41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 41
STRATEGIC REPORT
GOVERNANCE
Disposals
We continue to manage the quality of the portfolio and
our balance sheet leverage by recycling capital through
disposals. During the year, the Group completed £339 million
of disposals (Unite share: £256 million) at a blended 5.7%
yield, which completed the disposal programme set out
at the time of our acquisition of Liberty Living in 2019. The
disposals saw the Group exit less attractive markets in
Reading and Bedford and certain smaller, less operationally
efficient assets. The disposals were priced in line with
prevailing book value after deductions for associated
transaction costs and required fire safety works.
We will continue to recycle capital from disposals to maintain
LTV around our 30–35% target range. The level of planned
disposals will adjust to reflect capital requirements for our
development and asset management activity as well as
market pricing.
Acquisitions
During the first half of the year, Unite increased its
investment in USAF with the acquisition of £141 million
of units through participation in an equity raise and the
acquisition of existing units in the secondary market,
increasing our stake to 28.2% (31 December 2021: 22.0%).
This investment equated to an increase in Unite’s seethrough GAV of £177 million at an effective property yield
of 5.1%, supporting the earnings growth delivered during
the year.
We continue to review potential acquisition opportunities
alongside our other uses of capital. We are focused on
opportunities in our strongest markets aligned to highquality universities, where we see the ability to deliver
attractive and sustainable rental growth over the long term.
Build-to-rent
In October, the Group acquired 180 Stratford, a 178-unit
(319 bed) purpose build-to-rent (BTR) asset in Stratford,
East London for £71 million. The acquisition will enable
the Group to test its operational capability to extend its
accommodation offer to young professionals and retain
them as customers as they move on to the next stage in their
lives. The property adds to the Group’s significant existing
presence in the Stratford market, where Unite already
operates 1,700 student beds and has two further student
developments in its secured pipeline. The acquisition of
180 Stratford will increase Unite’s scale in the Stratford
market to around 3,700 beds.
Since acquiring the asset, we have begun transferring
operational management onto our platform and have
significantly advanced our understanding of BTR operations.
FINANCIAL STATEMENTS
OTHER INFORMATION
There are opportunities to leverage our existing operating
platform to deliver cost efficiencies and use our BTR
product to retain student customers seeking a more
independent living experience. Rental growth to date has
been significantly ahead of our acquisition assumptions,
with new lettings and renewals 11% above previous rental
levels. We plan to complete a rolling refurbishment of the
building, including new common space and the creation of
new units during 2023 and 2024, which will provide further
rental upside.
We do not expect to increase our capital commitment to BTR
in the short term. Instead, we are considering opportunities
to increase the scale of our BTR operations through coinvestment with institutional investors, where Unite
would act as asset manager. Subject to identifying suitable
opportunities, such a structure would enhance returns for
the Group while limiting capital requirements as we develop
our understanding of the opportunity in the BTR sector.
Fire safety
The Government has proposed a Building Safety Bill,
covering building standards, which is likely to result in more
stringent fire safety regulations. Fire safety remains a critical
part of our health and safety strategy, and we have a proven
track record of leading the sector on fire safety standards
through our proactive approach. Our buildings are all safe
to operate and we will continue to make future investments
in fire safety, as required, to comply with Government
regulations.
We have identified 37 properties with High-Pressure
Laminate (HPL) cladding, or requiring other fire safety
improvements across our estate. We have completed the
remediation works for 10 properties (six of which completed
during the year) and are currently carrying out the remaining
replacement works with activity prioritised according to
our risk assessments. We spent £50.5 million (Unite share:
£19.4 million) on fire safety capex during the year and have
made a further provision for £71.8 million (Unite share:
£28.2 million) of future remediation works. At the year-end,
the total outstanding provision for cladding remediation
works was £113.3 million (Unite Share: £59.2 million), the
costs for which will be incurred over the next two years.
We are seeking to mitigate the costs of cladding replacement
through claims from contractors under build contracts,
where appropriate. We have already recovered £28 million
(Unite share: £20 million) through successful claims and
ultimately expect to recover 50–75% of total replacement
costs over time. This is not reflected in our balance sheet due
to uncertainty over the timing of any recoveries.
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