Re: Launch of Fund

Unite Group PLC
13 November 2006



13 November 2006

The UNITE Group plc


                  FORMATION OF UNITE UK STUDENT ACCOMMODATION FUND

The UNITE Group plc ('UNITE'), the UK's leading commercial provider of student
accommodation, is pleased to announce the formation of, and contribution of
properties to, the UNITE UK Student Accommodation Fund, a new open-ended
property fund focussed on owning and acquiring UK direct-let student
accommodation (the 'Fund') (the 'Proposed Transaction').  UNITE believes that
the Fund will be Europe's largest unlisted specialist student accommodation
investment vehicle. The Proposed Transaction is subject to approval by UNITE's
shareholders and a circular containing further details of the Proposed
Transaction will be posted to shareholders shortly.


Highlights of the Proposed Transaction include:


  • Contribution to the Fund of a seed portfolio for £515 million, a £10
    million premium to the 30 June 2006 and 31 October 2006 valuations, with
    consideration to UNITE in a combination of cash and a substantial minority
    interest in the Fund;


  • £266 million of equity commitments from leading institutional investors,
    of which approximately 50% to be used to fund the acquisition of the seed
    portfolio, with the balance intended to fund the acquisition of future
    pipeline assets from UNITE;


  • At least £50 million net cash proceeds to be released through the Proposed
    Transaction to fund growth through enhanced development activity;


  • Further third party capital expected to be committed prior to completion
    of the Proposed Transaction in mid-December resulting in further cash
    proceeds; and


  • UNITE to earn management fees from the Fund and to be entitled to receive
    a performance related participation, dependent upon the Fund's performance.


Strategic Benefits



The creation of the Fund is in line with UNITE's stated strategy and will
deliver a number of benefits to UNITE, namely it will:



(i)  immediately release significant capital tied up in mature,
stabilised assets for investment, over time, in new, higher added value
development activity;



(ii) provide UNITE with more growth capital in the medium term.  The Fund
is committed, and has further capital commitments from investors to fund the
acquisition from UNITE, subject to certain criteria, of newly and yet to be
developed UK direct-let student accommodation properties;



(iii)allow UNITE to benefit from the current strong demand for investment
in student accommodation properties, whilst also allowing it to share in any
future growth;



(iv) reduce gearing and provide UNITE with a more scaleable financing
structure and the further financial flexibility to pursue additional growth
opportunities;



(v)  allow UNITE to maintain long term management of the portfolio through
managing the Fund;



(vi) diversify UNITE's sources of income by providing a new, valuable
revenue stream arising from management fees from the Fund;



(vii)increase recognition in the marketplace of the value of UNITE's brand
and management platform; and



(viii) further establish student accommodation as an institutionally
recognised property asset class.



Commenting on the proposed transaction, Mark Allan, UNITE's Chief Executive,
said:



'The formation of the UNITE UK Student Accommodation Fund represents an
important strategic step for UNITE.  It will release significant capital for
investment in new, higher added value development activity and provide more
growth capital to UNITE in the medium term.  At the same time it allows us to
maintain long term management of the assets sold to the Fund through our
position as fund and asset manager which will also provide a new and valuable
management fee stream.



'We are delighted to have attracted a group of leading investors to invest
alongside us in the formation of the Fund. The Fund will enable them to access
the long term stable investment returns that we expect the asset class to
deliver.  This transaction unquestionably establishes student accommodation as
an institutionally recognised property asset class.'



Fund Structure



The Fund, which is structured as an open-ended, infinite life vehicle, is seeded
with a portfolio comprising 31 UK direct-let student accommodation properties
comprising over 11,000 beds (the 'Initial Portfolio') contributed by UNITE to
the Fund for a consideration of £515 million in a combination of cash and a
minority stake in the Fund. The Initial Portfolio was valued by CB Richard Ellis
as at 31 October 2006 at £505 million.  In the twelve months ended 30 June 2006,
the net annual rental income from the Initial Portfolio was £25.1 million.



Following completion of the Proposed Transaction ('Closing'), the Fund is
expected to have initial capital of £527 million.  This will consist of £247
million of equity (attributable to both UNITE's and third party investors'
interests in the Fund) and £280 million of debt.  The proportions of the Fund
owned by UNITE and third parties at Closing may vary depending on the proportion
of the equity sold to third party investors up to the date of Closing.



At the date of this announcement, leading third party investors(1) have agreed
to subscribe for £266 million of equity in the Fund.  A proportion of these
commitments will be drawn immediately to fund the acquisition of the Initial
Portfolio and the remainder will be drawn in future years to purchase additional
assets.  If no further equity subscriptions are received before completion of
the Proposed Transaction, the Fund would expect to draw approximately 50 per
cent. of the equity at Closing in connection with the acquisition of the Initial
Portfolio with the remaining 50 per cent. available to fund the purchase of
future assets.  This would result in investors and UNITE holding initial
interests in the Fund of 55 per cent. and 45 per cent. respectively.  UNITE
would receive cash consideration of £404 million and make a £111 million
investment for its 45 per cent. interest in the Fund.  In that event, estimated
net cash proceeds to UNITE after repayment of existing debt secured on the
properties and payment of expenses associated with the formation of the Fund
would be approximately £17 million.  This is in addition to £33 million UNITE
has previously released through a bridge financing undertaken in order to effect
a restructuring in connection with the Proposed Transaction.  This restructuring
and associated financing involved repayment and refinancing of the debt secured
at that time on the properties comprising the Initial Portfolio so that they
could be transferred into the entities through which the Fund will own them.  At
the time of refinancing an additional £33 million of debt was raised which will
be repaid out of the proceeds of the Proposed Transaction.



UNITE is also in advanced discussions with other investors who have made
non-binding indications of interest to commit additional equity to the Fund.
UNITE expects to reach agreement with some of these investors before Closing to
invest in the Fund and this may, depending on the level of such additional
subscriptions, have the effect of reducing UNITE's interest.  UNITE, however,
intends to retain a significant minority interest in the Fund, which will be not
less than 30 per cent. at Closing.  Were UNITE's interest reduced to 30 per
cent., the net cash proceeds to UNITE would be approximately £54 million in
addition to the £33 million released previously by the bridge financing.



As referred to above, the balance of equity committed to the Fund by investors
and not drawn at Closing to fund the acquisition of the Initial Portfolio will
be drawn in future years to fund, together with further debt, the purchase of
additional UK direct-let student accommodation properties. It is expected that
these will be properties already completed by UNITE and in the process of
stabilisation as well as properties to be developed by UNITE following the
formation of the Fund.  The Fund will have exclusivity (subject to certain
exceptions) and the obligation to acquire all UK direct-let student
accommodation properties developed by UNITE for so long as the Fund has
available capital raised through the Proposed Transaction.



The capacity of the Fund to acquire additional properties from UNITE will depend
upon the level of equity commitments received from investors as well as UNITE's
decision at the time of selling such properties to the Fund on whether to
maintain or dilute its percentage ownership interest in the Fund.  The Fund also
has the ability to acquire properties from third parties.



Borrowings of the Fund are limited to 60 per cent. of the aggregate market value
of the Fund's investment properties at the time they are acquired and the Fund
will target an average loan to value of 55 per cent.  The Fund is expected to
deliver an initial cash yield of not less than five per cent.



Wholly-owned subsidiaries of UNITE will manage and conduct the affairs of the
Fund for and on behalf of Fund investors and act as property manager, providing
property and asset management services to the Fund.  The Fund will meet all the
direct costs associated with the operations of the properties held by the Fund.
UNITE will receive an asset management fee, equivalent to 0.60 per cent. per
annum of the proportion of the market value of the properties owned by the Fund
and attributable to third party investors.  The asset management fee will be
subordinated to the extent the cash yield to investors in the Fund would
otherwise be less than 5 per cent. per annum during the first three years after
Closing.  In addition, UNITE will be entitled to receive a performance related
participation in the Fund, calculated as 20 per cent. (or 25 per cent. where no
SDLT is payable on the acquisition by the Fund of the Initial Portfolio) of the
outperformance of the Fund over and above an annual 9 per cent. hurdle internal
rate of return.



Units in the Fund will be freely transferable and, after the third anniversary
from Closing, a redemption mechanism for units will be in place to provide
liquidity to Fund investors.



Note 1:

Equity commitments to the Fund have been received from leading institutional
investors, investing either on their own behalf or on behalf of their clients,
including, Henderson UK Property Fund, ING Real Estate Investment Management (UK
Funds) Limited, Morley Fund Management, Schroders Property Investment Management
Ltd, Trafalgar House Pension Trust, Universities Superannuation Scheme Limited,
CBRE Investors Global Multi Manager, Cushman & Wakefield Investors and DTZ
Investment Management.



Financial Effects



The Proposed Transaction is expected to result in a pre-tax charge to UNITE in
the year ending 31 December 2006 of approximately £14.5 million as a result of
the costs and fees payable as a result of prepaying existing debt and breaking
associated interest rate swaps, as well as professional fees and other costs,
partially offset by the premium at which the Initial Portfolio will be
contributed to the Fund.  UNITE will also release £26.4 million of its existing
deferred tax provision resulting in an expected after tax gain of £11.9 million.



On a pro forma basis as at 30 June 2006, the Group's net asset value per share
would have increased by 2.7 per cent. from 365 pence to 375 pence.  The Group's
fully diluted adjusted net asset value per share, which excludes the effect of
movements in deferred tax provisions, would have reduced by 3.4 per cent. from
416 pence to 402 pence.



The Group's pro forma adjusted gearing as at 30 June 2006 is expected to reduce
from 144 per cent. to 73 per cent.  If UNITE's share of debt in existing joint
ventures and in the Fund of £177 million were taken into account, this would
increase UNITE's adjusted gearing from 73 per cent. to 108 per cent.



If no further equity subscriptions are received before completion of the
Proposed Transaction, this would result in investors and UNITE holding initial
interests in the Fund of 55 per cent. and 45 per cent. respectively.  In that
event, net cash proceeds to UNITE after repayment of existing debt secured on
the properties and payment of expenses associated with the formation of the Fund
would be approximately £17 million which will be used to fund additional site
acquisitions and development activity.  This is in addition to £33 million UNITE
has previously released through a bridge financing undertaken to effect a
restructuring in connection with the Proposed Transaction. Were UNITE's interest
in the Fund reduced to 30 per cent., the net cash proceeds to UNITE would be
increased to approximately £54 million in addition to the £33 million released
previously by the bridge financing.



UNITE expects that the increased financial resources and flexibility it will
gain through the Proposed Transaction will allow it to pursue additional
incremental growth opportunities over time, and specifically in London where the
Group intends to commit greater amounts of development capital after the funds
committed to the Capital Cities Joint Venture with GIC have been fully invested,
which is expected to occur during 2007.



Future Trading Prospects



The Board is confident in the enhanced prospects for UNITE following completion
of the Proposed Transaction.  As the UK's largest commercial owner, operator and
developer of student accommodation, the Group, following Closing, will have the
additional financial flexibility, along with its existing development expertise,
operating systems and brand to capture the opportunities presented by continued
growth in demand amongst the UK student population for high quality, well
located modern accommodation.



Accounting and Tax Impact



Following completion of the Proposed Transaction, it is expected that UNITE will
be required, for accounting purposes, to treat properties acquired by it after
completion of the Proposed Transaction and which are intended to be sold to the
Fund as trading properties in its financial statements.



The principal consequences of this change will be that no revaluation gains on
those properties will be recognised and, instead, profits over historic costs
will be recognised when those properties are acquired by the Fund.



In addition, UNITE may no longer be able to claim capital allowances on assets
identified for potential sale to the Fund after completion of the Proposed
Transaction. This may result in the Group recognising marginally higher levels
of tax charge during the periods in which UNITE makes further disposals of
properties to the Fund. Once those properties are contributed to the Fund, the
Group will benefit from its proportionate share of the foregone capital
allowances.



Properties currently under development will continue to be accounted for as
fixed assets in UNITE's financial statements and revalued to market value in
accordance with the Group's existing accounting policy.



UNITE intends to continue to prepare and disclose market valuations of assets
which are classified as trading properties, so that investors will continue to
be provided with comprehensive information regarding the value of the Company's
assets. Revaluations of investment properties not held through the Fund will
continue to be reflected in the Group's accounts, as before.



Shareholder Approval



In view of the size of the Initial Portfolio relative to UNITE and as required
by the Listing Rules, the Proposed Transaction requires the approval of UNITE's
shareholders. A circular containing detailed information regarding the Proposed
Transaction and convening an Extraordinary General Meeting at which UNITE's
shareholders will be asked to vote to approve the transaction, will be sent to
UNITE's shareholders shortly.



Morgan Stanley & Co. Limited is acting as the financial adviser and sponsor to
UNITE with respect to the Proposed Transaction.  Macquarie Capital Partners
Limited is acting as financial adviser and lead placement agent, and Morgan
Stanley & Co. Limited is acting as co-placement agent, to UNITE in connection
with the structuring of and placement of equity in the Fund.  UBS Limited is
acting as broker to UNITE.



ENDS



ENQUIRIES

The UNITE Group plc

Telephone: [phone]

Mark Allan/Tabitha Birchall



Financial Dynamics

Telephone: [phone]

Stephanie Highett/Dido Laurimore



Morgan Stanley & Co. Limited is acting exclusively for the Company and no other
party in connection with the Proposed Transaction, and will not be responsible
to anyone other than the Company for providing the protections afforded to
clients of Morgan Stanley & Co. Limited, or for providing advice in relation to
the Proposed Transaction.



Macquarie Capital Partners Limited is acting exclusively for the Company and no
other party in connection with the Proposed Transaction, and will not be
responsible to anyone other than the Company for providing the protections
afforded to clients of Macquarie Capital Partners Limited, or for providing
advice in relation to the Proposed Transaction.



UBS Limited is acting exclusively for the Company and no other party in
connection with the Proposed Transaction, and will not be responsible to anyone
other than the Company for providing the protections afforded to clients of UBS
Limited, or for providing advice in relation to the Proposed Transaction.



Notes to Editors:



UNITE is the UK's leading student hospitality company. Listed in the FTSE 250
index of the London Stock Exchange, 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.


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