Interim Management Statement

RNS Number : 1679R

Unite Group PLC

15 November 2012

 



Press Release 15 November 2012

THE UNITE GROUP PLC

('UNITE', the 'Group', or the 'Company')

Interim Management Statement

CONTINUED PROGRESS TOWARDS STRATEGIC OBJECTIVES

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today publishes its second interim management statement for 2012, covering its activities from 1 July 2012 to 14 November 2012.

Highlights

·     Robust lettings performance for 2012/13 with average occupancy of 96% and profit objectives on track for the full year.

·     Rental growth for 2012 expected to be approximately 3%.

·     Good progress with our development programme. 2012 programme completed and let at an average profit on cost of 44%, 2014 programme commenced on site and two sites (in London and Bristol) secured for target completion in 2015, subject to planning.

·     Continued progress on asset disposal programme towards our target of £100-150 million non-core asset disposals. £94m of asset sales completed or exchanged across the entire operational portfolio, £42m progressing towards exchange and £75m of disposals from UNITE to its co-investment vehicles on track for completion by the year end.

Mark Allan, Chief Executive of The UNITE Group, commented:

"UNITE has continued to perform strongly in 2012 year to date, with our occupancy for the 2012/13 academic year at 96% and rental growth for the full year expected to be around 3%, despite disruption to the University admissions process this year.

"Our solid lettings performance and careful cost control means that we remain on track to continue growing recurring profits and cash flow in line with plan. Alongside this, the progress we have made with asset disposals, extending our joint venture relationship with GIC and various debt facilities mean that our balance sheet objectives are similarly on track."

Sales, rental growth and profitability

UNITE's occupancy will average 96% for the 2012/13 academic year with variations at a city level more marked than in previous years as a result of the impact of various Government policy changes. We expect our average rental growth for the full year to be in the region of 3%.

Scottish cities have seen a strong performance as have a number of English cities such as Bristol, Plymouth, Coventry and Newcastle while letting performance in some cities in northern England and the midlands has been slightly weaker than expected. In London, all our new openings are fully let and as anticipated demand has generally been strongest for budget properties and premium product in central locations. Demand for Zone 2 London properties in the £200 to £230 per week price range has been weaker, partly as a result of student number movements but also reflective of new competing supply in the market. We expect this segment of the London market to stabilise over the next couple of years.

Overall the UNITE portfolio has benefitted from its national diversification, a strong operating platform and high levels of customer satisfaction and we expect the occupancy and rental growth achieved to represent outperformance versus the wider student accommodation sector. This robust lettings performance for the year, together with continued tight control of costs and the benefit of new properties opening, will continue to drive improved profitability and we remain confident of delivering a substantial increase in recurring profits and cash flow for the full year.

Student numbers update

University admissions for 2012/13 have fallen by approximately 55,000 year on year, largely as a result of various Government policy changes. This represents a 12% drop in admissions but, taking into account the growth in student numbers in recent years, we expect overall student numbers to be broadly static year on year. For 2013/14 we expect approximately 50% to 60% of this fall to be recovered as temporary factors and timing differences reverse.

The factors contributing to the drop were as follows:

·     A permanent reduction in the number of Government-funded places (15,000);

·     An increase in the number of deferred acceptances from a very low base in 2011 (18,000);

·     A number of policy-related implications that resulted in a mismatch between the demand for and supply of particular University places for the year (22,000).

Admissions performance varied by city but it is important to note that the overall number of applicants for 2012/13 exceeded acceptances by over 200,000 indicating that the level of unsatisfied demand for Higher Education in the UK remains significant.

We believe that the majority of the decline attributable to the second and third factors set out above will reverse in 2013 as deferral rates stabilise and Universities adapt their admissions processes to reflect the new policy environment more effectively. At this early stage we are forecasting an increase in student numbers of between 25,000 and 30,000 for 2013/14 as a result.

Development activity

The Group's programme of 2012 completions has been delivered on time, to budget and all properties are fully let. The returns achieved have been attractive, with an average NOI yield on cost of 9.4% and an average profit on cost of 44%. One of the 2012 completions, North Lodge in Tottenham Hale, which represents 22% of the completions by value, will be sold to LSAV later this year.

Works have now commenced on both projects scheduled for 2014 completion - St Pancras Way, Camden (563 beds) and Stratford, East London (951 beds). Prospective returns remain compelling and both projects are expected to cater for pockets of strong demand in the London market. We have no completions scheduled for 2013.

Looking further out, a planning application has been submitted for a 440 bed development in central Bristol on a site the Group already owns, targeted for 2015 completion. In addition, the Group's LSAV joint venture has secured a second site in Stratford which could provide a further 760 beds for 2015, subject to planning. The recent announcement of UCL being granted outline permission for the development of a major new campus in the Stratford area underlines its attractiveness as a student location. More generally we have been encouraged by the number of potential opportunities arising for LSAV, which will be pursued selectively during 2013.

Asset disposals

The Group's programme of non-core asset disposals has continued to progress. Since the programme commenced in late 2011, a total of £94 million sales have either completed or exchanged, of which £45 million relates to wholly owned assets, and a further £42 million of wholly owned asset sales are progressing towards exchange of contracts. Other than concluding this remaining £42 million of sales we do not expect to make any further disposals into the open market for the remainder of 2012 as we expect to have achieved our target of £100-150 million asset sales for the year. However, the £45 million disposal of North Lodge to LSAV is expected to complete before the year end, together with a £30 million sale to USAF. The Group will continue to make disposals in 2013 and expects to sell between £50 million and £100 million of properties for the year, both from its wholly owned portfolio and on behalf of co-investment vehicles.

Capital and financing

On 14 September we announced the extension and expansion of our successful joint venture relationship with GIC RE. The new joint venture, in which UNITE has a 50% stake, will undertake all UNITE London development activity for the next few years and, together with the good progress made with non-core asset sales, provides UNITE with good visibility of development financing and returns over the coming years.

Investment activity and yields

Transaction activity in the sector has continued to be buoyant with a number of transactions completing in recent months, demonstrating the increasing investor appeal of the student accommodation sector and providing good yield evidence. Just over £2 billion of transactions have completed or exchanged year to date.

The USAF portfolio valuation at 30 September 2012, as announced on 8 October, showed capital growth of 0.7% in the third quarter with yields stable at 6.7% and we consider this performance to be broadly reflective of the wider UNITE portfolio. We expect yields on well let assets in good locations to remain stable in the fourth quarter with modest softening in assets that have seen occupancy affected by the temporary student number changes. Overall, however, we do not expect the movement in yields to be significant.

Summary and outlook

UNITE has continued to perform well throughout 2012, despite the disruption to University admissions caused by various Government policy changes, and remains on track to deliver against its strategic objectives for 2012. Customer satisfaction levels have been high and have contributed positively to operational performance.

Looking beyond 2012, high occupancy, tight cost control, new development completions and rental growth continue to underpin prospects for further growth in recurring profits, cash flow and net asset value. We expect student numbers to grow for 2013/14, offsetting some of the reduction experienced this year and with relatively little new supply scheduled, the demand/supply fundamentals of our market remain solid.

ENDS

Conference Call:

There will be a conference call for analysts and investors at 08:00 am today. To participate in the call, please dial:

Dial in No:      [phone]

Pin:                 2209734

Event title: UNITE Group Interim Management Statement Conference Call

For further information, please contact:

The UNITE Group plc                                                                           Tel: [phone]

Joe Lister, Chief Financial Officer

Ian Morris, Head of Corporate Communications

FTI Consulting                                                                                     Tel: [phone]

Stephanie Highett

Dido Laurimore

Faye Walters

About The UNITE Group 

The UNITE Group is the UK's leading developer and manager of student accommodation, with a business model that focuses on two core areas:

1.          Development and Asset Management: UNITE undertakes the acquisition, planning and development of purpose-built student accommodation in the UK. Through the continuous assessment of quality and location of its investment portfolio, UNITE is well positioned to deliver value-adding strategies to those assets where further opportunities are identified. Working on behalf of its partners, UNITE acts as Fund Manager for the UNITE UK Student Accommodation Fund in which it owns a 16.3% share. UNITE also manages a number of Joint Venture partnerships.

2.          Professional property management: UNITE is home to 42,000 students in over 130 properties across 23 of the UK's strongest university cities, and has consistently proven high occupancy levels across its portfolio.

The Group works closely with higher education institutions in order to deliver high quality, well-located student accommodation at affordable prices in strong higher education markets. In 2012, UNITE won the South West Business in the Community (BITC) Carbon Reduction Award for its environmental initiatives and was recognised as the residential regional sector leader for sustainability by the Global Real Estate Sustainability Benchmark (GRESB).

Founded in 1991, UNITE is a FTSE 250 company listed on the London Stock Exchange (UTG). For more information, please visit www.unite-group.co.uk or www.unite-students.com.  

 

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