Unite Group PLC (UTG) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our results presentation. Thank you to all those who've joined us in the room here. For us, it's our first physical results presentation for a couple of years. I think it was actually 2 -- pretty much 2 years ago today we were in this very auditorium, but also thank you to all those joining on the webcast and on the conference call. Standing here today, it does feel a little bit more normal than it has done or certainly whatever our new normal is. And I'm delighted to say that our results, I think, reflect that. Unite have consistently delivered good, strong results, in line with expectations. And I think overall, these results that we're going to talk through now are a real demonstration of that. First, our recovery through COVID and also the growth opportunity ahead of us has been supported by our strategy. Our strategy built around 3 really clear objectives. We are and we will continue to deliver for customers and for universities. And during probably for what have been the most challenging operating conditions that the business has experienced through COVID, one of the real successes that we've achieved record customer satisfaction levels, and we have also enhanced our reputation with universities. And I think that really stands us in good stead for the future. And that enhanced satisfaction, that reputation with the universities means we, therefore, are confident about a return to full occupancy and also rental growth in line with historic performance. We are and we will continue to deliver attractive returns. In addition to the occupancy and rental growth guidance we provide, we have a very valuable development pipeline, the largest we've ever had by value. We have fully sort of reinstated the dividend at an 80% payout alongside these results, and we're targeting a sustainable total accounting return of 8.5% to 10%. And finally, we are -- we will also have a positive impact on society more generally. I think as a business, we've had a clear commitment to doing what's right, and our track record on social investment is, I believe, clear. But in the coming years, we will accelerate our part in tackling climate change and also an improving society. And throughout the presentation, you'll hear more about how these 3 key objectives are guiding everything that we do. But turning now to the headline financial performance for 2021. Earnings are up 20% to just over GBP 110 million. EPS has grown 15% to 27.6p. Dividend at 22.1p represents an 80% payout, as I've said. And our total accounting return in the year was over 10%. Alongside these results, delighted to announce a new 700-bed development scheme in East London, including this scheme in the development pipeline means that we have close to GBP 1 billion of development to deliver over the course of the next few years. And when that development pipeline comes online, it will add a further 10p to our earnings. The balance sheet underpinning. The business is robust, and we've been active in improving it further during the course of the year, and Joe will cover this shortly. Despite the challenges over the last few years for us all, demand for university and therefore, demand for accommodation, both domestically and internationally, has been incredibly strong. Applications are at record levels and particularly strong in the types of students who live with us, so 18-year-olds international students. And our reservation performance for the '22-'23 academic year is well advanced. We're 67% reserved for the next academic year, that's 7 percentage points ahead of where we were last year. So well advanced, that's underpinned within that 67%, 50% of that is our nominations. They still continue to be a really important part of our business, with the balance of 17% being direct let bookings, which is pretty much now back in line with where we were pre-pandemic. And that 17% has seen really good growth in securing more re-bookers, an area we've been targeting. And also we are seeing international students, and particularly Chinese students, committing now to start the next academic year. So seeing the return of the international market, I think, is important. So that current performance, the current occupancy really does underline our confidence in a return to full occupancy for the start of the next academic year and rental growth of 3% to 3.5%. Our response to COVID and the rapid recovery from it, I think, has demonstrated the resilience of the business, but also the resilience of the U.K. Higher Education sector. And as we look ahead to the '22-'23 academic year and indeed beyond, I think we can expect to return to normal and also exciting growth opportunities. As I said, the Higher Education sector is performing very well. And obviously, our business is underpinned by the undeniable strength of this sector. But also the response from students during the pandemic, I think, has really confirmed the enduring appeal of the U.K. residential model. Students wanted to be at university and indeed in their campus despite the threats that we may have believed were there once before around online learning. And that's proven by the numbers. Domestic students are attending university in record numbers, with further growth to come through demographics and participation. We're seeing record non-EU international numbers. And as we've guided to you previously, the non-EU international growth will more than offset the decline that we have seen in EU students as a result of Brexit. And this summer, we'll also see the return for exams for students. And I think that will reverse some of the disruption that we've talked about previously from grade inflation. I don't think we're going to see grades going back to what they were pre-pandemic, but I think there will be a step down in the normal distribution of students across the Higher Education sector will be normalized. UCAS have recently published their applications for the '22, '23 academic year. Total applications were up 7% on pre-pandemic levels. We're seeing growth in 18-year-olds applying to go to university of further 5% and international demand, as I mentioned, is also strong. And I think it will be particularly strong for the next couple of cycles, actually from the latent demand from international students that haven't been able to travel during the pandemic will now still want to come to the U.K. And these structural tailwinds sort of supporting us are also supported by government policy. The government wants to continue to grow international student numbers even further from where they are today with a particular focus on India, Nigeria and the Middle East, all markets that are very relevant to us. They will be students who will seek to stay in purpose-built student accommodation. And also the government wants to ensure that universities are delivering value. Around 3 weeks or so ago, the Office for Students announced a consultation on quality, looking at the quality of courses delivered by universities. And put simply, the OfS are going to analyze the performance of universities across 3 metrics: continuation, so students progressing from one year to the next; completion, so you finishing your course and also graduate earnings. So are you earning a graduate salary once you go into the job market. That review, I think, will become a reality, and I think we will see the OfS, just looking very closely at university performance, but our very deliberate and careful alignment to the best universities in the U.K. So how we've positioned the portfolio over recent years means that less than 5% of our portfolio is aligned to universities that we don't believe will consistently meet these new thresholds. Some of you would have seen. I know it's been a busy morning for many of you already. But also in the press, there is a consultation that's likely to come tomorrow on funding review. For those with long memories, the Augar Review was published nearly 3 years ago now. There were 2 key parts to that, the quality review that I just talked about, but also looking at funding. The headlines in the press today, I think, are a very fairly accurate reflection of what the government are going to consult with the sector on. I think it will see the freezing of the student loan at GBP 9,250 for a further 2 years, so effectively to the end of the current parliament. That will put more pressure on universities' finances because their income simply isn't going up. So the only way they can grow their income is to take on more students, and also look for efficiencies, which might include, obviously, opportunities for us. And I think then there will also be a consultation around minimum entry grades. I think the government are keen to ensure that students going to university do have the required qualifications. There is a focus on maths and English GCSE. It's not clear what the consultation will say as to whether that's you need a C or D those qualifications to be able to go to university and access a loan. But again, for us, not a particularly a significant issue, I would say less than 5% of the students that we have living with us don't have that qualification already simply because of the nature of the university they're going to and the requirements to enter that university. So a consultation will come out tomorrow. We'll obviously work through what that means, but I think very limited impact. And really, our alignment to quality, I think, has actually been the right strategy and one that we will continue. As I already mentioned, the third objective within our strategy is to be a responsible and resilient business. And during '21, we've made really good progress embedding our sustainability activities into everything that we do. We published our Sustainability Strategy. We published our net-zero pathway. And that is supported by targets that have been validated by the STBI (sic) [ SBTi ]. And on the environment, we've invested already over GBP 30 million in energy initiatives. Historically, and in 2022, we plan to invest a further GBP 10 million. And a big part of that will also be ensuring our EPC compliance and during 2022 will bring a further 5% of the estate up to the required EPC ratings. Our purpose and indeed, our values really provide us with a compelling focus on social responsibility. As you all know, during the pandemic, we provided over GBP 100 million of financial support to students, which we believe is the largest package of support provided anywhere in U.K. Higher Education. And going forward, we're reaffirming our commitment to invest 1% of our profit annually into social initiatives such as the Unite Foundation. And as we look forward, our platform, our capabilities as a business, I think, really do provide us with an opportunity to look to grow. Our development pipeline, as I've already mentioned, is very significant, and we still see sort of 8 to 10 markets that are undersupplied and where we would like to add further stock. Our relationships with universities that, I think, are a clear differentiator for us against any of our competitors. Our nominations -- about 50% of our beds, as we say at the moment -- as I've said, and over the course of the next 2 years, I would expect that to grow to 55% of our beds under nomination, so back to historic levels. And I still believe there is a real opportunity for more meaningful on and off-campus partnerships with the universities. Our conversations with universities around those partnerships, obviously stalled a little bit over COVID for very obvious reasons, but they have really now started back in earnest. And as you will hear from Karan later, we're also having success in gaining market share from HMO. And looking further ahead, the challenge for HMO landlords of achieving minimum EPC requirements to be able to rent their property and also the impact of inflation generally, well, I think, challenge HMO landlords and therefore, likely drive further decline in this important competing market. And as a business, we've also got significant experience now in providing homes to non-first years. And we see clear parallels between this market that we currently serve and also young professional renters. Our platform, our capabilities, our development experience, I think, provide a real medium-term opportunity in this potentially very exciting market. And Nick will update a little bit later on an exciting trial that we're rolling out of our Campbell House development in Bristol. So these are real opportunities. And while challenges obviously exist, not least inflation in the near term, I think we can look ahead with real confidence. I'll now hand over to Joe to take us through the financials in a bit more detail.

Thank you, Richard, and good morning, everybody. So turning to the exciting bit of the numbers. Just to pull out a few highlights around the numbers that we've delivered, again, a strong set of results in what's been a year thrown full of challenges. Total accounting return of over 10%, EPS of 27.6p, delivering the EPS yield of 3.4% with meaningful opportunity for this to grow in 2022 and return of the dividend to full payout level at 80%, with the remainder being used to fund CapEx and growth investments. Looking at the earnings statement in a bit more detail. There's a few highlights to pull out here. The income recovery has really been driven by that return and occupancy performance of 94% for the '21-'22 academic year. Alongside that occupancy recovery, property operating costs have increased as we saw the reversal of some of the one-off savings that we made in 2020, such as staff costs, cleaning and utility usage. The extension of the LSAV joint venture led to the realization of a performance fee, of which GBP 42 million was recognized in this year. We've taken this out of EPRA earnings just so that the EPRA numbers are comparable year-on-year. The earnings bridge then shows that movement from 2020 in a little bit more detail. You see the first 2 bars there showing effectively the impact of rental discounts in both 2020 and 2021, broadly offsetting each other. But then we saw the step-up in income as a result of that occupancy and the associated costs that I just talked about of GBP 10 million movement. The net benefit of new openings in 2020, less disposals, added GBP 8 million in the year to give a total adjusted earnings up GBP 18.5 million to GBP 110 million. So as I mentioned, overall operating expenses increased in 2021. This was largely driven by the return to full occupancy in statement of costs that were saved in '21, increased marketing spend to drive occupancy as well. Overheads were controlled, up only 2%, and this was more than offset in the higher asset management fees of GBP 1.9 million increase. So the -- our EBIT margin has actually fallen from the pre-pandemic levels of 71% in 2019 to 62% in 2021, but we do expect this to return to 70% in 2020 and to over 72% as a medium-term target as we refer to full occupancy, deliver the pipeline and deliver further efficiencies through our investments in technology. Utility pricing is clearly high up on the agenda. And our policy of hedging utility costs on a forward basis of 18 to 24 months is certainly ensure that we've not seen any spike in energy costs impacting '21. We're also well protected for '22 and '23 as well. If we didn't have this hedging in place, our energy costs would have been around GBP 12 million to GBP 15 million higher based on the current spot price. That's equivalent to around 0.5% of rental growth that we'd have to try and pass through to students. I think given that time and given the hedging that we've got, we do have the ability, if we do see those rates staying high for a sustained period of time to try and push those costs through to higher rental levels over that next couple of years. We've set out the key moving parts then for the 2022 earnings guidance. The improved occupancy over the first half of this year that's already baked in, the expected return of summer lettings and the return for occupancy for the '22-'23 academic year. We'll see rental income increase by about GBP 40 million to GBP 50 million, up to that GBP 320 million to GBP 330 million level. The impact of new openings this year will broadly offset the disposals that we made last year and expect to make this year as well. And we're not expecting any meaningful increase in OpEx or overheads with those inflationary pressures being offset by hedging and staff savings that will be delivered through a restructuring that is currently already underway. So this will deliver an EPS in the region of 41 to 43p and we intend to maintain our dividend payout at 80% of EPS going forward. The earnings outlook sets out then the key factors that deliver over the longer term and show how the earnings will continue to progress over the next 3, 4, 5 years. The component parts of that are the return to full occupancy and summer income, which I've talked about, the portfolio movements driven by that large development pipeline, which Richard mentioned, as well as ongoing disposals and the NOI growth from a combination of like-for-like rental growth, asset management driven rental growth and also managing our costs to deliver that EBIT margin target of 72% over the medium term. This bridge does assume that we'll maintain within our LTV target of 35% range. And as usual, this outlook chart spans a number of years with the completion of the development pipeline through to 2025 and 2026 being an important component of that growth. The 8% increase in NTA per share from 818 to 882p was driven by the increase in the value of the investment portfolio from both rental growth, occupancy recovery and also some yield compression that Nick will talk in a bit more detail about together, seeing growth of 5%, adding 42p. Development gains at 13p in the year were slightly lower than a normal year, given the impact of slowing some schemes and also planning delays as a result of COVID. We expect this to be a catch-up in 2022 to offset this. We've increased our provision for fire safety CapEx was 6p, and you can see the impact of the LSAV performance fee there flowing through to NTA. We expect to deliver total accounting returns at the upper end of our target range. We expect that to be 9% to 10.5% in 2022, and that's before any potential yield movement. This is being driven around the improvement in the earnings yield to around 4.5% to 5%. The rental growth of 3% to 3.5% that we are reiterating as guidance, which contributes to 4% to 4.5% total returns. The high level of planning activity in '22, contributing to a higher level of development profits. And we are allowing for an investment of GBP 1,000 per bed of investment CapEx, which I'll come on to talk through in a bit more detail. And if we do see some yield compression across the portfolio, 10 basis points adds about 3 percentage points to that total accounting return. So as set out at our Capital Markets Day in Manchester, we've got clear plans to continue investing into our investment portfolio to ensure that our buildings are kept safe up to date with current customer expectations and the new and emerging legislation around fire, and we're highlighting that investment of GBP 1,000 per bed on average over the next few years. We continue to invest around GBP 300 per bed. That's pretty much our historic run rate into life cycle CapEx to keep the buildings in good conditions and presenting well to our customers. We have fully provided now for all of our buildings, which have HPL cladding on to, allow us to remediate and remove that cladding in line with government legislation. And we are undertaking surveys now on the remainder of the state to determine what additional work may be required and this will be covered by the cost of GBP 500 bed over the next few years before reducing back to more normalized levels. We do -- and we have had some success in pursuing contractors where noncompliant materials were used or standards were not adhered to at the time of build and we've recovered GBP 10 million to date on 2 schemes, representing 70% of the costs on those buildings. And we expect to recover around 50% to 75% of the remediation costs going forward. In addition to that, we've actually seen contractors remedy buildings in 2 cases at their cost. Our sustainability investment program is well underway. As Richard mentioned, we have asset transition plans in place now, which allows us to see all the buildings move to A and B from an EPC rating perspective by 2030, and we'll invest GBP 10 million across the portfolio this year, which will generate savings in excess of GBP 1 million per annum once those have been completed. Looking at the balance sheet. Our disciplined approach to capital management has seen us reduce LTV to 29% through disposal activity. And that then creates the capital headroom to allow us to build out the development pipeline, and do that within our target range of about 35% LTV. We do expect to see net debt step up next year quite meaningfully due to that increased level of development activity as we buy the land and move on site with a number of those 24 development completions. We're well underway with the refinancing of the '22 and '23 debt maturities, which fall due in LSAV and USAF. And as this is on some of our older and more expensive debt, we do see opportunities to generate interest cost savings as a result of this activity. Even though cost of funding has actually increased by about 50 basis points over the last 12 months. Our marginal cost of funding is currently around 3%. Sorry, get ahead of myself. Our approach to hedging means that we've got 90% of our investment debt is currently fixed and that's for a remaining duration of 5.5 years. And that, therefore, protects us well from any interest rate increases that we could well see over the coming few months. USAF and LSAV have continued to perform well and are well set for the longer term, particularly now we've extended LSAV by 10 years to 2032, and that's realized a promote of GBP 53 million, of which GBP 42 million was recognized in 2021. That was slightly higher than we were expecting and really driven by the strong valuation performance in London over the last 12, 18 months. We do see opportunity to further boost USAF returns, and that's through that investment and asset management activity that we outlined in Manchester and we are, as a result, considering opportunities to increase our exposure to the fund provided it meets our return hurdles. On that note, I'll hand over to Karan.

Thanks, Joe. As both Richard and Joe highlighted, last year, we took strides to return to full occupancy and rental growth. And on the back of our strong nominations agreements and greater investment in marketing, we grew occupancy by -- from 88% to 94% and we reversed our rental growth -- rental decline, and we turned that into a 2.3% rental growth. When you compare this data to the available competitor data, it does show clear outperformance. Worth highlighting, though, that this performance was exceptionally strong in most of our cities. So Bristol, Manchester, Edinburgh, to name a few, where we were fully occupied with a significant rating list in most of these cities as well. That said, in 4 provincial cities, which represents just over 10% of our -- from a value point of view, our portfolio. We did see more voice than usual. That was, in a large part, driven by the grade inflation that Richard talked about earlier, as well as what was a smaller clearing cycle than usual, as well as a reduction in international travel, especially from China. Now we do expect some of these challenges to reverse as universities go back to a normal recruitment cycle and there are less travel restrictions for international students to come back into the U.K. So looking forward, we actually do see a more positive momentum towards the commercial goal. So applications are up 5% year-on-year. We're also seeing international students return to the U.K., both from China, but also from a number of new markets for us, India and Nigeria, to name a few, as Richard mentioned earlier as well. And these macro factors as well as our continued investment in marketing as well as our nomination agreements gives us cause for optimism and what's driving our current '22 or '23 sales figure. So just to give you a few facts on where we are. We're currently 67% reserved for the class of '22. That is 7 percentage points higher than the same time last year. Direct led bookings are up 60% year-on-year. And we've seen a nearly 40% increase in the rebooking rate that we have with existing students. Now these are the students who would historically have gone into the HMO sector. So we are really pleased with our performance. And now we're entering a key sales period for new students over the next few months, but we are confident and optimistic as I said earlier, of achieving the guidance that we've set out, which is 97% occupancy and a 3% to 3.5% rental growth. As I mentioned earlier, a key source of our commercial advantage is the strength of our university partnerships. And these relations have been built over a very long period, and they provide both the universities and Unite with real visibility as well as security. So last year, we saw 51% of our beds nominated under these agreements. And the average length of these agreements is now 7 years versus 6 years last year. Most of these agreements have a fixed or inflation-linked rental growth terms in them, and we are projecting roughly a 4% growth in the rental growth for our nomination agreements this year. Longer term, as Richard said earlier, we do want and expect to return to sort of 55% of our beds being under these nomination agreements. Now this growth is based on what we are seeing in the market. So after last year while the universities took a little bit of a step back, they are now back in the market asking for your nomination agreements, and we've just recently agreed 2 additional deals worth about 1,000 beds with 2 Russell Group Universities. Additionally, as Nick will share shortly, several of our new developments actually do come with multiyear agreements in place and 83% of our pipeline currently have these deals in place. And these deals are -- and these agreements are also quite key in gaining planning approval as well. So from our point of view, continuing to develop these nomination agreements and investing in university partnerships is fundamental. Hopefully, that gives you a good overview of our performance last year and what the commercial outlook looks like for this year. That said, our commercial success is only possible on delivering an outstanding experience for our students. And we have continued to make investments in both improving the product experience for these students, as well as the service proposition that we have for them. So just to pull out a few examples of what we've done. Last July and August, we brought all of our operations teams together to reset post-COVID and prepare for the class of '21, developing locally relevant checking experiences and a program of events that is tailored to the different chapters that a student goes through the university tenure. We've also expanded our Resident Ambassador Program, which is our peer-to-peer support programs, and we've continued to invest significantly in our student support and welfare programs, which I believe are truly best-in-class in the sector. We've also launched several digital tools to support students through this experience. So -- this includes the ability for them to get additional work and supplement their income through an external partnership. We've looked at -- we've launched a group booking tool, so they can rebook with their friends and a room selector option as well so they can get exactly the room that they want in the building that they want. Finally, we've also very quickly been able to segment 7 of our properties as a trial towards the fast-growing postgraduate segment as well. So we've adapted our service offering. We've made some changes in the amenity offering in the public areas, and we've created more of a community of like-minded students, and that has enabled us to not just drive a higher satisfaction score, but it's also helped us drive greater income from those properties as well. The net impact of all of these sort of programs and changes has been a Net Promoter Score of 39 at our most recent survey, which is the highest it has been in that particular survey. And when you look at it against competitive benchmarks, it does exceed what our competitors are offering to the stores as well. Looking ahead, these are also the investments in our service and product proposition that has really driven the higher retention rate, which I mentioned earlier, which is 40% higher than where we were same time last year. Now these students have historically have stayed in HMO, but I think we've shown clear value for them to continue the journey or the university journey of accommodation with Unite, and we're delighted with that, and we expect that number to continue to be strong. So that's it for me. I'm going to hand over to Nick to talk through our development performance.

Thanks, Karan. Good morning, everybody. The sector continues to attract significant volumes of capital from both new and existing investors. Transactions last year were just shy of the average annual run rate of GBP 4 billion. But given the late letting cycle of last year, which puts off a number of sellers from bringing forward portfolios, I think that really underlines the sector fundamentals. We're, therefore, expecting 2022 to be a very busy year on the transaction front with a number of portfolios that were earmarked for 2021 coming forward. Most notably, Brookfield Student Reece portfolio is likely to come to market. And equally, there are a number of smaller portfolios such as Starwood Capital's it in the market as well. Transactional evidence has resulted in around 10 to 15 basis points of yield compression in the sector, driven by strong demand for London and prime regional markets. Yields have softened in provincial markets. However, we expect to see that trend slowing in 2022 as demand increases from investors who are seeking yield. It's worth noting that our provisional -- our provincial exposure in the portfolio now sits at around 6%. Our portfolio yield is now at just shy of 5%, 4.9%, which looks good value compared to adjacent sectors such as build-to-rent. We've continued our strategy of improving portfolio quality through development, asset management and disposals. We resumed development activities post-pandemic on Middlesex Street and Campbell House in Bristol, both projects remain on program and on budget for completion this summer. And we have 3 asset management initiatives that we mentioned in our Capital Markets Day, which are due for completion this summer in Manchester, all of the combined 7% yield on cost. And furthermore, we continue to identify new opportunities within the portfolio, which will help support further rental growth of about 0.5% to 1% in 2023 and 2024. Disposals continue to progress well, and we're in advanced discussions on a portfolio of GBP 235 million of see-through assets. And following the conclusion of that transaction, we will start to lower our disposal run rate, primarily because we would have met the disposal strategy that we set out as part of the Liberty acquisition, and we'll be focusing purely on -- in a number of -- a small number of non-core assets. New supply in the market continues its downward trends, having averaged just over 30,000 beds per annum pre-pandemic. It's now sitting at around 23,000 beds, and we expect that to drop to 20,000 and approximately 1/4 to 1/3 of those beds tend not to be in Unite markets. The reason for that falloff is threefold. Firstly, the planning environment continues to be a challenge for developers. The construction market at the moment is very challenging and very complex. And furthermore, we're seeing increased demand in the land market from the recovery of other uses such as resi hotel and office providers. Turning to our development pipeline. We've got a fantastic pipeline of properties, which we're presenting today. As Richard said, it's the largest pipeline by costs that we've had as a business, 6,000 beds, just under GBP 1 billion, generating a 6.2% yield on cost and once completed, will contribute 10p of earnings. London represents 78% by value and once our pipeline is built out, we'll have a 45% London weighting, which is well above the weighting the portfolio held pre the Liberty acquisition. And obviously, the Liberty acquisition was a more regional-focused portfolio. So we'll be delighted to recover that weighting. Also delighted to announce a new mixed-use scheme in East London, which delivers a yield on cost of 6% for the student element when combined with other users within the development, and that falls to 5.4%. And that means that we have now secured 3 new sites in the last year with a heavy weighting towards London and are actively pursuing other opportunities of interest, and I expect us to add to our pipeline as we move through the year. Build cost inflation remains a challenge as supply chains continue to be disrupted through a combination of Brexit and the pandemic. The risk has been factored into our assumptions for all new sites, but there remains a degree of risk for those projects that are due to complete in 2024. And we see that risk of around 10 to 20 basis points in the development yield. Whilst the pipeline is strong, we are seeing more opportunities also for mixed-use schemes, particularly with our build-to-rent and purpose-built student element to it. Mixed-use schemes on the whole are well received by local authorities and committing to these types of projects will enable us to continue to develop into the medium term. As Karan mentioned, we've also been looking at evolving our customer offer and our products. We've been tailoring the designs of our pipeline and our refurbishments to address the opportunity for the return of market and the postgraduate market. This includes reducing cluster sizes, enhancing communal spaces with a focus on the customer demographic and tailoring our marketing and service offer as well. And finally, we are trialing a really exciting opportunity to deliver a non-student product at our Campbell House development in Bristol, where we have consent for 62 build-to-rent units, which we expect to be on site with in the coming weeks. It's been a really fun project to be involved in, particularly given the changes to living and work over the last couple of years. And the design of the product takes into account modern ways of live work. It's a combination of 1 to 2 bedroom apartments with communal spaces that are specifically designed for young professionals to work and socialize together and I look forward to providing more updates on that project as we move through into construction. So with that, I'll pass you over to Richard, who's going to wrap up and lead the Q&A. Thank you.

Thanks. So as Nick said before opening up to questions, just to summarize. I think we've demonstrated the resilience of the business and recovered strongly post-COVID. Our strategy remains relevant and will deliver further value, and our business remains structurally supported by the higher education sector. Given these factors, we're confident in delivering significant growth. We have our largest ever development pipeline. We can add scale through targeted acquisitions and further university partnerships. We can continue to attract further market share from HMO and we have the opportunity to extend our platform to support young professionals. Our capability to deliver this growth provides, I think, a high degree of confidence that we will deliver significant EPS growth. That we can deliver a sustainable total accounting return of 8.5% to 10% as we've talked about and also importantly, have a really meaningful social impact and make a real contribution. So thank you for listening. I think the plan is that we'll take questions in the room first, then questions for those who've dialed in via the conference call. And lastly, questions from those on the webcast, which involves me using a bit of technology here. So you'll have to bear with me when it gets to that bit. Any questions in the room.

It's Matt Saperia from Peel Hunt. Two questions, if I may. First one on the potential investment into USAF. Would that be the vehicle looking to raise new equity? Or would that be your buying interest of existing investors?

It could be both, Matt. So I think the plan for USAF is that as we've shown over the years, it will periodically raise capital to fund new acquisitions if we see those acquisitions emerging. If that happens, then there's preemption. So we are likely to invest as part of any new equity raise in USAF. We also see around GBP 50 million to GBP 100 million of units trade each year on the secondary market. So there's from time to time opportunities to pick up units. They trade at pretty tight boundary to the fund's NAV. So again, it's quite opportunistic whether those come up. But I think we're just signaling that -- we know the portfolio. We see there's upside in that portfolio. And actually, there's a sensible sort of risk-adjusted return from us investing into that vehicle.

And the second question, on the Campbell House pilot. Should I be thinking about that as co-living, or is it slightly a differentiated offer to that others provide. And obviously, we've had some, I guess, high-profile failures in that space, what gives you the confidence that yours is going to succeed where others have failed, I guess?

Yes. So it's not a co-living product as such a Campbell House. So it's consented as C3 residential, but the design we've put in place is for much more, I'd say, purposeful living, i.e. the spaces of the much larger than co-living. It's more a build-to-rent type product than it would be a co-living. And we don't see co-living really as a route through to kind of delivering more young professional purpose-built either.

It's Sam King from Stifel. Just one question, please, picking up on the opportunity in the HMO market, particularly given the challenges those landlords face with EPC ratings. Firstly, what would you say is the biggest challenge in attracting those second and third-year students? Is it more price driven or more style of accommodation? And then secondly, assuming that you can take some of those students, does that open up new potential markets in the U.K. that you wouldn't previously have looked at.

I think on the first point, you're right. The cost of those landlords is significant, GBP 30,000, GBP 40,000, potentially to bring those HMOs up to standard. So even if those costs are borne by the landlord, that's going to be passed on to students. I think probably the biggest challenge is not necessarily price. Our pricing is pretty comparable to HMOs in many of the markets. It is the style of living. Our product can be considered to be a little bit to sort of institutionalize for more mature students, you're sort of walking in, you're passing a reception, the common room perhaps overlooked -- is it a little bit big brother. That's where I think with some really clever sort of modifications using how building layout a little bit differently, you can create that sort of more independent service and more independent product that I think will really appeal to that group of students. And some of the new products, as we talked about, smaller cluster sizes, I think we'll work quite often our cluster size is sort of 6, 8, 9 beds typical HMO sort of 4 or 5 people living together. So I think some slight modifications, we can really make the product feel more independent price at the right level. I think we'll continue to have success. Will it open up new markets? I don't think we would go into a new market just because of the HMO there, but it may well mean that we would add scale, maybe we would add new product into existing markets. I don't think there are any other questions in the room. I don't know if we've got any questions on the conference call. Yes, we have.

[Operator Instructions] And we do have a question from Paul May from Barclays.

Just a quick one for me. On the summer income, I think you sort of not return to normal summer program in 2022. Remember pre-COVID, the sort of normal summer program was still -- you were still expecting potentially quite strong growth in that contributing to the rental growth delivering 1 to 2 percentage points, additional rental growth on a yearly basis. Just want to is, are you still expecting a return to growth from here in the summer income moving forward?

I think in the short term, it will be more a return fall to sort of traditional levels of summer income supporting conferences, supporting language schools, sort of pre-sessionals, I think as we sort of look perhaps 1 or 2 sort of academic years ahead, we'll then think about the real opportunity to again ultimately drive utilization and to improve overall utilization. But the first step, I think, is to recover those historic levels of the summer business.

Sorry, just one additional one. I think historically, Unite has been pretty strong at delivering inflation plus rental growth. I appreciate obviously, inflation running very strongly this year. So that's more difficult on the recovery here. Do you anticipate moving forward that you'll be back to that inflation plus levels of rental growth? Or do you think the sort of 3% to 3.5% is irrespective of the inflation is kind of the level that you're going to be targeting?

Yes. I mean I think for us, we want to deliver sustainable value-supported pricing increases. So that 3% to 3.5%, I think, is where we will guide to in the medium term. I think, obviously, given the nature of our business, the opportunity to resell our rooms, we do have a degree of inflation protection if inflation does run at very high levels for any kind of protracted period of time. But on a sort of medium-term sustainable basis, I think 3% to 3.5% is where we'll look to deliver and then also ensure that we remain really efficient and look to invest in technology and service enhancements to drive value within the cost base.

There are currently no further telephone questions.

Great. We go. All right. We have a couple of questions from [ David Brunton ] at Astec. The first question being, university finances have been under pressure due to COVID. Has this improved the prospects of accommodation partnerships? I mean I think simply, yes, I think the cost pressures that universities are facing and will continue to face there. As I mentioned at the beginning, their income being frozen, I think will mean that they will look for further opportunities to reduce their cost of operations and accommodation may well be one of them. So I don't think it's going to be the bit, that's going to sort of tip universities into ultimately outsourcing their accommodation, but it's certainly helpful. And then a follow-up question from David. Unite previously launched the city center proposition targeted at the recently graduated, but dropped it. What did you learn from that initiative? And what has changed your view? Well, I think that was about 12 to 15 years ago. And Joe was the MD of that business. So I might just leave Joe to answer that particular question.

We set that business up in 2006, actually, and it was a victim of the credit crisis that we felt that we weren't able to allocate significant volumes of capital. We open full buildings. They're actually trading pretty well. But in 2009, we decided that it was better to sell those buildings and focus on our core activities. So we did learn some lessons from that. I think we'll attract and we'll go into this market in a different way, but -- and planning environment has been the fundamental change since then, we were trying to kind of find a way through planning, whereas planning and for build-to-rent has certainly opened up since then, which makes this a much more scalable proposition than it was back then.

And then finally, I think a question from Chris Fremantle at Morgan Stanley. Do you see moving into build-to-rent young professional segment as a yield diluted and/or return dilutive? If not, why not? I mean, clearly, the returns may well on the face of it being sort of slightly lower within that market. We will look at any investment we make, looking at competition for capital, how we're planning to invest. I think the scale of the opportunity within that market overall, I think our capability to deliver in that market really effectively and really efficiently means that the returns that we can generate, while perhaps on the face of it, not as strong on a pure comparison basis a student will add to an overall really attractive total return for the business. Clearly, it's something we will absolutely consider as we look to extend into BTR, ensuring that we do provide sort of sector-leading returns. But I do think we can manage them, and I do think our capability will ensure that we can drive potentially some of the best returns in that market should it be something we expand into in the medium term. I don't think there are any more questions. So thank you, everybody, for coming along, and thank you to all those who are listening and watching. I hope you have a good rest of the day. Thank you.