Continued strong performance across the business – 04 November 2014
The Unite Group plc, the UK’s leading developer and manager of student accommodation, today publishes its second interim management statement for 2014 covering the period to 3 November 2014.
- Very strong lettings performance with 99% of rooms occupied for the 2014/15 academic year (2013/14: 98%)
- On target to deliver like-for-like rental growth of at least 3% for the full year
- Expecting to achieve our 4.5% EPS yield on NAV target for 2014, a year ahead of our original plan
- Development pipeline progressing well with planning consent secured at Greetham Street, Portsmouth (836 beds for 2016 delivery) and further sites secured in Aberdeen and Liverpool (combined 1,250 beds targeted for 2017 delivery)
- Student number outlook remains positive with prospect of student number cap being removed for the 2015/16 academic year.
Commenting, Mark Allan, Chief Executive of the Unite Group, said:
“Unite Students continues to perform strongly in all areas. Demand for our accommodation remains very high, reflecting the appeal of our buildings and quality of service provided, resulting in 99% occupancy and strong like-for-like rental growth across the portfolio.
“We also continue to make good progress growing our development pipeline, providing excellent visibility of the material future earnings growth potential of the business.”
Operations – sales, rental growth and profitability
Occupancy across the portfolio stands at 99% for the 2014/15 academic year, representing a record number of lettings for the business, and we continue to expect like-for-like rental growth across our portfolio for the full year to be at least 3%. Given this lettings performance, and with operating costs firmly under control, we remain on track to deliver a 4.5% EPRA EPS yield on opening NAV for 2014, having accelerated the target from 2015 earlier this year.
The student intake by UK universities for 2014/15 is likely to have exceeded 500,000 for the first time, representing an increase of approximately 4% compared to 2013/14 and reflecting the Government’s decision to increase the number of funded places by 30,000 year on year. The Government’s intention to remove the cap entirely, on the number of funded places with effect from the next academic year, is likely to lead to further meaningful increases in student numbers over the short to medium term.
Following the successful check-in of approximately 43,000 students, customer satisfaction remains strong and we have received a positive response to the launch of our ‘Home for Success’ initiatives, particularly the enhanced wi-fi speeds, free kitchen cleans and extended operating hours, all of which have been fully mobilised for the start of the academic year. The roll out of our new visual identity, re-modelled common spaces and LED lighting installation are all proceeding in line with plans and will be completed by early 2016.
We expect this positive response to Home for Success to be reflected in stronger rebooking rates when our 2015/16 lettings cycle commences shortly.
Our two 2014 London completions (Stratford One and St Pancras Way, Camden) both completed on time and to budget and both projects are fully occupied for the 2014/15 academic year. Construction work at Angel Lane, Stratford (759 beds for 2015 completion) is progressing well and works will commence shortly at Stapleton House, Islington (862 beds) and Olympic Way, Wembley (696 beds), both of which are scheduled for 2016 completion. We remain confident of achieving an average 9.0% yield on cost across all three projects.
Saw Mill, Huddersfield, our only regional completion for 2014, was completed on time and to budget and is fully occupied for the 2014/15 year. Construction work at Trenchard Street, Bristol (483 beds) is progressing in line with plan for a summer 2015 completion.
Our programme of targeted regional completions for 2016 is fully secured and we recently obtained our first planning consent, for a 836 bed project at Greetham Street, Portsmouth. We expect to secure planning consents for the remaining 2016 programme (a combined 1,500 beds in Aberdeen, Edinburgh and Newcastle) over the next few months and remain confident of achieving an average 9.5% yield on cost across these projects.
We are also making good progress with our 2017 development programme and recently acquired sites in Liverpool and Aberdeen, which are expected to comprise a combined 1,250 beds on delivery. These projects have been secured in line with our target returns and we expect to secure the remainder of our targeted 2017 projects over the next few months.
With regards to financing, all equity is in place for our development programme as is the senior debt for all LSAV projects and Trenchard Street, Bristol. We are currently in discussions with a small number of banks to provide a new debt facility for our 2016 and 2017 projects and expect this facility to be in place in early 2015.
Taking into account the recently acquired projects, our secured development pipeline is now expected to add 15 pence to EPRA earnings per share and 45 pence to NAV per share as it is delivered.
Transaction volumes and investor interest in the student accommodation sector have remained elevated throughout the year with investment from a wide range of buyers in the market. The 30 September valuation of USAF reported four basis points of yield compression for the third quarter taking its average net initial yield to 6.53%.
There is currently approximately £3 billion of student accommodation property being marketed for sale, around 80% of which is represented by four large portfolios in which investor interest appears healthy. The evidence provided by these portfolios as they trade will be important but, based on a number of smaller recent transactions, we believe there is the potential for further yield compression in the short to medium term, particularly given the positive occupancy and rental growth outlook for the sector.
The legal merger of our two joint ventures with GIC (UCC and LSAV) is on track to complete before the end of the year, following the equalisation of our stakes at 50% earlier this year. The forward sale of Stratford One to LSAV is also on track and is likely to complete in the first quarter of 2015 in line with the forward sale contract for cash consideration of £82.0 million.
Saw Mill, Huddersfield was sold to USAF during September for £20.1 million, generating a profit on cost of 42%. Unite received consideration of £10 million cash and the remainder in USAF units, increasing our stake to 21.5%. Following this acquisition USAF has now fully deployed the equity that it raised earlier this year.
Summary and outlook
We remain focused on our three strategic priorities; to consolidate our position as the most trusted brand in the sector, to own and operate the highest quality property portfolio in our sector and to maintain the strongest capital structure in our sector. We continue to make excellent progress on all fronts and successful delivery against these objectives drives our primary financial goal of growing recurring earnings and cashflow sustainably for the long term.
The occupancy and rental growth outlook for student accommodation remains strong, supported by further increases in student numbers in 2014/15 and expansive government policy. At the same time conditions for development are supportive, particularly in the regions. Our clear plans to invest in our brand and operating platform, to grow the portfolio through selective, accretive development and to maintain a strong, flexible capital structure mean that Unite remains well positioned for continued strong performance and growth.