Unite Regulatory News (UTG)

THE UNITE GROUP PLC

2013 INTERIMS RESULTS

FOCUS ON SERVICE AND QUALITY, UNDERPINNED BY A SOUND CAPITAL STRUCTURE AND ONGOING INVESTMENT IN OUR ESTATE, CONTINUES TO DRIVE GROWTH

The UNITE Group plc ("UNITE" or the "Company"), the UK's leading developer and manager of student accommodation, today announces its half year results for the six months to 30 June 2013.

HIGHLIGHTS

Continued strong financial performance built around high levels of service

Well positioned for ongoing growth

· Reservations for 2013/14 academic year at 90% (2012: 87%), supportive of rental growth of 3% for the full year and expect to target similar levels in 2014

· Secured development pipeline on track to add 24 pence per share to NAV and 9 pence per share to earnings by 2016 if expected returns are achieved

· Equity funding in place for further £215m development programme (UNITE share of capex) in addition to secured pipeline, which could add a further 35-40 pence per share to NAV and 7-8 pence to earnings by 2018 if expected returns are achieved

Mark Allan, Chief Executive commented:

"The business has continued to perform strongly in 2013 with solid growth in earnings and NAV and healthy demand for accommodation for the 2013/14 University year. We expect this positive performance to be sustained for the full year and the rental growth outlook for the remainder of 2013 and into 2014 is encouraging.

"Longer term, the business is well positioned for continued growth in earnings and NAV. The demand/supply dynamics of our sector remain supportive, our competitive position and brand are strong and we have capital available to invest selectively in attractive opportunities."

Presentation

There will be a presentation for analysts this morning at 9:30am. The live webcast will be available at:

http://webcasts.unite-group.co.uk/unite006/default.asp

Please contact Bell Pottinger for further details.

Dial-in number for the presentation: +44 20 3059 8125

For further information please contact:

The UNITE Group: + 44 117 302 7326 Bell Pottinger: +44 20 7861 3925

Overview

The business has continued to perform strongly in 2013, maintaining the positive momentum of recent years. Earnings continued to increase, with Net Portfolio Contribution for the six months up 12.5% to £16.2 million (2012: £14.4 million) and EPRA adjusted EPS of 9.3 pence (2012: 9.0 pence). Cash conversion was again healthy, with cash flow from operations of £14.0 million (2012: £13.9 million). EPRA adjusted NAV per share increased 3.1% to 361 pence from 350 pence in December 2012 and including dividends paid this equates to a total return on equity of 4.0% for the six months, after absorbing the impact of the share placing in June (3 pence per share). We are also declaring an interim dividend of 1.6 pence per share (2012: 1.0 pence per share).

Our key financial performance indicators are set out below.

This strong financial performance was again built around high levels of customer service. As a result of the efforts of our teams within the business and ongoing investment in our estate and operating platform, our independently assessed customer satisfaction scores have again increased to their highest-ever levels and we are seeing increasing evidence of our brand strength translating into clear competitive advantage. We will be seeking to build on this further in the months and years ahead.

In June we raised £50 million, net of expenses, through a successful placing of new shares at a price of 320 pence per share. The proceeds of this placing will be used to fund a highly selective regional development programme, where we see very attractive opportunities, alongside the ongoing London development activity being undertaken through our LSAV joint venture. We already have a healthy secured development pipeline, worth an expected £340 million on completion (UNITE share) and following the placing we now have equity capital available to fund a further £215 million of development activity over the next three years which will be split roughly equally between London and the regions. Both the secured and potential development pipeline will add substantially to earnings and NAV over the coming years; we continue to achieve yields on cost in the range of 9% to 10% and development margins are well in excess of 30%.

Alongside the successful share placing we have also continued to strengthen our debt capital base, most notably through raising a 10 year £405 million secured bond in USAF at an annual cost of 3.4% that was used to repay more expensive, less flexible borrowings. This has helped to reduce the Group's see through cost of debt further (to 5.3%), increase our weighted average loan maturity (to 5 years) and diversify our sources of debt finance. Opportunities remain to improve the cost and maturity profile of our borrowings further.

Student numbers in the UK, the key driver of demand for our properties, appear to be recovering strongly after disruption in the 2012/13 University year as a result of various Government policy changes; all our local markets are benefitting from a stronger outlook than a year ago. We expect the 2013/14 student intake to be at least 30,000 higher than 2012/13, an increase of 6%, and with limited new supply of accommodation in most areas of the UK this should translate into high occupancy and robust rental growth. As at 28 August reservations for 2013/14 stood at 90% compared to 87% last year and are supportive of rental growth of 3% for the full year.

The improved stability in student number outlook also appears to be contributing to a greater level of interest in the investment market for student accommodation, both for direct let assets and those subject to University agreements. Events such as the administration of Opal, which has led to approximately £900 million of assets coming to the market, are improving the availability of stock and investor interest appears to be strong from a diverse range of sources. We expect a number of transactions to complete later in 2013 and provide helpful yield evidence.

Given these encouraging developments and a desire to simplify our corporate structure we are seeking to realise our investment in the OCB joint venture alongside our joint venture partner, OCB, through a sale of the joint venture's three London properties. We are aiming to conclude a sale within the next six months and intend to use our share of proceeds to increase our stake in UCC, thereby avoiding any dilution to earnings or the proportion of our capital invested in London.

Following a period of consistent strong performance the Group is still well placed for sustained growth in the years ahead. We continue to target average annual low double digit total returns on equity with a particular focus on growing recurring earnings. We are aiming for a 4.5% EPS yield on opening NAV by 2015, implying growth in earnings of approximately 75% over 2012 performance. Our positive growth outlook is based on three key factors:

With the student accommodation market returning to strength after the disruption of 2012/13, a strong operating platform, high quality investment and development portfolio and sustainable capital structure in place, we look forward to the future with continued confidence.

Operations review

Sales, rental growth and profitability

In the first six months of 2013 our continued improved performance delivered an increase in NPC of £1.8 million to £16.2 million compared to last year (June 2012: £14.4 million). This growth has been driven by high occupancy, rental growth and the impact of portfolio movements as well as operational efficiencies and continued cost vigilance. Adjusted profit increased by £0.8 million to £15.2 million or 9.3 pence per share (June 2012: £14.4 million, 9.0 pence per share) compared to 2012 (which was enhanced by the recovery of £2.5 million of Landsbanki deposits, equivalent to 1.7 pence per share).

The Group's NOI margin increased to 75.6% from 74.8% (June 2012) as further cost savings were delivered and our increasing use of mobile technology yielded productivity gains. Overheads reduced by 18% to £8.4 million as a result of the full year impact of efficiency savings flowing through and our key overhead efficiency measure (total operating expenses less management fees as a proportion of UNITE's share of investment asset value) has also benefitted from these efficiencies, having now fallen on an annualised basis to 55 bps for the six months (June 2012: 113 bps), inside our target of 60 bps. This will increase marginally when we exit our OCB joint venture and we therefore intend to maintain 60 bps as our ongoing target.

Reservations and rental growth

Reservations for the 2013/14 academic year continue to be encouraging. At 28 August 2013 reservations across UNITE's portfolio stood at 90% compared to 87% at the same point in 2012. We have seen increases in demand across all segments and locations; University contracts, re-bookers, UK and international bookings have all increased year on year, underpinning our expectation that total student numbers will be at least 30,000 higher than in the 2012/13 academic year. All cities where we operate are tracking positively year on year in terms of reservations.

Based on this reservations performance we are confident of achieving like for like rental growth of 3% for the full year. Furthermore, at this early stage, the outlook for 2014 is encouraging and we expect to target similar levels of rental growth again.

Student numbers

The final figures for 2013/14 applications from UCAS showed that applications were up by 3.1% compared to last year, equivalent to approximately 20,500 more applicants. Applications from EU Students were up 4.3%, non-EU applicants increased 6.0% and applications from UK students were up 2.7%. This increase in applications is also reflected in an increase in confirmed University places of 6.5% year-on-year as at 27 August (27,500 places) with an increase in unconditional offers being another key factor.

This positive year on year trend suggests that the impact of increased tuition fees is being absorbed and that the various changes to the University admissions process for 2013/14 have had the desired positive effect in ensuring that available University places are filled. Although the final out-turn will not be known until late 2013 we believe the performance to date indicates an increase in intake of at least 30,000 students over 2012, ahead of our previous estimate of 25,000 to 30,000. We expect this to translate into high occupancy and, together with modest levels of new supply, support our 3% rental growth expectations for 2013 and 2014.

Operations outlook

Our Operations business has continued its strong performance against all key measures during 2013. High occupancy, consistent rental growth and new openings, combined with the successful implementation of cost efficiencies, continue to drive sustainable profit growth. Based on performance year-to-date, we expect Net Portfolio Contribution to be ahead of plan for the full year and although non-NPC costs, primarily pre-contract development costs, will increase as a result of our higher level of development activity, we also expect adjusted earnings per share to show similarly positive performance.

For the longer term, we are continuing to invest in improving our operating platform to increase our brand strength and competitive advantage. As part of a clear estate enhancement programme we have now completed the installation of WiFi across all our properties and have appointed a partner to install LED lighting across our portfolio over the next two years, which will reduce our operating costs and carbon footprint while further improving students' experience of living with us.

Property review

NAV growth

Adjusted NAV increased by £77 million to £644 million or 361 pence per share (on a fully diluted basis) at 30 June 2013, up from £567 million or 350 pence per share at 31 December 2012.

The main factors behind the growth in adjusted NAV per share were:

We expect growth in NAV per share to be higher in the second half of the year as a result of further rental growth (a greater proportion is typically booked towards the end of the annual lettings cycle) and continued progress with our development pipeline.

Property portfolio

The valuation of our property portfolio at 30 June 2013, including our share of gross assets held in USAF and joint ventures, was £1,299 million (31 December 2012: £1,245 million). The £54 million increase in portfolio value was attributable to £33 million of capital expenditure and £27 million of valuation increases less disposals completed of £6 million. The valuation of the investment portfolio increased by 1.2% on a like-for-like basis over the six months, reflecting rental growth. Yields were stable at an average 6.6%.

Summary balance sheet

The proportion of our property portfolio that is income generating decreased to 90% from 93% at December 2012, with 10% now under development as we make progress with our 2014 and 2015 development programme. The development weighting will continue to increase over the next year as our activity in this area accelerates and non-core investment assets are sold. We expect the development weighting to peak at approximately 20% in 2015.

The portfolio is split relatively evenly between London and the rest of the UK, with 41% of rental properties being in London, increasing to around 50% once the secured pipeline is built out. Following the successful share placing in June our planned development activity will also be split broadly equally between London (where we are targeting yields on cost of 9%) and the regions (where we target 9.5-10% yields on cost).

Student accommodation yields

Yields for student accommodation assets have remained stable over the first half of the year and transaction volumes have been steady. We expect recent events such as the administration of Opal in March to lead to increased activity over the remainder of the year and we are seeing clear signs of strong investor interest in the sector from a broad range of sources, both UK and overseas. This indicative demand extends to high quality direct let student accommodation as well as leased assets, both in London and the regions. As transactions complete they will provide helpful, and potentially positive, yield evidence.

Development activity

Our development strategy for the next three to four years is clear. We will invest approximately £100 million capital expenditure per annum (UNITE share) in new projects, split broadly equally between London and strong regional locations. Our London activity (for 2015 completions onwards) is being undertaken through our LSAV joint venture with GIC, in which we have a 50% stake, while our regional development will be undertaken on balance sheet. It is our intention to retain our investment in the vast majority of these development projects post completion, thereby capturing significant earnings accretion as well as NAV upside.

We made good progress with our development activity in the first half as follows:

Wholly owned development pipeline

Work on our wholly owned development projects for 2014 and 2015 completion proceeds in line with plan. Once complete and let, we expect these projects to add 12 pence per share to NAV and 6 pence per share to earnings.

Following the successful share placing in June we have equity capital available to commit to a further £125 million investment in a highly select number of regional locations supported by strong demand/supply dynamics. We are targeting yields on cost in the range of 9.5-10% and if our return expectations are met this investment programme could add a further 20-25 pence per share to NAV and 4-5 pence per share to earnings.

We are making good progress with our target regional development pipeline and expect to have our first projects secured by the end of the year. We expect to have the full target regional development pipeline secured by the end of 2014.

LSAV development pipeline

Within LSAV, two schemes have now been secured; in Stratford and in Islington. Angel Lane, Stratford has full planning consent and is due to start on site later this year for completion in 2015. Stapleton House in Islington is expected to obtain planning consent by early 2014 and start on site shortly thereafter for a 2016 delivery. Bank financing has been agreed for both schemes. A third scheme is under lock-out and expected to be contractually secured in the near future.

Together, these three schemes would represent over 60% of LSAV's total target development pipeline and all have been secured at returns in line with our target levels. We are seeing competition for sites intensify in London, but are confident that the remainder of the pipeline will be secured in line with our target returns.

Our equity contribution to future LSAV development projects will be substantially met from existing resources and the proceeds of the agreed forward sale by UNITE of its Stratford development scheme upon completion. It is therefore effectively fully funded. We expect all LSAV development projects to be secured by mid 2014 and completed by 2017. The secured LSAV pipeline will add 12 pence to share to NAV and 3 pence per share to earnings if target returns are achieved while the remaining target projects, of which UNITE's share of capital expenditure would be approximately £90 million, could add approximately a further 15 pence per share to NAV and 3 pence per share to earnings if return expectations are met.

Asset disposals

Our non-core asset disposal activity is progressing broadly in line with expectations. We have a full year target of sales totalling approximately £100 million (both from our own balance sheet and on behalf of co-investment vehicles). We have completed sales of £19 million to date, and accepted offers on a further £24 million of assets. Values achieved or indicated for our student accommodation assets are supportive of book values, although we expect to book a loss of approximately £4 million on the sale of legacy NHS key worker accommodation, which represents approximately £25 million proceeds of the £43 million of assets completed and under offer. An appropriate write-down has been reflected in the 30 June valuation. Following the sale of these NHS assets our portfolio will comprise exclusively student accommodation properties.

Financial performance

Income statement

NPC and Adjusted Earnings are the key performance measures for the Group. 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 before tax measure.

Adjusted profit of £15.2 million for the six months to June 2013 (2012: £14.4 million) is stated after deducting tax charges, share option costs and abortive/pre-contract development spend. In 2012, adjusted profit also included a receipt of £2.5 million of Landsbanki deposits, and therefore on a recurring basis was £11.9 million or 7.3 pence per share.

A full reconciliation of NPC to Adjusted Profit and our Reported Profit before Tax is given in Section 2 of the financial statements.

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. Deferred tax assets of £15 million have not been recognised in the Group's balance sheet due to the uncertainty of future profits and the ability to offset these against them. Brought forward losses and allowances may be used against future taxable profits as they arise depending on meeting certain conditions.

Cash flow and net debt

The Operations business has generated £14.0 million of net cash in the six months to June 2013 (June 2012: £13.9 million) and see through net debt was reduced to £619 million (31 December 2012: £648 million). The key components of the movement in net debt were the share placing, operational cashflow and the disposal programme (generating total inflows of £62 million on a see through basis) offset by total capital expenditure of £33 million.

Dividend

We are declaring an interim dividend payment of 1.6 pence per share, (2012: 1.0 pence) and for the full year we intend to maintain our dividend payout ratio at 1/3 of NPC (NPC being a proxy for cash generation in the business).

The dividend will be paid on 8 November 2013 to shareholders on the register at close of business on 11 October 2013.

Share placing

We completed a placing of 16 million new ordinary shares in June at a price of 320 pence per share, raising net proceeds of £50 million. The proceeds will be used to fund a highly targeted regional development programme totalling approximately 2,500 beds. We expect capital to be allocated to projects by the end of 2014 and for those projects to be completed by 2017.

The placing has reduced NAV at 30 June by 3 pence per share due to the additional number of shares in issue. This modest NAV dilution is expected to unwind in 2014 and become substantially accretive from 2015 as profitable new developments are delivered. From an EPS perspective, the impact across 2013 should be broadly neutral as the placing proceeds have been immediately deployed to reduce debt levels on revolving facilities, thereby saving interest costs.

Debt financing

During the period we have maintained our focus on controlling gearing levels, extending debt maturities and reducing financing costs and have had some important successes. We expect continued progress over the next 6 to 12 months.

The Group's see through LTV reduced to 48% at 30 June 2013 from 52% at the end of 2012. We will continue to manage our gearing proactively and intend to maintain see through LTV at or below 50%. In the event that we experience yield compression in property values from current levels we will review our target LTV threshold accordingly.

We continued to make good progress extending, diversifying and reducing debt facilities during the period. Most notably, we arranged a new £405 million facility for USAF, comprising a £380 million 10 year bond at a fixed rate of 3.4% and a £25 million revolving credit facility. This debt replaced two facilities expiring in the next 12 months and contributed to the reduction in the Group's average cost of debt to 5.3% (31 December 2012: 5.5%) and the increase in the weighted average loan maturity to 5 years (31 December 2012: 4 years).

Debt Maturity

http://www.rns-pdf.londonstockexchange.com/rns/6965M_-2013-8-28.pdf

Covenant headroom

We are in full compliance with all of our borrowing covenants at 30 June 2013. Our debt facilities include loan to value and interest cover covenants that are measured at individual portfolio level and we have maintained significant headroom against both measures. The weighted LTV across facilities of 33% against a weighted covenant of 72%, provides headroom for property against values to fall by over 50% before a breach would occur (using surplus cash to pay down facilities). The interest cover ratio is 3.8 times against the covenant level of 1.4 times, again providing significant headroom. Covenant headroom will reduce as surplus capital is deployed into new development opportunities but we will still maintain substantial headroom against all covenants.

Interest rate hedging arrangements and cost of debt

Our see through cost of debt has reduced to 5.3% (2012: 5.5%), primarily as a result of the USAF bond. Further reductions in the cost of debt are anticipated as a result of the further refinancing activity planned over the next 6-12 months and as expensive interest rate swaps expire or are cancelled.

The Group now has 84% of its see through investment debt that has a fixed interest rate (31 December: 89%). As planned and previously communicated, the Group has cancelled certain interest rate swaps in the first half of the year as part of its refinancing activity, resulting in a charge of £7.3 million (2012: £5.4 million). We expect further break costs of between £8 million and £12 million (4-7pps) to be incurred as our refinancing programme is concluded over the next twelve months, taking advantage of the ongoing low interest rate environment. Approximately £3-4 million of this charge is likely to be incurred in the second half of 2013, making a total charge of £10-11 million (5-6pps) for the full year, in line with previous guidance.

Funds and joint ventures

UNITE acts as co-investing manager of four specialist student accommodation vehicles that it established. The table below summarises the key financials for each vehicle:

All co-investment vehicles performed well in the six months to 30 June, broadly in line with overall Group performance.

We have taken the decision to realise our investment in the OCB joint venture, which matures in August 2014, alongside OCB as our joint venture partner. This will be achieved by way of a sale of the joint venture's three assets over the next six months and we intend to invest our share of proceeds to increase our stake in our UCC joint venture with GIC towards 50%. This will allow us to maintain our level of London exposure, avoid earnings dilution and help trigger the automatic merger of UCC and LSAV into a single entity. Once this outcome has been achieved the number of indirect vehicles we manage will reduce from four to two, contributing to a significant simplification of the Group's balance sheet.

Outlook

UNITE has performed strongly in recent years and is well placed for further growth over the coming years:

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

 We confirm that to the best of our knowledge:

(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

29 August 2013

Consolidated income statement

For the 6 months to 30 June 2013

Consolidated statement of comprehensive income

For the 6 months to 30 June 2013

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 2013

Consolidated statement of changes in shareholders' equity

For the 6 months 30 June 2013

Consolidated statement of cash flows

For the 6 months to 30 June 2013

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 2012.

The Group has adopted the Amendment to IAS 1 'Presentation of Items of Other Comprehensive Income' which requires an entity to present the items of other comprehensive income that may be recycled to profit and loss in the future separately from those that would never be recycled to profitor loss.

The comparative figures for the financial year ended 31 December 2012 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 Group's principal risks are consistent with those noted in the Annual Report for the year ended 31 December 2012. The Directors consider that the significant areas of judgement made by management that have a significant effect on the Group's performance and estimation are unchanged from those identified on page 77 of the Annual Report for the year ended 31 December 2012.

Going concern

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

The Group has prepared cash flow projections until the end of 2015. The Group has borrowing facilities expiring in 2013 and 2014, but has capacity in place within existing committed facilities to refinance substantially all of the 2013 maturities. Plans are also in place to refinance remaining debt facilities that mature in 2013 and 2014 over the course of the next 12 months. Historically the Group has maintained positive relationships with lenders and has arranged a significant level of new debt every year to manage its debt position and remain within its borrowing covenants. The Group is in full compliance with its borrowing covenants at 30 June 2013.

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 segment's revenues in that period.

Section 2: Results for the year

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 year, segmental information, earnings and net asset value (NAV) per share.

Net portfolio contribution (NPC) 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.

2.1 Segmental information

The Board of Directors monitor the business along two activity lines. The reportable segments for the 6 months ended 30 June 2013 and 30 June 2012 and for the year ended 31 December 2012 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.

a) Operations Segment result

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. NPC is the key indicator which is used by the Board to manage the Operations business.

Unaudited 30 June 2013

Unaudited 30 June 2012

31 December 2012

* 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 coststo be a form of financing.

b) Property Segment result

The Group's Property business undertakes the acquisition and development of properties. This included the manufacture and sale of modular building components in the first half of 2012 prior to the business closure, through UNITE Modular Solutions Limited, 'UMS'. The Property Segment's revenue comprises revenue from development management fees earned from joint ventures; and the sale of modules to third parties and joint ventures, as set out in note 2.4. The Property segmental result is set out below.

c) Segmental contribution to NAV

The Board does not use balance sheet information split out by segment to monitor and manage the Group's activities. Instead the position of the Group is managed by reviewing the increases in Adjusted NAV contributed by each segment during the period.

Contributions to Adjusted NAV by each segment during the year is as follows:

2.2 Adjusted profit and EPS

In addition to the IFRS reporting measures, the Group reports adjusted profit on the basis recommended for real estate companies by EPRA, the European Public Real Estate Association.

a) Adjusted profit and reconciliation to IFRS

The adjusted 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 adjusted profit reconciles to the profit reported under IFRS as follows:

* Within IFRS reported profit, there is a £0.5 million profit (2012: £3.9 million loss) relating to movements in themark to market of ineffective interest rate swaps. Part of this movement, £2.8 million (2012: £5.8 million)relates to actual interest payments made on these swaps and is considered to be a true operating costof the Operations Segment. It is therefore already included within Net Financing Costs in NPC (Operating Segment result) in note 2.1a.

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

Unallocated to segments of (£0.9 million) (2012: £1.3million) includes the Group's share of cash received from Landsbanki £nil (2012: £2.5 million), current tax charges of (£0.2 million) (2012: (£0.4 million)), donations to the UNITE Foundation (£0.1 million) (2012: £nil), and share option fair value chargesof (£0.5 million) (2012: (£0.8 million)).

b) EPS and Adjusted EPS

EPS is the amount of post-tax profits attributable to each share. Basic EPS is adjusted 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. Adjusted EPS is calculated in line with EPRA guidelines using adjusted profit/(loss) as set out above.

The calculations of basic and adjusted EPS for the 6 months ended 30 June 2013 is as follows: