Last checked at 15 May 2009 07:00
Release date 15 May 2009
On behalf of: The UNITE Group plc ("UNITE" / "Group")
Embargoed until: 0700hrs
THE UNITE GROUP PLC
Interim Management Statement and Annual General Meeting
The UNITE Group plc publishes its first interim management statement for 2009 covering its activities during the period to 14 May 2009.
In addition, the Group's Annual General Meeting will take place at 9.30 am today at its offices in Bristol.
Commenting, Geoffrey Maddrell, Chairman of UNITE, said:
"As I am retiring from the Board at today's AGM, I would like to take this opportunity to express a warm welcome on behalf of the Group to my successor, Phil White.
"I have served as UNITE's chairman since its flotation and, during this time, we have grown UNITE into a market leading business and firmly established student accommodation as an institutional-grade property asset class in the UK. It is immensely satisfying that, despite these challenging economic and market conditions, I am leaving the business in resilient shape, performing strongly against its key operating criteria and well positioned for continued growth.
"I wish the whole Company, under the able leadership of Phil, the Board and Mark Allan and his experienced and enthusiastic executive team, abundant success in the future."
Highlights
Continued strong lettings performance for the 2009/2010 academic year with reservations on a like for like basis up 1% to 74%;
Rental growth in the range of 7-10% expected across the Group's assets on a like for like basis in 2009/2010;
Fully funded development programme on track to deliver 2,772 beds (of which 69% by value are located in London) during 2009, taking the total portfolio to approximately 39,000 bed spaces;
Solid progress on asset sale programme despite challenging market conditions. £38 million completed and exchanged so far in 2009 and a further £14 million in solicitors' hands;
UNITE continues to operate comfortably within all its debt covenants;
New five year £100 million facility with Nationwide completed. The Group now has no material facilities requiring refinancing before May 2011; and
Operational efficiency programme set to deliver £12 million annual cost saving target during 2009 and Group on track to record a profit at the net portfolio contribution level for the year.
Market Update
We continue to see growth in the number of students applying to Universities. Further to the 10.4% increase in new entrants in 2008/2009, the number of applications for 2009/2010 is up 8.8%, equating to an additional 42,367 applicants (source: UCAS, 23 April 2009). Constraints in Government funding are likely to restrict the UK undergraduate intake to a level broadly in line with last year but, with applications up strongly and a continued drive for overseas students, we expect all University places to be filled and demand for purpose built accommodation to remain strong. Conversely, the rate of supply of new purpose-built beds is slowing sharply and we estimate the level of net new supply being delivered for 2009 and 2010 will be only approximately 6,000 beds and 4,000 beds respectively, compared to the 9,200 beds delivered in 2008 alone.
The impact of the recession and the ongoing contraction in credit markets is continuing to impact the outlook for asset values in the broader commercial real estate market. Against this background, the student accommodation sector continues to benefit from ongoing and resilient demand, which underpins strong rental growth performance and therefore continues to differentiate the sector from the broader property market. As a result, whilst the student accommodation sector has not been immune to outward yield movements, asset values have fallen at a rate of approximately one third of the level shown by broader market indices over the past two quarters.
The downward pressure on values was reflected in the 31 March portfolio valuation of The UNITE UK Student Accommodation Fund ("USAF"/"Fund"), which is invested primarily in provincial direct let student accommodation. On 7 April 2009, the Fund reported a reduction in the value of its portfolio of 3.2% in the first quarter compared with the IPD All Property Index which fell by 8.7% over the same period. The Fund's valuation reflected 1.3% of rental growth offset by a 29 bps outward movement in the average NOI yield, to 6.7%.
Operating and Investment Portfolio
The Group is continuing to see benefits from its focus on and investment in its enhanced operational capability. As at 14 May 2009, reservations performance across the Group's 39,000 bed spaces remains strong. Total portfolio reservations stood at 74% compared to 77% last year, with the drop being entirely attributable to assets subject to nominations agreements that have been sold within the past year. Adjusting for these disposals, the comparable reservations figure for 2008 is 73%.
All lead indicators of demand remain positive and as we now move into a key sales phase, particularly in London as overseas students confirm University places and reserve their accommodation, the rental performance outlook remains in line with the range indicated in our Preliminary Announcement in March 2009, at 7% to 10% growth for the 2009/2010 academic year.
Development Activity
The Group's development programme will deliver 2,772 bed spaces, across 13 properties during 2009, of which 69% by value are located in London. 471 of these beds have now been completed, with the remainder on track to complete during the summer. Work has also now started on site on the three schemes that will be delivered in 2010, totalling 1,125 new bed spaces, all of which are fully funded and located in London.
UNITE remains focused on preserving and generating cash and borrowing headroom and is not committing to acquire further development sites in the near term. As stated in the Preliminary Announcement, UNITE is exploring co-investment options to fund growth in its future development pipeline to take advantage of attractive opportunities in due course.
Asset and Land Sales
Earlier this year, the Group outlined its intention to continue with its asset sale programme, targeting sales of approximately £150 million during 2009. Whilst property investment markets remain challenging and transactions are taking longer to conclude, we have been encouraged by the level of interest shown and progress made by a range of investors who continue to provide broad support for sector investment. As at 14 May, £38 million of asset sales had completed or exchanged and a further £14 million was in solicitors' hands. Included within the completed and exchanged numbers is £15 million in respect of development sites. The consideration attributable to all asset sales is not materially below their December 2008 valuations.
Financing
UNITE remains in full compliance with all of its banking covenants. The Group's new five year £100 million facility with Nationwide, announced with our full year results, has now been completed and this, together with ongoing dialogue with other lenders, demonstrates the clear support that the Group has from these parties. Taking this into account, the Group now has no material facilities requiring refinancing before May 2011.
Operating and Cost Efficiencies
The Group continues to focus on the execution of its plans to introduce a series of efficiency measures to its operating business aimed at improving customer service and reducing overheads. This activity led to the creation of a five year joint venture in March 2009 with Connaught Plc. The joint venture will provide all planned, reactive and lifecycle maintenance services across UNITE's operational portfolio for the period of the joint venture. UNITE is also now in consultation with certain employees to introduce a new city-based staffing model for its operational business. Together with other initiatives, these activities will deliver £12 million of annualised savings to the Group during 2009.
Summary
In the year to date, the Company has made good progress in meeting its operational and financial objectives. Demand for high quality student accommodation remains strong, as evidenced by excellent reservation levels for the 2009/2010 academic year and the 7 to 10% rental growth anticipated across the portfolio.
The Group is, of course, ever mindful of the prevailing economic and market conditions and continues to manage the business and its finances prudently to preserve and - where possible - enhance value. At the same time, with the benefit of its market-leading position and skilled and experienced management, it constantly evaluates opportunities presented by the current market conditions to create future value for 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: 0800 694 0257
International dial in number: +44 (0) 1452 555 566
Conference ID: 97790730
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 | Tel: 0117 302 7004 |
| Financial Dynamics Stephanie Highett Dido Laurimore Laurence Jones | Tel: 020 7831 3113 |
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.