The U.K.'s largest listed student housing provider's plans to reinstate its dividend could be stalled by a "second wave" of COVID-19, Unite Group CEO Richard Smith said during a first-half 2020 earnings call.
Unite Group PLC, which has a portfolio of purpose-built student accommodation worth about £3.88 billion as of June, suspended its dividend in March in response to the impact of the COVID-19 pandemic on the purpose-built student accommodation sector. The U.K. lockdown forced universities to close, casting uncertainty over the sector's prospects as students returned home.
Unite Group's reinstatement of its dividend depends on a number of factors, Smith said. "We do expect to reinstate the dividend later in 2020, assuming we deliver occupancy and income in line with our expectations for the academic year, assuming we continue to see a positive outlook for the 2021-2022 academic year. And for clarity, that assumes no material second wave of the virus or national lockdown."
Concerns over a second wave of the coronavirus, particularly in Western European countries, have grown in recent days as the transmission rate of the disease in several countries is rising. The U.K., which gradually lifted lockdown measures throughout June and July, has already imposed a local lockdown on the city of Leicester and other towns, with more in danger of similar measures.
Most U.K. universities plan to at least partially reopen in the autumn for the 2020/21 academic year, according to a Universities UK survey. Unite Group's accommodation is 84% reserved for the period, with half of those reservations underpinned by signed nomination agreements, Smith said. These nominate a student housing provider as the go-to accommodation provider for a particular university.
The company is targeting 90% occupancy by the end of the sales cycle, with August's high-school examination results — crucial to securing entry to university — set to boost uptake, he added.
"While we obviously remain in an uncertain period, we do have growing visibility over income for the upcoming academic year starting in September," said Smith. "What we know at the moment is that universities will be opened for business in the autumn. And we also know from our own research that students are really keen to go to university and start the next chapter of their lives."
Unite is planning to update the market after the start of the academic year, said Nick Hayes, group property director. "That will allow us to give you a better picture on occupancy, earnings and rental growth, and we will also give further guidance and an announcement on the dividend for 2020."
Unite Group refunded rent paid for the summer term, the first provider in the sector to do so, Smith said. While the refund was the primary contributor to a 12% fall in first-half earnings per share compared to the same period a year earlier, it has "enhanced" the company's reputation with universities, students and parents, he added.
The company restated guidance provided in a recent trading update to deliver 22 pence to 25 pence of earnings per share in 2020. "This reflects the bigger impact in the second-half from COVID, [from] those 51-week tenancies, the loss of summer income and also the impact of the 2021 academic year," said Hayes.
Smith described the first half of 2020 as a "uniquely challenging period for the company" due to COVID-19, but that the long-term prospects of the business remain promising.
Acknowledging that the company had work to do, Smith added: "I think we can look ahead with confidence and that confidence is really supported by the structural demand for U.K. higher education."