Unite Regulatory News (UTG)

THE UNITE GROUP PLC

("Unite Students", "Unite", the "Group", or the "Company")

MAINTAINING STRONG PERFORMANCE MOMENTUM

The Unite Group plc, the UK's leading developer and manager of student accommodation, announces its half year results for the six months to 30 June 2015.

HIGHLIGHTS

Strong financial performance

Excellent progress against strategic objectives

Well positioned for continued growth

Mark Allan, Chief Executive of Unite Students commented: "Throughout the first half of 2015 we have continued to deliver against our three key strategic priorities: to be the most trusted brand in our sector, to operate the highest quality portfolio and to maintain the strongest capital structure. As a result we are delighted to report another set of strong results.

"Building on a period of consistent strong performance the Group remains well placed to deliver sustainable growth in the years ahead. Market conditions are supportive of rising demand, rents and capital values; our development pipeline and expertise positions us to add materially to both recurring earnings and NAV; our portfolio is focused on stronger Universities; and our highly scalable operating platform and strong brand leaves us well placed to extend our market leading position."

PRESENTATION

There will be a presentation for analysts this morning at 09:30. The live webcast will be available at: www.unite-group.co.uk. Please contact Bell Pottinger for further details. Dial-in number for the presentation: +44 20 3059 8125.

For further information, please contact:

OVERVIEW

During the first half of 2015 our business has continued to perform strongly, benefitting from our sustained focus on the strongest University locations, our highly scalable operating platform and the successful roll out of our growth strategy. This is demonstrated in our financial results: EPRA earnings for the six months were up 45% to £29.6 million (30 June 2014: £20.4 million), an increase of 30% on a per share basis to 14.2 pence (30 June 2014: 10.9 pence). EPRA NAV per share increased 20% over the six months to 521 pence (31 December 2014: 434 pence) making, together with dividends paid, a total return on opening NAV of 22.1% for the period.

Our key financial performance indicators are set out below:

The basis of our performance and strategy remains threefold: to be the most trusted brand in our sector, to operate the highest quality portfolio and to maintain the strongest capital structure. We have again made excellent progress on all fronts. Customer satisfaction levels have increased meaningfully year on year in response to the roll out of our Home for Success investment programme; our development pipeline has deepened as a result of new planning consents and good progress with site acquisitions; USAF has acquired a high quality complementary 2,100 bed operational portfolio and leverage has fallen further to 35% LTV as a result of capital growth in our portfolio and new equity capital raised both on balance sheet and through USAF.

High levels of investor demand for student accommodation assets has been a particular feature of the period with approximately £4 billion of transactions completed in the six months, over three times the level seen in any other six month period historically. This level of activity has resulted in upward pressure on asset prices and our average portfolio yield now stands at 5.8%, a reduction of 47bps from December 2014. Transaction volumes are likely to remain at elevated levels for some time and we expect to see some further compression over the next 18 months. In addition to the resultant uplift in property values we also expect this yield movement to crystallise a material performance fee from USAF, likely to be in the region of £15 to £20 million for the full year.

Another key feature of the first half of the year has been the removal of the student number cap with effect from the 2015/16 academic year, meaning that the number of UK and EU students permitted to study at UK Universities is no longer restricted. We expect this to result in at least 100,000 additional students attending University over the next few years and have already seen this translate into strong demand for accommodation amongst Universities planning for higher student numbers in 2015/16. Consequently our reservations for the next academic year are strong; 90% as of 3 August 2015 compared to 85% in 2014 and we expect rental growth for the full year to be between 3.5% and 4.0%, up from 3.3% in 2014.

In the July budget the Chancellor announced that student maintenance grants are to be replaced with loans with effect from the 2016/17 academic year. Historically, approximately 520,000 students have claimed an average £2,750 each year and this policy change will result in increased levels of debt for these students at graduation although the amount of maintenance loan available will be significantly higher than the grant. Currently, we are assessing the implications of this but while it may have a small negative impact on overall student numbers we expect little or no effect on stronger Universities' recruitment. Our operations have always been concentrated on locations with the best prospects: we are present in towns and cities that account for approximately half of the total student population but close to two-thirds of student number growth since 2009.

Our business strategy remains consistent and focused. Firstly, we are continuing to invest in our brand and operating platform, particularly by leveraging technology, and this translates into better customer service and higher operating margins. Secondly, we are continuing to invest in growing our portfolio through organic development activity and selective acquisitions of operating assets, in all cases focusing on locations with the most secure long-term growth prospects. Thirdly, we continue to manage our balance sheet conservatively by ensuring that asset and financing strategies are properly aligned and leverage is carefully controlled.

Building on a period of consistent strong performance the Group remains well placed to deliver sustainable growth in the years ahead. Market conditions are supportive of rising demand, rents and capital values; our development pipeline and expertise positions us to add materially to both recurring earnings and NAV; our portfolio is focused on stronger Universities; and our highly scalable operating platform and strong brand leaves us well placed to extend our market leading position.

OPERATIONS REVIEW

In the first six months of 2015, we delivered a 45% increase in EPRA earnings to £29.6 million or 14.2 pence per share (30 June 2014: £20.4 million, 10.9 pence per share). This increase was driven by high occupancy, rental growth, operational efficiencies and further growth of the portfolio.

The Group's NOI margin remained broadly flat at 76.0% for the six months (30 June 2014: 75.9%) reflecting further scale efficiencies that were largely offset by investment in enhanced service levels. The seasonal nature of our lettings cycle means that we expect the margin for the full year to be around 73% and we remain on track to deliver steady improvements in NOI margins from these levels over the next few years. The planned introduction of our new Prism operating system later in 2015 will be a particularly important driver of both improved efficiency and service levels and in the medium term we expect full year NOI margins to improve towards 75%.

We are now managing 45,000 beds (at 30 June 2015 including 2,100 beds acquired from AUB) compared to 43,000 at 31 December 2014. Despite this portfolio growth, overheads have remained broadly in line with 2014 at £9.1 million (30 June 2014: £9.8 million) and should remain so for the full year, demonstrating the scalability of our platform. These scale benefits mean that our key overhead efficiency measure (total operating expenses less management fees as a proportion of Unite's share of property value) continues to improve and now stands at 40bps on an annualised basis (30 June 2014: 61bps) and we are on track to deliver our target of 25-30bps by 2017. This efficiency measure excludes income from non-recurring fees which, if included, would improve the result further to 22bps on an annualised basis.

The continued scalability of our operating platform is a key strength of our business and will continue to play an important part in the delivery of our strategy in the years ahead. It is capable of managing at least 50% more beds than currently and each additional bed adds only a marginal £82 per bed of overhead compared with the current run rate of £439 per bed.

Management fees totalled £8.8 million in the period, made up of £5.4 million of recurring asset management fees, £1.8 million of USAF acquisition fee and £1.6 million of USAF net performance fee. We expect the USAF performance fee to be in the region of £15 million to £20 million for the full year. The fee is payable in units based on USAF's annual total return at 31 December 2015 and although it will be included in EPRA earnings, the majority of the fee will be treated as non-recurring (as it relates purely to yield movements) and consequently that element will not be taken into account for dividend purposes. From 2016 onwards we intend to use a proportion of the income received on the additional performance fee units to fund increased investment in exploring longer term growth opportunities for the Group, although this investment will not exceed £1 million per annum.

Finance costs increased to £25.0 million (30 June 2014: £21.2 million) as net debt remained broadly flat but lower levels of development capex resulted in a reduction of interest capitalised to £1.1 million compared to £5.4 million in the six months to 30 June 2014. We expect the level of interest capitalisation to increase as the rate of development increases. Development (pre-contract) and other costs increased to £3.6 million (30 June 2014: £2.3 million) primarily reflecting the ongoing levels of site acquisition in the business. For the full year we expect these costs to grow by around 10%, primarily from increased share-based payments as a result of the Group's strong share price performance.

Home for Success investment programme

The Home for Success programme continues to progress well, with the introduction of new services and enhancements to the physical environment driving customer satisfaction to highest ever levels.

We have re-branded our entire portfolio and have completed the upgrade of 85 common rooms, with the remainder to be finished by the end of the year. The installation of LED lighting throughout our estate is progressing well, with 47 of 104 properties now completed. The remaining buildings will be completed by the first half of 2016. Utility consumption data is supportive of the savings that were forecast in the original business case and we expect to derive further savings as a result of the reduced maintenance requirements of the new lighting.

Finding ways to improve customer service levels each year is central to our strategic objective to be the most trusted brand in our sector. It is vital that our operating scale translates not just into financial benefits but also into an improved customer experience. As a result we will continue to make new investments in service levels and product quality on an ongoing basis.

Occupancy and rental growth

Our lettings performance has remained strong throughout the sales cycle, with reservations levels at 3 August at 90% for 2015/16 compared with 85% at the same time last year. The improved lettings position is largely driven by securing more nominations agreements with Universities earlier in the sales cycle, itself an illustration of the increased confidence with which Universities are pursuing student recruitment now that the cap on student numbers has been removed, and the strength of our brand in the Higher Education sector. We expect the proportion of rooms let through nominations agreements to grow to around 55% of the portfolio for the 2015/16 academic year, up from an historic average of approximately 50%, and remain around this level going forward.

As a result of our positive sales performance we expect rental growth for the full year to be in the region of 3.5% to 4.0%, up from 3.3% in 2014.

PROPERTY REVIEW

NAV growth

EPRA NAV per share increased by 20% to 521 pence at 30 June 2015 (31 December 2014: 434 pence). In total, EPRA net assets were £1,164 million at 30 June 2015, up from £881 million six months earlier.

The main drivers of the £283 million (87 pence per share) movement were:

· The growth in the value of the investment portfolio as a result of rental growth (+£26 million, +12 pence)

· Growth in the value of the development portfolio (+£30 million, +13 pence) comprising progress on site and yield compression

· The positive impact of retained profits after dividends paid (+£8 million, +4 pence)

· Yield compression of an average of 47 basis points across the investment portfolio (+£107 million, +48 pence)

· The positive impact of the equity issue at a 31% premium to December 2014 NAV(+£113 million, +11 pence)

Property portfolio

The valuation of our property portfolio at 30 June 2015 on a see-through basis (i.e. including our share of gross assets held in USAF and LSAV) was £1,841 million (31 December 2014: £1,624 million). The £217 million increase in portfolio value reflects the valuation movements outlined above together with:

· Capital expenditure on developments of £40 million

· Capital expenditure on acquisitions in USAF of £60 million

· Disposals of £59 million

Looking forward, our focus on the strongest University locations means that our portfolio is well placed to deliver continued growth.

Summary balance sheet

The proportion of the property portfolio that is income generating is 90%, down from 93% at 31 December 2014. We expect this to continue to fall as we progress our development pipeline but will maintain our development asset weighting firmly within our internal cap of 20%.

Geographically, 45% of the portfolio (on a see-through basis) is located in London with the remainder in strong regional locations. We expect this to move towards a 60:40 split in favour of regional locations as we build out our development pipeline.

Student accommodation yields

There has been an unprecedented level of transactions in the student accommodation sector over the first half of 2015 with over £4 billion of assets traded as a series of large portfolios have been sold to new or relatively new entrants to the sector. The majority of buyers have been supported by international capital from institutional and private equity investors and we believe that yields on these transactions ranged from c.4.5% for central London assets to c.5.7% for provincial locations.

When reviewing these transactions, our valuers estimate that 5 -10% of the purchase price, equivalent to 25 bps to 50 bps keener yield, is a portfolio premium as many of the buyers are likely to have been prepared to pay more to secure larger portfolios to ensure that they benefit from operational scale. No portfolio premium is taken into account in valuing our portfolio as assets are valued on an individual basis.

Looking to the remainder of 2015 we understand that a number of other portfolios are also now either under offer or being marketed and we expect bidding interest to remain high and the level of transactions for the full year to exceed £5 billion comfortably. As a result we believe there is scope for some further yield compression over the next 18 months.

Overall the average yield on our portfolio (on a see-through basis) at 30 June 2015 is 5.8%, representing an inward movement of 47bps over the first half of the year and excluding any portfolio premium. The yield movement has been most notable in London and an indicative spread of direct let yields by location is outlined below.

Development activity

Development activity continues to be a significant driver of growth in NAV and future earnings. Returns on new projects in strong regional locations remain attractive (8.75-9.0% yield on cost) although returns on potential new projects in London remain below our hurdle rate due principally to excessive planning levies and higher alternative use values for prospective sites.

We have made good progress with our development activity in the first half of the year as anticipated, securing planning on our sites in Coventry and Edinburgh and securing exclusive positions on three development sites with the potential to deliver approximately 1,800 beds for 2018 completion. All projects on site remain on time and in line with budget.

Secured development pipeline (wholly owned)

Secured development pipeline (LSAV)

The secured pipeline remains a significant source of value creation and the following table summarises the potential impact on future NAV and earnings per share.

Asset disposals

Stratford City was sold to LSAV for £82 million in March under the forward sale agreement that was put in place when LSAV was set up in 2012. Taking into account our LSAV stake this represents an effective disposal of £41 million.

We have now substantially concluded the sale of our non-core assets and, having raised additional capital earlier this year to fund our development pipeline for 2018 completions, we are planning for a lower level of asset disposals going forward. We will however continue to review asset performance closely and expect to sell between £20 million and £50 million per annum on a see-through basis over the next few years.

Acquisitions

USAF remains our primary vehicle for portfolio acquisitions and it completed the purchase of the AUB portfolio on 30 June 2015 for £271 million. The acquisition was funded from the proceeds of USAF's £306 million equity raise that completed in May. The eight assets, comprising 2,100 beds, are all located in strong student markets and complement the existing USAF portfolio.

This acquisition follows USAF's successful £137 million acquisition of the Cordea Savills portfolio in July 2014. The Cordea Savills portfolio has been fully integrated into Unite's managed portfolio, a meaningful proportion of reversionary potential has been captured and the portfolio was valued at £156 million at 30 June 2015, generating a total return of 29% for USAF over a 12 month period.

We will continue to consider acquisitions in USAF and are currently evaluating a number of potential investments. However, acquisitions will be only be undertaken where we have a clear and deliverable plan to unlock value.

FINANCIAL PERFORMANCE

Income statement

EPRA earnings per share is our key income performance measure and the detail of this performance is set out in the Operations Review section of this report. The following table shows the further elements that are included within the International Financial Reporting Standards profit after tax measure.

EPRA earnings of £29.6 million for the six months to 30 June 2015 (30 June 2014: £20.4 million) is stated after deducting current tax charges, share option costs and abortive / pre-contract development spend. A full reconciliation of EPRA earnings to profit attributable to the owners of the parent company is given in Section 2 of the financial statements.

Cash flow and net debt

The Operations business has generated £28.0 million of net cash in the six months to 30 June 2015 (30 June 2014: £24.3 million) and see-through net debt fell to £646 million (31 December 2014: £697 million). The key components of the movement in net debt were the share placing, operational cash flow and the disposal of Stratford City (generating total inflows of £120 million on a see-through basis) offset by total capital expenditure of £48 million and dividends paid of £20 million.

Dividend

We are declaring an interim dividend payment of 5.5 pence per share (30 June 2014: 2.2 pence), an increase of 150% over 2014. Our dividend policy remains to pay out 65% of recurring EPRA earnings each year.

The dividend will be paid on 6 November 2015 to shareholders on the register at close of business on 9 October 2015.

Share placing

We completed a placing and open offer of 20.1 million new ordinary shares in April 2015 at a price of 570 pence per share, raising gross proceeds of £115 million. Approximately half of the proceeds were used to invest in USAF while the remainder will be used to extend our regional development programme. As indicated at the time of the placing and open offer, we expect capital to be allocated to projects by early 2016 and for those projects to be completed by 2018.

The placing increased NAV at 30 June 2015 by 11 pence per share as the shares were issued at a 31% premium to the December 2014 net asset value. From an EPS perspective the impact across 2015 should be broadly neutral as the income return from the investment in USAF offsets the impact of raising capital to invest into development activities in future years. In the medium term we expect the additional regional developments to be materially accretive to both EPS and NAV per share.

Tax

The Group has built up a significant amount of brought forward tax losses and capital allowances, primarily as a result of the high volume of development activity it has undertaken over the last ten years. As a result of the growth in value of our investment assets, a deferred tax liability of £17.2 million (31 December 2014: £2.8 million) has been recognised in the Group's balance sheet. Deferred tax assets of £2.2 million at 31 December 2014 have been fully utilised such that £nil is recognised at 30 June 2015. A further £3.8 million (31 December 2014: £8.9 million) of deferred tax assets have not been recognised on the Group's balance sheet due to the uncertainty of future profits in the relevant companies and the ability to offset the losses against them.

The existence of the brought forward losses and unclaimed capital allowances means that the Group is unlikely to pay meaningful levels of tax within the next two years.

Debt financing

As in previous years we continue to focus on controlling gearing levels, extending debt maturities and minimising financing costs while ensuring that asset and financing strategies are properly aligned.

The Group's see-through LTV reduced to 35% at 30 June 2015 from 43% at the end of 2014 as a result of the value growth of the portfolio and the reduction in net debt. We will continue to manage our gearing proactively and intend to maintain our LTV around the mid-30% level going forward, assuming current yields. With greater focus on the earnings profile of the business we are also now monitoring our net debt to EBITDA ratio, which we expect to be around 6.5 times in 2015 and we plan to keep this in the range of 6 to 7 times going forward.

Interest rate hedging arrangements and cost of debt

Our see-through cost of debt has remained at 4.7% (30 June 2014: 4.7%) and the Group has 98% of its see-through investment debt subject to a fixed interest rate (30 June 2014: 98%) for an average term of 6.1 years. In order to take advantage of current low interest rates for our development pipeline we have entered into £120 million of forward starting swaps at an average rate of 2.0% (c.3.5% including margin) to hedge the future debt on our secured development pipeline. As this borrowing is drawn and the swaps become effective we expect our average cost of debt to fall by approximately 20 to 30 bps by 2018.

Funds and joint ventures

The table below summarises the key financials for each vehicle:

USAF and LSAV have performed well in the six months to 30 June 2015. LSAV's total return is driven by stronger capital growth in London and development returns.

USAF successfully completed a £306 million fund raise in May 2015. As part of the fund raise, USAF broadened and diversified its investor base by introducing Allianz Real Estate as a major new investor in the fund. Unite invested £60 million (from the proceeds of its own capital raise early in the year) to maintain its stake at 22%. The proceeds of the fund raise were immediately deployed into the £271 million AUB acquisition outlined above.

Fees

During the six months to June 2015 the Group recognised net fees of £9.5 million from its fund and asset management activities as follows:

We expect the USAF net performance fee of £1.6 million to increase to £15 - 20 million for the full year, based on yields remaining at current levels.

Outlook

The prospects for our sector remain firmly positive. Interest rates remain close to record lows and Government policy is supportive of continued growth in student numbers, both domestically and from overseas. A more open and competitive market means that stronger Universities are likely to be the best placed to benefit most.

Against this backdrop the successful execution of our strategy to focus on the strongest University locations leaves the business very well placed. We are present in towns and cities that account for approximately half of all students but two-thirds of student number growth over the past five years and we expect this balance to continue as our development pipeline is built out, underpinning both development returns and positive rental growth prospects for the longer term.

We are also well placed to ensure that portfolio growth translates into clear and sustainable scale benefits, both for our shareholders and our customers. The scalability of our operating platform gives us confidence in being able to increase NOI margins steadily and control overheads while still investing in enhanced service levels.

Taken together, the positive outlook for our investment and development portfolio together with the scalability of our operating platform and strength of our brand result in a highly visible earnings growth trajectory for the business. We remain confident of delivering material year on year growth in earnings over the next few years.

Responsibility statement of the directors in respect of the interim report and accounts

 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.

Mark Allan Joe Lister

Chief Executive Officer Chief Financial Officer

5 August 2015

Introduction and table of contents

Whilst these financial statements are prepared in accordance with IFRS, the Board of Directors manage the business based on EPRA earnings and EPRA net asset value (NAV) which can be found in section 2. The adjusted results are aligned with the European Real Estate Association (EPRA) best practice recommendations.

We have grouped the notes to the financial statements under three main headings:· Results for the period, including segmental information, EPRA earnings and EPRA NAV· Asset management· Funding

Primary statements

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in shareholders' equity

Consolidated statement of cash flows

Section 1: Basis of preparation

Section 2: Results for the period

2.1 Segmental information

2.2 Earnings

2.3 Net Assets

2.4 Revenue and costs

Section 3: Asset management

3.1 Wholly owned property assets

3.2 Inventories

3.3 Investments in joint ventures

Section 4: Funding

4.1 Borrowings

4.2 Interest rate swaps

4.3 Dividends

Consolidated income statement

For the 6 months to 30 June 2015

Consolidated statement of comprehensive income

For the 6 months to 30 June 2015

All movements above are shown net of deferred tax. All other comprehensive income may be classified as profit and loss in the future.

Consolidated balance sheet

At 30 June 2015

Consolidated statement of changes in shareholders' equity

For the 6 months to 30 June 2015

Consolidated statement of cash flows

For the 6 months to 30 June 2015

Notes to the interim financial statements

Section 1: Basis of preparation

This section details the Group's accounting policies that relate to the interim financial statements.

Basis of preparation

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

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2014.

The comparative figures for the financial year ended 31 December 2014 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The board have continued to consider the principal risks and the appropriateness of risk management systems and consider that the principal risks remain consistent with those noted in the Annual Report for the year ended 31 December 2014 (pages 26 to 29). These are summarised as follows:

i. Reduction in demand as a result of change in government policy, other political risks or changes in behaviour of students

ii. Increased competition

iii. Reputational damage

iv. Property cycle risk

v. Development risks

vi. Availability of finance, change in interest rate and risks associated with fund management.

Going concern

The Group's business activities, together with the factors likely to affect its future development and position are set on in the Business Review.

The Group has prepared cash flow forecasts to the end of 2016. Following the recent financing activity and equity raise, the Group has significant levels of cash headroom. The Group has a borrowing facility expiring in the second half of 2016 and has agreed terms with relationship banks to refinance this facility. The Group continues to maintain positive relationships with its lending banks and has historically been able to secure facilities before maturity dates. The group is in full compliance with its borrowing covenants.

The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.

Seasonality of operations

The results of the Group's operation segment, a separate business segment (see Section 2), 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 from the existing portfolio.

Conversely, the Group's build cycle for new properties is to plan to complete construction shortly before the start of the academic year in September each year. The addition of these completed properties in the second half increases the Operations segment's revenues in that period.

Section 2: Results for the period

This section focuses on the results and performance of the Group. On the following pages you will find disclosures explaining the Group's results for the period, segmental information, earnings and net asset value (NAV) per share.

EPRA earnings and NAV movement are the Group's main key performance indicators. This reflects the way the business is managed and how the directors assess the performance of the Group.

EPRA performance measures

2.1 Segmental information

The Board of Directors monitor the business along two activity lines, Operations and Property. The reportable segments for the 6 months ended 30 June 2015 and 30 June 2014 and for the year ended 31 December 2014 are Operations and Property.

The Group undertakes its Operations and Property activities directly and through joint ventures with third parties. The joint ventures are an integral part of each segment and are included in the information used by the Board to monitor the business.

The Group's properties are located exclusively in the United Kingdom. The Board therefore does not consider that the Group has meaningful geographical segments.

2.2 Earnings

The Operations segment manages rental properties, owned directly by the Group or by joint ventures. Its revenues are derived from rental income and asset management fees earned from joint ventures. The way in which the Operations segment adds value to the business is set out in the Operations review on pages 30 - 32 of the 2014 Annual Report. The Operations segment is the main contributor to EPRA earnings and EPRA EPS and these are therefore the key indicators which are used by the Board to manage the Operations business. EPRA earnings and EPRA EPS are reported on the basis recommended for real estate companies by EPRA, the European Real Estate Association.

The Board does not manage or monitor the Operations segment through the balance sheet and therefore no segmental information for assets and liabilities is provided for the Operations segment.

a) EPRA earnings

* Operating lease rentals arise from properties which the Group has sold and is now leasing back. As these properties contribute to the Group's rental income, the Group consider these lease costs to be a form of financing.

* Operating lease rentals arise from properties which the Group has sold and is now leasing back. As these properties contribute to the Group's rental income, the Group consider these lease costs to be a form of financing.

b) EPRA earnings IFRS reconciliation

The EPRA profit excludes movements relating to changes in values of investment properties and interest rate swaps, profits from the disposal of properties and property impairments, which are included in the profit reported under IFRS. The EPRA earnings reconcile to the profit reported under IFRS as follows:

* Within IFRS reported profit, there is a £0.3 million loss (30 June 2014: £1.0 million loss) relating to movements in the mark to market of ineffective interest rate swaps. Part of this movement, £0.7 million (30 June 2014: £0.7 million) relates to actual interest payments made on these swaps and is considered to be a true operating cost of the Operations Segment. It is therefore already included within Net Financing Costs in Operations Segment result in note 2.2a.

** The minority interest share, or non-controlling interest, arises as a result of the Group not owning 100% of the share capital of one of its subsidiaries, USAF (Feeder) Guernsey Ltd. More detail is provided in note 3.3.

c) Earnings per share

The EPS calculation is based on the earnings attributable to the equity shareholders of UNITE Group plc and the weighted average number of shares which have been in issue during the period. Basic EPS is adjusted in line with EPRA guidelines in order to more accurately show the business performance of the Group in a consistent manner and to reflect how the business is managed and measured on a day to day basis. EPRA EPS is calculated using EPRA earnings.

The calculations of basic, diluted and EPRA EPS for the 6 months ended 30 June 2015 is as follows:

Movements in the weighted average number of shares have resulted from the placing in April 2015 and the issue of shares arising from the employee share based payment schemes.

The placing comprised 20,137,000 shares and gave rise to proceeds of £114.8 million, £112.3 million net of issue costs

2.3 Net Assets

The Group's Property business undertakes the acquisition and development of properties. The Property segment's revenue comprises revenue from development management fees earned from joint ventures. The way in which the Property segment adds value to the business is set out in the Property review on pages 33 - 36 of the 2014 Annual Report. EPRA NAV, reported on the basis recommended for real estate companies by EPRA is the key indicator used by the board to manage the Property business.

a) EPRA net assets

*At market value

*At market value

* At market value 

b) Movement in EPRA NAV during the period

Contributions to EPRA NAV by each segment during the period is as follows: