In a recent update on current trading and property valuations for the Unite UK Student Accommodation Fund (USAF) and the London Student Accommodation Joint Venture (LSAV), Unite Students revealed impressive results and a positive outlook for the 2023/24 academic year.
Lettings Performance for 2023/24
Unite Students reported promising sales for the upcoming academic year, with an astounding 98% of rooms already sold. This exceptional demand stems from both university partnerships and direct-let bookings made by students.
Notably, nominations agreements cover 56% of total beds for the 2023/24 academic year, representing an increase of approximately 2,000 beds compared to the previous year. This trend highlights how universities are increasingly relying on partners like Unite Students to address their accommodation needs.
As a result of this strong demand, Unite Students expects full occupancy and rental value growth of around 7% for the 2023/24 academic year, a notable increase from their previous guidance range of 6% to 7%. This leasing performance is likely to further bolster the company's property valuations, especially as the market adjusts to higher interest rates.
Unite Students' Development Pipeline
To meet the growing demand for student accommodation, Unite Students remains committed to four ongoing development schemes, which carry a total development cost of £339 million.
The student accommodation elements of these projects are projected to yield a blended yield on cost of 6.7%. To fund the remaining costs of £179 million to complete these projects, Unite Students will utilize their cash and committed debt headroom of £393 million as of June 30.
Richard Smith, Chief Executive Officer for Unite Students, said:
“Reservations for the 2023/24 academic year remain at record levels, with 98% of rooms now sold, reflecting strong demand from both students and universities and the attractiveness of our fixed-priced all-inclusive offer. This supports an improvement in our rental growth guidance to around 7% for the 2023/24 academic year.
“Our strong leasing performance will continue to support our property valuations as the market adjusts to an environment of higher interest rates. The supply of purpose-built student accommodation cannot keep pace with growing student demand at the same time as HMO landlords are leaving the sector.
“Unite is uniquely positioned to address this housing need through our best-in-class operating platform, university relationships, development and asset management capabilities.”
Funding Update
During the quarter, the Unite UK Student Accommodation Fund (USAF) successfully completed a new secured loan of £400 million, refinancing its previous £380 million bond that matured in June 2023. This seven-year loan carries a fixed interest rate of 5.4%, aligning with Unite Students' earlier guidance for a 3.6% overall cost of debt this year on a see-through basis.
Quarterly Fund Valuations
As of June 30, 2023, the USAF's property portfolio was independently valued at £2,923 million, reflecting a 1.2% increase on a like-for-like basis during the quarter. This valuation increase is attributed to quarterly rental growth of 2.2% and a five-basis point rise in property yields. USAF's portfolio comprises 27,924 beds across 71 properties in 19 university towns and cities throughout the UK.
Likewise, Unite Students' London Student Accommodation Joint Venture (LSAV) saw its investment portfolio independently valued at £1,940 million, reflecting a 1.1% increase on a like-for-like basis during the quarter. The valuation boost in LSAV is also attributed to quarterly rental growth of 2% and a four-basis point increase in property yields. LSAV's investment portfolio includes 9,716 beds across 14 properties in London and Aston Student Village in Birmingham.
Outlook for Wholly Owned Portfolio
Unite Students expressed confidence that the valuations of its wholly owned portfolio, to be assessed for June 30, 2023, will be broadly consistent with the valuation movements of USAF and LSAV over the first half of the year.
Unite Students has demonstrated a strong and resilient performance in the student accommodation market, with high demand from both students and university partners. The company's commitment to ongoing development and its ability to secure funding for future projects position it favourably to meet the increasing demand for quality purpose-built student accommodation in the UK.
As the market continues to adapt to changing conditions, Unite Students' robust leasing performance and proactive approach make it a leading player in the student accommodation sector.
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