Unite Group PLC (UTG) Earnings Call Transcript & Summary

We're bang on 8:30. Good morning, everybody. Thank you all for coming. Thanks for those joining on the webcast and on the conference line as well. It's great to have you here. For the more observant amongst you, you'll notice that after 15 years, I'm standing up first this year. So I'm absolutely delighted to be doing so. And I guess, sort of say that the transition has gone incredibly smoothly, and I'd like to start by thanking Richard Smith for his huge contribution to the success of our business, his personal support and friendship. And I wish him all the best in his next endeavors. As you all know, I've been at Unite for some 20 years, covering a bunch of different roles, corporate finance, investment, young professional housing. So you can say that Unite is in my blood and I'm very proud and delighted to be taking on the role of CEO. That's helped by the fact that Unite is in a great place and is performing incredibly well. We've had a fantastic start to the year. And I see the opportunity set that is in front of us bigger than it's ever been, and that's been driven by our fantastic relationships that we've got with universities. The fantastic portfolio that we've got in the best locations in cities aligned to those very best universities and that growing set of opportunities driven by the housing shortage and the need for universities to work with and find solutions to their growing housing problems. And I'll come back to some reflections on my first few months in the job as we run through the presentation. So 2023, the business has performed strongly. As I mentioned, we've delivered record earnings and the university and customer NPS scores. We've achieved full occupancy and strong rental growth offsetting the inflationary cost pressures. And we're delivering an ambitious -- delivering on our ambitious sustainability targets. We're now 99% of our buildings are EPC rated A-C. Our pipeline is incredibly healthy. The macro uncertainty of the last few years has meant that businesses like ours, which are well capitalized, as being able to take advantage of some really interesting opportunities. And we built our biggest ever pipeline at GBP 1.3 billion, located in the best cities, and 90% of those beds or benefit from some sort of university underpin, again, showing the strength of those relationships that we've got. And importantly, we're building the types of beds at both universities and local authorities want addressing a more affordable end of the market. Our university JV model that we announced the first of last week is a really exciting addition to our [ bow ] and something that we're getting very excited about. Universities own around 300,000 beds across the U.K., representing about GBP 30 billion of real estate. And much of that is under-invested both in terms of quality and environmental performance. They do take time. Each university is different, but one of the things that we bring is the fact we're able to address and think about the strategic questions and challenges that those universities have, and we've got a good pipeline of opportunities behind Newcastle, and the first one is always the hardest, and we believe that there will be more to follow. We're not complacent. We know that there's some broader risk that we need to face into around international recruitment, affordability of university and the university funding models, but we believe that we are well placed to manage these risks through our platform, relationships and alignment to those very best universities. And we are confident that the HE sector will continue to endure and grow. Our outlook remains positive, and we are confident we can deliver meaningful growth from our strategy. We've upped our rental growth guidance from 5% to 6%. We're guiding to earnings growth of 3% to 5% in 2024 and that our earnings growth will accelerate from 2026 and beyond on our TAR of 10% to 12% in '24, we believe, is sector-leading. So the strong performance that we've delivered in the year is being driven by our best ever sales performance. We're effectively 100% full and delivered 7% rental growth. That's delivered earnings and dividends growth per share, up 8%. '24, '25 reservations have also started really well, continuing that momentum. We're now 80% let and supporting that rental growth upgrade. And we've continued to invest through our investment proposition and portfolio. The balance sheet is a good place at 28% LTV, providing that capacity to grow. And the sector outlook remains positive from both the demand and the supply position given that deep and growing pipeline, we boosted the partnership with Newcastle University and the positive supply and demand picture underpinning that 6% rental growth outlook. So just a little bit more color on Newcastle. So I mentioned it was disclosed and updated last week, delighted to have signed this framework agreement with a joint venture with Newcastle. Newcastle is a member of the Russell Group. It's got a strong balance sheet and strong student appeal. Castle Leazes Hall, which you'll see on the top left, on the top right of the screen there, it's 50 years old, it's something of an institution in Newcastle. Anyone who went to Newcastle University will know it, have probably spent a night there and their time at Newcastle. It's adjacent to the campus and in the shadow of Newcastle's famous football grounds St. James' Park. The current hall is over 50 years old, it's about 1,250 beds, and it's in need of significant investment so much so that the university has taken the decision to close it already for the summer of this year, and we will provide 1,600 beds to the university through the construction phase. The joint venture builds on our 20-year relationship with Newcastle University, and we've been in discussion with the exec team for over 12 months to conclude this deal. But we are really proud that together with the university, we've built what is an innovative, flexible solution to meet their specific challenges. It is a true partnership, bringing together the university's land and their access to students with our development and operational capabilities and our access to capital, and we'll create 2,000 new beds, 800 of those incremental and we found a way working with the university to offer the beds at an affordable level compared to market value, and we think this is a really important message that we're able to send to the sector. The JV does remain subject to planning. It will be go to planning next month and demolition plan to start in the summer, and we'll get on site later in Q4. And I think just given our reputation and relationships, the fact we've been able to unlock this first deal that we are uniquely placed to deliver this type of deal, and there's going to be more demand from universities for these types of opportunities and we're in meaningful dialogue with around half a dozen other universities right now, and we believe that this first deal will open up more opportunities across the sector. The outlook for student demand over the next 5 years does remain positive. U.K. student numbers are at record levels at the moment, driven by demographics and participation rates. And there's an additional 125,000 18-year-olds expected by 2030. So even if we do see a small drop off in participation rates, we'd expect to see U.K. student numbers grow. International student numbers are expected to stabilize after a period of very strong growth and growth will be strongest at the better universities around the U.K. as it has been historically. This outlook has been supported by the most recent '24-'25 applications data released by UCAS a couple of weeks ago, which showed good applications from 18-year-olds, international applications up 1%, with students from our key markets of China, up 3% and strongest growth in mid and high tariff universities. International students provide a real boost to the U.K. economy, and this is well understood by government. They contribute GBP 42 billion a year. However, international students are being caught up in the wider debate about immigration. The government wants to focus international students around the best and brightest, which means those leading universities who we work so closely with and we hope that a sensible outcome will be found. We believe that we're well insulated given the alignment those universities and our high proportion and nominations agreements. Our students have benefited from the flat fee that's been in place for the last 8 years, meaning that the GBP 9,000 tuition fee is effectively GBP 6,000 in real terms today. The additional fees from international students do play a vital role in funding U.K. and the graduates and also the research agenda for universities. On the supply side, we continue to see a net reduction in supply and this is being driven by a 60% slowdown in the delivery of new beds as a result of build cost inflation and planning challenges. Build costs have increased by 50% over the last 5 years, outpacing rental growth in very many -- all except the most markets. Around 12,000 beds were delivered in 2023 and you expect this to remain at around 15,000 beds for the next 2 to 3 years. And as we talked about last summer, the traditional private housing market for the second and third years has also come under pressure. It's been shrinking, down 8%. That's about 100,000 to 150,000 fewer beds being offered to those second and third year students, driven by increasing regulation and funding pressures on those landlords. This is most notable in Scotland, where the rent regulation is at the strictest and the increasing obsolescent university stock is also playing its part, Newcastle is a good example of that, a 1960s plot where the ongoing maintenance cost means it's just not liable to keep running, and we're seeing that across many of our other university partners right now. And we are committed to taking a responsible approach to rent increases and delivering sustainable rental growth over the next few years. We see building more homes being part of the solution for both students and the wider community, freeing up local housing for communities. And as we've shown at Newcastle and in London, we're already providing affordable beds across our new developments, and we will commit to do so wherever possible. We now hand over to Mike to take you through finance and Property, and then Karan will stand up on Operations.

Thanks, Joe. Good morning, everyone. We've delivered another year of growth in earnings and dividends backed by our strong operational performance. Adjusted EPS increased by 8% year-on-year to 44.3p. EPRA net tangible assets were broadly stable in the year as the market adjusted to a higher interest rate environment. This supported a total accounting return of just under 3%. Our balance sheet ratio has also remained in a robust health following our capital raise in the summer. Over the page, we discussed the drivers of the 9% increase in operating profit during the year. Like-for-like rental income increased by 7%, reflecting higher occupancy and rental increases. We continue to see inflationary pressure on our operating costs. Utility costs increased as the price of our commodity hedges rose and staff costs reflected in the increase in the real living wage for our city teams. This was offset by a reduction in overheads, thanks to our cost discipline. Development completions and asset management projects delivered an additional GBP 9.2 million in operating profit. Our investment activity had a broadly neutral impact with the impact of disposals offset by acquisitions made in 2022. Overall, the balance of these factors saw our EBIT margin hold stable at 68%. Adjusted EPS grew by 8% in the year. This reflected the growth in our operating profits and the impact of our investment and development activity. Lower interest costs reflected reduced debt following our placing. We've declared an 8% increase in our full year dividend to 35.4p, which represents a payout of 80% of adjusted EPS. Our adjusted earnings exclude the impact of nonrecurring costs relating to the development of our new technology platform which I'll discuss in more detail on the following slides. Our EBIT margins have been impacted in recent years by income disruption during the pandemic and higher inflation in the period since. This has led to significant increases in utility and staff costs. Higher rental growth has mitigated the impact, but there is a delay of 6 to 12 months in recovering cost increases. Looking forward, we expect an improvement in EBIT margin. This reflects the embedded rental growth of the '23-'24 academic year as well as the strong outlook for rental growth for '24-'25. This supports a 50- to 100-basis-point margin improvement in 2024. We expect cost growth to continue to slow from 2025. Commodity prices point to a plateau in utility costs after a period of significant growth. We also see future margin benefit from our investment in technology. Many of you remember the investment we made in our PRISM technology platform between 2014 and 2016, which unlocks significant operational efficiencies for the business. We're now upgrading our technology platform for the next generation of systems. In a moment, Karan will take you through the customer benefits that this will deliver. The cost of this program is GBP 26 million. We expect this to deliver financial payback in under 5 years through increased utilization of our estate, lower cost of acquisition and more efficient processes. This supports a further 100 basis points improvement in our EBIT margin from 2026. Due to a change in accounting treatment, investments in cloud-based software are now expensed at the point they're incurred. Previously, these costs would have been capitalized and amortized over their useful life. As a result, half of the development costs from the project have been taken to the P&L in 2022 and 2023. Given the nonrecurring nature, these have been excluded from adjusted earnings. The balance of the cost for the program will be expensed in 2024 and 2025. Our NAV was resilient in 2023 against the backdrop of lower liquidity for real estate. Net tangible assets reduced by 1% to 920p. Together with dividends paid, this resulted in a total accounting return of 2.9%. In our investment portfolio, rental growth offset the impact of higher property yields. We saw a modest valuation decline for developments with profits on completed projects more than offset by yield expansion for projects under construction. Continued delivery of our Fire Safety Remediation Program reduced net tangible assets by 9p. We continue to invest proactively to improve the safety of our portfolio. All our properties remain safe to operate and we're taking a risk-based approach to ensure they adhere to best practice via safety standards. We made provisions for works under further 10 properties in 2023, and we ultimately expect to recover between 50% and 75% of our costs through claims from contractors. In 2023, we recognized clouding claims totaling GBP 14 million, and we've also agreed a further GBP 38 million of settlements, which will be offset against our future costs. Allowing for these recoveries, we expect the future impact of the remediation program to be only modestly dilutive to NAV. Due to the phasing of projects and claims, we will incur higher net cost in 2024, which we then expect to reduce significantly from 2025 onwards. Our total accounting return guidance for 2024 takes account of these costs. The business has significant investment capacity following our 2023 equity raise. We've also raised a further GBP 300 million in new debt since the year-end. This provides the capacity to fully fund our committed pipeline as well as planned commitments, such as our joint venture with Newcastle University. Our average cost of debt reduced slightly in the year to 3.2% as we paid down more expensive floating rate debt. We expect the cost of debt to rise in 2024 as we refinanced our GBP 300 million bond maturity and draw down on new debt to fund our pipeline. We're focused on maintaining a robust balance sheet, targeting net debt/EBITDA of 6x to 7x and an interest cover of 3.5 to 4x on a built-out basis. Our USAF fund continues to perform strongly, particularly relative to the wider real estate sector. However, we've received redemption requests over the past year as investors seek liquidity. These requests will be partly satisfied through upcoming disposals. The fund's capital requirements may also create acquisition opportunities for Unite. The strong trading outlook for the business and growth from our investment pipeline support a positive finance outlook for 2024. This reflects the rental growth locked in for the '23-'24 academic year, as well as our expectation for at least 6% rental growth for 2024-'25. Net of the impact of increases in our operating costs and the cost of debt, this translates to 3% to 5% growth in adjusted EPS to 45.5p to 46.5p. As in previous years, we plan to distribute 80% of adjusted earnings as dividends. We expect to deliver total accounting return of 10% to 12% in 2024 before any movement in property yields. Our earnings underpinned 5% of this return, which will also be boosted by above-average rental growth. Milestones for our development and asset management projects are expected to further enhance our returns. I'll now turn to the Property review. Student accommodation saw a slowdown in transaction activity in 2023. This was consistent with the wider real estate market as the sector adjusted to higher funding costs. Transaction activity picked up in the second half, underpinned by continued demand for the sector from private equity and institutional investors. Our valuations increased by 1.2% over the year. This reflected strong rental growth driven by our sales performance, which was offset by a 31-basis-point increase in our property yields to an average of 5%. The strongest valuation performance came from prime regional cities such as Bristol, Manchester, Edinburgh and Glasgow, where we continue to see the most acute supply shortages. By contrast, London valuations fell in the year despite strong rental growth as investors sought higher income returns. Our investment activity remains focused on improving the quality of our portfolio through alignment to the U.K.'s strongest universities. 93% of our portfolio by value is aligned to Russell Group cities as well as 100% of our development pipeline. We delivered our Morriss House development in Nottingham during the year, which is fully let and delivered a yield on cost of 8.5%. We've also accelerated our investments into asset management initiatives. We delivered GBP 24 million of major projects in the year in Edinburgh, London and Birmingham and a blended yield on cost of 9%. We've also identified a further GBP 50 million of projects for 2024. We will continue to make disposals to recycle capital for new investment and improve the quality of the portfolio. However, transactions are taking longer in the current market. We expect to complete the sale of a portfolio of just under GBP 200 million during the first half. On an ongoing basis, we'll target GBP 100 million to GBP 150 million per annum of disposals, which is equivalent to around 2% of our portfolio. We've accelerated investment into our development pipeline over the past 12 months by adding around a further GBP 0.5 billion of projects. Our pipeline now stands at GBP 1.3 billion and is focused in the U.K.'s strongest university cities. The most recent addition is a 500-bed scheme in Elephant & Castle in London for delivery in 2028. We're committed to GBP 569 million of this total pipeline. This includes schemes in Bristol and Stratford and East London both of which were funded through the proceeds of our recent equity issue. We plan to commit to further developments in 2024 following planning approval. The planning process remains challenging due to resource constraints for local authorities yet we remain confident of support for our schemes due to the widely acknowledged housing needs in our cities and the support of our university partners. Delivery of our pipeline is set to accelerate, resulting in a meaningful pickup in CapEx from 2024 onwards. We will fund our future commitments through disposals, debt and co-investment from our joint venture partners. These projects will make a growing contribution to earnings and support an acceleration in EPS growth from 2026. We continue to invest in sustainability to reduce our environmental impact and deliver a positive impact for our stakeholders. As Joe said, over 99% of our portfolio is now EPC A-C rated. This reflects our ongoing investment in energy initiatives, which reduced carbon intensity and deliver a payback of under 10 years through utility cost savings. We're also making good progress to deliver the 50% reduction embodied carbon required to meet our net zero development target. We've made significant savings in recent development completion through more efficient design and use of low carbon materials and our upcoming delivery at Bromley Place in Nottingham will be our most efficient building yet. With that, I'll hand you over to Karan for the Operations review.

Before I dive into the operational results, I just wanted to take a few moments to talk about what I think drives the Unite sort of master brand as well as our operating platform. It starts with the deep and meaningful university partnerships that we have, and we've got over 60 of those, which historically have given a lot of income security for our P&L, but it's also helped us deliver a seamless experience for students from where they study to where they live. Increasingly, it is now also helping us unlock development, as you've seen recently with the Newcastle joint venture as well. The second key aspect of our operating model is our 24/7-365 model, which is run by great passionate teams with safety at the heart of that operating model. This allows us to deliver a full suite of services for students, which means they can make the most of the university lives. Our offer is further enhanced by our industry-leading welfare offer, which is absolutely critical for parents as well as universities. So they know we are there when their students need them most. Taken together, these capabilities, 3 things drive a lot of trust and a lot of confidence in Unite for parents, for university partners and for students themselves. In addition, we have invested, as Mike said, a significant amount of money in developing our PRISM operating platform. And on the back of that investment, we are now getting better and better at leveraging data and driving better decisions from pricing to where we should innovate going forward. These aspects have all sort of come together to deliver the excellent results that we delivered in 2023. As Joe and Mike shared, 2023 was a record year for Unite where occupancy was almost at 100%, and we grew rental growth over 7%. Encouragingly, this momentum has carried into 2024 as well, and we are now 80% sold, and we are confident of delivering at least 6% rental growth going forward. This year, we actually have been much more measured about how much inventory we have out there and at what price. Because to be honest, last year, we were surprised at the rate of sale that we did see in our portfolio. For reference, if you look at 2020, which was the last clean year, before COVID. At the same point, we were 68% occupied. So the momentum is still very, very strong. We also have several properties right now that are off sale because we've held them back for our university partners because they want more rooms from us. And that is certainly a very encouraging part with now over 55% of our rooms under nominations. Universities are also taking these rooms at -- these additional rooms at more favorable rates for Unite as well as they look to secure their occupancy for their future cohorts. As a result, we did see norms slightly outperform our direct-let sales, as we brought some more of these university contracts back up to market rents. Our portfolio is now very aligned to the high tariff universities, which does give us confidence that we can continue to deliver long-term sustainable total revenue growth as well. As Joe did say whilst we do see the potential for very strong rental growth going forward, we are ever mindful of the affordability challenge for both students and parents. If you look at the evolution of our rental growth, it has tracked in line with maintenance loans, and that has been a deliberate strategy on our part and it fits with our predominantly mainstream U.K. domestic focus. Add to that, and one of the key strengths, I believe, of Unite is that we do offer a broader range of all-inclusive price points in each of our markets than a lot of our competitors do, which means students and parents can choose what property they want and at what price as well. And we do back that with significant investment, as you've seen in our product and services as ultimately, what we want is for students to feel that they're getting value for money. I do believe we're tracking the right talents. Our student satisfaction, the scores are up and more and more students are choosing to stay with us for -- beyond their first year of study as well. And we've done all of that while protecting our margins as well. And I think you can see that positive momentum that we have on -- from our customers on this particular slide. We have grown our student Net Promoter Score by 9 points over the last few years, and our university Net Promoter Score has also been grown by 12 points. The dip that you do see in 2022-'23 was a result of our restructuring of our operations team as we move to the new 24/7 operating model, which did lead to some leadership changes, but the universities are now seeing the full benefits of that, and that's been one of the main drivers the record number that we've had this year. Our student welfare program called Support to Stay, is widely recognized by our partners as best in class, and it does show how seriously we take safety and welfare and our responsibility within that. As a result, the share of non first years or returners as we call them, has been growing. It used to be about 1/3 of our business and is almost half of our business going forward. And we do believe returners now do see PBSA as a viable and relevant alternative to staying in HMOs and we see a real opportunity to continue to grow our market share with that particular segment. This changing segmentation, as we look at more returners into our portfolio is leading us to think differently about our products and services going forward. Previously, we shared how we have evolved our offer to better serve post graduate students and I'm pleased to say all those properties are still doing exceedingly well. They're all full and their satisfaction scores are in the top quartile of our portfolio. We have also expanded that segment-based thinking and have elevated our common rooms, and we recently trialed that at Morriss House in Nottingham to excellent reviews. We're also in the process of reviewing our core on-street designs to make the most spacious for students while still retaining the original footprint with a real emphasis on heart-of-house kitchens, which is what you find in more and more residential settings as well. And the feedback on these trial fracs has again been excellent. And where we've done the whole property, we've seen significant rental growth uplift as well. We're now also exploring different room types to cater to different segments as we become a business that caters to all years of study, not just first years. And you can probably hear, I'm actually quite excited about what this actually does mean for our asset management program and what the shape of our portfolio is going to look like a few years from now. As Mike mentioned, we are upgrading our technology platform, PRISM, and it's been a key enabler of our success. And this year -- and last year, sorry, we started upgrading several elements of this particular platform. The first area is our digital system. So that's our website, that's our student app, that's the CRM that sits behind it. And the second core element is our commercial platform. So that's the actual booking engine. It's the finance system, it's a property management system. These 2 systems sort of come together to drive a lot of income growth for us, but also they really do help in leveraging AI for more and more decision-making and also give us better data so we can again improve our decision-making. They also do help conversion and they actually lower our cost of sales, thus helping drive margin as well. The third key area of the upgrade is our service platforms. They are predominantly designed to improve the actual customer or student experience on the front line, but they also help us eliminate administrative tasks, repetitive tasks, they drive improved self-service and ultimately that will also drive an improvement in margins as well. Again, as Mike mentioned earlier, we expect to spend GBP 26 million on this upgrade and we expect a 4- to 5-year payback and a 100-point basis increase in our margin as a result. The upside will come from a balance of cost savings, as I mentioned earlier, but also some revenue generation as well through better utilization of our inventory as well as better pricing and revenue management as well. It will take us a couple of years to get all of these platforms fully deployed, and that's sort of when the full margin benefit will come. Finally, a quick word on our build-to-rent pilots. For those of you who joined us on the London Property Tour back in November, I'll share a little bit more on 180 Stratford, which continues to perform really well. New leasing is about 15% higher than existing rents and where tenants have renewed, they've renewed at an 8% premium to their historical rent as well. We are also looking at solid margin progression this year as well as the property is now fully integrated into our operating platform. We also have an opportunity to extend that trial now to Abbey Lane in Edinburgh, where our PBSA development has 103-bed pilot BTR block as part of the original planning permission as well. As a result of the progress that we are making, we are committed to growing this pilot phase with the use of third-party capital, and we will be back in the market in 2024, looking for the right partner to work with. On that note, I'm going to invite Joe back on.

Thank you, Karan. Yes, as promised, I thought I'd come back and just share a few reflections on my first few months in role. I've been out and about. So being able to get around 15 cities so far, spending time with our teams. I've had numerous conversations with vice chancellors and CFOs at universities, and I've been able to spend some time with our students as well. And I've been reminded that Unite is really is an amazing business. I've been reminded that students are pretty cool. They often get a bit of a hard time, but they're young, they're bright, they're resourceful, and they kind of just get on with it. And I'm really proud of kind of the work that we do to support them. We understand young people. We're there to help them when they need it. Our teams are amazing. They do amazing things every day. It's easy to forget when you talk through sort of numbers and presentations like this. But yes, they help students when they need it and help them get the most out of their time at university. And we've got great universities in this country, and I think we should all be really proud of the higher education sector and the work that universities do. And I'm really proud of the work that we do to support those universities and I think our relationships that we have with them really set us apart from our competition. And then finally, I think there's real value in our portfolio. We've got buildings that have been in cities for 15, 20 years. They're just the best locations in those cities and they are aligned to the strongest universities in the U.K. Having said that, we haven't always got it right. And I think being honest about where we see that there are things that we can do better. I think it's really important as I'm leading the team and setting the team up going forward. I think the first of those areas is margins. Margins did take a knock through COVID and then from the surge in utility and wage rates. And whilst we've been able to drive rental increases over the last couple of years, we have seen our margin go backwards. But we see real opportunity, therefore, to take it back and start to get back to levels we were at previously. I think the investments in technology really underpin that as well, and our focus on efficiencies will be a real key important level in bringing margins back to where it should be. Secondly, we do a great job at welcoming students, particularly at the start of the academic year, real focus on welcoming them into their buildings, helping to make their initial friends and get through that initial sort of nervousness and anxiety when they start at university. But actually, we let our standards slip throughout the academic year sometimes, and I think lifting our levels and our standards to ensure that we are delivering great customer service throughout the year is really, really important for us to maintain and position ourselves as the best provider in the market. And then thirdly, our existing platform, as Karan mentioned, PRISM, it was sector-leading 8 years ago. But as we started to see what's available now, we really are seeing that there's kind of opportunities for us to drive that customer experience and the efficiency through our next-generation systems, and we can use data even better, introduce AI into our booking processes and systems as we go. And I think the third element is that great team around me. You've heard from Mike and Karan today and also at the Property Tour back in the last year, you met Tom and Claire on the property side. Tom is a great developer, has been responsible for many of our new schemes over the last few years. And Claire is bringing a real systematic thoughtful approach to how we leverage value out of that GBP 8.5 billion of state from her time at British Land and Cadogan. And on the operational side, we've got Paul and Shauna, who bring a real edge to our commercial and operational performance. They both come from in the hotel world. Increasing standards and bringing commercial discipline to everything we do. And on the university side, Simon Jones has been with the business for a long time. He was responsible for delivering the university JV and I just think that strength and depth of what we do, give me real confidence in our ability to take advantage of the opportunities that we're seeing. And in terms of what that means for me, those learnings, I've developed 3 priorities for our business, and this is based on our existing purpose of Home for Success, which is all about supporting students to get the most out of their time at university, but really focused around wanting to create that great place to live for our students and for university partners. We really should be the accommodation choice for all students, providing high-quality value for money homes for those students and be the aligned to and the trusted partner for universities. We will provide a great place to work for our teams. As I said, they do amazing things every day. And we want those teams to be highly engaged, delivering great customer service every day and committed to our purpose. And in return, we provide opportunities for those teams to grow, develop and learn as they go through their time with us at Unite. And I believe that this will deliver better customer satisfaction and commercial outcomes. And we'll continue to be a great place to invest. We'll deliver sustainable earnings yield and earnings growth, compounding cash-backed returns. We'll deliver sector-leading TARs and return on equity and will deliver our ambitious net zero plans by 2030. And overall, I believe that the market conditions are supportive of accelerating our growth ambitions and that we are uniquely placed to leverage the emerging university partnership opportunities. And there's still plenty of market capacity for us to push into. There are 1.7 million full-time students living away from home. We have 70,000 of this addressable market, so less than 5% share. And even if you just look at purpose built, we're only at about 10% market share. So we're well placed to unlock this addressable market. And the following factors you'll see on our run through is why we're really excited about our ability to push into them. It is a structurally growing sector, as I've talked about, there's a housing shortage in the U.K. and this is getting more acute for students, and we are aligned to the best universities allowing to play into that. We've got the leading brand and the best operating platform, providing high-quality value for money, accommodation of students, their parents and universities, as Karan talked about. And our high-quality portfolio focused on London and the best university cities will deliver long-term sustainable income 50% to 60% of that is underpinned by university nominations agreements with inflation-linked rental growth. And we are the university partner of choice. This has been demonstrated by the Newcastle joint venture and the fact that 90% of our pipeline is supported by universities. And we've got a sector-leading development capability. We find sites, we unlock planning in an ever-challenging environment, we've got a great supply chain to deliver real value and great returns. And this will drive financial performance, ongoing rental growth. And over the last 30 years, we've seen that student rents have outpaced RPI, and we see this continuing in the medium term. We've got a GBP 1.3 billion development pipeline, which delivers GBP 120 million of income and increases the size of our portfolio by around 25%. Our portfolio is in the best locations and a real opportunity to deliver upside through ongoing investments. And our university partnerships, which I've shared a bit more detail on, they are complex deals. They take time but that's a good thing. We're uniquely placed to deliver against them. We've got a good pipeline of opportunities that we're confident that we will be able to deliver more of. So this all combines to present what I see is a really exciting opportunity to extend our growth. We have a clear line of sight of that growth over the next 3 to 4 years that will deliver mid- to high-single-digit earnings growth and sector-leading total accounting returns. So just to wrap that up, I think 2023 was a really strong year for us operationally, financially, building the pipeline and the feedback we got from customers and universities. 2024 has started really well. That momentum in sales and rental growth setting us up for another strong year of financial performance. Our pipeline will mean that earnings will continue to grow, and that will accelerate from 2026 and beyond. And I think as you may have heard, we're excited about the prospect of pushing into those university partnerships as well. So on that note, we'll turn to some questions. I think we'll start in the room and then go on to people who joined us online. If you could just say your name as well and those listening on the call.

Sam King from BNP Exane. Two questions, please. The first, on the Newcastle JV, you mentioned beds are being delivered at an affordable level. Can you just add a bit more detail to that, please, in terms of maybe percentage of beds that will be affordable, how it works in terms of pricing and the impact that has on overall yield on cost for deals like that? And then secondly, on nominations, rental growth, clearly very strong. How should we view that as a one-off this year? Or are there more longer-term contracts that are in effect under rented and will generate that higher level of rental growth on renewals moving forwards?

Yes. Thanks, Sam. So on Newcastle, one of the sort of factors that Newcastle was very keen to do as these beds were obviously at a pretty low price given where the overall quality initially, and they didn't want to see the new beds coming at a high price point. So part of it is around design, ensuring that we're designing a scheme, which is kind of for 1st years, that's sort of larger cluster flat, communal areas, which has brought together in a large scheme like that as a design efficiencies that you can build. But actually, they were prepared to accept a slightly lower land price in order to protect the returns that we needed to deliver and also protect those lower rental levels. And the overall rents are about 10% below market. Now that may be spread across all the beds at 10% below or it maybe has happened in London, around 1/3 of the beds are done at 30% discount. So that's something which the university we'll be able to decide, but we've effectively agreed what the total rent in year 1 will be, and that provides those affordable beds and allows the university to continue to provide affordable beds to their students. On nominations agreements, yes, we have seen this sort of -- I think we were slightly surprised if we're honest about how strong the nominations performance was this year. And that was really the 1/3 of our beds on nominations are 1-year agreements, and we were able to -- given the strength of sales performance in the early stages of direct let, actually to go in and say, we're happy to give you these 1-year deals, but they will have to be at market rates where historically we may have discounted those. And then where we've gone into renewals, a similar thing that we've gone in sort of more front-footed just given the shortage of supply to drive better rental returns. We still have the RPI underpin for 2/3 of our beds were multiyear with a cap and collar usually at around 3 and 5 and so I'd expect still to see a pretty similar nominations performance to the direct let of that 6%, certainly in this year.

John Cahill from Stifel. I just want to ask about disposals that you said that, that will be one of the mentioned sources of funding for your CapEx program but also at the same time, you might be buying assets from USAF. What safeguards are in place for Unite's shareholders such that they can be confident that Unite's balance sheet is always used to further their objectives and not necessarily in the support of the JV.

Hopefully, you'll have seen that over the 20 years of USAF's history that we haven't used our balance sheet to prop up or support USAF. I think what we're starting to see where USAF has a funding requirement, it's actually got a lot of great assets, which got asset management opportunities, but it doesn't have the capital to support those opportunities. So actually, we see this as a really accretive way that we can access some properties, which may be actually valued below replacement value. And I think the track record we've seen across those asset management investments provides a opportunity to drive better returns and so I think it's more of an opportunity rather than a way of seeing any sort of protection to USAF.

Great. And just 1 more question. You said that we've got great universities and nobody would ever dispute that but we also have terrible politicians. I don't think that's controversial either. Have you -- any comments on what the situation for universities in your market might look like 12 months from now?

Yes, sort of a bit of a million-dollar question, and there's lots of factors that will go into that. I think that what's great about being a big business in this space is that we do get access to politicians and we've been engaging with both political parties over the last 12 months. I think they're interested to understand our perspective working with 60-plus universities, 70,000 students. And I think what we've seen is that both parties are really supportive of higher education. They see it as a really important part of the U.K.'s growth agenda. I think there's different views on kind of how you support that and how you'll look to deliver that. I think the general tone is we're not expecting to see any change in student funding per se, just not on the agendas. We may see some shift around maintenance loans for students. That's something which is being talked a little bit more, particularly around from the labour side. I guess I'd say labour is more outwardly positive around the higher education sector and support, I think the tone will be more positive if we do see a labour government. So I think that there won't be a magic bullet which will suddenly solve universities funding challenges or questions. I don't think there'll be any major disruption to that funding model, but we might just see a change in tone depending on who wins the election.

[indiscernible]. Just on how confident are you? You've obviously shown very strong rental growth. How confident are you in the sustainability of that, particularly with regard to affordability, where you show that your rents have risen slower than inflation, but in line with the student loans. What's the main metric you use there to measure student affordability? And has that improved or worsened over the last few years?

Yes. The last couple of years have been pretty extraordinary [indiscernible] in terms of what's been going on in the inflationary environment. We have throughout that, as I say, taken a responsible approach to it. I look back over the 30-year point and say that student rents have continued to outpace RPI over that long period of time. And I doubt we'll see the same level of rental growth we've had over the last 2 years over the next 5 years. I just don't think that that will happen. But I do think that we've got some room to continue growing rents in the markets where we operate. There's just this general housing shortage. Students are still prepared to apply and go to university. We're not seeing any change in behavior from students and their desire to go to university. And I think that it will be a case of us continuing to sort of take that responsible approach and deliver a sustainable rental growth path over the next 3 to 5 years.

So it's about the range of 50% to 60% nominations versus direct let. But obviously, the demand you're seeing from university partners, the strength you've seen in the rental growth and comments made then around continued growth. How do you think about that 50% to 60% over the medium term and maybe could it go over 60% at some point, please?

Yes. We've long had that 50% to 60% range of where we want to operate. And that flexes really with the strength of demand and where the pricing generally would be from universities and what we have seen over the last 2 years is university is really leaning into wanting to secure nominations agreements with us. And where they're doing that at market, we're very happy to see that push up towards that 60% level. I think going beyond that presents a few questions to us because it takes away stock from the growing second and third year market, which, again, Karan talked about, we're really excited about seeing that as a longer-term growth driver. And so I don't think we'll look to go much beyond 60%. It might be a few points here or there. But really, have that balance being able to offer something to returning students and to keep taking share of the private landlords is something that's really exciting for us.

Max Nimmo at Numis. Just talking a little bit about the inventory point, and we're still 10 percentage points ahead of where we would have been kind of in a pre-COVID world. Just how you're thinking about that and where that kind of pinch point is, should we think that in a year's time, you'd actually prefer to be back at sort of 70% right now rather than 80% bed reserve but have more pricing power in that 30% that's left? Or how do you think about it?

So that to the expert on the commercial.

Yes. Thanks, Max. It's a really, really good question. And it's something that we, from a revenue management discipline sort of grapple with in terms of what's the right level to be at what point. So I think ultimately, what we've done this year is that we've been actually quite phased about our selling. So in certain cities, we've released effectively in blocks of rooms. So we haven't put the entire property out there just to see how demand is changing, how pricing is changing and as we've got more confident, we then release the next tranche of rooms. So next year, do I expect to see a slight reduction from 80% that we have? Possibly, as we get a little bit more sophisticated with our pricing. Ultimately, what we're trying to balance is our level of confidence in terms of eventually being able to sell out fully because in our industry versus if I think hospitality, occupancy does drive a greater value number than a small point of rental sort of increase. So we do need to make sure we're getting to full occupancy as much as possible that's the balance that we'll always sort of take in terms of making sure that we are ultimately getting to the full occupancy point and then managing our inventory per se. But overall, if we were next year at 75% [indiscernible], I wouldn't be that worried because that would be a deliberate part and we know we can increase the tap or close the tap with the systems that we have.

Perfect. I think that's it from the room. Have we got anything posted?

Yes. We've got a few questions on the webcast. So the first 2 come from Andres Toome at Green Street. How do you view the risk and even stricter student visa rules? Do you have a strategy to attract more domestic students to offset the risk of international student numbers potentially falling off?

Yes. Actually, one of the things that we took from COVID was given the risk to international students, we really dialed up our marketing and our approach to attract more domestic students. And so we've grown the level of domestic students from around 60% pre-COVID to 72% for this current academic year. And actually, that pulling market share from U.K. second and third years has been one of the drivers that we've been able to -- being able to pull. So I think we are still hopeful that we've got that sort of balance, and we can push into that if we ever needed to. I think the sort of other era and student visas that we're seeing is that alignment to the better-quality universities. That certainly seems to be the way in which the discussion around immigration control are doing and sort of reducing some way that the numbers of international students coming to those perceived lower tariff universities.

Great. Next question from Andres is there's been a pick up in planning activity recently. How do you view the risk of supply surging after 2025? Is development economics appear compelling? Happy to answer that. Yes. So I think in terms of planning, as I said, there are still capacity constraints in the planning system. I think that will impact how quickly additional supply comes on stream. As Joe said earlier, we're about 60% down on where new supply was back into 2018, 2019. We do think development will pick up, albeit it will probably remain at relatively low levels in 2024 and 2025. I think the thing to be aware of, even post that period is there are a lot of markets where development economics just don't work at the moment. Sort of valuations are below build costs, and therefore, it's just unviable to build in around half of the student market in the U.K. So we do think we will see growth in new supply in the best markets where you've got those higher-end values but I think you're unlikely to get back to the kind of 30,000 beds a year in new supply that you used to see pre-pandemic.

And probably the other theme that is prevalent that because of that build cost liability, but a lot of those new beds that have been announced recently are studio heavy and that's not where we play. But to spread sheet economics, so you can make more money out of studios, but the long-term demand and long-term rental growth, we believe is lower on studios than it is on the cluster beds.

The next question we've got is from Bjorn Zietsman at Librum. Please can you unpack your total accounting return guidance of 10% to 12%. Around 5% will come from per earnings, where does the balance come from. Happy to take that. So yes, as you say, Bjorn, so of that 10% to 12% around 5% is the guidance for adjusted earnings that we discussed. You then got the impact of rental growth on the NAV, and that reflects our guidance for the 6% plus rental growth for '24-'25 academic year. And then you have development profits coming through from the schemes underway and also the asset management initiatives. And as I mentioned, the cost of the fire safety remediation work are also embedded in that 10% to 12%. Next question after that is from Véronique Meertens at Van Lanschot Kempen. You secured significant top line growth over the next few years via development projects. But do you also see opportunities in the market for yielding assets or larger portfolios? Could there be potential M&A opportunities?

I think we saw in 2019 when we bought Liberty that there is real benefit from scaling up our business and that we can leverage our operating platform across a greater number of beds. Again, at that time, we were subject to a CMA review to understand whether there was a reduction in competition as a result of that. So any large-scale acquisition is probably unlikely because of that CMA interest in what we do. I think if there are smaller portfolios or targeted portfolios, then yes, I think we will look at those carefully. I think we've always had sort of in our competition for capital development stacks up more favorably than acquisitions unless they are sort of the right type of assets with a bit of additional returns in housing activity that we can put alongside them. So we're not seeing that as a major part of our growth agenda, but we will obviously look at small portfolios as and when they come along.

I think that is it for questions on the webcast.

We've got any on the call?

There are no questions from the call. I will now hand it back to the presenter. Thank you.

Thank you. Well, thank you all for coming along today. We'll all be around if you want to grab us and look forward to catching up over the next few days and weeks. Thank you all.