- Revenue: Not explicitly mentioned.
- EPS Growth: 4% growth in EPS.
- NTA per Share: 5% growth in NTA per share.
- Total Accounting Return: 8% total accounting return in the first half.
- Occupancy and Rental Growth: Targeting full occupancy and rental growth of 7% plus.
- Equity Raise: GBP450 million equity raise to support GBP1.5 billion development pipeline.
- Adjusted EPS Growth: 4% growth in adjusted EPS.
- Interim Dividend: 5% increase to 12.4p.
- Net Tangible Assets: Increased by 5% to 969p.
- Total Accounting Return: 7.9% in the first half.
- Net Operating Income: Increased by 4% year-on-year.
- Finance Costs: GBP8.6 million lower year-on-year.
- EBIT Margin: Stable on an underlying basis.
- Utility Costs: Rose by 15% on an underlying basis.
- Technology Replatforming Costs: GBP3.5 million incurred in the period.
- Development Pipeline: On-site at five projects; planning consents for 2,400 beds in London, Bristol, and Glasgow.
- Disposals: GBP184 million completed in the period; expected GBP300 million for 2024.
- Acquisitions: Seven properties from USAF for GBP243 million.
- Development Yield: Kings Place development expected to deliver a yield on cost of 6.5%.
- Loan-to-Value (LTV): Reduced to 18% on a pro forma basis post-placing.
- Occupancy for 2024/25: Expected 98% to 99%.
- Rental Growth for 2024/25: At least 7%.
- Earnings Guidance: Upper end of 45.5p to 46.5p range.
- Total Accounting Return Guidance: Around 12% for the year.
- Sales Cycle: 94% sold for the academic year.
- Nomination Agreements: 58% nominated compared to 54% last year.
- Rebooking Success Rate: Up 55% since the start of the pandemic.
- Rental Growth for Next Academic Year: Expected between 4% and 5%.
- Technology Investment: New student app and website; new booking engine and property management system by 2025.
- Support to Stay Program: Recognized as industry-leading; eight-point increase in student satisfaction.
- Next-Generation Designs: New en suite flats and amenity spaces being introduced.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UNITE Group PLC (UTGPF, Financial) reported record earnings and dividends for the first half of 2024, driven by strong lettings performance.
- The company achieved 4% growth in EPS, 5% growth in NTA per share, and an 8% total accounting return in the first half of 2024.
- A GBP450 million equity raise will support growth in the GBP1.5 billion development pipeline and accelerate earnings growth into high single digits over the next few years.
- Strong rental growth and occupancy rates for the '23-'24 academic year supported a 5% increase in the interim dividend to 12.4p.
- The company is making significant progress with university joint ventures, including a new partnership with Newcastle University and another potential partnership in the pipeline.
Negative Points
- Applications to UK universities are down by 1.7%, equating to about 10,000 fewer applications, which could impact future occupancy rates.
- Utility costs rose by 15% due to higher commodity prices, impacting overall cost management.
- The company incurred GBP3.5 million in costs for its technology replatforming program, with further costs expected over the next 2.5 years.
- Political and policy uncertainty in the higher education space has characterized the first half of the year, adding a layer of risk to future planning.
- The forward funding market is not operating for many trader developers, making development unviable in about half the markets due to build cost inflation.
Q & A Highlights
Q: Can you provide more details on the expected increase in annual CapEx to GBP400 million, primarily driven by university joint ventures (JVs)?
A: Michael Burt, CFO: We see near-term CapEx at around GBP300 million, but with new projects and university partnerships, it could step up to GBP400 million. The scale of our stake in future university partnerships will influence this, with potential stakes between 25% to 50%. The GBP400 million is a medium-term target.
Q: How much of the GBP300 million equity raised last year has been deployed so far?
A: Michael Burt, CFO: The proceeds were for two development schemes in Stratford and Bristol, with the Bristol scheme already on site. The remainder is for asset management initiatives, with around GBP50 million of projects this year and GBP50 million to GBP75 million next year. The CapEx will be spent over 2 to 2.5 years.
Q: Why has the total development cost for the Central Quay project increased from GBP97 million to GBP123 million?
A: Michael Burt, CFO: The increase is due to upsizing the planning consent from 800 to over 920 beds, which is the single biggest driver. There has been some market inflation, but we are confident of hitting returns of around 7.5% through rental growth.
Q: Have you noticed any changes in the mix of tenants or how they are funding their accommodation?
A: Karan Khanna, COO: The mix remains stable, with a slight increase in UK domestic students due to more nominations. Maintenance loans remain a core funding source, with parents also contributing. More students are taking up part-time jobs to support their living expenses.
Q: Do the transactions with USAF clear the liquidity needs of the fund to pay out to shareholders?
A: Joe Lister, CEO: Yes, it clears the liquidity needs and provides further capital for the fund's capital requirements over the next couple of years.
Q: Is the acquisition from USAF partly driven by redemptions in the fund? What is the expected pro forma LTV at a USAF level following the redemptions?
A: Michael Burt, CFO: Yes, redemptions were paid in the first half, and the loan-to-value ratio at the period end was 26%. Following the redemptions funded by disposal proceeds, the LTV will remain around the same level.
Q: Do you plan to access the unsecured bond market again this year to help fund your growth?
A: Michael Burt, CFO: We recently completed a GBP400 million bond issue and have a bond to repay at the end of this year. We do not anticipate any more bond issuance in 2024.
Q: Have you seen any changes in international student recruitment, particularly from China?
A: Karan Khanna, COO: The mix remains stable, with strong recruitment from China. We are seeing more UK domestic students due to nominations, but overall, the mix is stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
