Unite Group shares were up 1.4% to 1,122p in early morning trading on Friday following a confirmation of high demand in sales over Q2 2022, with 90% of student rooms sold for the 2022 to 2023 academic year, exceeding pre-pandemic levels of 89%.
The student accommodation firm reported positive pricing progress, particularly as the impact of Omicron eased, with progress driven by inflation-linked rental uplifts for its multi-year nomination agreements and strong demand for direct-let beds.
Unite commented it expected to deliver occupancy rates of 97% for the next academic year and hit rental growth at the top end of its guidance at 3% to 3.5%.
The company mentioned its concerns surrounding cost inflation and noted its staff and utilities expenses as its two largest costs.
Unite said its utilities costs were fully hedged across 2022 and 2023, alongside a significant portion of 2024, with its recently completed review of its operating model set to deliver further efficiencies which will partially mitigate wider cost pressures.
It also reportedly benefited from growing recurring income through asset management fees from USAF and LSAV, linked to NOI and NAV, which offset approximately two-thirds of its share of overheads.
The firm announced its limited near-term refinancing requirements, with less than 10% of see-through debt maturing before late 2024 and interest rates fixed or capped for 85% of its existing investment debt.
Unite also confirmed it had forward hedged £300 million of future debt insurance at rates meaningfully below market levels. Additionally, as a result of rising interest rates on the variable portion of its debt, its see-through borrowing costs increased 3.3% at the end of HY1 2022.
The student accommodation company further updated its portfolio valuations, with its USAF property portfolio independently valued at £2.9 billion, representing a 3.5% climb on a like-for-like basis over the Q2 term.
The rise was driven by rental growth of 0.8% and a 0.13% point reduction in property yields.
Meanwhile, Unite’s LSAV investment portfolio was independently valued at £1.9 billion, representing a 4% increase on a like-for-like basis over the period.
Unite said the climb was driven by rental growth of 1.1% and a 0.12% reduction in property yields.
“We continue to make good progress with bookings for the 2022/23 academic year with reservations now ahead of pre-pandemic levels, demonstrating the strength of student demand,” said Unite Group CFO Joe Lister.
“This momentum underpins our confidence in a return to full occupancy for the 2022/23 academic year and rental growth at or just above the top end of our guidance of 3.0-3.5%. We are well protected against inflationary pressures through annual re-pricing of our income and cost hedging but, like others, are not immune from the impact of rising costs and interest rates.”
“We continue to see significant investor demand for student accommodation, reflecting the sector’s positive outlook, as demonstrated by valuation increases for USAF and LSAV in the quarter.”