Unite Students lettings running 'slightly below' expectations

Student accommodation specialist Unite Students updated the market on Friday, reporting that in the final stages of the lettings cycle for the 2021-2022 academic year, 94% of bed spaces were now let across its total portfolio, up from 88% last year and compared to 98% two years ago, pre-pandemic.

The FTSE 250 company said that was “slightly below” its previous expectations for 95% to 98% occupancy.

It said a record level of university applications had not translated into higher student intake as expected, with higher grade attainment distorting the distribution of students among its cities.

“We are sold out in the majority of our markets with significant waiting lists in a number of key cities for students struggling to find suitable accommodation,” the board said.

“However, we have seen a concentration of voids in cities where we expect universities to have lost market share of students or which are adjusting to new supply.”

Unite’s waiting lists equated to an additional 1% to 2% in potential occupancy, which the firm would expect to be re-distributed among its other cities as disruption from higher grading unwound.

The government said it had confirmed that grade boundaries would return to pre-pandemic levels over the next two years, with this year's strong undergraduate intake in higher-ranked cities also set to support student numbers and rental growth prospects in those markets over the next three years.

UK direct-let sales were described as “particularly strong” this cycle, accounting for 21% of available beds, compared to 16% last year and reflecting Unite’s “proactive efforts” to target re-bookers and customers who might otherwise stay in houses of multiple occupancy.

International direct-let sales increased slightly over 2020-2021, with an increase in non-EU demand partially offset by a greater-than-expected reduction in EU sales following removal of home-fee status and access to tuition fee loans.

International travel restrictions were still having an effect on demand from China, where record numbers of new undergraduate students had not yet translated into bookings.

For students needing to self-isolate on arrival in the UK, Unite said it was still offering them the opportunity to arrive at their accommodation up to three weeks early at no extra cost.

Pricing activity remained “disciplined” in the market, with only limited discounting in specific markets with higher availability.

As a result, the firm said it was expecting to deliver rental growth of 2.3% for the academic year

Financially, Unite said the reduction in occupancy and rental income for the academic year was expected to result in EPRA earnings per share at the lower end of guidance for the financial year of between 27p and 30p.

The impact of lower rental income in terms two and three of 2021-2022 would also reduce rental income for the 2022 financial year by £8m to £10m when compared to management's previous expectations, equivalent to around 2p of EPRA earnings per share.

“We will seek to mitigate this impact on 2022 earnings per share through ongoing sales activity by targeting international students who may delay their arrival to the UK until the new year and the reintroduction of summer business in 2022,” the board said.

“In addition, we are targeting cost savings from operational efficiencies resulting from lower occupancy.

“We are fully-hedged for our 2022 energy costs, which represent about 5% of rental income, protecting earnings from rising wholesale prices.”

Unite said it had now collected 96% of rent due for the academic year, excluding the impact of the 10-week rental discount offered to customers for the second semester.

There remained 1% of rent still to be billed for the period.

It said the check-in of students is progressing well for the new academic year and early rent collection was in line with expectations.

As at 30 September, the Unite UK Student Accommodation Fund (USAF) property portfolio was independently valued at £2.83bn, reflecting a 1.1% increase on a like-for-like basis during the quarter.

The portfolio comprises 29,627 beds in 76 properties across 20 university towns and cities in the UK.

At the same time, the London Student Accommodation Joint Venture (LSAV) property portfolio was independently valued at £1.76bn, making for a 3.7% increase on a like-for-like basis during the quarter.

That portfolio comprises 9,716 beds across 14 properties in London, and the Aston Student Village in Birmingham.

The valuation increase was driven by increased occupancy for the academic year, and rental growth.

In addition, the USAF and LSAV portfolios have seen two and eight basis points yield compression respectively during the quarter, with the portfolios valued at weighted average yields of 5.2% and 4.2%, respectively.

“We have seen record demand for UK universities from UK school leavers and non-EU students, particularly for the strongest universities to which we are strategically aligned, although higher grade attainment and restrictions around international travel as a result of the pandemic have impacted occupancy in a small number of cities,” said chief executive officer Richard Smith.

“There remains a strong outlook for student demand driven by demographic growth, rising participation rates and increasing demand from non-EU markets.

“This underpins our confidence in a rapid recovery in earnings and total returns, driven by sustainable rental growth, our substantial development pipeline and further opportunities to deploy capital.”

At 1021 BST, shares in the Unite Group were down 2.85% at 1,072p.