41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 24
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THE UNITE GROUP PLC | Annual Report and Financial Statements 2022
MARKET OVERVIEW
MARKET TRENDS
continued
CYCLICAL TRENDS
Economic and financial conditions have become more challenging over the past year.
Demand for Higher Education and student accommodation has historically proven to
be counter-cyclical and the business is well protected from rising costs through rental
growth and its risk management approach.
ECONOMIC
OUTLOOK
FUNDING
CONDITIONS
The UK saw a significant slowdown in economic activity
during 2022 and is expected to enter a short technical
recession during 2023. This reflects a combination of
geo-political uncertainty created by the war in Ukraine,
lower business confidence and declines in real household
income as a result of rising inflation. Inflation is expected
to moderate during 2023 as the impact of higher utility
prices reduces.
In response to high inflation, central banks have
significantly increased interest rates over the past year.
Liquidity has also reduced in debt and equity capital
markets resulting in above-average borrowing spreads
for companies and limited capital raising activity.
Demand for Higher Education has historically proven to be
non-cyclical with increased application rates for university
during periods of economic weakness.
We saw a slowdown in investment volumes for PBSA
assets in the second half of 2022 given the more
challenging funding environment for potential purchasers.
Despite these short-term pressures, the PBSA sector’s
fundamentals are likely to continue to attract significant
levels of institutional capital over the medium term.
Our portfolio currently yields 4.8%, which offers attractive
returns given the positive outlook for rental growth.
What it means for Unite
What it means for Unite
•
•
We anticipate an increase in our cost of debt
from 3.4% in 2022 to 3.6% in 2023
•
It is possible we will see a rise in valuation yields
for PBSA in 2023, albeit any negative impact on
property valuations will be offset by the strong
outlook for rental growth
•
We are reviewing our future investment plans
to ensure investment activity delivers earnings
accretion and attractive total accounting returns
•
We expect attractive opportunities to emerge
for new acquisitions and developments given the
funding constraints faced by some PBSA owners
and developers
•
•
Inflation has a positive impact on rental growth
through the c.33% of our beds under nomination
agreements with contractual uplifts linked to RPI
or CPI. In addition, we have the opportunity to reprice our remaining beds on an annual basis
We will monitor the impact of inflationary
pressures on our student customers and their
guarantors to ensure we continue to offer
affordable, value-for-money accommodation
We expect increases in operating costs and
overheads in 2023, particularly around utility
and staff costs, which we will mitigate through
operational efficiencies and utilities hedging as
well as higher income growth for the 2023/24
academic year