LONDON (ShareCast) - (Sharecast News) - Student accommodation developer and manager Unite Group updated the market on its operations on Thursday, reporting that all of its buildings were open with the majority of students now arrived for the new academic year.
The FTSE 250 company said it had achieved a "strong" performance for the year, with 88% of bed spaces let across the portfolio, down from 98% at the same time last year.

It said it had seen "healthy" letting activity since A-level results on 13 August, with new lettings partially offset by a higher-than-usual volume of cancellations, particularly following the recent increase in UK cases of Covid-19.

That resulted in completed lettings falling short of the company's 90% occupancy target, although Unite said it was targeting additional sales from January starts from direct-let customers as well as universities, where a number of discussions were underway.

Nomination agreements accounted for 57% of bookings, up from 56%, with the remaining 43% sold on a direct-let basis.

UK students accounted for a 45% share of direct-let bookings, up from 38%, which the board said reflected its increased focus on capturing market share from 'houses of multiple occupancy' (HMOs) and the strength of domestic demand.

Around 10% of students had taken up Unite's offer of delayed start dates, contributing to a shortening in average tenancy lengths to 43 weeks from 44 weeks a year earlier.

"We have high visibility over income for 79% of our bookings, reflecting those students who have now checked-in to their accommodation and nomination agreements where Unite receives rent directly from universities," the board said in its statement.

"A further 21% of bookings are still to check-in, either this month or in January, which compares to 4% at the same stage last year.

"Many of these later starts reflect our flexible approach to tenancies this year, given later university course start dates."

Weekly prices had increased by 1.1% year-on-year on a like-for-like basis, reflecting contractual growth of 2.8% for multi-year nomination agreements, partially offset by weaker growth in single-year nomination agreements and direct-let beds where discounting had been required in certain markets later in the sales cycle to drive occupancy.

Overall, Unite said that activity translated to a reduction of between 10% and 20% in rental income for the 2021 academic year, compared to 2020, in line with its expectations.

The company said it had achieved the £12m to £15 million of targeted cost savings for 2020, primarily through the insourcing of work over the summer and savings made to utility and broadband costs.

Those savings were inclusive of the costs of delivering the firm's new 'Covid-secure' operating model for the new academic year, including increased staffing levels since check-in, enhanced cleaning, physical and social distancing measures and the greater use of technology in our buildings to help manage interactions with students.

Unite retained its guidance for EPRA earnings per share of between 22p and 25p for the 2020 financial year, subject to universities remaining open as well as its anticipated check-in performance and rent collection over the remainder of the year.

The company said it was continuing to monitor its banking covenants, adding that given the disruption to income caused by Covid-19, its principal focus was on its ICR covenants, which varied between 1.5x and 2.0x depending on the facility.

It said there was headroom for occupancy to fall to around 55% for the 2021 academic year before a breach of its tightest ICR covenant.

Based on its letting performance and progress to date around check-ins, Unite said it expected to maintain compliance with all ICR covenants.

Looking at its dividend, the board said that given the current uncertainty, it was too early to commit to the reinstatement of dividends, although it would keep that decision under review during the first term of the academic year.

At 30 September, the UK Student Accommodation Fund (USAF) property portfolio was independently valued at £2.81bn, representing a like-for-like increase of 0.7% during the quarter.

That portfolio comprises 30,209 beds in 79 properties across 22 university towns and cities in the UK.

The London Student Accommodation Joint Venture (LSAV), meanwhile, had its portfolio independently valued at £1.33bn, also up 0.7% in the quarter on a like-for-like basis.

LSAV's investment portfolio comprises 8,354 beds across 12 properties in London, and Aston Student Village in Birmingham.

Unite said the valuation increase was primarily driven by the temporary reduction in stamp duty for residential properties, which is due to come to an end on 31 March 2021, adding that removing that impact, valuations were flat over the quarter for both USAF and LSAV, reflecting a sales performance for the 2021 academic year in line with valuer assumptions in the second quarter.

Overall, the USAF portfolio is valued at an average yield of 5.3% while the LSAV portfolio is valued at an average yield of 4.4%, both of which were stable over the quarter.

Following recent valuation guidance from the RICS on student accommodation, Unite said the material uncertainty clause had now been removed from the valuations.

"Despite the challenging backdrop, we have delivered a robust performance which is a real credit to the hard work of all our people across the UK," said chief executive officer Richard Smith.

"We remain confident in the outlook for the higher education sector in the UK and I am pleased with our early success in attracting more of the 855,000 students currently living in houses of multiple occupancy.

"Overall, we are well-positioned for future growth through our market-leading platform, our valuable development pipeline, our long-term and trusted University partnerships and our strategic alignment to those universities where demand is strongest."

At 0900 BST, shares in Unite Group were down 0.4% at 877p.

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