REG - Unite Group PLC - TRADING UPDATE AND Q4 FUND VALUATIONS

UniteAnnouncement

10/01/2023 07:00

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RNS Number : 1457M  Unite Group PLC (The)  10 January 2023

PRESS RELEASE

10 January 2023

THE UNITE GROUP PLC

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

TRADING UPDATE AND Q4 FUND VALUATIONS

 

Unite Students, the UK's leading owner, manager and developer of student
accommodation, today announces an update on current trading for the Group and
quarterly property valuations for the Unite UK Student Accommodation Fund
('USAF') and the London Student Accommodation Joint Venture ('LSAV') as at 31
December 2022.

 

Highlights

·     Guidance reiterated for adjusted EPS at the top end of 40-41p range
for FY2022, and a total accounting return of around 8%

·     Strong start to the 2023/24 sales cycle with 70% of beds sold
(2022/23: 60%)

·     Targeting rental growth of at least 5% for 2023/24 (previously
4.5-5.0%)

·     Committed development pipeline of two schemes, totalling 1,421 beds
and £200m in future capex, fully funded from existing facilities

·     Q4 like-for-like valuation decreases of 1.4% and 2.8% in USAF and
LSAV respectively, and increases of 4.6% and 5.6% for FY2022

 

Richard Smith, Chief Executive of Unite Students, commented:

"We have seen a strong start to the 2023/24 sales cycle, reflecting the appeal
of our high-quality portfolio and fixed-price, all-inclusive offer, which
provides students with significant savings and certainty on their bills.
Reservations are significantly ahead of recent sales cycles, reflecting strong
demand from new and existing students as well as new nomination agreements
with universities. We now expect to deliver rental growth of at least 5% for
the 2023/24 academic year, which will help offset the cost pressures we are
facing through higher utility and staff costs. Growing income also offers
support to our property valuations as the market adjusts to an environment of
higher funding costs.

 

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

 

Current trading

 

2022 earnings guidance

As previously guided, 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 reiterate our
guidance for adjusted EPS to be at the top end of our 40-41p range for FY2022.

 

2023/24 reservations

Demand for the Group's accommodation has been strong in the first part of the
sales cycle.

Across the Group's entire property portfolio, 70% of rooms are now sold for
the 2023/24 academic year, significantly ahead of the prior year and
pre-pandemic levels (2022/23: 60%). In our strongest markets we have seen an
increasing number of students looking to secure accommodation earlier in the
sales cycle than previous years. We have also seen increased demand from
universities who see quality accommodation as a key part of their proposition
to prospective students. Reservations under nomination agreements account for
52% of available beds for 2023/24, up 2ppts versus the same stage in the
2022/23 sales cycle.

 

As a result of this strong demand and the need to offset cost pressures in our
business, we now expect to deliver income growth of at least 5% for 2023/24
(previously 4.5-5.0%).

 

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-built
student accommodation (PBSA) and houses in multiple occupation (HMO)
sectors. Our offer provides important price certainty on utilities and
additional product and service features, such as on-hand maintenance teams and
24/7 security, in locations close to campus.

 

Development pipeline

The Group is committed to two development schemes, Derby Road in Nottingham,
completing in 2023, and Jubilee House in Stratford, totalling £200 million in
future capital commitments and delivering a blended yield on cost of 6.5% for
the PBSA elements.

 

In December 2022, the Group acquired the land for our Jubilee House scheme for
£73 million. The PBSA element of the fully-consented scheme is expected to be
delivered in time for the 2026/27 academic year, with construction due to
start in the second quarter of 2023. The development will be delivered as a
university partnership, with at least half of the available beds let under a
nomination agreement. The mixed-use scheme will deliver 65,000 sq ft of
academic space, let for an initial 35-year term to the Secretary of State for
Levelling Up, Housing and Communities. Following completion and subject to
market conditions, we expect to sell the academic space to a third party.

 

We are reviewing future development starts in our secured pipeline to ensure
projects deliver earnings accretion in an environment of higher funding costs.
Given the strength of demand from students and universities, we expect to
commit to additional development projects during 2023.

 

Funding

We have observed a slight easing in funding market conditions over the past
quarter and lenders remain supportive of the Group and the student
accommodation sector. The Group has recently extended its Revolving Credit
Facility (RCF) by £150 million to £600 million in total, at terms in line
with the existing facility. At year-end, the wholly-owned Group had £397
million of cash and debt headroom, comprising £29 million of cash balances
and £368 million of undrawn debt.

 

The £100 million L&G loan facility in LSAV, which is due to mature in
January 2023, will be repaid at maturity from existing reserves within LSAV.
We continue to make good progress in refinancing the £380 million June 2023
bond maturities in USAF (Unite share: £108 million), with demand from a range
of lenders.

 

The Group has had its Baa2 (Positive outlook) and BBB (Stable outlook) credit
ratings affirmed by Moody's and Standard & Poor's respectively.

 

Quarterly fund valuations

At 31 December 2022, USAF's property portfolio was independently valued at
£2,888 million, reflecting a 1.4% decrease on a like-for-like basis during
the quarter. Over the year as a whole, valuations for USAF increased by 4.6%
on a like-for-like basis. The valuation decrease in the quarter was driven by
an increase in property yields of 13bps to a weighted average of 5.0%, which
more than offset the positive impact of rental growth. Over the past 12
months, valuation growth was driven by rental growth and a 7bps reduction in
property yields on a like-for-like basis.

 

LSAV's property portfolio was independently valued at £1,921 million,
reflecting a 2.8% decrease on a like-for-like basis during the quarter. Over
the year as a whole, valuations for LSAV increased by 5.6% on a like-for-like
basis. The valuation decrease in the quarter was driven by an increase in
property yields of 18bps to a weighted average of 4.1%, which more than offset
the positive impact of rental growth. Over the past 12 months, valuation
growth was driven by rental growth with yields broadly stable.

 

We expect the valuation of our wholly owned portfolio at 31 December 2022 to
reflect an increase in property yields comparable to the USAF portfolio in H2
2022. This is expected to support a total accounting return of around 8% for
FY2022.

 

                  Drivers of LfL valuation movement (Q4 2022)
       Valuation  Rental       Yield        Other        Total

       Dec 2022   growth       movement
 USAF  £2,888m    1.3%         (2.7)%       0.0%         (1.4)%
 LSAV  £1,921m    1.7%         (4.5)%       0.0%         (2.8)%

                  Drivers of LfL valuation movement (FY2022)
                  Rental       Yield        Other        Total

                  growth       movement
 USAF             4.2%         1.1%         (0.7)%       4.6%
 LSAV             5.6%         (0.2)%       0.2%         5.6%

 

 

ENDS

 

For further information, please contact:

 

Unite Students

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 156
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 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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