REG - Unite Group PLC - TRADING UPDATE AND Q3 FUND VALUATIONS

UniteAnnouncement

10/10/2022 07:00

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RNS Number : 2529C  Unite Group PLC (The)  10 October 2022

PRESS RELEASE

10 October 2022

THE UNITE GROUP PLC

('Unite Students', 'Unite', the 'Group', or the 'Company
(http://www.investegate.co.uk/unite-group-plc--utg-/rns/outcome-of-usaf-fund-raising/201403310700235435D/)
')

TRADING UPDATE AND Q3 FUND VALUATIONS

 

Unite Students, the UK's leading owner, manager and developer of student
accommodation, today announces an update on current trading and quarterly
property valuations for the Unite UK Student Accommodation Fund ('USAF') and
the London Student Accommodation Joint Venture ('LSAV') as at 30 September
2022.

 

Highlights

·    99.0% of beds sold for the 2022/23 academic year (2021/22: 94.1%)

·    Rental growth of 3.5% for the 2022/23 academic year

·    Increasing rental growth guidance to 4.5-5.0% for the 2023/24
academic year

·    Expect to deliver adjusted EPS at the top end of FY2022 guidance of
40-41p

·    Q3 like-for-like valuation increases of 0.7% and 1.8% in USAF and
LSAV respectively

·    Pro forma LTV reduced to 29% at (30 June 2022: 30%), maintaining net
debt to EBITDA within our target range of 6-7x

·  Interest rates 93% fixed at 3.4% weighted average cost of debt (30 June
2022: 3.2%) with a weighted average debt maturity of 4.4 years (30 June 2022:
4.5 years)

 

Richard Smith, Chief Executive of Unite Students, commented:

"We have delivered a very strong operational performance for the 2022/23
academic year, reflecting the appeal of our high-quality portfolio and
affordable rents. Given healthy student demand and the need to offset
inflationary cost pressures, we are targeting increased rental growth of
4.5-5.0% for the 2023/24 academic year. Our fixed-price, all-inclusive offer
provides students with significant savings and certainty on their bills and
represents value for money compared to alternative options in the PBSA and HMO
sectors.

 

"Despite the challenging economic environment, the business remains well
positioned thanks to increasing student numbers and a growing shortage of
high-quality, purpose-built student accommodation across our markets. Our
alignment to the strongest universities and best-in-class operating platform
mean we remain confident of continuing to deliver strong operational results."

 

The Company will host a conference call for investors and analysts this
morning at 8:30 a.m. UK time.

 

Please find the dial-in details below:

 

 Title       Unite - Q3 Trading Update
 Dial-in     +44 (0) 33 0551 0200

             0808 109 0700 (toll free)
 Password    Unite

 

Current trading

 

2022/23 letting performance

Entering the final stages of the lettings cycle for the 2022/23 academic year,
the Group has let 99.0% of beds across its total portfolio (2021/22: 94.1%,
2020/21: 87.9%, 2019/20: 98.5%), ahead of the previous expectation for 97%
occupancy. In addition, the Group has significant waiting lists in many of its
largest markets, where there remains a shortage of high-quality, purpose-built
student accommodation close to university campuses.

 

The strong performance reflects nomination agreements with universities for
over half the portfolio, high retention of existing customers and strong
direct-let sales on the back of enhanced marketing content. Occupancy has also
benefited from a partial unwind of the grade inflation witnessed during the
previous two years, resulting in a more normal distribution of UK students
between markets, and strong international demand given improved travel
conditions.

 

This sales performance translates to rental growth of 3.5% for the 2022/23
academic year and reflects the impact of higher occupancy in lower priced
markets. On a like-for-like basis, for beds sold in both 2021/22 and 2022/23,
rental growth was 4.5%. This supports our rental growth outlook for 2023/24.

 

2023/24 outlook

Demand for the Group's accommodation has continued to strengthen through the
second half of the 2022/23 sales cycle, supporting improved pricing. For the
2023/24 academic year, we will seek to offset operational cost increases
through a higher level of income growth of 4.5-5.0% (previously 4-5%).

 

We recognise the cost-of-living pressures being faced by students and parents
and are confident that our fixed price, all-inclusive offer will continue to
provide value for money compared to alternative options in the purpose-build
student accommodation (PBSA) and houses in multiple occupation (HMO)
sectors. Our pricing is comparable in cost to HMOs once bills are included.
This is before allowing for the price certainty on utilities and additional
product and service features that we provide, such as on-hand maintenance
teams and 24/7 security, in locations close to campus.

 

Operating costs

We are well protected but not immune from the impacts of inflation on our cost
base. We have a high degree of visibility over our two largest costs, staff
and utilities, which together account for around 60% of our combined operating
costs and overheads.

 

Our utility costs are fully hedged through 2022 and 2023 and 61% for 2024. We
will increase our utilities hedging for the remainder of 2024 and 2025 over
the next 12 months, in line with our strategy to provide certainty over
utility costs on a rolling 18-24 month forward basis. Given the benefit of our
existing hedging at rates significantly below prevailing market prices, the
Group does not expect to benefit from the Government's recently announced
Energy Bill Relief Scheme.

 

We are seeing increased pressure on staffing costs for our frontline teams,
driven by competition for staff in the hospitality and service sectors and
increases in the Real Living Wage. This is partially mitigated by the
restructuring of the Group's operational business during the first half of the
year, which provides an annualised £2 million saving in staff costs. We
recognise the cost-of-living challenges facing our staff and have provided
financial support to our frontline property teams.

 

Funding and cost of debt

The impact on the Group of higher short and long-term interest rates has been
mitigated through our interest rate hedging policy with 93% of debt at fixed
rates or subject to caps which are now effective. The Group's average cost of
debt has increased to 3.4% at 30 September 2022 (30 June 2022: 3.2%),
reflecting increased costs on the floating rate portion of our debt.

 

The Group's weighted average debt maturity is 4.4 years with less than 10% of
see-through debt maturing before November 2024.  The Group recently extended
the maturity of its £450 million revolving credit facility to March 2026 at
unchanged margins.

 

Capital recycling

The Group completed £288 million (Unite share: £245 million) of disposals in
the third quarter focused on smaller and less operationally efficient assets.
This completes the Group's planned disposal activity for the year, totalling
£339 million (Unite share: £256 million) at an average yield of 5.7%.
Proceeds will be used to reduce borrowings and provide funding for our secured
development pipeline and investment activity, including our acquisition of a
build-to-rent pilot property in Stratford, East London.

 

The Group maintains a disciplined approach to capital allocation with pro
forma LTV now 29% (June 2022: 30%) after adjusting for completed property
transactions, capital expenditure in the quarter and Q3 fund valuations. This
supports our target of maintaining net debt to EBITDA at 6-7x.

 

The Group has successfully delivered 1,351 new beds for the 2022/23 academic
year, alongside the refurbishment of 1,629 beds in Manchester. The schemes
were delivered in line with budget and all are fully let for the 2022/23
academic year. The Group is currently on site for one development project in
Nottingham for delivery in 2023, where costs are secured under a fixed-price
build contract.

 

In light of rising funding costs for new debt, we are reviewing our future
investment plans to ensure investment activity delivers earnings accretion and
attractive total accounting returns, while maintaining a robust balance sheet.

 

Earnings guidance

Higher than expected rental income in term 1 of the 2022/23 academic year has
more than offset the impact of higher interest costs in the second half of the
financial year. As a result, we expect adjusted EPS to be at the top end of
our guidance for 40-41p for FY2022.

 

The strong income performance for 2022/23 will also benefit our FY2023
earnings. However, the business also faces cost pressures in the form of
rising utility and staff costs and a higher average cost of debt. Based on the
Group's in-place hedging, forward interest rate expectations and planned
refinancing activity in 2023, we expect the Group's weighted average cost of
debt to increase from 3.4% in FY2022 to 3.8% in FY2023.

 

More detailed earnings guidance for FY2023 will be provided alongside our
FY2022 preliminary results.

 

Quarterly fund valuations

At 30 September 2022, USAF's property portfolio was independently valued at
£2,928 million, reflecting a 0.7% increase on a like-for-like basis during
the quarter. The portfolio comprises 27,924 beds in 71 properties across 19
university towns and cities in the UK.

 

LSAV's property portfolio was independently valued at £1,976 million,
reflecting a 1.8% increase on a like-for-like basis during the quarter. LSAV's
property portfolio comprises 9,716 beds across 14 properties in London and
Aston Student Village in Birmingham.

 

The valuation increase is driven by increased occupancy for the 2022/23
academic year and rental growth, which more than offset the impact of higher
utility cost assumptions.

 

The USAF and LSAV portfolios are valued at weighted average yields of 4.9% and
3.9% respectively, unchanged from 30 June 2022.

 

                  Drivers of LfL capital growth (Q3)
       Valuation  Rental growth  Utility cost deduction  Yield movement  Other    Total

       Sep 2022
 USAF  £2,928m    0.7%           (0.2%)                  -%              0.2%     0.7%
 LSAV  £1,976m    1.8%           (0.1%)                  -%              0.1%     1.8%

 

ENDS

 

 

 

For further information, please contact:

 

Unite Students

Joe Lister / Michael Burt
                                    Tel:
+44 117 302 7005

Unite press
office
Tel: +44 117 450 6300

 

Powerscourt

Justin Griffiths / Victoria
Heslop
Tel: +44 20 7250 1446

 

About Unite Students

Unite Students is the UK's largest owner, manager and developer of
purpose-built student accommodation (PBSA) serving the country's world-leading
higher education sector. We provide homes to 75,000 students across 169
properties in 25 leading university towns and cities. We currently partner
with over 60 universities across the UK.

Our people are driven by a common purpose: to provide a 'Home for Success' for
the students who live with us. Unite Students' accommodation is safe and
secure, high quality, and affordable. Students live predominantly in en-suite
study bedrooms with rents covering all bills, insurance, 24-hour security and
high-speed Wi-Fi. We also achieved a five-star British Safety Council rating
in our last audit.

We are committed to raising standards in the student accommodation sector for
our customers, investors and employees. This is why our new Sustainability
Strategy, launched in 2021, includes a commitment to become net zero carbon
across our operations and developments by 2030.

Founded in 1991 in Bristol, the Unite Group is an award-winning Real Estate
Investment Trust (REIT), listed on the London Stock Exchange. For more
information, visit Unite Group's corporate website www.unitegroup.com
(http://www.unitegroup.com/) or the Unite Students'
site www.unitestudents.com (https://www.unitestudents.com/)

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