TIDMUTG
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 ')
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 GBP2 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 GBP450 million
revolving credit facility to March 2026 at unchanged margins.
Capital recycling
The Group completed GBP288 million (Unite share: GBP245 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 GBP339 million (Unite
share: GBP256 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 GBP2,928 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 GBP1,976
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 Yield movement Other Total
Sep 2022 cost deduction
----- ---------- ------------- --------------- -------------- ----- -----
USAF GBP2,928m 0.7% (0.2%) -% 0.2% 0.7%
LSAV GBP1,976m 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 or the Unite Students' site
www.unitestudents.com
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END
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