Interim Results
Unite Group PLC
17 September 2007
Date: 17 September 2007
On behalf of: The UNITE Group plc ('UNITE' / 'Group')
Embargoed until: 0700hrs
The UNITE Group plc
Interim Announcement for the six months to 30 June 2007
UNITE ANNOUNCES STRONG HALF YEAR RESULTS AND BONDS REDEMPTION
The UNITE Group plc, the UK's largest provider of student hospitality, today
announces its interim results for the six months to 30 June 2007. At the same
time the Group also announces its intention to redeem its UNITE Finance One Plc
Bonds.
Highlights:
• Adjusted fully diluted Net Asset Value per share increased by 8.3%
to 460p (31 December 2006: 425p). Reported NAV per share rose 6.6% to 417p
(31 December 2006: 391p).
• Adjusted profit before tax of £2.7 million (2006: £2.3 million).
• Oversubscribed second closing of UNITE's £1 billion UK Student
Accommodation Fund ('USAF') which is now fully capitalised. Fund is already
circa 50% invested with a potential further £500 million of investment
capacity.
• Excellent progress across the Group's operations:
• Total number of operating bed spaces for 2007/08 academic year is
37,682 up from 33,944 in 2006/07.
• Substantial increase in secured development pipeline; 3,143 bed
spaces worth an expected £354 million on completion secured in the period.
• Planning consents secured for 11 new schemes, of which five are
in London.
• First sites secured in strategic markets of Reading, Cambridge
and Oxford.
• Launch of UNITE's market leading online accommodation management and
booking platform.
• Reservations of 92% of available bed spaces for the forthcoming
academic year (2006: 91%).
UNITE Finance One Plc Bonds:
• Announcement today of UNITE's intention to redeem the £265.3 million
of fixed rate asset-backed bonds outstanding in UNITE Finance One plc:
• completes UNITE's business model transition;
• enables the Group to pursue a more proactive asset management
strategy for the properties held within the UFO portfolio.
Commenting, Geoffrey Maddrell, Chairman of The UNITE Group plc, said:
'I am delighted to report that UNITE has made strong progress against its
strategy in the first half of 2007. We have delivered on our strategic promises
and consolidated our market-leading position in the student accommodation
sector. Occupier demand within the sector is firmly established, demonstrating
its consistent low risk rental growth profile and investment credentials.
'The establishment of the UNITE UK Student Accommodation Fund and the
positioning of UNITE as a developer and co-investing asset manager has been an
important step in the Group's evolution and we are confident that the proposed
redemption of the UNITE Finance One bond will strengthen our position further.'
Mark Allan, Chief Executive of The UNITE Group plc, commented:
'With the benefit of our new business model as a developer and co-investing
asset manager, we have a scaleable financial structure that allows us to
continue to pursue our strategy with confidence. Furthermore, there are clear
signs that the resilient characteristics of student accommodation are
increasingly understood and appreciated by real estate investors. We therefore
expect our valuations to prove more robust in the face of yield expansion in
broader UK commercial property.
'We have a deep development pipeline for delivery over the next three years,
secured at attractive prices. This, combined with the benefits of the planned
redemption of UNITE Finance One and subsequent sale of certain assets, will
generate further capital for the Group and enable us to seize new development
opportunities as market conditions change.
'With these factors supporting our growth, we are uniquely placed to outperform
our competitors and continue delivering attractive growth to our shareholders.'
Enquiries:
The UNITE Group plc Tel: 020 7902 5053
Mark Allan / Tony Harris
Tabitha Aldrich-Smith
Financial Dynamics Tel: 020 7831 3113
Stephanie Highett / Dido Laurimore / Lauren Mills
A copy of the investor presentation and a recording of the presentation to
analysts will be available on our website, www.unite-group.co.uk, later today.
Publication quality photographs are available on request.
Notes to Editors:
UNITE is the UK's leading student hospitality company. Listed in the FTSE 250
index of the London Stock Exchange and managing a property portfolio of £1.6
billion located across the UK, the Group focuses on the provision and management
of high quality, well-located student accommodation and hospitality services in
strong higher education markets.
UNITE delivers the real student experience, whilst at the same time helping to
regenerate cities as part of the community and contributing to the improvement
of the country's housing. It undertakes the planning, development and
management of sites, often working closely with the universities and colleges,
to deliver accommodation for students across all ages and nationalities. UNITE
developments typically show high occupancy levels and robust rental growth as
demand continues to rise for places in UK Higher Education and for safe, high
quality accommodation for students.
Further information on UNITE is available at www.unite-group.co.uk
See UNITE's new student website at www.unite-students.com
INTERIMS: SIX MONTHS TO JUNE 2007
CHAIRMAN'S STATEMENT
I am delighted to report that UNITE has made strong progress against its
strategy in the first half of 2007. We have delivered on our strategic promises
and consolidated our market leading position in the student accommodation
sector. Highlights from the period under review include:
• an 8.3% increase in adjusted net asset value per share to 460 pence on a
fully diluted basis. Reported net asset value per share increased by 6.6% to
417 pence;
• the second, and oversubscribed, closing of the UNITE UK Student
Accommodation Fund coupled with excellent Fund performance;
• a substantial increase in the Group's secured development pipeline, with
3,143 bed spaces worth an estimated £354 million on completion being secured
in the period;
• a successful focus on continuing to develop high quality assets in
strategic locations, with 760 new bed spaces being secured in London
together with our first sites in three new markets: Reading, Cambridge and
Oxford;
• planning permissions for 11 new schemes, of which five are in London and
six are in other key market cities across the rest of the UK;
• the successful completion and opening of a further 3,260 bed spaces which,
together with the acquisition of the Base Limited portfolio of 1,502 bed
spaces in the early part of the year, brings the total number of bed spaces
in operation for the academic year 2007/08 to 37,682;
• reservations of 92% of available bed spaces for the forthcoming academic
year (2006: 91%);
• the successful launch of our market leading online accommodation
management and booking platform.
Strategy and market overview
At the end of 2006, we established the £1 billion UNITE UK Student Accommodation
Fund ('USAF', 'the Fund') and focused the business in two principal areas of
activity - as a developer of new purpose-built student accommodation and as a
manager of funds which own established student accommodation properties operated
by UNITE and in which the Group has a significant minority stake. This shift to
a new business model has proven successful and has underpinned UNITE's financial
performance in the period by providing capital for investment into development
activities and profit and fee income streams from managing the funds. UNITE's
unrivalled expertise and brand as an operator of student accommodation is a
crucial element to this model.
The establishment of USAF in late 2006, and the subsequent sale of a £505
million portfolio of assets to it, realised over £90 million of equity capital
for the business, which we have begun to reinvest into our development pipeline.
In investing this capital, we have focused on increasing our presence in the
highest quality and most undersupplied student markets in the UK. During the
period we acquired land and secured projects expected to deliver 760 future bed
spaces in London, with an expected value on completion of £187 million. We have
also secured new projects in cities such as Oxford, Cambridge, Reading and
Exeter. Overall in the six months we secured new projects expected to deliver
3,143 future bed spaces, including those projects in London, which are expected
to be worth £354 million on completion.
Demand for accommodation from prospective students remains strong, underpinned
by three drivers; UK demographics, Government policy and growth in international
student numbers. As at 12 September 2007, applications to study at UK
Universities were up 5.8% for full time undergraduate courses and independent
forecasts predict sustained increasing demand for Higher Education.
It is also encouraging to report that the resilient characteristics of our
sector are proving attractive to property investors. In a period where demand
for traditional sectors such as retail and office investments has begun to wane,
we have seen a marked increase in investment demand for student accommodation
with investors attracted by the predictable occupancy rates and rental growth
available at an attractive rate of return. We expect a combination of capital
allocation to the sector and a relative lack of good quality investment stock to
underpin resilience in our valuations compared to the broader easing of yields
in UK commercial property.
Taking into account the success of the Group's move to its new business model we
are announcing today, as described more fully in the Chief Executive's Review,
that we are in final negotiations which we expect to lead to the redemption of
the UNITE Finance One ('UFO') bonds that were issued in 2002. These bonds are
long-dated and fixed rate in nature and this has made the structure relatively
inflexible. As a result, UNITE has been restricted in its ability to pursue
proactive asset management strategies for the properties held as security for
the UFO bonds. Redeeming the bonds removes this restriction and allows the Group
to actively manage the UFO portfolio, including the sale of certain assets and
the redevelopment of others. This will release further capital for reinvestment
into higher yielding activities, principally development, over time.
The long-dated, fixed rate nature of the UFO bonds means that we will incur an
exceptional cost as a result of the redemption. This will be approximately £57
million (46 pence per share) versus the historic book value of the bonds
although the true cost of redemption, measured against the current market value
of the UFO bonds and taking into account the future tax benefit of the
redemption, is much lower at £21 million (17 pence per share). We expect the
returns from reinvestment into higher yielding activities to offset this cost of
redemption within two years. Furthermore, it will complete the shift of UNITE's
business model to that of a developer and co-investing asset manager, giving
extra clarity to the Group's ongoing financial performance.
Financial results
Reported net asset value was £514 million (417 pence per share) at 30 June 2007.
On an adjusted fully diluted basis, net asset value per share increased by
8.3% in the six months to 460 pence. 53% of this growth was derived from
development activities and the remainder came primarily from the increased value
of the Group's investment portfolio, including its co-investment stakes in the
funds it manages. The growth in value of the investment portfolio (including
co-investment stakes) was a combination of rental growth (£10 million) and yield
compression (£11 million).
The Group's income statement for the six months is, as expected, significantly
different to those of earlier periods as a result of the establishment of USAF,
and sale of assets to it, in late 2006. £21.7 million worth of rental income
arose in USAF that would previously have been entirely to UNITE's account and
which contributed to a £17.8 million reduction in revenue. However, the profit
impact of this lost revenue was substantially offset by UNITE's share of profits
from its investment in USAF, management and performance fees received and
receivable from the Fund and a reduction in interest charges as a result of debt
repaid following the sale of assets to USAF. Overall, adjusted profit before
tax increased slightly to £2.7 million, from £2.3 million in 2006. Reported
profit before tax, which includes unrealised gains from the revaluation of
investment property, was £29.2 million for the period, down £32.2 million
against the same period in 2006, primarily due to a substantial reduction in
revaluation gains of £35.1 million.
Over the six months, the Group funded £326 million of capital expenditure,
including that financed through joint ventures, and its net debt increased by
£215 million to £627 million. Adjusted gearing (defined as net debt as a
percentage of shareholders' funds excluding provisions for deferred tax and the
market value of interest rate swaps) increased to 110% from 78% at 31 December
2006. The Group has maintained its conservative hedging strategy, with 87% of
borrowing at 30 June 2007 hedged at an average cost of 6.7%.
Dividend
The Board advises that the interim dividend is maintained at 0.83 pence per
share (2006: 0.83 pence). The dividend is payable on 9 November 2007 to
shareholders on the register on 12 October 2007.
The UNITE team
UNITE's people are crucial to its ongoing success and we have worked hard during
the period to create an environment where they are able to flourish. This has
entailed aligning our people more closely with business opportunity whereby we
now operate three clear teams focused on growing our business in London, growing
our business across the rest of the UK and successfully delivering projects
using modular technology.
We continue to focus on leadership development and have welcomed a number of new
senior managers into the business during the first half of 2007, whilst
promoting others to critical posts. Tony Harris and John Tonkiss, who joined
the Board as Chief Financial Officer and Managing Director of our UK Student
Hospitality business respectively, are clear examples of successful recruitment
and internal promotion.
The Group's employee satisfaction, which is measured independently, remains in
the top quartile of all UK companies, placing us in a strong position to retain
and develop our unique combination of skills still further.
Outlook
The Group has made strong progress against its strategic objectives. The
establishment of the UNITE UK Student Accommodation Fund, and the positioning of
UNITE as a developer and co-investing asset manager, has been an important step
in the Group's evolution and we are confident that the proposed redemption of
the UNITE Finance One bonds and planned subsequent sale of assets will provide
greater flexibility and strengthen our position further.
The fundamentals of the student accommodation sector are solid and increasingly
well understood by Real Estate investors. As a result of this, we expect yields
for student accommodation assets to prove more resilient to the wider easing of
property yields than other segments of the UK commercial property sector. In
this context, it is extremely encouraging, therefore, that the Group has such a
significant and valuable secured development pipeline that will underpin the
business' growth over the coming few years.
Geoffrey Madrell
Chairman
17th September 2007
CHIEF EXECUTIVE'S REVIEW
The first half of 2007 has been another highly active period for UNITE, which
has seen important progress across all areas of our business.
At a time when the traditional property sectors are witnessing more challenging
market conditions, it is very encouraging to have further cemented our market
leading position in the student accommodation sector and to have brought the
launch of the UNITE UK Student Accommodation Fund ('USAF', the 'Fund') to a
successful and oversubscribed close.
Delivering our strategy - Establishing UNITE as a developer and co-investing
asset manager
In December 2006, we established the £1 billion UNITE UK Student Accommodation
Fund and reinforced UNITE's strength in two principal areas of activity - as a
developer of new purpose-built student accommodation and as a manager of funds
that own established student accommodation properties operated by UNITE and in
which the Group has a significant minority stake. We refer to this part of our
business as co-investing asset management. The principal objectives of this
transaction, as outlined at the Fund launch, were threefold:
• to release capital that was tied up in mature, stabilised investment
assets for investment into higher added value development activity;
• to provide UNITE with more growth capital in the medium term; and
• to diversify UNITE's sources of income by providing a new, valuable
revenue stream arising from management fees from the Fund.
It is extremely pleasing to report successful progress in the period against all
three objectives:
• in April 2007 we concluded the launch of USAF through a successful
second equity fund raising. This issue, which was oversubscribed, brought
the total of third party equity committed to the Fund to £370 million which,
together with UNITE's co-investment and USAF's borrowing capacity, gives the
Fund total investment potential of over £1 billion. As part of this second
fund raising UNITE reduced its stake in the Fund to 29.3%, bringing the total
amount of equity capital released to UNITE as a result of the establishment
of USAF to £91 million;
• we have successfully deployed a substantial portion of this equity
capital into our development pipeline, with a particular focus on securing
high quality locations in strong, undersupplied university markets. We have
successfully secured new projects expected to deliver 3,143 future bed spaces
worth an estimated £354 million on completion. 760 of these bed spaces,
worth an estimated £187 million on completion, are located in London and we
also secured other projects in important cities such as Oxford, Cambridge and
Exeter;
• USAF performed strongly in the first six months of 2007, providing
its investors with a total return of 14% and is on track to outperform its
target returns for the full year. As a result of this, performance fees of
£3.4 million have accrued to UNITE during the period under review, in
addition to £1.0 million of management fees.
Following the sale by UNITE in December 2006 of a portfolio of stabilised
student accommodation assets to USAF, the Fund is approximately 50% invested
with a potential further £500 million of investment capacity. Stabilised assets
are those that are effectively fully let at market rents and, subject to certain
operating and financial criteria being met, USAF is obliged to acquire further
stabilised assets offered to it by UNITE at market value. This provides a
predictable source of 'take out' for UNITE's assets and allows the Group to grow
its development pipeline with confidence. We expect to sell at least £80
million of further assets to USAF over the remainder of 2007.
The UK Student Accommodation Market
Demand for UK Higher Education remains strong, as evidenced by applications to
full-time undergraduate courses for the forthcoming 2007/08 academic year, which
were up 5.8% year on year when last reported by UCAS on 12 September 2007. This
growth is expected to continue in the medium term and is underpinned by three
factors:
• favourable demographics, with the number of university age people in
the population forecast to continue increasing for at least the next five
years;
• Government objectives to continue to increase participation in
Higher Education to 50 per cent of all 18-30 year olds, the current level
being 43%;
• growth in international student numbers; the UK is second only to
the USA as the most popular destination for students studying overseas.
International students currently make up 14% of the overall university
population in the UK and forecasts suggest that there could be up to half a
million extra international students studying in the UK by 2020.
On the supply side, the market continues to be characterised by a general
shortage of good quality, well located accommodation. Universities themselves
are focusing their investment on upgrading or replacing their existing stock of
accommodation whilst supply from the traditional private sector landlords has
been constrained by the general shortage of housing in the UK and the
introduction of licensing standards through The Housing Act. Neither
universities nor the private landlord sector are increasing the supply of
student accommodation so the continuing shortfall is being met primarily by
specialist providers such as UNITE.
Nationally, this picture is largely unchanged in recent years but there are
important regional variations that we have taken into account in our investment
strategy for new projects:
• London's student population has increased by over 20% in the last
five years. It is the largest student market in the UK, with approximately
220,000 full time students, making it larger than the next five largest
markets combined. It is also the most popular destination for overseas
students, with approximately 80,000 studying in the capital. It remains
one of the most undersupplied cities and, over the next five years, we
expect approximately half of our investment into new assets to be in London,
providing approximately 6,000 new bed spaces at a range of price points
across the capital;
• The more established universities have the most resilient demand and
are also popular destinations for overseas students. Cities such as Oxford,
Cambridge and Edinburgh also have very limited supply from specialist
providers and are important targets for UNITE. We expect new projects in
these markets to account for approximately 30% of investment over the next
five years;
• Some of the larger established university cities now have a good
supply of accommodation and opportunities for significant growth will be
limited. UNITE is already well represented in these cities in strong
locations and, whilst we will continue to actively consider the strongest
locations within these cities for further development, our strategy is
primarily focused on maximising returns from our existing assets. We would
expect around 10% of our investment to occur in these markets over the next
five years;
• In certain cities, such as Aberdeen and Bournemouth, UNITE is
working in partnership with the universities to progress their accommodation
portfolio strategies. These investments tend to be supported by long term
agreements with our partner institutions; we expect this type of investment
to account for approximately 10% of development in the next five years.
It is encouraging to report that the fundamentals of the UK student
accommodation market are increasingly well understood by Real Estate investors.
There has been a healthy level of investment transactions in the sector over the
past twelve months and, in addition to USAF, there continues to be a number of
funds targeting the sector. We expect this allocation of capital, together with
a relative lack of available good quality investment stock, to underpin the
resilience of yields in the sector at a time when yields in the broader
commercial property sector are rising.
UNITE Finance One Plc Bonds
UNITE is announcing today its intention to redeem the entire £265.3 million of
fixed rate asset-backed bonds outstanding in UNITE Finance One plc ('UFO'),
subject to the approval of bondholders. The financial structure of UFO has
proved restrictive to the Group and, by redeeming the bonds, UNITE will be able
to pursue a more proactive asset management strategy across the portfolio of
properties held as security for the UFO bonds. This portfolio was independently
valued at £452.1 million at 30 June 2007.
As part of the transaction, UNITE has today published a consent solicitation
document which sets out its redemption proposals to the bondholders. As is
normal in such situations, the proposals have already been considered and
approved by a Special Committee of the Association of British Insurers ('ABI'),
representing, by principal amount, approximately 57% of the bonds in issue.
Benefits for UNITE's shareholders
The proposed transaction offers a number of benefits to UNITE and its
shareholders in the short to medium term. By releasing the UFO portfolio of
properties, UNITE can:
• dispose of non core assets, that do not fit within its strategic
business plan, to independent third parties;
• offer additional stabilised assets to USAF;
• actively manage retained properties including implementing a
refurbishment programme at certain properties in order to maximise their
value;
• release capital tied up in lower returning stabilised assets for
reinvestment in higher returning development activities; and
• complete the transition of the Group's business model to that of a
developer and co-investing asset manager.
Financial impact of the proposed transaction
Because the UFO bonds are long-dated and fixed rate in nature, UNITE will incur
an exceptional cost as a result of the redemption. However, we expect this cost
to be fully recovered within two years as we invest the capital released into
activities that will deliver a significantly higher return. We would also
expect this benefit to be ongoing beyond this payback period, leading to a
sustained improvement in financial performance over the medium term.
UNITE originally issued the UFO bonds in 2002, raising £273 million of new
borrowing and incurring £11 million of transaction costs in the process. Some
of the borrowing has since been repaid and the UFO bonds are now carried at £259
million in UNITE's accounts ('Book Value'), net of unamortised set-up fees of £6
million. However, the market value of the UFO bonds has increased over that
time to £285 million ('Market Value') as at 14 September 2007.
We expect the total redemption amount for the UFO bonds to be approximately £311
million, which is higher than both their Book Value and Market Value. This,
together with the costs of the transaction, will result in an exceptional charge
arising in the 2007 financial year of approximately £57 million before tax (46
pence per share). However, the true cost of redemption should be measured by
reference to the Market Value and is therefore lower, at £37 million. In
addition, there are approximately £16 million of tax benefits (13 pence per
share) that will accrue to UNITE over time.
Under the proposed transaction, UNITE intends to finance the redemption of the
bonds by way of a one year bridge facility provided by Morgan Stanley & Co.
International plc, which will cover the cost of the redemption amount together
with any accrued interest. UNITE's pro forma adjusted gearing will initially
increase from 110% to 133% as a result of drawing on the bridge facility.
However, gearing levels are expected to reduce significantly going forward as
UNITE disposes of certain properties.
Financial performance
The financial performance of each element of the Group's business model
(development and co-investing asset management) is not easily presented under
International Financial Reporting Standards ('IFRS') and this is further
compounded by the Group's transition towards this model. To facilitate a better
understanding of the Group's financial performance we have included a detailed
segmental analysis within the notes to the consolidated interim financial
statements as well as a thorough review of operations within this statement.
We consider the two key measures of the Group's performance to be growth in
adjusted net asset value per share and adjusted profit. The adjustments made to
the reported IFRS numbers are intended to provide a clearer understanding of the
Group's financial performance and are consistent with guidelines laid down by
The European Public Real Estate Association ('EPRA').
Adjusted net asset value per share increased by 8.3% over the six months to 460
pence on a fully diluted basis. The main components of this growth were
unrealised revaluation gains arising from development activity (4.3%) and
unrealised revaluation gains on investment properties, arising from rental
growth (1.9%) and yield compression (2.1%).
Adjusted profit is derived from the Income Statement, which is significantly
different from those of earlier periods because of the establishment of USAF and
sale of assets to it in late 2006. As a result of the USAF transaction, £21.7
million worth of rental income that would previously have been entirely to
UNITE's account arose in USAF, contributing to a £17.8 million reduction in
revenue. However, the dilutive impact on profit of this was substantially offset
by UNITE's share of profit from its investment in USAF, management and
performance fees received and receivable from the Fund and a reduction in
interest charges as a result of debt repaid following the sale of assets to
USAF.
Overall, adjusted profit fell slightly to £1.6 million from £2.3 million for the
first six months of 2006, although this is stated after a current tax charge of
£1.1 million (2006: £nil). Reported profit before tax, which includes
unrealised gains from the revaluation of investment property, was £29.2 million
for the period, down £32.2 million against the same period in 2006 primarily due
to a reduction in revaluation gains of £35.1 million, which was itself partly
due to the sale of assets to USAF in late 2006.
A full reconciliation of reported profit for the period to adjusted profit is
provided in note 3 to the consolidated interim financial statements.
Investing and development activities
During the six months to 30 June 2007, the Group, including where appropriate
its joint venture partners, invested a total of £248 million of capital into its
development pipeline as follows:
Development expenditure
Gross UNITE's Share
£m £m
2007 completions
- UNITE 52.3 52.3
- Joint Venture 11.9 4.4
2008 completions
- UNITE 36.2 36.2
- Joint Venture 76.9 23.1
2009 and later completions
- UNITE 71.1 71.1
Total 248.4 187.1
UNITE continues to target a 20% development profit on cost and the Group's
secured development pipeline of projects for delivery in 2008 onwards, following
the investment outlined above, is now as follows:
Secured development pipeline
Bed spaces Estimated
completed value
£m
2008 completions
-UNITE 2,641 215
-Joint ventures 729 169
2009 and later completions
-UNITE 7,834 725
Total 11,204 1,109
The Group's investment strategy has been to focus on developing high quality
assets in strong locations. This is reflected in the geographic composition of
the secured development pipeline, with the three largest locations by estimated
completed portfolio value being London, Edinburgh and Birmingham.
Following the establishment of USAF and, in accordance with IFRS, certain of
the Group's development assets are now classified as current assets and are held
at cost, whilst certain others continue to be held at open market value.
However, in recognising the full value of the Groups' 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 as at 30 June 2007 and is
summarised below:
Development portfolio valuation
30-Jun-07 31-Dec-06
£m £m
Investment property under development 187.0 125.0
Property under development 56.1 12.0
Share of joint venture investment property 44.8 15.7
287.9 152.7
Valuation gain not recognised on property held 17.9 2.2
at cost
Value at end of period 305.8 154.9
In total, the Group booked revaluation gains on its development portfolio of £8
million during the period. An additional £16 million arose on development
properties classified as current assets which, whilst excluded from the reported
net asset value of the Group, has been included in the calculation of adjusted
net asset value.
In addition to the above portfolio, the Group has £74.8 million of land held for
development, which is carried at cost. We expect this land to be developed
within the next three years and this is reflected in the pipeline analysis
above.
The Group expects to make further unrealised development profits as it builds
out its secured development pipeline. Based on current independent valuations
of pipeline projects and the anticipated costs to complete these projects, up to
an additional £132 million (107 pence per share) is expected to arise in this
regard. This has not been included in the Group's adjusted net asset value.
A proportion of the revaluation of development assets arises as a result of the
successful achievement of planning consents. This continues to be a significant
strength for the Group and, during the period, we obtained 11 consents on
projects with an estimated value upon completion of £339 million.
In addition to its development activities, the Group also acquired a
strategically important, high quality portfolio from Base Limited. This
portfolio comprised 1,502 bed spaces in Liverpool, Leicester and Sheffield,
together with an option to acquire a further 717 bed scheme in Manchester due
for completion in 2008. Lettings performance on this portfolio for the 2007/08
academic year has been strong, in line with our expectations. No revaluation
gain has been booked on these assets in the period.
Co-investing asset management
UNITE manages two principal funds in which it has a significant minority stake -
USAF, in which the Group has a 29.3% stake, and the UNITE Capital Cities Joint
Venture ('UCC'), in which the Group has a 30% stake. During the six months to
June 2007, these funds achieved total returns as follows:
Fund returns
Capital growth Income return Total return
UCC 28.4% 0.3% 28.7%
USAF 11.5% 2.8% 14.3%
In addition to the return on its own investment, UNITE is also entitled to
management and performance fees from each fund, thereby further improving its
return. During the six months to 30 June 2007, fees have been recognised as
follows:
Fees
USAF UCC
£m £m
Management fees 1.0 0.7
Accrued performance fees 3.4 -*
*Performance fees for UCC are payable at the end of the life of the JV.
The Group also has a 50% stake in the UNITE Student Village Joint Venture
('USV'). By the start of the 2007/08 academic year, UNITE will have completed
and opened two properties, located in Leeds and Sheffield, within this Joint
Venture. The Leeds property has now stabilised and is expected to be sold to
USAF before the end of the year. On sale, performance fees of £0.8 million will
be payable to UNITE.
The Group's co-investing business model, particularly USAF, provides important
comfort over the funding of the Group's growth plans as well as playing a key
role in further establishing student accommodation as an investment asset class.
This is particularly important in the current uncertain capital markets
environment. It is important to note that UCC is a closed-ended vehicle which is
not due to mature until 2013 and that USAF, whilst being open-ended in nature,
is not permitted to offer redemptions until December 2009. Following this
initial period, redemptions are possible, but the Fund's exposure to asset sales
is limited to 10% of value in any 12 month period in order to protect the
non-redeeming investors.
Operating and investment portfolio
As at 30 June 2007 UNITE's total operating and investment portfolio, including
those assets acquired from Base Limited, comprised 34,652 bed spaces as follows:
Number of Number of Valuation at UNITE share
properties bed spaces June 2007
£m £m
Wholly owned
- UFO 46 9,633 452 452
- Other 19 6,161 287 287
USAF 31 11,759 525 154
UCC 11 1,958 194 58
USV 2 2,126 102 51
Leased 8 3,015 - -
Total 117 34,652 1,560 1,002
The Group will open a further 3,260 bed spaces completed for the 2007/08
academic year which are expected to be worth £217 million on completion, of
which £56 million (558 bed spaces) is held within Joint Ventures. Taking into
account these new openings and certain properties being closed for
refurbishment, UNITE's full operating and investment portfolio for 2007/08 will
increase to 37,682 bed spaces.
This portfolio was independently valued at 30 June 2007 and net revaluation
gains of £21 million have been recognised, of which £10 million was attributable
to rental growth and £11 million to yield movements. Following this valuation,
the average stabilised yield for UNITE's investment portfolio stood at 5.69%
compared to 5.80% at 31 December 2006.
Financing
During the six months to 30 June 2007 our net debt increased from £412 million
to £627 million. £141 million of this increase was attributable to funding
development activity in the period whilst £60 million related to the financing
of the Base portfolio acquisition.
As a result of this financing activity, adjusted gearing increased from 78% as
at 31 December 2006 to 110% at 30 June 2007. and 87% of the Group's borrowing
were hedged at an average rate of 6.7%.
Operating update - increasing competitive advantage
During the period we continued to take important steps in ensuring that our
scale and expertise translates into true competitive advantage:
Portfolio management
UNITE's property management skills continue to be a key differentiator and in
July 2007, we successfully launched 'Ignite', our fully integrated on-line
accommodation management system, following two years of careful design and
development. The system offers three key benefits:
• It greatly improves the efficiency of our back office processes by
automating all aspects of customer booking, account management and reporting;
• it offers complete on-line functionality for our customers, allowing
them to book and pay for accommodation and related services over the internet
whilst providing them with real-time secure account information;
• it provides UNITE with an impressive and market leading internet
presence, which is crucial in catering for a population who view on-line
service as essential.
The successful launch of Ignite has played an important part in driving
reservations performance across the portfolio for the 2007/08 academic year and
will play an even more vital role in our sales and marketing effort for the 2008
/09 academic year. As of 14 September, over 2,600 bookings had been received
on-line.
These on-line bookings have contributed to an improvement in reservations
performance compared to 12 months ago, with 92% of available rooms having been
reserved as at 14 September, versus 91% at the same time last year. Of these,
7,218 reservations were for tenancies of at least 51 weeks, an increase of 12%
on academic year 2006/07 (6,428 51+ week tenancies). Taking this performance
into account, we expect like for like revenue growth between the two academic
years to be 6.2% (2006: 5.8%).
Accommodation for graduates and young career professionals
At the time of our preliminary results announcement for 2006, we announced our
intention to pilot a new accommodation proposition targeting graduates and young
career professionals. I am pleased to report that our first pilot project will
open in October 2007 in London's West End, providing 62 bed spaces under the
brand name 'Livocity', and marketing of the accommodation has just begun.
We are encouraged by the potential of this market and have one other similarly
sized project targeted for opening in 2008. Our investment commitment to this
proposition currently stands at £30 million for the two projects and we will not
make a commitment of additional funds until such time as the results of our
pilot project and wider research have been established. We anticipate this
being available in early 2008.
Project delivery and modular construction
Continuing its exceptional track record, UNITE has again successfully delivered
a substantial portfolio of new accommodation for occupation in the 2007/08
academic year. In total, 3,260 bed spaces have been opened across 12 properties
with time, cost and quality targets having been achieved.
70% of the new bed spaces delivered utilised the Group's modular construction
technology and this remains a vital element of the Group maintaining and
improving time, cost and quality standards across project deliveries.
Modular construction is a critical factor in combating build cost inflation and
this will be particularly important in London, where the outlook for build cost
suggests high single-digit annual inflation without corrective action. We
anticipate that approximately 70% of new build deliveries over the coming two
years will be modular and there is no question that the availability of this
technology leaves the Group well placed to outperform its competitors.
Outlook
In recent years the UK commercial property sector has enjoyed sustained strong
performance and valuations have increased significantly across all segments.
There is no doubt that this environment has been instrumental in helping
establish student accommodation as a recognised investment asset class and UNITE
has been at the forefront of this.
However, there are now signs that this period of strong performance is coming to
an end and valuations in some parts of the UK commercial property sector are
being adversely affected. This is not the case with student accommodation and
there are clear signs that its resilient characteristics are increasingly
understood and appreciated by Real Estate investors. We therefore expect our
valuations to prove more robust in the face of anticipated yield expansion in
broader UK commercial property.
Strategically, UNITE is well positioned to continue delivering attractive growth
to its shareholders:
• as a developer and co-investing asset manager, it has a scaleable
financial structure, underpinned by the UK Student Accommodation Fund, that
allows it to pursue its development goals with confidence;
• the planned redemption of the UNITE Finance One bonds, and
subsequent sale of certain assets, will generate further capital for the
Group, allowing it to seize new development opportunities as market
conditions change;
• it has a deep and valuable secured development pipeline for delivery
over the next three years, secured at attractive pricing; and
• it has unrivalled expertise and a combination of skills that leave
it uniquely placed to outperform its competitors.
Mark Allan
Chief Executive
17th September 2007
Consolidated income statement
For the 6 months to 30 June 2007
Note Unaudited Unaudited Year to
6 months 6 months 31 Dec
to to 2006
30 June 30 June
2007 2006
£'000 £'000 £'000
Revenue 3 37,263 55,047 110,636
Cost of sales (14,211) (22,841) (49,889)
Administrative expenses (10,919) (9,731) (19,751)
12,133 22,475 40,996
(Loss) / profit on disposal of (527) 200 (5,397)
property
Profit on part disposal of 1,690 - -
investment in joint venture
Net valuation gains on 6 13,856 49,004 60,817
investment property
Profit before net financing 27,152 71,679 96,416
costs
Loan interest and similar (14,362) (21,393) (53,599)
charges
Changes in fair value of 2,876 4,135 5,014
interest rate swaps
Finance costs (11,486) (17,258) (48,585)
Finance income 887 541 1,551
Net financing costs (10,599) (16,717) (47,034)
Share of profits of joint 8 12,599 6,535 9,180
ventures
Profit before tax 29,152 61,497 58,562
Tax (charge) / credit (3,362) (11,156) 12,921
Profit for the period 25,790 50,341 71,483
Profit for the period is wholly attributable to equity holders of The
UNITE Group plc.
Earnings per share
Basic 5 20.9p 41.2p 58.4p
Diluted 5 20.8p 40.8p 57.8p
Dividends
Total paid in period (£'000) 2,051 2,040 3,060
Paid per ordinary share 1.67p 1.67p 2.50p
Total proposed (£'000) 1,023 1,018 2,055
Proposed per ordinary share 0.83p 0.83p 1.67p
Consolidated balance sheet
At 30 June 2007
Note Unaudited Unaudited 31 Dec 2006
30 June 2007 30 June 2006
£'000 £'000 £'000
Assets
Investment property 6 739,330 1,079,157 656,969
Investment property under 6 186,962 121,967 124,980
development
Property, plant and equipment 9,225 9,643 9,533
Investment in joint ventures 8 101,789 32,023 106,287
Intangible assets 6,424 5,860 5,216
Other receivables 10,932 7,386 4,973
Total non-current assets 1,054,662 1,256,036 907,958
Properties under development 6 56,135 - 12,093
Inventories 7 82,419 26,321 22,982
Trade and other receivables 70,205 29,916 70,165
Cash and cash equivalents 32,269 32,851 55,143
Total current assets 241,028 89,088 160,383
Total assets 1,295,690 1,345,124 1,068,341
Liabilities
Borrowings and financial 9 (62,357) (121,910) (63,563)
derivatives
Trade and other payables (77,056) (54,589) (78,594)
Total current liabilities (139,413) (176,499) (142,157)
Borrowings and financial 9 (596,690) (659,293) (403,181)
derivatives
Deferred tax liabilities (45,155) (61,287) (41,816)
Total non-current liabilities (641,845) (720,580) (444,997)
Total liabilities (781,258) (897,079) (587,154)
Net Assets 514,432 448,045 481,187
Equity
Issued share capital 30,823 30,648 30,763
Share premium 173,962 172,130 173,008
Merger reserve 40,177 40,177 40,177
Retained earnings 241,471 179,528 218,035
Revaluation reserve 24,027 23,192 18,053
Hedging reserve 3,972 2,370 1,151
Total equity 514,432 448,045 481,187
Total equity is wholly attributable to equity holders of The UNITE Group plc.
Consolidated statement of changes in shareholders' equity
For the 6 months to 30 June 2007
Note Unaudited Unaudited Year to
6 months to 6 months to 31 Dec
30 June 2007 30 June 2006
2006
£'000 £'000 £'000
Investment property under development:
- revaluation 6 2,035 8,130 23,602
- deferred tax (98) (2,439) (6,982)
Other property - revaluation - (580) (495)
- deferred tax - 174 50
Effective hedges - movements 1,822 8,497 9,077
- deferred tax (547) (2,549) (2,723)
Gains on hedging instruments transferred to (124) - (2,839)
income statement
Deferred tax on gains transferred 37 - 852
Share of joint venture valuation gain on 8 4,596 4,009 6,006
investment property under development (net
of related tax)
Share of joint venture movements in 8 1,633 1,314 1,694
effective hedges
(net of related tax)
Net gains recognised directly in equity 9,354 16,556 28,242
Profit for the period 25,790 50,341 71,483
Total recognised income and expense for the 35,144 66,897 99,725
period
Dividends paid (2,051) (2,040) (3,060)
Own shares acquired (1,096) (2,130) (2,420)
Shares issued 1,014 2,386 3,379
Fair value of share options expensed 234 234 865
33,245 65,347 98,489
Equity at start of period 481,187 382,698 382,698
Equity at end of period 514,432 448,045 481,187
Consolidated statement of cash flows
For the 6 months to 30 June 2007
Unaudited Unaudited Year to
6 months to 6 months to 31 Dec
30 June 2007 30 June 2006
2006
£'000 £'000 £'000
Operating activities
Profit for the period 25,790 50,341 71,483
Adjustments for non cash / non operating (10,792) (26,562) (27,176)
items
Operating profit before changes in working 14,998 23,779 44,307
capital
Change in property under development (38,101) - (12,093)
Change in stocks (59,437) (12,903) (9,564)
Other changes in working capital (26,578) 13,837 38,631
Cash flows from operating activities (109,118) 24,713 61,281
Cash flows from investing activities (85,410) (21,275) 320,673
Cash flows from financing activities 176,354 797 (351,428)
Net increase / (decrease) in cash and cash (18,174) 4,235 30,526
equivalents
Cash and cash equivalents at start of period 50,443 19,917 19,917
Cash and cash equivalents at end of period 32,269 24,152 50,443
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
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 2007 comprise the Company and its subsidiaries (together referred to as the
'Group') and the Group's interest in jointly controlled entities.
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 in the financial statements for the year ending 31 December 2006.
These interim financial statements do not constitute statutory accounts of the Group
within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for
the year ended 31 December 2006 have been filed with the Registrar of Companies. The
auditors' report on those accounts was unqualified and did not contain any statement
under Section 237 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 that period.
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.
Following the creation of the UNITE UK Student Accommodation Fund in December
2006, an increasing proportion of the Group's business is held in joint
ventures. The following information has been enhanced to provide a more
meaningful view of these investments on a see through basis, which presents a
view of the Group including the Group's share of joint venture revenues,
expenses, assets and liabilities.
The Group undertakes the acquisition and development of properties and then
manages the completed assets. The Group's management approach is based on these
two activities and hence they are reported as the Group's development and
investment operating segments.
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(a) Segment revenues and costs
Unaudited 30 June 2007 Note Investment Development Unallocated corporate Total
segment segment Costs
£'000 £'000 £'000 £'000
Revenue 35,907 1,356 - 37,263
Cost of sales (12,987) (1,224) - (14,211)
Administrative (5,589) (2,050) (3,280) (10,919)
expenses
Segment result / 3 (b) 17,331 (1,918) (3,280) 12,133
corporate costs
Unaudited 30 June 2006
Revenue 49,474 5,573 - 55,047
Cost of sales (16,430) (6,411) - (22,841)
Administrative expenses (4,880) (1,860) (2,991) (9,731)
Segment result /
corporate costs 3 (b) 28,164 (2,698) (2,991) 22,475
31 December 2006
Revenue 93,822 16,814 - 110,636
Cost of sales (33,843) (16,046) - (49,889)
Administrative expenses (9,710) (4,091) (5,950) (19,751)
Segment result /
corporate costs 3 (b) 50,269 (3,323) (5,950) 40,996
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(b) Portfolio result and adjusted
profit
Note Unaudited Unaudited 31 Dec 2006
30 June 30 June
2007 2006
£'000 £'000 £'000
Investment segment result 3 (c) 17,331 28,164 50,269
Unallocated items
Share of joint venture portfolio 3,339 513 626
result
Loan interest and similar charges (14,362) (21,393) (53,599)
Finance income 887 541 1,551
Portfolio result 3 (c) 7,195 7,825 (1,153)
Development segment result (1,918) (2,698) (3,323)
Other unallocated items
Share of joint venture overheads (461) (44) (1,142)
Corporate costs (3,280) (2,991) (5,950)
(Loss) / profit on sale of property (527) 200 (5,397)
Profit on part disposal of investment 1,690 - -
in joint venture
Swap gain realised on cancellation - - 2,618
Current tax charge (1,116) - -
(3,694) (2,835) (9,871)
Adjusted profit for the period 1,583 2,292 (14,347)
Net valuation gains on investment 13,856 49,004 60,817
property
Changes in fair value of interest rate 2,876 4,135 2,396
swaps
Share of joint venture valuation gains 8,917 6,870 9,713
Share of joint venture deferred tax 804 (804) (17)
Deferred tax (charge) / credit (2,246) (11,156) 12,921
Profit for the period 25,790 50,341 71,483
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(c) Portfolio result on see through basis
In order to provide a more detailed view of the Group's activities, information on
the Group's investment activities on a see through basis, including an allocation of
interest, is set out below. This is additional to the operating segment information
presented in sections (a) and (b) above.
Unaudited 100% Unite Share of co-invested joint Group on
ventures see
30 June 2007 through
basis
Wholly Leased / Total USAF Capital Student Total Total
Owned Other Cities Village
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Rental income 24,969 5,697 30,666 7,426 1,675 1,787 10,888 41,554
Property (7,729) (1,741) (9,470) (2,182) (259) (496) (2,937) (12,407)
operating
expenses (excl.
lease rentals)
Operating lease - (3,517) (3,517) - - - - (3,517)
rentals
Net rental 17,240 439 17,679 5,244 1,416 1,291 7,951 25,630
income
Joint venture - 1,848 1,848 - (122) - (122) 1,726
management fees
Joint venture - 3,393 3,393 - - - - 3,393
promote fee
Overheads - (5,589) (5,589) - - - - (5,589)
Investment 17,240 91 17,331 5,244 1,294 1,291 7,829 25,160
segment result
Loan interest & (14,362) - (14,362) (2,634) (1,119) (1,071) (4,824) (19,186)
similar charges
Finance income 887 - 887 148 147 39 334 1,221
(13,475) - (13,475) (2,486) (972) (1,032) (4,490) (17,965)
Portfolio 3,765 91 3,856 2,758 322 259 3,339 7,195
result
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(c) Portfolio result on see through basis
(continued)
Unaudited 100% Unite Share of co-invested joint Group
ventures on see
30 June 2006 through
basis
Wholly Leased / Total USAF Capital Student Total Total
Owned Other Cities Village
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Rental income 43,354 5,518 48,872 - 1,032 1,240 2,272 51,144
Property (11,632) (1,391) (13,023) - (263) (224) (487) (13,510)
operating
expenses (excl.
lease rentals)
Operating lease - (3,407) (3,407) - - - - (3,407)
rentals
Net rental 31,722 720 32,422 - 769 1,016 1,785 34,227
income
Joint venture - 602 602 - (180) - (180) 422
management fees
Overheads - (4,880) (4,880) - - - - (4,880)
Investment 31,722 (3,558) 28,164 - 589 1,016 1,605 29,769
segment result
Loan interest (21,393) - (21,393) - (567) (533) (1,100) (22,493)
& similar charges
Finance income 541 - 541 - 8 - 8 549
(20,852) - (20,852) - (559) (533) (1,092) (21,944)
Portfolio 10,870 (3,558) 7,312 - 30 483 513 7,825
result
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(c) Portfolio result on see through basis
(continued)
31 December 100% Unite Share of co-invested joint Group on
2006 ventures see
through
basis
Wholly Leased / Total USAF Capital Student Total Total
Owned Other Cities Village
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Rental income 82,747 9,518 92,265 780 2,399 2,494 5,673 97,938
Property (23,972) (2,951) (26,923) (208) (348) (672) (1,228) (28,151)
operating
expenses
(excl. lease
rentals)
Operating - (6,920) (6,920) - - - - (6,920)
lease rentals
Net rental 58,775 (353) 58,422 572 2,051 1,822 4,445 62,867
income
Joint venture - 1,557 1,557 (53) (426) - (479) 1,078
management
fees
Overheads - (9,710) (9,710) - - - - (9,710)
Investment 58,775 (8,506) 50,269 519 1,625 1,822 3,966 54,235
segment result
Loan interest (53,599) - (53,599) (271) (1,805) (1,378) (3,454) (57,053)
& similar
charges
Finance income 1,551 - 1,551 - 89 25 114 1,665
(52,048) - (52,048) (271) (1,716) (1,353) (3,340) (55,388)
Loan break 9,159 - 9,159 - - - - 9,159
costs & costs
written off on
refinancing
Portfolio 15,886 (8,506) 7,380 248 (91) 469 626 8,006
result
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(d) Assets and liabilities on see through basis
Unaudited 100% Share of co-invested joint ventures Group on
Unite see
through
30 June 2007 basis
Wholly USAF Capital Student Total Total
Owned Cities Village
£'000 £'000 £'000 £'000 £'000 £'000
Investment property 739,330 153,824 58,131 50,965 262,920 1,002,250
Investment property 186,962 - 37,967 6,862 44,829 231,791
under development
Property under 56,135 - - - - 56,135
development
Investment & 982,427 153,824 96,098 57,827 307,749 1,290,176
development property
Cash 32,269 5,310 2,230 1,634 9,174 41,443
Other assets - 82,954 (26,539) 475 (1,535) (27,599) 55,355
investment
Other assets - 90,119 - 3,882 - 3,882 94,001
development
Interest rate swaps 6,132 - 1,687 1,858 3,545 9,677
Other assets 211,474 (21,229) 8,274 1,957 (10,998) 200,476
Debt - completed (459,163) (81,089) (34,930) (37,170) (153,189) (612,352)
properties
Debt - development (199,884) - (26,989) (5,459) (32,448) (232,332)
properties
Other liabilities - (43,781) (1,629) (2,525) (1,269) (5,423) (49,204)
investment
Other liabilities - (33,275) - (800) (714) (1,514) (34,789)
development
Other liabilities - (45,155) - - (2,388) (2,388) (47,543)
unallocated
Total liabilities (781,258) (82,718) (65,244) (47,000) (194,962) (976,220)
Net assets 412,643 49,877 39,128 12,784 101,789 514,432
Joint venture (27,982) 24,801 - 3,181 27,982 -
investment loans
Underlying capital 384,661 74,678 39,128 15,965 129,771 514,432
employed
Mark to market of (5,005) - (1,687) (1,858) (3,545) (8,550)
interest rate swaps
Valuation gain not 17,860 - - - - 17,860
recognised on
property held at cost
Deferred tax 45,155 - - 2,388 2,388 47,543
Adjusted net assets 442,671 74,678 37,441 16,495 128,614 571,285
In order to show the Group's full investment in joint ventures their net
assets have been adjusted for loans that are capital in nature to show the
underlying capital employed in the above table.
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(d) Assets and liabilities on see through basis (continued)
Unaudited 100% Unite Share of co-invested joint ventures Group on
see through
30 June 2006 basis
Wholly USAF Capital Student Total Total
Owned Cities Village
£'000 £'000 £'000 £'000 £'000 £'000
Investment property 1,079,157 - 30,387 49,618 80,005 1,159,162
Investment property 121,967 - 15,848 1,367 17,215 139,182
under development
Investment & 1,201,124 - 46,235 50,985 97,220 1,298,344
development property
Cash 32,851 - 564 767 1,331 34,182
Other assets - 45,299 - 477 901 1,378 46,677
investment
Other assets - 33,827 - 38 - 38 33,865
development
Interest rate swaps - - 208 462 670 670
Other assets 111,977 - 1,287 2,130 3,417 115,394
Debt - completed (705,093) - (16,880) (32,775) (49,655) (754,748)
properties
Debt - development (70,052) - (6,914) - (6,914) (76,966)
properties
Other liabilities - (34,655) - (529) (5,394) (5,923) (40,578)
investment
Other liabilities - (19,934) - (1,431) (1,280) (2,711) (22,645)
development
Other liabilities - (67,345) - - (3,411) (3,411) (70,756)
unallocated
Total liabilities (897,079) - (25,754) (42,860) (68,614) (965,693)
Net assets 416,022 - 21,768 10,255 32,023 448,045
Joint venture (5,627) - - 5,627 5,627 -
investment loans
Underlying capital 410,395 - 21,768 15,882 37,650 448,045
employed
Mark to market of 3,188 - (208) (462) (670) 2,518
interest rate swaps
Valuation gain not - - - - - -
recognised on property
held at cost
Deferred tax 61,287 - - 3,411 3,411 64,698
Adjusted net assets 474,870 - 21,560 18,831 40,391 515,261
Notes to the consolidated interim financial statements
3. Segment reporting (continued)
(d) Assets and liabilities on see through basis (continued)
31 December 2006 100% Share of co-invested joint ventures Group on
see through
Unite basis
Wholly USAF Capital Student Total Total
Owned Cities Village
£'000 £'000 £'000 £'000 £'000 £'000
Investment property 656,969 196,221 52,023 51,510 299,754 956,723
Investment property 124,980 - 10,631 5,029 15,660 140,640
under development
Property under 12,093 - - - - 12,093
development
Investment & 794,042 196,221 62,654 56,539 315,414 1,109,456
development property
Cash 55,143 5,216 8,564 3,097 16,877 72,020
Other assets - 93,492 (24,236) 49 257 (23,930) 69,562
investment
Other assets - 18,776 - 7 - 7 18,783
development
Interest rate swaps 601 - 497 715 1,212 1,813
Other assets 168,012 (19,020) 9,117 4,069 (5,834) 162,178
Debt - completed (408,250) (107,438) (34,107) (37,126) (178,671) (586,921)
properties
Debt - development (58,494) - (5,660) (3,742) (9,402) (67,896)
properties
Other liabilities - (56,990) (2,407) (3,144) (5,019) (10,570) (67,560)
investment
Other liabilities - (21,604) - (913) (830) (1,743) (23,347)
development
Other liabilities - (41,816) - - (2,907) (2,907) (44,723)
unallocated
Total liabilities (587,154) (109,845) (43,824) (49,624) (203,293) (790,447)
Net assets 374,900 67,356 27,947 10,984 106,287 481,187
Joint venture (27,696) 24,801 - 2,895 27,696 -
investment loans
Underlying capital 347,204 92,157 27,947 13,879 133,983 481,187
employed
Mark to market of (431) - (497) (716) (1,213) (1,644)
interest rate swaps
Valuation gain not 2,214 - - - - 2,214
recognised on
property held at cost
Deferred tax 41,816 - - 2,907 2,907 44,723
Adjusted net assets 390,803 92,157 27,450 16,070 135,677 526,480
Notes to the consolidated interim financial statements
4. Tax
Current tax
Current tax expense for the periods presented is the estimated tax payable on
the taxable income 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
The calculations of basic and adjusted earnings per share are as follows: -
Note Unaudited Unaudited 31 Dec 2006
30 June 30 June
2007 2006
£'000 £'000 £'000
Earnings
Basic (and diluted) 25,790 50,341 71,483
Adjusted 3(b) 1,583 2,292 (14,347)
Weighted Average number of shares
(thousands)
Basic 123,145 122,170 122,465
Dilutive potential ordinary shares 1,087 1,325 1,271
Diluted 124,232 123,495 123,736
Earnings per share (pence)
Basic 20.9 41.2 58.4
Diluted 20.8 40.8 57.8
Adjusted 1.3 1.9 (11.6)
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 Unaudited 31 Dec 2006
30 June 30 June
2007 2006
£'000 £'000 £'000
Net assets
Basic 514,432 448,045 481,187
Adjusted - pre dilution 3(d) 571,285 515,261 526,480
Outstanding share options 3,718 4,714 3,938
Adjusted - diluted 575,003 519,975 530,418
Number of shares (thousands)
Basic 123,290 122,591 123,051
Outstanding share options 1,796 2,383 1,899
Diluted 125,086 124,974 124,950
Net assets value per share (pence)
Basic 417 365 391
Adjusted - pre dilution 463 420 428
Adjusted - diluted 460 416 425
6. Investment and development property
Unaudited 30 June 2007 Investment Investment Property Total
property property under
under development
development
£'000 £'000 £'000 £'000
Balance at start of period 656,969 124,980 12,093 794,042
Acquisitions 77,506 - - 77,506
Cost capitalised 2,135 55,727 37,256 95,118
Interest capitalised 155 4,220 845 5,220
Transfer to property under (5,941) - 5,941 -
development
Disposals (5,350) - - (5,350)
Valuation gains 23,352 5,076 - 28,428
Valuation losses (9,496) (3,041) - (12,537)
Net valuation gains 13,856 2,035 - 15,891
Balance at end of period 739,330 186,962 56,135 982,427
Notes to the consolidated interim financial statements
6. Investment and development property (continued)
Unaudited 30 June 2006 Investment Investment Property Total
property property under
under development
development
£'000 £'000 £'000 £'000
Balance at start of period 1,028,747 80,004 - 1,108,751
Cost capitalised 713 31,333 - 32,046
Interest capitalised - 2,500 - 2,500
Transfer from property, plant 693 - - 693
and equipment
Valuation gains 67,117 11,437 - 78,554
Valuation losses (18,113) (3,307) - (21,420)
Net valuation gains 49,004 8,130 - 57,134
Balance at end of period 1,079,157 121,967 - 1,201,124
31 December 2006 Investment Investment Property Total
property property under
under development
development
£'000 £'000 £'000 £'000
Balance at start of period 1,028,747 80,004 - 1,108,751
Cost capitalised 2,049 100,062 12,093 114,204
Interest capitalised - 6,209 - 6,209
Transfer from property, plant 693 - - 693
and equipment
Transfer from investment 84,897 (84,897) - -
property under development
Disposals (520,234) - - (520,234)
Valuation gains 78,935 24,775 - 103,710
Valuation losses (18,118) (1,173) - (19,291)
Net valuation gains 60,817 23,602 - 84,419
Balance at end of period 656,969 124,980 12,093 794,042
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 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 £56.135m
held in current assets is carried at cost, but its fair value has been
determined as described 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 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 2007 Investment Investment Property Total
property property under
under development
development
£'000 £'000 £'000 £'000
Balance at end of period 739,330 186,962 56,135 982,427
Valuation gain not recognised - - 17,860 17,860
on property held at cost
Fair value at end of period 739,330 186,962 73,995 1,000,287
At 30 June 2006 there was no unrecognised valuation gain in relation to property
held at cost, hence no disclosure is made for that period.
31 December 2006 Investment Investment Property Total
property property under
under development
development
£'000 £'000 £'000 £'000
Balance at end of period 656,969 124,980 12,093 794,042
Valuation gain not recognised - - 2,214 2,214
on property held at cost
Fair value at end of period 656,969 124,980 14,307 796,256
7. Inventories
Unaudited Unaudited 31 Dec
30 June 30 June 2006
2007 2006
£'000 £'000 £'000
Land held for development 74,785 16,402 13,254
Finished goods - 2,546 1,385
Work in progress 7,107 6,822 7,839
Raw materials and consumables 527 551 504
82,419 26,321 22,982
Notes to the consolidated interim financial statements
8. Investments in joint ventures
Note Unaudited Unaudited 31 Dec
30 June 30 June 2006
2007 2006
£'000 £'000 £'000
Share of profit
Portfolio result 3 (c) 3,339 513 626
Overheads (461) (44) (1,142)
Net valuation gains 8,917 6,870 9,713
Deferred tax credit / (charge) 804 (804) (17)
12,599 6,535 9,180
Share of items recognised directly in
reserves:
Valuation gains (net of deferred tax) 4,724 4,009 6,614
Movements in effective hedges (net of 1,990 1,314 1,843
deferred tax)
Other movements:
Additions 2,397 1,398 70,367
Disposals (22,456) - -
Profit adjustment relating to trading (1,658) - -
with joint ventures
Distributions received (2,094) (94) (578)
(4,498) 13,162 87,426
At start of period 106,287 18,861 18,861
At end of period 101,789 32,023 106,287
9. Borrowings and financial derivatives
Unaudited Unaudited 31 Dec 2006
30 June 30 June
2007 2006
£'000 £'000 £'000
Non-current
Bank and other loans 596,690 652,988 403,146
Finance lease liabilities - 247 35
Interest rate swaps - 6,058 -
596,690 659,293 403,181
Current
Overdrafts - 8,699 4,700
Bank loans 19,744 9,707 46,155
Build loans 42,378 103,095 12,289
Finance lease liabilities 235 409 419
62,357 121,910 63,563
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