Unite Group PLC (UTG) Earnings Call Transcript & Summary

Good day, and welcome to The Unite Group plc Half Year Results 2021 Conference Call. At this time, I would like to turn the conference over to Mr. Richard Smith. Please go ahead, sir.

Great. Thank you very much, Hollie, and welcome, everybody to our results presentation. Thank you for joining in what I know is an extremely busy day within a busy week for you all. The first half of the year has been impacted by COVID, but our recovery continues broadly in line with our expectations, and I'm hugely proud of the response of the business. Our focus has been on doing what's right, prioritizing safety and students, while balancing all stakeholders. If we could move to Slide 2, please. Our financial performance has been impacted by COVID. However, EPRA earnings are up 18% to GBP 88 million. Our interim dividend of 6.5p represents a payout of 65%, and is a clear step towards our target of returning to an 80% payout. We've also announced today, alongside these results, a new 1,000 bed development scheme in Stratford. Stratford is a market where we already have a significant presence with 2 buildings. It's a proven destination for students with UCL and University of the Arts London, actively building campuses there and is, therefore, an undersupplied market. And this final scheme we've now added to our development pipeline, means we have deployed all of the capital that we raised in July of last year. Encouragingly, demand for university and therefore, accommodation remains strong. We've seen record applications from students for '21-'22 academic year. And the government have confirmed there will be no restrictions on university teaching from August 16. And our reservation position is strong. We're 85% reserved. That's underpinned by our nominations and also underpinned by around 1/4 of our beds secured from re-bookers. We, therefore, continue to anticipate a return to full occupancy for the next academic year and rental growth in the range of 2% to 3%. International travel options do remain the known unknown, but we're confident in the students' desire to come to the U.K. and commence their studies at the start of the next academic year. The balance sheet underpinning our business remains robust, and we've been very active actually in H1, further improving its strength, and Joe will cover this shortly. And, overall, our response to COVID, has, I think, demonstrated the resilience of the business. We are led by a clear social purpose, and it's a purpose that, I believe, is even more important and relevant today. If we could move on to Slide 5, please. Looking briefly at business performance. As you know, all of our properties have remained open throughout the pandemic, and we've continued to support students living with us throughout that period. Our cash collection has also been strong at 96%, meaning that we've had and continue to have significant ICR headroom. Our letting performance that I mentioned at 85% is marginally behind '19-'20, which I think is sort of the most relevant comparator year. But that was a record year, and it was also a year that didn't have Liberty. And with Liberty's lower weighting of norms to direct let probably about half of the gap is represented by that fact. So the sales rate is strong, and we are anticipating a very strong clearing. Clearing actually starts a couple of weeks today. And I think there will be record numbers of student placed during clearing. But students, at the moment, really delaying some of their final choices of university. And international students do remain a really important part of our business mix, very obviously. There's more detail on our current student mix on the next slide. But for international students to support them, and particularly those arriving from amber countries, which does include China, our key market, we've offered the opportunity for students to come to their accommodation up to 3 weeks early. So 3 weeks ahead of the start of their tenancy and complete their isolation, and they can come through that free of charge. And it's also worth highlighting that within our international bookings, 1/3 of those students are already in the U.K., and we have very limited exposure to students arriving from red list countries. During the sales cycle, we have been targeting increased U.K. market share through domestic students living in HMO. We've enjoyed real success. And this is actually a trend I expect to continue beyond COVID. And for context, of our DL bookings, over half are from U.K. customers. This is 10% up from prior performance and equates to about sort of 2,500 beds sold into that effectively new market for us. So this is a shift, which as I say, I believe, will continue. And I think really demonstrates the clear value of purpose-built student accommodation and the benefits of an institutional landlord. If we could move to Slide 6, please. Students continue to make a clear statement that they see U.K. Higher Education as the best option for them. A record 63% of all 18-year-olds apply to go to university for the forthcoming academic year. And student -- international student growth is also up 14%, driven by sustained demand from China, but also a strongly emerging Indian market. As expected, EU demand has dropped. It's been impacted by Brexit and COVID. But as we've said before, EU student numbers make up a pretty small proportion of our student base and also students in U.K. Higher Education. As I've said, we're pleased with the reservation performance at 85%, and that's really what's giving us confidence in returning to full occupancy. And of the 85% current reservations, 80% of those reservations are either nominations or domestic students, so effectively domestic students, with the balance 20% international students. And as I've said, 1/3 are already in the U.K. that have given us real protection, if we do have a shock and international students can't come to the U.K. And I do expect the current mix, that sort of 80-20 split to continue broadly through the remainder of the sales cycle. Current demand levels, so hits to our website, booking rates, et cetera, are also strong, about 30% ahead of '19-'20, and that's consistent for both domestic and international students. And finally, the universities will be open. As I've mentioned, no restrictions from August 16. The new academic year will be much closer to a traditional student experience. There will be face-to-face teaching and that face-to-face teaching will be supported by online learning. If we could move to Slide 7, please. The outlook for student numbers remains really strong in the U.K. As you all know, we're now in a period of demographic growth that is supporting student numbers and the demographic growth continues for the next 10 years. Our nomination agreements underpin our confidence and provide a foundation for further growth. And we've got growing confidence in the sustained demand that I've mentioned from second and third years that historically would have lifted the HMO market. Internationally, government policy is strongly supportive of demand as well. We're now enjoying the benefit of the 2-year post-study Visa. That's a Visa offer that is best-in-class internationally, and the government are well on track to achieve their target of seeing at least 600,000 students studying in the U.K. and positively in the near term, supply is also slowing, and Nick will cover this in a little bit more detail shortly. We've been waiting a long time for the response to Augar, and we do now expect that response to come later in the year, that's sort of September-October. And we are supportive of the desire from the government to widen post-18 education. There is a focus on further education and technical qualifications. But we believe this sort of sustained and increased demand for that product will mean that those students wanting to go to university will look to want to go to the high and mid-ranked institutions, our partners really supporting our growth in the future. And those high and mid-ranked institutions, again, many of are our partners, have a really clear role to play, I believe, in providing the skills, government most value to support our economy, even supporting the leveling up agenda and supporting the government's desire to see the U.K. as a research superpower. Just move to Slide 8. We obviously launched our sustainability strategy alongside our prelims a few months ago. And we will talk more about our sustainability commitments at our Capital Markets Day, which is later in the year. But we are making progress. We recently published some research we did amongst the broader student base, looking at student attitudes to sustainability. And it is really clear that students see climate change as their major concern, more significant than COVID, more significant than mental health. So taking positive and proactive action is absolutely vital for us. We are already doing so, and we'll continue to invest in reducing consumption. And we're committed that our Paddington scheme, scheme we announced a little while ago, will be fully net zero carbon. And the development will include rainwater harvesting, will have a significant step roof garden. We'll maximize natural light. We'll fully insulated and use 100% renewable energies, and we'll also look at sort of the methods of construction. And finally, we will also be publishing our net zero pathway by the end of the year. I'll now hand over to Joe to take us through the financials.

Thank you, Richard, and good morning, everyone. So on Page 10, we set out the financial performance, which shows, again, that we -- the performance has done well through the challenging operating backdrop, with earnings up 18% and earnings per share up 8%. That growing confidence has allowed us to step the dividend up to 65% payout and reconfirm our intention to get to 80% as the outlook further stabilizes. Operational cash flow has been boosted by the strong rental collection and the reinstatement of distribution from the funds. The 6-month total accounting return of 3.9% is getting back up to normalized levels. Moving on to Page 11. The ongoing earnings impact shows that whilst the overall position is improving, and we're starting to see the impact of COVID lessen, there are a lot of moving parts to the earnings statements this year, and even more if you look back to 2020 as a comparison. So it's probably more useful to turn straight over the page, the earnings bridge on Page 12. So starting with occupancy and discounts. During the first half, we have seen the impact of lower occupancy in terms 2 and 3. Our effective occupancy of 82% is based on those students who have checked in plus third-party nominations agreements. This occupancy led to a GBP 19 million shortfall compared to term 2 of last year. The rental discount was taken up by 45% of students, demonstrating the fact that a high proportion of students working to move back into their accommodation despite the restrictions in place, but also that we would support those students who could not use their accommodation, and this costs a total of GBP 10 million to us on a Unite share basis. And as the chart sets out, the combined impact of that lower occupancy and discounts broadly match the impact of the tenancy cancellations of term 3 last year. Looking then at disposals and new openings. There was a relatively small impact to disposals in H1, and this was more than offset by the impact of the 2020 new openings in Manchester, Wembley and Leeds, but we will continue to see the impact of the disposals in the second half. Following the extension of the LSAV joint venture, we now have much greater certainty over the total performance fee. The final amount will be calculated based on the September valuations and paid in cash in Q4. We recognized GBP 16 million of the fee in the first half and estimate a further GBP 10 million to be generated later this year, taking the total amount that will be recognized over the life of the JV to GBP 37 million. The performance fee has been excluded from EPS for dividend purposes on the basis that it's nonrecurring and falls outside the hedged funds and so we'll use it to redeploy into a range of opportunities that we're currently exploring. On the margin, the NOI margins will be up marginally this year at around 70%, and the EBIT margin should recover to the high 60s, and we remain on track to exit 2023 at our target level of 74%, driven by the return to full occupancy, rental growth and our continued focus on cost and overhead control. New openings and disposals broadly offset each other in this guidance. On Page 13, we look forward to the full year position and have updated the earnings guidance at the [ time in March ]. We reflected the impact of the rental discounts and increased our rental income estimates based on the strong cash collection. Overall, the guidance of 27p to 30p before the LSAV fee remains the same, reflective -- reflecting the ongoing uncertainty around the start of the academic year. The risk from international student arrival is relatively contained. 80% of our income is from nominations agreements and U.K. students. And of the remaining 20% due for internationals, around 1/3 are already in the U.K. Last year, we've collected 80% of contracted rents from international students. And even if we see the same level of disruption and achieve this level, this would lead to a 1.5p to 2p earnings shortfall in 2021. Over the page, taking a look at the longer term earnings outlook. In total, we've kept the total position on the longer term earnings outlook unchanged at 55p to 59p. We have included the additional earnings from the new scheme at Stratford, but at the same time increased the level of disposals and the analysis, given the performance in H1 and our outlook for further disposals. This delivers a pro forma LTV of 33% on a built out basis, showing that we still have a good level of the firepower left for further developments. On Page 15, the NAV bridge shows that the H1 NAV position has also got a number of moving parts. We've seen the partial unwind of the COVID valuation adjustment with 10p reversing out in H1, and there was a further 9p expected to benefit the second half. Rental growth of 4p has been recognized in the first half, the further 5p to 10p in H2. The combination of the COVID unwind and this like-for-like growth, will see investment valued up by 2% to 3% in the year, with roughly 1/3 coming from like-for-like growth and the remainder from the COVID unwind. There has been a small element of yield compression in London in the first half, and the recently announced GCP transaction supports these valuations and also provides a possibility for a small amount of further yield compression in London. Our development activity has added 3p as we restarted some site at Middlesex and BRI and also achieved planning at Nottingham. We expect to see a busier second half with the TP Paddington Committee now scheduled for Q4. We've increased our planning provision by GBP 16 million in H1, having now completed the detailed design work on all of our high-rise HBL buildings. The increase in cost was the result of us needing to replace the insulation on a few of the buildings as well as the cladding. We are making good progress on recovering costs from contractors and expect to receive a significant proportion of the spend, although recognize that this will be a long process. We've consistently been the first to act on cladding and fire safety, and we'll continue to ensure that we stay in front of all guidance and regulation on fire safety across our states. So taking this all together, valuation movements, development activity and cladding, we expect to see a 3% to 4% NAV growth over the course of H2. On Page 16, we set out our continued balance sheet discipline. Having reduced the LTV to 30% ahead of the planned time line through our focus on disposals, we've also ensured that we keep high focus on portfolio quality. Our debt markets have recovered well. The debt markets recovered well, and we've been in regular dialogue with lenders and have had good support through the pandemic, having raised nearly GBP 400 million of new debt, including GBP 290 million of long term debt at an all-in cost of 2.6%. With our average debt maturity of 4.6 years, we will continue to extend maturing facilities, and we see an opportunity to bring cost of debt down below 3%. We remain fully compliant with all of our covenants, showing resilience of the cash flows over the last 18 months, and we have published our Green Finance Framework and expect future facilities to be classified as sustainable or green, which with meaningful targets, if delivered, will deliver savings of up to 5 basis points. On Page 17, we set out in more detail our co-investment vehicles with USAF and LSAV both performing -- continue to perform well. LSAV's returns being boosted by the positive yield sentiment in London. USAF continues to be well supported by its investors, there have been no redemptions over the last 18 months, and the fund has now reinstated distributions. It has an LTV of 29%, giving it some capacity for investment acquisitions. And we were delighted to have secured the 10-year extension to LSAV and to crystallize the performance fee at a total of GBP 37 million. GIC has been a core funding partner of ours since 2005 and has supported our growth in London and Aston Student Village. Alongside this transaction with LSAV, we took the decision to sell 2 assets with a combined value of GBP 340 million to the joint venture. These 2 assets in Wembley and Whitechapel had an average yield of 4%, and the release of this capital has helped bring down LTV and will be deployed into higher returning development activity. GIC have also committed further capital as part of the transaction, and we are targeting third-party acquisitions in London with this capital. On that note, I'll hand over to Nick, who will update you on further key aspects of the properties.

Thank you, Joe. Good morning, everyone. If we could move on to Slide 19, market update, please. Transaction values have remained robust in the half year with around GBP 2 billion transacted to-date and estimated GBP 4 billion outturn by year-end, which is in line with the medium term annual run rate for the sector. These numbers should now exclude the proposed GCP deals. So should that happen, we expect further betterment there. Interest in the sector is driven by investors who are continuing to reallocate capital away from traditional sectors into alternatives, and student market remains attractive due to its strong fundamentals. Transactions have been dominated by North American private equity investors, notably Blackstone, Lone Star, Apollo and Ares, all been active in the period, and we continue to see strong interest in Southeast Asian and Far East investors, and we expect that this will accelerate as the sector returns to full occupancy and lockdown, travel restrictions begin to ease. Yields have remained flat at 5%, and we expect the year-end position to be similar. There's likely to be a small amount of compression in Central London as recent transactional evidence feeds through from GCP, but also there's been some asset transactions in other locations, which are all supportive of yields moving below 4%. We anticipate the COVID unwind will finalize this year, which represents 2% to 3% capital growth, and it's based on full occupancy across the full year. New supply has lagged as a result of pandemic, and we forecast completions this year to be around 20,000 beds, which is about 5,000 below the average annual historical run rate. We can move on to Slide 20, enhancing our portfolio. We have continued to make encouraging progress with disposals, having secured GBP 260 million of sales in the year, and we anticipate a further GBP 150 million to GBP 200 million of disposals moving into next year. This will maintain our strategy of self-funding development through selling our weakest assets or those that are unlikely to make a meaningful contribution to our total return in the medium term. There's also a growing opportunity to work our existing portfolio through accretive CapEx spend, asset management initiatives over the next few years. I think this will come in 3 forms: firstly, refurbishments and extensions to older retired buildings where latent reversion exists. And I believe there is a very exciting opportunity within the Liberty portfolio for this. Nomination agreements where properties have become reversionary, and we're able to reposition those assets. And also, excitingly, we also have a growing opportunity to segment off further to both returner and postgraduate markets. Move on to Slide 21, secured development pipeline. We continue to make good progress with our pipeline over what has been a very challenging period. We've witnessed delays and inflation in the market, supply chain and materials have been disrupted through a combination of Brexit and the pandemic. We are expecting inflation of around 4% this year with cost rises normalizing as the disruption unwinds into that. Our 2022 pipeline have fixed price contracts and have therefore not being subject to these cost rises. We expect to maintain hurdle rates for our '23 and '24 pipeline as we're still working through the design and procurement process for those projects. However, in the interest of transparency, there could be a 10 to 20 basis points impact on yield on cost for these projects, should we be unable to mitigate that risk. The risk is priced into all of our projects that are due to full completion beyond 2024. As you've heard, we're making good progress elsewhere in the pipeline, the Paddington application is now been submitted, and is validated, and we're expecting the scheme to go to committee in quarter 4. And as Richard touched on, it will be the most sustainable building once delivered in the sector. We've also secured planning consent for Derby Road. Again, we secured a larger scheme here, which help maintain returns despite the near term inflationary pressures. As you've heard already, we've announced the new development project in a prime locations in Stratford. Stratford is a growing HE destination with both UCL and UAL building new campuses there. The deal is being secured with the vendor that we've worked with in the past, which once again underlines the strength of the relationships we have in the land market. And pleasingly, this fully deploys proceeds from the capital raise from last June in just over 12 months. Furthermore, we are actively securing further pipeline opportunities in both London and the regions. Vendors are keen to partner with us given our development capability, strength of our university relationships as well. And as mentioned earlier, we will be funding all of our new activity through asset recycling in the portfolio. Finally, we're also discussing a number of significant partnership deals with universities. Albeit these transactions take longer given the nature of the negotiations, it is clear that universities are wanting to engage with us for our real estate and operational capability, but it's also becoming more apparent with our decisions to do the right thing and forgo rents over the past 18 months is also having an influence in our partners' decisions. As Richard mentioned, we will be talking more about ESG at our Capital Markets Day, and we are well on with understanding our net zero carbon ambitions to this regard with our pipeline. And with that, I'll pass over to Richard, who's going to wrap up and take questions.

Thank you, Nick. If we can move to Slide 23, please. So before opening up to questions, just to summarize, we do have great visibility over the '21-'22 academic year, and that's supported by record demand and a return to sort of more traditional campus experience for students. In the medium term, we're confident in delivering significant earnings growth and attractive total accounting returns. We do expect to return to sort of circa 3% per annum rental growth from '22-'23. We expect to deliver our secured development pipeline very obviously, and to benefit from our increasing alignment to high and mid-ranked universities. We also expect to benefit from significant growth opportunities, adding further high-quality developments in London and in the region as Nick has mentioned. Also, as Nick just mentioned, we're developing genuine university partnerships, where we continue to target delivering 1 to 2 of those schemes a year. And finally, building on the success that we've had this year in penetrating the HMO market, our success there really does materially enhance the demand pool for PBSA. It demonstrates the attractiveness of our product and service and presents a real opportunity, I think, to look at segmentation of our product and our service and really in that service deliver value for our customers. So thank you for listening. We can now take questions starting first with those by audio and then moving on to the webcast.

[Operator Instructions] It appears there are no telephone questions. So I'd like to hand back to see if there are any questions from the webcast.

We have one question on the webcast so far. It's from Chris Fremantle at Morgan Stanley. How do you see the competitive landscape within the PBSA sector, given recent M&A developments, big growth from largely U.S. private equity funded competitors? What does it mean for your strategy, especially in terms of competition for new product?

I think one of the things that we've always really challenged ourselves on is making sure that our product and service offering remains at the front of the pack. It's very clear with number of our competitors, just by -- simply by the fact that we started this sort of sector 30 years ago. Our product is generally a little bit older. And so making sure, as Nick has referenced, we're investing in that. We're providing the right amenity for students, and we're providing spaces that they want to live, study and sort of entertain themselves in. I think we can continue to do that. And then by refining our service offering, and making sure that we really are meeting the needs of what are quite clearly defined student groups. We probably could be criticized for perhaps our service offering at the moment being a little bit homogenized. If you're a first year domestic student or an international post graduate you broadly get the same product and service. And I think we've got a real opportunity to tailor that and meet the needs of those individual students. And by doing that, I think we will stay ahead of the competition. And I think another key differentiator for us remains our relationships with universities, our nominations base. That is not an area that currently, our competitors are really focused on. Clearly, they can look to build those relationships. But, again, we're well ahead, and we will continue to really invest in those relationships and develop genuine partnerships across nominations, and hopefully, broader deals. So I'm very, very clear, it's a very active space. We need to stay ahead, and we'll continue to invest to do so.

The next question is from Max Nimmo at Kempen. The reports yesterday that the government is still undecided on whether students will need to be double vaccinated to attend university or use university accommodation. Is this something you've looked at? Do we have any of your own rules on vaccination rates for students in your properties?

As we have continually through the pandemic, we have adapted to whatever government policy is at the time, and government policy has changed materially. We will not have a specific policy ourselves around vaccination. But to the extent that government policy does require it, and clearly, that's something we will follow and do what we can to support. Our view is, and we've done our own research amongst students is that, students have a high propensity to take up the vaccine and to do the right thing. So it's not something that we're going to mandate. We will clearly follow government guidance as it emerges.

We've then got 2 questions from Paul May at Barclays around earnings guidance. Has your like-for-like EPS guidance effectively increased as you appear to have disposed of more assets over the half -- in the first half?

No, I think we're always planning to sell assets. And I think the impact of the LSAV asset disposals is marginal given the low yielding element to those and the fact that we can offset interest cost savings. So it may be a margin uplift, but not significant.

And then linked to that Paul's second question is, following on from this, does this mean your 55p to 59p EPS bridge faces some upside risk?

Yes. I think the longer term earnings guidance really is a product of kind of how quickly we allocate and deploy capital into new development schemes and the matching of disposals to fund that. So I think what we would like to do, as we continue to secure new developments, we obviously will look to grow that, although the time horizon will push out accordingly.

Next question is from Philip Small of Aegon Asset Management. Are you seeing any impact on development costs from building material price increases? How the sustainable building solutions impact development costs?

Yes. So we're certainly seeing inflation in the market at the moment. We're forecasting that to be 4% this year, and we expect the market to normalize as the supply chain disruption eases as the restrictions lift from the pandemic. And with regards to ESG costs, we're working through what it means for us in terms of delivering our buildings to a net zero carbon ambitions. We're making really good progress with that, but we'll be making further announcements at our Capital Markets Day in October, where we'll able to provide some detailed analysis behind the impact on our pipeline in full.

The next question on the webcast is from Thomas Buisson at Clearance Capital. What are the biggest travel restrictions impacting your international students? Chinese students still prohibited from flying directly to the U.K.?

So I think you absolutely hit it in terms of the sort of the biggest impact, it's Chinese students direct flights from China aren't possible at the moment. Direct flights from Hong Kong have been reinstated. However, students are pretty adaptable, and I would fully anticipate them to circumvent that and fly through another destination to get to the U.K. The bigger issue actually is the availability of flights, not whether there are restrictions, flight schedules at the moment haven't necessarily filled up to the extent that flights are available they're expensive, and also subject to cancellation. Now, everything we're hearing from our university partners is that flights will come back in where waterproofing calls with our booked students to understand where they are in their sort of process of booking flights. But it really is availability of flight. But we have a degree of confidence that those flights will come back into schedules by the time we get to sort of September-October. And again, a number of university partners are beginning to think about scheduling their own flights as they did last year.

The next question comes from Matthew Saperia at Peel Hunt. You mentioned the potential to upgrade rooms and amenity space. Are the returns there as attractive as developing new stock and how many rooms or buildings fall into this category?

I mean, fewer development returns are probably a little bit more attractive. But that's not to say that the asset management opportunity that Nick referenced isn't valuable investment. I think this investment will support student demand. It will provide students with the spaces that they want and the amenity that they want. In terms of the actuals or the proportion of the estate, a fairly significant proportion of the Liberty portfolio that we acquired back in November of '19, is for the first generation stock. So we're probably around 30% or more of that stock would be -- provide an opportunity for asset management. But we won't necessarily do all of the work. It will very much depend on the market. And we're looking at that hard. At the moment, one of the first markets we're looking at is Manchester. And through our significantly increased presence in Manchester, which was by terms of part of the Liberty acquisition, a real opportunity to position our stay there with product focused on affordable price points, sort of more traditional first year in international and then also post graduate. And we'll talk a little bit more about that and probably use Manchester as a bit of an example at our Capital Markets Day in October. But a fairly significant proportion of the Liberty estate certainly presents us with some asset management opportunities.

The next question is from Andres Toome at Green Street Advisers. What's your outlook for external growth via acquisitions? Does private equity have a better cost of capital than Unite given recent deals? And did you consider the GCP acquisition?

Yes. On acquisitions, we do look at the acquisitions around the marketplace. But given our opportunity to deploy capital into higher returning development activities, we tend to focus that activity into that space. Following the Liberty acquisition, I think we've demonstrated that we can acquire large portfolios and integrate them to our portfolio well. But scanning the marketplace, we're very selective on those assets that we want to bring into our portfolio. And yes, I think that we do have a higher overall cost of capital, because our leverage levels compared to private equity will make us uncompetitive on a straight bid for bid. So we need to find ways in which we can drive additional returns from those assets that we acquire either through asset management, synergies or some particular angle with a university relationship. So I think we will continue to be fairly selective in our acquisition activities. They will tend to be either single or small portfolio rather than large scale. We have reviewed the GCP portfolio from time to time in the past. We have felt that it's not the right addition to our portfolio. It is high end in terms of heavy studio waiting about 80% studios. It's only got 13% nominations agreements, and that's because of its higher price points. And therefore, we haven't sort of considerably put time and effort into bidding, and we didn't bid us past this process.

Next question is from George Nikolaou at Gravis Capital. On a regional basis, which university towns do you see growing or declining the most over the next 2 to 3 years? Are you looking to enter new regional markets over the medium term?

I mean, in terms of markets, we are probably present and operational in pretty much all the markets that we would want to be in. Liberty gave us access to a couple of new markets. And I mentioned actually significant growth in Manchester, which was a market we were probably sub-scaling before. Outside of that, not really any new markets that we would look to explore in. The growth and the success of university towns and cities is really driven by the performance of the universities. We tend to be located in towns and cities that have got more than one university, not exclusively, but we find that the best performance comes from towns and cities that have a red brick institution and perhaps a more modern teaching intensive university, such as here in Bristol, where we all are today. The towns and cities that are going to struggle are the universities at the lower end of the ranking. We've been very deliberate through our development pipeline, through our disposals to ensure that we're not exposed to those universities. And close to 90% of our income is derived from high and mid-ranked institutions. That's something we need to become even more diligent on. I referenced the Augar Review. I can definitely see some of those lower ranked institutions moving closer to further education colleges, perhaps the rebirth of the sort of the polytechnic that would change the nature and mix of students in those locations, so ensuring we're not exposed to those is important. And that's something so we've been very active in doing over the last few years.

We've got another question from Chris Fremantle at Morgan Stanley. You talked about the opportunity for the HMO market. Does this mean transitioning to a lower price point as you seek to take market share, particularly given pricing tends to be lower there? How big is the opportunity here in your view?

In terms of the size of the market, it's a market with 900,000 students in it. So now on twice the size of the number of first year students starting every year. So it's a pretty significant market. Clearly, not all of those students are going to want to live in PBSA no matter how we change the product and change the service, but a significant proportion do in terms of price point. In the majority of the markets we are operating in now, we are now cheaper on a comparable basis. We generally offer shorter tenancies for domestic students than the HMO market, we traditionally offer as well as then all of the product and service. The big question for us if we were to effectively switch to all of our sales to that domestic market versus ultimately the international market would be tenancy linked. International students take 51 week tenancies. It's a marginally higher price point generally per week, but not material. So we would need to really think hard about our opportunity to drive utilization over the summer period to ensure that we didn't lose out on those sort of 7 or 8 weeks of the back end of the tenancy between an international and domestic student. So we're doing that work now. We're looking at it, obviously, through the pandemic. Utilization was something we were focused on. We're beginning to have some success. Clearly, it's something that we've not looked at for the last 2 summers for very obvious reasons, but we will get back to that again.

We've got one further question on the webcast. It's from Thomas Buisson, again at Clearance Capital. Are there set dates for the free 3-week quarantine you were offering to international students for term start? Will this be available until the year-end?

So at the moment, it is 3 weeks ahead of whenever your tenancy was due to start, depending on the university and the start date for the university. Our tenancy start dates are linked to that, so there isn't sort of a one date. But 3 weeks ahead. At the moment, we are working on the assumption that students will come from the start of the academic year. The vast majority of universities are still saying that international students should come for the start of the academic year. A few are starting to say, well, if you are having difficulties getting to the U.K., you complete your studies online. But that's not material at the moment. We'll continue to assess that. And if we need to make an adjustment to our offer, we will do. But at the moment, we're expecting international students to arrive and start their tenancy as they've signed up.

So we have no further questions on the webcast, so I'll hand back to the operator.

We'll now take our first question from the phone line. It's coming from Pranava Boyidapu from Barclays.

I had a couple of questions on the USAF entity. I noticed that the LTV has been reducing over the last couple of reporting cycles. Is that just the drawing from the bank facility in June that is being repaid? And how does that relate to the USAF II LTV reduction?

The LTV reduction in USAF is a result of the disposals within USAF. We adopt a similar strategy of recycling capital from assets which we think will underperform the overall average of the fund, and then we'll look to redeploy that into newer assets either bought from Unite or from third parties. So USAF is actively looking at third-party acquisitions at the moment, and we'd expect to add new assets over the next 6 to 12 months on a sort of, as I say, single asset or small portfolio basis as we go forward.

And how about USAF II, would that be similar?

So LSAV -- I think you're referring to LSAV. So I think the LTV there would be similar that we would do less active portfolio recycling just because of its heavy concentration in London. So we may do a bit more asset management activity in LSAV. But it too, given the additional capital commitment that's come from GIC, we'll also be looking at potential acquisitions in London specifically.

And we have no further telephone questions at this time. So I'd like to hand back to our speakers for any additional or closing remarks.

Great. Nothing more from us. Thank you everybody for joining today. And I guess, hope to see as many of you can in person at our Capital Markets Day on the 19th of October, I believe in Manchester, and not to give any secrets away, but we'll see you there. Thanks very much, everybody. Thank you.