Unite Group Plc · LSE:UTG
Unite — H1 2022 Earnings Presentation
43 slides from Unite's earnings presentation, Jul 27, 2022
Slide 1: Resilient growth: Interim results
Resilient growth Interim results Six months ended 30 June 2022 27 July 2022
Slide 2: Contents
CONTENTS Contents 1. Performance highlights 2. Financial review 3. Property review 4. Outlook 5. Q&A 6. Appendices 2
Slide 3: Performance highlights
1 Performance highlights Richard Smith, Chief Executive 3
Slide 4: Performance highlights: continued momentum
PERFORMANCE HIGHLIGHTS Continued momentum Earnings and dividends ahead of their pre-pandemic peak H1 2022 H1 2021 FY 2021 • Adjusted EPS up 32% to 24.0p • Dividend up 69% to 11.0p • EPRA NTA of 940p, up 7% in H1 Adjusted earnings1 £96.0m £72.6m £110.1m • Total accounting return of 8.3% in H1 Adjuste
Slide 5: Strong student demand for 2022/23
PERFORMANCE HIGHLIGHTS Strong student demand Reservation progress by academic year for 2022/23 100% 98% 94% 90% 88% 80% UCAS applications 7% ahead of pre-pandemic levels 70% • Record 44% application rate for school leavers • 9% YoY growth in non-EU students 60% • EU student numbers beginning to stab
Slide 6: Growing demand for Higher Education
PERFORMANCE HIGHLIGHTS Growing demand for 50% 18-year-old population and application rate 000s 1,000 Higher Education 45% 44% 893 900 800 Positive long-term outlook for student numbers 40% 753 • Significant demographic growth 700 • Record participation rates for school leavers 35% 600 • Growing inte
Slide 7: Improving rental growth
PERFORMANCE HIGHLIGHTS Improving rental growth 2022/23 rental growth 5% 4.0-5.0% 4.0-4.5% 3.5-4.0% 4% Multi-year nomination agreements growing at 4.0-4.5% 3% 2.0-2.5% • 35% of total beds 2% • 70% RPI-linked, 20% CPI-linked and 10% fixed 1% • Caps typically at 4-5% for RPI/CPI-linked agreements 0% Mu
Slide 8: High quality, affordable accommodation
PERFORMANCE HIGHLIGHTS Annual increases in HMO living costs2,3 High quality, Gas & Electricity 70% Contents insurance affordable accommodation 23% Bills Broadband 5% Water 4% Rents (Greater London) 16% Value for money is central to our customer offer Rents Rents (Regions) 12% • All-inclusive pricing
Slide 9: Delivering our sustainability strategy
PERFORMANCE HIGHLIGHTS Delivering our sustainability strategy Increasing investment into energy efficiency projects • Run-rate of £10m p.a. (Unite share £5-6m) • Strong business case through utility cost savings • 1,600 beds upgraded to EPC B through refurbs Positive changes to EPC regulations for P
Slide 10: Financial review
2 Financial review Joe Lister, Chief Financial Officer 10
Slide 11: Strong financial performance
FINANCIAL REVIEW Strong financial performance % change H1 2022 H1 2021 FY 2021 Income statement YoY Adjusted earnings 32% £96.0m £72.6m £110.1m Adjusted EPS 32% 24.0p 18.2p 27.6p Dividend per share 69% 11.0p 6.5p 22.1p Balance sheet 6 months EPRA NTA per share 7% 940p 837p 882p Loan to value 1% 30%
Slide 12: Earnings above pre-pandemic peak
FINANCIAL REVIEW Earnings above pre-pandemic peak £m H1 2022 H1 2021 FY 2021 Rental income 177.4 152.9 282.7 Property operating expenses (45.5) (41.8) (90.9) Net operating income (NOI) 131.9 111.1 191.8 NOI margin 74.4% 72.7% 67.8% Management fees 9.2 8.2 15.9 Overheads (13.7) (13.0) (31.5) Finance
Slide 13: Earnings growth
FINANCIAL REVIEW Earnings growth • Adjusted earnings increased 32% YoY, reflecting higher occupancy and rent discounts in H1 2021 • Lower net debt more than offsetting increased funding cost in H1 • £3m of non-recurring items for abortive acquisition costs and implementation of operating model revie
Slide 14: Improving operating margins
FINANCIAL REVIEW Improving operating margins Utility costs and hedging 700 ~600 600 ~530 Cost per bed (£) 500 ~470 Protection from inflation 400 ~380 ~380 70% 98% • Rental growth realised through annual re-pricing 300 • Largest costs fixed or directly controllable 200 100 Control over staff costs 0
Slide 15: Growth outlook for 2022 earnings
FINANCIAL REVIEW Growth outlook for 2022 earnings • Guidance for 40-41p of adjusted EPS for FY2022 (previously 41-43p) • Strong rental growth offset by higher interest rates (2p) • Dividend payout of 80% of adjusted EPS for 2022 £m FY2021 FY2022 Comment Occupancy: 2021/22 88% - 2022/23 94% 94% 2023/
Slide 16: Ongoing capital discipline
FINANCIAL REVIEW Debt maturity schedule2 Ongoing capital discipline 600 500 111 400 Robust balance sheet with significant investment capacity £m 300 38 70 • LTV of 30% (Dec-2021: 29%) 200 450 300 270 275 300 Limited near-term debt maturities 100 157 150 • Well-laddered maturity profile 0 2022 2023 2
Slide 17: 2023 earnings outlook
FINANCIAL REVIEW 2023 earnings outlook • Return to ~97% occupancy for FY2023 • Confident in increased rental growth and cost control, protecting margin • Higher average cost of debt due rising rates and planned refinancing activity £m FY2022 FY2023 Comment Occupancy: 2021/22 94% - 2022/23 ~97% ~97%
Slide 18: NAV growth
FINANCIAL REVIEW NAV growth • 7% increase in NTA in H1 • Rental growth driven by progress with 2022/23 reservations • Yield compression of 15bps reflecting strengthening investment market 18
Slide 19: Delivering attractive returns
FINANCIAL REVIEW Delivering attractive returns • Anticipate total accounting returns of 8.5-9.0% for 2022, excluding yield movements • Reflects growing recurring earnings, rental growth and key development milestones • Development surplus in-year reduced by delay to Paddington planning H1 2022 Comme
Slide 20: Property review
3 Property review Nick Hayes, Group Property Director Hayloft Point, London 20
Slide 21: Strong investment appetite
PROPERTY REVIEW Strong investment appetite 8 UK PBSA investment volumes Liberty iQ Living Student 6 Roost PBSA continues to attract significant volumes of capital 4 • Reflects sector fundamentals and optimism over £bn future rental growth outlook 2 • Increasing focus on operating platforms to drive
Slide 22: Enhancing our portfolio
PROPERTY REVIEW Enhancing our portfolio £400m Capital recycling1,2 £300m USAF £200m Units £306m of disposals exchanged in H1 (Unite share: £236m) £100m • 5.7% yield and in-line with book value 0m • Increases alignment to the strongest markets £(100)m £(200)m Disposal programme now largely complete £
Slide 23: Increasing our investment in USAF
PROPERTY REVIEW Top 10 USAF cities by value Increasing our investment in USAF Other provincial, £230m London, £450m Major provincial, £630m Leeds, £297m Acquisition of £141m of USAF units in H1, through secondary market purchases and injection of new equity • Substantially redeploys proceeds of rece
Slide 24: Development progress
PROPERTY REVIEW Target Beds Completed TDC Yield on Development progress delivery value (£m) (£m) cost Direct-let development Secured pipeline of 6,200 beds for delivery by 2026 Derby Road, Nottingham 2023 705 88 58 8.1% • £1bn TDC at 6.0% yield on cost Lower Parliament St, Nottingham 2024 268 48 35
Slide 25: Phasing of development pipeline
PROPERTY REVIEW Phasing of development pipeline Development timing and Beds 2,500 returns 2,000 1,500 Increasing share of deliveries for 2025 and 2026 1,000 • 64% of pipeline beds consented 500 • Planning timelines extended for three remaining 0 unconsented schemes 2022 2023 2024 2025 2026 Dec-21 Ju
Slide 26: Outlook
4 Outlook Richard Smith, Chief Executive 26
Slide 27: Positive outlook
OUTLOOK Positive outlook Resilient growth in an uncertain environment • Growing demand for HE • Alignment to the strongest universities • Inflation protection through annual rental growth [Add photo] • Cost efficiencies through our operating platform • Clear value-for-money proposition • Enhancement
Slide 28: Appendices
Appendices 28
Slide 29: Home for Success
APPENDIX 86% of customers using Home for Success MyUnite app All-inclusive pricing • All utilities, insurance and services • • High-speed WiFi (200 Mbps) MyUnite app 79% of customers used • Maintenance teams on hand online check-in Help when it’s needed • 24/7 customer support centre • Customer serv
Slide 30: Student accommodation landscape
APPENDIX Student accommodation landscape • Unite Students affordable, mainstream offer has broad appeal • Well placed to support universities’ growth plans through nomination agreements • Significant opportunity to capture market share from the HMO sector Houses of Multiple University Halls Budget M
Slide 31: Sustainability achievements to date
APPENDIX Sustainability achievements to date Accelerating our environmental strategy Commitment to responsible investment Publication of net zero carbon pathway with targets Over £100m of financial support for students during the validated by the SBTi pandemic Commitment to invest 1% of profits in s
Slide 32: Net zero carbon
APPENDIX GHG emissions by source (2019 baseline) Net zero carbon Scope 1, Gas 7% Scope 3, other 17% Scope 2, Heat 2% • 2030 net zero commitment for operations and development Scope 2, Electricity • Net zero pathway published in late 2021 Scope 3, Development 29% including targets validated by the SB
Slide 33: Making our buildings net zero carbon
APPENDIX Making our buildings net zero carbon Link to video 33
Slide 34: EPC ratings
APPENDIX EPC ratings EPC ratings by floorspace1 40% • 57% of portfolio is currently A-C rated 36% 36% • Fully compliant with current regulations 35% • Improvement projects for a further 5% of 30% floorspace in 2022 24% • Developments targeting ‘A’ rating 25% 22% 20% • Positive changes to EPC regulat
Slide 35: Leading in fire safety
APPENDIX Leading in fire safety Fire safety capex Fire safety is a critical part of our strategy Spent to date £28m1 • Linked to our Home for Success purpose Provision, Jun-2022 £49m1 • One of the first companies to remove ACM cladding • Replacement of HPL is fully provided for and Further investmen
Slide 36: Portfolio overview
APPENDIX Portfolio overview Geographical breakdown of portfolio Aberdeen 2022 Completed beds Full-time student City rank (22/23) numbers (20/21) Edinburgh Glasgow 1 London 12,574 381,575 2 Liverpool 6,365 55,140 7 Newcastle 3 Birmingham 5,919 76,855 Durham 4 Manchester 5,639 71,450 Manchester 5 Leed
Slide 37: Portfolio and customer breakdown
APPENDIX Portfolio and customer breakdown Customers by domicile Customers by year of study Distribution Distribution of beds of beds by weekly by weekly price 30% price 2021/22 2020/21 2019/20 Postgraduate, 13% 30% 20% UK 70% 66% 60% 20% 10% 10% Non-EU 25% 25% 30% 0% 0% Returning Other EU 5% 9% 10%
Slide 38: Rental portfolio analysis June 2022
APPENDIX Rental portfolio analysis 30 June 2022 Wholly owned USAF LSAV Lease Total Unite share London Value (£m) 906 450 1,667 16 3,039 1,882 Beds 3,802 1,863 6,649 260 12,574 35% Properties 11 6 14 1 32 Prime regional Value (£m) 1,047 736 - 23 1,806 1,278 Beds 7,982 5,351 - 618 13,951 24% Propertie
Slide 39: Summary EPRA balance sheet and earnings statement
APPENDIX Summary EPRA balance sheet and earnings statement USAF LSAV Unite Group Unite Group £m Wholly owned (Unite share) (Unite share) Jun 2022 Dec 2021 Balance sheet Rental properties 3,443 835 971 5,249 4,865 Leased properties 93 - - 93 98 Properties under development 429 - - 429 324 Total prope
Slide 40: Operations result
APPENDIX Operations result H1 2022 H1 2021 Change Share of Share of £m Wholly owned Total Wholly owned Total £m % Fund/JV Fund/JV Rental income Like-for-like properties 127.7 46.0 173.7 105.0 35.8 140.8 32.8 23.4% New properties1 - - - - - - - Sold properties (to third party) - 0.2 0.2 2.1 0.6 2.7 (
Slide 41: LTV reconciliation
APPENDIX LTV reconciliation Group maintains 30-35% LTV target on see- 30 June 2022 Net debt GAV LTV through basis See-through LTV (1,727) 5,678 30% EPRA LTV includes net payables reflecting: Net payables (164) - • Debt interest accruals (£18m) Intangibles - 15 • Trade creditors (£47m) EPRA LTV (1,89
Slide 42: Debt facilities
APPENDIX Debt facilities On-balance sheet Co-investment vehicles Facility Drawn Maturity Facility Drawn Maturity £m £m £m £m Unsecured USAF Unsecured bond (LL 2024) 300 300 2024 Secured bond (2023) 380 380 2023 Sustainable RCF Secured bond (2025) 395 395 2025 450 250 2025 (HSBC/RBC/RBS) RCF (Wells F
Slide 43: Secured development and partnerships pipeline
APPENDIX Secured development and partnerships pipeline Target Secured Total completed Total Capex in period Capex remaining Forecast NAV Forecast yield on delivery beds value development (£m) (£m) remaining cost (£m) costs (£m) (£m) Direct-let development Derby Road, Nottingham 2023 705 88 58 7 38 2