Unite Regulatory News (UTG)

THE UNITE GROUP PLC

("Unite Students", "Unite", the "Group", or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

RECORD RESERVATIONS, INCREASING UNIVERSITY DEMAND AND SIGNIFICANT GROWTH OPPORTUNITIES

Richard Smith, Chief Executive of Unite Students, commented:

"We have had a strong first half, with growth in earnings driven by a return to full occupancy.

"The need for new student homes is the greatest we have seen for several years. The private rental sector is in retreat and a supply crunch is building amid growing student numbers. We are focused on delivering our substantial development and asset management pipeline across the UK, as well as working with university partners to help unlock the potential of their campuses. In doing this, Unite will continue to play a major role in creating new supply of high-quality, affordable accommodation where the need is greatest.

"We continue to invest in our portfolio and customer offer and our rental increases have tracked the rise in our costs. Our all-inclusive, fixed-price offer, which allows students to benefit from our buying power on utilities, compares very favourably to HMOs and, in many cases, we remain cheaper.

"We expect market conditions and our alignment to the UK's strongest universities to support a positive outlook for our business for a number of years. This creates a range of compelling investment opportunities, which we will balance with ongoing capital discipline. We remain confident in our continued growth."

HIGHLIGHTS

Return to full occupancy, record demand for 2023/24

· Adjusted EPS up 15% to 27.5p (H1 2022: 24.0p)1

· Record reservations of 98% for 2023/24 and rental growth of around 7% (2022/23: 92% and 3.5%)

· Growing demand from university partners, accounting for 54% of beds for 2023/24 (2022/23: 52%)

Housing supply unable to keep pace with student demand

· Significant unmet need for high-quality, affordable student homes

· HMO landlords leaving the sector at a time of limited new PBSA supply

Market conditions support sustainable growth in rent and earnings

· FY2023 EPS guidance increased to upper end of 43-44p range

· Targeting rental growth of at least 5% for the 2024/25 academic year

Property valuations supported by growing income

· 0.8% increase in property values in the first half for like-for-like portfolio5

· 3.4% rental value growth more than offsetting 13 basis points of yield expansion

Continued investment in our portfolio and customer offer

· Launched 24/7/365 physical presence and Support to Stay wellbeing programme in past year

· £150-200m annual investment in building improvements, fire safety and sustainability

Significant opportunities to grow our platform

· Committed pipeline of £623 million and 3,659 beds, generating a forecast 6.7% yield on cost

· Future pipeline of £227 million at 6.7% yield on cost

· Enhancing portfolio quality through £140 million refurbishment pipeline at over 8% yield on cost

· Clear opportunity for strategic university partnerships for on-campus acquisition and new development

High-quality balance sheet and disciplined capital allocation

· LTV of 31% at 30 June 20233 (31 December 2022: 31%)

· Trailing 12-month net debt to EBITDA reduced to 6.8x (June 2022: 7.6x)

· Interest rates 100% fixed or capped, with 3.3% cost of debt (31 December 2021: 85% and 3.4%)

1 Adjusted earnings and adjusted EPS remove the impact of abortive acquisition costs in 2022 from EPRA earnings and EPRA EPS. See glossary for definitions and note 7 for calculations and reconciliations

2 The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The Group uses alternative performance measures (APMs), which are not defined or specified under IFRS. These APMs, which are not considered a substitute for IFRS measures, provide additional helpful information and include measures based on the European Public Real Estate Association (EPRA) best practice recommendations The metrics are also used internally to measure and manage the business. The adjustments to the IFRS results are intended to help users in the comparability of these results across other listed real estate companies in Europe and reflect how the Directors monitor the business. See glossary for definitions

3 Excludes IFRS 16 related balances recognised in respect of leased properties. See glossary for definitions

4 Wholly-owned balances plus Unite's share of balances relating to USAF and LSAV

5 Like-for-like properties owned at both 30 June 2023 and 31 December 2022

PRESENTATION

A live webcast of the presentation including Q&A will be held tomorrow at 8:30am BST for investors and analysts. The webcast can be accessed via https://brrmedia.news/UTG-HY23 and will be available for playback on our website (https://www.unitegroup.com) after the event.

To register for the event or to receive dial-in details, please contact unite@powerscourt-group.com.

For further information, please contact:

Unite Students

Richard Smith / Joe Lister / Michael Burt Tel: +44 117 302 7005

Unite press office Tel: +44 117 450 6300

Powerscourt

Justin Griffiths / Victoria Heslop Tel: +44 20 7250 1446

CHIEF EXECUTIVE'S REVIEW

The business has delivered an extremely strong performance in the first half, with earnings and dividends at record levels. We have also delivered record reservations for the 2023/24 academic year, which reflects the strength of student demand and appeal of our affordable, well-located portfolio.

Adjusted earnings for the period increased by 15% to £110.2 million (H1 2022: £96.0 million). This increase was driven by higher occupancy and rental growth for the 2022/23 academic year, with rental income growing 11%. This growth in income helped to offset the impact of inflationary pressures in staff and property costs as well as higher interest costs. On a per share basis, adjusted EPS increased 15% to 27.5p (H1 2022: 24.0p).

We are announcing an interim dividend of 11.8p (H1 2022: 11.0p), an increase of 7% on H1 2022, which reflects the growth in our earnings and a positive outlook for the 2023/24 academic year. We plan to distribute 80% of adjusted EPS for 2023.

EPRA NTA per share was broadly unchanged at 928p (31 December 2022: 927p), with modest valuation growth offset by maintenance and fire safety capex. This resulted in a total accounting return of 2.4% in the first six months of the year (H1 2022: 8.3%), including the final dividend paid in the period. The Group recorded an IFRS profit before tax of £116.9 million (H1 2022: £334.1 million), driven by adjusted earnings and the positive revaluation of interest rate swaps on the back of rising interest rates. IFRS NAV per share increased by 1% to 954p over the half (31 December 2022: 945p).

Our key financial performance indicators are set out below:

Growing shortage of quality student homes

Structural factors continue to drive a growing supply / demand imbalance for student accommodation. Demographic growth will see the population of UK 18-year-olds increase by 140,000 (19%) by 2030. Application rates to university have also grown steadily over recent years, reflecting the value young adults place on a higher level of education and the life experience and opportunities it offers. Demand from international students also continues to grow, as reflected in the 2% increase in undergraduate applications for the 2023/24 academic year.

The supply of student accommodation cannot keep pace with student demand, and many university cities are already facing housing shortages. There has been a 20-40% reduction in the availability of homes to rent in most UK regions when compared to prior to the pandemic (source: Zoopla). Private landlords are choosing to leave the sector in response to rising costs from higher mortgage rates and increasing regulation, such as EPC certification and the anticipated Renters Reform Act. Annual mortgage repayment costs for buy-to-let landlords are expected to rise on average by £3,300 by the end of 2025. We expect these additional costs to either be passed on to students or result in a further reduction in the supply of HMOs. The recent reduction in private housing supply has significantly increased demand for our product in many cities and we expect this trend to continue for a number of years.

New supply of PBSA is also down 60% on pre-pandemic levels, reflecting viability challenges created by higher build and funding costs. In many markets, property valuations are now below replacement costs, further constraining new supply. Once allowance is made for first generation university-owned beds leaving the market each year through obsolescence, we expect to see almost no net growth in PBSA supply in the near term.

Higher quality homes

Our purpose is providing a Home for Success for the young people who live with us. Our customer offer is built around a value-for-money, hassle-free living experience, with support on hand when it is needed. Our pricing is comparable in cost to HMOs once bills are included and provides students and parents with cost certainty through a single, fixed price. We have invested £232 million in capital projects over the past year to deliver new beds, improve student experience and ensure our portfolio is safe and sustainable. We are committed to becoming a net zero carbon business for both our operations and developments, based on SBTi-validated targets.

We know that life at university can be challenging for young people in many ways and so, in 2022, we launched our Support to Stay programme and invested in 24/7 on-site staff presence. These measures help to ensure a proactive approach to supporting our students whenever needed, while also being responsive to situations and experiences which challenge their wellbeing.

The government's Renters' Reform Bill will further increase standards and regulation for private landlords, adding to existing pressures to improve energy efficiency through EPC certification. This creates a significant opportunity to capture market share from the one million students living in the HMO sector. This year's record reservations show we are already making progress.

Record reservations, underpinning strong rental growth

Across the Group's entire property portfolio, 98% of rooms are now sold for the 2023/24 academic year (2022/23: 92%), with reservation rates consistently tracking ahead of previous years throughout the sales cycle. We have seen strong demand from both UK and international students, who have looked to secure accommodation earlier in the sales cycle than previous years, leading to a 10% increase in the number of non-first year students choosing to rebook with us. This reflects the appeal of our fixed-price, all-inclusive offer, and a reduction in competing supply from the traditional HMO sector.

We are confident in delivering full occupancy for the 2023/24 academic year and achieving rental value growth of around 7%. We expect this strong performance to be sustained into the 2024/25 sales cycle, where we anticipate delivering rental growth of at least 5%.

Breakdown of reservations for 2023/24 by domicile and year of study:

* All years and domiciles

Deepening partnerships with universities

Nominations agreements with universities cover 54% of total beds for 2023/24 (2022/23: 52%), representing an increase of around 2,000 beds compared to the prior year, as universities increasingly rely on partners to meet their accommodation needs. This includes new multi-year agreements with three Russell Group universities for over 1,800 beds.

Our long-standing relationships mean that we have been able to support this additional demand. Rental growth from our nomination agreements has exceeded the portfolio average of around 7%, despite the rental caps in place on many of our multi-year nomination agreements. This reflects our success in agreeing increased rental levels on renewals of single-year deals and new multi-year agreements where our university partners recognise the value our accommodation provides at a time of increasing costs.

We have also seen a growing willingness from universities to explore more strategic options to grow and improve their accommodation offer, given the vital role it plays in helping them to attract and grow student numbers. This includes a number of advanced discussions for strategic partnerships with universities for the development of new accommodation on- and off-campus, as well as the stock transfer and refurbishment of existing university accommodation. We are uniquely positioned to unlock this opportunity with universities, thanks to our longstanding relationships, best-in-class operating platform and development capabilities.

Significant opportunities for growth

These market conditions have created the strongest investment opportunity for a number of years. Our development pipeline totals £850 million and 4,806 beds in the strongest university cities. We are committed to the delivery of six developments, delivering 3,659 beds, and expect to commit to additional developments at attractive returns in the next 6-12 months.

In many of Unite's markets, property valuations are now below replacement costs, following a sharp increase in build costs over the past two years. This creates a significant opportunity to invest in income-enhancing asset management opportunities across our £8.5 billion estate (Unite share: £5.4 billion), which will also drive meaningful improvements in customer experience. Our pipeline of asset management schemes has grown to c.£140 million, with a targeted yield on cost of over 8%, which we plan to deliver over the next 24-36 months.

We also continue to track a number of opportunities to add further schemes at attractive returns. These include a number of development schemes in London and prime regional markets and strategic partnerships with universities.

Maintaining capital discipline

We are focused on delivering growth while maintaining a high-quality balance sheet. We will maintain capital discipline to ensure that new investment activity supports long-term earnings growth and attractive total accounting returns.

Higher interest rates have reduced the attractiveness of debt as a funding source for new investment. We will seek to fund future capital commitments through equity, where accretive to shareholder returns, and continue to make disposals to improve portfolio quality and increase our alignment to the strongest universities. We expect to sell around £150-200 million of assets this year (Unite share), subject to market conditions.

Well positioned for Higher Education policy changes

International students contribute £42 billion to the UK economy and the government recently reiterated its commitment to hosting 600,000 international students each year. Changes to UK visa rules mean postgraduate taught students will no longer be able to be accompanied by family members. Given our product offering is focused on single occupancy rooms, we expect limited direct impact from this change.

The government also recently announced measures to cap student numbers on courses seen as low value for the UK taxpayer. The Office for Students will monitor course continuation and completion rates, as well as graduate outcomes, in determining whether courses should be subject to student number caps. Any restrictions are unlikely to take effect ahead of the next general election. Our portfolio is aligned to high-quality universities with 94% by value located in Russell Group cities. As a result, we would not expect greater oversight of student outcomes to meaningfully impact the number of university places in our markets.

Outlook

We have delivered a record sales performance for the 2023/24 academic year, driven by the strength of student demand and growing appeal of our customer offer. This supports an increase in our 2023 EPS guidance to the upper end of our 43-44p range (FY2022: 40.9p).

Market conditions are the strongest we have seen for many years. There is growing unmet need for high-quality, affordable student housing at a time when HMO landlords are leaving the sector and new supply of PBSA is limited. There is growing appeal for students in our all-inclusive, fixed-price offer, which compares favourably in price to HMOs. This supports sustainable growth in rent and earnings in 2024 and beyond.

We also see a variety of compelling investment opportunities. Thanks to our partnership with the strongest universities and the capabilities of our best-in-class operating platform, we are uniquely positioned to take advantage of these opportunities.

PROPERTY REVIEW

The first half has seen a resilient valuation performance for our investment portfolio, with rental growth more than offsetting the negative impact of yield expansion. We continue to improve the quality of the portfolio and our alignment to the strongest universities by investing into our development pipeline and asset management initiatives in our existing estate. We will deliver 705 new beds this year and complete the full refurbishment of a further 919 beds, which we expect to be fully let for the 2023/24 academic year.

Our development pipeline remains close to its record size at over 4,800 beds, over 70% of which is already committed.

Valuation performance

Our property portfolio saw a 0.9% increase in valuations on a like-for-like basis during the half (Unite share: 0.8%), reflecting the resilience of purpose-built student accommodation (PBSA) as the market adjusts to a higher interest rate environment. The valuations reflect strong rental growth on the back of our letting performance for the 2023/24 academic year, which more than offset a 13 basis points expansion in property yields.

1. Excludes Build-to-Rent

Student accommodation yields

The PBSA sector has continued to deliver a resilient performance during the first half. The combination of a structurally favourable outlook for demand and supply and growing income returns have supported values. Investment volumes for student accommodation totalled £1.0 billion in H1 (Source: CBRE), with transaction activity concentrated towards prime and major regional cities. We anticipate a significant increase in transaction volumes in the second half of the year, following conclusion of the letting cycle for the 2023/24 academic year.

The average net initial yield across the portfolio is 4.9% at 30 June 2023 (31 December 2022: 4.7%), an increase of 13 basis points over the first six months of the year and a total of 27 basis points since June 2022. We have seen more significant yield expansion in London and prime regional markets, which have lower income yields.

An indicative spread of direct-let yields by location is outlined below:

Development and university partnership activity

Development and university partnership activity continues to be a significant driver of future growth in earnings and EPRA NTA, and is aligned to our strategic focus on high and mid-ranked universities. Our pipeline of direct-let development and university partnerships includes 4,806 beds, with a total development cost of £850 million.

The anticipated yield on cost of the total pipeline is 6.7%. We have lower hurdle rates for developments that are supported by universities or where another developer is undertaking the higher-risk activities of planning and construction. During the period, we recognised an £18 million valuation loss for developments, reflecting higher property yield assumptions.

There remains widespread acknowledgement from local authorities of the need for new PBSA supply to address growing student numbers and relieve pressure on housing supply. Universities also remain willing to support our planning applications as a means of delivering the high-quality, affordable accommodation required to support their growth ambitions.

We continue to see opportunities for new development and university partnership schemes at attractive returns, and are seeing land pricing adjust downwards to reflect increased costs of funding and construction.

Committed pipeline

We have committed to deliver six development schemes with a total development cost of £623 million and blended yield on cost of 6.7% for the student accommodation elements. We have future capital commitments of £208 million for these projects, which will be funded through the Group's cash and committed debt headroom of £393 million at 30 June and planned disposals.

Our 705-bed scheme at Morriss House in Nottingham is on track for delivery on time and on budget for the 2023/24 academic year. We have entered a nominations agreement with the University of Nottingham for 25% of the beds, with the remainder sold on a direct-let basis. The scheme is 99% let for the 2023/24 academic year at rents ahead of our previous expectations, supporting an increase in the development yield to 8.5% (previously: 8.2%).

We have made good progress at our 271-bed scheme on Lower Parliament Street in Nottingham, which we now expect to deliver a year earlier than previously planned, in time for the 2024/25 academic year.

We have started on site at our Jubilee House scheme in Stratford. The 716-bed scheme is scheduled for delivery in the 2026/27 academic year. We have agreed terms with an existing university partner for a 10-year nomination agreement for half of the beds. The development includes a new 60,000 sq. ft. academy school, which is pre-let to the Secretary of State for Levelling Up, Housing and Communities for 35 years on an index-linked rent.

At Meridian Square in Stratford, we are targeting planning approval for 952 beds in the second half. The development, which we expect to deliver in 2027, has a total development cost of £199 million and a yield on cost of 6.4%. Together with our committed scheme at Jubilee House, the two projects will increase our scale in Stratford to 3,400 beds, helping to address the significant growth in student numbers anticipated in the area following the opening of new campuses by UCL and University of the Arts London.

We are also committed to the development of a further two projects, at Temple Quarter in Bristol and Abbey Lane in Edinburgh. We expect construction activity to start in the second half, supporting delivery of both projects in time for the 2025/26 academic year.

Future pipeline

Our future pipeline includes two secured but uncommitted schemes in Bristol and London, which we expect to commit to following receipt of planning approvals. The future pipeline totals 1,147 beds, with a total development cost of £227 million, and we expect to deliver both schemes as university partnerships.

Development costs

We are beginning to see a moderation in inflationary pressure on build costs, which typically account for around 50% and 80% of our total development costs in London and regional markets respectively. Although costs are still rising, the rate of increase has slowed significantly, and we have been able to maintain or improve the expected development yield on future pipeline schemes through planning enhancements and the strength of rental growth for the 2023/24 academic year.

Secured development and University partnerships pipeline

UPT - university partnership, DL - direct let

1Subject to obtaining planning consent

2 Student element development cost £141 million, forecast 6.4% yield on cost

University partnerships pipeline

We continue to make progress with our strategy of delivering growth through strategic partnerships with universities where student numbers are growing fastest. There is a growing appetite for partnerships to create the housing to support university growth ambitions and provide funding for new investment.

In April, we secured planning approval for enhanced welfare and common spaces at Rushford Court in Durham, which we will redevelop in partnership with Durham University. Following completion and use as a temporary home for Hild Bede college, we expect it to become Durham's eighteenth college for a 30-year initial term.

We intend to deliver our three future London schemes as university partnerships, in line with requirements in the London Plan for the majority of new beds to be leased to a Higher Education provider. The developments will help to meet the growing need for high-quality PBSA in London and have been supported through planning by our university partners, with a view to agreeing long-term nomination agreements.

In addition, we are in active discussions with a number of high-quality universities for new partnerships, focused on delivery of new on-campus accommodation and the potential transfer and refurbishment of their existing student accommodation. We are seeing increased engagement from our partners and hope to progress these opportunities over the next 12 months, albeit there remains a high degree of execution risk given the strategic nature of these decisions for universities.

Asset management

In addition to our development activity, we see significant opportunities to create value through asset management projects in our estate. Asset management projects typically have shorter lead times than new developments (often carried out over the summer period) and deliver extremely attractive risk-adjusted returns.

We have identified a pipeline of £140 million of asset management opportunities in our strongest markets, which supports an annual run-rate of £50 million p.a. for the next 2-3 years at yield on cost of over 8%.

This year, we will complete three asset management schemes in London, Edinburgh and Birmingham. Investment across the three projects is £24 million in aggregate and will deliver a 9% yield on cost. The projects will deliver additional beds, refurbish existing rooms and enhance the environmental performance of the properties. We have secured new nomination agreements for over half of the refurbished beds and are confident of achieving full occupancy for the 2023/24 academic year.

Fire safety

Providing a safe home is a core part of our strategy and we remain committed to leading the sector in improving fire safety. During the period, we completed works on three properties and remediation work is progressing on another 18, based on contractual or legal obligations under the Building Safety Bill, spending a total of £49.6 million (Unite share: £25.6 million). During the period, we recognised a further £8.6 million (Unite share: £11.6 million) of provisions in relation to planned fire safety works. Our balance sheet at 30 June includes provisions and accruals for fire safety remediation costs across our estate, at a cost of £72.3 million (Unite share: £45.2 million), which will be incurred over the next two years. During the period we agreed a settlement with a contractor for £3 million in respect of fire safety defects, representing around 80% of our claim for that property. We continue to progress a number of claims against contractors in respect of defects and expect to recover 50-75% of our total remediation cost.

Build-to-rent

During the period, we have transferred operational management of our pilot build-to-rent (BTR) asset in Stratford onto our PRISM platform. There are clear opportunities to leverage our existing operating platform to deliver cost efficiencies and use our BTR product to retain our student customers seeking a more independent living experience. Rental growth continues to outperform our assumptions from the time of acquisition, with new lettings and renewals 12% above previous rental levels in the first half.

We do not expect to increase our capital commitment to BTR in the short term. We are continuing to explore opportunities to increase the scale of our BTR operations through co-investment with institutional investors, where Unite would act as asset manager. Subject to identifying suitable opportunities, this structure would enhance returns for the Group while limiting capital requirements as we develop our understanding of the opportunity in the BTR sector.

Disposal activity

Disposals remain a key part of our strategy to improve the quality of our portfolio and increase alignment to the strongest universities. They also help to manage our balance sheet leverage and provide funding for development and asset management opportunities, offering superior risk-adjusted returns.

Subject to market pricing, we expect to make disposals of up to £150-200 million in 2023 (Unite share) by reducing our exposure to markets with weaker prospects for student number growth or more peripheral locations in our largest markets.

FINANCIAL REVIEW

The Group uses alternative performance measures (APMs), which are not defined or specified under IFRS. These APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information and include, among others, measures based on the European Public Real Estate Association (EPRA) best practice recommendations. The metrics are used internally to measure and manage the business.

EPRA and adjusted earnings

We delivered a strong operating performance in H1 2023, with rental income increasing by 11% to £197.0 million, up from £177.4 million in H1 2022, reflecting the impact of increased occupancy and rental growth for the 2022/23 academic year. Adjusted EPS also increased by 15% to 27.5p (H1 2022: 24.0p).

Based on progress to date on reservations, we anticipate delivering occupancy of 99% for the 2023/24 academic year (2022/23: 99%). This income visibility underpins our confidence in delivering adjusted EPS for 2023 at the upper end of our previously guided range of 43-44p.

A reconciliation of profit after tax to EPRA earnings is set out in note 2.2b of the financial statements

Operations result

Like-for-like rental income, excluding the impact of disposals and major refurbishments, increased by 11% during the first half. This was partially offset by the 14% increase in operating expenses for like-for-like properties in the period, primarily driven by increased staff costs and variable costs linked to higher occupancy. This resulted in the Group's NOI margin remaining broadly flat at 74.5% for the six months (H1 2022: 74.4%).

The increase in property operating expenses in the first half was driven by an average 10% pay increase for frontline staff and higher spend on marketing, insurance and other property costs. Our utility costs are hedged in advance of letting rooms, providing visibility over our cost base at the point of sale. Our hedging, together with a non-recurring benefit from reallocated hedges on 2022 disposals, reduced utility costs by 4% or £0.5 million during the period. Our utility costs are fully hedged through H2 2023 and 75% for 2024. As cheaper hedges put in place before the war in Ukraine expire, we expect the cost of utilities to increase by around 15% in H2 2023 and 30% in 2024, equivalent to 2% growth in rental income.

Our EBIT margin improved to 72.9% in the period (H1 2022: 71.8%) due to lower overheads following non-recurring restructuring costs in 2022. Our rental income is more heavily weighted to the first half of the financial year due to lower occupancy during July and August. We expect to deliver a positive progression in EBIT margin for 2023 as a whole, when compared to 2022 (67.9%).

Finance costs increased to £30.7 million (H1 2022: £28.9 million) due to impact of the LSAV loan refinanced at higher rates in H1 2022 and increases in the cost of the floating rate portion of our debt, which saw the cost of debt rise to 3.3% over the period (H1 2022: 3.2%). £3.4 million of interest costs were capitalised in the first half, a decrease from £4.2 million in H1 2022, due to development completions in the second half of 2022.

IFRS earnings

IFRS profit before tax decreased to £116.9 million in the first half (H1 2022: £334.1 million), driven by the net revaluation loss of £10.8 million (H1 2022: £199.7 million gain) and the positive revaluation of interest rate swaps on the back of rising interest rates.

A reconciliation of profit before tax to EPRA earnings measures is expanded in section 7 of the financial statements.

EPRA NTA growth

EPRA net tangible assets (NTA) per share, our key measure of NAV, was effectively unchanged at 928 pence at 30 June 2023 (31 December 2022: 927 pence). EPRA net tangible assets were £3,746 million at 30 June 2023, up from £3,715 million six months earlier.

The main drivers of the £31 million increase in see-through EPRA NTA and 1 pence increase in EPRA NTA per share were:

· Valuation growth (£180 million, 45 pence), reflecting sales progress for 2023/24

· Yield movement (£(140) million, (35) pence)

· Development deficit (£(18) million, (4) pence)

· Capital expenditure on maintenance, fire safety and sustainability (£(40) million, (10) pence)

· A further provision for fire safety capex (£(11) million, (3) pence)

· The positive impact of retained profits and other movements (£60 million, 8 pence)

Property portfolio

The valuation of our property portfolio at 30 June 2023, including our share of properties held in USAF and LSAV, was £5,744 million (31 December 2022: £5,690 million). The £54 million increase in portfolio value reflects the valuation movements outlined above, capital expenditure and interest capitalised on developments.

Summary balance sheet

Cash flow and net debt

The Operations business generated £126 million of net cash in H1 2023 (H1 2022: £100 million) and net debt increased to £1,742 million (31 December 2022: £1,734 million). The key components of the movement in net debt were the operational cash flow offset by total capital expenditure of £78 million and dividend payments of £66 million.

Interest rate hedging arrangements and cost of debt

During the first half, there has been a further increase in market interest rates, which has resulted in higher costs for new debt issuance or refinancing of existing debt facilities. The business is partially protected from these cost pressures through its interest rate hedging policies. Moreover, the Group's borrowings are well diversified across lenders and maturities.

100% of see-through investment debt is subject to a fixed or capped interest rate (31 December 2022: 97%) for an average term of 4.1 years (31 December 2022: 4.1 years), and we have forward hedged £300 million of future debt issuance at rates meaningfully below prevailing market levels.

Our see-through borrowing cost reduced to 3.3% during the first half as a result of additional hedges at interest rates below previous floating rate costs (December 2022: 3.4%). Based on our hedging protection and current market interest rates, we forecast a cost of debt of 3.5% for FY2023 as a whole. Yields on our investment portfolio and secured development pipeline continue to show a healthy positive spread against our funding costs.

Reflecting the return to full occupancy and growth in adjusted earnings, our Net debt to EBITDA improved to 6.8x and interest cover to 3.8x in the first half (December 2022: 7.3x and 3.7x respectively).

1 Calculated on a 12-month look-back basis

Debt financing and liquidity

As at 30 June 2023, the wholly-owned Group had £393 million of cash and debt headroom (31 December 2022: £397 million), comprising of £55 million of drawn cash balances and £338 million of undrawn debt (31 December 2022: £29 million and £368 million respectively).

The Group maintains a disciplined approach to leverage and capital allocation, with LTV of 31% at 30 June 2023 (31 December 2022: 31%). In response to an environment of rising interest rates, the Group intends to reduce its target LTV to around 30% on a built-out basis (previously: 30-35%). This will enable the Group to maintain an interest cover ratio of 3.5-4.0% (2022: 3.7x) and supports a reduction in net debt to EBITDA to 6-7x (2022: 7.3x).

During the period, USAF completed a new £400 million secured loan, refinancing its £380 million bond which matured in June 2023. The seven-year loan has a fixed rate of 5.4%.

We have commenced planning to refinance the £300 million Liberty Living bonds due to mature in November 2024 and have fully pre-hedged the refinancing at an expected cost of 4.5%, assuming prevailing market credit spreads.

Dividend

We are proposing an interim dividend payment of 11.8p per share, which represents an increase of 7% compared to the prior year (H1 2022: 11.0p). The interim dividend will be fully paid as a Property Income Distribution (PID) of 11.8p. The interim dividend will be paid on 27 October 2023 to shareholders on the register at close of business on 15 September 2023.

We will continue to distribute 80% of adjusted EPS as this level of payout enables the Company to retain capital to invest in growth opportunities, the improvement of the operational portfolio and delivery of our sustainability strategy, including our 2030 target for net zero carbon.

For those shareholders electing to participate in the Company's scrip dividend scheme, this interim dividend will be paid in new ordinary shares. The last date for receipt of scrip elections for this interim dividend is 6 October 2023. Details of the scrip scheme, terms and conditions and the process for election are available at the Company's website.

Tax and REIT status

The Group holds REIT status and is exempt from tax on its property business. During the first half of 2023, we recognised a current tax charge of £1.1 million (H1 2022: £nil).

Funds and joint ventures

The table below summarises the key financials at 30 June 2023 for each vehicle.

Property valuations increased by 1.2% and 0.9% for USAF and LSAV respectively over the first half of the year on a like-for-like basis, as rental growth was offset by modest increases in valuation yields.

Fees

During the six months to June 2023, the Group recognised net fees of £9.0 million from its fund and asset management activities (H1 2022: £9.2 million). The decrease compared to the prior year reflects Unite's higher ownership share in USAF in the period, more than offsetting growth in property valuations and NOI over the past 12 months.

Principal risks and uncertainties

The principal risks of the business are set out on pages 76-88 of the 2022 Annual Report that was published in April. The Board has reviewed the principal risks again and concluded that they have not changed since the year-end report. Our principal risks fall into six categories and are summarised as follows:

Responsibility statement of the directors in respect of the interim report and accounts

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the United Kingdom and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R

The interim management report includes a fair review of the information required by:

· DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

· DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Richard Smith Joe Lister

Chief Executive Chief Financial Officer

Forward-looking statements

The preceding interim statement has been prepared for the shareholders of the Company, as a body, and for no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The interim statement contains forward-looking statements that are subject to risk factors associated with, among other things, the economic, regulatory and business circumstances occurring from time to time in the sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the interim statement should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.

INTRODUCTION AND TABLE OF CONTENTS

These financial statements are prepared in accordance with IFRS. The Group uses alternative performance measures (APMs), which are not defined or specified under IFRS. These APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information and include measures based on the European Public Real Estate Association (EPRA) best practice recommendations. The metrics are used internally to measure and manage the business. The reconciliation between IFRS performance measures and EPRA performance measures can be found in Section 2.2b for EPRA Earnings and 2.3c for EPRA net tangible assets (NTA). The adjustments to the IFRS results are intended to help users in the comparability of these results across other listed real estate companies in Europe and reflect how the Directors monitor the business. 

Primary statements

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in shareholders' equity

Consolidated statement of cash flows

Section 1: Basis of preparation

Section 2: Results for the period

2.1 Segmental information

2.2 Earnings

2.3 Net assets

2.4 Revenue and costs

Section 3: Asset management

3.1 Wholly owned property assets

3.2 Inventories

3.3 Investments in joint ventures

Section 4: Funding

4.1 Borrowings

4.2 Interest rate swaps

4.3 Dividends

Section 5: Working capital

5.1 Provisions

5.2 Cash and cash equivalents

Section 6: Post balance sheet events

Section 7: Alternative performance measures

CONSOLIDATED INCOME STATEMENT

For the 6 months to 30 June 2023

All results are derived from continuing activities.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months to 30 June 2023

All other comprehensive income may be classified as profit and loss in the future.

There are no tax effects on items of other comprehensive income.

CONSOLIDATED BALANCE SHEET

At 30 June 2023

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the 6 months to 30 June 2023

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 6 months to 30 June 2023

NOTES TO THE INTERIM FINANCIAL STATEMENTS

Section 1

General information

The information for the year ended 31 December 2022 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 but is derived from those accounts. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

The annual financial statements of The Unite Group plc are prepared in accordance with IFRSs as adopted by the United Kingdom. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the United Kingdom and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Going concern

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for at least 12 months from the date of this report.

The Directors have considered a range of scenarios for future performance through the 2023/24 academic year. This included a base case assuming cash collection and performance for the 2023/24 academic year remains in line with current expectations and reservations; and a reasonable worst case scenario where income for the 2023/24 academic year is impacted by reduced income, equivalent to occupancy of around 90%. The costs of delivering our net zero carbon asset transition plans are included within the cashflows which have been modelled. Under each of these scenarios, the Directors are satisfied that the Group has sufficient liquidity and will maintain covenant compliance over the next 12 months. To further support the Directors' going concern assessment, a 'Reverse Stress Test' was performed to determine the level of performance at which adopting the going concern basis of preparation may not be appropriate. This involved assessing the minimum amount of income required to ensure financial covenants would not be breached. Within the tightest covenant, occupancy could fall to approximately 75% before there would be a breach. The Group has capacity for property valuations to fall by around 35% before there would be a breach of LTV and gearing covenants in facilities where such covenants exist. Were income or asset values to fall beyond these levels, the Group has certain cure rights, such that an immediate default could be avoided.

The Directors are satisfied that the possibility of the 'Reverse Stress Test' outcome is sufficiently remote that adopting the going concern basis of preparation is appropriate.

Accordingly, after making enquiries and having considered forecasts and appropriate sensitivities, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of these financial statements.

Seasonality of operations

The results of the Group's Operations segment, a separate business segment (see Section 2), are closely linked to the level of occupancy achieved in its portfolio of property. Occupancy typically falls over the summer months (particularly July and August) as students leave for the summer holidays.

Conversely, the Group's build cycle for new properties plan for construction to complete shortly before the start of the academic year in September. Accordingly, there will be second half-year net income benefit from one newly completing asset in 2023.

Changes in accounting policies

The Group has not adopted any new accounting standards in the period and has adopted one new accounting policy in addition to those included in the 2022 Annual Report.

Cloud computing arrangements

The Group has a number of contracts for Software as a Service (SaaS) cloud computing arrangements. These contracts permit the Group to access vendor hosted software and platform services over the term of the arrangement. The Group does not control the underlying assets in these arrangements, which are treated as service contracts and as such, costs are expensed as incurred.

The Group also incurs implementation costs in respect of these contracts. Implementation costs are capitalised as intangible assets where costs meet the definition and recognition criteria of an intangible asset under IAS 38. Such costs typically relate to software coding which is capable of providing benefit to the Group on a standalone basis. Other implementation costs, primarily relating to the configuration and customisation of SaaS, are assessed to determine where the implementation activity relating to these costs is distinct from the arrangement, in which case costs are expensed as the activity occurs. Conversely, where the configuration and customisation costs relate to activities that are integral to the SaaS, such that the benefit of the activity is received over the term of the arrangement, such costs are recognised as a prepayment and expensed over the contracted term.

Critical accounting judgements and key sources of estimation uncertainty

Full details of critical accounting judgements and key sources of estimation uncertainty are given on page 187 of the 2022 Annual Report and Accounts. This includes detail of the Group's approach to valuation of investment property and investment property under development, the recognition and valuation of provisions for cladding remediation and the classification of joint venture vehicles. There have been no changes to critical accounting judgements and key sources of estimation uncertainty.

Section 2: Results for the period

This section focuses on the results and performance of the Group and provides a reconciliation between the primary statements and EPRA performance measures. The following disclosures explain the Group's results for the period, segmental information, earnings and net tangible asset value (NTA) per share.

The Group uses EPRA earnings, adjusted earnings and NTA movement as key comparable indicators across other real estate companies in Europe.

IFRS performance measures