REG - Unite Group PLC - Trading Update and Q3 Fund Valuations

UniteAnnouncement

05/10/2023 07:15

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RNS Number : 7412O  Unite Group PLC (The)  05 October 2023

PRESS RELEASE

5 October 2023

THE UNITE GROUP PLC

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

TRADING UPDATE AND Q3 FUND VALUATIONS

 

FULL OCCUPANCY, STRONG RENTAL GROWTH AND STABLE PROPERTY VALUES

 

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
2023.

 

Highlights

·    99.7% occupancy for the 2023/24 academic year (2022/23: 97.9%)

·    Rental growth of 7.3% for the 2023/24 academic year

·    Property values broadly stable in Q3 (USAF: +0.2%, LSAV -0.2%)

 

Richard Smith, Unite Students Chief Executive Officer, commented:

"We have delivered record occupancy and strong rental growth for the 2023/24
academic year, with increasing demand from both students and universities
reflecting the growing attractiveness of our fixed-priced, all-inclusive
offer. The strong letting performance increases our confidence in delivering
at least 5% rental growth for the 2024/25 sales cycle and supports our
property valuations as the market adjusts to an environment of higher interest
rates.

 

"The UK is increasingly short of suitable student accommodation as HMO
landlords continue to leave the market at pace. As the leading provider of
PBSA, we have a crucial role to play and are uniquely positioned to address
this supply need. We continue to work closely with universities to ensure
students have access to high quality, affordable accommodation."

 

Current trading

2023/24 lettings performance

Entering the final stages of the 2023/24 academic year letting cycle, the
Group has let 99.7% of beds across its portfolio (2022/23: 97.9%). Demand has
been strong across all the Group's markets, where the supply of purpose-bult
student accommodation is unable to meet demand as traditional HMO landlords
leave the sector. This has resulted in rental growth of 7.3% for the 2023/24
academic year (2022/23: 3.5%). Rental growth from nominations agreements has
exceeded direct-let tenancies as university partners increasingly recognise
the value our accommodation provides and are willing to agree increased rental
levels on single year deals and new multi-year agreements.

 

The ongoing strength of student demand, together with the shortage of new PBSA
supply and a retreating HMO sector supports at least 5% rental growth in the
2024/25 academic year sales cycle. We are mindful of the cost of living crisis
and remain focussed on offering value-for-money accommodation, while also
delivering sustainable rental growth to mitigate rising operating costs and
support our significant ongoing investment into our properties.

 

Funding update

During the quarter, Moody's Investors Service upgraded the Group's unsecured
credit rating to Baa1 (previously: Baa2), reflecting the positive impact of
the Group's £300 million capital raise and commitment to a reduced c.30% LTV
target and net debt: EBITDA of 6-7x.

 

Development pipeline update

We recently announced an option agreement for a new 800 bed development scheme
at Central Quay, Glasgow, increasing our total pipeline to 5,600 beds. Morriss
House in Nottingham reached practical completion in August and is fully let
for the 2023/24 academic year. We are making good progress at Lower Parliament
Street in Nottingham which will open in September 2024 and work has started
on-site at our two 2025 deliveries, Temple Quarter in Bristol and Abbey Lane
in Edinburgh. The planning process for Meridian Square in Stratford is also
progressing in line with expectations with approval targeted in Q4 2023.

 

Building safety

We have not identified any Reinforced Autoclaved Aerated Concrete (RAAC) in
any our buildings. A limited number of additional surveys are ongoing but
given an average age of 12 years for our portfolio, should any RAAC be found,
we do not anticipate any material issues.

 

In line with Government regulations, we continue to progress with cladding
remediation across the estate and will complete 15 projects during 2023. The
expected cost of remediation projects in 2023 is £80 million (Unite share:
£41 million), which was fully provided for at 31 December 2022. We continue
to prioritise projects based on our external risk assessments and, having
completed detailed surveys, expect to maintain our run-rate of 10-15 projects
in 2024. Expected future spend is in-line with previous guidance for an
average of c.£500 per bed per annum (net of recoveries through claims) over
the next 3-5 years.

 

To date, we have successfully made claims against the original build
contractors for a total of £30 million (Unite share: £24 million)
representing 80% of the costs on those projects. This supports our view that
50-75% of costs will ultimately be recoverable, although no provision has been
made for future recoveries in our balance sheet. While positive legal
precedents are being established on a case-by-case basis, it is taking longer
than anticipated to settle these disputes, meaning we anticipate a greater
level of net spend in the earlier years of the remediation programme.

 

Quarterly fund valuations

At 30 September 2023, USAF's property portfolio was independently valued
at £2,929 million, a 0.2% increase on a like-for-like basis during the
quarter. The valuation increase in USAF is driven by quarterly rental growth
of 1.9% and a 9 basis point increase in property yields. The portfolio
comprises 27,922 beds in 71 properties across 19 university towns and cities
in the UK.

 

LSAV's investment portfolio was independently valued at £1,936 million, a
0.2% decline on a like-for-like basis during the quarter. The valuation
decrease in LSAV is driven by quarterly rental growth of 2.0% and a 9 basis
point increase in property yields. LSAV's investment portfolio comprises 9,716
beds across 14 properties in London and Aston Student Village
in Birmingham.

 

The USAF and LSAV portfolios are now valued at weighted average yields of 5.2%
and 4.3% respectively.

 

ENDS

 

 

 

 

For further information, please contact:

 

Unite Students

Richard Smith / Joe Lister / Mike
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 70,000 students across 157
properties in 23 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 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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