Good day, and welcome to the Unite Group Plc Half Year Results 2021 Conference Call. At this time, I would like to turn the conference over to Mr. Richard Smith. Please go ahead, sir.
Great. Thank you very much, Holly, and welcome everybody to our results presentation. Thank you For joining in what I know is an extremely busy day within a busy week for you all. The first half of the year, has been impacted by COVID, but our recovery continues broadly in line with our expectations. And I'm hugely proud of the response of the business.
Our focus has been on doing what's right, prioritizing safety and students while balancing all stakeholders. If we could move to Slide 2, please. Our financial performance has been impacted by COVID. However, EPRA earnings are up 18% to £88,000,000 Our interim dividend at £6.5p represents a payout of 65% and is a clear step towards our target of returning to an 80% payout. We've also announced today alongside these results A new 1,000 bed development scheme in Stratford.
Stratford is a market where we already have a significant presence with 2 buildings. It's a Proven destination for students with UCL and University of the Arts London actively building campuses there and is therefore an undersupplied market. And this final scheme, we've now added to our development pipeline means we have deployed all of the capital that we raised in July of last year. Encouragingly demand for university and therefore accommodation remain strong. We've seen record applications from students for the 2021, 2022 academic year and the government have confirmed there'll be no on university teaching from August 16th.
And our reservation position is strong. We're 85% reserved. That's underpinned by our nominations and also underpinned by around a quarter of our beds secured from rebookers. We therefore continue to anticipate a return to full occupancy for the next academic year and rental growth in the range of 2% to 3%. International travel options do remain the known unknown, but we're confident in the students' desire to come to the UK and commence their studies at the start of the next academic year.
The balance sheet underpinning our business remains robust, And we've been very active actually in H1, further improving its strength and Joe will cover this shortly. And overall, our response to COVID has, I think, demonstrated the resilience of the business. We are led by a clear social purpose And it's a purpose that I believe is even more important and relevant today. If we could move on to Slide 5, please. Looking briefly at business performance, as you know, all of our properties have remained open throughout the pandemic And we've continued to support students living with us throughout that period.
Our cash collection has also been strong at 96%, meaning that we've had and continue to have significant ICR headroom. And let's say performance that I mentioned at 85% is marginally behind '19, 'twenty, which I think is sort of the most relevant comparative year, but that was a record year and it was also a year It didn't have Liberty and with Liberty's lower weighting of, norms to direct let, probably about half of the gap is represented by that fact. So the sales rate is strong and we are anticipating a very strong clearing. Clearing actually starts a couple of weeks today. And I think there will be record numbers of students placed during Clearing, with students at the moment really delaying Some of their final choices of university.
And international students do remain a really important part of our business mix, very obviously. There's more detail on our current student mix on the next slide, but for international students to support them and particularly those arriving from AMBA countries, which does include China, Our key market, we've offered the opportunity for students to come to their accommodation up to 3 weeks early, so 3 weeks ahead of the start of their tenancy and complete their isolation and they can come through that free of charge. And it's also worth highlighting that within our international bookings, A third of those students are already in the UK and we have very limited exposure to students arriving from Red Group countries. During this sales cycle, we have been targeting increased UK market share through domestic students living in HMO. We've enjoyed real success, and this is actually a trend I expect to continue beyond COVID and for context of our DL bookings over half from UK customers, this is 10% up on prior performance equates to about sort of 2,500 beds sold into that effectively new market for us.
So this is a shift which, as I say, I believe will continue and I think really demonstrates the the clear value of purpose built student accommodation and the benefits of an institutional landlord. If we could move to Slide 6 please. Students continue to make a clear statement that they see UK higher education as the best option for them. A record 63% Of all 18 year olds applied to go to university for the forthcoming academic year and student international student growth is also up 14% driven by sustained demand from China, but also a strongly emerging Indian market. As expected, EU demand has dropped.
It's been impacted by Brexit and COVID. But as we've said before, EU student numbers make up a Pretty small proportion of our student base and also students in UK Higher Education. As I've said, pleased with the reservation performance at 85% and that's really what's giving us confidence in returning to full occupancy. And of the 85% current reservations, 80% of those reservations are either nominations or domestic students, so effectively domestic students with the balance 20% international students. And as I've said, a third are already in the U.
K. Giving us real protection if we do have a shock and international students can't come to the U. K. And I do expect the current mix, that sort of eightytwenty split to continue broadly through the remainder of the sales cycle. Current demand levels, so you know, hipster websites, booking rates, etcetera, are also strong about 30% ahead of 2019, 2020 and that's consistent for both domestic and international students.
And finally, universities will be open. As I've mentioned, no restrictions from August 16th. The new academic year will be much closer to a traditional student experience, there will be face to face teaching and that face to face teaching will be supported by online learning. If we could move to Slide 7, please. The outlook for student numbers remains really strong in the UK.
As you all know, we're in now in a period of demographic growth that is supporting student numbers and the demographic growth continues for the next 10 years. Our nomination agreements underpin our confidence and provide a foundation for further growth. And we've got growing confidence in the same demand, as I've mentioned, from 2nd and third years that historically would have lived in the HMO market. Internationally, government policy is strongly supportive demand as well. We're now enjoying the benefit of the 2 year post study visa.
That's a visa offer that is best in class internationally and the government are well on track to achieve their target of seeing at least 600,000 students studying in the UK. And positively in the near term, Supply is also slowing and Nick will cover this in a little bit more detail shortly. We've been waiting a long time for the response to AWGA and we do now that response to come later in the year, sort of September, October. And we are supportive of the desire from the government to widen post 18 Education. There is a focus on further education and technical qualifications, but we believe this sort of sustained and increased demand That product will mean that those students wanting to go to university will look to want to go to the high and mid ranked institutions, our partners, really supporting our growth in the future.
And those high and mid ranked institutions, again, many of our partners have a really clear role to play, I believe, in providing the skills government most value to support our economy, in supporting the levelling up agenda and supporting the government's desire to see the U. K. As a research superpower. Just move to Slide 8. We obviously launched our sustainability strategy alongside our prelims a few months ago And we will talk more about our sustainability commitments at our Capital Markets Day, which is later in the year, But we are making progress.
We recently published some research we did amongst the broader student base, looking at Student attitudes to sustainability and it is really clear that students see climate change as their major concern, more significant than COVID, more significant than mental health. So taking positive and proactive action is absolutely vital for us. We are already doing so and we'll continue to invest in reducing consumption and we're committed that our Paddington scheme, scheme we announced a little while ago, will fully net zero carbon and the development will include rainwater harvesting, we'll have a significant step roof garden, we'll maximize natural life, be fully insulated and use 100% renewable energies and we'll also look at sort of the methods of construction. And finally, we will also be publishing our net zero pathway by the end of the year. I'll now hand over to Joe to take us through the financials.
Thank you, Richard, and good morning, everyone. So on Page 10, we set out the financial performance, which shows again that we the performance has stowed well to the challenging operating backdrop with earnings up 18% earnings per share of 8%. That growing confidence has allowed us to step the dividend up to 65% payout and reconfirm our intention to get to 80 percent as the outlook further stabilizes. Operational cash flow is being boosted by the strong rental collection and the reinstatement of distributions from the funds. The 6 month total accounting return of 3.9% is getting back up to normalized levels.
Moving on to Page 11, the ongoing earnings impact shows that whilst the overall position is improving and we're starting to see the impact of COVID lessen, There are a lot of moving parts to the earnings statements this year and even more if you look back to 2020 as a comparison. So it's probably more useful to turn straight over the page, the earnings bridge on Page 12. So starting with occupancy and discounts, during the first half, we have seen the impact of lower occupancy in terms 23. Our effective occupancy of 82% is based on those students who've checked in plus third party nominations agreements. This occupancy led to a GBP 19,000,000 shortfall compared to Term 2 of last year.
Rental discount was taken up by 45% of students, demonstrating the fact that a high proportion of students were keen to move back into their accommodation despite the restrictions in place, but also that we would support those students who could not use their accommodation and this cost a total of £10,000,000 to us on a united share basis. And as the chart sets out, the combined impact of that lower occupancy and discounts broadly matched the impact of the tenancy cancellations of Term 3 last year. Looking then at disposals and new openings, there was a relatively small impact to disposals in H1 and this was more than offset by the impact of the 2020 new openings in Manchester, Wembley and Leeds, but we will continue to see the impact of those disposals in the second half. Following the extension of the LSAT joint venture, we now have much greater certainty over the total performance fee. The final amount will be calculated based on the September valuations and paid in cash in Q4.
We valuations and paid in cash in Q4. We recognized £16,000,000 of the fee in the first half and estimate a further £10,000,000 to be generated later this year, taking the total amount that will be recognized over the life of the JV to £37,000,000 The Performance fee has been excluded from EPS for dividend purposes on the basis that it's non recurring and falls outside the PID requirements. And so we will use it to redeploy into a range of opportunities that we are currently exploring. On the margin, the NOI margins will be up marginally this year at around 70 and the EBIT margin should recover to the high 60s and we remain on track to exit 2023 at our target level of 74%, driven by the return to full occupancy, rental growth and our continued focus on costs and overhead control, new openings and disposals broadly offset each other in this guidance. On Page 13, we look forward to the full year position and have updated the earnings guidance set out in March.
We reflected the impact of the rental discounts and increased our rental income estimates based on the strong cash collection. Overall, the guidance of 27p to 30p before the LSAT fee remains the same, reflected the ongoing uncertainty around the start of the academic year. The risk from international student arrival is relatively contained. 80% of our income is from nominations, agreements and U. K.
Students and of the remaining 20% due from internationals, around a third already in the U. K. Last year, we collected 80% of contracted rents from international students. And even if we see the same level of disruption and achieve this level, this would lead to a 1.5 to 2p earnings shortfall in 2021. Over the page, taking a look at the longer term earnings outlook.
In total, we've kept the total position on the longer term earnings unchanged at 55p to 59p. We have included the additional earnings from the new scheme in Stratford, but at the same time increased the level of disposals in the analysis given the performance in H1 and our outlook for further disposals. This delivers a pro form a LTV of 33% on a built out basis, that we still have a good level of firepower left for further developments. On Page 15, the NAV bridge shows that the H1 NAV position has also got a number of moving parts. We've seen the partial unwind of the COVID valuation adjustment with 10p reversing out in H1 and There was a further 9p expected to benefit in the second half.
Rental growth of 4p has been recognized in the first half of the further 5p to 10p in H2. The combination of the COVID unwind and this like for like growth will see investment values up by 2% to 3% in the year with roughly a third coming from like for like growth and the remainder from the COVID unwind. There has been a small element of yield compression in London in the first half And the recently announced GCP transaction supports these valuations and also provides a possibility for a small amount of further yield compression in London. Our development activity has added 3P as we've restarted on-site at Middlesex and BRI and also achieved planning at Nottingham. We expect to see a busier second half with the TP planning consent committee now scheduled for Q4.
We've increased our cladding provision by £16,000,000 in H1. Having now completed the detailed design work on all of our high rise HBL buildings, The increase in costs was the result of us needing to replace the insulation on the few of the buildings as well as the planning. We are making good progress on recovering costs from contractors and expect to receive a significant portion of the spend, although recognize that this will be a long process. We've consistently been the first to act on cladding and fire safety and we'll continue to ensure that we stay in front of all guidance and regulation on fire safety across our estate. So, taking this all together, valuation movements, development activity and cladding, we expect to see a 3% to 4% NAV growth over the course of H2.
On Page 16, it sets out our continued balance sheet discipline. Having reduced the LTV to 30% ahead of the planned timeline through our focus on disposals, we've also ensured that we keep high focus on portfolio quality. Our debt markets have recovered well. The debt market has recovered well, and we've been in regular dialogue with lenders and have had good support through the pandemic, raised nearly £400,000,000 of new debt including £290,000,000 of long term debt at an all in cost of 2.6%. With our average debt maturity of 4.6 years, we will continue to extend maturing facilities and we see an opportunity bring cost of debt down below 3%.
We remain fully compliant with all of our covenants showing resilience of the cash flows over the last 18 months, And we have published our green finance framework and expect future facilities to be classified as sustainable or green, which with meaningful targets, if delivered, will deliver savings of up 5 basis points. On Page 17, we set out in more detail our co investment vehicles with USAF and LSAF both performing to perform well. LSAF's return is being boosted by the positive yield sentiment in London. USAAF continues to be well supported by its investors. There have been no redemptions over the last 18 months and the Fund has now reinstated distributions.
It has an LTV of 29%, giving it some capacity for investment positions. And we were delighted to have secured the 10 year extension to LSAT and to crystallize the performance fee at the total of £37,000,000 GIC have been a core funding partner of ours since 2,005 and has supported our growth in London and Aston Student Village. Alongside this transaction with LSAT, we took the decision to sell 2 assets with a combined value of GBP340,000,000 to the joint venture. These two assets in Wembley and Whitechapel had an average yield of 4% and the release of this capital has helped bring down LTV and will be deployed into higher returning development activity. GIC have also committed further capital as part of the transaction and we are targeting third party acquisitions in London with this On that note, I'll hand over to Nick, who will update you on further key aspects of the property business.
Thank you, Joe. Good morning, everyone. If we could move on to Slide 19, market update, please. Transaction values have remained robust in the half year with around £2,000,000,000 transacted to date, an estimated £4,000,000,000 outturn by year end, which is in line with the medium term annual run rate for the sector. These numbers should now exclude the proposed GCP deal.
So should that happen, we Further betterment there. Interest in the sector is driven by investors who are continuing to reallocate capital away from traditional sectors into alternatives And the student market remains attractive due to its strong fundamentals. Transactions have been dominated by North American private equity investors, notably Blackstone, Lone Star, Apollo and Ares have all been active in the period and we continue to see strong interest in Southeast Asian and Far East investors, and we expect that this will accelerate as the sector returns to full occupancy and lockdown travel restrictions begin to ease. Yields have remained flat at 5%, and we expect the year end position to be similar. There's likely to be a small amount of compression in Central London as recent transactional evidence feeds through from GCP, but also there's been some asset transactions in other locations, which are all supportive of yields moving below 4%.
We anticipate that COVID unwind will finalize this year, which represents 2% to 3% capital growth and is based on full occupancy across the full year. New supply has lagged as a result of the pandemic and we forecast completions this year to be around 20,000 beds, which about 5,000 below the average annual historical run rate. We can move on to Slide 20, enhancing our portfolio. We have continued to make encouraging progress with disposals, having secured £260,000,000 of sales in the year And we anticipate a further £150,000,000 to £200,000,000 of disposals moving into next year. This will maintain our strategy of self funding development through selling our weakest assets or those that are unlikely to make a meaningful contribution to our total return in the medium term.
There's also a growing opportunity to work our existing portfolio through accretive CapEx spend, asset management and asset management initiatives over the next few years. I think this will come in 3 forms. Firstly, refurbishments and extensions to older or tired buildings where latent reversion exists and I believe there is a very exciting opportunity within the Liberty portfolio for this. Nomination agreements where properties have become reversionary and we're able to reposition those assets. And also, excitingly, we also have a growing opportunity to segment our offer further to both returner and postgraduate markets.
Move on to Slide 21, secured development pipeline. We continue to make good progress with the pipeline over what's been a very challenging period. We've witnessed delays and inflation in the market as supply chains and materials have been disrupted through a combination of Brexit and the pandemic. We are expecting inflation of around 4% this year with cost rises normalizing as the disruption unwinds into next. Our 2022 pipeline have fixed price contracts and have therefore not been subject to these cost rises.
We expect to maintain hurdle rates for our 'twenty three and 'twenty four pipeline as we're still working through the design and procurement process for those projects. However, in the interests of transparency, there could be a 10 to 20 basis points impact on yield on cost for these projects should we be unable to mitigate that risk. The risk is priced into all of our projects that are due to full completion beyond 2024. As you've heard, we're making good progress elsewhere on the pipeline. The Paddington application has now been submitted and it's validated, and we're expecting The scheme's go to committee in quarter 4.
And as Richard touched on, it will be the most sustainable building once delivered in the sector. We've also secured planning consent for Derby Road. Again, we secured a larger scheme here, which helped maintain returns despite the near term inflationary pressures. As you've heard already, we've announced a new development project in a prime location in Stratford. Stratford is a growing HE destination with both UCL and UAL building new campuses there.
The deal has been secured with the vendor that we've worked with in the past, which once again underlines the relationships we have in the land market and pleasingly this fully deploys proceeds from the capital raise from last June in just over 12 months. Furthermore, we are actively securing further pipeline opportunities in both London and the regions. Vendors are keen to partner with us given our development capability, strength of our university relationships as well. And as mentioned earlier, we will be funding all of our new activity through asset recycling in the portfolio. Finally, we're also discussing a number of significant partnership deals with universities, albeit these transactions take longer given the nature of the negotiations.
It is clear that universities are wanting to engage with us for our real estate and operational capability, but it's also becoming more apparent Our decisions to do the right thing in FICO rents over the past 18 months is also having an influence in our partners' decisions. As Richard mentioned, we will be talking more about ESG at our Capital Markets Day. We are well on with understanding our net zero carbon ambitions to disregard with our pipeline. With that, I'll pass over to Richard. He's going to wrap up and take questions.
Thank you, Nick. If we could move to Slide 23, please. Before opening up to questions, just to summarize, we do have great visibility over the 2021, 2022 academic year and that's Supported by record demand and a return to a sort of more traditional campus experience for students, in the medium term, We're confident in delivering significant earnings growth and attractive total accounting returns. We do expect to return to sort of circa 3% per annum rental growth from 2022, 2023. We expect to deliver our secured development pipeline very obviously and to benefit from our increasing alignment to high and mid ranked universities.
We also expect to benefit from significant growth opportunities, Adding further high quality developments in London and in the region, as Nick has mentioned. Also, as Nick has just mentioned, Developing genuine university partnerships where we continue to target delivering 1 to 2 of those schemes a year. And finally, building on the success that we've had this year in penetrating the HMO market, our success there really does materially enhance the demand pool The PBSA, it demonstrates the attractiveness of our product and service and presents a real opportunity, I think, to look at segmentation of our product and our service and really in that service deliver value for our customers. So thank you for listening. We can now take questions starting first with those by audio and then moving on to the webcast.
It appears there are no telephone questions. So I'd like to hand back to see if there are any questions from the webcast.
We have one question on the webcast so far. It's from Chris Fremantle at Morgan Stanley. How do you see the competitive landscape within the PBSA sector Given recent M and A developments, big growth from largely U. S. Private equity funded competitors, what does it mean for your strategy, especially in terms of competition for new product?
I think one of the things that we've always really challenged ourselves on is making sure that Our product and service offering remains at the front of the pack. It's very clear a number of our competitors, just by simply by the fact that we started this sort of sector 30 years ago, Our product is generally a little bit older. And so making sure, as Nick has referenced, we're investing in that. We're providing the right amenity for students and we're providing spaces that they want to live, study and sort of entertain themselves in. I think we can continue to do that.
And then by refining our service offering and making sure that we really are meeting the needs of What are quite clearly defined student groups? We probably could be criticized for perhaps our service offering at the moment being a little bit Yeah, homogenized, if you're a 1st year domestic student or an international postgraduate, you broadly get the same product and service. And I think we've got a real opportunity to tailor that and meet the needs of those individual students. And by doing that, I think we will stay ahead of the competition. I think another key differentiator for us remains our relationships with universities, our nominations base.
That is not an area that currently our competitors are really focused on. Clearly, they can build those relationships. But again, we're well ahead and we will continue to really invest in those relationships and develop genuine partnerships cross nominations and hopefully broader deals. So I'm very clear that it's a very active space. We need to stay ahead and we'll continue to invest to do so.
The next question is from Max Nimmo at Kempen. The reports yesterday that the government is still undecided on whether students will need to be double to attend university or use university accommodation. Is this something you've looked at? We have any of your own rules on vaccination rates for students
in your
As we have continually through the pandemic, we have adapted to whatever government policy Is at the time, and government policy has changed materially. We will not Have a specific policy ourselves around vaccination, but to the extent that government policy does require it, And clearly that's something we will follow and do what we can to support. Our view is and we've done our own research amongst students is that students have a high propensity to take up the vaccine and to do the right thing. So it's not something that we're going to mandate. We will clearly follow government guidance as it emerges.
We've then got 2 questions from Paul May at Barclays around earnings guidance. Has your like for like EPS guidance effectively increased as you appear to have more assets in the first half?
No, I think we were always planning to sell assets. And I think the impact of the LSAT Asset disposals is marginal given the low yielding element to those and the fact that we can offset interest cost savings. So it may be a margin uplift, but not significant.
And then linked to that, Paul, second question is following on from this, does this mean your 55 59p EPS bridge faces some upside risk.
Yes. I think that The longer term earnings guidance really is a product of kind of how quickly we allocate and deploy capital into new development schemes and the matching disposals to fund that. So I think what we would like to do as we continue to secure new developments, We obviously will look to grow that although the time horizon will push out accordingly.
Next question is from Philip Small at Aegon Asset Management. Are you seeing any impact on development costs from building material price increases? How does sustainable building solutions impact development costs?
Yes. So, we're certainly seeing inflation in the markets at the moment. We're forecasting that to be 4% This year, and we expect the market to normalize as the supply chain disruption eases as the restrictions lift From the pandemic. With regards to ESG costs, we're working through what it means for us in terms of delivering our buildings to our net zero carbon ambitions. We're making really good progress with that, but we'll be making further announcements at our Capital Markets In October, we'll be able to provide some detailed analysis behind the impact on our pipeline.
The next question on the webcast is from Thomas Buisson at Clearance Capital. What are the biggest travel restrictions impacting your Students, Chinese students still prohibited from flying directly to the UK?
So I think you absolutely hit it In terms of the sort of the biggest impact, it's Chinese students direct flights from China aren't possible at the moment. Direct flights from Hong Kong have been reinstated. However, students are pretty adaptable and I would fully anticipate them to, circumvent that and fly through another destination to get to the UK. The bigger issue actually is the availability of flights, not whether there are restrictions. Flight schedules at the moment haven't necessarily filled up to the flights are available.
They're expensive, and also subject to cancellation. Now everything we're hearing from our university partners is that Flights will come back in. We're waterproofing calls with our booked students to understand where they are in their sort of process of booking flights, but it really is the availability of flights. But we have a degree of confidence that those flights will come back into schedules by the time we get to sort of September or October. And again, a number of university partners are beginning to think about scheduling their own flights as they did last year.
The next question comes from Matthew Superior at Peel Hunt. You mentioned the potential to upgrade rooms and amenity space. Are the returns there as attractive as developing new stock? And how many rooms or buildings fall into this category?
I mean, the pure development returns are probably a little bit more attractive. But that's not to say that the asset management opportunity that Nick referenced isn't, well, a valuable investment. I think it's investment that will support student demand. It will provide students with the spaces that they want and the amenity that they want. In terms of the actual sort of proportion of the estate, a fairly significant proportion of the Liberty portfolio that we acquired back in November of 2019 is sort of 1st generation stock.
So probably around 30% or more of that That stock would be will provide an opportunity for asset management, put it like that. We won't necessarily do all of the work. It will very much on the market. And we're looking at that hard. At the moment, one of the first markets we're looking at is Manchester.
And through our significant increased presence in Manchester, which was by dint of the Liberty acquisition, a real opportunity to position our stay there with products focused on affordable price points, sort of more traditional 1st year in international and then also postgraduate. And we'll talk a little bit more about that and probably use Manchester as a bit of an example at our Capital Markets Day in October. But a fairly significant proportion of the Liberty Estate certainly presents us with some asset management opportunities.
The next question is from Andres Toom of Reed Street Advisors. What's your outlook for external growth via Does private equity have a better cost of capital than Unite given recent deals? And did you consider the GCP acquisition?
Yeah. On acquisitions, we do look at the acquisitions that are in the marketplace. But given our opportunity to deploy capital into Higher returning development activities, we tend to focus that activity into that space. Following the Liberty acquisition, I think we've demonstrated that we can acquire large portfolios and integrate them into our portfolio well, but scanning the marketplace, we're very selective on those assets we want to bring into our portfolio. And yes, I think that we do have a higher overall cost of capital because our leverage levels compared to private equity will make us uncompetitive on a straight bid for bid.
So we need to find ways in which we can drive additional returns from those assets We acquire either through asset management, synergies, or some particular angle with a university relationship. So I think we will continue to be fairly selective in our acquisition activities. They will tend to be either single or small portfolio rather than large scale. We have reviewed the GCP portfolio from time to time in the past. We have felt that it's not the right addition to our portfolio.
It is high end in terms of heavy studio weighting, about 80% studios. It's only got 13% nominations agreements and that's because of its higher price points. And therefore, we haven't sort of considerably put time and effort into bidding and we didn't bid us past this process.
Next question is from George Nicolaou at Grabis Capital. On a regional basis, which university towns do you see growing or declining the most next 2 to 3 years, are you looking to enter new regional markets over the medium term?
I mean, in terms of markets, We are probably present and operational in pretty much all the markets that we would want to be in. Liberty gave us access to A couple of new markets and I mentioned actually a significant growth in Manchester, which was a market we were probably subscale in before. Outside of that, not really any new markets that we would look to explore in. The growth and the success of university The towns and cities is really driven by the performance of the universities. We tend to be located in towns and cities that have got more than one University, not exclusively, but we find that the best performance comes from towns and cities that have a red brick institution and perhaps a more modern teaching intensive University, such as here in Bristol, where we all are today, the towns and cities that are going to struggle Are the universities at the lower end of the ranking?
We've been very deliberate through our development pipeline, through our disposals to ensure that we're Not exposed to those universities, close to 90% of our income derived from High and mid ranked institutions, that's something we need to become even more diligent on. I referenced the auger review. I can definitely see some of those lower ranked institutions moving closer to further education Colleges, perhaps the rebirth of the sort of the polytechnic. That will change the nature and mix of students in those locations. So ensuring we're Not exposed to those is important.
That's something to say we've been very active in doing over the last few years.
We've got another question from Chris Fremantle at Morgan Stanley. You talked about the opportunity for the HMO market. Does this mean transitioning to a lower price point as you seek to take market share, particularly given pricing tends to be lower there, how big is the opportunity here in your view?
In terms of the size of the market, it's a market with 900,000 students in it. So nigh on twice the size of the number of 1st year students starting every year. So it's a pretty Significant market. Clearly, not all of those students are going to want to live in PBSA no matter how We changed the product and changed the service, but a significant proportion do in terms of price point. In the majority the markets we're operating in now, we are now cheaper on a comparable basis.
We generally offer shorter tenancies for domestic students than the HMO market would traditionally offer, as well as then order the product and service. The big question for us if we were to effectively switch all of our sales to that domestic market versus ultimately the international market would be tenancy late. International students take 51 week tenancies. It's a marginally higher price point generally per week, but not material. So we would need to really think hard about our opportunity to drive utilization over the summer period to ensure that we didn't lose out on those sort of 7 or 8 weeks at the back end of the tenancy between an So we're doing that work now.
We're looking at it. Obviously, pre the pandemic, utilization was something we were focused on. We were beginning to have some success. Clearly, it's something that we've not looked at for the last two summers for very obvious reasons, but we will get back to that again.
We've got one further question on the webcast. It's from Thomas Buisson again at Clearance Capital. Are there set dates for the free 3 week Quarantine you were offering to international students before term start, will this be available until the year end?
So at the moment, it is 3 weeks ahead of whenever your tenancy was due to start, depending on the university and the start date for the university, Our tenancy start dates are linked to that. So there isn't sort of a one date, but 3 weeks ahead. On the assumption that, students will come for the start of the academic year, the vast majority of universities are still saying that international Students should come for the start of the academic year. A few are starting to say, well, if you are having difficulties getting to the UK, you complete your studies online. But that's not material at the moment.
We'll continue to assess that. And if we need to make adjustments to our offer, we will do. At the moment, we're expecting international students to arrive and start their tenancy as they've signed up.
We have no further questions on the webcast, so I'll hand back to the operator.
Thank you. We'll now take our first question from the phone line is coming from Pranavha Boyadapu from Barclays. Please go ahead. Your line is open. Hi, thank you for your presentation.
I had a couple of questions on the USAAF entity. I noticed that the LTV has been reducing over the last couple of recording cycles, is that just the drawing from the bank facility in June that is being repaid? And how does that relate to the USF-two LTV reduction? Thank you.
The LTV reduction in USAAF is a result of the disposals within USAAF. We Adopt a similar strategy of recycling capital from assets, which we think will underperform the overall average of the fund. And they will look to redeploy that into newer assets either bought from Unite or from 3rd parties. So, USAAF is Actively looking at 3rd party acquisitions at the moment, and we'd expect to add new assets over the next 6 to 12 months on a sort of, as I say, single asset or small portfolio basis as we go forward.
Thank you. And how about UCaaS 2? Would that be similar?
So, LSAT, I think you're referring to LSAT. So, I think the LTV there would be similar that we would do less active portfolio recycling just because of its heavy concentration in London. So we may do a bit more asset management activity in LSAF. But it too, given the additional capital commitment that's come from GIC, we'll also be looking at potential acquisitions in London specifically.
And we have no further telephone questions at this time. So I'd like to hand back to our speakers for any additional or closing remarks.
Great. Nothing more from us. Thank you everybody for joining today. And I guess Hope to see as many as you can in person at our Capital Markets Day on the 19th October, I believe in Manchester.