Interim Management Statement

RNS Number : 3216D

Unite Group PLC

15 May 2012

THE UNITE GROUP PLC

("UNITE" / "Group" / "Company")

Interim Management Statement

STRONG RESERVATIONS AND OPERATIONAL PROGRESS

The UNITE Group plc, the UK's leading developer and manager of student accommodation, today publishes its first interim management statement for 2012, covering its activities between the Company's final results announcement on 1 March 2012 and 14 May 2012.

Highlights

· Positive reservations performance with 72% of rooms let for the 2012/2013 academic year, compared to 59% at the beginning of March 2012, and 73% at the same point in 2011, when there was a rush in applications ahead of the introduction of increased tuition fees. Figures are ahead of 2010 levels (71%) and provide continued confidence in rental growth of 3-4% for the full year.

· Further progress with debt refinancing illustrated through completion of new £121 million ten year facility with Legal & General.

· 2012 development schemes all progressing well, on time and to budget, bringing 1,822 new beds to the market for the 2012/13 academic year. A further 1,514 beds to be delivered in 2014.

· The Group has now completed the sale of £18 million non-core assets from its own balance sheet with a further £35 million proceeding through due diligence, including £21 million placed under offer since 1 March at prices supportive of book value. The Group is on track to achieve its target of £100-150 million of balance sheet asset sales by the year end.

Commenting, Mark Allan, Chief Executive of The UNITE Group, said:

"Building on our strong operational performance in 2011 we have continued to make good progress against our strategic objectives in 2012.

"High occupancy, firm cost control, new openings and rental growth prospects underpin our view that we are on track to make a further positive step change in our profitability this year.

"Meanwhile, positive progress against debt financing and asset disposal milestones means that we remain well positioned to pursue accretive development opportunities selectively without stretching our balance sheet."

Sales, rental growth and profitability

With occupancy across the portfolio at 99% for the current academic year, reservations for 2012/13 at healthy levels, new openings on schedule and a continued focus on cost control, the Group is on track to make substantial further progress on the positive increase in Net Portfolio Contribution (our measure of recurring profits) seen in 2011.

Reservations across the managed portfolio of approximately 42,000 beds for 2012/13 are at 72% compared with 73% at the same time last year (which saw an early peak in University applications when many students rushed to apply before the tuition fee increases took effect). Figures are ahead of the same position in 2010 and we remain confident of achieving rental growth of between 3 and 4% for the year.

We are also in the final stages of preparation to manage 3,600 of our rooms for LOCOG for an eight-week period up to and including the Olympic Games in the summer delivering a one-off uplift in net operating income of between £1.25 and 1.75 million.

Development

We continue to make good progress with our development pipeline with all 2012 openings (1,822 beds, £207 million completed value) on schedule and within planned budget. In view of our positive progress on debt refinancing we are also on track to complete the acquisition and commence the development of our planned Stratford and Camden schemes (1,514 beds for 2014 delivery) later this year and intend to pursue further accretive opportunities as our disposal programme progresses. For example, negotiations are reaching an advanced stage for two further sites in London, subject to planning.

UNITE Modular Solutions

The closure of our UMS business is proceeding in line with plan. Production ceased in April and the plant is now in the process of being decommissioned. Site-based operations are substantially complete and will conclude fully in August.

Valuations and asset disposal programme

Yields for student accommodation were broadly flat during the first quarter of 2012. The latest valuation of the UNITE UK Student Accommodation Fund ("USAF"), as at 31 March 2012, showed an increase in property values of 0.5% as a result of rental growth with no movement in yield. We consider this to be a reasonable indication of valuation movements across the Group's wider stabilised portfolio for the same period.

In light of our own disposal programme and wider market activity, we expect yields to remain stable in the second quarter. The increased liquidity in the student accommodation investment market seen in 2011 has continued into 2012 with £725 million of transactions having completed or exchanged so far this year at valuations supportive of the UNITE portfolio.

The Group has a stated objective to dispose of £100-£150 million of non-core assets from its balance sheet by 31 December 2012. Since 1 March 2012 the Group has accepted offers on a further £21 million of assets, taking the total value of assets under offer to be sold to £35 million. Taken together with £18 million of balance sheet assets already sold to date, other ongoing activity and the likely acquisition capacity of USAF later this year, we are confident that we remain on track to achieve our disposal target. A further £29 million of assets have been sold on behalf of co-investment vehicles with a further £20 million under offer. All transactions are supportive of book value.

Financing

A new £121 million, ten year facility was completed with Legal & General in May 2012. The debt was priced at a fixed rate of 5.05% reducing the Group's average see through cost of debt to 5.6% from 5.7% and resulting in recurring interest savings of £0.6 million per annum. A one-off charge of £4.7 million (3 pence per share) was incurred to cancel swaps associated with debt that has been repaid. The debt has been secured against ten properties in London, Manchester, Bristol, Glasgow, Loughborough and Exeter and extends the average debt maturity to 3.5 years and the debt maturity horizon to 2014. It also provides further important evidence of the new sources of senior debt becoming available to well capitalised operators in the sector.

Summary and outlook

UNITE has continued to build on the improvements in cashflow and recurring profits of 2011, delivering a strong reservations and operational performance in 2012 to date. Wider economic conditions remain volatile but the relative stability of the student accommodation sector means we continue to make good progress against our strategic objectives.

High occupancy, strong rental growth prospects (3-4% for the full year), firm cost control and our programme of 2012 openings underpin good growth prospects in terms of both profitability and net asset value for 2012. Alongside this, continued progress with debt financing and asset disposal activity means that we are able to manage the Group's balance sheet and pursue accretive London development activity on a selective basis.

Conference Call

There will be a conference call for analysts and investors at 07.45 am today. To participate in the call, please dial: