Cladding replacement could cost student accommodation firm Unite £3.5 million
Unite, the student accommodation developer, could take a hit of up to £3.5 million if told to remove cladding on some of its buildings following the fire disaster at Grenfell Tower.
The firm said six buildings had not passed cladding tests carried out by the Building Research Establishment (BRE) on behalf of the Department for Communities and Local Government (DCLG).
Unite said a separate inspection by local fire and rescue authorities concluded the sites were safe, but a second review by DCLG could rule that the Aluminium Composite Material (ACM) cladding must be taken away.
Such a move would mean the number of beds available during the 2017/18 academic year would fall by 600 as work to remove the cladding takes place.
It has potential to hit earning by between £500,000 and £1.5 million, with cost of the work ranging from £1 million to £2 million
Chief executive Richard Smith told the Press Association the company wanted to be transparent about the potential impact, and the costs were likely to be below the top end of estimates.
He said: "As you would expect, we have been cautious with our estimates and have estimated towards the high side.
"We have estimated that we will have to replace the cladding and the cladding fixing systems.
"A couple of these buildings are relatively new, so I think we could do it much more cheaply than that.
"What's more, on four of the six buildings there is only a small proportion of ACM cladding."
The financial impact would be felt across the financial years for 2017 and 2018, but no money has been set aside in its half-year results because of the uncertainty surrounding the outcome.
The six buildings include the Sky Plaza and Concept Place in Leeds; Greetham Street in Portsmouth; Olympic Way and St Pancras Way in London; and Waverley House in Bristol.
The findings of the second phase of DCLG tests will be announced within one to two weeks.
On the potential earnings hit, Mr Smith added: "We have assumed here that during the works 600 bedrooms would not be available for sale for a full academic year because of the disruption to students.
"I don't think the works would take the full year and we wouldn't potentially have those bedrooms off sale for the entire year, so we would have an opportunity to mitigate that cost.
"We could potentially do the proportion of the works in January, which means we would have the bedrooms available for sale on short-term let for two full academic years.
"Subject to the outcome of the tests, we will do all that we need to do to ensure that our buildings are safe.
"We take fire safety incredibly seriously, and we very proud of our buildings and the fire safety systems within them, but we wanted to be very transparent as to what we would be prepared to do should the need arise."
At least 80 people died after fire tore through Grenfell Tower in north Kensington.
EPRA earnings - Unite's preferred measure of performance - rose by 12% to £40.4 million in the six months ending in June thanks to higher rental income and more rooms being added to their portfolio.
However, pre-tax profits were down 31% to £83.9 million as a result of lower revaluation surplus due to yield compression.
On the half-year performance, Mr Smith said: "Our high levels of service combined with our quality properties in attractive locations have resulted in continued demand from both first, second and third year students as well as from our university partners, with reservations currently at record levels of 91% for the 2017/18 academic year."
Unite said the firm was on track to deliver more underlying earnings growth in the coming years.