Interim Results

RNS Number : 2736C

Unite Group PLC

29 August 2008

 



Date                    29 August 2008

On behalf of:        The UNITE Group plc ('UNITE' / 'Group')

THE UNITE GROUP PLC

('UNITE' / 'Group')

Interim results for the six months to 30 June 2008

Resilient NAV performance backed by strong sales and 

market growth 

The UNITE Group plc, the UK's largest manager of branded student accommodation, today announces its interim results for the six months to 30 June 2008.

Financial Highlights:

• Adjusted fully diluted net asset value fell by 2.3% to £498 million (31 December 2007: £510 million) or by 2.9% to 398 pence (31 December 2007: 410 pence). Basic net asset value was 335 pence per share (31 December 2007: 364 pence).

• Loss before tax of £12.8 million (30 June 2007: profit of £25.8 million); on an adjusted basis the loss for the six months was £12.2 million (2007: profit of £0.4 million), primarily due to revaluation movements on the Group's investment property reflecting broader property market conditions and a provision against the value of land currently awaiting planning permission for the development of student accommodation.

• Strong performance by USAF, generating a total return of 5.6% in the six months to June 2008, making it the top performing fund in the IPD Pooled Property Fund Index and the only one to generate a positive return during that period.

• The USAF fund raising process remains open until 3 October. Applications for capital amounting to £85 million have been received of which £42 million is unconditionally committed. The unconditional commitments, together with proceeds from asset sales and maintaining gearing at June levels, provide a minimum of £180 million headroom within the Fund. 

• Dividend maintained at 0.83 pence per share (2007: 0.83 pence).

Operational Highlights:

• Reservations for the forthcoming academic year stand at 95% of available rooms as at 27 August, well in excess of the total 92% achieved for the 2007/08 academic year.

• Increasing national student numbers and ongoing undersupply of purpose-built accommodation provide strong market growth fundamentals.

• Room sales delivering like-for-like rental growth of 9.0% in the direct let portfolio, with 5.0% of core rental growth, which will be reflected in asset valuations; approximately 2.5% of rental growth booked in asset valuations in the six months to June 2008, largely offsetting the adverse movements in valuation yields.

• Successful programme of non-core asset disposals totalling £241.5 million on behalf of both UNITE and USAF and secured at prices 0.1% above December 2007 valuations. Proceeds to be used to reduce gearing and increase the Company's financing capacity.

• Full review of secured development programme undertaken, with resulting scaling back of development commitments where appropriate.

• Full scale operational change programme initiated in January 2008 to improve the Group's operating efficiency and margin, with an annualised savings target of £10 million to be realised through 2009.

• Seven planning consents obtained during the period on projects totalling 1,755 beds, with a further three consents won since 30 June for projects totalling 933 beds.

Geoffrey Maddrell, Chairman of The UNITE Group, commented:

'Against a challenging economic backdrop, UNITE has delivered a resilient performance, based primarily on its expertise and market-leading position in a specialist sector that is delivering consistent, strong rental growth at a level very few other property asset classes can currently match. 

'The fundamentals of the student accommodation sector and the UNITE business model remain sound and the Group has taken important steps to maximise its financial stability and strength during the current uncertain economic environment to ensure that it is well placed to take advantage of opportunities as they arise.'

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

'The Group's transition to a development and co-investing asset management model is designed to deliver enhanced returns on capital over the long term by allowing the Group to focus its capital investment into higher value-add activities such as development, whilst also retaining a significant minority stake in the long-term investment performance of the Group's operational portfolio.

'The current difficulties in the UK economy are likely to persist well into 2009 and, as a result, our priority will continue to be on managing the Group's roll-out plan prudently, conserving cash and borrowing capacity appropriately and maintaining our focus on London and other high quality student locations in terms of development activity.

'There are clear signs of increased activity in the development market place and clear evidence that land prices have fallen. We expect these values to fall further and believe that the dislocation between falling development site values and robust student accommodation investment values will present increasingly attractive opportunities for the Group later in 2008 and throughout 2009.'

Enquiries:

The UNITE Group plc Mark Allan  Joe Lister Tabitha Aldrich-Smith	Tel: [phone]
Financial Dynamics Stephanie Highett / Dido Laurimore /  Rachel Drysdale / Laurence Jones	Tel: [phone]

BUSINESS REVIEW

Overview and outlook

As widely publicised, 2008 has seen extremely challenging conditions in the UK property market, continuing the deteriorating trend that commenced in summer 2007. We expect this trend to extend well into 2009. Whilst the initial downturn was triggered by the dramatic contraction in credit markets in late 2007, this year has seen the impact spread to the wider economy and substantially all segments of the property sector have been affected as a result.

Against this backdrop UNITE, the UK's largest manager of branded student accommodation, has delivered a resilient performance, with adjusted NAV per share falling 2.9% over the six months to 398 pence. This resilience is based primarily on the Group's expertise and market leading position in a sector that is delivering consistent, strong rental growth at a level very few other asset classes can match:

• As at 27 August 2008, reservations across the Group's operating portfolio for the forthcoming 2008/09 academic year stood at 95% of available rooms, compared to 75% at the comparable date a year earlier. With three busy selling weeks still remaining, we are already well in excess of the 92% occupancy achieved for the 2007/08 academic year.

• These sales have been achieved at a level, which delivers like-for-like rental growth of 9.0% in our direct let portfolio, of which 5.0% is core rental growth that will be reflected in asset valuations. Approximately 2.5% of rental growth has been booked in asset valuations in the six months to 30 June 2008, largely offsetting the adverse movements in valuation yields during the period.

• New applicants for the 2008/09 academic year had increased by 9.4% over 2007/08 as at 20 August 2008 (UCAS).

Notwithstanding the delivery of this strong operating performance, UNITE has also taken steps to maximise its financial stability and strength during the current uncertain economic environment to ensure that it is well positioned to take advantage of opportunities when they arise:

• The Group has embarked successfully on a programme of non-core asset disposals, as indicated in September 2007, which will reduce gearing and increase financing capacity. In the six months to June 2008, UNITE sold £54.9 million of assets and since the period end has sold a further £99.1 million of assets itself, as well as a further £87.5 million on behalf of the UNITE UK Student Accommodation Fund ('USAF' or the 'Fund'). These sales, totalling £241.3 million, represent 14% of UNITE's total operational portfolio at the start of the year and have been secured at an average of 0.1% above December 2007 valuations.

• We have undertaken a full review of our secured development programme in light of market conditions and, where appropriate, have scaled back or deferred certain development commitments to preserve cash and financing capacity in anticipation of attractive development opportunities arising as market conditions evolve.

• In January 2008, we initiated a full-scale operational change programme designed to dramatically improve the Group's operating efficiency and margin. This programme initially focused, very successfully, on sales capability and has since shifted towards securing sustainable cost benefits, with an annualised savings target of £10 million to be realised through 2009. These savings, when realised, will help offset inflationary pressures elsewhere, particularly in the Group's energy costs.

The Group's innovative business model continues to be an important element of its strategy. Following the successful establishment of USAF in December 2006, and sales of assets to it at that time and throughout 2007, the Group has now substantially completed its transition to a development and co-investing asset management model. This model is designed to deliver enhanced returns on capital over the long term by allowing the Group to focus its capital investment into higher value-add activities, such as development, whilst also retaining a significant minority stake in the long-term investment performance of the Group's operational portfolio:

• Since its inception, USAF has performed strongly for its investors. Its total return of 5.6% in the six months to June 2008 made it the top performing fund in the IPD Pooled Property Fund Index and the only fund in the Index to achieve a positive return during that period.

• The process of raising further third party equity capital into USAF will continue until 3 October, at which time the book will be closed. We indicated in May that applications to subscribe had been received for £77 million of third party equity. Applications now stand at £85 million, within which unconditional commitments total £42 million, and discussions with further prospective investors continue. The Group remains focused on its initial target to raise £125 million of third party equity, although current market conditions make it difficult to predict whether this will be achieved in full. Taking into account the ongoing fundraising, investment capacity in the Fund ranges from £180 million (if unconditional commitments do not increase beyond £42 million and leverage is kept at its 30 June level of 47% loan-to-value) to £450 million if existing applications convert to unconditional commitments and leverage is restored to the Fund's target level of 55% loan-to-value. This would increase further in the event that Fund commitments exceed the existing £85 million of applications. All cash received by the Group as a result of asset sales to USAF, after the repayment of associated debt, becomes available to invest in development activities beyond the secured pipeline.

Outlook

The current difficulties in the UK economy are likely to persist well into 2009 and, as a result, our priority will continue to be on managing the Group's roll-out plan prudently, conserving cash and borrowing capacity appropriately and maintaining our focus on London and other high quality student locations in terms of development activity.

There are clear signs of increased activity in the development market place and clear evidence that land prices have fallen. We expect these values to fall further and believe that the dislocation between falling development site values (driven by the broader property market) and robust student accommodation investment values (underpinned by sector fundamentals) will present increasingly attractive opportunities for the Group later in 2008 and throughout 2009.

It is important that we do not lose sight of the robust rental growth prospects of the student accommodation sector, underpinned by continued growth in student numbers and a shortage of good quality, well located supply. The fundamentals of the student accommodation sector, and the UNITE business model, remain sound and should leave us well placed to maintain relative NAV out performance in the coming years.

Financial results

Balance sheet

Reported net asset value was £441.0 million (355 pence per share) at 30 June 2008. On an adjusted fully diluted basis, net asset value per share fell by 2.9% in the six months to 398 pence (December 2007: 410 pence), reflecting the challenging property market conditions and UNITE's strong performance relative to the broader property sector. The key elements of this movement, which are explained later in this statement, were as follows: 

Adjusted NAV growth	£m		pps
Adjusted NAV at 31 December 2007	510		410
Investment portfolio
- Rental growth	26		20
- Yield movement	(34)		(27)
Development surpluses	16		12
Land write downs	(8)		(6)
Adjusted loss before one-off items	(4)		(3)
Swap costs, dividends, asset sales and dilution	(8)		(8)
Adjusted NAV at 30 June 2008		498		398

As expected, the Group's gearing (net debt as a percentage of equity) increased in the six months, mainly because capital expenditure in the Group's development programme exceeded proceeds from asset disposals. At 30 June 2008, adjusted gearing stood at 126% compared to 106% at 31 December 2007. However, if one adjusts for the impact of asset disposals completed since the period end, gearing would reduce to 106%, in line with the opening position and is likely to fall further in the second half as stabilised assets are sold to USAF. This anticipated reduction in gearing, coupled with robust investment values, will leave the Group well placed to capitalise on the attractive development opportunities that we expect to arise.

Income statement 

In the six months to 30 June 2008 the Group reported a loss of £12.8 million, compared to a profit of £25.8 million for the six months to 30 June 2007. On an adjusted basis (consistent with the guidelines laid down by The European Public Real Estate Association) the loss for the six months was £12.2 million (2007: profit of £0.4 million).

The movement in adjusted profit year on year is explained primarily by two items:

• The Group has made a provision of £8.5 million against the value of undeveloped land. This primarily relates to sites that did not have planning consent for development as student accommodation at the period end and whose existing use value has been impaired by the wider fall in general property values. This is explained more fully in the Development Activities section of this statement.

• In the six months to 30 June 2007, the Group accrued a fee of £3.4 million relating to the performance of USAF. The Fund's performance in 2008, whilst very strong on a sector relative basis, has not reached a level where further performance fees have accrued.

In addition to these items, the following contribute to the movement in reported profits for the period:

• As reported elsewhere, the Group has been actively selling non-core properties throughout 2008. In the first six months of 2008, £54.9 million of assets were sold resulting in a loss on disposal of £5.8 million (2007: profit of £1.2 million), although since the period end further sales have been achieved at a £0.4 million profit on disposal.

• Revaluation movements on the Group's investment property, including its share of joint ventures, have fallen from an unrealised gain of £22.8 million for the six months to June 2007 to an unrealised loss of £8.6 million in the first half of 2008, a negative swing of £31.4 million. This movement reflects the deteriorating broader property markets.

• Changes in the fair value of the Group's interest rate swaps, treated as ineffective hedges, resulted in an unrealised gain of £15.2 million for the period (2007: £2.9 million).

As noted at the time of our preliminary announcement in March, the Group's income statement has changed significantly during 2008, reflecting its shift to the developer and co-investing asset manager business model, which is focused on delivering higher long term equity returns. The principal feature of this model is the sale of revenue generating stabilised assets, primarily to USAF, and the reinvestment of proceeds into non-revenue generating development activity. This is reflected in the income statement for the six months to June 2008 as follows:

• Following the sales of stabilised assets to USAF during 2007, a greater proportion of the Group's wholly owned portfolio is now stabilising than was the case in 2007, with a consequent reduction in margin and profit on that portfolio. Profit from the wholly owned investment portfolio has fallen from £3.8 million in 2007 to £2.3 million in 2008.

• As USAF has grown through the acquisition of further stabilised assets from UNITE, the Group has not significantly increased its co-investment. As a result, its share of the profit on stabilised assets has been diluted. The Group's income return from USAF is broadly flat in the first six months of 2008 at £2.7 million (2007: £2.8 million).

More detail on the Group's operational performance is provided in the Segmental Analysis within note 3 to the interim statement.

Dividend

The Board advises that the interim dividend is maintained at 0.83 pence per share (2007: 0.83 pence). The dividend is payable on 19 November 2008 to shareholders on the register on 17 October 2008.

The UK student accommodation market 

The number of students studying in UK Higher Education continues to grow steadily. In 2007/08 there were 2.33 million students studying in the UK (source: Higher Education Statistics Agency) and, in August, the organisation that manages university applications, UCAS, reported a strong increase in the total number of student applicants for the 2008/09 academic year (up 9.4%). As at 20 August, 375,000 new students had had their university places confirmed, a rise of 8.4% on the same point last year. If this pattern continues for the rest of the clearing period then it would translate to over 448,000 students starting Higher Education courses this autumn, an increase of some 35,000 students over 2007/08 and a continuation of the consistent year on year growth trend.

Within this total population there are 1.43 million full time students, of whom 18%, or 257,000, are from outside the UK.  The number of overseas applicants is also up this year, by 5.9% compared to the same point in 2007.  

The supply of good quality, well-located student accommodation continues to lag demand significantly. Across the UK, there is only sufficient purpose built accommodation to house two of every three first years or overseas students. This ratio is an important indicator of latent demand as all Universities seek to provide accommodation for these students. In London, the ratio is even more striking as there is only one purpose built bed space for every two students from these groups.

The professional landlord segment of the market remains the only notable source of new accommodation provision, accounting for approximately 8,000 new bed spaces each year. Universities tend to focus their efforts on updating existing accommodation rather than supplying new bed spaces and the broader UK housing market continues to suffer from structural undersupply, particularly in the shared housing that tends to prove more popular with students.

With growing demand and structural constraints to new supply, the compelling supply and demand imbalance that underpins the sector's attractiveness, looks set to continue for the foreseeable future.

Operating and investment portfolio

For the 2008/09 academic year, taking into account new project deliveries and asset sales, UNITE will be operating 36,274 bed spaces across 23 cities, of which over 50% are concentrated in our six largest markets as follows:

City	UNITE Market Share	UNITE Completed Beds (2008/09)	FT Student Numbers (2006/07) (HESA)	3Yr Growth in FT Student Numbers to 2006/07
London	1.8%	3,929	220,909	5.8%
Sheffield	9.1%	3,729	41,052	2.7%
Liverpool	9.0%	3,371	37,387	3.6%
Bristol	9.6%	3,304	34,327	5.1%
Manchester	4.8%	2,790	57,660	4.9%
Leeds	5.5%	2,604	47,684	0.3%

The Group's ownership stake in these assets varies from purely the management of sale and leaseback assets, where the Group effectively has no residual interest, to full ownership, dependent upon the type of asset and its phase of operation. Assets in which the Group has a minority stake are as follows:

• Stabilised direct let assets, other than those in London and Edinburgh, are typically held in USAF. At 30 June 2008 UNITE had a 20% stake in USAF.

• The majority of stabilised direct let assets in London and Edinburgh are held in the UNITE Capital Cities joint venture ('UCC') with GIC RE. This joint venture is fully invested and in future UNITE will be developing wholly owned assets in these cities. At 30 June 2008 UNITE had a 30% stake in UCC.

• One asset remains in the UNITE Student Village joint venture with Lehman Brothers ('USV') where UNITE has a 51% interest. Subject to satisfactory operational performance, this asset is likely to be sold to USAF later in 2008.

Investment assets held wholly on the Group's balance sheet fall into three principal categories:

• Stabilising assets; these are properties that have recently been completed and are not yet generating their optimal net operating income due to the impact of lower initial occupancy and asset mobilisation costs which, combined, tend to reduce net operating income by approximately 30% compared to a stabilised asset. Once these assets stabilise, our intention is to sell them to USAF, subject to it having sufficient investment capacity. Taking into account strong operational performance across the portfolio, we expect between £200 million and £250 million of wholly owned stabilising assets to be eligible for sale to USAF later in 2008.

• Assets with redevelopment or active asset management potential.

Non-core legacy assets; these are properties which do not fit with the Group's long-term investment strategy, either because of their location or because they are let to universities under long term agreements and deliver lower returns. Since commencing a disposal programme across these assets, the Group has completed sales totalling £175 million from its balance sheet. This disposal programme will continue throughout 2008 and into 2009 as the Group completes its business model transition. The table below analyses the portfolio at 30 June 2008, together with the impact of subsequent asset sales and openings:

	USAF	UCC	USV	Owned Stabilising	Other	Leased	Total
London
Value	-	£201m	-	-	£91m	-	£292m
Beds	-	1,809	-	-	968	260	3,037
Major Provincial
Value	£592m	-	£63m	£116m	£111m	-	£882m
Beds	11,727	-	1,383	2,413	2,724	1,644	19,891
Other Provincial
Value	£241m	-	-	£187m	£50m	-	£478m
Beds	6,040	-	-	4,211	1,564	1,785	13,600
Varsity
Value	-	£38m	-	-	£10m	-	£48m
Beds	-	394	-		218	316	928
Total at 30 June*
Value	£833m	£239m	£63m	£303m	£262m	-	£1,700m
Beds	17,767	2,203	1,383	6,624	5,474	4,005	37,456
Sales post 30 June
Value	£(85)m	-	-	£(89)m	£(8)m	-	£(182)m
Beds	(2,467)	-	-	(1,970)	(195)	-	(4,632)
08 openings
Value	-	£179m	-	£214m	-	-	£393m
Beds	-	667	-	2,783	-	-	3,450
Total at 27 August
Value	£748m	£418m	£63m	£426m	£254m	-	£1,909m
Beds	15,300	2,870	1,383	7,437	5,279	4,005	36,274
UNITE investment	20%	30%	51%	100%	100%	100%	-

* The value represents the gross value (as opposed to UNITE's share).

Reservations performance and rental growth

Sales performance for the 2008/09 academic year is extremely strong across the portfolio. As at 27 August 2008, reservations had been received for 95% of bed spaces compared to 75% at the same time last year and final occupancy of 92% for the 2007/08 academic year. This sales performance underpins strong rental growth, with like-for-like sales on the direct let portfolio (excluding leased properties) up 9.0% and core rental growth, which strips out the impact of stabilisation, forecast to increase by approximately 5.0% over the previous academic year:

	Beds		% Reserved 08/09 year*		% Reserved 07/08 year*		Like for like rental growth
Joint venture
USAF	15,300		95%		73%		8.3%
UCC	2,870		100%		87%		9.6%
USV	1,383		85%		37%		7.0%
	19,533		96%		72%		8.6%
Wholly owned
Stabilising	7,437		91%		74%		8.7%
Other	5,279		88%		85%		10.4%
	12,716		90%		81%		10.0%
Leased	4,005		100%		94%		4.5%
Total	36,274		95%		75%		8.6%

* Reservations data for 2008/09 as at 27 August 2008, 2007/08 as at 23 August 2007.

As reported in our March preliminary announcement, much of this strong performance is attributable to enhanced operational capabilities and the use of sophisticated research in setting rents. These factors, coupled with the continued rise in student numbers, present a positive outlook for rental growth in future years.

Operating costs and overhead

Over recent years, the Group's operating costs and overheads have grown at a faster rate than revenues, principally reflecting an inadequate infrastructure to cope with nationwide growth and a failure to deliver sustainable economies of scale. The financial impact of this has been emphasised more recently with the establishment of our developer and co-investing asset manager business model, which distinguishes more effectively between the economics of asset ownership and asset management. 

The Group began to address this in 2007 with the successful launch of its on-line accommodation management system, which has been further supported through the creation of a national sales framework. The results of this investment are clearly evident in the strong sales performance for academic year 2008/09, reported in this statement.

Since January 2008, we have extended the reach of this programme to encompass a more comprehensive process reengineering and organisational change exercise - to define and deliver our operational 'Blueprint'. As this programme is implemented we expect to secure substantial efficiencies as a result of the professionalisation, standardisation and automation of core operating processes.

This work is well progressed and we are confident of realising cost savings of £10 million during 2009, of which approximately £3.5 million will reduce overhead (by circa 17%) and the remainder reduce on-site operating costs (by circa 12%). These savings will fall in three principal areas:

• Integrated procurement;

• Reduced headcount, both on-site and centrally, as a result of improved standardisation and automation;

• Improved estate maintenance through systems investment and partnering.

These savings will help offset inflationary pressures in other operating cost items, most notably energy costs, which currently show a year-on-year increase of approximately 40% for 2008/09, equivalent to £150 per bed space and which will be substantially reflected in our customer offer for 2009/10.

People

Unlike most property companies UNITE has a significant operational business and, even with systems investment and process redesign, the business' value is fundamentally tied to the quality of service its employees provide to the Group's customers.

During 2008 our 'Blueprint' business change programme has provided us with an opportunity to refine our core people processes and provide a more structured approach to learning and development. This is best signified with the opening of our national training academy in Birmingham, which is supported by a range of multi-media training tools, around which the Group's core service standards will be developed and trained.

Periods of change are always testing times for employees of an organisation and, with important asset disposals in a number of cities and a large scale operational business change programme well under way, UNITE is certainly undergoing change. It is testament to the commitment and professionalism of our people that the business has been able to perform strongly through this period.

Investment portfolio valuation

The Group's investment portfolio, including those assets held in co-investment vehicles, has been independently valued at 30 June 2008 by Messrs CBRE and King Sturge. As expected, we have seen yield expansion across most of the portfolio offset by strong rental growth in our direct let assets. Performance has been weakest in properties subject to long-term agreements and strongest in high quality direct let assets:

		Dec 2007		Sales and completions		Yield shift		Rental growth		June 2008		Typical stabilised yield
		£m		£m		£m		£m		£m		%
Leased/ nominations assets		297		(58)		(12)		8		235		5.8%
Direct let assets*
London		50		-		-		3		53		5.3%
Major provincial		301				(7)		5		299		6.0%
Other provincial		195		41		(11)		6		231		6.2%
Varsity cities		21		-		(4)		4		21		5.4%
Total		864		(17)		(34)		26		839		6.0%

* Includes UNITE's share of JVs

Demand for good quality, well-located investment assets remains robust and transactions over the course of the six months provide meaningful valuation evidence across all major segments of the portfolio. Taking this evidence into account, we believe that yield expansion in student accommodation investments will continue to be less pronounced than across the broader property market, with rental growth prospects providing an effective buffer. Assets subject to long-term agreements, of which the Group had approximately £150 million at 30 June 2008, are likely to remain the most susceptible to valuation falls with London properties remaining most resilient.

Asset disposals

During 2008 the Group has been actively selling non-core assets in line with its stated strategy to focus capital investment in cities where it considers growth prospects to be most attractive. These sales have been conducted both on UNITE's own behalf and on behalf of USAF as follows:

	Valuation at Dec '07	Valuation at Jun '08	Gross proceeds		Profit (loss) on disposal*
	£m	£m	£m		£m
Six months to June 2008
Sale and leaseback transactions	51.0	n/a	47.5		(4.4)
Other non-core asset sales	7.7	n/a	7.4		(1.4)
Total in period to June 2008	58.7	n/a	54.9		(5.8)
Since June 2008
Direct let assets in non-core cities
- UNITE	97.2	97.5	99.1		0.4
- USAF	85.3	84.8	87.5		1.7
Total 2008 year-to-date
- UNITE	155.9	n/a	154.0		(5.4)
- USAF	85.3	n/a	87.5		1.7
Total	241.2		241.5		(3.7)

* Profit/loss on disposal is after all sale costs.

Development activities

UNITE remains an active developer of student accommodation. During the six months to 30 June the Group, including where appropriate its joint venture partners, invested a total of £119 million of capital expenditure into its development pipeline as follows:

Development expenditure	Gross  £m		UNITE's share £m
2008 completions
- UNITE	40		40
- Joint ventures	21		7
2009 completions
- UNITE	41		41
2010 and later completions
- UNITE	17		17
Total	119		105

In light of current general market conditions, and as outlined in our preliminary statement in March, the Group has pursued a prudent approach in managing its ongoing development commitments, intended to leave the Group well placed to pursue land buying opportunities later in 2008 and throughout 2009, as the full impact of falls in land prices takes effect.

Since December 2007, UNITE has secured two new development projects - a 603 bed development in Reading, conditional upon obtaining planning consent, and a 580 bed development in London which has the benefit of a detailed planning consent. Both projects are scheduled for delivery in 2010. Separately, the Group has delayed commencement of developments totalling 962 beds previously scheduled for 2009 opening and cancelled its commitment to certain other development projects, totalling 1,098 beds. This includes the sale of land previously held for development for £8 million, in line with book value.

Secured future developments
	31 Dec 07 Beds		Deferred Beds		Secured Beds		Strategic review & scheme revisions Beds		27 Aug 08 Beds		Completed value £m
2008 completions
UNITE	3,178		-		-		24		3,202		238
JV	729		(64)		-		-		665		179
	3,907		(64)		-		24		3,867		417
2009 completions
UNITE	3,931		(962)		-		(366)		2,603		295
JV	-		64		-		-		64		6
	3,931		(898)		-		(366)		2,667		301
2010 plus UNITE	2,326		962		1,183		(756)		3,715		523
Total beds	10,164		-		1,183		(1,098)		10,249		1,241

The Group's acquisition and development strategy remains to focus on developing high quality assets in strong locations, with a particular focus on London and 'varsity' cities (such as Oxford, Cambridge and Bath). The common characteristics of these markets are strong and growing student populations, little or no professional competition, tight land supply and a difficult planning environment. At 27 August 2008, 64% of the Group's development portfolio (by completed value) was in London, with a further 19% in varsity cities.

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 Group's development pipeline, we consider it appropriate that all development properties, regardless of accounting classification, are independently valued. A full valuation of the Group's development portfolio has been carried out as at 30 June 2008 and is summarised below:

Development portfolio valuation	30 June 2008 £m		31 Dec 2007  £m
Investment property under development	87		102
Property under development	234		122
Share of joint ventures investment property under development	44		36
Total	365		260
Valuation gain not recognised on property held at cost	55		39
Value at end of period	420		299

In total, the Group has recognised £16 million of revaluation gains on developments in the calculation of its adjusted net asset value. 

In addition to the above portfolio, the Group had £42 million of land held for development at 30 June 2008, which is carried at the lower of cost and net realisable value. This land is likely to be developed within the next three years but did not have the requisite planning consent at the valuation date. As a result of the deteriorating existing use values for this land, the Group has made a provision of £6 million against its carrying value at 30 June 2008, which forms the majority of the £8.5 million total provision booked in the period. Since the period end, the Group has successfully secured planning consents on land with a carrying value of £33 million at 30 June 2008, such that the Group's exposure in this area has been reduced to £9 million.

Securing valuable planning consents remains a key strength for the Group. During the six months to June 2008, UNITE successfully secured seven planning consents on projects totalling 1,755 beds. Since 30 June a further three consents have been obtained on projects totalling 933 beds.

The outlook for development margins on our secured development pipeline is, of course, more challenging than it has been historically and we are actively managing our exposure in this area, as evidenced by the deferral or cancellation of certain commitments. However, the outlook for occupier demand in our sector, the prime positioning of our developments and clear signs of easing build cost inflationary pressure all help to offset the principal downside risk concerning the level of future investment yields.

Based on current independent valuations of pipeline projects and the anticipated costs to complete these projects (£520 million), up to a further £155 million (124 pence per share) of unrealised development profits are expected to arise as the pipeline is built out.

Our modular manufacturing facility remains a key element of the Group's development success. We continue to deliver approximately 70% of new build bedrooms using this technology and, with a new management team installed at the plant, we have reinvigorated the innovation agenda. Our principal objective is to increase the off-site elements of all projects, both through the increased utilisation of our own facility and effective development of supply chain relationships, which we expect to impact favourably on construction costs.

Livocity

As reported with our preliminary statement in March, the Group currently operates one project under its 'Livocity' concept (62 beds near Regent's Park, London), providing accommodation for graduates and young career professionals. A further three assets are planned for development during 2008, located in Fulham, Highgate and Camden. The property continues to perform well with demand remaining robust, whilst development of the three further sites (total 138 beds) is progressing in line with plan.  

Co-investing asset management 

UNITE acts as co-investing manager of two significant specialist student accommodation investment vehicles which it established: The UNITE UK Student Accommodation Fund ('USAF') and the UNITE Capital Cities joint venture with GIC RE ('UCC'). In addition, one asset remains in the UNITE Student Village joint venture with Lehman Brothers ('USV'), although we anticipate that this asset will be sold to USAF during 2008, subject to satisfactory operating performance. During the six months to June 2008, the Group received fees from USAF, UCC and USV as follows: 

Fees earned

	Management fees		Performance fees		Total fees
	£m		£m		£m
UCC	1.1		-		1.1
USAF	2.0		-		2.0
USV	-		-		-
Total		3.1		-		3.1

The performance of USAF during the period was strong on a sector relative basis, generating a total return of 5.6% in the period compared with an IPD UK Pooled Property Funds Index average of -10.3%. However, this did not generate any performance fees in the period, as the Fund's absolute performance was below the level at which such fees become payable. UCC and USV are closed ended funds and any performance fees become payable on exit. 

The UNITE UK Student Accommodation Fund 

USAF was established in December 2006 to invest in direct let student accommodation across the UK, other than London and Edinburgh due to the exclusivity over those cities afforded to UCC at that time. Upon establishment it acquired a £515 million portfolio of such accommodation from UNITE and, during 2007, it acquired a further £302 million of assets from UNITE. Net asset movements and returns in USAF in the six months to June 2008 were as follows: 

	£m
Fund consolidated net assets at 31 December 2007	446.1
Revaluation of investment portfolio	(1.7)
Earnings less distributions	5.7
Other reserve movements*		6.1
Fund consolidated net assets at 30 June 2008		456.2
Opening NAV per unit	£1.020
Closing NAV per unit	£1.066
Distributions paid	£0.011
Return on NAV (6 months performance)
Capital	4.6%
Income		1.0%
Total		5.6%
* Includes non-cash items, market value movements in ineffective hedges & other movements

As at 30 June 2008, USAF's investment portfolio comprised 45 properties in 16 cities with a total of 17,767 bed spaces. The portfolio was independently valued by CBRE at £833 million, resulting in the Fund having net assets as at that date of £456.2 million as shown above. UNITE has maintained its stake in USAF at 20% throughout the first six months of the year and intends to retain it at approximately this level for the foreseeable future. As outlined above, USAF has delivered asset sales of £87.5 million in line with its strategy of focusing on markets that demonstrate the greatest prospects for capital and income growth. The capital released from these sales will be reinvested in higher growth markets.

USAF is an open-ended, infinite life vehicle with a carefully structured redemption mechanism designed to protect the interests of non-redeeming investors. Redemptions are not permissible before December 2009 and are limited thereafter to 10% of gross asset value per annum. The main reason for adopting an open-ended structure was to allow the Fund to increase in size through further injections of capital.

The investment capacity of USAF is an important factor in determining UNITE's forward development pipeline. Whilst UNITE does not commit to new developments without having the capital available to fund them through to completion, the expectation of a capital receipt from future sales to USAF does allow the Group to take a longer term view of its development opportunities.

The Fund performed well in 2007 and in the first half of 2008 and, with UCC no longer having exclusivity over assets in London and Edinburgh, USAF will be able to gain exposure to these attractive markets. As outlined earlier this year, we are seeking to raise further capital into USAF during 2008 in order to support acquisition opportunities that will arise for the Fund in those, and other cities, as a result of access to UNITE's pipeline of assets.  

The capital raising process that was initiated earlier this year closes on 3 October 2008. Whilst the level of interest in the fund raising process has remained positive, it has proven difficult to secure commitments prior to the end of the fundraising window. Applications for capital now stand at £85 million, within which unconditional commitments total £42 million. Activity is expected to heighten during September as investors currently engaged in the due diligence process make commitments prior to the Fund closing. The Group remains focused on its target of £125 million, although current market conditions make it difficult to predict whether this will be achieved in full.

Assuming that no further capital is raised beyond the current level of unconditional commitments of £42 million, the Fund will have headroom, at its June gearing levels, to acquire a further £180 million of property. If the applications for capital are converted into commitments, headroom would increase to £280 million. If gearing is increased to the Fund's target level of 55%, investment capacity would be £335 million and £450 million respectively.

The UNITE Capital Cities joint venture 

UCC was established in March 2005 as a joint venture between UNITE and GIC RE. It is a closed-ended fund due to mature in 2013 and was established by UNITE to develop and operate student accommodation in London and Edinburgh, markets in which UNITE's growth was capital constrained at that time. Following an intensive period of acquisition and development activity, UCC equity is now fully committed with its final development projects scheduled for completion in 2009, all of which are fully funded through to the end of the Fund's life. As a result of this successful execution of the business plan, UCC no longer has exclusivity over London and Edinburgh assets.

Net asset value movements and returns in UCC during 2008 were as follows:

	£m
JV consolidated net assets at 1 January 2008	125.1
Value added to completed portfolio	14.5
Development profits recognised	5.2
Earnings less distributions	(0.4)
Changes in fair value interest rate swaps	9.8
JV consolidated net assets at 30 June 2008		154.2
Return on NAV
Capital	15.4%
Income	0.9%
Total		16.3%

Further details of the financial performance and position of USAF and UCC is provided in notes 3 and 8 to the consolidated financial statements.

Financing

The Group's financing strategy is based around its development and co-investing management business model. It requires financing to fund the development of new properties, the stabilisation phase of assets and ongoing investment in its operating portfolio. This financing is provided from its underlying equity, a range of debt facilities and it's enhanced through equity released upon the sale of stabilised assets, typically to USAF.

By investing its equity capital primarily in development and stabilising activities, the Group seeks to maximise its return on equity for shareholders.

Debt facilities

Net debt at 30 June 2008 was £646 million, compared with £604 million at the year-end. The increase reflects the capital expenditure on developments offset by £49 million of debt repaid on disposed properties. Adjusted gearing was 126% (June 2007 110%) and net debt as a percentage of gross asset value was 65%.

The Group has followed a strategy of reducing its gearing through an ongoing programme of core asset disposals to USAF and other non-core asset disposals. Certain of these asset sales were completed after 30 June and, on a proforma basis, the impact of these sales would reduce adjusted gearing to 106%. The planned sales of assets to USAF late in 2008 will have the impact of further reducing gearing as is usual with the Group's business cycle.

As at 30 June 2008, the Group had £1.33 billion of debt available to it through a mixture of revolving and fixed facilities for the purposes of funding assets in the course of development, stabilisation and investment. £827 million of these facilities were committed to ongoing projects (with the lenders having security over the relevant assets) with the balance available to fund further development projects (subject to the lenders taking security over those projects). £646 million of the committed facilities were drawn at 30 June 2008. Following the disposal of properties outlined above, the level of drawn facilities will reduce by £62 million. It is important to note that the total undrawn facilities (£684 million) comfortably exceeds the costs to complete our secured development programme (£520 million).

In addition to the £1.33 billion of facilities referred to above, there were a further £30 million of working capital and stock facilities available. The average unexpired term on the Group's debt facilities is four years and the Group's average cost of debt is 6.6%. 84% of the Group's investment borrowings are fixed or hedged for an average period of 5.2 years.

The Group's primary banking facilities are arranged through a small number of key relationship banks and it has enjoyed continued and fresh support from these lenders despite the dramatic tightening of credit markets generally. This support is evidenced by new facilities, totalling £230 million, arranged with Bank of Ireland and Royal Bank of Scotland during the period. UNITE's facilities are structured to fund land, development and assets in the course of stabilisation prior to sale to USAF, with the banks taking security over the assets. The facilities are structured such that covenants become effective once the development period has completed.  

Taking the above into account, the Group's main facilities are structured to recognise the stabilising nature of its wholly owned assets. They typically have interest cover covenants at the property level which require direct property net operating income to cover net interest attributable to that property or portfolio of properties by a factor of between 1.05 and 1.20 times. Whilst some facilities use solely these interest cover covenants, certain others also include loan to value covenants ('LTV'), again at a property level. Taking into account the values achieved on recent asset sales, the strong lettings performance and LTV covenant headroom inherent in the facilities at arrangement, we do not currently have concerns regarding any of the Groups' debt covenants.  

We continue to actively monitor existing and forecast covenant compliance across all facilities and retain adequate flexibility within these facilities to maintain compliance in the unlikely event that any difficulty is envisaged.

The banking facilities and covenants within the co-investment vehicles are structured on a similar basis to the Group's facilities. In addition, the facilities are structured such that there is no recourse to the Group, with the exception of the UCC debt, which has limited recourse. There is no LTV covenant on the USAF bond.

Taking into account its available equity, and the debt facilities referred to above, the Group has all the financing it requires to build out its secured development pipeline.

Further details of the Groups risks and uncertainties are disclosed in the 2007 annual report and accounts.  Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

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

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

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

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

Signed on behalf of the Board by:

Mark Allan                          Joe Lister

Chief Executive                 Chief Financial Officer

29 August 2008

Consolidated income statement
For the 6 months to 30 June 2008
	Note	Unaudited 6 months to  30 June 2008		Unaudited 6 months to  30 June 2007		Year to 31 Dec 2007
		£'000		£'000		£'000
Revenue	3	40,776		37,263		72,140
Cost of sales	3	(30,890)		(14,211)		(29,974)
Administrative expenses	3	(12,251)		(10,919)		(21,082)
		(2,365)		12,133		21,084
Loss on disposal of property		(5,849)		(527)		(4,205)
Profit on part disposal of investment in joint venture		-		1,690		1,803
Net valuation (losses) / gains on investment property	6	(11,908)		13,856		(2,733)
(Loss) / profit before net financing costs		(20,122)		27,152		15,949
Loan interest and similar charges		(13,967)		(14,362)		(30,953)
Changes in fair value of interest rate swaps		15,180		2,876		(7,472)
Bond and loan redemption costs		-		-		(57,392)
Finance costs		1,213		(11,486)		(95,817)
Finance income		702		887		1,763
Net financing costs		1,915		(10,599)		(94,054)
Share of profits of joint ventures	8	6,664		12,599		10,978
(Loss) / profit before tax		(11,543)		29,152		(67,127)
Tax (charge) / credit		(1,256)		(3,362)		29,652
(Loss) / profit for the period		(12,799)		25,790		(37,475)
Profit for the period is wholly attributable to equity holders of The UNITE Group plc.
Earnings per share
Basic	5	(10.3p)	20.9p		(30.4p)
Diluted	5	(10.3p)	20.8p		(30.4p)
Dividends
Total paid in period (£'000)		2,061	2,051		3,073
Paid per ordinary share		1.67p	1.67p		2.50p
Total proposed (£'000)		1,032	1,023		2,062
Proposed per ordinary share		0.83p	0.83p		1.67p

Consolidated balance sheet
At 30 June 2008
		Note		Unaudited 30 June 2008			Unaudited 30 June 2007			31 Dec 2007
				£'000			£'000			£'000
Assets
Investment property		6		565,280			739,330			597,747
Investment property under development		6		87,579			186,962			102,180
Property, plant and equipment				8,959			9,225			9,094
Investment in joint ventures		8		98,660			101,789			86,013
Intangible assets				7,736			6,424			8,089
Other receivables				13,471			10,932			4,770
Total non-current assets				781,685			1,054,662			807,893
Properties under development		6		233,811			56,135			121,936
Inventories		7		54,894			82,419			104,557
Trade and other receivables				100,072			70,205			94,019
Cash and cash equivalents				22,039			32,269			56,316
Total current assets				410,816			241,028			376,828
Total assets				1,192,501			1,295,690			1,184,721
Liabilities
Borrowings and financial derivatives		9		(35,366)			(62,357)			(240,234)
Trade and other payables				(89,646)			(77,056)			(117,801)
Total current liabilities				(125,012)			(139,413)			(358,035)
Borrowings and financial derivatives		9		(611,066)			(596,690)			(363,720)
Deferred tax liabilities				(15,416)			(45,155)			(12,873)
Total non-current liabilities				(626,482)			(641,845)			(376,593)
Total liabilities				(751,494)			(781,258)			(734,628)
Net Assets				441,007			514,432			450,093
Equity
Issued share capital				31,078			30,823			30,874
Share premium				176,536			173,962			174,333
Merger reserve				40,177			40,177			40,177
Retained earnings				177,050			241,471			187,957
Revaluation reserve				11,912			24,027			17,644
Hedging reserve				4,254			3,972			(892)
Total equity				441,007			514,432			450,093
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 2008
	Note	Unaudited 6 months to  30 June 2008	Unaudited 6 months to  30 June  2007	Year to 31 Dec 2007
		£'000	£'000	£'000
Investment property under development: - revaluation	6	(1,666)	2,035	7,368
- deferred tax		465	(98)	(1,591)
Other property - revaluation		-	-	159
- deferred tax		-	-	-
Effective hedges - movements		2,782	1,822	(1,280)
- deferred tax		(798)	(547)	384
Gains on hedging instruments transferred to income statement		(54)	(124)	(101)
Deferred tax on gains transferred		15	37	30
Share of joint venture valuation gain on investment property under development (net of related tax)		1,361	4,596	4,810
Share of joint venture movements in effective hedges (net of related tax)		3,201	1,633	(1,076)
Net gains recognised directly in equity		5,306	9,354	8,703
(Loss) / profit for the period		(12,799)	25,790	(37,475)
Total recognised income and expense for the period		(7,493)	35,144	(28,772)
Dividends paid		(2,061)	(2,051)	(3,073)
Own shares acquired		(2,192)	(1,096)	(1,096)
Shares issued		2,407	1,014	1,436
Fair value of share options expensed		253	234	411
		(9,086)	33,245	(31,094)
Equity at start of period		450,093	481,187	481,187
Equity at end of period		441,007	514,432	450,093

Consolidated statement of cash flows
For the 6 months to 30 June 2008
		Unaudited 6 months to  30 June 2008	Unaudited 6 months to  30 June  2007	Year to 31 Dec 2007
		£'000	£'000	£'000
Operating activities
(Loss) / profit for the period		(12,799)	25,790	(37,475)
Adjustments for non cash / non operating items		13,192	(10,792)	64,284
Cash from operating activities before changes in working capital		393	14,998	26,809
Change in property under development		(111,875)	(38,101)	(103,902)
Change in inventories		49,663	(59,437)	(81,575)
Other changes in working capital		(27,193)	(26,578)	29,942
Tax paid		(256)	-	-
Cash flows from operating activities		(89,268)	(109,118)	(128,726)
Cash flows from investing activities		20,685	(85,410)	101,263
Cash flows from financing activities		37,105	176,354	30,537
Net increase / (decrease) in cash and cash equivalents		(31,478)	(18,174)	3,074
Cash and cash equivalents at start of period		53,517	50,443	50,443
Cash and cash equivalents at end of period		22,039	32,269	53,517
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 2008 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 2007. 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 2007 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 the use of short-term summer 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.
	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 2008		Investment segment	Development segment	Unallocated corporate costs	Total
			£'000	£'000	£'000	£'000
	Revenue		32,473	8,303	-	40,776
	Cost of sales		(14,214)	(16,676)	-	(30,890)
	Administrative expenses		(7,177)	(1,170)	(3,904)	(12,251)
			11,082	(9,543)	(3,904)	(2,365)
	Loan interest and similar charges		(13,967)	-	-	(13,967)
	Interest rate swap receipts		614	-	-	614
	Finance income		702	-	-	702
	Share of joint venture investment segment result		3,285	-	-	3,285
	Segment result / corporate costs		1,716	(9,543)	(3,904)	(11,731)

	Unaudited 30 June 2007
	Revenue		35,907	1,356	-	37,263
	Cost of sales		(12,987)	(1,224)	-	(14,211)
	Administrative expenses		(5,589)	(2,050)	(3,280)	(10,919)
			17,331	(1,918)	(3,280)	12,133
	Loan interest and similar charges		(14,362)	-	-	(14,362)
	Finance income		887	-	-	887
	Share of joint venture investment segment result		3,339	-	-	3,339
	Segment result / corporate costs		7,195	(1,918)	(3,280)	1,997

	31 December 2007
	Revenue		69,945	2,195	-	72,140
	Cost of sales		(27,613)	(2,361)	-	(29,974)
	Administrative expenses		(11,548)	(3,656)	(5,878)	(21,082)
			30,784	(3,822)	(5,878)	21,084
	Loan interest and similar charges		(30,953)	-	-	(30,953)
	Finance income		1,763	-	-	1,763
	Share of joint venture investment segment result		5,921	-	-	5,921
	Segment result / corporate costs		7,515	(3,822)	(5,878)	(2,185)

	Notes to the consolidated interim financial statements
3.	Segment reporting (continued)

	(b) Portfolio result and adjusted profit
		Note	Unaudited 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
			£'000	£'000	£'000
	Investment segment result	3(c)	1,716	7,195	7,515
	Development segment result		(9,543)	(1,918)	(3,822)
	Other unallocated items
	Corporate costs		(3,904)	(3,280)	(5,878)
	Share of joint venture overheads		(133)	(461)	(632)
	Loan break costs and costs written off on refinancing		-	-	(57,392)
	Swap loss realised on cancellation		-	-	(2,120)
	Share of joint venture swap gain		-	-	186
	Current tax charge		(326)	(1,116)	(795)
	Adjusted (loss) / profit for the year		(12,190)	420	(62,938)
	Net valuation (losses) / gains on investment property		(11,908)	13,856	(2,733)
	Loss on sale of property		(5,849)	(527)	(4,205)
	Profit on part disposal of investment in joint venture		-	1,690	1,803
	Share of joint venture loss on disposal		-	-	(81)
	Share of joint venture tax charge		-	-	(1,438)
	Changes in fair value of interest rate swaps		15,180	2,876	(5,352)
	Interest rate swap receipts on ineffective hedges allocated to the investment segment	3(c)	(614)	-	-
	Share of joint venture valuation gains		3,303	8,917	5,179
	Share of joint venture deferred tax		209	804	1,843
	Deferred tax		(930)	(2,246)	30,447
	(Loss) / profit for the year		(12,799)	25,790	(37,475)

	Notes to the consolidated interim financial statements
3.	Segment reporting (continued)

	(c) Segment see through basis
	Information on the Group's investment activities on a see through basis, including an allocation of interest, is set out below.
	Unaudited  30 June 2008	100% UNITE			Share of co-invested joint ventures				Group on see through basis
		Wholly Owned	Leased / Other	Total	USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	Rental income	22,977	6,280	29,257	6,889	2,284	1,025	10,198	39,455
	Property operating expenses (excl. lease rentals)	(8,025)	(2,272)	(10,297)	(2,107)	(415)	(358)	(2,880)	(13,177)
	Operating lease rentals	-	(3,917)	(3,917)	-	-	-	-	(3,917)
	Net rental income	14,952	91	15,043	4,782	1,869	667	7,318	22,361
	Joint venture management fees	-	3,216	3,216	-	(162)	-	(162)	3,054
	Overheads	-	(7,177)	(7,177)	-	-	-	-	(7,177)
	Investment segment result before interest	14,952	(3,870)	11,082	4,782	1,707	667	7,156	18,238
	Loan interest & similar charges	(13,967)	-	(13,967)	(2,237)	(1,251)	(683)	(4,171)	(18,138)
	Interest rate swap receipts	614	-	614	-	-	-	-	614
	Finance income	702	-	702	142	78	80	300	1,002
		(12,651)	-	(12,651)	(2,095)	(1,173)	(603)	(3,871)	(16,522)
	Investment segment result	2,301	(3,870)	(1,569)	2,687	534	64	3,285	1,716

	Notes to the consolidated interim financial statements
3.	Segment reporting (continued)

	(c) Segment on see through basis (continued)
	Unaudited  30 June 2007	100% UNITE				Share of co-invested joint ventures				Group on see through basis
		Wholly Owned		Leased / Other	Total	USAF	Capital Cities	Student Village	Total	Total
		£'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 operating expenses (excl. lease rentals)	(7,729)	(1,741)		(9,470)	(2,182)	(259)	(496)	(2,937)	(12,407)
	Operating lease rentals	-	(3,517)		(3,517)	-	-	-	-	(3,517)
	Net rental income	17,240	439		17,679	5,244	1,416	1,291	7,951	25,630
	Joint venture management fees	-	1,848		1,848	-	(122)	-	(122)	1,726
	Joint venture promote fee	-	3,393		3,393	-	-	-	-	3,393
	Overheads	-	(5,589)		(5,589)	-	-	-	-	(5,589)
	Investment segment result before interest	17,240	91		17,331	5,244	1,294	1,291	7,829	25,160
	Loan interest & similar charges	(14,362)	-		(14,362)	(2,634)	(1,119)	(1,071)	(4,824)	(19,186)
	Finance income	887	-		887	148	147	39	334	1,221
		(13,475)	-		(13,475)	(2,486)	(972)	(1,032)	(4,490)	(17,965)
	Investment segment result	3,765	91		3,856	2,758	322	259	3,339	7,195

	Notes to the consolidated interim financial statements
3.	Segment reporting (continued)

	(c) Segment result on see through basis (continued)
	31 December 2007	100% UNITE			Share of co-invested joint ventures				Group on see through basis
		Wholly Owned	Leased / Other	Total	USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	Rental income	53,110	9,698	62,808	12,622	3,816	3,033	19,471	82,279
	Property operating expenses (excl. lease rentals)	(16,917)	(3,595)	(20,512)	(3,671)	(516)	(886)	(5,073)	(25,585)
	Operating lease rentals	-	(7,101)	(7,101)	-	-	-	-	(7,101)
	Net rental income	36,193	(998)	35,195	8,951	3,300	2,147	14,398	49,593
	Joint venture management fees	-	4,172	4,172	-	(250)	-	(250)	3,922
	Joint venture promote fee	-	2,965	2,965	-	-	-	-	2,965
	Overheads	-	(11,548)	(11,548)	-	-	-	-	(11,548)
	Investment segment result before interest	36,193	(5,409)	30,784	8,951	3,050	2,147	14,148	44,932
	Loan interest & similar charges	(30,953)	-	(30,953)	(4,642)	(2,249)	(1,980)	(8,871)	(39,824)
	Finance income	1,763	-	1,763	299	213	132	644	2,407
		(29,190)	-	(29,190)	(4,343)	(2,036)	(1,848)	(8,227)	(37,417)
	Investment segment result	7,003	(5,409)	1,594	4,608	1,014	299	5,921	7,515

	Notes to the consolidated interim financial statements
3.	Segment reporting (continued)

	(d) Segment assets and liabilities on see through basis
	Unaudited  30 June 2008	100% UNITE	Share of co-invested joint ventures				Group on see through basis
		Wholly Owned	USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment property	565,280	170,316	71,703	31,265	273,284	838,564
	Investment property under development	87,579	-	43,835	-	43,835	131,414
	Property under development	233,811	-	-	-	-	233,811
	Investment & development property	886,670	170,316	115,538	31,265	317,119	1,203,789
	Cash	22,039	6,286	1,616	4,354	12,256	34,295
	Other assets - investment	115,576	(45,471)	163	(214)	(45,522)	70,054
	Other assets - development	59,752	-	414	-	414	60,166
	Interest rate swaps	9,804	667	2,502	962	4,131	13,935
	Other assets	207,171	(38,518)	4,695	5,102	(28,721)	178,450
	Debt - completed properties	(393,362)	(80,773)	(43,886)	(23,074)	(147,733)	(541,095)
	Debt - development properties	(253,070)	-	(26,089)	-	(26,089)	(279,159)
	Other liabilities - investment	(52,814)	(3,103)	(1,126)	(8,146)	(12,375)	(65,189)
	Other liabilities - development	(36,832)	-	(2,864)	-	(2,864)	(39,696)
	Other liabilities - unallocated	(15,416)	-	-	(677)	(677)	(16,093)
	Total liabilities	(751,494)	(83,876)	(73,965)	(31,897)	(189,738)	(941,232)
	Net assets	342,347	47,922	46,268	4,470	98,660	441,007
	Joint venture investment loans	(49,312)	45,645	-	3,667	49,312	-
	Underlying capital employed	293,035	93,567	46,268	8,137	147,972	441,007
	Mark to market of interest rate swaps	(10,466)	(667)	(2,502)	(962)	(4,131)	(14,597)
	Valuation gain not recognised on property held at cost	55,080	-	-	-	-	55,080
	Deferred tax	15,416	-	-	677	677	16,093
	Adjusted net assets	353,065	92,900	43,766	7,852	144,518	497,583

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) Segment assets and liabilities on see through basis (continued)
		Unaudited  30 June 2007	100% UNITE	Share of co-invested joint ventures						Group on see through basis
			Wholly Owned	USAF	Capital Cities		Student Village		Total	Total
			£'000	£'000	£'000		£'000		£'000	£'000
		Investment property	739,330	153,824	58,131		50,965		262,920	1,002,250
		Investment property under development	186,962	-	37,967		6,862		44,829	231,791
		Property under development	56,135	-	-		-		-	56,135
		Investment & development property	982,427	153,824	96,098		57,827		307,749	1,290,176
		Cash	32,269	5,310	2,230		1,634		9,174	41,443
		Other assets - investment	82,954	(26,539)	475		(1,535)		(27,599)	55,355
		Other assets - development	90,119	-	3,882		-		3,882	94,001
		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 properties	(459,163)	(81,089)	(34,930)		(37,170)		(153,189)	(612,352)
		Debt - development properties	(199,884)	-	(26,989)		(5,459)		(32,448)	(232,332)
		Other liabilities - investment	(43,781)	(1,629)	(2,525)		(1,269)		(5,423)	(49,204)
		Other liabilities - development	(33,275)	-	(800)		(714)		(1,514)	(34,789)
		Other liabilities - unallocated	(45,155)	-	-		(2,388)		(2,388)	(47,543)
		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 investment loans	(27,982)	24,801	-		3,181		27,982	-
		Underlying capital employed	384,661	74,678	39,128		15,965		129,771	514,432
		Mark to market of interest rate swaps	(5,005)	-	(1,687)		(1,858)		(3,545)	(8,550)
		Valuation gain not recognised on property held at cost	17,860	-	-		-		-	17,860
		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
		Notes to the consolidated interim financial statements
3		Segment reporting (continued)

	(d) Segment assets and liabilities on see through basis (continued)
	31 December 2007	100% UNITE	Share of co-invested joint ventures				Group on see through basis
		Wholly Owned	USAF	Capital Cities	Student Village	Total	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment property	597,747	167,042	67,593	31,826	266,461	864,208
	Investment property under development	102,180	-	36,001	-	36,001	138,181
	Property under development	121,936	-	-	-	-	121,936
	Investment & development property	821,863	167,042	103,594	31,826	302,462	1,124,325
	Cash	56,316	4,158	2,522	3,910	10,590	66,906
	Other assets - investment	107,698	(45,136)	1,113	(3,572)	(47,595)	60,103
	Other assets - development	111,728	-	365	-	365	112,093
	Interest rate swaps	1,103	-	-	338	338	1,441
	Other assets	276,845	(40,978)	4,000	676	(36,302)	240,543
	Debt - completed properties	(409,253)	(78,398)	(43,696)	(23,552)	(145,646)	(554,899)
	Debt - development properties	(185,898)	-	(20,458)	-	(20,458)	(206,356)
	Other liabilities - investment	(62,471)	(3,293)	(1,228)	(3,895)	(8,416)	(70,887)
	Other liabilities - development	(55,330)	-	(4,247)	-	(4,247)	(59,577)
	Interest rate swap	(8,803)	(228)	(434)	-	(662)	(9,465)
	Other liabilities - unallocated	(12,873)	-	-	(718)	(718)	(13,591)
	Total liabilities	(734,628)	(81,919)	(70,063)	(28,165)	(180,147)	(914,775)
	Net assets	364,080	44,145	37,531	4,337	86,013	450,093
	Joint venture investment loans	(49,312)	45,645	-	3,667	49,312	-
	Underlying capital employed	314,768	89,790	37,531	8,004	135,325	450,093
	Mark to market of interest rate swaps	6,828	228	434	(338)	324	7,152
	Valuation gain not recognised on property held at cost	38,726	-	-	-	-	38,726
	Deferred tax	12,873	-	-	718	718	13,591
	Adjusted net assets	373,195	90,018	37,965	8,384	136,367	509,562

	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 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
				£'000	£'000	£'000
	Earnings
	Basic (and diluted)			(12,799)	25,790	(37,475)
	Adjusted	3(b)		(12,190)	420	(62,938)
	Weighted Average number of shares (thousands)
	Basic			123,875	123,145	123,239
	Dilutive potential ordinary shares			493	1,087	1,257
	Diluted			124,368	124,232	124,496
	Earnings per share (pence)
	Basic			(10.3)	20.9	(30.4)
	Diluted			(10.3)	20.8	(30.4)
	Adjusted			(9.8)	0.3	(50.6)

	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 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
				£'000	£'000	£'000
	Net assets
	Basic			441,007	514,432	450,093
	Adjusted - pre dilution		3(d)	497,583	571,285	509,562
	Outstanding share options			3,146	3,718	3,550
	Adjusted - diluted			500,729	575,003	513,112
	Number of shares (thousands)
	Basic			124,311	123,290	123,495
	Outstanding share options			1,503	1,796	1,670
	Diluted			125,814	125,086	125,165
	Net assets value per share (pence)
	Basic			355	417	364
	Adjusted - pre dilution			400	463	413
	Adjusted - diluted			398	460	410

6.	Investment and development property
	Unaudited 30 June 2008		Investment property	Investment property under development	Property under development	Total
			£'000	£'000	£'000	£'000
	Balance at start of period		597,747	102,180	121,936	821,863
	Cost capitalised		3,041	19,794	66,303	89,138
	Interest capitalised		185	2,271	5,865	8,321
	Transfer to investment property		35,000	(35,000)	-	-
	Transfer from land held for development		-	-	41,856	41,856
	Disposals		(58,785)	-	-	(58,785)
	Net realisable value provision		-	-	(2,149)	(2,149)
	Valuation gains		2,042	2,709	-	4,751
	Valuation losses		(13,950)	(4,375)	-	(18,325)
	Net valuation losses		(11,908)	(1,666)	-	(13,574)
	Balance at end of period		565,280	87,579	233,811	886,670

	Notes to the consolidated interim financial statements
6.	Investment and development property (continued)

	Unaudited 30 June 2007		Investment property		Investment property under development	Property under development	Total
			£'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 development		(5,941)		-	5,941	-
	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

	31 December 2007		Investment property	Investment property under development	Property under development	Total
			£'000	£'000	£'000	£'000
	Balance at start of period		656,969	124,980	12,093	794,042
	Acquisitions		77,506	-	-	77,506
	Cost capitalised		7,473	108,090	96,668	212,231
	Interest capitalised		230	8,512	3,501	12,243
	Transfer from investment property		(5,941)	-	5,941	-
	Transfer from land held for development		-	-	3,733	3,733
	Transfer from investment property under development		146,770	(146,770)	-	-
	Disposals		(282,527)	-	-	(282,527)
	Valuation gains		28,669	10,224	-	38,893
	Valuation losses		(31,402)	(2,856)	-	(34,258)
	Net valuation (losses) / gains		(2,733)	7,368	-	4,635
	Balance at end of year		597,747	102,180	121,936	821,863

	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 £233.811m (2007: £56.135m) held in current assets is carried at cost less a net realisable value provision, 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 2008			Investment property	Investment property under development		Property under development	Total
				£'000	£'000		£'000	£'000
	Balance at end of period			565,280	87,579		233,811	886,670
	Valuation gain not recognised on property held at cost			-	-		55,080	55,080
	Fair value at end of period			565,280	87,579		288,891	941,750

	Unaudited 30 June 2007			Investment property	Investment property under development		Property under development	Total
				£'000	£'000		£'000	£'000
	Balance at end of period			739,330	186,962		56,135	982,427
	Valuation gain not recognised on property held at cost			-	-		17,860	17,860
	Fair value at end of period			739,330	186,962		73,995	1,000,287

	31 December 2007			Investment property	Investment property under development		Property under development	Total
				£'000	£'000		£'000	£'000
	Balance at end of period			597,747	102,180		121,936	821,863
	Valuation gain not recognised on property held at cost			-	-		38,726	38,726
	Fair value at end of period			597,747	102,180		160,662	860,589

7.	Inventories
		Unaudited 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
		£'000	£'000	£'000
	Land held for development	41,682	74,785	91,324
	Work in progress	12,161	7,107	12,360
	Raw materials and consumables	1,051	527	873
		54,894	82,419	104,557

	Notes to the consolidated interim financial statements
8.	Investments in joint ventures
		Note	Unaudited 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
			£'000	£'000	£'000
	Share of profit
	Portfolio result	3 (c)	3,285	3,339	5,921
	Overheads		(133)	(461)	(632)
	Net valuation gains		3,303	8,917	5,179
	Current tax		-	-	(1,438)
	Deferred tax credit		209	804	1,843
	Other		-	-	105
			6,664	12,599	10,978
	Share of items recognised directly in reserves:
	Valuation gains (net of deferred tax)		1,570	4,724	5,483
	Movements in effective hedges (net of deferred tax)		4,287	1,990	(1,423)
	Other movements:
	Additions		2,200	2,397	6,797
	Disposals		-	(22,456)	(28,575)
	Profit adjustment relating to trading with joint ventures		(785)	(1,658)	(3,220)
	Distributions received		(1,289)	(2,094)	(10,314)
			12,647	(4,498)	(20,274)
	At start of period		86,013	106,287	106,287
	At end of period		98,660	101,789	86,013

9.	Borrowings and financial derivatives
		Unaudited 30 June 2008	Unaudited 30 June 2007	31 Dec 2007
		£'000	£'000	£'000
	Non-current
	Bank and other loans	611,066	596,690	354,917
	Interest rate swaps	-	-	8,803
		611,066	596,690	363,720
	Current
	Overdrafts	-	-	2,799
	Bank loans	23,782	19,744	196,296
	Build loans	11,584	42,378	41,104
	Finance lease liabilities	-	235	35
		35,366	62,357	240,234

 

END

 

 

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