Unite Group Plc

Good morning everyone and thank you all for joining the call. I'm going to take you through a few slides and then we'll open up for some Q&A so if you have any questions for me and Mike please drop them into the webcast. Overall we're pleased with our progress against priorities that we shared earlier this year. We've delivered a strong leasing performance in an evolving market helped by the strength of our best-in-class platform. Our enhanced commercial approach has delivered reservations of 96% at the upper end of the range guided back in July. Whilst annual rents are down a little, this largely reflects a mix towards more undergraduates and resulting shorter tenancy lengths. We're also especially pleased with the performance of Empiric with occupancy of 92% meaningfully ahead of last year. Income growth is in our range and our EPS guidance for 26 is underpinned. Our best assets are performing strongly and we have confidence in the strongest universities that we are working with. Our portfolio of the future is outperforming the disposal portfolio and we're making solid progress on disposals. We've sold 200 million so far this year and remain on track to get to our three to 400 million targets. The transaction market is being impacted by the challenging macro backdrop, but we continue to see good engagement and are working to the targets and timelines that we previously set out. We remain disciplined to our capital allocation framework, managing leverage, funding our on-site pipeline, and as shown earlier this year, we will allocate surplus capital to share buybacks. We are moving at pace and we are making progress. The trends that we've spoken about earlier this year have continued to play out through August and September. More than ever, students are prioritising the best universities and we believe that they will continue to do so. And the strongest universities are winning in this environment. They're continuing to attract students to live away from home and have a greater need for accommodation than the lower ranked universities. International post graduates are down at all but the very best universities due primarily to the shortening of the post study work visa from three years to 18 months. This is being partially offset by more international undergraduates with China particularly strong. And universities responding by growing their UK student numbers and the likes of Manchester, UCL, Kings, Liverpool, Newcastle are all recruiting strongly. And there's even stories of extra in Bristol in the news facing a shortage of accommodation for first year students. And these trends support our strategy to increase alignment to the strongest universities where the outlook for accommodation demand and mental growth is the most positive. The Unite platform consistently drives superior performance from PBSA assets, and that means high revenues, income visibility and lower costs. And this is because firstly, our brand and reputation, we're clearly recognised by the UK's leading universities and the students who attend them. And this gives us an edge across the spectrum from multi decade university partnerships, through to short term lads. Secondly, the scale of our operation means that we can deliver higher occupancy for a lower cost. We have a deeper and wider sales channel than anyone else with the 24-7 call centre, international office, best-in-class technology and scale. Being focused on 20 top cities for students brings efficiencies in the cost to market and servicing each bed. These brand and scale benefits are tangible. The chart on the bottom left shows a clear example of how we're outperforming the market from the latest student's data and that we're gaining share. In the middle, our nominations of 54% of the portfolio is nominated. Universities need students, students need beds, and this is mission critical to those universities. And uniquely, we're both large enough and trusted by universities to provide long-term accommodation solutions. and finally our cost to serve is low. I think Empiric is a great example of this where we've reduced the cost base by more than 40% which is ahead of our underwrite expectations. The typical PBSA bed is more valuable on the Unite platform than anywhere else and these are significant and enduring advantages of our platform improving our profitability and creating value. Last November we set out our leasing strategy for the 26-27 academic year and I'm really pleased with how we have delivered. We saw universities become more cautious around committing to nominated rooms, where we pivoted and sold 5,000 more beds on a direct let basis to returners, winning share from the HMO market. and in response to fewer postgraduates we have shifted to undergraduates. We have front-footed and applied the lessons from last year, we adjusted pricing early rather than waiting for clearing, our developments are fully let and Nottingham, Bristol and Edinburgh have all come back strongly. We took over Empiric when it was behind and made a material improvement performance with more to come in our first full year of ownership. This doesn't just happen, the market is changing and we are adapting but it takes a huge amount of work to deliver this performance from our commercial teams, property teams, technology and city teams have all responded well to the challenge and this sets us well for the 27-28 academic year. In this sales cycle, we focused on delivering overall income and price to secure occupancy early. Occupancy is above 95% in all of our strongest cities. Where we have seen lower occupancy, this is largely supply driven. Weekly rates are up modestly, supported by indexation and multi-year nominations, and the shift to undergraduate students has meant we've sold more shorter tenancies, meaning that overall rev pour is down by 0.3 percentage points. and we've also seen our overall cost of sale, agent fees and pay per click marketing costs up year on year. Given the shortening of tenancy lengths, we do see the opportunity to grow utilization through our flexible lettings business. We've already grown this income this year and see the opportunity to add up to a further half percentage point to income growth in 2027. We set out our future portfolio at the interims and we're clear then that these assets have the strongest track record and our conviction that this will continue. Our target portfolio of 55,000 to 60,000 beds is across 20 cities and these have again outperformed in both occupancy and rental growth as we'll see from the two charts and we expect this to continue. We're focused on moving as fast as we can to this future portfolio as I'll come back to discuss the disposal progress. A new supply in these cities beyond 2027 is very limited. Viability is incredibly challenging and there are signs that the Renters Rights Act is starting to have an impact on the HMO market. Turning to Empiric and our Hello Student brand, we're really pleased with the performance to date. The brand is clearly benefiting from the power of the Unite platform, driving improved performance right across the portfolio. When we took it over in January, bookings were 13 points behind year on year. We applied our understanding of each city to market effectively. We broadened the sales network, introduced our dedicated international sales team, and this has resulted in both occupancy and income being ahead of last year and expectations. We're in the advanced stages of preparing for our first full sales cycle. The early rebooking window offers opportunity for us to retain more customers at a lower cost and cross-sell from the Unite portfolio and continue to win share from the HMO market as well. We completed the bulk of the integration and will deliver the 18 million synergy target that we've previously discussed. Nominations continue to provide us with income visibility and growth with inflation linkage in multi-year deals and have an average remaining term of five years. The strongest universities need more beds and we are seeing this. So far we've agreed 4,300 new beds with deals with the universities like UCL, London School of Economics and Bristol and these have been at a 10% increase to current passing rents and this supports our trend of our shift towards strong universities and higher quality nominations. Renewal discussions for single year deals are underway now with universities, typically run through Q4 and into early Q1. Depending on where we end up, our experience shows this year how we have a range of commercial levers to drive a beneficial outcome. The pricing differential between multi year NOMs and direct lets gives us a room to play with. We are already on this and actively managing over the next few months. Moving on to property valuations, we've seen valuations reduced by 3.7% in Q3. This movement largely reflects the higher interest rate environment affecting all assets. Values have also reflected lower income on weaker performing assets. This makes up about a third of the decline and these assets largely sit in our disposal pool. We continue to focus on bringing leverage back in line with our target of six to seven times net debt to EBITDA and have allocated recent disposal proceeds to deleverage. As we deliver further disposals, we'll continue to allocate capital according to our existing framework, and that's managing leverage, funding costs to complete our remaining onsite developments, and where we generate surplus capital share buybacks remain attractive and as we've demonstrated by our purchases of 165 million earlier this year we also continue to progress with a number of university partnerships. And as I said, we're making solid progress on a disposal programme and remain on track to deliver our target of three to 400 million this year. Last week, we announced the sale of our King's Place development land, exiting an asset which no longer meets our investment hurdles, bringing the year to date total to 200 million. We have a further 225 million of assets under offer. It'll be no surprise to you that the market is not straightforward and conditions are continually evolving. Funding costs are increasing, buyers have waited to the end of the sales cycle and they're now pricing off passing income rather than an equivalent yield as they have historically done. The cladding diligence is taking two to three months to complete. We remain pragmatic but disciplined when selling assets. We're not sellers at any price and we will hold assets for longer if it makes sense for shareholders. And in closing, the strongest universities are still growing and that supports improved performance on the portfolio of the future. We're responding to the changes in the market. We're being proactive to drive the best commercial performance and to win market share. We're working at pace to increase our alignment to the strongest universities to create a portfolio with pricing power. And we will continue to use proceeds in line with our capital allocation framework. And we remain focused on delivering the best outcomes for shareholders. So as you can see, there's a lot to do, but we're pleased with the progress to date. So with that, we'll turn to your questions. Thank you for those you've already done so, but if you haven't, please pop any further into the webcast. Mike and I will just now work through those questions, particularly ones we haven't covered.

Thanks Joe. Morning everyone, it's Mike here. I'll start to run through the questions on the webcast, starting with Anna Escalante at Morgan Stanley. Firstly, could you provide more colour on the half a percentage point potential increase in income from short term rentals?

Yeah, so short term rentals for us is made up of two or three elements. We have semester lets where we're seeing demand for students for the first and the second semesters. We also see it then in our summer business, which has always been part of our offer. And then also a short term letting cycle, particularly over the summer months as well. We've grown the proportion of our income from this pool of revenue to about 2%, and that's up by about 50 basis points this year. And given the increased availability, particularly in the stronger markets like London, Manchester and Edinburgh, where we have seen some of that shortening of tenancies, because they were the ones primarily with the 51 week tenancies that gives us greater opportunity to drive further income over that summer period and that's what is really working through the availability at the current pricing the cost to deliver that which gives us the opportunity to drive that additional half percentage point through 27.