Unite Group H1 2025 Earnings Report

Unite Group EPS Results

• Actual EPS: GBX 38
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Unite Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Unite Group Announcement Details

• Quarter: H1 2025
• Date: 7/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 5:00AM ET

Unite Students is the UK's largest owner, manager and developer of purpose-built student accommodation, serving the country's world-leading Higher Education sector. We provide homes to 70,000 students across 157 properties in 23 leading university towns and cities. We currently partner with over 60 universities across the UK. Our people are driven by a common purpose: to provide a 'Home for Success' for the students who live with us. Unite's accommodation is safe and secure, high quality and affordable. Students live predominantly in ensuite study bedrooms, with rents covering all bills, insurance, 24-hour security and high-speed Wi-Fi. We also achieved a five-star British Safety Council rating in our last audit. We are committed to raising standards in the student accommodation sector for our customers, investors and employees. This is why our new Sustainability Strategy, launched in 2021, includes a commitment to become net zero carbon across our operations and developments by 2030. Founded in 1991 in Bristol, Unite Group (LON:UTG) is an award-winning Real Estate Investment Trust (REIT), listed on the London Stock Exchange and a member of the FTSE 100 Index. Unite is invested in and operates two specialist funds and joint ventures with institutional investment partners: the £3 billion Unite UK Student Accommodation Fund (USAF) and the £2 billion London Student Accommodation Vehicle (LSAV). For more information, visit: Unite's corporate website www.unite-group.com The student site www.unitestudents.com

Unite Group H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered a strong H1 financial performance, with adjusted EPS up 3% to 29.5p, like-for-like rental growth of 7.4%, and 88% of beds sold for the next academic year; reaffirmed guidance of 4–5% rental growth and a 5% earnings yield on NAV.
• Positive Sentiment: Sector fundamentals remain supportive, with UK student applications up 2%, international visa issuances up 19%, demographic tailwinds, and supply constrained by regulation, funding pressures, and new building safety laws.
• Positive Sentiment: Development and university partnership pipeline remains robust after securing a second JV with Manchester Metropolitan, delivering over 1,000 beds this year and 3,600 more over the next three years, while regulatory delays may curb wider supply.
• Negative Sentiment: Operating costs rose 9% year-on-year driven by real living wage increases and higher employer national insurance, while central costs also climbed due to council tax hikes and new IT platform licences, with software implementation charges of ~£7m in H1 and ~£10m expected next year.
• Neutral Sentiment: Capital allocation stays disciplined, targeting acquisition opportunities at below replacement cost, evaluating a potential Empiric Student Property deal to reach returning students, and aiming for returns above its cost of capital.

Presentation

[Joe Lister, CEO at Unite Group]

Good morning, everybody. Thank you all for joining. We've a full house this morning, which is great to see. Thank you all for coming along, whether it's the latest start or something else happening, which has encouraged so many of you to come out. But thank you all for coming along this morning, and welcome to all of those who are joining us online as well this morning to take you through our half year results.

[Joe Lister, CEO at Unite Group]

So delighted to take you through another set of strong results for the business, driven by our operational performance and rental growth. Our development and university partnership pipeline continues to give us good visibility over growth. And today, we're reiterating our earnings guidance and rental growth guidance supporting a 5% earnings yield on our NAV. I'd like to just start by thanking all of the Unite team who do all the hard work to make this all possible and great to see a few of you here in the room as well. Thank you.

[Joe Lister, CEO at Unite Group]

Our performance demonstrates the strength and resilience of our model. And we talk about our platform, our portfolio and our partnerships. And these continue to be the things that underpin everything that we do, the alignment to the best universities, offering a real range of price points to a wide range of customers and our ability to flex our sales across nominations and direct let, domestic and international students. And that's really driving that performance in what is a more competitive sales cycle this year and also enabled us to secure our second university partnership with Manchester Metropolitan University, which we announced earlier in the spring. The fundamentals for the sector still remain very supportive.

[Joe Lister, CEO at Unite Group]

We're seeing U. K. Demand and participation to be strong and will continue to be supported by the demographic surge that we're seeing over the next five years. And we've seen a rebound in international students with international applications and visa issuance both up in the first half of the year. And we do see further growth in international demand for education over the medium term.

[Joe Lister, CEO at Unite Group]

New supply continues to be restricted by viability, regulation and funding pressures. And these fundamentals really do support our appetite for continued growth and our outlook for rental growth in the sector. The opportunity set that we'll come on to talk about is as broad for us today as it ever has been. And is often the case in trickier markets, actually this can produce more opportunities. Universities are responding to the financial pressures.

[Joe Lister, CEO at Unite Group]

The visa changes that we saw last year have created some uncertainty. And the funding environment and development viability continue to make investment hurdles higher and harder to support. But I think we feel that we're very well placed to play into that uncertainty that those markets are creating through our unparalleled reputation and relationships with leading universities, the fact that we have the sector leading operating platform and the capacity to drive efficiency from other portfolios and our ability to access funding. So as others struggle to compete, actually, this does result in a wider range of opportunities for us to be looking at, which I will come back to talk through. And the offer for Empiric does represent one of those opportunities, and it would provide us with the opportunity to extend our product offer and target a specific customer segment group who are currently underserved by our portfolio.

[Joe Lister, CEO at Unite Group]

The diligence on the portfolio is going is ongoing. There's no new information that we will be sharing today, but we remain committed to the strategic rationale of targeting this segment, but we'll remain disciplined on price and quality. So looking at the numbers, we delivered a strong earnings performance across the first half, across our two key measures of earnings per share and total accounting return, driven again by occupancy, rental growth and cost control. We're currently 88% sold for the next academic year compared to 94% at the same time last year. And importantly, our rate growth has been strong and consistent and is at the upper end of our 4% to 5% range on the sales that we've made to date.

[Joe Lister, CEO at Unite Group]

Our sales performance is well supported by our nominations agreements at 56% and international sales have picked up meaningfully after a slow start. So we are now trading in line with pre COVID levels and we talk about a more normalized sales cycle. And so when we look back to those pre COVID years, we are very much in the high 80s, which is typically where we'd be at this type of year. And it's true that students are being a bit more savvy and they are waiting later to book. They did see some of our competitors offer fairly big discounts later on in the cycle last year.

[Joe Lister, CEO at Unite Group]

And so when we speak to students who are living with us and who haven't yet booked, it is because they are saying they're waiting to see if there may be a better offer later on in the cycle. So whilst we do have slightly less visibility on the outturn than we've had over the last two years, We see encouraging data that supports our occupancy target. And that's really the fact that applications to study in 2526 are up by 2%. And both of our core customer groups, U. K.

[Joe Lister, CEO at Unite Group]

18 year olds and international students, are up by the same amount. Applications to high tariff universities are up by 5% and student visa applications are up by 19% in the first half of the year. And then looking further out, the fundamentals for the sector remain attractive. U. K.

[Joe Lister, CEO at Unite Group]

Demographics continue to provide a tailwind. Participation rates are back at pre COVID levels. And after the visa changes last year, we see international demand recovering. And we're not seeing any impact of university finances or affordability impacting applications. And the supply squeeze that we talked about twelve months ago is continuing to play out.

[Joe Lister, CEO at Unite Group]

New starts and deliveries remain well below historic averages. Capital requirements per bed are significant and the new building safety laws are adding significant time across the sector and can delay schemes for up to one to two academic years. HiMo beds available for rents are down by about 10% over the last three years, and we expect the increased regulation on these beds through the renters' rights bill and the impact of ongoing high mortgage costs will continue to impact the supply. So the longer term dynamics we see are supportive of our ongoing rental growth and our investment plans. International students globally have grown significantly over the last fifteen, twenty years, and we expect that to continue to grow to around 9,000,000 by 02/1930.

[Joe Lister, CEO at Unite Group]

The U. K. Has a world renowned higher education sector, 17 universities in the top 100. And in my discussions with government, it is clear that they recognize the higher education sector as a real asset class and a driver of two of their missions around growth and the skills agenda. Yes, they are seeking to eliminate perceived abuses of the student visa system and effectively ensure that we are attracting the right caliber of students to come and study here and work here, but they're not looking to impose or restrict numbers through a cap.

[Joe Lister, CEO at Unite Group]

And on top of this, The UK is looking increasingly attractive relative to our main competitors, particularly given some of the behavior from The U. S. And a more restrictive stance in Australia and Canada. The policy backdrop for higher education is starting to become clearer, and we believe the outlook is stronger. Government is supportive.

[Joe Lister, CEO at Unite Group]

As I mentioned, we saw higher education being called out in the industrial strategy. Universities are taking action to address the financial pressures that they see. And the 3% increase in fees opens the possibility for a longer term increase in fee levels, which will provide more stability for universities. We actively manage actively monitor the financial health of our universities and our exposure to the most risk is very limited with less than 0.3% of our revenue aligned to the bottom 10% of the league tables bottom 10 in the league tables, sorry. And we've seen increased interest, I think, over the last six to twelve months around our longer term partnership model as universities look to protect their balance sheets and use capital to focus on their academic infrastructure.

[Joe Lister, CEO at Unite Group]

The immigration white paper that came out a few weeks ago seeks to address some of those abuses of the graduate visa system and also to use international students to support widening participation and that skills agenda. The changes reflect a focus on attracting the best and brightest. And under the current policy, we do expect to see good growth from international students, particularly at the better universities. And so our alignment to those better universities is more important today than it ever has been. And then finally, on the Renters Right Bill, it is currently passing through Parliament.

[Joe Lister, CEO at Unite Group]

Similar legislation is also being drafted in Scotland. We expect purpose built student accommodation to be exempted from this legislation and from the provisions in the bill, both in England and in Scotland. And we're just working through the transitionary arrangements that could be in place in the first year of that legislation. So we remain positive, as I said, on the outlook for student demand and supply over the next few years. It supports our strong and growing earnings yield and underpins our total returns of between 8% to 10%.

[Joe Lister, CEO at Unite Group]

We continue to see rate growth on this year's performance and the university sentiment and applications data is supportive of us hitting our occupancy targets. And with this backdrop, we are continuing to push into growth. The number and quality of university proposals that we are having and conversations that I'm having with Vice Chancellors has accelerated in the last six to twelve months, covering both investment assets and developments. And we have a handful of ongoing conversations with Russell Group universities. We expect one of those to come to fruition in 2026.

[Joe Lister, CEO at Unite Group]

Our development program is progressing well, and we retain flexibility over a number of these schemes. The acquisition market is open and we're seeing some interesting portfolios being brought to market often at prices below replacement cost where we and where we can add value. We actually recently lost out on a £400,000,000 portfolio, primarily in London that had some reversion to it, again, the strength and depth of bids for portfolios like that. And we do see the opportunity to extend our offer. And this covers both affordable product and as also as the HMO market continues to come under pressure to push into that return of market.

[Joe Lister, CEO at Unite Group]

And Karen will speak a little bit more about both in a moment. So given that range of opportunities, we will continue to be dynamic and disciplined around how we allocate capital based on the risk adjusted returns of each opportunity in front of us with that focus on continuing to enhance our portfolio quality, aligning to the stronger universities, delivering compounding, growing earnings and delivering total returns in excess of our cost of capital. I'll hand you over to Mike.

[Michael Burt, CFO at Unite Group]

Good morning, everyone. I'm going to take us through a review of financial performance and property activity during the first half. We delivered a strong financial performance in H1, underpinned by healthy rental growth. This resulted in 3% growth in adjusted EPS to 29.5p and a 3% increase in our interim dividend to 12.8p. EPRA net tangible assets per share increased by 1.4% to 986p, which supported a total accounting return of 4%.

[Michael Burt, CFO at Unite Group]

The business delivered like for like rental growth of 7.4% in H1, driven by strong rental growth and occupancy for the twenty twenty four-twenty twenty five academic year. There was an additional £12,000,000 of net operating income generated from net investment activity. This includes our acquisitions from USAF and completions of development and asset management projects over the past twelve months. Operating costs increased by 9% on a like for like basis in H1, reflecting increases to staff costs linked to the real living wage and higher employers national insurance contributions from April. Utility costs were unchanged over the period, reflecting a stabilization in commodity prices.

[Michael Burt, CFO at Unite Group]

We're fully hedged for utilities for the remainder of the year and see our costs holding flat. Adjusted earnings increased by 15% in the period, thanks to growth in net operating income. Our EBIT margin was stable at just under 72% in H1 with growth in income matching increases in operating and overhead costs. We continue to anticipate up to a zero five percentage point improvement in our EBIT margin for the full year, reflecting our rental growth expectations and slowing cost increases. Finance costs reduced by £2,000,000 compared to the prior year through lower investment debt following our equity issue in July 2024.

[Michael Burt, CFO at Unite Group]

This resulted in 3% growth in adjusted EPS, taking account of the new shares issued over the past year. We've also declared a 3% increase in our interim dividend, consistent with our policy to distribute 80% of adjusted earnings. Adjusted earnings exclude £7,000,000 in the period for implementation costs linked to our next generation technology systems, and we expect a similar level of investment in H2. This investment supported delivery of new customer management and finance platforms in the first half, and we're already seeing the benefits in terms of improved customer and colleague experience. Our EPRA net tangible assets per share increased by 1.4% during H1 to 986p.

[Michael Burt, CFO at Unite Group]

Property valuations were the main driver of this growth, increasing by 1.4% on a like for like basis. This reflected further recognition of rental growth in the twenty twenty five, twenty twenty six academic year based on progress of reservations. This was partially offset by a small increase in property yields. Development valuations remain broadly unchanged in the period awaiting key milestones around planning and construction starts, and we expect the recognition of development profits to accelerate as schemes of derisk through planning and approvals from the building safety regulator over the next six to twelve months. This NAV growth, together with the payment of the final dividend for 2024, resulted in a total accounting return of 4% for the period.

[Michael Burt, CFO at Unite Group]

We've continued to see strong investor appetite for the student accommodation sector. In the year to date, 2,500,000,000.0 of assets have either traded or under offer. Transactions are though taking longer to complete due to technical due diligence, particularly around fire safety. Both private equity and institutional buyers remain active, attracted by the sector's positive outlook for rental growth. The market remains well bid.

[Michael Burt, CFO at Unite Group]

And as Joe said, we were underbidder on a £400,000,000 portfolio in the period in a competitive process. We expect to see a range of portfolios come to market in the next six to twelve months and we will remain disciplined in how we filter these opportunities. We're particularly attracted to those situations where we can add value to our operating platform, university relationships or asset management. There's been a significant increase in build costs over recent years and that means that PBSA assets are now valued below replacement costs in most regional cities. We expect this to severely limit new supply in regional markets in the near term.

[Michael Burt, CFO at Unite Group]

As Joe said, our strategic focus is to improve the quality of our portfolio and income through alignment to the strongest universities. We achieved this through our accretive investment activity and capital recycling. In our off campus development pipeline, we will deliver just over 1,000 beds this year in Bristol and Edinburgh, and we have a further 3,600 beds for delivery over the next three years, which are either on-site or awaiting approvals from the building safety regulator. University partnerships are a source of significant future growth of the business. We've made great progress in the first half in adding to and delivering this pipeline.

[Michael Burt, CFO at Unite Group]

We announced our second university partnership with Manchester Metropolitan University, and we've now also secured planning approval for our 2,000 bed development at Castle Leases in Newcastle. We're seeing an increasing range of acquisition opportunities to enhance and broaden our platform, and this includes the possible acquisition of Empiric Student Property, whose portfolio would provide significant exposure to the attractive market for returning students. Disposals also remain a core part of our strategy by helping to enhance portfolio quality and provide capital for reinvestment. And we've agreed the disposal of 10 properties in the period for £214,000,000 Our off campus development pipeline is 100% located in Russell Group cities in locations aligned to the growth plans of our university partners. This year, we'll see us deliver two new properties in Bristol, Edinburgh.

[Michael Burt, CFO at Unite Group]

Avon Point in Bristol is located directly opposite the University of Bristol's new Temple Quarter campus, which is set to open to students in 2026. We've secured a fourteen year nomination agreement with the university for just over half the beds and see strong prospects for the building as the location becomes established. Our Burnett Point development in Edinburgh will see the delivery of a hybrid student and build to rent scheme as part of the planning consent for the site. The range of product will appeal to a full spectrum of students from first year to postgraduate as well as young professionals. A number of our development starts for delivery in 2027 and 2028 await preconstruction approvals from the building safety regulator.

[Michael Burt, CFO at Unite Group]

We continue to experience delays, but are working hard to mitigate the impact in partnership with our contractors. The current environment in terms of cost and regulation makes development more difficult and we're therefore ensuring any new opportunities provide us with optionality. Given the current bottleneck in securing BSA approvals, we expect development deliveries across the sector to be impacted until at least 2028. We were delighted to secure our second university partnership in the first half with Manchester Metropolitan University. It will see the redevelopment of their Cambridge Hall site in Manchester City Centre into 2,300 new beds.

[Michael Burt, CFO at Unite Group]

Manchester Metropolitan are one of The UK's largest and most successful universities and the joint venture builds on a relationship of more than twenty years. We're actively reviewing a number of further partnership opportunities with high quality universities and continue to target one new partnership per year. Each of these conversations is different, tailored to each university's needs. We expect future opportunities to combine both acquisitions of existing assets and development of new beds, which provides immediate income returns alongside future value add. We have a high quality balance sheet, which enables the delivery of our future growth plans and we retain funding capacity as we continue to deploy the proceeds of our 2024 equity raise.

[Michael Burt, CFO at Unite Group]

Net debt to EBITDA is currently 5.3 times, but expected to increase towards our stabilized target of six to seven times as we deliver our development pipeline. We will continue to manage our leverage through disposals and expect to sell around 2% to 3% of our portfolio on an ongoing basis. Our cost of debt rose 3.8% in H1 following refinancing activity at higher rates over the past twelve months. Our marginal cost of debt is currently between 5.55.75% as reflected in USAF's new £400,000,000 eight year loan with Rothsay at a cost of 5.6%. As a result of refinancing activity, we expect to see our cost of debt rise gradually to 4.1% for 2025 and four point five percent in 2026.

[Michael Burt, CFO at Unite Group]

Based on our strong performance in H1 and the encouraging outlook for the twenty twenty five, twenty twenty six academic year, our financial guidance remains unchanged for 2025. The growth expected in The U. K. And international student numbers and our sales progress to date supports rental growth of 4% to 5% for next academic year and we are targeting occupancy of at least 97%. This supports 2% to 4% growth in adjusted earnings per share to 47.5% to 48.25%.

[Michael Burt, CFO at Unite Group]

Growth in our recurring profits delivers an earnings yield of around 5% on our NAV. And this underpins our guidance for a total accounting return of 8% to 10% in 2025 before any movement in property yields. And with that, I'll hand you over to Karen to take you through the operations review.

[Karan Khanna, COO at Unite Group]

Thanks, Mike. As Joe and Mike shared, we've carried forward the strong momentum of last year into 2025 as well. Our student satisfaction scores are up. We started to see the benefits of our new technology platforms and our relationship with universities continues to drive value and open opportunities. This once again highlights the strength of our operating platform and you can see that in the strong top line performance we have delivered for half one of this year.

[Karan Khanna, COO at Unite Group]

As Joe highlighted earlier, the fundamentals of student demand remain strong and applications have continued to grow for both UK 18 year olds and so have student visa applications as well. We have seen the above translate into strong demand from universities for our core undergraduate offer and we expect to see further demand from universities for nominations through clearing as well. We have been disciplined both with our pricing as well as the use of incentives in line with our strategy to drive both sustainable rental growth as well as improve our margins. And we will continue to be disciplined through the rest of the sales cycle as we optimize for revenue. As of this week, we have sold 88% of our beds at roughly 5% rental growth on the sales to date.

[Karan Khanna, COO at Unite Group]

I wanted to add a little bit more color on how we see occupancy build up for our towards our target for the rest of this year. At the heart are our nomination agreements with universities and they are currently at 56%. But we as I said, we expect this number to grow from here given our expectation that higher and mid tariff universities will recruit heavily in clearing for UK domestic students. Our strong relationships with these higher education partners, which have been built up over decades, puts us at the front of the line when they need more rooms. Second, rebookers and direct let UK students, they typically are second and third year students and should each account for about 10% to 15% of our customer base.

[Karan Khanna, COO at Unite Group]

They are down now on last year because many students, as Joe mentioned, are still waiting to rebook as they seek more affordable deals. Finally, we expect direct led international students to account for between 14% to 18% of our customer base. Most of these students are postgraduates and if you will recall, this was a segment that didn't arrive in the numbers as we expected last year. This is also the segment that normally gets us offers late from university and they tend to book late through clearing and through into September as well. Our teams in China and our partner agents in other markets are keeping us abreast of what these students want and expect.

[Karan Khanna, COO at Unite Group]

And we are encouraged by the increase in visa applications to date and the fact that applications from China, which is a key market for us, are on the rise, up 10% for undergraduates at the June. Lettings have been a bit slow in Leeds and Nottingham, which have seen both a change in the ranking of its universities, as well as short term pressure from an increase in supply. In addition, we also expect a couple of our new builds to lease up a little bit more slowly than usual for new openings as students are favoring completed assets with greater availability. We had a similar situation last year as well, but that building is now on track to be fully led this year. So this is much more of a case of a new development taking a year to stabilize than at opening.

[Karan Khanna, COO at Unite Group]

So August and September are going to be very busy months for our teams as we look to gain another nine points of occupancy towards our target. As you can see from the previous slide, we are expanding the breadth of students we host each and in the process learning a lot more about what they want from us when they live with us. As a result, we are embarking on not just refreshing our core brand, but also expanding our offer to better serve these distinct needs. Let me start with the core brand, which is primarily going to be focused on our first year undergraduates with a strong nominations underpin. We have now completed its full refresh.

[Karan Khanna, COO at Unite Group]

So this has included new next generation rooms for our en suite in our studio product, as well as creation of a new common room experience. All of this can be seen in our latest properties as well as major refurbs. The product improvements have been backed up by a reboot of our care service program as well as further improvements to the industry leading support to stay student welfare approach that we have. As a result of these investments, we are rated gold in the most recent GSL survey and we have delivered a highest ever NPS. At the same time as improving our core offer, we have worked on several concepts to create a more affordable offer for students and we will be trialing this the first of these concepts in our joint venture with MMU as well as at a major refurb in Liverpool.

[Karan Khanna, COO at Unite Group]

Finally, we do see the opportunity for a major opportunity for returning students and have taken under have taken undertaken extensive research to understand how they want to live with us and how that differs to when they live with us in their first year. This has given us the confidence to further tailor our proposition to their needs. So we see the opportunity to create that targeted offer that specifically targets this customer, smaller building sizes, smaller flat sizes, more independent living, overall a more grown up offer. We have trialed this concept at a new build in part at the Burnet Point development that Mike mentioned with 100 beds designed in this way and they have leased up really well. We're also looking at further refurbishment opportunities for this product.

[Karan Khanna, COO at Unite Group]

The potential acquisition of Emperic fits within this approach and would allow us to accelerate our move into the returner space. Finally, I I wanted to talk a little bit about our value enhancing asset management program. These new ideas that are shared and solutions are also a core part of these asset management initiatives. As we have shared before, we see a significant opportunity in our portfolio to improve not just the student experience, but also drive higher performance. This year, we are investing 33,000,000 across 2,000 beds at a yield on cost of 8.1% and have a program that will deploy a further 200,000,000 to $250,000,000 over the next five years into our estate.

[Karan Khanna, COO at Unite Group]

These projects are aligned to our strongest partners and cover a range of projects from common areas to kitchen refurbs to full hard refurbs of the entire building. As part of this program, we're also taking the opportunity to address any ongoing maintenance issues, as well as any lifecycle needs, as well as any sustainability needs as well. And the feedback that we have received both from students and our own staff has been excellent so far. On that note, I'm going to hand you back over to Joe.

[Joe Lister, CEO at Unite Group]

Thank you, Karen. Just a couple of slides for me to wrap up. So as we flagged back in February and I talked about it a little bit earlier, we are seeing a wide range of investment opportunities that support the ongoing growth of our business. And we are looking wider than we have traditionally done. And with that comes the responsibility to think about how we allocate capital.

[Joe Lister, CEO at Unite Group]

And as Mike mentioned, development is harder. Time lines are getting extended. Build costs are growing faster than rents in most markets. But on the flip side, that's making acquisitions look more interesting and it is cheaper to buy than to build in most markets. And the asset managements, which Karen talked about and the university partnerships continue to be what we see really exciting opportunities and a good use of our capital.

[Joe Lister, CEO at Unite Group]

So we will continue to be dynamic in the way we think about these opportunities and disciplined about the way we allocate capital to them around those principles I mentioned earlier, around portfolio quality, around growing earnings and also delivering total returns in excess of our cost of capital. So just to wrap up, we delivered a strong trading performance in the first half of the year and continued to deliver strong returns off the back of that earnings yield. We've got a good pipeline of opportunities that will drive NOI growth over the next four to five years and the market fundamentals remain supportive of ongoing rental growth and investment. The policy backdrop is clear and the demand and supply picture supports ongoing investment. And we're seeing other players find it harder to compete with us at this stage of the cycle.

[Joe Lister, CEO at Unite Group]

And universities are reaching out to us to talk about how we can help them with their need to provide high quality, new and refurbished accommodation. So we will keep pushing to take advantage of these opportunities that are in front of us. On that note, we'll go over to some questions.

[Samuel King, VP - Real Estate Equity Research at BNP Paribas]

Sam King from Exane. Three questions please, guys. Two on the market and one on numbers. I'll go one by one. So just firstly on UCAS applications, June data was clearly positive.

[Samuel King, VP - Real Estate Equity Research at BNP Paribas]

But on the UCAS webinar last week, they cautioned more 18 year olds are living at home and traveling to university now. So numbers are one in three live at home versus five years ago, one in four live at home. So clearly, that's quite a big chunk of demand that's coming out of the market. Just kind of interested what you think about that trend. How much of a risk is that to your business?

[Joe Lister, CEO at Unite Group]

Yes, I think we have seen that trend and it's accelerated post COVID actually. That number has been fairly stable up until that date. And that is particularly marked at those lower ranked universities. So we're still seeing the proportion of stay at homes at the higher ranked stay at those historic levels. So it sort of supports that view that we need to continue to be aligned to the stronger universities.

[Samuel King, VP - Real Estate Equity Research at BNP Paribas]

Thanks. And then secondly, on the investment market and capital allocation. Appreciate you flagged at the full year results, there's more acquisition opportunities. It feels like every week, sometimes every day in the trade press, there's another portfolio that's being launched for sale. At the same time, you're talking about the development environment getting a lot more difficult for yourselves and the market.

[Samuel King, VP - Real Estate Equity Research at BNP Paribas]

Should we almost think about that as a pivotal point or a change in direction of your growth strategy that will become more acquisition led moving forwards rather than historically what's been a development story?

[Joe Lister, CEO at Unite Group]

I think the development is still going to be part of our story. I think we've got a real capability, which differentiates us from many others in the sector. I But think it will be more focused. And I think it will be focused on to six to eight cities where the rents do support development and development costs. And also, I think, seeing increasingly those deployment of that resource into our university partnership activity, it's been clear with both Newcastle University and Manchester Met that we have a real skill set that we can bring to help enhance the efficiency of those schemes and through our supply chain, the more efficient delivery as well.

[Joe Lister, CEO at Unite Group]

So if you look at the overall pipeline of build activity that we've got, it's bigger than we've ever had. I think that balance of what will be on campus and what will be off campus may shift a little bit. And then beyond in those cities where the replacement cost is above valuations, then yes, it's unlikely that we'll be building in those cities.

[Samuel King, VP - Real Estate Equity Research at BNP Paribas]

Thanks. And then last one on the numbers for Mike. On EPRA EPS, that was flat for the period versus your adjusted EPS that was up 3% from the software cost adjustment. Appreciate your comments that H2 costs will be in line, I think it was about GBP 7,000,000 for the first How should we think about that cost adjustment from next year onwards?

[Michael Burt, CFO at Unite Group]

Yes. So we're sort of making good progress through that program, Sam. We're sort of in year three, I'd say, a full year program. So yes, we've got it to 10,000,000 to £15,000,000 of software cost net of tax for the full year. There'll be the remainder of those costs in 2026.

[Michael Burt, CFO at Unite Group]

So we've got one key piece of the sort of technology renewal program that's ongoing, which is our property management system. That will deliver in 2026. And I think you should anticipate around GBP 10,000,000 of additional costs next year. Great. Thanks guys.

[Andres Toome, Senior Research Analyst at Green Street Advisors, LLC]

Morning. Andrew Stolmer from Green Street. So I have two questions. First one on just supply. You sort of mentioned that some markets are weaker, partly demand driven but also supply.

[Andres Toome, Senior Research Analyst at Green Street Advisors, LLC]

I guess when you look forward for the next few years, are there certain cities where you still see more supply coming that could be detrimental for rental growth? And how does that work together with your portfolio streamlining strategy? Are you looking to exit those markets?

[Joe Lister, CEO at Unite Group]

Yes. I think we've seen over the history of Unite that we have pockets of new supply coming into cities and it does have some short term disruption on the rents and the letting cycles within those buildings. And so Leeds and Nottingham that we call out are two which have sort of met within that arena. And we're seeing quite a lot of supply coming into Bristol and Manchester at the moment over the next five years. So there is sort of an assessment of that's catch up, where will it end up and what will that do to the overall leasing demand supply picture within those cities.

[Joe Lister, CEO at Unite Group]

And yes, we do look to balance our portfolio when new supply is coming either our own or other people developing as well. So it is a dynamic picture. And the demand and growth outlook of the universities is fundamental to understanding whether it can absorb that and the existing supply. So we don't look at Bristol and Manchester to see the supply that's coming and start panicking to say those are universities which will suddenly have voids for the next ten years. But we make sure that what we're building and what we have then fits within our overall portfolio strategy.

[Joe Lister, CEO at Unite Group]

And that's why those disposals that we target making and we have made every year are so important to ensure that we're not only meeting that needs and aligning to the best universities, but also thinking about supply in cities, where students want to live and what price points they will live out as well.

[Andres Toome, Senior Research Analyst at Green Street Advisors, LLC]

Thank you. And secondly, just on operating margins, There's been quite a lot of cost inflation, of course. And as you noted, it's stabilizing. But operating margins, they're still quite a bit below historical norms. So how do you see clawing back to those historical levels?

[Andres Toome, Senior Research Analyst at Green Street Advisors, LLC]

And what sort of steps will you need to take to get there?

[Michael Burt, CFO at Unite Group]

Yes. So you're right, Andrew. Mean we're guiding to a sort of 0.5 increase in operating margin for the full year. That would still leave our operating margins below where they were at peak, if you went back to sort of 2019 levels. I think sort of two points to call out.

[Michael Burt, CFO at Unite Group]

I think we've made deliberate investment in some things that mean that I don't think we will get back to that level of margin, sort of 72% EBIT margin we saw in 2019. That's partly because of the investment in technology. So as much as there's a capital cost, that investment upfront, there'll be an ongoing licensing cost of supporting those platforms. But we think we get a payback sort of ultimately in terms of customer experience, colleague experience, and there will be some efficiencies that come through as well. I think the other factor is just the level of inflation, clearly, we've seen coming out of COVID.

[Michael Burt, CFO at Unite Group]

So our rental growth has helped to mitigate some of that cost inflation. We are starting to see costs sort of turn the corner, I think. So I mentioned utilities. So utilities were flat in the first half. I think think actually, if you look at the wholesale market utility costs, we're starting to see a probably flat to maybe small down in utility costs in a forward looking outlook.

[Michael Burt, CFO at Unite Group]

Staff costs, again, the increases have moderated, but we are a real living wage payer. And so we've paid a pay increase, which is obviously the right thing to do with just over 5% for this year, but we do see that softening slightly. National insurance is a bit of a one off item, but that impacts our numbers this year as well. So we think with the rental growth we'll see for the next academic year, there will be a slight improvement in margin. I think the volume of beds we bring to the pipeline helps as well, but we're not expecting a meaningful improvement in margin from current levels.

[Andres Toome, Senior Research Analyst at Green Street Advisors, LLC]

Thank you.

[Joe Lister, CEO at Unite Group]

No one in the room will go on to any online, Mike.

[Michael Burt, CFO at Unite Group]

Good stuff. Got some online from Mark Mossey at Bank of America. So the first one is, what are the drivers of the increase in capitalized interest in the 2025, from up £7,000,000 in the 2024 to £16,000,000 in the period. Really that is related to the level of development activity we've seen in period. So we've got two schemes that are obviously almost at the point of completion, the schemes I talked about in Bristol and Edinburgh.

[Michael Burt, CFO at Unite Group]

We also went on-site with our scheme in Glasgow at Central Quay. That's when we started realizing costs. And we had a larger site, King's Place in London, which we acquired out of last year's placing proceeds is in the demolition phase as we get ready for a construction start. So fundamentally, more activity. There's been no meaningful change in the rate at which we're capitalizing.

[Michael Burt, CFO at Unite Group]

So it's really all linked to activity in our development pipeline. Second question then from Mark is what explains the increase in expected credit losses to GBP 1,100,000.0 in H1 twenty twenty five, which is similar to the figure for 2024 as a whole. I think Sveta said there's nothing meaningful to read into that. We do provide for credit losses if we see that coming through. But I would say in terms of actual bad debts in our portfolio, they have been at around 05% of income in the last five years.

[Michael Burt, CFO at Unite Group]

We see nothing different meaningfully this year. There does tend to be sometimes some timing effects when they fall, if it's first or second half, but I wouldn't say there's anything meaningful to read into that. And then I've got one more question here from Daniela Lungu at First Sentia. Could you please give us more color on the increase in central costs and other costs, which are up 1417%, respectively? So I think there's a few things in here, albeit some of the figures are sort of small in absolute terms.

[Michael Burt, CFO at Unite Group]

What we have seen in some cases is council tax increasing in local authorities, and this has really been local authorities pushing for essentially revenue collection at local level. That's been one of the more meaningful items in those central costs. We've also started to see some of the licensing costs from our IT systems come into the P and L. So where we've launched things like new Salesforce and Oracle platforms, you start to see those costs in the central overheads. So they're the biggest drivers. That's it for the questions online.

[Joe Lister, CEO at Unite Group]

We've got one more on there.

[Executive]

We just need to turn to the conference call. So we'll invite questions from the conference call now, please.

[Operator]

Thank you. The first question comes in from the line of Akashya Anand calling from Citigroup. Please go ahead.

[Aakanksha Anand, Vice President at Citi]

Hey, good morning guys. Can you hear me all right?

[Joe Lister, CEO at Unite Group]

Yes.

[Aakanksha Anand, Vice President at Citi]

Perfect. Thank you for the presentation and for taking my questions. I have three questions. I can go through them one by one. The first one is just that you mentioned the increased acquisition opportunities that you are seeing in the market.

[Aakanksha Anand, Vice President at Citi]

Could you just help us with how important is immediate EPS accretion from any of these opportunities that you might pursue? And is there any EPS accretion hurdle that you think about?

[Joe Lister, CEO at Unite Group]

So in terms of the outlook and within the numbers, I think, which we've previously guided, they're not required in terms of delivering that EPS growth. I think this would be additional growth if we are to make acquisitions, and that's why I referenced them being effectively returns being in advance of our cost of capital. What was the second? In terms of the hurdle Is

[Karan Khanna, COO at Unite Group]

there a

[Michael Burt, CFO at Unite Group]

hurdle rate? Is there

[Joe Lister, CEO at Unite Group]

a hurdle rate? So again, it will depend on the level of risk, which is associated with these acquisitions. So I say we start with that view that the returns have to be stronger than our cost of capital. And then we will look for an element of earnings growth, which will obviously grow to a larger number, the more risk that we're taking on to those acquisitions.

[Aakanksha Anand, Vice President at Citi]

That's understood. The second question is on the possible offer for Empiric. Could you provide some color on the considerations for the deal that are I appreciate that they are basically taking longer to evaluate? And how do you think about the much higher dependence on international student demand for Empiric, so 70% of their customer base is international? And will there be an effort to align more towards Unite's split where 70% is actually domestic demand if the deal goes through?

[Joe Lister, CEO at Unite Group]

Yes. So we are limited in what we can say and we can only rely on what is in the public domain. And I think the strategic intent that we've talked about and I think we've touched on this morning remains clear that we do see that there is the option for us to address those returning students who, as you say, currently include a higher proportion of international students than we have within our portfolio. I think the alignment to the strongest universities is one of the key features of that portfolio alongside their target group. And that's what gives us the confidence that for that product type, there will continue to be strong demand at those particular universities for that product.

[Joe Lister, CEO at Unite Group]

And we are sort of going through the process of completing our diligence on that portfolio, and we'll update the market at the appropriate times.

[Aakanksha Anand, Vice President at Citi]

Understood. And the last one, clearly, more market based basically. So clearly, affordability is a concern, and that's also been a driver for relatively lower occupancy as was touched upon during the presentation for twenty fivetwenty six. Just wanted to get a sense of what proportion of the overall PBSA market at present is below Unite's rents. So I appreciate there are differences in portfolio quality, etcetera.

[Aakanksha Anand, Vice President at Citi]

But if we talk only on a rent basis, what proportion is below United's rents and probably split that between London and regional?

[Joe Lister, CEO at Unite Group]

Yes. So we look to position ourselves as a mid price point, mid market price point. So we're probably at the lower end of the second quartile in terms of pricing. So I'd say that there's probably 50% to 60% of beds which are cheaper than ours across The U. K.

[Joe Lister, CEO at Unite Group]

That doesn't take into account the fact that we are in generally better quality cities at higher price points. In London, actually, I think we're probably at the lower end and we've probably been in the third quartile in terms of price points. That's primarily because we built a majority of our stock or a lot of our stock over ten years ago and we've been able to retain those lower price points. So that differential probably even more marked in London.

[Aakanksha Anand, Vice President at Citi]

Perfect. That's all my questions. Thank you so much.

[Operator]

The next question comes in from the line of Paul May calling from Barclays. Please go ahead.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Hi, guys. Just a couple of questions that are linked from me. Just wondering, are there any additional indicators you can give? I appreciate university applications are up and supply in totality has not increased as much. Therefore, occupancy should be better than it currently is, but it isn't.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

So I was just wondering if there's anything in terms of inquiries on your website, incoming from students where you can see people are delaying the decision, but you're seeing more activity that gives you that confidence of leasing up post clearing?

[Joe Lister, CEO at Unite Group]

Karen, do you want to just pick that one?

[Karan Khanna, COO at Unite Group]

Yes. So just on the first point around sort of lead indicators. So if you look at our sort of online presence, web presence, we have seen over the last couple of months actually an increase in the level of conversion and traffic versus last year, which I think sort of shows as students have got their offers and have decided where they want to go there, that is now translating into additional sort of search activity. I think you've also seen from where we had our trading statement to where we've now, we picked up about three points of occupancy as well. So again, if you sort of extrapolate that further, we should be in a good position going into clearing.

[Karan Khanna, COO at Unite Group]

I guess the third element for us, which we do rely quite heavily on is conversations with universities. So that is a core part of our offer. In those conversations, universities have indicated that they are relatively confident on The UK domestic overall numbers and they are looking to actually boost The UK domestic intake relative to what they did last year in order to manage if there was any sort of fluctuations in international demand. That said, they are actually quite confident of their undergrad demand as well and that has come through the UCAS data as well. So a lot of the lead indicators are sort of moving into the positive territory, which sort of again backs up the target of 97%.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Perfect. And I mean, just given how important it seems this year, that post clearing event, are you willing to commit to put out an update at the August or early September just showing that occupancy to give the market comfort that you've achieved the targets rather than waiting until the October trading update, which obviously include the NAVs and that would be USAF and ILSAP, but putting out something earlier on that occupancy, is that something you'd be willing to commit to?

[Joe Lister, CEO at Unite Group]

I think that the letting cycle actually runs a bit longer, Paul. So the September is when we will know. Now if we see that there is a big swing either positive or negative, then we will consider doing it. I'm not sure we can commit today to doing it, but we will certainly look to keep the market as fully briefed as we feel is appropriate.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Perfect. Thanks very much.

[Joe Lister, CEO at Unite Group]

I think that

[Operator]

There are no further questions on the telephone line.

[Joe Lister, CEO at Unite Group]

Not that I was trying to clear the questions, but I think that clears the questions. So thank you all for coming along and for your insightful questions. And thank you very much, and we'll see you soon.

[Michael Burt, CFO at Unite Group]

Thank you.

Participants

Executives

• Joe Lister, CEO
• Michael Burt, CFO
• Karan Khanna, COO

Analysts

• Samuel King, VP - Real Estate Equity Research at BNP Paribas
• Andres Toome, Senior Research Analyst at Green Street Advisors, LLC
• Executive
• Aakanksha Anand, Vice President at Citi
• Paul May, Director & Head - Real Estate Equity Research at Barclays