Owner, manager and developer of student accommodation – Unite Students – releases its latest 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 December 2023.
Unite’s current trading
Higher than expected rental income in term one of the 2023/24 academic year has offset the impact of higher operating costs in the second half of the financial year. As a result, Unite maintains its previous guidance for adjusted EPS at the upper end of its 43-44p range.
Demand for Unite’s accommodation has again been strong, reflecting the continuing shortage of high-quality student accommodation. Across the provider’s portfolio, 71% of rooms are now reserved for the 2024/25 academic year, in-line with the record levels seen last year (2023/24: 70%). The provider has been encouraged by particularly strong demand from university partners with 4,000 extra beds reserved compared to the same stage of the 2023/24 sales cycle.
The ongoing strength of student demand increases Unite’s confidence in delivering at least 5% rental growth in the 2024/25 academic year sales cycle. Cost-of-living pressures for students and parents have been considered, while also delivering sustainable rental growth to mitigate margin pressure from rising staff and utility costs and to support significant ongoing investment into their properties.
Unite are now on site with four development schemes in London, Bristol, Edinburgh and Nottingham, totalling 2,000 beds, for delivery between 2024 and 2026. In addition, the Meridian Square development in London is expected to go to planning committee in late January and remains on track for delivery for the 2027/28 academic year. Further development opportunities in London and strong regional markets at attractive returns are being tracked, and Unite expect to add to their pipeline in H1 2024.
To improve its portfolio quality, Unite continue to recycle capital and provide funding for reinvestment in new growth opportunities. Disposal activity is progressing well and it is expected to dispose of £150-200m of regional assets in H1 2024 (Unite share: £75-100m).
In terms of building safety, Unite completed cladding remediation works on 16 buildings across the portfolio in 2023. As previously guided, the provider continues to prioritise projects based on its external risk assessments, and will make provisions for remediation costs on a further ten buildings at 31 December 2023, the cost of which will be incurred over the next 12 to 18 months.
The provider also recently reached an agreement with a contractor to recover 75% of its remediation costs relating to five buildings, a portion of which will be recognised in Unite’s year-end balance sheet. The company expects to recover 50% to 75% of total cladding remediation costs through claims from contractors, although the settlement and recognition of these claims is likely to lag costs incurred to remediate buildings. This will result in a greater level of net spend in the earlier years of the programme.
Net of amounts recognised under claims, the Group expects to incur an additional c.£69m provision (Unite share: c.£26m) in H2 2023.
“We have seen a strong start to the 2024/25 sales cycle, reflecting the continued appeal of our fixed-priced, all-inclusive offer. The letting performance highlights the ongoing strength of demand from students and universities and underpins a positive outlook for rental growth for the 2024/25 academic year.
“We will continue to play a leading role in increasing the supply of much needed student accommodation at a time when HMO landlords are leaving the market at pace and the new supply of purpose-built student accommodation slows. We are committed to working closely with our university partners to ensure students have access to high quality, affordable accommodation.”Joe Lister, Chief Executive Officer, Unite Students
Quarterly fund valuations
At 31 December 2023, the USAF’s property portfolio was independently valued at £2,992m, a 2.1% increase on a like-for-like basis during the quarter. The valuation increase in USAF is driven by quarterly rental growth of 2.8% and a three-basis point increase in property yields to 5.3%.
Over the past 12 months, valuation growth of 3.6% was driven by rental growth more than offsetting 21 basis points of yield expansion. The portfolio comprises 27,922 beds in 71 properties across 19 university towns and cities in the UK.
LSAV’s property portfolio was independently valued at £1,922m, a 0.7% decline on a like-for-like basis during the quarter. The valuation decrease in LSAV is driven by quarterly rental growth of 2.5% and a 15-basis point increase in property yields to 4.5%.
Over the past 12 months, the valuation is unchanged with rental growth offsetting 39 basis points of yield expansion. LSAV’s investment portfolio comprises 9,716 beds across 14 properties in London and Aston Student Village in Birmingham.
The weaker valuation performance for LSAV in Q4 2023 reflects its higher London weighting when compared to USAF (85% and 14% by value respectively), where greater increases in property yields have had a more significant negative impact on valuations. Unite expects the valuation of its wholly owned portfolio at 31 December 2023, which is 33% weighted to London by value, to be broadly stable over H2.