41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 83
STRATEGIC REPORT
GOVERNANCE
Viability statement
The Directors have assessed the viability of the Group over
a three year period to December 2025, taking account of
the Group’s current position and the potential impact of its
principal risks. The Directors consider the three year lookout
period to be the most appropriate as this aligns with the
Group’s own strategic planning period combined with the
levels of planning certainty that can be derived from the
development pipeline.
The Directors believe that UK universities will continue to
experience strong demand from UK students as 18 year old
demographic growth becomes increasingly favourable and
the further relaxation of international travel restrictions
allows increased numbers of international students to
study in the UK. The Group has an annual business planning
process, which comprises a Strategic Plan, a financial
forecast for the current year and a financial projection for the
forthcoming three years (which includes stress testing and
scenario planning and also rolls forwards for another two
years). This plan is reviewed each year by the Board as part
of its strategy setting process. Once approved by the Board,
the plan is cascaded down across the Group and provides a
basis for setting all detailed financial budgets and strategic
actions that are subsequently used by the Board to monitor
performance. The forecast performance outlook is also used
by the Remuneration Committee to establish the targets for
both the annual and longer-term incentive schemes.
To stress test the viability of the business, a viability scenario
was prepared using the Group’s strategic plan as a base. The
key viability assumptions were:
•
Rental growth reduced to 2% p.a., reflecting principal
risks 1–4
•
Cost growth of 4% p.a., allowing for further sustained
increases in utility and other costs
•
Yield expansion of 50bps, approximately a 10% decline in
asset values
•
Interest costs of 6% on all new and refinancing activity,
reflecting principal risk 10
•
No further development commitments, disposals or
acquisitions, reflecting principal risks 6 and 7
The result of this scenario showed a significant deterioration
in forecast performance, with earnings and NTA significantly
reduced (to 41p and 21p respectively) in 2025 whilst leverage
increased substantially to 40%. Despite the significant
contraction in the size of the business over the forecast
period, the business would remain viable under such
a scenario.
We considered whether the Group’s climate change principal
risk would impact our assessment of the Group’s viability
but concurred that as we have committed to invest £100m
to achieve our science-based net zero target by 2030, this
mitigated the risk sufficiently for this viability assessment.
Following the United Kingdom leaving the European
FINANCIAL STATEMENTS
OTHER INFORMATION
Union, Brexit, we have seen the proportion of EU students
approximately halve to less than 5% of all students. With EU
students no longer qualifying for home fee status, and facing
full international fees, a significant recovery in numbers is
considered unlikely. Since Brexit, growth in UK and nonEU students has more than made up for the decline in EU
students, with the Group achieving 99% occupancy for the
2022/23 academic year and a strong outlook for 2023/24.
Brexit is not therefore expected to impact the longer term
viability of the Group.
The financing risks of the Group are considered to have the
greatest potential impact on the Group’s financial viability.
The three principal financing risks for the Group are:
•
•
short-term debt covenant compliance;
•
any adverse interest rate movements.
the Group’s ability to arrange new debt/replace
expiring debt facilities; and
The Group has secured funding for the committed future
development pipeline, which includes the Unite and Liberty
Living unsecured loan facilities and prepares its Strategic
Plan on a fully funded basis in line with the three year
outlook period. Disposals are an important part of our
strategy with the recycling of assets out of our portfolio
generating capital to invest in development activity and
other investment opportunities.
To hedge against the potential of adverse interest rate
movements the Group manages its exposure with a
combination of fixed rate facilities and using interest rate
swaps for its floating rate debt. During the year the Group
has complied with all covenant requirements attached to its
financing facilities and expects to continue to do so.
The outlook and future prospects beyond the viability
period for the business remains strong, reflecting the
underlying strength of student demand, our alignment
to the strongest universities and the capabilities of our
best-in-class operating platform. There are significant
growth opportunities for the business created by the
ongoing shortage of high quality and affordable purposebuilt student accommodation, universities need to
deliver an exceptional student experience through their
accommodation and the growing awareness of the benefits
of PBSA among non-1st-year students. In particular, we
see opportunities for new developments and University
partnerships, building on the strength of our enhanced
reputation in the sector.
Based on their assessment and the mitigating actions
available, the Directors have a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the period to December 2025.
Read our Financial review on pages 32–45
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