U.S. Markets closed

Edited Transcript of UTG.L earnings conference call or presentation 23-Jul-19 7:30am GMT

Half Year 2019 Unite Group PLC Earnings Call

London Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Unite Group PLC earnings conference call or presentation Tuesday, July 23, 2019 at 7:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joseph J. Lister

The Unite Group plc - CFO & Director

* Nick Hayes

The Unite Group plc - Former Group Property Director

* Richard S. Smith

The Unite Group plc - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Christopher Richard Fremantle

Morgan Stanley, Research Division - Executive Director

* Keith Crawford

Peel Hunt LLP, Research Division - Analyst

* Matthew Saperia

Peel Hunt LLP, Research Division - Analyst

* Maxwell Wilson Nimmo

Kempen & Co. N.V., Research Division - Analyst

* Timothy Leckie

JP Morgan Chase & Co, Research Division - Head of European Property

================================================================================

Presentation

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [1]

--------------------------------------------------------------------------------

Good morning, everybody, and thank you for coming along to our results presentation, and good morning to everybody on the line as well. For those on the line, you are not getting to experience the actually Baltic temperatures we have here in the Numis Auditorium, but we're just trying to balance it out with the quite incredible heat that we are expecting in the rest of London today.

So thank you for coming along. It's quite nice actually to have a results presentation as well that -- where we're not sort of fitted in between another property company today, but I know you're all probably eagerly awaiting the outcome of a different result as well a little bit later today, but you don't need to check your phones. I'm reliably informed that the announcement of the new PM won't be until about 11:30, 12:00, so you can give a full attention to our results.

So turning to our results -- so I'll just click onto -- that's not working.

Okay. Let me do it this way. Here we go. Another good set of half year results. Earnings growth up 16% to GBP 61.2 million, EPS up 12% to 23.2p and our dividend also up 8% to 10.25p. So a good set of sort of headline financial results, also underpinned by sort of really strong performance in our letting cycle. Obviously, we've been selling now bedrooms for the '19/'20 academic year since the back end of last year. And as we stand here today, we're 92% sold, which is a record, but is also the optimal position we would hope to be in as we enter the final weeks of the sales process and as we come up to clearing.

LTV, 29%, as we talked about before, that will obviously increase as we build out the development pipeline, which we'll come back to later. And we've also made good progress in the first half of the year, improving our margin and we're on track to achieve our 74% margins target by 2021. The results also closely -- or follow closely on the heels, as you all aware of the announcement of our proposed acquisition of Liberty Living. As I've talked about at the announcement, Liberty will be a transformative acquisition for Unite. It will utilize our operating platform, PRISM. It will deliver significant synergies into 2020 and 2021, and therefore materially enhance our earnings from 2020 and post the acquisition, we will seek to manage our LTV through disposals, but critically retain the capability to continue to commit to new developments.

And I have confidence in really acquiring Liberty and indeed confidence to commit to future development who's supported by the continuing positive market dynamics. Student numbers remain strong, are continuing to grow. And certainly, if we look to the medium term, we'd expect growth to accelerate and therefore we do remain confident in our rental growth, in our rental growth guidance of 3% to 3.5%, and we're confident in that because we are offering a product that is highly valued by our customers and as we'll talk about, we're also starting to see better utilization of the estate, I would say, really given us confidence in that rental growth.

Oh, that's not working again. So before we go through the financial figures in a little bit more detail, probably just cover sort of 3 areas: our platform, our market, and our partnership. The business is performing really well, as I have already said. And as we look forward, I think we also positively positioned, occupancy 92%, so supporting that rental growth, but equally importantly ensuring that we're aligned to the universities that are the strongest universities, the universities that are growing and I'm pleased to say, we've now achieved our target of 90% alignment to the high and mid-ranked universities.

And really supporting the demand from the universities and the demand from sort of individual students is our focus on value for money and offering a product that our customers want to buy and this really will remain a priority for us. So we'll continue to invest in the things that students want and also the things that universities really value, and I think we're starting to see -- we really are getting that right having achieved record satisfaction levels across our student customer base and also from our universities -- university partners. So as I said, we will continue to invest in that service offer. Some of the efficiencies that we will generate we'll continue to reinvest back into the platform. Some of the things that we have done this year or in the first half, we completely remodeled our website to create an enhanced user experience and also to support sales conversion. Our app, something we've been developing consistently over the course of the last few years, we're nearing full penetration into our customer base for the app. Really pleasingly, we're really getting really high and repeat engagement from our students using the app all through the year that they live with us, and student ambassadors. Student ambassadors are mature students that live with us. It's paid employment, and they provide really critical peer-to-peer support. And this year, we're increasing the number of student ambassadors to 150 across the estate.

Our student welfare and student services offer, I think is also a really critical part of what we provide. It's something that our students want and need and something that universities absolutely want and need, and it's pleasing to see that we're starting to see real external recognition of that.

Just in the past week or so, jointly with the BPF, the British Property Federation, we've launched welfare standards that will be employed and rolled out across all PBSA providers to ensure that everywhere the students live, they're getting the kind of support that they need and that launch was supported by Chris Skidmore who's is the current universities minister. And also something we've developing for a little while is our life skills program and this is really a short, now digital program that we're rolling out in secondary schools that gives people -- young students looking to leave secondary school and go into university a bit of an idea about what it means to go to a university, what you need to think about, and really a focus on preparing those students for the transition from the life that they know today, perhaps, home life and schools into adulthood and universities.

I would like to say that program was formally endorsed and launched by Damian Hinds, the Education Secretary, fairly recently and that will now be sort of rolled out more formally with government backing. And then finally, in the autumn, we're also going to be publishing our latest in-depth study into prospective students and our current customer base around their needs and wants, ensuring we're continuing to listen to our students and so we can make sure that we are providing the service that they want.

So those service enhancements really are supported and underpinned by PRISM, as we've talked about before, and that does continue to deliver, and it will drive further value for us. Our EBIT margin at the half year has improved by 2 percentage points, given us real confidence, as we've already said, in that 74% EBIT margin target by 2021.

We've also been able to utilize PRISM to improve our utilization, and we've seen an increase in summer business. In the current academic year, we sold an additional 22,000 tenancy weeks so really utilizing that space -- that current empty space over the summer period, which when you look at it on a full year or on a bed night basis has improved their occupancy to 89%. So we would still expect to be 98% occupied for the academic year, but looking on across the full calendar year we're now at 89%.

So I think that really demonstrates that we can utilize that space and over time we'll look to increase the number of students who stay with us over the summer period.

Looking at the market. The fundamentals of the U.K. higher education sector remain robust. The sector continues to adapt well to political and policy change, and I believe it will continue to do so.

U.K. higher education standing on sort of global league tables is remaining robust and the government will seek to protect that standing, but we also now know that the funding review has been published. So Augar was published in May, making a wide range of recommendations, 53 recommendations in total, and they are now sitting with the government. Just given everything that's going on, in government and political bandwidth, I think it's fair to say the next steps for the Augar review are unclear. But that being said, what we do know is that the earliest implementation of Augar would be the '21/'22 academic year.

And, as we've said before, if you take the package of recommendations, I believe they are supportive of student demand and therefore supportive of our business. One of the recommendations is proposing that the office for students look at student accommodation, and we expect that review to look to ensure that student accommodation providers, not just PBSA corporate providers but all student accommodation providers, are offering value for money and offering transparency in their costings. That's something that we welcome and I'm confident that we will be able to demonstrate our value for money offer.

Looking at demand, continuing to see strong demands for the '19/'20 academic year. We've seen a small increase in the number of applications, that is despite the demographic decline that we've been talking about, so I think that's a very positive result. If you look at the number of 18-year-olds applying to go to university, that was up by about 3,000 students or 1%, so a new record of number of 18-year-olds applying, really demonstrating that university is something that young people really value. Non-EU applications were up 8%, some of the strongest growth we've seen for a number of years and that really is reflecting how the U.K. is positioned in terms of international demand, incredibly strong. And there was also a small increase in EU demand of about 1%. Also, as we've talked about before, students want to go to the best universities. And if you look at high tariff universities, applications there were up 3% showing that sustained and consistent demand. If you look slightly longer term, and the chart on the sort of bottom of -- on the bottom of the screen there, the picture is very positive. If you look at demographics, the demographic decline we've been experiencing for the last 5 years reverses next year. And all things being equal if we just sustain current participation rates and with the growth in number of 18-year-olds, you could see 80,000 more students at university in 2025 and 180,000 more students at university by 2030. And then I've just mentioned that I think the government are positive about higher education and supporting higher education in global league tables.

They've recently announced their strategy to grow the number of international students in the U.K. to 600,000 by 2030, that's against a current level of 470,000. So about a 1/3 growth in the number of international students, many of those students obviously valuing the type of products that we offer.

And then finally in terms of demand, we continue to see that trend that we talked about in the past of if you look at our direct let beds, kind of 40% of the beds that we don't sell directly to institutions. Now the significant majority of those beds are sold to mature students, nonfirst years, either wanting to stay in purpose-built student accommodation or coming back to it, perhaps, after having spent a year out in the sort of wider HMO market and that provides some really exciting opportunities for us in terms of customer segmentation as we look a little bit further forward once the Liberty acquisition completes.

And then just finally, university partners -- partnerships, obviously, a continued focus for us. 60% of our beds under nomination, 21,000 of those beds on long-term agreements with sort of locked-in rental growth with an average remaining life of 6 years across those nominations. And in the year, continuing to focus on the quality of those nominations and really are pleased that we agreed or extended nominations for across 1,200 beds with 4 highly ranked institutions, so new agreements with the University of Nottingham, with Durham University and also with Edinburgh University and an extension of our existing arrangements with UCL here in London.

So that focus on quality in nominations, both in terms of the partner that it's with and duration, will remain the same. As we look forward, the university pipeline -- partnership pipeline is also deep. I would expect to continue to secure 1 to 2 deals per year as we've said in the past. In H1, we have delivered 1 new partnership with the University of Bristol, covering 1,000 beds, and we've also finalized the nominations on 2 university partnerships the we've previously talked about. We've got a 25-year deal that now covers 1,250 beds with Oxford Brookes and with the University of Birmingham, a new opening this year, supporting University of Birmingham, a 10-year nomination covering 400 beds.

So we continue to have very positive conversations, continue to have more conversations with university partners and those conversations covering the full range of development opportunities through to sort of potential outsourcing opportunities. And those conversations in part driven by an increasing focus amongst universities to want to drive efficiencies and to improve service from their own accommodation.

so I'll now hand over to Joe who can take you through the financials.

--------------------------------------------------------------------------------

Joseph J. Lister, The Unite Group plc - CFO & Director [2]

--------------------------------------------------------------------------------

Thank you, Richard, and good morning, everybody. Pleased to report another set of strong results across the board. EPS up 12% to 23.2p, NAV up 4% to GBP 8.20 delivering a total accounting return of 6.3% for the first half with LTV remaining flat at 29%. That's allowed us to declare an interim dividend of 10.25p and we're maintaining our full year dividend policy of paying out 85% of our earnings per share.

So then turning to the earnings statement in more detail. Rental income is up by 6%, with around 1/3 of that coming from rental growth on our like-for-like portfolio and the remainder coming through from portfolio activity. We continue to make good progress in delivering our efficiency savings, both the NOI and the EBIT improvements really being delivered through PRISM and our embedding of PRISM into everything that we do and also not only delivering those savings, but continuing to enhance customer satisfaction.

I would flag that there is the normal element of seasonality in our margins. Because of the July or August lower occupancy levels, we would expect to see the full year number being slightly lower than that, but we remain well on track to deliver our 2021 target of 74% at the EBIT margin level.

Finance costs have increased and that's really as a result of the increase in net debt as the portfolio continues to grow. Capitalized interest is just over GBP 5 million, very much in line with the same place last year. So overall the EPS number of 23.2p, up 12%, and we remain on track for the full year earnings to be in line with our guidance at around 38.5p to 39.5p. I guess I would flag 2 sort of variables within that are the final timing on completion of the Liberty transaction and also the quantum and timing of disposals, but we'll obviously update you as we go through the year on both of those matters. And I would also flag that, that guidance is on a pre-IFRS 16 basis, which I'm sure you will all be glad to hear that I can come on to talk about now, one of the highlights of these results is the fact that IFRS 16 leases, the new accounting standard for 2019, we've adopted. This really has the biggest impact on our sale and leaseback portfolio.

It's 8 properties with just around 2,700 beds. And just by the way of background, the sale and leasebacks are assets where we have long-term nominations agreements in place, which were sold between 2004 and 2009 to U.K. institutions. And we put in place a leaseback at that same time quick terminus-ed with the nominations agreement.

As a bit of an aside, those leases are now 10 to 15 years into kind of -- have elapsed, and we are seeing opportunities to repurchase the freeholds of those assets because we can then unlock reversions which the owners cannot do, and we've actually bought 2 of those assets back into USAF this year which I'll talk about shortly.

The new accounting standard effectively recognizes an asset, for our right to use that asset based on the future cash flows that we can generate. It also recognizes a liability based on the future lease payments that we'll be making under those leases. And then going forward, both the asset and the lease will be written down over time.

Over the life of the lease, it doesn't really have a significant impact, with that balancing out between the P&L and balance sheet, but we do see an upside in the early years, 0.5p in the first half which we'd expect to be about 1p in the full year and we wouldn't expect it to be any significantly higher than this going forward.

And then just on LTV, we will continue to present LTV on a pre-IFRS basis to allow us to present the property-level LTV, which is very much comparable with other companies in our sector.

On the balance sheet, we're continuing to focus on our leverage target of 35% LTV and net-debt-to-EBITDA of 6x to 7x, both on the built-out basis. The acquisition of Liberty will see the LTV increased to around 38% on day 1, and we are targeting getting that back down to 35% through disposals whilst also allowing us to continue developing at current run rates.

And the overall cost of debt, we would expect to see further reductions in our cost to finance over time. We will refinance our retail bond in 2020 as it matures which is currently at a cost of 6% and as we take on the Liberty Living debt, which is at 2.9%, so opportunities to bring that number down over time.

The JVs continue to perform well, that was probably most demonstrated by the successful outcome of USAF's recent fundraising. We set out to raise GBP 250 million and that was all taken up by existing investors and that capital will be used to acquire 3 assets from Unite, which have already been sold, and 2 assets through -- the 2 sale and leaseback assets in Newcastle in which I mentioned, which USAF will be acquiring allowing it to unlock some reversion in those assets and also the capacity to buy the 3 -- the Cardiff portfolio as part of the Liberty transaction.

We continue to work closely with GIC and have a very strong relationship with them. We're exploring options for the maturity, which is coming up in 2022. The vehicle has and continues to perform well, which means that the performance fee is in positive territory and then we'll provide more color on both maturity and that fee as we get closer to the 2022 date.

And then finally on the Liberty acquisition. As we discussed at the placing, the transaction does have a positive impact on earnings as we deliver synergies over the next few years and as we benefit from the lower cost of finance. That really is enabling us to maintain our targets of low double-digit total returns and also to be targeting an EPS yield of 6% in 2021. So you will be sad to hear that we're not providing you with the earnings growth chart this year, this time around just because there is a few too many moving parts with the transaction. But hopefully, those 2 elements of guidance will give you enough in terms of updating models and also to be able to see the positive growth outlook that we have as a business.

And just to update on the CMA process, we're now well underway with our discussions with the CMA. We are slightly behind our original timeline by a couple of weeks, but we still expect completion to be in early October and that, that will enable us to deliver the synergies as we've previously outlined,

So we'll obviously update all of our targets following completion both -- and update guidance, that most probably we will -- with our results in February, and we'll update as we progress through that CMA and completion time line.

I'll now hand over to Nick to give you bit of a run-through on property.

--------------------------------------------------------------------------------

Nick Hayes, The Unite Group plc - Former Group Property Director [3]

--------------------------------------------------------------------------------

Thanks, Joe. Good morning, everybody. I just wanted to provide a bit of an update on the investment markets and also our pipeline. I think it's fair to say that the student market continues to be resilient and transaction volumes this year are forecast to come in at around GBP 4 billion, which is in line with the usual run rates for the student accommodation market and the backdrop really of wider investor concern in real estate, where transaction volumes across all sectors ordinarily hit around GBP 60 billion per annum, that figure is likely to be down this year. So good signs of resilience from investors and student accommodation.

There's 2 reasons for this. First of all, underlying yields remain attractive and our group yield is currently set at 5%, it's ahead of the all property yield and there remains clearly good spreads between swap rates and bond yields.

In terms of our portfolio, LSAV currently sits at 4.32% and USAF at 5.25% reflecting the regional portfolio weighting.

Secondly and as you've heard, rental growth prospects remain good for this sector, is favorable to other asset classes in real estate. And as you've heard, we're expecting the customer base and the market to grow, but the market is quite complex to invest into and barriers to entry are relatively high, which will help support values.

In terms of new investors, we're seeing good interest from new capital looking to find its way into the U.K. student accommodation market. These investors tend to want to build scale when they come in, once invested, it is a big decision for them to make that first step. But once they're in, they do look to consolidate their portfolios relatively quickly and it's something that we'll be keeping a close eye on this as we look to roll out our disposal plans over the next few years.

We are seeing investors become more discerning over quality of location. I think we're likely to see the spread between prime and secondary yields continue to grow, this supports the portfolio strategy that we've been implementing over the last few years. We are forecasting to continue to sell around GBP 150 million to GBP 200 million of assets per annum, in line with historic levels, and we remain on track to meet that plan this year.

In terms of pipeline, we built and we've secured a very high-quality pipeline of 6,500 beds, continues to drive earnings growth for the business. All of our projects remain in line with program and budgets.

Since the last update at prelims, a couple of things to -- I wanted to touch on. First of all, we received planning consents at Middlesex Street in London. This is a prime zone 1 location. Once built out, it will become the group's highest value assets and it will deepen our relationship with King's College and it's a really exciting project for us to be taking over particularly given the context of London planning and the difficulty to acquire and grow in what is probably the most favorable market in the U.K.

We're also making really good progress in Bristol. As Richard mentioned, we've agreed a new partnership with the University of Bristol, [a temp on] Temple Quay, and we're also progressing negotiations and conversations with the university on the BRI, and just on that project we are making good progress now with the city council and expect to deliver that property in line with the outlined program in the presentation.

In terms of '29 pipeline, we remain on track for delivery. 70% of the beds are agreed in denomination, slightly ahead of our usual run rate. The average tenure for those nominations is 16 years, so it's been a really strong year from the university partnership perspective for our pipeline and really leveraging building on the high-quality partnerships that we have.

We're also making good progress on acquisitions, we have 1 London and 3 regional sites under offer in line with stated hurdle rates and that's across university partnership and direct-let opportunities. This is also in addition to a site that we'll be acquiring as part of the Liberty transaction. They have a Zone 1 Central London development site, which we believe will be capable of delivering around 350 to 400 beds.

And so the activity that we're seeing in the marketplace gives me confidence that we're going to be able to continue to commit and meet our 2,000 beds per annum target.

Just touching on London. It remains an attractive market for us. I've referenced changes to the London plan, which will make it more difficult for new entrants to obtain planning consent in Central London. I think the weakening residential market is opening up land opportunities for us in freeing Zone 1 locations, and I think we're well placed to capitalize on that given our track record on planning and our deepened university relationships, which will help navigate the proposed changes to planning and the London plan.

More widely and across the U.K., we expect pipeline to maintain its current run rate of around 20,000 beds per annum.

And then finally, just touching on the construction markets, we are seeing signs of the markets weakening. I think it's fair to say that input costs remain high with weak sterling and also skill shortages, maintaining pay levels. However, order books are starting to thin and contractors are being more competitive on pricing by rebalancing their margins. I don't see that as upside to our current plan, but I do see that as an opportunity for us to maintain our stated hurdle rates and maintain our delivery of 2,000 beds per annum.

Finally, presentation -- it wouldn't be a presentation without mentioning Brexit these days. Clearly, the date moving back potentially to the 31st of October is actually relatively helpful for us because clearly our 2019 PCs will be complete and operational by then, but we are looking at the implications of a half Brexit at that date for our 2020 pipeline and beyond. And we're making plans to accelerate the procurement and delivery of key materials on site so that we maintain program in the event of a disorderly Brexit.

And so that's me, and I think I'll just pass over to Richard who's going to wrap up.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [4]

--------------------------------------------------------------------------------

Thanks, Nick. So before handing over for questions, just to sort of very briefly summarize. I think it's been a really good start to the year, strong set of results and obviously with the addition of the Liberty announcement. If we look forward our earnings are underpinned by our confidence of sustaining rental growth and that rental growth really coming from value-driven price increases and from utilization, the income certainty provided by our nomination agreements, our development pipeline and our improving EBIT margin, and the Liberty acquisition, as Joe said, will accelerate and extend our earnings further.

So I think the business has taken an exciting step this year, and I think we truly are sort of well positioned for growth. Student demand is robust. In the medium term, it will grow, and our strategy to partner with the strongest universities we believe is the right one. As Nick said, we're continuing to see attractive development opportunities, both here in London and across the rest of the U.K.

And our efficiency will improve and finally, the product that we are offering we will continue to focus on making sure that it's a valued product that offers real value for money and gives our customers, both students and universities, exactly what it is that they want.

So if we can now open up for questions, we'll do questions here in the room first, if that's okay, and then over the line if you can just wait for a mic, if you have got a question and just say who you are. Tim?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Timothy Leckie, JP Morgan Chase & Co, Research Division - Head of European Property [1]

--------------------------------------------------------------------------------

Tim Leckie, JPMorgan. Just one question for me unless I think of another. The GIC 2022 maturity, just to check if in the chance that they do decide they've had enough of the sector, however unlikely that might be. Do you have the option to take that on, that -- their share onto your portfolio yourselves or do you have to put it to market? Or how does the process work?

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [2]

--------------------------------------------------------------------------------

That's certainly one of the options that are available. There isn't sort of an automatic right. The portfolio would, obviously, need to be valued, and then we would have that option, obviously, having half of it, that gives us a degree of control. But there is no automatic right. But our discussions to date with GIC remain hugely supportive of this sector, hugely supportive of us. And so I think there will be a resolution in the not-too-distant future.

--------------------------------------------------------------------------------

Timothy Leckie, JP Morgan Chase & Co, Research Division - Head of European Property [3]

--------------------------------------------------------------------------------

And I just thought of another one, so sorry. The target of the government to increase the international students by roughly 30%. I -- all the papers -- I don't remember seeing anything concrete on how they're going to do that? Have you -- you...

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [4]

--------------------------------------------------------------------------------

That commitment sits outside of the Augar review. The Augar review was just looking at the -- effectively the funding arrangements, I mean it's quite an extensive set of recommendations around funding. So this was a statement of intent from Department of Education, Damian Hinds, to look to grow international student numbers.

--------------------------------------------------------------------------------

Timothy Leckie, JP Morgan Chase & Co, Research Division - Head of European Property [5]

--------------------------------------------------------------------------------

But no clear...

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [6]

--------------------------------------------------------------------------------

No clear -- I mean, there is an awful lot that does go on, they're speaking to the Vice Chancellor, the back end of last week who's shortly leading a delegation to India, et cetera, so it's sort of part of sort of normal government affairs program. But I think what you will see -- what certainly hope you will see going forward is a more positive presentation of the U.K. And if as currently being debated in the House, there is an extension to the post-study visas, it's currently 6 months. If that goes back to 2 years, which it used to be, I think that will be seen as a very positive sign of intent from the U.K. government.

--------------------------------------------------------------------------------

Timothy Leckie, JP Morgan Chase & Co, Research Division - Head of European Property [7]

--------------------------------------------------------------------------------

Making it less hostile. Brilliant. Okay, Thanks.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [8]

--------------------------------------------------------------------------------

Pardon?

--------------------------------------------------------------------------------

Timothy Leckie, JP Morgan Chase & Co, Research Division - Head of European Property [9]

--------------------------------------------------------------------------------

Making it less hostile, sounds good.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [10]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Maxwell Wilson Nimmo, Kempen & Co. N.V., Research Division - Analyst [11]

--------------------------------------------------------------------------------

Max, I'm with Kempen. Just a quick one. You're talking about the summer business and how that could be an avenue for growth going forward. Can you explain a bit more about how that works. How much of it is students who are kind of staying on over the summer? How much is it kind of short term lets, what the kind of different margins are for that kind of side of the business?

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [12]

--------------------------------------------------------------------------------

Yes. This is sort of made up of a number of different sort of customer types. Some of it is where we are extending current tenancy links to move from sort of 44-week tenancies to 51-week tenancies because there is demand there from postgraduates and international students, for example, so that's sort of bit of a change in the customer mix, which sort of provides those opportunities that we talked about previously, of customer segmentation with Liberty. The rest is then a mix of existing students staying over the summer period or existing students coming and staying in different properties.

A good chunk of it is language schools, and also pre-sessionals. To there are international students that maybe come to the U.K. and do some studies at the university before commencing their full studies and then the final element outside of what we currently do in Edinburgh supporting the festival, which is sort of a little bit different, the final element, sort of 10% to 20%, would be hotel-type operation.

--------------------------------------------------------------------------------

Matthew Saperia, Peel Hunt LLP, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Matthew Saperia from Peel Hunt. Just interested to know the scope of the conversations with the CMA. And why you are running a little bit behind schedule and where the main risks may or may not lie in those ongoing discussions?

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [14]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Joseph J. Lister, The Unite Group plc - CFO & Director [15]

--------------------------------------------------------------------------------

Yes. So as part of that process we were planning to prenotify the CMA around the transaction. We engaged with them prior to the announcement of the transaction because it's the first time they've looked at the sector they're asking for a quite considerable amounts of data and information on background to the sector and we had originally planned or hoped that we'd be able to start -- formally start the process whilst the provision of information was ongoing. They've now requested that we complete that information round before they start the formal process, that should be within the next 1 to 2 weeks where we formally start the process, which therefore means that we should be able to conclude by the end of September or early October, as I said, which is probably 2 -- 2 weeks behind where we were and hoped to be at the time of announcements.

I think from a kind of key risk element, it's really about how the CMA define the marketplace. Clearly, there is a very wide definition, which looks at the total number of students who are seeking accommodation down to a much narrower version of just looking at purpose-built accommodation in the markets and even submarkets where we're looking at. Again, we sort of feel confident in our ability to get that CMA clearance given the analysis and work we've done with our advisers and legal teams, but it is a pretty detailed process that we are engaging with. It's nothing untoward, it's the advice, again, we're getting that from the competition lawyers, but it will be a full process that we will be undertaking over the course of the summer.

--------------------------------------------------------------------------------

Keith Crawford, Peel Hunt LLP, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Keith Crawford also from PH. A great 5-star earnings accretion story comes straight out of this huge pile of data here, all of which is hugely encouraging really. I mean, did -- I'd like to ask you about the [Canadian Star] acquisition here. Did they initiate this at the beginning or did you initiate this?

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [17]

--------------------------------------------------------------------------------

No. So we approached them probably coming up to a year ago now, they've acquired a portfolio that we liked, and we went to have a conversation with them to see whether they were looking to exit at some point or do some other kind of transaction. They were very clear from day 1. They like the student accommodation business, but would be open to, perhaps, there's sort of a slightly different arrangement on a -- in a holding through us. So I think it's probably fair to say that this is a direct holding for them, the operational intensity, the reality of owning directly student accommodation asset wasn't something that, perhaps, Canadian Pension Fund had prepared themselves for. So keen to work with us, and I think very quickly saw that we had an ability to unlock very significant value, but even them as a 24,000 beds, a very significant business in its own right, they weren't able to unlock.

--------------------------------------------------------------------------------

Keith Crawford, Peel Hunt LLP, Research Division - Analyst [18]

--------------------------------------------------------------------------------

You've been refining our portfolio for years and years. When you looked at theirs, is the same factor apply? Are there things there which..

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [19]

--------------------------------------------------------------------------------

Yes, yes, definitely. I mean there isn't anything that we would consider to be noncore in their portfolio, and the same as there is nothing sort of noncore in our portfolio. But certainly, we will look to refine the overall quality of their portfolio. We will undertake GBP 450 million to GBP 600 million of disposals over the course of the next 3 years, that's pretty consistent with what we've done over the course of the last 3 years. And one of the aspirations we will have, I mentioned our alignment is 90% to high and mid-ranked universities. They're currently at 80%. So we would look to get their alignment up closer to having a combined 90%. We might not quite get there, but we'll certainly look to improve that alignment.

--------------------------------------------------------------------------------

Keith Crawford, Peel Hunt LLP, Research Division - Analyst [20]

--------------------------------------------------------------------------------

Yes. I mean the only other thought occurred to me just so happens today, they had a major Canadian dignitary on the radio this morning at 6:30, hugely slagging this country after this whole Brexit nonsense. And it just did occur to me that couldn't have a better large shareholder than a Canadian Pension Fund, the best. Nevertheless, these people change over time, so it is a fact in the long distant future.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [21]

--------------------------------------------------------------------------------

Yes. I mean we believe, as you say, they are exactly the kind of large investor that we would want on our register as part of the transaction. They get a seat on the Board. They have indicated their ongoing commitment to U.K. student. I think from what we know today they would support us in the future. But you are absolutely right sort of global politics is perhaps a little bit outside of my direct control, sadly. Give me a date for it...

--------------------------------------------------------------------------------

Keith Crawford, Peel Hunt LLP, Research Division - Analyst [22]

--------------------------------------------------------------------------------

Give me a date for a month or 2. I don't know, it can't do any worse.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [23]

--------------------------------------------------------------------------------

Great. I don't think there is any other questions in the room. I don't know if we've got any questions on the line. Yes, we have, yes.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Your first telephone question today is from the line of Christopher Fremantle of Morgan Stanley.

--------------------------------------------------------------------------------

Christopher Richard Fremantle, Morgan Stanley, Research Division - Executive Director [25]

--------------------------------------------------------------------------------

Just 2 questions from me. I think you talked about Liberty Living presentation but can you just talk in general terms about the margin target and what you think the Liberty Living acquisition will mean for the 74% margin target once the synergies you are looking to harvest have been embedded. I appreciate, yes, there may be some constraints, you may be under on formal guidance, but just anything you can say on general terms and where you think that 74% margin number could be once you've -- or once the dust is settled, so to speak? And then 1 just very small question. On the promote fee. Can you just confirm whether your NAV accrues for the promote fee that you earn on the JVs or whether that -- it certainly appears through the income statement whether the NAV incorporates that forthcoming income?

--------------------------------------------------------------------------------

Joseph J. Lister, The Unite Group plc - CFO & Director [26]

--------------------------------------------------------------------------------

Thanks, Chris. So on the EBIT margin target, the current EBIT margin of the Liberty Living business is around 60%. The delivery of the synergies, the GBP 50 million that we've flagged alongside the placing announcement will bring us up in line with our current levels of EBIT margins. And so we are maintaining our target of 74% post acquisition and post delivery of synergies. I think once we have the opportunity to understand the business better and the benefits of combining the 2 businesses that we will be in a better place to potentially update that EBIT margin target going forward. But as of today, we are maintaining the 74% target of 2021 on a post-acquisition basis.

On the LSAV promote fee. At the moment, there is to be no accrual for that performance fee. I think what we are flagging really in the statement today is that we are getting closer to the maturity date of that vehicle. So we are getting more certainty around and more confidence in our kind of ability to crystallize that promote fee and so there will -- or there's likely to be sort of a point in time between now and completion where we start to recognize some of that performance fee and that will flow through the income statement as and when we recognize it.

--------------------------------------------------------------------------------

Richard S. Smith, The Unite Group plc - CEO & Director [27]

--------------------------------------------------------------------------------

Any more questions on the line? No. There is no more questions on the line. So without anything further, thank you very much for coming and prepare yourself for when you step outside. It will be quite a contrast, one imagines. All right. Thanks very much, everybody. Thank you.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

This presentation has now ended.