Good morning, everyone, and thank you all for joining the call. I'm going to take you through a few slides and then we'll open up for some Q&A. If you have any questions for me and Mike, please drop them into the webcast. Overall, we are pleased with our progress against the priorities that we shared earlier this year. We've delivered a strong leasing performance in an evolving market, helped by the strength of our best-in-class platform. Our enhanced commercial approach has delivered reservations of 96% at the upper end of the range guided back in July. Whilst annual rents are down a little, this largely reflects a mix towards more undergraduates and resulting shorter tenancy lengths. We are also especially pleased with the performance of Empiric, with occupancy of 92%, meaningfully ahead of last year.
Income growth is in our range and our EPS guidance for 2026 is underpinned. Our best assets are performing strongly, and we have confidence in the strongest universities that we are working with. Our portfolio of the future is outperforming the disposal portfolio. We are making solid progress on disposals. We've sold GBP 200 million so far this year and remain on track to get to our GBP 300 million-GBP 400 million target. The transaction market is being impacted by the challenging macro backdrop, but we continue to see good engagement and are working to the targets and timelines that we previously set out. We remain disciplined to our capital allocation framework, managing leverage, funding our on-site pipeline. As shown earlier this year, we will allocate surplus capital to share buybacks. We are moving at pace and we are making progress.
The trends that we've spoken about earlier this year have continued to play out through August and September. More than ever, students are prioritizing the best universities, and we believe that they will continue to do so. The strongest universities are winning in this environment. They are continuing to attract students to live away from home and have a greater need for accommodation than the lower-ranked universities. International postgraduates are down at all but the very best universities, due primarily to the shortening of the post-study work visa from three years to 18 months. This is being partially offset by more international undergraduates, with China particularly strong. Universities are responding by growing their U.K. student numbers, and the likes of Manchester, UCL, King's, Liverpool, Newcastle are all recruiting strongly.
There are even stories of Exeter and Bristol in the news facing a shortage of accommodation for first-year students. These trends support our strategy to increase alignment to the strongest universities, where the outlook for accommodation demand and rental growth is the most positive. The Unite platform consistently drives superior performance from PBSA assets, and that means higher revenues, income visibility, and lower costs. This is because, firstly, our brand and reputation. We are clearly recognized by the U.K.'s leading universities and the students who attend them. This gives us an edge across the spectrum from multi-decade university partnerships through to short-term lets. Secondly, the scale of our operation means that we can deliver higher occupancy for a lower cost. We have a deeper and wider sales channel than anyone else, with the 24/7 call center, international office, best-in-class technology and scale.
Being focused on 20 top cities for students brings efficiencies in the cost to market and servicing each bed. These brand and scale benefits are tangible. The chart on the bottom left shows a clear example of how we are outperforming the market from the latest StuRents data and that we are gaining share. In the middle, our nominations are 54% of the portfolio is nominated. Universities need students need beds, and this is mission critical to those universities. Uniquely, we are both large enough and trusted by universities to provide long-term accommodation solutions. Finally, our cost to serve is low. I think Empiric is a great example of this, where we've reduced the cost base by more than 40%, which is ahead of our underwrite expectations.
The typical PBSA bed is more valuable on the Unite platform than anywhere else, and these are significant and enduring advantages of our platform, improving our profitability and creating value. Last November, we set out our leasing strategy for the 2026/ 2027 academic year, and I'm really pleased with how we have delivered. We saw universities become more cautious around committing to nominated rooms, where we pivoted and sold 5,000 more beds on a direct let basis to returners, winning share from the HMO market. In response to fewer postgraduates, we have shifted to undergraduates. We are front-footed and applied the lessons from last year. We adjusted pricing early rather than waiting for clearing. Our developments are fully let, and Nottingham, Bristol, and Edinburgh have all come back strongly.
We took over Empiric when it was behind and made a material improvement performance, with more to come in our first full year of ownership. This doesn't just happen. The market is changing and we are adapting, but it takes a huge amount of work to deliver this performance from our commercial teams, property teams, technology, and city teams have all responded well to the challenge, and this sets us well for the 2027/ 2028 academic year. In this sales cycle, we focused on delivering overall income and price to secure occupancy early. Occupancy is above 95% in all of our strongest cities. Where we have seen lower occupancy, this is largely supply driven. Weekly rates are up modestly, supported by indexation and multi-year nominations. The shift to undergraduate students has meant we've sold more shorter tenancies, meaning that overall RevPOR is down by 0.3 percentage points.
We've also seen our overall cost of sale, agent fees, and pay-per-click marketing costs up year on year. Given the shortening of tenancy lengths, we do see the opportunity to grow utilization through our flexible lettings business. We've already grown this income this year and see the opportunity to add up to a further 0.5 percentage point to income growth in 2027. We set out our future portfolio at the interims, and were clear then that these assets had the strongest track record and our conviction that this will continue. Our target portfolio of 55,000- 60,000 beds is across 20 cities, and these have again outperformed in both occupancy and rental growth, as you will see from the two charts, and we expect this to continue.
We are focused on moving as fast as we can to this future portfolio, as I will come back to discuss with our disposal progress. New supply in these cities beyond 2027 is very limited. Viability is incredibly challenging, and there are signs that the Renters’ Rights Act is starting to have an impact on the HMO market. Turning to Empiric and our Hello Student brand, we are really pleased with the performance to date. The brand is clearly benefiting from the power of the Unite platform, driving improved performance right across the portfolio. When we took it over in January, bookings were 13 points behind year on year. We applied our understanding of each city to market effectively. We broadened the sales network, introduced our dedicated international sales team, and this has resulted in both occupancy and income being ahead of last year and expectations.
We are in the advanced stages of preparing for our first full sales cycle. The early rebookers campaign offers opportunity for us to retain more customers at a lower cost, and cross-sell from the Unite portfolio and continue to win share from the HMO market as well. We completed the bulk of the integration and will deliver the GBP 18 million synergy target that we have previously discussed. Nominations continue to provide us with income visibility and growth with inflation linkage in multi-year deals, and have an average remaining term of five years. The strongest universities need more beds, and we are seeing this. So far, we have agreed 4,300 new beds with deals with the universities like UCL, London School of Economics and Bristol, and these have been at a 10% increase to current passing rents.
This supports our trend of our shift towards stronger universities and higher quality nominations. Renewal discussions for single year deals are underway now with universities, and typically run through Q4 and into early Q1. Depending on where we end up, our experience shows this year how we have a range of commercial levers to drive a beneficial outcome. The pricing differential between multi-year noms and direct lets gives us the room to play with. We are already on this and actively managing over the next few months. Moving on to property valuations. We have seen valuations reduce by 3.7% in Q3. This movement largely reflects the higher interest rate environment affecting all assets. Valuers have also reflected lower income on weaker performing assets. This makes up about a third of decline, and these assets largely sit in our disposal pool.
We continue to focus on bringing leverage back in line with our target of 6x- 7x net debt to EBITDA, and have allocated recent disposal proceeds to deleverage. As we deliver further disposals, we will continue to allocate capital according to our existing framework, and that is managing leverage, funding costs to complete our remaining onsite developments. Where we generate surplus capital, share buybacks remain attractive, and as we have demonstrated by our purchases of GBP 165 million earlier this year. We also continue to progress with a number of university partnerships. As I said, we are making solid progress on the disposal program and remain on track to deliver our target of GBP 300 million- GBP 400 million this year.
Last week, we announced the sale of our King's Place development land, exiting an asset which no longer meets our investment hurdles, bringing the year- to- date total to GBP 200 million. We have a further GBP 225 million of assets under offer. It will be no surprise to you that the market is not straightforward and conditions are continually evolving. Funding costs are increasing. Buyers have waited till the end of the sales cycle, and they are now pricing off passing income rather than an equivalent yield as they have historically done. Due diligence is taking two to three months to complete. We remain pragmatic but disciplined when selling assets. We are not sellers at any price, and we will hold assets for longer if it makes sense for shareholders.
In closing, the strongest universities are still growing, and that supports improved performance on the portfolio of the future. We are responding to the changes in the market. We are being proactive to drive the best commercial performance and to win market share. We are working at pace to increase our alignment to the strongest university to create a portfolio with pricing power, and we will continue to use proceeds in line with our capital allocation framework. We remain focused on delivering the best outcomes for shareholders. As you can see, there is a lot to do, but we are pleased with the progress to date.
With that, we will turn to your questions. Thank you for those who have already done so. If you haven't, please pop any further into the webcast, and Mike and I will just now work through those questions, particularly ones we haven't covered.
Thanks, Joe. Morning, everyone. It's Mike here. I will start to run through the questions on the webcast, starting with Ana Escalante at Morgan Stanley. Firstly, could you provide more color on the 0.5 percentage point potential increase in income from short-term rentals?
Yeah. Short-term rentals for us is made up of two or three elements. We have semester lets where we are seeing demand for students for the first and the second semesters. We also see it then in our summer business, which has always been part of our offer. Then also a short-term letting cycle, particularly over the summer months, as well. We have grown the proportion of our income from this pool of revenue to about 2%, and that is up by about 50 basis points this year. Given the increased availability, particularly in the stronger markets like London, Manchester and Edinburgh, where we have seen some of that shortening of tenancies, because they were the ones primarily with the 51-week tenancies, that gives us greater opportunity to drive further income over that summer period.
That's what is really working through the availability at the current pricing, the cost to deliver that, which gives us the opportunity to drive that additional 0.5 percentage point through 2027.
Ana's second question is on capital allocation. Could you please help us understand how to think about surplus capital and how to think about the use of disposal proceeds? Are you still targeting one university partnership per year? How are you thinking about loan-to-value at the moment?
Yeah. On surplus capital, I think, as I set out, we are clearly focused on managing our leverage and the 6x-7x net debt to EBITDA target that we've been running to. We are currently slightly above that, and that's because of the acquisition of Empiric, as we knew about. We brought that down slightly through the allocation of proceeds from disposals, and we will continue to work towards that. Similarly, as we've previously outlined, we have our remaining onsite deliveries in Glasgow this year and then the two development JVs. We've always felt that around 50% of the disposal proceeds would be needed to allocate it to those schemes over 2026, 2027, and 2028. I think then, as we generate further surplus capital, we see share buybacks as the most attractive use of capital, in this environment and where our shares are currently trading.
We continue to stick to that framework that we've previously outlined. On university partnerships, I think what is interesting in this current environment is that universities are clearly thinking about their own balance sheets and their needs for accommodation very deeply at the moment. That is opening up some really good conversations with the universities. Most of the universities who we are talking to in this space, they are the strong universities. They are saying that they do see a need for more accommodation over the next five years, which is encouraging. But like us, they are seeing it as incredibly difficult to develop viably. We think that you need to be charging GBP 12,000-GBP 13,000 per annum to justify doing a development scheme at the moment. There's very few, if any, cities other than London that you can generate that type of rent.
The conversations with the universities continue and probably are shifting slightly more to stock transfers and the release of capital from existing assets rather than development of new. But, as I say, we're really encouraged by those conversations. They are ongoing, and we still believe that doing one a year is certainly possible. I don't think we'll do anything. We certainly won't be announcing anything this year, but we have a number in the pipeline which are providing us with real opportunities into 2027 and beyond.
The next question is from Tom Musson of Berenberg. Can you give some color on capital growth in the quarter between the assets you want to own long-term and the non-core assets to be sold? I'm happy to pick that one up, Tom. What we've seen, as Joe discussed, is an outward move in yields this quarter. I think it's fair to say that's impacted pretty much all assets, both what we see as the future portfolio and those assets we're planning to sell. However, where we have seen those rental growth reductions, they have primarily focused on those disposal assets, and that's because those are the properties that are operating at lower levels of occupancy, and that's where the valuers have made an adjustment in the period. They have seen a slightly weaker valuation performance than the averages that we're quoting for the two funds.
Next, moving on to Chris Millington at Deutsche Bank. What trends are you seeing in the international post-graduate market given that the visa data looks weak?
Yeah. As I mentioned, the decline in international post-graduates we've seen over the previous two cycles again continued into this 2026/ 2027 academic year. And it really is linked closely to the quality of universities and the QS global rankings. You see quite a high correlation in performance related to those universities. Probably the big policy change that has impacted that this year is the shortening of the post-study work visa from three years to 18 months. Those students who seek to come to the U.K. to get a good post-graduate degree and potentially to work here for three years to help to fund some of the cost of that investment are sort of taking a different economic decision and thinking about alternatives.
That probably, given some of the pressure that we are seeing in the U.S., Australia, around student visas, and they are also seeing this decline, has seen a spreading of post-graduates going to broader international markets. I think the overall global demand for higher education continues to rise. The number of global students is rising and is expected to continue rising. We have seen a growth in undergraduates coming to the U.K. from around the globe. As I mentioned, China is up strongly this year and it seems that students are saying, "If I am coming for three years, I am making an investment to come study here as an undergraduate," and that is less linked to that post-study work visa.
I think one thing just to sort of touch on is the policy environment. We have obviously got a new leadership, new government, and certainly Andy Burnham has talked very positively about universities, and I think he has seen the impact that universities can have on a regional city like Manchester, both on sort of supporting regeneration, bringing growth to the local economy. Certainly, we are expecting a more stable policy environment, and no further changes to certainly migration policy around international students going forward, which hopefully will lead to stabilization of that post-graduate market.
Second question is a follow-up from Chris at Deutsche. On disposals, what cohort of buyers are showing the most interest? Also, please could you comment on what proportion of planned disposals could be non-PBSA or development land?
Yeah. So I think in this first round of disposals, Chris, we have focused on a proportion of the portfolio which we think we need to move through relatively quickly, and the value-add buyers have been the most interested group in those assets. We are selling these assets well below replacement cost. Those buyers see an opportunity to enhance the NOI, both from growing the occupancy and also reducing costs. That allows them to drive relatively attractive IRRs that meet their models.
In terms of the GBP 200 million of assets that we have sold so far this year, there has been a couple of development sites within that. We have got a few further development sites and a build-to-rent asset, which is on the market. So of the GBP 300 million- GBP 400 million, probably is around a third to a quarter of that is non-student. I think we're then into the bulk of those going forward will be student assets.
The next couple of questions from Andres Toome at Green Street. First one is, what is your marginal cost of debt, and how does paying down debt compare to other potential uses of sales proceeds? I'm happy to take that one, Andres. Our marginal cost of debt today, clearly it's fluctuating in the current market, but we would say it's between 6%-6.5%. I think as we've seen the cost of funding go up, it's given us greater conviction on the desire to bring down that leverage. As Joe said, as we think about the progress we make with disposals, we are looking to bring leverage down to target. As we get to lower levels of leverage, it will free up some surplus capital, and we'll then have a choice in terms of what we do with that, as Joe discussed.
Second part of Andres' question is, which cities are in the under-offer portfolio, and at what yields are these now marked? Again, I'm happy to take that one, Andres. I think it probably helpful to go back to the slide Joe touched on earlier, showing the range of occupancy performance across the different cities for the 22 cities in which we operate. As Joe said, the vast majority are operating at higher stabilized levels of occupancy. However, we're seeing a number of cities which are operating at 95% occupancy or below, and generally, our disposal portfolio is over-indexing to those lower occupancy cities. In terms of where we expect to trade on those, as Joe said, we're expecting yields on in-place income to be around 6%-7.5% on those disposal assets, and that's based off the sales performance we've achieved for the 2026/2027 academic year.
Next question is from Rebecca Parker at Goldman Sachs. Could you provide more color on the investment and transaction market liquidity for U.K. PBSA?
Yeah. As I say, the overall market is not straightforward, and I think that largely is down to the macro factors we're seeing and the higher funding costs. Also, I think buyers trying to get their heads around what is happening in the operational and lettings market. We've seen buyers wanting to and putting much greater focus on the 2026/2027 letting cycle and, as Mike mentioned, using passing income to price assets, whereas historically they may be more prepared to use equivalent yields to do that. The level of transactions in this financial year has actually been significantly lower, and I think as buyers have been trying to come to terms with that.
Having said that, I think we are seeing a very high level of engagement. We're seeing lots of parties looking at the sector. I think we are expecting, now that we're through this end of the sales cycle, that we'll see more trades happen as we go through to the back end of this year and early into next year. Albeit, as I say, the buyer diligence is something which does add an added layer of complexity into the student market.
Rebecca's second question is on nomination agreements. Please could you walk us through the expiry schedule into next year, comment on your partner retention as well as the appetite for long-term agreements. How are you thinking about pricing on renewals versus direct let channels?
Yeah. Universities have been more cautious on nominations agreements this year, as we've previously discussed. Particularly at those universities who've got less confidence in their ability to predict and secure students. We were encouraged by the fact that we saw an additional 450 beds come through clearing, again, from some of our stronger partners, and that we've been able to renew just over 4,000 beds from those universities I mentioned earlier. I think this plays into our overall strategy of focusing on stronger universities and actually an opportunity to improve the overall quality of our nomination agreements over the next few years, particularly as we move through to that portfolio of the future.
Our target of 50%-60% nominations and where we operated historically is definitely where we believe we can end up and moving towards the upper end of that as we make progress towards that portfolio of the future. We have 9% of those multi-year agreements mature this year. We have renewed effectively 7% of that 9% already. We are now into the phase of renewing and having the discussions around those single year deals. That typically runs through Q4 and into early Q1. We look at the overall net income that we can generate from those nominations agreements, effectively after all marketing and sales costs.
That does give us some flexibility on pricing. It really is down to a city level, city performance. We will drive that thinking around nominations agreements into our overall sales plan, as I say, with a view on driving the best and optimizing income across the portfolio.
Thanks, Joe. Next question is from Aakanksha Anand at Citigroup. First of two, actually. What was the rent growth for nomination agreements and direct lets? Hi, Aakanksha. We reported the 0.3% reduction in Revenue Per Occupied Room, which is how we talk about rental growth. We have seen stronger growth in the multi-year nomination agreements. They have seen growth of just over 3.5%. Where we have let beds new this year, so either direct lets or new agreements, they have seen rents reduce by just over 2%, which gets you to the 0.3% as a blend. As Joe said, that is a function of that shift to slightly shorter tenancies and a shift in favor of undergrads and slightly fewer postgrad bookings in the mix.
Aakanksha's second question is, with current visibility, when can we expect to see a return to EPS and dividend growth?
Yeah, so I think we have effectively seen the occupancy and the academic year income coming through. We have decided that we will update the market around 2027 earnings guidance. Into 2027, when we have got more visibility on that nominations renewal performance and our really important earnings, rebookers campaign that we are about to launch. So, we are seeing the stabilization in the overall demand. We have got some headwinds coming in from funding costs, and we will provide an update on the earnings guidance early in 2027.
Next question is from Matt Saperia at Peel Hunt. He's interested to understand the type of buyers we've sold to or are under offer to. Are they seeking value add opportunities or alternative uses, or just attractively priced opportunities?
Yeah, I think at the moment, it's value add, Matt. As I mentioned, people are seeing this as a time when yields have moved out on those weaker assets. They are generally lower occupied or lower rented, and they think that they can bring in a different operating cost model to drive better NOI. So, the bulk of people are still seeing an opportunity to drive attractive IRRs, probably mid-teens IRRs from those purchases. As I say, there's still capital and plenty of capital, if there are business plans to support that type of return.
I think the only thing to add to that, Matt, is we had the earlier question on non-PBSA assets. I think the buyer pool is slightly different there. So, for the build-to-rent asset that Joe mentioned, we're still seeing core style capital that wants to allocate to the residential sector, and where we've got our long income asset we're selling, which is an academy school let to the government. Again, there's a pretty active long income market that's still out there, in addition to that value add capital for PBSA assets.
Our next question then is from Marc Mozzi at Bank of America. You touched on the opportunities for university partnerships. Do you still want to build for universities given the cost of building now and movements we're seeing in valuations?
Yeah, I think that we won't build for universities if the returns on them don't stack up versus the alternative uses of capital. As I say, it's very difficult to justify building at current costs and at current rents. Where we are seeing opportunities with universities is more on their existing estate. Potentially, if they do want to build new, then there is effectively an element of subsidy that would be required from the university, either through a reduced land price or even effectively a subsidy if the university is seeing new accommodation as fundamental to their strategy. There are certain cities where universities aren't able to grow without new beds. That is something which universities are starting to think about, how they can release value from existing student accommodation assets, potentially to support the growth of new.
But as I say, our primary focus at the moment is more on university partnerships where there are existing beds and universities are seeking ways to release capital, either to refurbish and modernize those beds or to allocate into other parts of their academic infrastructure that they will need to meet the demands of a growing student population.
Thanks for all the question, guys. I think that brings us to the end of them.
Great. Thank you all, and thanks all again for joining the call. Hopefully, you've heard that we are making progress against the priorities that we shared with you earlier in the year. That our platform and our enhanced commercial approach is delivering results and helping us gain share. We're on track with our disposal target for this year, and we continue to move at pace towards the portfolio future that will maximize shareholder value. So, thank you all, and look forward to speaking soon.