THE UNITE GROUP PLC
('Unite Students', 'Unite', the 'Group', or the 'Company')
TRADING UPDATE AND Q1 FUND VALUATIONS
Unite Students, the UK's leading owner, manager and developer of student accommodation, today announces an update on current trading and quarterly property valuations for the Unite UK Student Accommodation Fund ('USAF') and the London Student Accommodation Joint Venture ('LSAV') as at 31 March 2022 .
Current trading
2022/23 reservations
We have seen strong progress in sales since our preliminary results, materially closing the gap to our record pre-pandemic reservations level. Across the Group's entire property portfolio, 77% of rooms are now sold for the 2022/23 academic year (2021/22:69%, 2020/21:79%). We expect strong student demand for 2022/23 from both domestic and international students with UCAS applications up 7% compared to pre-pandemic levels and reduced disruption from travel restrictions and grade inflation.
This is supportive of our guidance of 97% occupancy for the 2022/23 academic year and further increases our confidence in achieving rental growth of 3.0-3.5%.
Development pipeline update
We recently received planning approval for our 595-bed Temple Quarter development in Bristol. We intend to acquire the site in time for delivery in the 2024/25 academic year. The completed development will be fully let on a 15-year nominations agreement to the University of Bristol, further strengthening our relationship with the university.
In early March, our planning application for our development in Paddington, London was rejected by Westminster City Council. We are currently reviewing our options for the best route to securing planning consent for the site, however this delay now means that we will no longer deliver the scheme for the 2024/25 academic year.
We continue to see inflationary pressure on build costs for our development pipeline, which typically account for 50-70% of our total development costs. This reflects ongoing supply chain disruption created by the pandemic as well as rising energy and materials prices, which have been exacerbated by the war in Ukraine.
Our 2022 and 2023 schemes are secured under fixed price build contracts and remain in line with budget and on track for their scheduled delivery dates. However, we are seeing cost increases for schemes yet to be procured for delivery in 2024 and 2025. As a result, we now expect the yield on cost for our 2024 and 2025 schemes to be reduced by up to 20 bps, compared to our initial assumptions (previously 10-20bps). These schemes remain attractive and we will seek to mitigate the impact of increasing build costs through design efficiency and increased rental levels where possible.
Quarterly fund valuations
At 31 March 2022, USAF's property portfolio was independently valued at £2,865 million, a 1.7% increase on a like-for-like basis during the quarter. The valuation increase in USAF is driven by rental growth of 0.7% and a 6 basis point reduction in property yields. The portfolio comprises 28,929 beds in 71 properties across 19 university towns and cities in the UK.
LSAV's investment portfolio was independently valued at £1,868 million, a 2.7% increase on a like-for-like basis during the quarter. The valuation increase in LSAV is driven by rental growth of 1.1% and a 7 basis point reduction in property yields. LSAV's investment portfolio comprises 9,716 beds across 14 properties in London and Aston Student Village in Birmingham.
The USAF and LSAV portfolios are now valued at weighted average yields of 5.1% and 4.0% respectively.
Joe Lister, Unite Students Chief Financial Officer, commented :
“We continue to make good progress with bookings for the 2022/23 academic year with 77% of rooms already sold, demonstrating the strength of student demand and our success in increasing the retention of existing customers. This supports our guidance for a return to 97% occupancy and increases our confidence in delivering 3.0-3.5% rental growth for the 2022/23 academic year. In the current environment, headwinds from build cost inflation are impacting our medium-term development pipeline, but we will seek to mitigate these effects where possible.”