Unite Group pleased with focus on 'higher quality' universities
Student accommodation provider The Unite Group posted a 25% improvement in its EPRA earnings in its annual results on Wednesday, to £88.4m, or 34.1p per share.
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The FTSE 250 company said occupancy for the year ended 31 December was 98%, down from 99%, with like-for-like rental growth also falling slightly to 3.2% from 3.4%.
Its board did confirm an increased dividend, up 28% to 29.0p, which it said was driven by growing earnings and a higher payout.
Profit before tax was ahead 7% at £245.8m, with the company’s total accounting return slipping to 13%, from 14%.
The company said a record level of reservations for the 2019-2020 academic year supported rental growth outlook, with reservations for the academic year at 75%, which was in line with the record levels seen in 2017.
Rental growth outlook for 2019-2020, meanwhile, was reported at between 3.0% and 3.5% on a like-for-like basis.
Unite’s earnings growth was said to be underpinned by the firm’s operating platform, as well as nomination agreements, and its development and partnerships pipeline.
Nomination agreements with universities were on 60% of beds, in line with the 2017 year, with the proportion benefitting from contractual uplifts rising to 76% from 71%.
New nominations were secured on 50% of the 2018 openings, including three new agreements with top 25-ranked universities, and the figure expected to rise to 70% in 2019.
Unite’s secured development and university partnerships pipeline totalled 6,579 beds for delivery over the next four years, generating a 7.0% yield on cost.
Together with rental growth, the Unite board claimed the new openings net of disposals could add between 13p and 17p to earnings per share on completion of the pipeline.
It also said it was leveraging its operating platform to drive further efficiencies, with the 2018 targets delivered, and a new EBIT margin target of 74% by end of 2021 set.
The company said it had made “significant progress” with university partnerships recently, with two deals secured in 2018, one deal secured since year-end, and further pipeline emerging through 10 active discussions.
During the period, the firm disposed of 3,436 beds for £180m, of which £85m was Unite’s share, which the board said would support its increased focus on high-quality universities.
A total of 90% of the portfolio was located at high and mid-ranked universities.
The board said it was continuing to see a number of attractive development and university partnership opportunities in line with its target returns, adding that it expected to add to the pipeline while maintaining its financial discipline.
Looking at that financial position, Unite said its loan-to-value ratio was 29%, down from 31% year-on-year, while its cost of debt was reduced to 3.8% from 4.1%.
The firm was transitioning to an unsecured borrowing structure, following issuance of a £275m unsecured corporate bond, backed by an investment-grade credit rating from Standard & Poor's and Moody's.
“2018 was another successful year for Unite,” said chief executive officer Richard Smith.
“We made good progress against all of our core objectives and continued to deliver sustainable growth in our recurring earnings and cash flows.
“Our strong results remain underpinned by our brand, our sector-leading operating platform, the quality of our portfolio, our deep and valuable university relationships and sector fundamentals.”
Smith said those qualities set the company apart in a sector that remained undersupplied and, more than ever, had a need for accommodation that was delivered efficiently and with a focus on value for money.
“We continue to work in partnership with and align our portfolio to the strongest universities in the UK, where student demand is both sustainable and at its greatest with 90% of our portfolio located at these universities.
“This strategy has led to a further improvement in the quality and security of our income, with 60% of beds underpinned by agreements, in line with our target.
“University partnerships, alongside our development pipeline, are key drivers of continued growth and forward visibility of our earnings.”
Looking ahead, Smith said the board was maintaining its positive outlook for the business.
“Reservations for the 2019-2020 academic year are in line with record levels for this time of year, supporting our like-for-like rental growth guidance of 3.0%-3.5%.
“Our secured development and University partnerships pipeline of 6,579 beds being delivered over the next four years will further improve operating efficiency and generate significant earnings growth.”
While the backdrop of the ongoing Brexit negotiations and the impending review into higher education funding did provide some uncertainty, Smith said Unite’s strategy of aligning to the “best universities” and providing good-quality, value-for-money accommodation for resilient segments of the market reinforced the board’s long-term confidence in the business.
“This confidence is reflected in our 28% increase in the full-year dividend.”