Company summary

Unite Group plc, is an LSE listed company and is one of the UK's largest developer and manager of student accommodation.

15 November 2012 | Education

Company news

​UNITE Updates the Market and Forecasts a Rise in Student Numbers

​UNITE Group plc, the UK's leading developer and manager of student accommodation has provided a detailed update to the market which includes an assessment on student numbers following the changes to the University quota systems, student financing and other policies.

The Company highlighted the following: 

  • a robust lettings performance for the 2012/13 academic year with average occupancy of 96% and profit objectives on track
  • rental growth is expected to be approximately 3%
  • completion of 2012 programme at an average profit on cost of 44%, the commencement of the 2014 programme and the acquisition of two sites (in London and Bristol) for target completion in 2015, subject to planning
  • asset disposals of £94m (completed or exchanged) 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 is expected to average 96% for the 2012/13 academic year with variations at a city level which the Company says is more marked than in previous years as a result of the impact of various Government policy changes. It expects its 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 of its new openings are fully let and demand has generally been strongest for budget properties and premium product in central locations. Demand for its 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.

The Company says it has benefitted from its national diversification, new properties opening, a strong operating platform and high levels of customer satisfaction and believes its occupancy levels and rental growth reflect an outperformance of the market as a whole. It is confident of “delivering a substantial increase in recurring profits and cash flow for the full year”.

Student numbers update

UNITE says University admissions for 2012/13 have fallen by approximately 55,000 year on year, largely as a result of various Government policy changes, representing a 12% drop in admissions. However, it believes the growth in student numbers in recent years means overall student numbers to be broadly static year on year. For 2013/14 it expects approximately 50% to 60% of the fall to be recovered as temporary factors and timing differences reverse.

The Company cites the following factors as contributing to the drop:

1.    A permanent reduction of 15,000 in the number of Government-funded places;

2.    An increase in the number of deferred acceptances from a very low base in 2011 of 18,000;

3.    A number of policy decisions which resulted in a mismatch between the demand for and supply of particular University places for the year causing a drop of 22,000 places.

The Company believes the decline attributable to the latter two factors will reverse in 2013 as deferral rates stabilise and Universities adapt their admissions processes to reflect the new policy environment more effectively. UNITE believes this will lead to student numbers increasing by between 25,000 and 30,000 for 2013/14.

Development activity

The Group's programme of 2012 completions has achieved an average net operating income 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). The Company believes prospective returns look compelling and both projects are expected to cater for pockets of strong demand in the London market. The Company has no completions scheduled for 2013.

A planning application for the Bristol development set for completion in 2015 has been submitted. The scheme will involve a 440 bed development in the centre of Bristol on a site the Company already owns. In addition, the Company’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.

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. It does not expect to make any further disposals into the open market for the remainder of 2012. 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 Company says it 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.

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 the Company considers 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”.

Comment:

UNITE has continued to perform well throughout 2012, despite the disruption to University admissions caused by various Government policy changes, and appears to be on track to deliver against its strategic objectives for 2012.

UNITE expects to see student numbers grow for 2013/14 and with relatively little new supply scheduled it believes the demand/supply fundamentals remain solid.

We believe the Company’s forecasts are on the optimistic side. We forecast continuing downward pressure on student numbers and believe the pain will be largely felt by the less prestigious institutions. UNITE’s diversified and well located student accommodation and its portfolio rationalisations should leave it better placed than many to cope with any further falls or stagnation in the number of students entering higher education.

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