Last checked at 19 Nov 2009 07:00
19 November 2009
THE UNITE GROUP PLC
("UNITE", the "Group", or the "Company")
Interim Management Statement
The UNITE Group plc, the UK's leading developer and manager of student accommodation, today publishes its second interim management statement for 2009 covering its activities during the period from 1 July to 18 November 2009.
Highlights
Successful Firm Placing and Placing and Open Offer completed on 5 October raising £82 million (gross) to acquire new development sites in London, intended to be developed for delivery from 2012 onwards
£194 million five year joint venture created with Oasis Capital Bank (OCB) in August to develop the Group's entire 2010 development pipeline of 1,119 beds
Further signs of improving investor sentiment evidenced by the Group's recent disposal of Unite House, Bristol, for £21.5 million; 4% above the asset's 30 June 2009 valuation
Like for like rental growth of 9.7% and reservations of 96.5% achieved for the 2009/2010 academic year
2,800 new beds opened across 14 properties for student occupation in the 2009/2010 academic year on time and to budget
Entered into exclusive negotiations to acquire sites comprising up to 600 bed spaces in London, subject to planning, as part of the equity raise pipeline.
Commenting, Mark Allan, Chief Executive of UNITE, said:
"We have entered an exciting new phase in UNITE's evolution. The last few months have seen us establish an important joint venture with a new partner and successfully complete a significant Placing, raising gross proceeds of £82million that will enable us to capitalise on the compelling opportunities now arising to grow our London portfolio. Each milestone achieved underlines the recognition in the market of the strength of UNITE's track record, operating platform and brand in the student accommodation market.
"We are also encouraged by the increasing interest from institutional investors in gaining access to the sector either directly through our ongoing disposals programme or the creation of joint ventures or, indirectly, by participating in our recent Placing.
"Our focus is now firmly on the selective deployment of the Placing proceeds into development opportunities in London to further grow our portfolio and platform and we are in advanced discussions with a number of vendors regarding good quality student development opportunities."
Occupational demand
As anticipated the UK student population grew significantly again for the 2009/2010 academic year, with the new intake approximately 25,000 (5.6%) higher than the previous academic year. Initial application figures for 2010/2011, which were released by UCAS on 2 November 2009, show an 11.6% increase in overall demand compared to the same point in 2008, with a 16.6% increase from overseas students.
For UNITE's total operational portfolio of 38,500 bed spaces, reservations for the current academic year stand at 96.5% (2008/2009 academic year: 99%), with like for like rental growth of 9.7%. As previously indicated, this performance was driven by strong levels of demand and benefited from UNITE's professional sales and marketing approach and, in particular, its on-line booking platform which provides unique access to the market. The change in overall occupancy compared to the previous academic year is predominantly due to the impact of asset stabilisation in London, reflecting the opening of approximately 1,400 new beds; a 37% increase in the number of beds under management in the city within a single year. In line with our previous experiences in other cities where the portfolio has increased significantly in size within a single year, we would expect new assets to stabilise, in terms of occupancy and rent levels, within one to two years of opening. This stabilisation effect will have a modest downward impact on profits for the 2009/2010 academic year.
Investment market
In line with other real estate companies, we have noted a clear improvement in market and investor sentiment towards the real estate sector generally in recent months. With respect to student accommodation specifically, we are particularly encouraged by the level of interest shown by a wide range of prospective purchasers, including institutional investors, in our recent sale and leaseback of Unite House, a well located 395 bed property in Bristol. As announced on 11 November 2009, this property has been sold to M&G Secured Property Income Fund for a total cash consideration of £21.5 million, 4% above the most recent valuation (30 June 2009) of £20.7 million and representing a net initial yield of 6.07% (30 June 2009 valuation yield: 6.62%).
Taking into account the sale and leaseback of Unite House, the Group has now sold £154.3 million of assets in 2009 and expects this number to rise to approximately £165 million by the year end, ahead of the £150 million target set at the beginning of the year.
Further signs of improving sentiment were evident in the latest valuation of the UNITE UK Student Accommodation Fund ("USAF") which, at 30 September 2009, reported an increase in underlying gross property values since 30 June 2009 of 1.0% to £877.3 million. Rental growth of 2.3% was booked in the quarter, partially offset by yield expansion averaging 9 bps across the portfolio, taking the average yield for this portfolio to 7.1%.
Development Activity
2,800 beds in 14 buildings have been opened in 2009, on time and to budget, ready for the 2009/10 academic year. Over half of these beds are located in London with the remainder in the key university cities of Edinburgh, Leeds, Bath and Exeter.
The 2010 development schemes, all of which are in London and funded in the OCB Joint Venture, are progressing well against business plan and are on track to be delivered for occupation at the start of the 2010/2011 academic year.
Following completion of the Group's 2009 development programme, and with the 2010 programme fully financed within the OCB joint venture, the Group currently has no capital commitments. With an improving outlook, UNITE has made good progress since the successful conclusion of the Placing in identifying potential development sites in London for acquisition and is in active negotiations with a number of vendors regarding such opportunities, with a view to creating a pipeline for delivery in the capital for 2012 and beyond. In particular, the Group is now in exclusive negotiations to acquire development sites, subject to planning, that would deliver up to 600 bed spaces in London for delivery in 2012 and 2013.
OCB Joint Venture
On 12 August 2009, UNITE announced the formation of its fourth co-investment vehicle, a five year joint venture with OCB, to develop three student accommodation properties in London with an estimated value on completion of £194 million.
The three properties, which are now under development and will deliver 1,119 beds for the 2010/2011 academic year, were sold to the joint venture for a total consideration of £88.2 million, in line with 31 December 2008 book values. The completion of the joint venture had a significant immediate positive impact on UNITE's balance sheet:
Net debt was reduced by £75.2 million (being the £88.2 million cash proceeds received from the joint venture, less UNITE's £13 million re-investment for a 25 per cent. stake);
Committed net debt (taking into account costs to complete) was reduced by £144.2 million;
£21 million of cash was released to the Company, providing it with further flexibility in the management of its balance sheet and enabling it to take advantage of future opportunities, where appropriate.
UNITE Modular Systems ("UMS")
To counter the impact of the recession, and specifically the scaling back of UNITE's development programme, UMS has been actively pursuing a number of opportunities to establish an external market for its modular units, both within and beyond the student accommodation sector. It is therefore encouraging to report that UMS has secured its first third party contract, with Berkeley First Student, to supply and install 483 modules for a student accommodation development in Oxford. The contract has a total value of £5.8 million. In addition, UMS remains involved in discussions regarding a number of other opportunities.
Pending further contracts, the immediate UMS pipeline of projects now comprises the above Oxford project and the three UNITE projects being developed in the OCB joint venture, in which the Group has a 25% stake. All four of these projects will be accounted for as external contracts and recognised through the Group's income statement in 2009. As a result of its reduced pipeline, UMS is currently operating below capacity and, accordingly, expects to report a loss of approximately £1.5 million for the financial year.
Firm Placing and Placing and Open Offer / Financing
On 5 October 2009, UNITE successfully completed a Firm Placing and Placing and Open Offer, raising gross proceeds of £82 million. The proceeds of the fundraising will be used to fund the Group's acquisition of new development sites between now and early 2011 in London, which are intended to be developed for delivery from 2012 onwards. The opportunity in London to acquire well-located sites at attractive prices at this time is compelling, and these can then be developed to meet the ongoing shortage of modern purpose-built student accommodation in the Capital. We are pleased to report good progress as outlined above.
Summary
During 2009 we have significantly strengthened our financial position through a series of self-help measures such as the delivery of rental growth and on-going cost control efficiencies, the creation of the OCB joint venture, the broader disposal programme and through the renegotiation of certain banking facilities. These measures were fundamental to the success of the fundraising, allowing proceeds to be used solely for new opportunities.
As investment markets continue to show tentative signs of recovery, and with its balance sheet strengthened, UNITE is now increasingly focused on the acquisition and delivery of investment opportunities in the London market to deliver future value for our shareholders.
Conference Call
There will be a conference call for analysts and investors at 8.30 am today. To participate in the call, please dial:
UK dial in number: 0845 146 2004
International dial in number: +44 (0) 1452 569 393
Conference ID: UNITE Group Interim Management Statement conference call
A transcript of the conference call will be made available on the Group's website within 24
hours, www.unite-group.co.uk.
For further information, please contact:
| The UNITE Group plc Mark Allan Joe Lister Caroline Mallin | Tel: 0117 302 7004 |
| Financial Dynamics Stephanie Highett Dido Laurimore Rachel Drysdale Laurence Jones | Tel: 020 7831 3113 |
About The UNITE Group
The UNITE Group is the UK's leading developer and manager of student accommodation, with a business model that focuses on three core areas;
Development: UNITE undertakes the acquisition, planning and development of purpose-built student accommodation in the UK.
Professional property management: UNITE will be home to some 38,500 students during the 2009/10 academic year and has consistently proven high occupancy levels across its portfolio.
Co-investing asset management: Working on behalf of its partners, UNITE acts as Fund Manager for the UNITE UK Student Accommodation Fund in addition to being 18.6% shareholders. UNITE also manages a number of Joint Venture partnerships.
UNITE works closely with the universities and colleges, in order to deliver high quality, well-located student accommodation at affordable prices in strong higher education markets.
Founded in 1991, UNITE Group is listed on the London Stock Exchange (UTG).
www.unite-group.co.uk
www.unite-students.com
Forward-looking statements
This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond UNITE's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. UNITE does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance.