Interim Management Statement

RNS Number : 4954U

Unite Group PLC

15 May 2008

 



15 May 2008

THE UNITE GROUP PLC

Interim Management Statement and Annual General Meeting

The UNITE Group plc publishes its first interim management statement for 2008 covering its activities during the period to 14 May 2008. 

In addition, the Group's Annual General Meeting will take place at 9.30 am today at its offices in Bristol.  

Commenting, Geoffrey Maddrell, Chairman of UNITE, said:

'UNITE has continued to make good progress in delivering its strategy against a backdrop of challenging market conditions. Our reservations performance in particular, with 77% of the portfolio already reserved for the 2008/09 academic year, underlines the continued strong demand for student accommodation and further demonstrates the sector's economic resilience.

'From a financing perspective, we are pleased to see the benefits and potential of our ongoing transition to a development and co-investing asset manager business model bearing fruit. The initial success of our ongoing third capital raising in the UNITE UK Student Accommodation Fund clearly demonstrates increasing investor appreciation of the sector's attractive characteristics.'

Highlights 

• Capital raising for the UNITE UK Student Accommodation Fund is on track to raise its target of £125 million of new equity, having already received applications for capital commitments for a total of £77 million from existing investors. 

• Room reservations for forthcoming academic year at 77% to the current date, up 9% compared to the corresponding date last year (17 May 2007: 68%).

• £164 million one year bridge facility successfully re-financed into new medium term facilities.

• Five new planning consents achieved in Exeter, Edinburgh, Oxford and Birmingham.

• 3,843 new beds will be opened during the second half of 2008, of which 892 (53% by value) are in London.

Market update

We continue to see year on year expansion in the number of students going to university. According to data released by UCAS in March 2008, applications for Higher Education university courses for 2008/09 have continued to increase, up 5.5% on applications received at the same point last year.

The general environment in the UK property sector and, in particular, global liquidity constraints have continued to impact the broader property investment market and student accommodation assets have to some extent been affected by this. The UNITE UK Student Accommodation Fund ('USAF' / 'Fund'), which is invested solely in provincial direct let student accommodation, experienced a 13 basis point outward yield shift during the first quarter, although this was substantially offset by quarterly rental growth of 1.7%. The resulting impact was a 0.7% reduction in asset values within USAF for the three months to 31 March 2008. Whilst a formal valuation of the Group's portfolio in London will not be undertaken until 30 June, we expect London yields to have proven more resilient than those in provincial cities.  

At the time of publishing our results in March, we announced plans to sell approximately £100 million of assets during 2008. These assets are either subject to long-term agreements with universities or are in locations considered non-core to the Group's investment portfolio and the sales will help the Group complete its transition to a developer and co-investing manager business model. Following a targeted marketing exercise, a number of proposed sales are now at an advanced stage and we will provide further updates to shareholders in due course. 

Operating and investment portfolio

As reported at the time of our preliminary results, the Group has significantly enhanced its operational capability following the successful launch of its online accommodation management system in July 2007. This has contributed to a dramatic improvement in forward sales performance. As at 12 May 2008, 30,435 reservations had already been received for the 2008/09 academic year, representing 77% of the Group's 2008/09 portfolio. This is an increase of 4,967 bed spaces when compared to the same point in 2007, when 68% of the Group's portfolio had been reserved. 

With regard to property operating costs, the Group is experiencing some inflationary pressure on certain cost lines, most notably utilities. However, we expect any rises to be more than offset through further operating efficiencies that are being delivered throughout 2008 as the Group's online management system is further embedded.

This strong sales position underpins a robust rental growth outlook for the Group, which we currently expect to be ahead of previous years.

Development activity

As planned, our development activity during the first part of 2008 has focused on ensuring that 2008 completions progress as planned and on securing planning consents for 2009 projects. We have made good progress:

• A total of 3,843 beds, worth an estimated £409 million on completion, are on track to open later in 2008 across 13 properties. 

• Five new planning consents have already been achieved during 2008. These consents have been received in Exeter, Edinburgh, Oxford and Birmingham and the projects will total 1,318 beds with an anticipated value of £121 million on completion.

• The total pipeline of secured beds for delivery in 2009 to 2011 now stands at 6,358 across 29 projects, of which 17 are in London.  53% of our secured development pipeline by value is now in London.

 Co-investing asset management

UNITE UK Student Accommodation Fund

As stated in March, UNITE has begun the process of raising additional capital for the UNITE UK Student Accommodation Fund, which has been positively received by both existing investors in the Fund and prospective new investors. As of today, the Fund has received applications for capital commitments for a total of £77 million from existing UK and continental European institutional investors. UNITE continues to market the Fund and is currently in discussions with a significant number of additional institutional investors, a number of whom have appointed advisers and are in the process of undertaking due diligence. As this process progresses, it is expected that further commitments to USAF will be made through to the end of September 2008 and we remain confident of meeting our third party capital target of £125 million. 

Taking into account UNITE's co-investment plans and the target leverage of the Fund, the £77 million of applications for capital commitment will, upon acceptance, increase the Fund's further investment capacity to approximately £320 million. This capital will be invested in acquiring further assets from UNITE later in 2008 and during 2009.

USAF is structured as an infinite life property fund, which focuses on owning, acquiring and managing UK direct let student accommodation. It is the largest fund of its kind and was in the top three best performing funds for the full year 2007 and the first quarter of 2008 out of 62 balanced and specialised funds included in the IPD UK Pooled Property Funds Index. 

Financing

The one year bridge facility provided by Morgan Stanley, arranged to re-finance assets following the redemption of the UFO bond and under which £164 million was outstanding at 31 December 2007, has been successfully refinanced. The new debt was largely provided by the Bank of Ireland under a new £116 million three year facility. Following this refinancing, the Group's total available debt facilities stand at £1.4 billion with over £650 million currently undrawn, providing capacity for over two years of development funding. None of the Group's principal banking facilities expire before 2010.

Summary 

In conclusion, the Board is pleased with the substantial progress that UNITE has made during 2008 against a backdrop of challenging market conditions. The reservations performance, in particular, underlines the continued strong demand for student accommodation and further demonstrates the sector's economic resilience. 

Conference call

There will be a conference call for analysts and investors at 8.30 am today. To participate in the call please dial:

Telephone: [phone]

Participants' password: 46179096

A transcript of the conference call will be made available on the Group's website later in the day. www.unite-group.co.uk

The UNITE Group plc Mark Allan  Joe Lister Tabitha Aldrich-Smith	Tel: [phone]
Financial Dynamics Stephanie Highett / Dido Laurimore / Laurence Jones	Tel: [phone]

Forward-looking statements

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond UNITE's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. UNITE does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance.

About UNITE 

UNITE is the UK's leading provider of student accommodation, with a business model that focuses on being a developer and co-investing asset manager. It operates accommodation for 38,000 students across 135 properties throughout 29 key university towns and cities across England, Wales and Scotland.  UNITE undertakes the planning, development and management of sites, often working closely with the universities and colleges, in order to deliver high quality, well-located student accommodation and hospitality services at affordable prices in strong higher education markets.

Together with its development pipeline, UNITE has a property portfolio under management valued at c. £2.9 billion on completion. UNITE's strategy, set out at the beginning of 2007, aims to double the size of its UK business by 2012. In 2007 UNITE expanded into the new field of graduate housing in London, by opening a 62 studio project in Regents Park. It has a further three projects planned in London for 2008/09.

With student rents resilient to economic cycles, and the continued growth in student numbers, especially from overseas, UNITE developments typically show high occupancy levels in a market where there is a general shortage of quality supply.

Founded in 1991, UNITE is listed on the London Stock Exchange (UTG) and is a FTSE 250 company.

UNITE UK Student Accommodation Fund

UNITE established a £1 billion UNITE UK Student Accommodation Fund at the end of 2006. The principal objectives of the Fund are:

• to release capital that is tied up in mature, stabilised investment assets for investment into higher added value development activity;

• to provide UNITE with more growth capital in the medium term; and

• to diversify UNITE's sources of income by providing a new, valuable revenue stream arising from management fees from the Fund.

The Fund helped transform UNITE's business model to that of a developer of new purpose-built student accommodation and manager of funds which own student accommodation properties operated by UNITE and in which the Group has a significant minority stake.

Further information on UNITE is available at www.unite-group.co.uk

 

END

 

 

IMSUSSKRWRRVAAR