Unite Group Plc · LSE:UTG
Unite — H1 2023 Earnings Presentation
47 slides from Unite's earnings presentation, Jul 25, 2023
Slide 1: Interim results: Six months ended 30 June 2023
Interim results Six months ended 30 June 2023 25 July 2023 Delivering sustainable growth
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: Strong H1 performance
PERFORMANCE HIGHLIGHTS Strong H1 performance H1 2023 H1 2022 FY 2022 • Continued growth in earnings and dividends • Adjusted EPS up 15% to 27.5p Adjusted earnings1 £110.2m £96.0m £163.4m • Dividend up 7% to 11.8p • EPRA NTA of 928p, stable in H1 Adjusted EPS1 27.5p 24.0p 40.9p • Record demand for 20
Slide 5: Record student demand for 2023/24
PERFORMANCE HIGHLIGHTS Record student demand for 2023/24 Breakdown of reservations by type1 60% 52% 54% • Record progress with reservations for 2023/24 40% • 98% of beds let (H1 2022: 92%) 24% 22% 20% 14% 14% • Consistently tracked ahead of recent years 7% 5% 2% 3% • Broad-based strength in all our
Slide 6: Growing demand for Higher Education
PERFORMANCE HIGHLIGHTS Growing demand for Higher Education 000s UK 18-year-old population 1,000 • Positive long-term outlook for UK student numbers 893 900 • 19% growth in UK 18-year-olds by 20301 800 753 • Rising participation trend for under/postgraduates 700 • Applications 5% above pre-pandemic l
Slide 7: Supply unable to meet demand
PERFORMANCE HIGHLIGHTS Supply unable to meet demand 40% Landlord buy/sell intentions • Housing supply unable to keep pace with student demand 30% 37% • Many university cities facing housing shortages 20% • Key constraint on university growth 10% 13% • Landlords leaving the private rental sector 0% •
Slide 8: Deepening partnerships with universities
PERFORMANCE HIGHLIGHTS Deepening partnerships with universities Nominated beds by year 60% • Growing recognition of housing need by universities 56% • Key enabler of future growth plans 55% 54% • Ageing low-quality university stock a barrier to growth 52% 51% 52% • Fundamental to student experience
Slide 9: A landlord with purpose
PERFORMANCE HIGHLIGHTS A landlord with purpose What we deliver Increasing Supporting Investing in Creating local housing university quality sustainable supply growth homes 4,800-bed development Unite accounts for 4 in 10 beds £150-200m annual 2030 net zero carbon pipeline for delivery by 2027 nomina
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 2023 H1 2022 FY 2022 Income statement YoY Adjusted earnings 15% £110.2m £96.0m £163.4m Adjusted EPS 15% 27.5p 24.0p 40.9p Dividend per share 7% 11.8p 11.0p 32.7p Balance sheet 6 months EPRA NTA per share -% 928p 940p 927p Loan to value -% 31%
Slide 12: Record earnings
FINANCIAL REVIEW Record earnings £m H1 2023 H1 2022 FY 2022 Rental income 197.0 177.4 339.7 Property operating expenses (50.2) (45.5) (98.7) Net operating income (NOI) 146.8 131.9 241.0 NOI margin 74.5% 74.4% 70.9% Management fees 9.0 9.2 17.4 Overheads (12.1) (13.7) (27.7) Finance costs (30.7) (28.
Slide 13: Rental income driving earnings growth
FINANCIAL REVIEW Rental income driving earnings growth • Adjusted earnings increased 15% YoY, reflecting higher occupancy and rental growth • Increased funding cost in H1 on broadly stable net debt • 1ppt year-on-year EBIT margin improvement, excluding non-recurring items EPRA earnings bridge £120m
Slide 14: Rental growth offsetting cost increases
FINANCIAL REVIEW Rental growth offsetting cost increases Utility costs and hedging 800 100% ~710 1 • Like-for-like NOI growth of 10% in H1 2023 ~570 0.8 Cost per bed (£) 600 ~530 75% • Return to full occupancy and 3.5% rental growth ~440 ~490 0.6 • Increase in operating costs limiting margin improve
Slide 15: NAV stable in H1
FINANCIAL REVIEW NAV stable in H1 • Rental growth driven by 2023/24 lettings performance • Yield expansion of 13bps, total 27 bps expansion since peak in June 2022 • Development valuations impacted by higher yield assumptions 980p 35p 960p 940p 927p 4p 928p 4p (35p) 920p (4p) (3p) 900p 880p 31 Dec 2
Slide 16: Accelerating development and asset management
FINANCIAL REVIEW Accelerating development and asset management c.£300m placing to fund new investment activity1 at attractive returns • Market environment offers the strongest opportunity for new investment in recent years • Equity raise and use of proceeds accretive to EPS and total accounting retu
Slide 17: High-quality balance sheet
FINANCIAL REVIEW High-quality balance sheet Pro forma 30 June 2023 31 Dec 2022 LTV 25%1 31% 31% • Focused on balance sheet quality • LTV target of c.30% (pro forma: 25%1) Net debt:EBITDA ratio 6.8 7.3 • Net debt : EBITDA target of 6-7x Interest cover ratio 3.8 3.7 • ICR target of 3.5-4.0x Average co
Slide 18: Property review
3 Property review Mike Burt, Group Investment Director 18
Slide 19: Continued investment appetite
PROPERTY REVIEW Continued investment appetite UK PBSA investment volumes Student 7 Roost £bn Liberty iQ • £1.0bn of transaction evidence in H1 2023 6 Living • Focus in prime and major provincial markets 5 4 • Strong demand from private equity and institutional investors 3 2 • Income returns underpin
Slide 20: Increasing development activity
PROPERTY REVIEW Increasing development activity • Committed pipeline increased to 3,659 beds and £623m at 6.7% yield on cost • New commitments for Temple Quarter, Bristol and Meridian Square, Stratford • Both new schemes expected to be 50% nominated to universities on long-term agreements 2023/24 20
Slide 21: Value-enhancing asset management initiatives
PROPERTY REVIEW Value-enhancing asset management initiatives Asset management investment • Significant asset management opportunity in £8.5bn estate £100m • Well-located assets, close to university campuses £80m • Average portfolio age of 12 years £60m • Previous investment target of £35-50m p.a. fu
Slide 22: Proven asset management capability
PROPERTY REVIEW Proven asset management capability • Acceleration of additional £50m pipeline in strongest markets • £140m total investment adds c.1% to gross rent in 2024 and 2025 • Significant additional opportunities post-2025 2022 2023 2024/25 pipeline London, Bristol, Edinburgh, Newcastle, Citi
Slide 23: Future investment opportunities
PROPERTY REVIEW Future investment opportunities • Two additional secured schemes totalling £227m for delivery in 2026 and 2027 • 1,147 beds in Bristol and TP Paddington in London • Planning approval targeted by early to mid-2024 • Opportunities to secure additional developments • Advanced discussion
Slide 24: Outlook
4 Outlook Richard Smith, Chief Executive 24
Slide 25: Positive outlook
OUTLOOK Positive outlook • Strongest market conditions for many years • Record reservations for 2023/24 • EPS guidance increased to upper end of 43-44p • Targeting at least 5% rental growth for 2024/25 • Positive conditions to persist • Growing UK and international demand • Reducing HMO supply • Cha
Slide 26: Q&A
5 Q&A
Slide 27: Appendices
6 Appendices 27
Slide 28: Home for Success
APPENDIX Home for Success 84% of customers using MyUnite app • City-centre locations with range of price points • Close to university campuses • Shared living and studios 83% of customers used • Good transport links • Help when it’s needed online check-in • 24/7 on-site presence • Customer service t
Slide 29: High quality, affordable accommodation
APPENDIX High quality, affordable accommodation • Compelling product and service offer compared to HMO • Our accommodation costs the same as HMO including bills • HMO rents increasing substantially faster than PBSA Unite Traditional HMO Safety 24/7/365 staffing, CCTV, professional landlord Not inclu
Slide 30: Morriss House, Nottingham
APPENDIX Morriss House, Nottingham • 705 beds, opening for 2023/24 • Adjacent to University of Nottingham’s Jubilee Campus with 25% of beds nominated • Yield on cost increased to 8.5%, fully let for 2023/24 • Expect £22m (37%) profit on cost • Significant investment in the customer experience • New
Slide 31: Temple Quarter, Bristol
APPENDIX Temple Quarter, Bristol • Two-minute walk to new University of Bristol campus • 614 beds for delivery in 2025 • £78m total development cost at 7.3% yield • Build cost confirmed by partner contractor • Planning secured • Addresses acute PBSA shortage in Bristol • 40% growth in full time stud
Slide 32: Meridian Square, Stratford
APPENDIX Meridian Square, Stratford • 952 beds for delivery in 2027 • £199m total development cost at 6.4% yield • Planning submitted, decision expected in H2 2023 • 15% reduction in land price secured • Build costs confirmed by partner contractor • Growing student demand in Stratford, home to 15,00
Slide 33: Making a positive impact
APPENDIX Making a positive impact Making a positive impact through People Making a positive impact through Places • Commitment to invest 1% of profits in social initiatives • Completed asset transition plans, identifying capital with £2m invested in 2022 investment required to hit our 2030 net zero
Slide 34: Delivering our sustainability strategy
APPENDIX 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 in 2022 • Positive changes to EPC regulations for PBS
Slide 35: Net zero carbon
APPENDIX Net zero carbon GHG emissions by source (2019 baseline) Scope 1, Gas • 2030 net zero commitment for operations 7% Scope 3, other and development 17% Scope 2, Heat • Net zero pathway published in late 2021 including 2% targets validated by the SBTi • Unite emissions include students’ energy
Slide 36: Making our buildings net zero carbon
APPENDIX Making our buildings net zero carbon 36
Slide 37: EPC ratings
APPENDIX EPC ratings • 80% of portfolio is A-C rated by floorspace EPC ratings (total portfolio) (2021: 57%) 80% • Fully compliant with current regulations 71% • Developments targeting ‘A’ rating 61% 60% • EPCs addressed as part of £100 million (c.£10m p.a.1) investment programme to drive environmen
Slide 38: Leading in fire safety
APPENDIX Leading in fire safety Fire safety capex • Fire safety is a critical part of our strategy Spent to date £64m1 • Linked to our Home for Success purpose • One of the first companies to remove ACM cladding Provision Jun-2023 £45m1 • Replacement of HPL is fully provided for and now underway • A
Slide 39: Portfolio overview
APPENDIX Portfolio overview Geographical breakdown of portfolio Aberdeen 2022 Completed beds Full-time student City rank (22/23) numbers (21/22) Edinburgh 1 London 12,574 382,635 Glasgow 2 Liverpool 5,975 55,325 7 Newcastle 3 Manchester 5,639 97,785 Durham 4 Birmingham 5,582 85,215 5 Leeds 5,533 69,
Slide 40: Portfolio and customer breakdown
APPENDIX Portfolio and customer breakdown Customers by domicile Customers by year of study Distribution of beds by weekly price Postgraduate, 30% 2022/23 2021/22 2020/21 17% 20% UK 72% 70% 66% 10% 0% 1st year Non-EU 25% 25% 25% Returning Undergrad., Undergrad, 55% Other EU 3% 5% 9% 28% London UK Boo
Slide 41: Rental portfolio analysis June 2023
APPENDIX Rental portfolio analysis 30 June 2023 Wholly owned USAF LSAV Lease Total Unite share London Value (£m) 1,197 425 1,664 15 3,301 2,163 Beds 3,802 1,883 6,649 260 12,574 39% Properties 11 6 14 1 32 Prime regional Value (£m) 1,119 754 - 21 1,895 1,353 Beds 7,982 5,351 - 618 13,951 24% Propert
Slide 42: Operations result
APPENDIX Operations result H1 2023 H1 2022 Change £m Share of Share of Total Wholly owned Total £m % Wholly owned Fund/JV Fund/JV Rental income Like-for-like properties 127.9 58.1 186.0 118.4 48.8 167.2 18.8 11% Non-like-for-like properties 11.0 - 11.0 9.3 0.9 10.2 0.8 8% Total rental income 138.9 5
Slide 43: EPRA Earnings statement
APPENDIX EPRA Earnings statement USAF LSAV 30 June 2023 30 June 2022 Wholly owned (Unite share) (Unite share) £m £m Rental income 139.1 30.7 27.2 197.0 177.4 Property operating expenses (35.5) (8.6) (6.1) (50.2) (45.5) Net operating income (NOI) 103.6 22.1 21.1 146.8 131.9 NOI margin 74.5% 72.0% 77.
Slide 44: EPRA balance sheet
APPENDIX EPRA balance sheet USAF LSAV Unite Group Unite Group £m Wholly owned (Unite share) (Unite share) June 2023 Dec 2022 Balance sheet Rental properties 3,646 822 970 5,438 5,397 Leased properties 89 - - 89 90 Properties under development 217 - - 217 203 Total property portfolio/GAV 3,952 822 97
Slide 45: LTV reconciliation
APPENDIX LTV reconciliation • Group maintains a c.30% LTV target on 30 June 2023 Net debt GAV LTV see-through basis See-through LTV (1,742) 5,655 31% • EPRA LTV includes net payables reflecting: • Debt interest accruals (£21m) Net payables (173) - • Trade creditors (£36m) Intangibles - 21 • Fire saf
Slide 46: Debt information
APPENDIX Debt information 30 June 2023 31 Dec 2022 Facility Drawn Maturity £m £m Net debt £1,742m £1,734m On-balance sheet LTV 31% 31% Unsecured bond (LL 2024) 300 300 2024 Net debt:EBITDA ratio 6.8x 7.3x Sustainable RCF 600 262 2026 Interest cover ratio 3.8x 3.7x Unsecured bond (Unite) 275 275 2028
Slide 47: Secured development and partnerships pipeline
APPENDIX Secured development and partnerships pipeline Type2 Target Secured Total Total Capex in Capex Forecast NAV Forecast yield delivery beds completed development period (£m) remaining remaining on cost value costs (£m) (£m) (£m) (£m) Committed development Moriss House, Nottingham DL 2023 705 82