Unite Regulatory News (UTG)

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

LEI: 213800BBUUWVDH9YI827

For immediate release

24 June 2020

THE UNITE GROUP PLC

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

PRE-CLOSE TRADING STATEMENT

Unite Students, the UK's leading owner, manager and developer of student accommodation, today provides a trading update ahead of the end of the first half of the financial year ending on 30 June 2020.

Highlights

Richard Smith, Unite Students Chief Executive Officer, commented:

"Universities are planning to open their campuses and accommodation to students this Autumn. We also know through our own research that students are keen to start or get back to University as soon as it's safe to do so. At Unite, we remain committed to providing students with the safe and secure environment they and their parents want. We are delighted to be the first UK purpose-built student accommodation provider to be issued a Covid assurance assessment statement by the British Safety Council.

We have growing visibility and confidence over our income for the 2020/21 academic year, reflective of the strength of our University relationships. Our best-in-class operating platform also provides the flexibility to rapidly adjust our marketing strategies and reduce costs. We remain confident in the outlook for higher education demand and with our market-leading position see significant opportunities for growth through University partnerships, new developments and by attracting more of the 850,000 students currently living in Houses of Multiple Occupancy."

* Universities UK survey published 17 June 2020

The person responsible for releasing this announcement on behalf of the Company is Chris Szpojnarowicz, Company Secretary.

For further information, please contact:

Unite Students

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

Powerscourt

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

Higher Education sector update

The Universities UK survey published on 17 June outlined that 97% of Universities plan to provide in-person teaching in the Autumn term of 2020/21. Teaching will be delivered on a 'blended' basis with face-to-face tutorials, seminars and practical work complemented by online lectures to observe social distancing guidelines. We expect University campuses to be open from the Autumn, offering a range of social opportunities and student support.

Recent data from UCAS showed a small increase in deferrals compared to last year in advance of the June 18 deadline for acceptances. We are expecting deferral rates to be higher than last year, albeit limited by the clear desire of young people to attend university, weaker employment prospects and fewer gap year opportunities for school leavers.

There remains uncertainty over international student numbers given travel restrictions and caution on the part of students to travel. Recent survey results from the British Council highlight that between one third and two thirds of non-EU international students may choose to cancel or delay their travel plans for 2020/21. This is in line with our assumptions.

2019/20 academic year

We anticipate a c.15% reduction in income for the 2019/20 academic year, reflecting our decision to forgo rents for students who have chosen to return home for the summer term. Unite was the first corporate PBSA provider to offer students refunds on their summer term rents, reflecting our core value of doing the right thing for our customers, people and other stakeholders.

Reflecting the strength of our University relationships, we have collected 94% of rent due to date for the summer term under nomination or lease agreements, where Universities collect rent directly from students.

2020/21 academic year

We have increasing visibility over income as we approach the start of the 2020/21 academic year. Reservations of 80% are below the prior year (2019/20: 88%), reflecting delays by some students and Universities in making their accommodation choices at this stage. We expect a higher than usual volume of sales activity later in the booking cycle.

We are targeting 90% occupancy for 2020/21 (2019/20: 98%), underpinned by the income security provided by our multi-year nomination agreements. Overall, we expect a 10-20% reduction in rental income for 2020/21 compared to 2019/20 (prior to the impact of cancellations in 2019/20 due to Covid-19).

Breakdown of reservations for 2020/21 by domicile and year of study

* All years and domiciles

Nomination agreements

Nomination reservations total 38,698 beds or 52% of available beds for the 2020/21 academic year (2019/20: 41,484 beds or 56%), of which 90% is aligned to High and Mid-ranked Universities. 30,362 of these nominated beds (41% of total beds) are already contracted and we expect the substantial majority of the c.8,300 unsigned nomination beds (11% of total beds) to complete in the coming weeks.

Since mid-April, we have seen a reduction in nomination reservations totalling 2,600 beds, relating to handbacks under non-underwritten agreements and cancellations of single-year agreements. We have quickly moved to sell these beds on a direct-let basis.

Breakdown of nomination reservations (2020/21, total Group)

Direct-let sales

Direct let reservations account for 20,954 beds or 28% of total beds. We have a further 15,300 beds left to sell, representing 20% of total beds.

We are seeing healthy levels of demand from UK undergraduate students, reflecting the shift in our marketing towards domestic students and our targeting of students living in houses of multiple occupancy (HMOs). We have seen an encouraging improvement in international reservations in recent weeks after a period of subdued sales. 2nd and 3rd year students account for just under half of international sales, providing greater certainty over income. Notably, we have continued to see strong demand for single-occupancy studio rooms (14% of direct let beds for sale).

We will seek to maintain price discipline but will use price reductions and incentives selectively to drive future sales and optimise occupancy.

Recognising the increased risk of cancellations due to Coronavirus, we will be contacting all UK and international customers to reconfirm bookings over the coming weeks. Whilst bookings are contractual and supported by 4% average advanced rental payments, there remains higher risk around international bookings than in a normal year.

Operating model for 2020/21

We remain focused on delivering a safe and secure living environment for students.

We expect our cluster flats with shared kitchen and living spaces to be classified by the Government as households for the purposes of social distancing guidelines. This would enable our buildings to operate at close to full occupancy.

We are introducing a number of new and enhanced Covid-19 secure operating practices for the 2020/21 academic year to comply with Government guidance. This will include enhanced cleaning and new physical and social distancing measures, such as floor markings, signage, reception communication and repurposed common areas. Reflecting these measures, we have received a Covid assurance statement from the British Safety Council (BSC).

Our investments in our sector-leading operating platform, PRISM, and our MyUnite app, already facilitate a range of digital interactions between Unite staff and students, such as bookings, maintenance requests and logging of issues and provide opportunities for enhanced service to students. These enhancements can be delivered without an increase in operating costs, due to efficiencies in other areas.

Development pipeline

We will deliver 2,257 beds across three development schemes for the 2020/21 academic year. White Rose View in Leeds, where we have a 559 bed 30-year nomination agreement with the University of Leeds, will be completed on time and budget for student arrivals this September.

Due to temporary site closures and reduced levels of operatives on site as a result of social distancing measures, we are expecting completion of First Way, Wembley and Artisan Heights, Manchester to be delayed until Q4 2020. We will provide alternative accommodation to those students affected and expect both buildings to be fully operational from January 2021. Due to fixed-price build contracts, we are not liable for any cost overruns. We expect to generate income from these buildings during the 2020/21 academic year through the usual January intake by some Universities.

We took the decision earlier this year to defer delivery of our schemes at Middlesex Street, London and Old BRI, Bristol into 2022. We expect to re-start construction in Q1 2021, following the start of the 2020/21 academic year. The total cost of delays is expected to be £2 million.

Cashflow and earnings guidance

We anticipate EPRA EPS of 22-25 pence in FY2020, reflecting 35% rent collection for summer term of 2019/20, zero summer income and a 10-20% YoY reduction in rental income for the Autumn term of 2020/21.

This translates to a reduction in Group cashflow of £95-110 million in 2020 (previously £90-125m), reflecting greater visibility over the impact of rent forgone in 2019/20 and contracted income for 2020/21.

The reduction in cashflow is mitigated by actions to retain £95-105 million in cash in the business in 2020. This includes £67 million of deferred capex in the development pipeline, £20-30 million from deferral of non-essential operational capex and £12-15 million of P&L cost savings covering the period from May to August 2020.

We are targeting additional cost savings from 2021 through further efficiencies in our operating model, procurement and utility costs. These are additional to the £15 million of annual cost synergies to be realised from our acquisition of Liberty Living from 2021.

Our earnings and cashflow guidance assumes no return to more stringent lockdown measures and that University campuses are open to students in the Autumn, reflecting social distancing requirements.

Dividends

We anticipate reinstating dividend payments following the start of the 2020/21 academic year in line with our expectations.

There remains £2 million of Property Income Distribution (PID) to be paid by the Company in respect of the 2019 financial year.

H1 valuations

From discussion with our valuers, we anticipate a 2-3% reduction in property valuations in H1 2020. This reflects income deductions relating to zero summer business and the anticipated impact of Covid-19 disruption on 2020/21 income. Property yields are expected to be broadly unchanged over the period.

Our valuers have informed us that their valuation reports as at 30 June 2020 will include a statement highlighting material uncertainty given the current environment.

Cash headroom and liquidity

As of 22 June, the Company had £253 million of unrestricted cash reserves. The Company has been confirmed as an eligible issuer under the HM Treasury and Bank of England Covid Corporate Financing Facility (CCFF). At this stage, we have no plans to drawdown under the CCFF.

In addition, we have received credit approval for a £100 million extension to our unsecured Group debt facility.

We remain confident in our cash headroom and liquidity through the 2020/21 academic year based on income visibility provided through our contracted nomination agreements. We have £45 million of committed capex remaining for 2020 development completions and average cash consumption is c.£11-13 million per month.

Banking relationships and debt covenants

We continue to monitor our banking covenants, which vary between facilities but are principally based on LTV and ICR ratios. Given the interruption to income caused by Covid-19, our principal focus is on our ICR covenants, which vary between 1.5-2.0x depending on the facility.

We are confident in our headroom under ICR covenants at both a Group and fund level. There is headroom for occupancy to fall to c.55% for the 2020/21 academic year before a breach of our tightest ICR covenant. Based on contracted nomination agreements totalling 41% of beds, this would require only limited conversion of our reserved but unsigned nomination agreements or check-ins by customers under existing direct-let reservations.

ENDS

About Unite Students

Unite Students is the UK's largest owner, manager and developer of purpose-built student accommodation serving the country's world-leading Higher Education sector. Following the £1.4bn acquisition of Liberty Living in November 2019, we now provide homes to 74,000 students across 177 properties in 27 leading university towns and cities. We currently partner with 45 universities across the UK.

Our people are driven by a common purpose: to provide a 'Home for Success' for the students who live with us. Unite's accommodation is safe and secure, high quality, and affordable. Students live predominantly in en-suite study bedrooms with rents covering all bills, insurance, 24-hour security and high-speed Wi-Fi. We also hold a five-star British Safety Council audit rating.

Founded in 1991 in Bristol, Unite Group is an award-winning Real Estate Investment Trust (REIT), listed on the London Stock Exchange and a member of the FTSE 250 Index. Unite is invested in and operates two specialist funds and joint ventures with institutional investment partners: the £3 billion Unite UK Student Accommodation Fund (USAF), and the £1 billion London Student Accommodation Vehicle (LSAV).

For more information, visit:

Unite's corporate website www.unite-group.co.uk,

The student site www.unite-students.com,

Important Notices

This Announcement is for information only and does not itself constitute or form part of an offer to sell or issue or the solicitation of an offer to acquire, purchase or subscribe for, any securities referred to herein in any jurisdiction including, without limitation, the United States or any restricted territory (as defined below) or any other jurisdiction in which the same would be unlawful.

The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold directly or indirectly in or into the United States absent registration under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with the securities laws of any state or any other jurisdiction of the United States.

This Announcement, and the information contained herein, is not for release, publication or distribution, directly or indirectly, to persons in the United States, Australia, Canada, the Republic of South Africa or Japan or in any jurisdiction in which such publication or distribution is unlawful (each a "restricted territory"). The distribution of this Announcement in certain jurisdictions may be restricted by law. No action has been taken by the Company, its affiliates or any person acting on its or their behalf which would permit an offer of securities referred to herein or possession or distribution of this Announcement or any other offering or publicity material relating to such securities in any jurisdiction where action for that purpose is required.

This Announcement has been issued by, and is the sole responsibility, of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by any other person or any of their respective affiliates or agents as to, or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

Certain statements contained in this Announcement constitute "forward-looking statements" with respect to the financial condition, performance, strategic initiatives, objectives, results of operations and business of the Company. All statements other than statements of historical facts included in this Announcement are, or may be deemed to be, forward-looking statements. Without limitation, any statements preceded or followed by or that include the words ''targets'', ''plans'', ''believes'', ''expects'', ''aims'', ''intends'', ''anticipates'', ''estimates'', ''projects'', ''will'', ''may'', "would", "could" or "should", or words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements may include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, cashflows, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; and (ii) business and management strategies and the expansion and growth of the Company's operations. Such forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions, some of which are outside of the Company's influence and/or control. Many factors could cause actual results, performance or achievements to differ materially from those projected or implied in any forward-looking statements. The important factors that could cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, economic and business cycles, the terms and conditions of the Company's financing arrangements, foreign currency rate fluctuations, competition in the Company's principal markets, acquisitions or disposals of businesses or assets, the national and international impact of the Covid-19 pandemic, changes in government and other regulation, including in relation to the environment, travel, health and safety and taxation, labour relations and work stoppages, changes in political and economic stability and trends in the Company's principal industries. Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this Announcement may not occur. No statement in this Announcement is intended to be a profit estimate or profit forecast. The forward-looking statements contained in this Announcement speak only as of the date of this Announcement. The Company, its directors, the Banks and their respective Affiliates and any person acting on its or their behalf each expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation, the Listing Rules made by the Financial Conduct Authority (the "FCA") under the Financial Services and Markets Act 2000 (as amended) ("FSMA"), the Market Abuse Regulation (EU) No.596/2014 ("MAR"), the Disclosure Guidance and Transparency Rules made by the FCA under FSMA, the rules of the London Stock Exchange plc or the FCA.

This Announcement does not constitute a recommendation regarding the shares of the Company or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied upon as a guide to future performance.