15th Sep 2005 07:04
Unite Group PLC15 September 2005 Date: 15 September 2005On behalf of: The UNITE Group plc ("UNITE")Embargoed until: 0700hrs THE UNITE Group plcInterim Results for the six months ended 30 June 2005 Highlights The first six months of 2005 were characterised by strong performance in boththe investment and development businesses: • Adjusted fully diluted net asset value per share of 340 pence (December 2004: 328 pence), representing growth of 3.7% for the six months. After adjusting for the impact of the removal of stamp duty relief (£27.4m or 23.9 pence per share) underlying growth was 11.0% for the six months. • Profit for the period under IFRS of £10.3m (2004: £8.9m). • Operating profit from the investment portfolio of £25.8m, up 20% from £21.5m in 2004. • Anticipated like-for-like revenue growth of 7.2% (2004: 6.8%) for the 2005/06 academic year. • 92.5% of available beds booked for the forthcoming academic year 2005/06 (September 2004: 92.2%). • Joint venture transactions with the Government of Singapore ("GIC RE") and Lehman Brothers Commenting on the Group's interim results, Geoffrey Maddrell, Chairman of TheUNITE Group plc, said: "Over the past two years UNITE has successfully extended its market leadingposition in student accommodation and has been at the forefront of bringing newinvestment into the sector. As a result, the Group's competitive position hasbeen further strengthened, as indeed has its outlook for the future. The broader real estate market continues to be strong, with yield compressionevident across all sectors in the first six months of 2005, building on theperformance of 2004. This has undoubtedly benefited UNITE to the extent thatreal estate investors are more focussed on alternative sectors including studentaccommodation. With the evidence of our recent joint ventures and assetsdisposals, and the non-cyclical demand and rental growth characteristics of ourmarket, we are confident that our portfolio continues to be valuedconservatively relative to the broader real estate market and that the Group iswell placed to continue to drive investment into the sector. Our focus is on delivering high quality, well located accommodation in stronghigher education markets, whilst continuing to innovate in the creation of anunmissable customer experience. In this context, we are confident of deliveringprogressive strong rental growth and we will continue to evolve our strategy foradding value through our development expertise." An analysts' presentation, by invitation only, will be held at 0930hrs on 15thSeptember 2005. It will be held at Tower 42, 25 Old Broad Street, London EC2N1HQ. Enquiries: The UNITE Group plc T: 020 7902 5055Nicholas Porter, Chief Executive OfficerMark Allan, Group Finance Director 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 In the first half of 2005 demand for UNITE's product remained strong and theunderlying fundamentals of our market place continued to strengthen. In thiscontext, UNITE delivered robust rental growth and sustained high occupancylevels, with a combination of these factors contributing to anticipatedlike-for-like revenue growth of 7.2% into the forthcoming academic year. Thenon-cyclical nature of our asset class is fuelling investor appetite for ourproduct, which in turn is helping to drive yield compression in our portfoliovaluation. These interim results to June 2005 are UNITE's first results presented underInternational Financial Reporting Standards ("IFRS"). Under these new standardsthe profit and loss account is replaced with an income statement, which includesrevaluation gains, and there are a number of important accounting changes, mostnotably the requirement to provide in full for deferred tax and the market valueof interest rate swaps. Net asset value under IFRS at 30 June 2005 was £320m (287p per share). On anadjusted basis, adding back the new provisions for deferred tax and market valueof interest rate swaps, this was £385m (340p per share fully diluted). This isafter absorbing the full negative valuation impact of the Chancellor'sunexpected removal of stamp duty relief in disadvantaged areas immediatelyfollowing this year's Budget, which has reduced net asset value by some £27.4m(23.9p per share fully diluted). If the impact of the removal of this relief isignored, adjusted fully diluted net asset value per share grew by 11.0% in thesix months, reflecting the strong business performance in both our investmentand development portfolios. Profit for the six months to June 2005, as disclosed in the income statement andincluding revaluation movements and charges in relation to ineffective hedges,was £10.3m, up from £8.9m for the same period in 2004 (restated). Finally, the introduction of trading and management activity between UNITE andits joint venture interests, as well as the sale of further non-core elements ofdevelopment sites, has introduced a more significant element of non-rentalprofits within these results. Overall, these activities contributed £1.4m ofprofit before tax (2004: £nil). Market Update Year on year we continue to see growing demand for places at UK universities,whilst growth in the supply of accommodation is not keeping pace. The mostrecent July 2005 data from UCAS indicate that applications for full-timeundergraduate courses have increased by 8.2% compared with the same point intime last year. In particular, the attractiveness of the UK as a universitydestination is fuelling demand for good quality student accommodation. Withapproximately 220,000 international students studying in the UK, this categorymakes up 16% of the full-time higher education student population (Source:Higher Education Statistics Agency). This year applications for universityplaces from overseas students have again increased, by 7.8% (UCAS, July 2005). Net asset value performance Net asset value at 30 June 2005 was £320m (287p per share). When the impact ofthe provision for deferred tax and the market value of interest rate swapsrequired under IFRS is excluded, this increases to £385m (31 December 2004:£373m) or 340p per share fully diluted (2004: 328p). This adjusted measurerepresents the most appropriate indicator of Group performance, the keycomponents of which are: • Rental growth within the completed investment portfolio contributed tocapital growth of 1.7% or £16m, whilst yield compression across the investmentportfolio delivered further capital growth of £15m (1.5%). • Our development activity, including that undertaken through jointventures, contributed £8m of net asset value growth. The Group continues to workhard to add value throughout the development process and to deliver attractivereturns for shareholders as a result. • In March 2005 the Chancellor unexpectedly abolished Stamp Duty relief forproperties in disadvantaged areas. UNITE's portfolio has been at the forefrontof urban regeneration in many cities and much of it was located in such areas.As a result of the removal of this relief, our investment portfolio valuationhas been adjusted downwards by some £20m on a one-off basis. In addition, afurther £7m downward adjustment has been made against the Group's developmentportfolio for the same reason. In both cases, however, the financial impact ofthis will only be realised to the extent that properties are sold and the salesprice reduced to reflect the stamp duty liability. Whilst there were some wellpublicised anomalies arising from the introduction of this relief in 2003, itprovided a helpful incentive for developers such as UNITE whose businesses arecommitted to urban regeneration. Its abolition is therefore disappointing,although UNITE has continued to successfully secure new developmentopportunities subsequently. The broader real estate market continues to be strong, with yield compressionevident across all sectors in the first six months of 2005, building on theperformance of 2004. This has undoubtedly benefited UNITE to the extent thatrelevant investors are more focussed on alternative asset classes such asstudent accommodation. With the evidence of our recent joint ventures and assetdisposals, and the proven fundamentals of our market, we are confident that ourportfolio continues to be valued conservatively relative to the broader realestate sector. UNITE's investment portfolio is valued at an average stabilisedyield of 6.46% (December 2004: 6.56%) and the Group is well placed to continueattracting investment into the sector. Development activity The development market place continues to be challenging. However, despite thecombination of a buoyant investment market, the removal of stamp dutydisadvantaged area relief and an increasingly complex planning process UNITE'sunique proposition and track record helped it secure a further 2,246 bed spacesfor development and delivery in future years. Our pipeline of futureopportunities remains encouraging. The continued success of the Group's development activities is testament to ourpersistent 'cost down' approach with our partner contractors and our commitmentto modular construction, which has been a key component in combating build costinflation. We have also been able to bring our significant planning experienceand expertise to bear and have increasingly become involved in prospectiveprojects at an earlier stage to ensure that appropriate value is deliveredthrough the planning phase. As a result we are continuing to secure newopportunities whilst the development pipelines of some competitors appear to bediminishing. We are confident of further opportunities to capitalise on thisshift in our market place and are evaluating our strategy and approach so as totake maximum advantage. Our joint ventures with Lehman Brothers and GIC RE provide an effectivevalidation of the returns that we are able to deliver and, whilst developmentmargins of 25% are now less likely to be achieved on a regular basis, we areconsistently delivering margins well in excess of 20% and thereby providingcompetitive returns for shareholders. From a delivery perspective, UNITE has successfully completed, commissioned andopened a further 4,677 bed spaces into its completed investment portfolio as atSeptember 2005, of which 1,553 bed spaces will be operated within our jointventures. Our ongoing development activity now means that we are confident ofdelivering approximately 4,250 further bed spaces in 2006, of which 1,427 willbe within joint ventures, whilst our pipeline of projects for 2007 and 2008 isrobust. Modular construction remains a critical factor in maintaining developmentmargins. Expertise at our manufacturing facility continues to increase, as doesthe related confidence and abilities of our partner contractors. This summer sawthe completion of our largest modular project to date, the 1,162 bedroomdevelopment at The Forge in Sheffield, which was developed in a joint venturewith Lehman Brothers. In addition to helping contain construction costs on thisproject, the use of modular construction enabled the occupation date to beaccelerated by 12 months, thereby providing an additional year of investmentreturn. Production at the modular facility for the half year to June totalled1,484 modules representing a record 6 months. Earnings performance Investment portfolio During the first six months of 2005 UNITE operated 26,319 completed bed spaces,of which 1,246 were operated on behalf of Morley Fund Management and 723 weretransferred into our joint venture with GIC RE in March. Revenues from theportfolio rose by 27%, compared with the first six months last year, andportfolio profit (being portfolio operating profit less the attributableinterest charge) rose 4.7% to £4.5m (2004: £4.3m). The period also saw marketing activity in respect of the 2005/06 academic yearaccelerating and, as at 30 June, 78% of our portfolio had already been reservedfor that academic year, with 4,095 rooms being let over tenancy periods of atleast 50 weeks (2004: 3,468). As at 13 September 2005, reservations across ourportfolio for the 2005/06 academic year had increased to 92.5% of availablerooms (2004: 92.2%) following another solid performance through the Universityclearing process. Together strong rental growth and sustained high occupancylevels are expected to deliver like-for-like revenue growth of 7.2% into theforthcoming academic year. As in previous years, this consistent strong rental growth has also contributedto an increase in operating margin. For the portfolio under management,including assets held in joint ventures, this increased to 65.6%, from 65.3% forthe same period in 2004, after adding back the lease cost associated with thoseassets operated on behalf of Morley. The increase in margin would have been moresignificant had it not been for a considerable increase in utilities costsacross our portfolio, particularly for electricity. Year on year, electricityprices increased by some 16%, which we estimate to have had a negative impact onoperating margin of approximately 1 percentage point. Our customer research data indicates that the "bills-inclusive" rents that UNITEoffers its customers are a key factor in students choosing to live with us.However, it does introduce a time lag in our ability to recover increasedutilities costs from our customers, as rents are set approximately nine monthsin advance of the academic year commencing. In the current environment thesehigher power costs will continue and a further rise was experienced in thesecond half of 2005. Consequently, the negative impact on operating margin willpersist for the 2005/06 academic year. However, UNITE has now entered into a twoyear fixed price contract for its electricity supply which will allow for thesecosts to be properly absorbed during the rent setting process for the 2006/07and 2007/08 academic years. Elsewhere, operating costs remain firmly under control and the Group is pursuinginitiatives aimed at improving both customer satisfaction and operationalefficiency. These initiatives include the redeployment of resource from ourcentralised head office functions to field based customer-facing roles, as wellas a significant investment in upgraded IT systems aimed at providing trueonline functionality and significant self-service components for our customers.We have also relaunched our Accommodation Services business as HospitalityServices, reflecting the increased focus on service that is at the core ofUNITE's proposition. These initiatives will have a positive impact during thefinancial year 2006. Other activities During the period the Group provided management, consultancy and modularconstruction services to its joint venture interests, which are accounted for asexternal transactions. It also disposed of certain non-core elements of ongoingdevelopments. Together these items contributed revenues of £19.1m and profits of£1.4m, and are expected to continue for the foreseeable future, albeit at alower level for disposal profits. Under IFRS, and as set out in our restated 2004 results, the Group is nowrequired to make provision for movements in the market value of interest rateswaps which do not meet stringent effectiveness criteria. A non-cash charge of£2.8m has been made in this regard and it should be noted that the ongoingreporting under IFRS will result in continued volatility in this area. Our people During 2005 UNITE has been recognised as one the UK's leading employers by theGuardian. The Group also achieved accreditation as an Investor in People, takingjust 12 weeks from deciding to pursue the award to being rated as 'exceeding thestandard'. Both of these awards highlight the focus placed on continuousprofessional development across the Group, with effective people practices beingkey to our ability to achieve stretching targets. Our values led approach has also helped build a culture that supports ourstrategy and has resulted in employee retention and stability ahead ofcomparable sectors. Our employee satisfaction measures place the Group in theupper quartile of UK companies. UNITE had 701 employees at the end of June 2005 working across its HospitalityServices, Development, Modular Construction and Group Services functions. Financing It is now 18 months since we introduced our financing strategy, aimed atincreasing the diversity and flexibility of our capital base. We have hadconsiderable success in this area, with the portfolio disposal to Morley andfirst joint venture with Lehman Brothers in 2004, and we have built on thissuccess in 2005 with our £350 million Capital Cities joint venture with GIC REand our second student village joint venture with Lehman Brothers. Both of thesetransactions provided valuable further evidence of the clearly emerginginvestment market for student accommodation, with the GIC RE transactionachieving a 5.9% initial yield in respect of the seed portfolio sold by UNITE tothe venture (6.3% on a stabilised basis) and the student village venturedemonstrating approximately 35 basis points of yield compression over the firstjoint venture closed in April 2004. Proceeds from asset disposals and joint venture initiatives have been used torepay borrowing and provide further capital for our development activities.Further disposals are likely but, as with our disposals and joint ventures todate, the nature and type of assets sold will be very clearly defined in orderto ensure that there is no conflict of interest between those assets sold orjoint ventured and those assets retained on UNITE's balance sheet. The Capital Cities joint venture, details of which were reported at the time ofthe preliminary announcement of our 2004 results, has helped us to reducegearing levels marginally despite the financing of our ongoing developmentprogramme. Measured against adjusted net asset value, gearing fell to 194% from197% at 30 June and 31 December 2004. Interest cover remains satisfactory and wecontinue to apply a conservative hedging policy, with 87% of our borrowingseither at fixed rate or hedged through interest rate swaps. Long term borrowingcosts remain generally low and our average cost of debt currently stands at 6.6%(December 2004: 6.6%). Looking forward, the Group has recently agreed terms with a syndicate of lendersfor a new £225m facility which, together with existing facilities, providessufficient borrowing capacity for the Group's development and investmentactivities through to December 2007. Dividend In line with our stated policy, your Board recommends that the interim dividendbe maintained at 0.83 pence per share (2004: 0.83 pence). The dividend becomespayable on 11 November 2005 to shareholders on the register at 14 October 2005. Outlook Over the past two years, UNITE has successfully extended its market leadingposition in student accommodation and has been at the forefront of bringing newinvestment into the sector. As a result, the Group's competitive position hasbeen further strengthened, as indeed has its outlook for the future. Our focusis on delivering high quality, well located accommodation in strong highereducation markets, whilst continuing to innovate in the creation of anunmissable customer experience. In this context, we are confident of deliveringprogressive strong rental growth. The popularity of UK universities remain in our favour and growth in demand isoutpacing growth in supply. Our accumulated sector expertise leaves us wellplaced to add value through further growth and the significant co-investments ofcredible investment partners have demonstrated the attractiveness of our sectorand validated our development returns. Against this backdrop, we will continueto evolve our strategy for adding further value through our development activityand also to explore opportunities arising as a result of the sector's increasingmaturity. Geoffrey MaddrellChairman15th September 2005 Consolidated income statement For the 6 months to 30 June 2005 Note Unaudited Unaudited Restated 6 months 6 months Year to to to 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000 Investment sales 41,820 32,918 66,808Development sales 19,084 - 7,815Revenue 60,904 32,918 74,623 Property operating expenses (12,042) (7,591) (18,024)Development cost of sales (17,719) - (6,654)Cost of sales (29,761) (7,591) (24,678) Administrative expenses - goodwill impairment - - (2,515)- other (8,712) (7,538) (14,284)Administrative expenses (8,712) (7,538) (16,799) Profit on disposal of property 402 (394) 23Net valuation gains on 6 10,550 9,904 20,869investment property Net operating profit before net 33,383 27,299 54,038financing costs Loan interest & similar charges (22,190) (17,569) (38,098)Movements in ineffective hedges (2,829) - -Finance costs (25,019) (17,569) (38,098)Finance income 973 402 1,137Net financing costs (24,046) (17,167) (36,961) Share of joint venture profit 365 - 30Profit before tax 9,702 10,132 17,107 Tax credit / (expense) 4 606 (1,196) 233Profit for the period 10,308 8,936 17,340 Earnings per shareBasic 5 9.3p 8.2p 15.8pDiluted 5 9.1p 8.2p 15.6p Profit for the period is wholly attributable to equity holders of The UNITE Group plc. Consolidated balance sheet At 30 June 2005 Note Unaudited Unaudited Restated 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000AssetsInvestment property 6 952,428 809,557 991,460Investment property under 7 169,818 244,079 119,732developmentProperty, plant and equipment 15,560 16,693 15,971Investment in joint venture 8 9,195 787 817Intangible assets 4,619 7,509 4,753Other receivables 6,579 6,129 6,079Total non-current assets 1,158,199 1,084,754 1,138,812 Inventories 8,618 2,202 13,401Trade and other receivables 26,277 18,259 26,246Cash and cash equivalents 36,728 23,169 37,582Total current assets 71,623 43,630 77,229Total assets 1,229,822 1,128,384 1,216,041 LiabilitiesInterest-bearing loans and 9 (127,816) (153,944) (106,153)borrowingsTrade and other payables (63,587) (70,747) (71,675)Total current liabilities (191,403) (224,691) (177,828) Interest-bearing loans and 9 (672,487) (555,073) (665,925)borrowingsDeferred tax liabilities (45,476) (48,115) (50,479)Total non-current liabilities (717,963) (603,188) (716,404)Total liabilities (909,366) (827,879) (894,232) Net Assets 320,456 300,505 321,809 EquityIssued share capital 27,871 27,116 27,825Share premium 141,560 137,215 141,324Merger reserve 40,177 40,177 40,177Retained earnings 99,489 62,337 96,113Revaluation reserve 17,590 33,660 16,370Hedging reserve (6,231) - -Total equity 320,456 300,505 321,809 Consolidated statement of changes in shareholders equity For the 6 months to 30 June 2005 Note Unaudited Unaudited Restated 6 months 6 months Year to to to 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000 Investment property under development: - revaluation 7 811 4,411 17,052- deferred tax (243) (1,323) (5,116)Effective hedges - movements (5,973) - -- deferred tax 1,792 - -Share of joint venture valuation gain 8 794 787 787(net of related tax)Share of joint venture movements in 8 (933) - -effective hedges (net of related tax) Net (losses) / gains recognised directly (3,752) 3,875 12,723in equity Profit for the period 10,308 8,936 17,340Total recognised income and expense for 6,556 12,811 30,063the period Dividends paid (1,861) (1,807) (2,728)Own shares acquired - (178) (178)Shares issued 282 341 5,159Fair value of share options expensed 213 147 302 5,190 11,314 32,618 At start of period 321,809 289,191 289,191Recognition of hedges under IAS39 at 1 (6,543) - -January 2005 At end of period 320,456 300,505 321,809 Consolidated statement of cash flows For the 6 months to 30 June 2005 Unaudited Unaudited Restated 6 months 6 months Year to to to 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000Operating activitiesProfit for the period 10,308 8,936 17,340Adjustments for non cash / non operating 13,595 10,460 20,977itemsOperating profit before changes in 28,903 19,396 38,317working capitalChanges in working capital 251 1,855 (15,176)Cash flows from operating activities 24,154 21,251 23,141Cash flows from investing activities 8 (7,540) (86,941) (113,550)Cash flows from financing activities 8 (19,464) 61,858 99,245Net (decrease) / increase in cash and (2,850) (3,832) 8,836cash equivalentsCash and cash equivalents at start of 28,496 19,660 19,660periodCash and cash equivalents at end of 25,646 15,828 28,496period Cash and cash equivalents are stated net of operational overdrafts which aredisclosed in notes 9. 1. Basis of preparation The UNITE Group plc (the "Company") is a company domiciled in The United Kingdom. These condensed consolidated interim financial statements for the 6 months ended 30 June 2005 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in its joint ventures. EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated financial statements of the Company for the year ended 31 December 2005, be prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the EU ("adopted IFRS"). On 15 June 2005, the Company published unaudited results for the year ended 31 December 2004 restated in accordance with IFRS (the "IFRS restatement") which showed the effect of this transition on the group's 2004 results and on its opening and closing balance sheets. These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and on the basis of the accounting policies disclosed and adopted in the IFRS restatement (which are those expected to be applied in the year ending 31 December 2005 financial statements). The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements. From 1 January 2005, the following standards have been applied: IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, IAS 32 - Financial Instruments: Disclosure and Presentation and IAS 39 - Financial Instruments: Recognition and Measurement. The effect of transition to IAS32 and IAS39 at 1 January 2005 was shown in the IFRS restatement. No adjustments have been required in respect of IFRS5. The comparative figures for the year ended 31 December 2004 have also been taken from the IFRS restatement and are therefore not the company's statutory accounts for that financial year. The statutory accounts, which were prepared under UK GAAP, have been reported on by the company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. Seasonality of operations The results of the Group's investment division , a separate business segment (see note 3), are closely linked to the level of occupancy achieved in its portfolio of property. Occupancy typically falls over the summer months (particularly July and August) as students leave for the summer holidays. The Group attempts to minimise the seasonal impact by encouraging the take up of 52 week tenancies, however, the second half-year typically has lower revenues for the existing portfolio. Conversely, the Group's build cycle for new investment property is planned to complete construction shortly before the start of the academic year in September each year. The addition of these properties to the investment division in the second half increases the division's revenues in the second half of the year. 3. Segment reporting Segment information is presented in respect of the Group's business segments based on the Group's management and internal reporting structure. The Directors do not consider that the group has meaningful geographical segments as it operated exclusively in the United Kingdom in the year. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The group comprises the following main business segments: • Investment • Development Unaudited Unaudited Restated 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000Segment resultsInvestment 25,765 21,502 40,951Development (240) (1,272) (1,215)Unallocated - corporate costs (2,611) (2,441) (4,075) - other (12,606) (8,853) (18,321)Profit for the period 10,308 8,936 17,340 Portfolio profit is calculated as follows:Investment segment result 25,765 21,502 40,951Net loan interest payable (21,217) (17,167) (36,961)Share of joint venture and other (39) - - 4,509 4,335 3,990 4. Tax Current tax Current tax expense for the interim periods presented is the expected tax payable on the taxable income for the period, calculated as the estimated average annual effective income tax rate (nil for all periods due to the effect of tax losses) applied to the pre-tax income of the interim period. Deferred tax The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities , using the estimated average annual effective income tax rate for the interim periods presented. As a result of adopting IAS 39 - Financial Instruments: Recognition and Measurement in the period, the tax credit shown in the income statement for the six months ended 30 June 2005 includes an additional deferred tax credit of £806,000 relating to movements in the fair value of ineffective hedges. The other primary components of the deferred tax credit are related to an increase in deferred tax liabilities, arising primarily from the group's investment property. 5. Earnings per share and net asset value per share Earnings per share The calculations of basic and adjusted earnings per share are as follows:- Unaudited Unaudited Restated 30 June 2005 30 June 2004 31 Dec 2004 Earnings £'000 £'000 £'000Basic (and diluted) 10,308 8,936 17,340Adjustments:Net valuation gains on investmentproperty (inc. share of joint ventures) (10,946) (9,904) (20,869)Movements in ineffective hedges 2,829Deferred tax (606) 1,196 (233)Adjusted 1,585 228 (3,762) Weighted Average number of shares(thousands)Basic 111,416 108,332 109,478Dilutive potential ordinary shares 1,552 1,212 1,330Diluted 112,968 109,544 110,808 Earnings per share (pence)Basic 9.3 8.2 15.8Diluted 9.1 8.2 15.6Adjusted 1.4 0.2 (3.4) Net asset value per share The calculations of basic, diluted and adjusted net asset value per shareare as follows:- Unaudited Unaudited Restated 30 June 2005 30 June 2004 31 Dec 2004 £'000 £'000 £'000Shareholders' fundsBasic 320,456 300,505 321,809Mark to market of interest rate swaps(inc share of joint ventures) 19,033 - -Deferred tax (inc joint ventures) 45,731 48,453 50,787Adjusted- pre dilution 385,220 348,958 372,596Outstanding share options 6,233 8,910 6,584Adjusted - diluted 391,453 357,868 379,180 Number of shares (thousands)Basic 111,484 108,464 111,301Outstanding share options 3,580 5,731 4,321Diluted 115,064 114,195 115,622 Net assets value per share (pence)Basic 287 277 289Adjusted - pre dilution 346 322 335Adjusted - diluted 340 313 328 6. Investment property Unaudited Unaudited Restated 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000 Balance at start of period 991,460 788,304 788,304 Acquisitions 450 827 827 Transfer from investment property - 11,139 230,501 under development Disposals (50,032) (617) (49,041) Valuation gains 22,191 17,915 39,676 Valuation losses (11,641) (8,011) (18,807) Balance at end of period 952,428 809,557 991,460 The carrying amount of investment property is the fair value of theproperty as determined by CB Richard Ellis Ltd and Messrs KingSturge, Chartered Surveyors as external valuers. 7. Investment property under development Unaudited Unaudited Restated 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000 Balance at start of period 119,732 166,446 166,446 Cost capitalised 56,229 89,386 171,133 Interest capitalised 5,001 5,906 11,294 Disposals (11,955) (10,931) (15,692) Transfer to investment property - (11,139) (230,501) Valuation gains 6,540 14,532 21,648 Valuation losses (5,729) (10,121) (4,596) Balance at end of period 169,818 244,079 119,732 The carrying amount of investment property under development is thefair value of the property as determined by CB Richard Ellis Ltd andMessrs King Sturge, Chartered Surveyors as external valuers. 8. New joint venture On 14 March 2005, the Group formed a joint venture with GIC Real Estate Pte Ltd to develop and operate student accommodation in the capital cities of London, Edinburgh, Dublin and Belfast in which the Group owns a 30% equity share. On formation of this joint venture, the Group sold 4 investment properties and 2 investment properties under development for £60.127m and a profit on disposal of £272,000 is included in the income statement. In addition, set up costs of £483,000 are included in administrative expenses. Included in the condensed statement of cash flows are the following cash flows resulting from the sale of properties into the joint venture: £'000Net sale proceeds 58,784Initial equity investment in joint venture (6,583)Net effect on cash flows from investing 52,201activitiesRepayment of borrowings (financing activities) (50,099)Net cash flow effect 2,102 At 30 June 2005, the Group had invested a further £1,553,000 of equity and the carrying value of this joint venture had grown to £8,502,000 (representing the Group's share of its net assets). The group receives management fees from the joint venture and recharges build costs in relation to the investment property under development sold on formation. Revenue for the period includes £8,052,000 in relation to these. 9. Interest-bearing loans and borrowings Unaudited Unaudited Restated 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000 Non-current Bank and other loans 650,866 551,182 662,125 Finance lease liabilities 594 872 781 Interest rate swaps 21,027 3,019 3,019 Non-current liabilities at end of 672,487 555,073 665,925 period Effect of IAS39 on opening balances Adjust interest rate swaps to fair 9,347 value Non-current liabilities at 1 675,272 January 2005 Current Overdrafts 11,082 7,341 9,086 Bank loans 12,864 1,642 16,768 Build loans 103,495 144,494 79,924 Finance lease liabilities 375 467 375 127,816 153,944 106,153 10. Explanation of transition to IFRS The accounting policies referred to in note 1 have been applied in preparing these interim results and the comparative period results and in the preparation of an opening IFRS balance sheet at 1 January 2004 (the Group's transition date). In preparing its opening IFRS balance sheet , the Group has adjusted amounts reported previously in financial statements prepared under its previous basis of accounting (UK GAAP). An explanation of how transition from previous GAAP to IFRS affected the Group's financial position and financial performance for the year ending 31 December 2004 was set out in the IFRS Restatement issued on 15 June 2005. The following tables and notes provide a similar explanation for the restatement of the interim results for the 6 months ending 30 June 2004. Note UK GAAP Effect of IFRS (*) Transition to IFRS £'000 £'000 £'000Reconciliation of income statementsFor the 6 months ended 30 June 2004 Revenue 32,918 - 32,918Cost of sales (7,591) - (7,591)Administrative expenses (c) (7,414) (124) (7,538)Loss on disposal of investment (394) - (394)propertyNet valuation gains on investment (b) - 9,904 9,904propertyNet operating profit before net 17,519 9,780 27,299financing costsNet financing costs (17,167) - (17,167)Share of joint venture profit - - -Profit before tax 352 9,780 10,132Tax expense (a) - (1,196) (1,196)Profit for the period 352 8,584 8,936 Reconciliation of balance sheetAt 30 June 2004 AssetsInvestment property 809,557 - 809,557Investment property under (b) 238,905 5,174 244,079developmentProperty, plant and equipment (c) 19,062 (2,369) 16,693Investment in joint venture (a) 1,125 (338) 787Intangible assets (c) 5,065 2,444 7,509Trade and other receivables (c) - 6,129 6,129Total non-current assets 1,073,714 11,040 1,084,754 Total current assets (c) 49,759 (6,129) 43,630Total assets 1,123,473 4,911 1,128,384 LiabilitiesTotal current liabilities (c) (228,610) 3,919 (224,691) Interest-bearing loans and (552,054) (3,019) (555,073)borrowingsDeferred tax liabilities (a) - (48,115) (48,115)Total non-current liabilities (552,054) (51,134) (603,188)Total liabilities (780,664) (47,215) (827,879) Net Assets 342,809 (42,304) 300,505 Equity 342,809 (42,304) 300,505 (*) reformatted to reflect IFRS reporting requirements 11. Explanation of transition to IFRS (continued) Explanatory Notes A more comprehensive narrative explanation of the effects of IFRS transition has already been issued in the IFRS restatement document referred to in note 1. A brief summary of the changes is as follows: (a) Deferred tax Except as otherwise provided by IAS12, IFRS requires full provision for all taxable temporary differences. This includes the capital gains tax which would be payable if the Group were to sell its property portfolio at book value whereas UK GAAP includes an exemption from providing for this liability. (b) Investment property and investment property under development Investment property under development is carried as a separate asset class at fair value under IFRS which differs from the directors' valuations previously applied under UK GAAP. This has resulted in additional value being recognised in the balance sheet. Revaluation gains & losses relating to completed investment property and on completion of investment property under development are recognised in the income statement under IFRS (rather than via the revaluation reserve under UK GAAP). (c) Other changes Under the transitional rules goodwill has been recognised at "deemed cost" equivalent to its carrying value. Unlike UK GAAP, goodwill is not amortised under IFRS but is subject to impairment testing. Dividends are not recognised until declared under IFRS. The proposed half year dividend is therefore removed from current liabilities. The Group's share based incentives for employees are recognised through the income statement at fair value over the vesting period (small adjustments to both income statement and balance sheets). Computer software is held as an intangible asset under IFRS resulting in a transfer between asset categories (no profit impact). Receivables due after more than one year are shown separately as non-current under IFRS (previously included in current assets but disclosed as recoverable in more than one year). Under IFRS, the revaluation reserve represents cumulative valuation gains and losses (less related deferred tax liabilities) on properties classified as investment properties under development and on the group's share of such properties held in its joint ventures at the balance sheet date. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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