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Unite to take 16%-20% hit on income this academic year

Unite to take 16%-20% hit on income this academic year

Unite Students, the student accommodation owner has said it expects a 16%-20% reduction in income for the 2019/20 academic year.

The group has received rent cancellation requests for the summer semester of 2019/20 and expects to forgo rent on around 43,000-46,000 beds representing around 62-65% of all owned and managed beds.

Remaining beds are accounted for by students that have stayed and beds let under nomination or lease agreements, where universities collect rent directly from students (21% of beds). Unite has received 94% of the rent due to date in April under these nomination and lease agreements. Remaining payments by universities for the summer semester are staggered between April and September 2020.

2020/21 academic year

Reservations across the group for the 2020/21 academic year are currently at 80%, compared with 81% at the same time last year. The group said it had seen healthy levels of demand from UK students but a slow down in demand from international students.

Nomination agreements account for 70% of reservations secured for 2020/21, including multi-year agreements and single-year extensions

2020 cash flow impact

Group cash flow in 2020 is expected to take a £90m-125m hit. At the upper end of this range the group has modelled a four week delay to the start of the 2020/21 academic year, while awaiting greater clarity around admissions and timetable. This results in reductions of up to 30% to group cashflow for the autumn semester of the 2020/21 academic year.

Unite expects to realise £12m-15m in P&L cost savings in 2020, in addition to the £5m-6m of cost synergies expected to be realised from the Liberty Living acquisition in 2020. The cost savings come from in-sourcing work for summer turnaround and cleaning as well as savings to utility and broadband costs, and a halt to discretionary overhead spending and non-essential recruitment. 

As part of these savings, the board has agreed to a 30% reduction to salaries and pension contributions for executive directors, 10%-20% for senior management and a 30% reduction in fees payable to non-executive directors. These reductions will be effective for a four-month period from 1 April.

Bonus payments for executive directors will also be suspended for 2020. The company still plans to make awards under its Long Term Incentive Plan with a three year performance period through to 31 December 2022 (and further two year holding period for the executive directors), based on the performance conditions announced in the company’s 2019 Annual Report and set prior to the impact of Coronavirus.

These savings, together with the group’s decision to defer development and non-essential operational capex, will retain an additional £95-105m of cash in the business in 2020.

The higher education sector outlook

The government’s central planning scenario is for the 2020/21 academic year to start in September, broadly in line with the usual admissions cycle. This follows confirmation that students will receive their A-level results on 13 August as originally planned. However, there is still some uncertainty over start dates for the academic year, which could result in both a later start and finish to the autumn semester.

Universities UK recently proposed a package of support measures for universities to counter the risk of a reduced intake of first-year students from non-EU countries. The proposal includes increased research funding and one-year student number controls to ensure the financial viability of all universities. The government is expected to publish its response in the coming weeks.

There are 1.5 million full-time students in the UK seeking accommodation, of which 1.2 million are domestic students living away from home and international students studying multi-year courses. We expect Universities to offset a potential reduction in first-year international student intake by recruiting additional UK students from surplus applications, which totalled 101,000 in the 2019/20 academic year.

Unite said it expects demand for purpose-built accommodation to be supported by market share gains from the 865,000 students currently living in homes in multiple occupation (HMOs). Unite shifted the focus of its marketing activity to target students living in HMOs, where it believes the offer of purpose-built, affordable accommodation with a range of value-added features such as 24-hour security, all-inclusive bills and on-site support will be considered an attractive alternative. It believes even a small shift of students from HMOs to purpose-built student accommodation would help to substantially offset potential reductions in international student numbers.

Development pipeline

Unite has deferred the delivery of Middlesex Street in London and Old BRI in Bristol into 2022. A decision on resumption of capex on Middlesex Street and Old BRI will be made once greater visibility over the impact of Coronavirus on the 2020/21 academic year is clear. 

Delivery of 2020 completions will also be delayed by temporary site closures and amended working practices. However, work has now re-started across all sites with reduced numbers of operatives to maintain social distancing, in accordance with recent government advice. A number of scenarios are being considered for completion of the projects, including phased delivery where possible. 

The deferred delivery of 2021 completions and savings to 2020 completions will lead to a cash saving of £67m during 2020. For the remainder of 2020, there is £57m of cash to spend on developments, including costs to halt developments at Middlesex Street and Old BRI.

Cash headroom and debt facilities

As at 17 April 2020, the company had £269m of unrestricted cash reserves. All of the group’s revolving credit facilities are now fully drawn.

Unite has been confirmed as an eligible issuer for the HM Treasury and Bank of England Covid Corporate Financing Facility (CCFF). It expects an initial £50m to be made available under the facility, which it expects to access shortly.

Unite has completed a £50m increase to an existing £100m RCF with Wells Fargo Bank to provide additional liquidity and funding capacity. The new £150m facility has been extended by two and a half years and now matures in March 2024.

UTG : Unite to take 16%-20% hit on income this academic year

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