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(Alliance News) - Student accommodation company Unite Group PLC on Wednesday said it expects to forego rent on as much as 65% of all owned and managed beds and is expecting an up to 20% drop in income for the 2020 academic year.
Shares in Unite were up 4.9% at 808.50 pence in London in morning trading.
In total, Unite is forecasting 16% to 20% cut in income for the 2020 academic year. This represents an improvement over the firm's previous expectations.
Amid the Covid-19 pandemic, Unite contacted students to find out if they wished to leave their accommodation for the summer semester of the 2020 academic year ending July. On the basis of cancellation requests to date, Unite is expecting to forego rent on between 43,000 and 46,000 bets, which represents between 62% and 65% of all its owned and managed beds.
The remaining beds will be rented to students who have opted to continue to stay as well as those let under nomination or lease agreements. Under these agreements, accounting for 21% of beds, universities collect rent directly from students.
So far, Unite has received 94% of April rent due under these nomination and lease agreements with universities. The remaining payments for the summer semester are staggered, Unite said, between April and September.
For the 2021 academic year, which starts in September, reservations are currently at 80%, versus 81% at the same time last year.
At present, Unite has maintained its prior guidance for a drop in 2020 cashflow of between GBP90 million and GBP125 million, with the upper end of this including a four-week delay to the beginning of the 2021 academic year.
Unite expects to see a GBP12 million to GP15 million cost saving in 2020 after an operating expense and overhead review, as well as between GBP5 million and GBP6 million of cost synergies from its Liberty Living acquisition.
"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," Unite said.
The Unite board has agreed to take a 30% pay and pension contribution cut, while senior management has taken a cut of between 10% and 20%. Non-executive director fees have been reduced by 30%, with all reduction effective for four months starting April 1. Executive director bonuses have been suspended for 2020, though long-term incentive plan bonuses will be awarded.
In total, these savings - along with the deferral of non-essential and development capital expenditure, will keep another GBP95 million to GBP105 million of cash in Unite for 2020.
As at Friday last week, Unite had unrestricted cash reserves totalling GBP269 million, and its revolving credit facilities are fully drawn. It is expecting an initial GP50 million under the UK Treasury and Bank of England Covid Corporate Financing Facility.
The Unite UK Student Accommodation Fund meanwhile has completed a GBP50 million increase to its current GBP100 million facility with Wells Fargo Bank NA, with the new GBP150 million facility extended by more than two years to March 2024.
Chief Executive Richard Smith said: "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."
By Anna Farley; annafarley@alliancenews.com
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