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Unite Students positive on full year returns

Unite Students, the owner, manager and developer of student accommodation, has said that earnings for 2022 will be at the top end of its guidance of 40-41p per share, with a total accounting return of 8%.

Higher than expected rental income in term one of the 2022/23 academic year more than offset the impact of higher interest costs in the second half of the financial year, the company said, which has resulted in group guidance for adjusted earnings per share (EPS) to be at the top end of its 40-41p range.

In a trading update, the group added that sales of beds for the 2023/24 academic year were at 70% (2022/23: 60%) and it was targeting rental growth of at least 5% for 2023/24 (previous guidance 4.5%-5.0%). The company said that it has seen an increasing number of students looking to secure accommodation earlier in the sales cycle than previous years and an increase in demand from universities that “see quality accommodation as a key part of their proposition to prospective students”.

Fourth quarter 2022 like-for-like valuation decreases of 1.4% and 2.8% were reported in the Unite UK Student Accommodation Fund (USAF) and the London Student Accommodation Joint Venture (LSAV) portfolios respectively, which equated to increases of 4.6% and 5.6% for the full year.

At 31 December 2022, USAF’s property portfolio was independently valued at £2,888m. 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 £1,921m. The valuation decrease in the quarter was driven by an increase in property yields of 18bps to a weighted average of 4.1%. Over the past 12 months, valuation growth was driven by rental growth with yields broadly stable.

Development pipeline

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

In December 2022, the group acquired the land for its Jubilee House scheme for £73m, which is expected to be delivered in time for the 2026/27 academic year. 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, it expects to sell the academic space to a third party.

Funding

The group recently extended its Revolving Credit Facility (RCF) by £150m to £600m in total, at terms in line with the existing facility. At year-end, the wholly-owned group had £397m of cash and debt headroom, comprising £29m of cash balances and £368m of undrawn debt.

The £100m L&G loan facility in LSAV, which is due to mature in January 2023, will be repaid at maturity from existing reserves within LSAV. The group added that it continues to make good progress in refinancing the £380m June 2023 bond maturities in USAF (Unite share: £108m), 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.

Richard Smith, chief executive, 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.”

UTG : Unite Students positive on full year returns

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