TIDMUTG

RNS Number : 7523R

Unite Group PLC (The)

08 July 2022

PRESS RELEASE

8 July 2022

THE UNITE GROUP PLC

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

TRADING UPDATE AND Q2 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 June 2022 .

Current trading

2022/23 reservations

We have continued to make good progress in sales during Q2, with strong demand from both UK and international students. Across the Group's entire property portfolio, 90% of rooms are now sold for the 2022/23 academic year, ahead of pre-pandemic reservation levels (2021/22: 81%, 2020/21: 80%, 2019/20: 89%). We have also seen positive progress in pricing, particularly in the second half of the sales cycle as concerns around the impact of the Omicron Covid-19 variant have eased. This progress has been driven by inflation-linked rental uplifts for our multi-year nomination agreements and the strength of demand for direct-let beds.

Given the strong sales performance to date, we are increasingly confident in delivering occupancy of 97% for the 2022/23 academic year and achieving rental growth at or just above the top end of our guidance of 3.0-3.5%.

We continue to monitor Covid-19 cases, travel restrictions for international students and the potential for further lockdowns, particularly in China. There are no Covid restrictions on UK Higher Education and Government guidance emphasises that universities should prioritise delivery of face-to-face teaching. Demand also remains strong from international students across multiple markets and we expect that international students will be able to travel to the UK for the start of the 2022/23 academic year in September, consistent with our experience for the 2021/22 academic year.

Cost inflation

As previously guided, 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 for a substantial portion of 2024. In addition, a recently completed review of our operating model, will deliver further efficiencies, which partially mitigate wider cost pressures.

The Company also benefits from growing recurring income through asset management fees from USAF and LSAV, linked to NOI and NAV, which offset around two thirds of the Group's share of overheads.

Financing costs

We have limited near-term refinancing requirements with less than 10% of see-though debt maturing before late 2024. Interest rates are fixed or capped for 85% of our existing investment debt and we have forward hedged GBP300 million of future debt issuance, at rates meaningfully below prevailing market levels. As a result of rising interest rates on the variable portion of our debt, our see-through borrowing cost has increased to 3.3 % at the end of H1 (December 2021: 3.0%).

Quarterly fund valuations

At 30 June 2022, USAF's property portfolio was independently valued at GBP2,967 million, a 3.5% increase on a like-for-like basis during the quarter. The valuation increase in USAF is driven by rental growth of 0.8% and a 13 basis point reduction in property yields. The portfolio comprises 29,042 beds in 71 properties across 19 university towns and cities in the UK. The average value per bed is approximately GBP102,000.

LSAV's investment portfolio was independently valued at GBP1,942 million, a 4.0% increase on a like-for-like basis during the quarter. The valuation increase in LSAV is driven by rental growth of 1.1% and a 12 basis point reduction in property yields. LSAV's investment portfolio comprises 9,716 beds across 14 properties in London and Aston Student Village in Birmingham. The average value per bed is approximately GBP200,000.

The USAF and LSAV portfolios are now valued at weighted average yields of 4.9% and 3.9% respectively. Valuation growth in the quarter reflects the continued strong demand for high quality student accommodation assets from institutional investors, including the acquisition of Student Roost by GIC and Greystar announced in May. As a result, we also expect the valuations of our wholly owned portfolio for 30 June 2022 to reflect yield compression of approximately 10-15 basis points over the first half.

USAF unit acquisition

During the second quarter, Unite increased its investment in USAF through the acquisition of GBP141 million of units through participation in an equity raise and acquisition of existing units in the secondary market. In aggregate, the purchases, which were priced in-line with USAF's March 2022 NAV, increase Unite's USAF ownership to 28.2% on a pro-forma basis (31 December 2021: 22.0%). This investment equates to an increase in Unite's see-through GAV of GBP184 million at an effective property yield of 5.1%.

The acquisitions increase Unite's exposure to USAF's high-quality portfolio in strong regional markets. It also substantially redeploys the proceeds from the disposals announced earlier in the year at attractive risk-adjusted returns.

The proceeds of the USAF equity issue, which in aggregate amount to GBP78 million, will be deployed into asset management opportunities and sustainability projects across the portfolio, to deliver uplifts in NOI through increased rental income and lower utility costs. Recent examples of asset management initiatives include the major refurbishment of 1,000 USAF beds in Manchester, which are due to complete this September.

Joe Lister, Unite Students Chief Financial Officer, commented :

"We continue to make good progress with bookings for the 2022/23 academic year with reservations now ahead of pre-pandemic levels, demonstrating the strength of student demand. This momentum underpins our confidence in a return to full occupancy for the 2022/23 academic year and rental growth at or just above the top end of our guidance of 3.0-3.5%. We are well protected against inflationary pressures through annual re-pricing of our income and cost hedging but, like others, are not immune from the impact of rising costs and interest rates. We continue to see significant investor demand for student accommodation, reflecting the sector's positive outlook, as demonstrated by valuation increases for USAF and LSAV in the quarter."

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, serving the country's world-leading Higher Education sector. We provide homes to 74,000 students across 172 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's accommodation is safe and secure, high quality and affordable. Students live predominantly in ensuite 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, Unite Group is an award-winning Real Estate Investment Trust (REIT), listed on the London Stock Exchange and a member of the FTSE 100 Index. Unite is invested in and operates two specialist funds and joint ventures with institutional investment partners: the GBP3 billion Unite UK Student Accommodation Fund (USAF) and the GBP2 billion London Student Accommodation Vehicle (LSAV).

For more information, visit:

Unite's corporate website www.unite-group.com

The student site www.unitestudents.com

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END

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