16th Mar 2006 07:03
Unite Group PLC16 March 2006 Date: 16 March 2006On behalf of: The UNITE Group plc ("UNITE" or "the Company")Embargoed until: 0700hrs The UNITE Group plcPreliminary Results for the year ended 31 December 2005 The UNITE Group plc, the UK's leading student hospitality provider, todayreleases the preliminary announcement of its results for the year ended 31December 2005. The key highlights are: • Adjusted, fully diluted net asset value per share up 11% to 363 pence (December 2004: 328 pence). • After adjusting for the impact of the removal of stamp duty relief (£28m or 22 pence per share) growth was 17% for the year. • Rental income up 21% to £81million (2004: £67 million). • Operating profits from completed portfolio up 15% to £47 million. • Portfolio operating margin improved to 63.2% (2004: 62.1%). • £31 million share placing completed to fund further growth. • Significant increase in investment activity in the sector. Today in a separate announcement, the Group has also announced its decision toappoint Mark Allan as Chief Executive when Nick Porter steps down from his roleto become non-executive Deputy Chairman at the end of the year. Commenting on the results, Geoffrey Maddrell, Chairman of The UNITE Group plc,said: "This has been another year of considerable achievement for UNITE, demonstratedby solid growth and strong business performance across all areas. UNITE'sposition as market leader in the student accommodation sector has been enhanced;we have continued to commit resources in support of longer term growth and ourunderlying market fundamentals remain strong. "Demand for our accommodation remains robust with high occupancy levels and corerental growth, whilst we continue to focus on improving operating margins. Witha positive market outlook from both a demand and supply perspective, theopportunity to deliver strong like-for-like revenue growth in the futureremains. "Yield compression has continued to be evident across our portfolio and investordemand for student accommodation has reinforced asset valuations. UNITE hasagain been proactive in the property investment arena, accelerating thedevelopment rate and actively managing assets to take advantage of the strengthof real estate investor interest in student accommodation. "Our development pipeline remains strong and the fund-raising undertaken lastyear has enabled the Group to capitalise on further development opportunitiesfor delivery in the coming years. "UNITE is in a strong position with a compelling market opportunity, strengthand depth in its management team, an established capital base and a uniquecombination of skills, experience and knowledge across all facets of thebusiness. 2006 and beyond promises to be a rewarding time for UNITE." A presentation, by invitation only, will be held today at 0930hrs at Tower 42,25 Old Broad Street, London EC2N 1HQ. Enquiries: The UNITE Group plc T: 0117 302 7112Nicholas Porter, Chief ExecutiveOfficer Mark Allan, Chief FinancialOfficer Redleaf Communications Ltd T: 020 7955 1410Wendy Timmons/Emma Kane A copy of the investor presentation is available on our website:www.unite-group.co.uk Publication quality photographs are available on request. CHAIRMAN'S STATEMENT Introduction The UNITE Group has developed clarity of concept and strategy, to build on itsleadership position in the growing market for student accommodation. Equally wehave sought to ensure that this strategy is fully understood by all stakeholders- shareholders, partners and employees - and drives operational priorities. In 2005 we achieved the plans inherent in our strategy. At the same time we havecontinued to commit resources to support longer term growth - in improvingcustomer service, in investing in systems, in strengthening our developmentpipeline supported by appropriate financing capability, in training our peopleand adhering to a clear set of values throughout the Group. Financial results 2005 was another year of solid growth for the Group, underpinned by strongbusiness performance in all areas. Net asset value per share, as reported underInternational Financial Reporting Standards, increased 9% to 314 pence from 289pence at December 2004. When adjusted to exclude movements in provisions fordeferred tax and the market value of interest rate swaps, adjusted net assetvalue per share increased by 10% to 367 pence from 335 pence at December 2004.On a fully diluted basis, adjusted net asset value per share increased 11% to363 pence from 328 pence a year earlier. This growth was driven both by ongoing development activity at attractivemargins and by growth in the investment portfolio valuation as a result ofrental growth and yield compression. Importantly, this growth is stated afterabsorbing a one-off £28m negative impact on valuation as a result of theChancellor removing stamp duty relief for disadvantaged areas in March 2005.Without this impact, growth in NAV per share, on an adjusted fully dilutedbasis, was 17%. Profit before tax, as reported under IFRS, increased 64% to £28.1m from £17.1min 2004. Adjusted earnings (excluding revaluation gains and movements inineffective hedges recognised in the income statement) increased to £3.4m (3.0pence per share) from a loss of £3.8m in 2004. Dividend In accordance with our stated policy, the Board is pleased to recommend a finaldividend of 1.67 pence per share, making a total dividend of 2.5 pence per sharefor the year (2004: 2.5 pence). The dividend will be paid on 12 May 2006 toshareholders on the register as at 18 April 2006. Market update Our underlying market fundamentals remain strong. The Government looks to be ontarget to meet its goal of 50% participation in higher education amongst youngpeople by 2010, up from the current level of 43% and most regional cities arestill significantly undersupplied. Whilst the trend in university applicationsin the past two years has understandably been disrupted by uncertainty amongststudents regarding new funding arrangements, the overall picture remains one ofgrowth - 2.6% per annum average across both years. 2006/07 applications do showsome reversal of the exceptional jump in 2005/06 applications, but with over100,000 unsuccessful applicants last year, the overall demand picture remainsstrong and we expect the general growth trend to resume in the near term. On the supply side, April 2006 will at last see the introduction of the HousingAct, intended to improve the quality of private rented housing through morestringent standards and the introduction of a licensing regime. The quality andhigh standard of UNITE's portfolio means that the Group is well placed tobenefit from this legislation. Portfolio performance Demand for our accommodation remains strong. High occupancy of 94.0% in thecurrent academic year (94.8% in 2004/05), core rental growth and an improvementin tenancy mix towards year-round occupation all combined to deliver stronglike-for-like revenue growth of some 7.2% into the current academic year (2004/05: 6.8%). We are seeing increased competition in a small minority of wellsupplied markets, such as Liverpool, which will constrain rental growth in thoseareas in the near term, but we are confident that UNITE's focus on high qualitylocations and customer service will deliver continued strong relativeperformance. The Group's portfolio operating margin (defined as net rents after all operatingcosts expressed as a percentage of gross rents; for the full operationalportfolio including joint ventures and managed assets) increased by 1.1% to63.2% from 62.1% in 2004. This reflects the growth in like-for-like revenuesreferred to above but has been partially offset by significant rises in the costof utilities and by our investment in increased staffing resource to improveservice to our customers. Due to the timing of its tenancy pricing, the Groupwill be unable to recover these increased utility costs until the academic year2006/07, for which period the Group has fixed its utilities prices. As a result,operating margins will continue to come under some pressure for the first halfof 2006, with the expectation that margin growth will be relatively flatcompared to the first six months of 2005. Looking forward, management continues to be confident of further improvements inoperating margins, through continued rental growth and scale efficiencies, as aresult of investment in our systems and operating platform initiated in 2005. Development activity UNITE has again been a very active developer. A total of 4,677 beds werecompleted for occupation during 2005 at a total capital investment of £188m.Over half of these beds were delivered using the Group's modular constructiontechnology, which assisted us in maintaining development margins in excess of20% profit on cost. Our 2005 deliveries also included 1,553 beds within ourjoint ventures and we are delighted with the success of these initiatives. Looking forward to 2006, the Group has another 4,276 beds on track for deliveryand occupation, of which 1,808 are being developed within our joint ventures and2,960 will be modular. In addition, the Group has 6,205 beds secured fordelivery in 2007 and 2008 (of which approximately 3,800 are currently subject toplanning) demonstrating the continued depth of our development pipeline. Financing and investment activity In 2005 UNITE continued to be proactive in its financing and investmentstrategy. In March we closed a significant joint venture with the Government ofSingapore Investment Corporation ("GIC RE") to develop and operate studentaccommodation in the capital cities of London, Edinburgh, Dublin and Belfast. Weplan to develop and operate a portfolio of £350m of student accommodationthrough this joint venture and, as of March 2006, are well on track to completethis programme by 2008. This focussed joint venture has allowed the Group toaccelerate its development rate in capital intensive markets, whilst also addingnew revenue streams in the form of asset management and development managementfees. In December 2005 we successfully completed the sale of a portfolio of nominatedproperties to Cordea Savills for consideration totalling £64m. This equated to anet initial yield of 5.22% and demonstrated the strength of investor interest instudent accommodation as an emerging asset class. The transaction indicated 55basis points of yield compression compared to a very similar transactionundertaken 13 months earlier. During 2006, we will be considering theopportunities to build on our joint venture and asset sale successes to furtherestablish the sustainability of our financing base. Yield compression has been evident across the majority of the portfolio and theaverage stabilised yield at 31 December 2005 was 6.32% (2004: 6.56%). Relativeto the IPD All Property Index (5.10% initial yield at 31 December 2005) ourassets continue to offer secure income returns at attractive pricing. Finally, we successfully placed new shares with investors during November,raising some £30m of proceeds net of costs. The shares were placed at a price of330 pence per share and the proceeds will allow the Group to increase itsdevelopment roll-out and take a more flexible approach to certain siteacquisition opportunities. The placing was very well received by investors,underlining shareholders support for UNITE's business plan, and the Group is nowstrongly placed to capitalise on continued opportunities to grow its business inthe coming years. These initiatives helped the Group reduce its gearing levels. At 31 December2005, adjusted gearing (net debt as a percentage of adjusted net assets) stoodat 162%, down from 197% at 31 December 2004. People A fundamental element of our growth strategy is the focus we give to thedevelopment of our people in achieving the expectations of our stakeholders,notably our customers and shareholders. During 2005, with the Group's OperationsBoard firmly established, we strengthened the Divisional executive teams in allareas. The Group continues to invest significantly in innovative programmesfocussed on leadership development and customer service. In recognition of thisand the Group's wider people practices, we were delighted to achieve Investorsin People accreditation during the year, whilst also being voted one ofcountry's top employers by The Guardian. In meeting colleagues across the business I am profoundly impressed by the highlevel of commitment, excitement and enthusiasm, which has been the maincomponent behind our recent success. I would like to congratulate the managementfor this decisive achievement, which augurs well for the future, and thank allUNITE colleagues for responding so wholeheartedly to these initiatives. Separately today, the Group has announced its decision to appoint Mark Allan asChief Executive with effect from the end of 2006. Mark, currently UNITE's ChiefFinancial Officer will replace Nicholas Porter who has decided to step down asChief Executive and into the new role of non-executive Deputy Chairman. Therecruitment process for a CFO to replace Mark will now commence. In his role as non-executive Deputy Chairman, Nicholas will continue to providevaluable input to the business with particular focus on targeted support for ourdevelopment teams and through his extensive network of contacts in the HigherEducation sector. In reaching its decision to appoint Nick's successor, the nominations committeeof the Board, advised by external consultants, set out clear parameters for theChief Executive role and conducted a rigorous selection process. The Board wasunanimous in its decision to appoint Mark and UNITE's mission, strategic focuson customers, people and shareholders and the Group's embedded values willremain absolutely constant under his leadership. Looking forward The Group's fundraising in November has enabled it to capitalise onopportunities to strengthen its development pipeline. In the four months sincethe fund raising was completed, the Group has successfully secured over 1,800beds for delivery in 2007 and 2008 and gained three important planning consentsfor projects comprising 1,160 beds, leaving us well placed to achieve our annualdevelopment targets. The Group's unique combination of skills in site acquisition, planning andmodular construction, coupled with its unrivalled sector knowledge and marketleading management business, makes for a compelling opportunity to deliverstrong growth in the coming years. With our market outlook remaining positivefrom both demand and supply perspectives, the opportunity to deliver stronglike-for-like revenue growth in the future remains. Investor demand for student accommodation has undoubtedly increased from amodest start in 2004 and we expect this to reinforce asset valuations astransactional activity increases. The Group will continue to manage itsinvestment portfolio proactively so as to ensure that shareholders benefit fromthe buoyant property investment market and we continue to monitor developmentswith regard to the introduction of REITs to the UK. The Group is in a particularly strong position; our market opportunity remainscompelling; we have a strong management team backed up by robust systems andunrivalled experience; and we have a flexible capital base allowing us to pursueappropriate opportunities. 2006 and beyond promises to be a rewarding time forUNITE. Consolidated income statementFor the year to 31 December 2005 Note Year to Year to 31 Dec 2005 31 Dec 2004 £'000 £'000 Revenue 2 113,799 74,623 Cost of sales 2 (54,864) (24,678) Administrative expenses - goodwill - (2,515) impairment - other (15,671) (14,284)Administrative expenses (15,671) (16,799) Profit on disposal of property 2,534 23Net valuation gains on investment 5 23,377 20,869property Net operating profit before net 69,175 54,038financing costs Loan interest & similar charges 3 (44,212) (38,098)Changes in fair value of 3 (4,317) -ineffective hedgesFinance costs (48,529) (38,098)Finance income 3 1,541 1,137Net financing costs (46,988) (36,961) Share of joint venture profit 7 5,944 30Profit before tax 28,131 17,107 Tax credit 4 4,179 233Profit for the year 32,310 17,340 Earnings per shareBasic 11 28.7p 15.8pDiluted 11 28.3p 15.6p Profit for the year is wholly attributable to equity holders of The UNITEGroup plc. Consolidated balance sheetAt 31 December 2005 Note 31 Dec 2005 31 Dec 2004 £'000 £'000AssetsInvestment property 5 1,028,747 991,460Investment property under 6 80,004 119,732developmentProperty, plant and equipment 19,303 15,971Investments in joint ventures 7 18,861 817Intangible assets 5,465 4,753Other receivables 8,618 6,079Total non-current assets 1,160,998 1,138,812 Inventories 13,418 13,401Trade and other receivables 66,011 26,246Cash and cash equivalents 30,297 37,582Total current assets 109,726 77,229Total assets 1,270,724 1,216,041 LiabilitiesBorrowings and financial 8 (124,541) (106,153)derivativesTrade and other payables (73,559) (71,675)Total current liabilities (198,100) (177,828) Borrowings and financial 8 (644,671) (665,925)derivativesDeferred tax liabilities 9 (45,255) (50,479)Total non-current liabilities (689,926) (716,404)Total liabilities (888,026) (894,232) Net Assets 382,698 321,809 EquityIssued share capital 10 30,435 27,825Share premium 10 169,957 141,324Merger reserve 10 40,177 40,177Retained earnings 10 129,508 96,113Revaluation reserve 10 17,531 16,370Hedging reserve 10 (4,910) -Total equity 382,698 321,809 Total equity is wholly attributable to equity holders of The UNITEGroup plc. Statements of changes in shareholders equityFor the year to 31 December 2005 Note 2005 2004 £'000 £'000 Investment property underdevelopment: - revaluation 6 6,208 17,052 - deferred tax (1,843) (5,116)Other property - revaluation 3,933 - - deferred tax (1,180) -Effective hedges - movements (4,212) - - deferred tax 1,264 -Share of joint venture valuation 2,898 787gain (net of related tax)Share of joint venture movements (845) -in effective hedges (net ofrelated tax)Net gains recognised directly in 6,223 12,723equity Profit for the period 32,310 17,340Total recognised income andexpense for the period 38,533 30,063 Dividends paid 10 (2,787) (2,728)Own shares acquired - (178)Shares issued 10 31,243 5,159Fair value of share options 443 302expensed 67,432 32,618 Equity at start of year 321,809 289,191Recognition of fair value ofhedges under IAS39 at 1 January2005 (6,543) -Equity at start of year after 315,266 289,191adoption of IAS39 At end of year 382,698 321,809 Total recognised income and expense for the year is whollyattributable to equity holders of The UNITE Group plc. Statement of cash flowsFor the year to 31 December 2005 Note 2005 2004 £'000 £'000Operating activitiesProfit for the period 32,310 17,340Adjustments for:Depreciation 2,486 2,354Equity-settled transactions 443 302Impairment of goodwill - 2,515Change in value of investment 5 (23,377) (20,869)propertyNet finance costs 46,988 36,961Gain on sale of investment (2,534) (23)propertyShare of joint venture profit 7 (5,944) (30)Tax credit 4 (4,179) (233)Operating profit before changesin working capital and provisions 46,193 38,317Increase in trade and other (29,765) (8,230)receivablesIncrease in inventories (17) (10,632)Increase in trade and other 8,790 3,686payablesCash flows from operating 25,201 23,141activities Investing activitiesProceeds from sale of investment 134,817 61,008propertyPayments to/on behalf of joint (2,539) -venturesEquity invested in joint ventures (8,798) -Interest received 1,541 1,137Acquisition of intangibles (1,361) -Acquisition of property, plant (1,402) (1,208)and equipmentAcquisition and construction ofinvestment property (108,936) (174,487)Cash flows from investing 13,322 (113,550)activitiesFinancing activitiesInterest paid (51,637) (47,768)Gain on refinancing - 1,012Proceeds from the issue of share 31,243 900capitalPayments to acquire own shares - (178)Proceeds from other non-current 160,462 423,267borrowingsRepayment of borrowings (184,076) (274,752)Payment of finance lease (307) (508)liabilitiesDividends paid (2,787) (2,728)Cash flows from financing (47,102) 99,245activities Net change in cash and cash (8,579) 8,836equivalentsCash and cash equivalents at 1 28,496 19,660JanuaryCash and cash equivalents at 31 19,917 28,496December Notes 1. Basis of preparation The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2005 or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, have been delivered to the registrar of companies, and those for 2005, prepared under International Financial Reporting Standards, as adopted by the European Union ("IFRS"), will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. On 15 June 2005, the Company published unaudited results for the year ended 31 December 2004 restated in accordance with IFRS (the "IFRS restatement") which showed the effect of this restatement on the group's 2004 results and on its opening and closing balance sheets. The Group has applied the policies adopted in the IFRS restatement in the financial statements for the year ended 31 December 2005 in accordance with International Financial Reporting Standards, as adopted by the European Union ("IFRS") and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. In addition, from 31 December 2005, a policy of revaluation in respect of land and buildings within property, plant and equipment has been adopted (see below). The financial statements have been prepared under the historical cost convention as modified by the revaluation of properties and derivative financial instruments. Change of accounting policies Prior to the adoption of IFRS the financial statements of the Group had been prepared in accordance with United Kingdom accounting standards (UK GAAP). UK GAAP differs in certain respects from IFRS and certain accounting, valuation and consolidation methods have been amended, when preparing these financial statements, to comply with IFRS. The comparative figures in respect of 2004 have been restated to reflect these amendments. Reconciliation and description of the effect of the transition from UK GAAP to IFRS on the group are set out in note 12. The Group took advantage of the transitional provisions of IFRS 1 and adopted IAS 39 (Financial Instruments: Recognition and Measurement) and IAS 32 (Financial Instruments: Disclosure and Presentation) prospectively. Accordingly, the 2004 comparatives have not been restated in accordance with IAS 39 and IAS 32. The opening balance sheet on 1 January 2005 has been restated for IAS 39 (£6.543m debit), these adjustments have been reflected within reserves. From 31 December 2005, the group has adopted a policy of revaluation for land and buildings held in property, plant and equipment which were previously held at depreciated cost. Valuation has been carried out by an external, independent valuer, having an appropriate recognised professional qualification. The effect of this adoption is an increase in carrying value of these assets of £3.933m and a related increase in deferred tax liabilities of £1.180m with both of these items recognised through the revaluation reserve in the year. 2. 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, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets and liabilities consist of deferred tax and interest bearing loans and borrowings. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. The group comprises the following main business segments: Investment (the management and holding of investment property) Development (construction of investment property, primarily for the Investment business segment) 2005 2004 £'000 £'000 Segment revenue Rental income 81,080 66,808 Management fees to joint ventures 597 - Investment revenue 81,677 66,808 Development revenue 32,122 7,815 Total revenue 113,799 74,623 Segment cost of sales Property operating expenses (26,009) (18,024) Development cost of sales (28,855) (6,654) Total cost of sales (54,864) (24,678) Property operating expenses are wholly attributable to property which was income generating during the year. Segment results Investment 47,676 40,951 Development 1,094 (1,215) Unallocated: - corporate costs (5,012) (4,075) - joint venture set up costs (494) - - impairment of goodwill - (2,515) - net valuation gains on 23,377 20,869 investment property - profit on disposal of property 2,534 23 - net financing costs (46,988) (36,961) - share of joint venture profit 5,944 30 - tax credit 4,179 233 Profit for the year 32,310 17,340 Operating Margin The calculation of operating margin on the total portfolio under management on a comparable basis year over year is as follows:- 2005 2004 £'000 £'000 £'000 £'000 Rental income - wholly owned 81,080 66,808 - operated in joint ventures 5,117 - 86,197 66,808 Property operating expenses - wholly owned (26,009) (18,024) - operated in joint ventures (878) - Overheads attributable to property (7,994) (7,833) operations (34,881) (25,857) 51,316 40,951 Rental payments on properties under 3,145 504 management Gross margin on portfolio under 54,461 41,455 management Gross margin expressed as a percentage 63.2% 62.1% Portfolio profit is calculated as follows: 2005 2004 £'000 £'000 £'000 £'000 Investment segment result 47,676 40,951 Net financing costs (46,988) (36,961) Add back: changes in fair value of 4,317 - ineffective hedges Net loan interest payable (42,671) (36,961) Ineffective swap payments (1,069) - Share of joint venture portfolio profit 392 - 4,328 3,990 3. Net financing costs 2005 2004 £'000 £'000 Interest income (1,541) (1,137) Finance income (1,541) (1,137) Gross interest expense 54,846 49,293 Interest capitalised (10,728) (11,294) Costs written off on refinancing 94 99 Loan interest & similar charges 44,212 38,098 Movement in ineffective hedges 4,317 - Finance costs 48,529 38,098 Net Finance costs 46,988 36,961 4. Tax credit Recognised in the income statement 2005 2004 £'000 £'000 Current tax expense - - Deferred tax credit Origination and reversal of temporary differences (3,272) (998) Adjustments for prior years (907) 765 Total tax credit in income statement (4,179) (233) Reconciliation of effective tax rate 2005 2004 % £'000 % £'000 Profit before tax 100.0% 28,131 100.0% 17,107 Income tax using the domestic corporation tax rate 30.0% 8,439 30.0% 5,132 Effect of indexation on investment and development property (28.5)% (8,028) (40.4)% (6,913) Non-deductible expenses 0.8% 234 4.6% 792 Capital allowances gain crystallised (7.8)% (2,204) - - Share of joint venture profit (6.1)% (1,713) (0.1)% (9) Adjustments for prior years (3.2)% (907) 4.5% 765 (14.8)% (4,179) (1.4)% (233) 2005 2004 £'000 £'000 Deferred tax recognised directly in equity Relating to hedging reserve movements (1,264) - Relating to net valuation gains recognised directly 3,023 5,116 in equity 1,759 5,116 5. Investment property 2005 2005 2004 2004 £'000 £'000 £'000 £'000 Balance at start of year 991,460 788,304 Acquisitions 1,102 827 Transfer from investment property 120,723 230,501 under development Disposals (107,915) (49,041) Valuation gains 43,357 39,676 Valuation losses (19,980) (18,807) Net valuation gains 23,377 20,869 Balance at end of year 1,028,747 991,460 Investment property is carried at fair value on the basis of "market value" asdefined in the RICS Appraisal and Valuation Manual issued by the RoyalInstitution of Chartered Surveyors as determined by CB Richard Ellis Ltd andMessrs King Sturge, Chartered Surveyors as external valuers. 6. Investment property under development 2005 2005 2004 2004 £'000 £'000 £'000 £'000 Balance at start of year 119,732 166,446 Cost capitalised 99,507 171,133 Interest capitalised 10,728 11,294 Disposals (35,448) (15,692) Transfer to investment property (120,723) (230,501) Valuation gains 9,497 21,648 Valuation losses (3,289) (4,596) Net valuation gains 6,208 17,052 Balance at end of year 80,004 119,732 Investment property under development is carried at fair value on the basis of"market value" as defined in the RICS Appraisal and Valuation Manual issued bythe Royal Institution of Chartered Surveyors as determined by CB Richard EllisLtd and Messrs King Sturge, Chartered Surveyors as external valuers. 7. Investments in joint ventures 2005 2004 £'000 £'000Cost or valuationBalance at start of year 817 -Additions 10,047 -Share of profit 5,944 30Share of items recognised directly in reserves:- Valuation gains (net of deferred tax) 2,898 787- Movements in effective hedges (net of deferred tax) (845) -Balance at end of year 18,861 817 The Group's interests in joint ventures are held at a carrying valueequivalent to its share of the underlying net asset value of the undertaking.The Group's share of joint ventures' results are as follows Group share of: Profit Gains/(losses) Profit Gains recognised recognised directly in directly in equity equity 2005 2005 2004 2004 £'000 £'000 £'000 £'000 Capital Cities JV 3,755 1,083 - -Student village JVs- LDC (Project 110) 2,173 (228) 30 787Ltd- LDC (Project 170) 16 1,198 - -Ltd 5,944 2,053 30 787 On 14 March 2005, the Group formed a joint venture with GIC Real Estate Pte Ltd to develop and operate student accommodation in the capital cities of London, Edinburgh, Dublin and Belfast in which the Group owns a 30% equity share. This joint venture takes the form of a Jersey based limited liability partnership in which the general partner is LDC (Capital Cities) Ltd, a company incorporated in England and Wales. The agreements integral to the above, which include the Group assuming primary responsibility for development, property and asset management of the venture, result in the Group having joint control of this entity in conjunction with the majority partner. On formation of this joint venture, the Group sold 4 investment properties and 2 investment properties under development for £60.127m and a profit on disposal of £50,000 is included in the income statement. In addition, set up costs of £494,000 are included in administrative expenses . Included in the statement of cash flows are the following cash flows resulting from the sale of properties into the joint venture: £'000 Net sale proceeds 58,784 Initial equity investment in joint venture (6,583) Net effect on cash flows from investing activities 52,201 Repayment of borrowings (financing activities) (50,099) Net cash flow effect 2,102 The group receives management fees from the joint venture and recharges build costs in relation to the investment property under development sold on formation. Revenue for the year includes £13.192m in relation to these. The Group's joint ventures in student villages with Lehman Brothers are held as 75% interests in the ordinary shares of LDC (Project 110) Ltd and LDC (Project 170) Ltd, companies incorporated in England and Wales, whose principal activity is the construction and letting of investment property. Under the Articles of Association, the Group cannot exercise control over these companies and its interest amounts to a 51% share of the profits and assets of the joint ventures. Under the articles of LDC (Project 170) Ltd, the Group is additionally entitled to the first £1.25m of net assets on any winding up of the company. Revenue for the year includes £2,677,000 (2004: £1,292,000) charged to LDC (Project 110) Ltd and £156,000 (2004: nil) charged to LDC (Project 170) Ltd in respect of fees and construction costs. 8. Borrowings and financial derivatives 2005 2004 £'000 £'000 Non-current Bank and other loans 624,450 662,125 Finance lease liabilities 474 781 Interest rate swaps 19,747 3,019 644,671 665,925 Current Overdrafts 10,380 9,086 Bank loans 61,185 16,768 Build loans 52,601 79,924 Finance lease liabilities 375 375 124,541 106,153 Maturity analysis Non current bank loans and other loansfall due as follows: 2004 2004 £'000 £'000 Between one and two years 6,437 66,648Between two and five years 133,081 83,249In five years or more 484,932 512,228 624,450 662,125 The Group has various borrowing facilities available to it. The undrawncommitted facilities available at 31 December 2005 in respect of which allconditions precedent had been met at that date were as follows: 2005 2004 £'000 £'000 Expiring in one year or lessBuild facilities 11,552 38,355Other facilities 19,000 5,000 30,552 43,355 In addition, there are further committed facilities available where not allconditions precedent have yet been met amounting to £294m (2004:£226m). Of thisamount £158m (2004:£54m) remains available for completed properties and £136m(2004:£172m) for development properties. Security for the Group's property development and investment financing is by wayof first charges, and in some instances second charges, over the properties towhich they relate. In certain instances, cross guarantees are provided withinthe Group. 9. Deferred tax liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 Investment property - - 47,193 50,461 47,193 50,461Investment property under - - 4,142 7,015 4,142 7,015developmentProperty, plant and machinery - - 1,395 240 1,395 240Financial instruments (5,042) - - - (5,042) -Tax value of losscarry-forwards recognised (2,433) (7,237) - - (2,433) (7,237) Tax (assets)/ liabilities (7,475) (7,237) 52,730 57,716 45,255 50,479Set off of tax 7,475 7,237 (7,475) (7,237) - -Net tax liabilities - - 45,255 50,479 45,255 50,479 Movement in temporary differences during theyear Balance Balance at 31 Effect Balance at 31 Dec of at 1 Jan Recognised Recognised Dec 2004 IAS39 2005 Transfers in income in equity 2005 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment property 50,461 - 50,461 4,716 (7,984) - 47,193Investment propertyunder development 7,015 - 7,015 (4,716) - 1,843 4,142Property, plant and 240 - 240 - (25) 1,180 1,395machineryFinancial instruments - (2,804) (2,804) - (974) (1,264) (5,042)Tax value of losscarry-forwardsrecognised (7,237) - (7,237) - 4,804 - (2,433)Total 50,479 (2,804) 47,675 - (4,179) 1,759 45,255 10. Capital and reserves Reconciliation of movement in capital and reserves Share Share Merger Hedging Retained Revaluation capital premium reserve reserve earnings reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2004 27,054 136,936 40,177 - 53,147 31,877 289,191 Profit for the year - - - - 17,340 - 17,340 Investment property under development - revaluation - - - - - 17,052 17,052 - deferred tax (5,116) (5,116) Share of joint venture valuation gain (net of related tax) - - - - - 787 787 Transfer on completion of investment property - - - - 28,230 (28,230) - Loan notes converted 613 3,645 - - - - 4,258 Share options exercised 158 743 - - - - 901 Equity settled - - - - 302 - 302 transactions Own shares acquired - - - - (178) - (178) Dividends to shareholders - - - - (2,728) - (2,728) Balance at 31 December 27,825 141,324 40,177 - 96,113 16,370 321,809 2004 Effect of IAS39 - - - (1,117) (5,426) - (6,543) Balance at 1 January 2005 27,825 141,324 40,177 (1,117) 90,687 16,370 315,266 Profit for the year - - - - 32,310 - 32,310 Investment property under development - revaluation - - - - - 6,208 6,208 - deferred tax - - - - - (1,843) (1,843) Other property - revaluation - - - - - 3,933 3,933 - deferred tax - - - - - (1,180) (1,180) Effective hedges - movements - - - (4,212) - - (4,212) - deferred tax - - - 1,264 - - 1,264 Share of joint venture valuation gain (net of related tax) - - - - - 2,898 2,898 Share of joint venture movements in effective hedges (net of related - - - (845) - - (845) tax) Transfer on completion or disposal of investment property - - - - 8,855 (8,855) - Share issue 2,348 28,652 - - - - 31,000 Share options exercised 262 1,169 - - - - 1,431 Expenses of shares issued - (1,188) - - - - (1,188) Equity settled - - - - 443 - 443 transactions Dividends to shareholders - - - - (2,787) - (2,787) Balance at 31 December 30,435 169,957 40,177 (4,910) 129,508 17,531 382,698 2005 Share capital Number of Number of Ordinary Ordinary shares shares 2005 2004 Authorised shares of 25p each 155,000,000 155,000,000 In issue at start of year 111,301,195 108,213,432 Loan notes converted - 2,453,219 Share placing 9,393,939 - Share options exercised 1,044,859 634,544 In issue at end of year 121,739,993 111,301,195 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets. On 22 November 2005, the Company placed 9,393,939 shares with Appollo Nominees Ltd (a nominee company for UBS Ltd) at a placing price of £3.30 per share. The market price on that day was £3.51 per share. Merger reserve This reserve represents the excess of the fair value over nominal value of shares issued as part consideration for assets acquired. Revaluation reserve The revaluation reserve represents revaluations relating to properties under development and land and buildings included in property, plant and equipment less any related deferred tax. Hedging reserve From 1 January 2005, following adoption of IAS39 Financial Instruments: Recognition and Measurement, the hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where the hedged transaction has not yet occurred less any related deferred tax. Dividends The following dividends were declared and paid during the year: 2005 2004 £'000 £'000 Final dividend re prior year of 1.67p (2004: 1.67p) 1,861 1,807 per 25p ordinary share Interim dividend of 0.83p (2004: 0.83p) per 25p 926 921 ordinary share 2,787 2,728 After the balance sheet date the following dividends were proposed by the directors. These dividends have not been provided for. 2005 2004 £'000 £'000 Final dividend proposed of 1.67p per 25p 2,033 1,859 ordinary share 11. Earnings per share and net asset value per share Earnings per share The calculations of basic and adjusted earnings per share are as follows:- 2005 2004 Earnings £'000 £'000 Basic (and diluted) 32,310 17,340 Adjustments: Net valuation gains on investment property (inc. (29,599) (20,869) share of joint ventures) Movements in ineffective hedges 4,317 - Deferred tax (inc share of joint venture) (3,646) (233) Adjusted 3,382 (3,762) Weighted Average number of shares (thousands) Basic 112,633 109,478 Dilutive potential ordinary shares (share options) 1,526 1,330 Diluted 114,159 110,808 Earnings per share (pence) Basic 28.7 15.8 Diluted 28.3 15.6 Adjusted 3.0 (3.4) The share placing in 2005 increased the weighted average number of shares by £1,029,000 (2004: nil). All other movements in weighted average number of shares have resulted from the exercise of share options. Net asset value per share The calculations of basic, diluted and adjusted net asset value per share are as follows:- 2005 2004 £'000 £'000 Shareholders' funds Basic 382,698 321,809 Mark to market of interest rate swaps (inc share 17,687 - of joint ventures) Deferred tax (inc joint ventures) 46,575 50,787 Adjusted- pre dilution 446,960 372,596 Outstanding share options 5,458 6,584 Adjusted - diluted 452,418 379,180 Number of shares (thousands) Basic 121,740 111,301 Outstanding share options 2,895 4,321 Diluted 124,635 115,622 Net assets value per share (pence) Basic 314 289 Adjusted - pre dilution 367 335 Adjusted - diluted 363 328 12. Explanation of transition to IFRS In preparing its opening IFRS balance sheet , the Group has adjusted amounts reported previously in financial statements prepared under its previous basis of accounting (UK GAAP). An explanation of how transition from previous GAAP to IFRS has affected the Group's financial position and financial performance is set out on the face of the primary statements and the following notes and tables. Reconciliation of Equity 1 January 2004 31 December 2004 Note UK GAAP Effect of IFRS UK GAAP Effect of IFRS transition transition to IFRS to IFRS £'000 £'000 £'000 £'000 £'000 £'000AssetsInvestment property (b) 788,304 - 788,304 991,460 - 991,460Investment property under (b) 160,488 5,958 166,446 118,990 742 119,732developmentProperty, plant and (d) 19,726 (2,610) 17,116 18,099 (2,128) 15,971equipmentInvestment in joint venture (a) - - - 1,125 (308) 817Intangible assets (d) 5,140 2,610 7,750 2,475 2,278 4,753Trade & other receivables (d) - 1,850 1,850 - 6,079 6,079Total non-current assets 973,658 7,808 981,466 1,132,149 6,663 1,138,812 Inventories 2,769 - 2,769 13,401 - 13,401Trade & other receivables (d) 20,072 (1,850) 18,222 32,325 (6,079) 26,246Cash and cash equivalents 24,980 - 24,980 37,582 - 37,582Total current assets 47,821 (1,850) 45,971 83,308 (6,079) 77,229Total assets 1,021,479 5,958 1,027,437 1,215,457 584 1,216,041 LiabilitiesBorrowings and financial (107,664) - (107,664) (106,153) - (106,153)derivativesTrade & other payables (d) (75,823) 5,056 (70,767) (76,777) 5,102 (71,675)Total current liabilities (183,487) 5,056 (178,431) (182,930) 5,102 (177,828)Borrowings and financial (511,200) (3,019) (514,219) (662,906) (3,019) (665,925)derivativesDeferred tax liabilities (a) - (45,596) (45,596) - (50,479) (50,479)Total non-current (511,200) (48,615) (559,815) (662,906) (53,498) (716,404)liabilitiesTotal liabilities (694,687) (43,559) (738,246) (845,836) (48,396) (894,232) Net Assets 326,792 (37,601) 289,191 369,621 (47,812) 321,809 Equity 326,792 (37,601) 289,191 369,621 (47,812) 321,809 Reconciliation of Profit Year ended 31 Dec 2004Year ended 31 December 2004 Note UK GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000 Gross rental income 66,808 - 66,808Development sales 7,815 - 7,815Revenue 74,623 - 74,623 Property operating expenses (18,024) - (18,024)Development cost of sales (6,654) - (6,654)Cost of sales (24,678) - (24,678) Goodwill amortisation/ impairment (d) (2,665) 150 (2,515)Administrative expenses - other (d) (14,154) (130) (14,284)Administrative expenses (16,819) 20 (16,799) Profit on disposal of investment 23 - 23propertyNet valuation gains on investment (b) - 20,869 20,869property Net operating profit before net 33,149 20,889 54,038financing costs Finance income 1,137 - 1,137Finance costs (38,098) - (38,098)Net financing costs (36,961) - (36,961) Share of joint venture profit (a) - 30 30Profit before tax (3,812) 20,919 17,107 Tax credit (a) - 233 233Profit for the period (3,812) 21,152 17,340 Explanatory Notes (a) Deferred tax IAS 12 requires full provision of all taxable temporary differences whereas an exemption to provision for potential capital gains was available under UK GAAP. Hence under IFRS the Group has to recognise the capital gains tax that would be payable if it were to sell its property portfolio at book value. The resultant deferred tax liabilities have been provided in both restated balance sheets. This also affects the carrying value of the Group's joint venture at 31 December 2004 which must now make a provision for deferred tax in its balance sheet (hence reducing the Group's share of its net assets). The movements in the deferred tax liabilities are recognised directly in equity to the extent that they relate to items recognised directly in equity, otherwise being recognised in the income statement. Revaluation of investment property under development falls into the former category (refer below) and therefore the deferred tax movement relating to these revaluations is also recognised directly in equity. (b) Investment property and investment property under development Under IFRS, completed investment property (accounted for under IAS40) must be held separately from investment property under development (accounted for under IAS16). For ease of comparison, the investment property under UK GAAP (in the reconciliation above) has been divided into complete and under development properties. Completed investment property is carried at fair value under IAS40, which equates to the market value previously applied under UK GAAP. There is therefore no equity impact arising from the change to IFRS in respect of these properties. Investment property under development is carried at fair value under IAS16 which differs slightly from the directors' valuations previously applied under UK GAAP. This has resulted in additional value being recognised in both the opening and closing balance sheets. IFRS fair values for both the above classes of property have been calculated by the Group's external valuers. Under UK GAAP, all revaluations of property were made directly in equity (unless values fell below cost). Under IFRS, investment properties under development continue to be accounted for in this way but completed property valuation movements are recognised in the income statement. In addition, when a property under development is completed and transferred to investment property the difference between its fair value at that date and its previous carrying amount is recognised in the income statement. These have resulted in an increase in profit for the year of £20.869m under IFRS. (c) Interest rate swaps - Group Interest rate swaps have been carried at cost under UK GAAP and IFRS up until 31 December 2004 but have been carried at fair value with effect from 1 January 2005, the date of transition for the purposes of IAS39. The adjustments for IFRS in this note do not reflect the effects of IAS39 as they show the impact on the 2003 & 2004 balance. At 1 January 2005 the Group was required to recognise liabilities totalling £9.347m and a related deferred tax asset of £2.804m in relation to its interest rate swaps. The resulting movement in net assets of £6.543m is split between swaps which do not qualify as hedges which must be debited to retained earnings and those which do qualify, which must be debited to the hedging reserve. Under the transitional provisions of IAS39 this takes effect as an adjustment to the opening reserves for 2005. (d) Other changes Under the transitional rules goodwill has been recognised at "deemed cost" equivalent to its carrying value. Unlike UK GAAP, goodwill is not amortised under IFRS but is subject to impairment testing. The impact in 2004 is that £2.665m of UK GAAP amortisation is replaced by £2.515m of impairment in the profit for the year. Dividends are not recognised until declared under IFRS. The 2003 and 2004 final proposed dividends are therefore added back to net assets at the relevant balance sheet dates (£1.807m and £1.859m for 2003 and 2004 respectively). The Group's share based incentives for employees are recognised through the income statement at fair value over the vesting period (small adjustments to both income statement and balance sheets) Computer software is held as an intangible asset under IFRS resulting in a transfer between asset categories (no profit impact). Receivables due after more than one year are shown separately as non-current under IFRS (previously included in current assets but disclosed as recoverable in more than one year). Under IFRS, the revaluation reserve at 31 December 2004 represents cumulative valuation gains and losses (less related deferred tax liabilities) on properties classified as investment properties under development at the balance sheet date This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Unite