Ratings agency Moody's Investors Service has downgraded the outlook of UK student housing provider The Unite Group and its subsidiary Liberty Living on the expectation of 'weaker operating performance' in the light of the coronavirus crisis.
While the agency affirmed the Baa2 backed senior unsecured rating for both Unite and Liberty Living, it lowered their outlook from 'positive' to 'stable', referencing 'the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines'.
Moody's added: 'The combined credit effects of these developments are unprecedented', justifying the revision of outlook scores which had been initially assigned in July 2019.
Looking at Unite, Moody's said: 'Demand for the company's rooms will be weaker because enrolments for domestic and international students at UK universities are likely to be lower than pre-outbreak forecasts due to uncertainty around campus closures, health and safety concerns, and potential travel restrictions.'
Moody's base case assumes Unite achieves an occupancy rate for the 2020/21 academic year that is around the current 80% reservation rate, but well below the average 98% occupancy rate over the last 10 years. However, the ratings agency added that there were 'high risks of more challenging downside scenarios given the high degree of uncertainty around enrolment in the autumn term'.
Unite acquired Liberty Living in November 2019, but Moody's said that 'the material subsidiaries of both companies guaranteed all the bonds of the combined entity'.
Long term, Moody's painted a brighter picture, affirming that it views 'student housing as a resilient asset class in terms of rental growth, occupancy, and property valuations, over the cycle compared to other commercial properties', and indicating a likely recovery period of 'two to three years'.
