basic 320,456 300,505 321,809
Mark to market of interest rate swaps
(inc share of joint ventures) 19,033 - -
Deferred tax (inc joint ventures) 45,731 48,453 50,787
Adjusted- pre dilution 385,220 348,958 372,596
Outstanding share options 6,233 8,910 6,584
Adjusted - diluted 391,453 357,868 379,180
Number of shares (thousands)
Basic 111,484 108,464 111,301
Outstanding share options 3,580 5,731 4,321
Diluted 115,064 114,195 115,622
Net assets value per share (pence)
Basic 287 277 289
Adjusted - pre dilution 346 322 335
Adjusted - diluted 340 313 328
6. Investment property
Unaudited Unaudited Restated
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Balance at start of period 991,460 788,304 788,304
Acquisitions 450 827 827
Transfer from investment property - 11,139 230,501
under development
Disposals (50,032) (617) (49,041)
Valuation gains 22,191 17,915 39,676
Valuation losses (11,641) (8,011) (18,807)
Balance at end of period 952,428 809,557 991,460
The carrying amount of investment property is the fair value of the
property as determined by CB Richard Ellis Ltd and Messrs King
Sturge, Chartered Surveyors as external valuers.
7. Investment property under development
Unaudited Unaudited Restated
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Balance at start of period 119,732 166,446 166,446
Cost capitalised 56,229 89,386 171,133
Interest capitalised 5,001 5,906 11,294
Disposals (11,955) (10,931) (15,692)
Transfer to investment property - (11,139) (230,501)
Valuation gains 6,540 14,532 21,648
Valuation losses (5,729) (10,121) (4,596)
Balance at end of period 169,818 244,079 119,732
The carrying amount of investment property under development is the
fair value of the property as determined by CB Richard Ellis Ltd and
Messrs King Sturge, Chartered Surveyors as external valuers.
8. New joint venture
On 14 March 2005, the Group formed a joint venture with GIC Real
Estate Pte Ltd to develop and operate student accommodation in the
capital cities of London, Edinburgh, Dublin and Belfast in which
the Group owns a 30% equity share.
On formation of this joint venture, the Group sold 4 investment
properties and 2 investment properties under development for
£60.127m and a profit on disposal of £272,000 is included in the
income statement. In addition, set up costs of £483,000 are
included in administrative expenses.
Included in the condensed statement of cash flows are the
following cash flows resulting from the sale of properties into
the joint venture:
£'000
Net sale proceeds 58,784
Initial equity investment in joint venture (6,583)
Net effect on cash flows from investing 52,201
activities
Repayment of borrowings (financing activities) (50,099)
Net cash flow effect 2,102
At 30 June 2005, the Group had invested a further £1,553,000 of
equity and the carrying value of this joint venture had grown to
£8,502,000 (representing the Group's share of its net assets).
The group receives management fees from the joint venture and
recharges build costs in relation to the investment property under
development sold on formation. Revenue for the period includes
£8,052,000 in relation to these.
9. Interest-bearing loans and borrowings
Unaudited Unaudited Restated
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Non-current
Bank and other loans 650,866 551,182 662,125
Finance lease liabilities 594 872 781
Interest rate swaps 21,027 3,019 3,019
Non-current liabilities at end of 672,487 555,073 665,925
period
Effect of IAS39 on opening
balances
Adjust interest rate swaps to fair 9,347
value
Non-current liabilities at 1 675,272
January 2005
Current
Overdrafts 11,082 7,341 9,086
Bank loans 12,864 1,642 16,768
Build loans 103,495 144,494 79,924
Finance lease liabilities 375 467 375
127,816 153,944 106,153
10. Explanation of transition to IFRS
The accounting policies referred to in note 1 have been applied in
preparing these interim results and the comparative period results
and in the preparation of an opening IFRS balance sheet at 1
January 2004 (the Group's transition date).
In preparing its opening IFRS balance sheet , the Group has
adjusted amounts reported previously in financial statements
prepared under its previous basis of accounting (UK GAAP). An
explanation of how transition from previous GAAP to IFRS affected
the Group's financial position and financial performance for the
year ending 31 December 2004 was set out in the IFRS Restatement
issued on 15 June 2005. The following tables and notes provide a
similar explanation for the restatement of the interim results for
the 6 months ending 30 June 2004.
Note UK GAAP Effect of IFRS
(*) Transition
to IFRS
£'000 £'000 £'000
Reconciliation of income statements
For the 6 months ended 30 June 2004
Revenue 32,918 - 32,918
Cost of sales (7,591) - (7,591)
Administrative expenses (c) (7,414) (124) (7,538)
Loss on disposal of investment (394) - (394)
property
Net valuation gains on investment (b) - 9,904 9,904
property
Net operating profit before net 17,519 9,780 27,299
financing costs
Net financing costs (17,167) - (17,167)
Share of joint venture profit - - -
Profit before tax 352 9,780 10,132
Tax expense (a) - (1,196) (1,196)
Profit for the period 352 8,584 8,936
Reconciliation of balance sheet
At 30 June 2004
Assets
Investment property 809,557 - 809,557
Investment property under (b) 238,905 5,174 244,079
development
Property, plant and equipment (c) 19,062 (2,369) 16,693
Investment in joint venture (a) 1,125 (338) 787
Intangible assets (c) 5,065 2,444 7,509
Trade and other receivables (c) - 6,129 6,129
Total non-current assets 1,073,714 11,040 1,084,754
Total current assets (c) 49,759 (6,129) 43,630
Total assets 1,123,473 4,911 1,128,384
Liabilities
Total current liabilities (c) (228,610) 3,919 (224,691)
Interest-bearing loans and (552,054) (3,019) (555,073)
borrowings
Deferred tax liabilities (a) - (48,115) (48,115)
Total non-current liabilities (552,054) (51,134) (603,188)
Total liabilities (780,664) (47,215) (827,879)
Net Assets 342,809 (42,304) 300,505
Equity 342,809 (42,304) 300,505
(*) reformatted to reflect IFRS reporting requirements
11. Explanation of transition to
IFRS (continued)
Explanatory Notes
A more comprehensive narrative explanation of the effects of IFRS
transition has already been issued in the IFRS restatement
document referred to in note 1. A brief summary of the changes is
as follows:
(a) Deferred tax
Except as otherwise provided by IAS12, IFRS requires full
provision for all taxable temporary differences. This includes the
capital gains tax which would be payable if the Group were to sell
its property portfolio at book value whereas UK GAAP includes an
exemption from providing for this liability.
(b) Investment property and investment property under development
Investment property under development is carried as a separate
asset class at fair value under IFRS which differs from the
directors' valuations previously applied under UK GAAP. This has
resulted in additional value being recognised in the balance
sheet.
Revaluation gains & losses relating to completed investment
property and on completion of investment property under
development are recognised in the income statement under IFRS
(rather than via the revaluation reserve under UK GAAP).
(c) Other changes
Under the transitional rules goodwill has been recognised at
'deemed cost' equivalent to its carrying value. Unlike UK GAAP,
goodwill is not amortised under IFRS but is subject to impairment
testing.
Dividends are not recognised until declared under IFRS. The
proposed half year dividend is therefore removed from current
liabilities.
The Group's share based incentives for employees are recognised
through the income statement at fair value over the vesting period
(small adjustments to both income statement and balance sheets).
Computer software is held as an intangible asset under IFRS
resulting in a transfer between asset categories (no profit
impact).
Receivables due after more than one year are shown separately as
non-current under IFRS (previously included in current assets but
disclosed as recoverable in more than one year).
Under IFRS, the revaluation reserve represents cumulative
valuation gains and losses (less related deferred tax liabilities)
on properties classified as investment properties under
development and on the group's share of such properties held in
its joint ventures at the balance sheet date.
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