Coronavirus update – 22 April 2020
Unite Students, the UK’s leading owner, manager and developer of student accommodation, today provides an update on the potential impact of Coronavirus on the business and the measures it is taking to mitigate the resulting risks and enable a rapid recovery.
2019/20 academic year
In line with our previous announcement, we have contacted students to see if they wish to leave their accommodation for the summer semester of 2019/20. Based on cancellation requests received to date, we expect to forgo rent on around 43,000-46,000 beds representing around 62-65% of all owned and managed beds.
Our remaining beds are accounted for by students who have chosen to continue their stay with us and beds let under nomination or lease agreements, where Universities collect rent directly from students (21% of beds). Reflecting the strength of our University partnerships, we have received 94% of the rent due to date in April under these nomination and lease agreements. Remaining payments by Universities for the summer semester are staggered between April and September 2020.
Overall, we expect a reduction in income from the 2019/20 academic year of 16-20% on a Group share basis, an improvement on our previous expectations.
2020/21 academic year
Reservations across the Group for the 2020/21 academic year are currently at 80%, compared with 81% at the same time last year. Positively, we have seen healthy levels of demand from UK students, reflecting our decision to switch the focus of our sales and marketing efforts to the domestic market. We are still seeing enquiries from international students but, as expected, demand has slowed.
Nomination agreements account for 70% of reservations secured for 2020/21 with over two thirds now contracted, including multi-year agreements and single-year extensions which have already been signed. A number of Universities have already begun to allocate students to us for the new academic year, reflecting confidence around their accommodation requirements.
The majority of the non-contracted income is accounted for by High and Mid-ranked Universities where we have long-standing relationships. We will maintain a close dialogue with our University partners as their accommodation requirements for 2020/21 become clearer. In the event beds are not taken up by Universities, we are ready to shift our sales focus to a direct-let basis where we are already targeting students living in houses of multiple occupancy (HMOs).
2020 cashflow impact
We retain our previous guidance for a £90-125 million reduction in Group cashflow in 2020. At the upper end of this range we have modelled a 4 week delay to the start of the 2020/21 academic year, while awaiting greater clarity around admissions and timetable. This results in reductions of up to 30% to Group cashflow for the autumn semester of the 2020/21 academic year.
Cost and cash saving measures
Following a detailed review of our operating expenses and overheads, we expect to realise £12-15 million in P&L cost savings in 2020 (Unite share). This is additional to the £5-6 million of cost synergies expected to be realised from the Liberty Living acquisition in 2020. These additional cost savings reflect the flexibility of our operating platform and our ability to in-source work for summer turnaround and cleaning as well as savings to utility and broadband costs, and a halt to discretionary overhead spending and non-essential recruitment. Reflecting the decision to in-source activity, we have not utilised the Government’s furlough scheme.
As part of these savings, the Board has agreed to a 30% reduction to salaries and pension contributions for Executive Directors, 10-20% for senior management and a 30% reduction in fees payable to Non-Executive Directors. These reductions will be effective for a four-month period from 1 April.
Bonus payments for Executive Directors will also be suspended for 2020. The Company still plans to make awards under its Long Term Incentive Plan with a three year performance period through to 31 December 2022 (and further two year holding period for the Executive Directors), based on the performance conditions announced in the Company’s 2019 Annual Report and set prior to the impact of Coronavirus.
These savings, together with our decision to defer development and non-essential operational capex, will retain an additional £95-105 million of cash in the business in 2020.
HE sector outlook
The Government’s central planning scenario is for the 2020/21 academic year to start in September, broadly in line with the usual admissions cycle. This follows confirmation that students will receive their A-level results on 13 August as originally planned. However, there is still some uncertainty over start dates for the academic year, which could result in both a later start and finish to the autumn semester.
Universities UK recently proposed a package of support measures for Universities to counter the risk of a reduced intake of first-year students from non-EU countries. The proposal includes increased research funding and one-year student number controls to ensure the financial viability of all Universities. The Government is expected to publish its response in the coming weeks. We will continue to work closely with our University partners to adapt to any changes in admissions for the coming academic year.
There are 1.5 million full-time students in the UK seeking accommodation, of which 1.2 million are domestic students living away from home and international students studying multi-year courses. We expect Universities to offset a potential reduction in first-year international student intake by recruiting additional UK students from surplus applications, which totalled 101,000 in the 2019/20 academic year.
We also expect demand for purpose-built accommodation to be supported by market share gains from the 865,000 students currently living in HMOs. We have already shifted the focus of our marketing activity to target students living in HMOs, where we believe that our offer of purpose-built, affordable accommodation with a range of value-added features such as 24-hour security, all-inclusive bills and on-site support will be considered an attractive alternative. Even a small shift of students from HMOs to purpose-built student accommodation would help to substantially offset potential reductions in international student numbers.
Given the priority of conserving cash while income uncertainties remain, we have deferred the delivery of Middlesex Street in London and Old BRI in Bristol into 2022. A decision on resumption of capex on Middlesex Street and Old BRI will be made once we have greater visibility over the impact of Coronavirus on the 2020/21 academic year. We are reviewing the possibility of delivering 2022 completions ahead of the start of the 2022/23 academic year to generate income from short-term lets.
Delivery of 2020 completions will also be delayed by temporary site closures and amended working practices. However, work has now re-started across all sites with reduced numbers of operatives to maintain social distancing, in accordance with recent Government advice. A number of scenarios are being considered for completion of the projects, including phased delivery where possible. We are proactively engaging with our University partners to highlight these risks and will continue to monitor the situation over the coming weeks.
The deferred delivery of 2021 completions and savings to 2020 completions will lead to a cash saving of £67 million during 2020. For the remainder of 2020, there is £57 million of cash to spend on developments, including costs to halt developments at Middlesex Street and Old BRI.
Cash headroom and debt facilities
As of 17 April, the Company had £269 million of unrestricted cash reserves. All of the Group’s revolving credit facilities are now fully drawn.
Unite has been confirmed as an eligible issuer for the HM Treasury and Bank of England Covid Corporate Financing Facility (CCFF). We expect an initial £50 million to be made available under the facility, which we expect to access shortly.
USAF has completed a £50 million increase to an existing £100 million RCF with Wells Fargo Bank, N.A. to provide additional liquidity and funding capacity. The new £150 million facility has been extended by two and a half years and now matures in March 2024.
In addition, we are in discussions with our banks and potential new lenders around our future funding requirements. Our earliest Group debt maturity is April 2022.
Richard Smith, Unite Students Chief Executive Officer, commented:
“We are committed to doing the right thing for our customers, colleagues and other stakeholders, despite the unprecedented times we face. This underpinned our decision to forgo rent for students wishing to return home for the remainder of the current academic year and the reduction in Board remuneration announced today.
We now have greater income visibility for the summer semester and our operating platform provides us with the flexibility to rapidly implement new marketing strategies for 2020/21 and reduce costs. This provides increased confidence over the liquidity of our balance sheet through the 2020/21 academic year. We will emerge stronger from this challenging time, building on our enhanced reputation with students and Universities.”
For further information, please contact:
Richard Smith / Joe Lister / Michael Burt
Tel: +44 (0)117 302 7005
Justin Griffiths / Victoria Heslop
Tel: +44 (0)20 7250 1446