Unite (UTG) already provides bespoke accommodation for 43,000 students in 130 purpose-built properties across 23 of the UK's strongest university towns and cities. Around 45 per cent of the portfolio is located in London, with the balance in places such as Bristol, Sheffield, Leeds, Glasgow and Aberdeen. And unlike the basic facilities that students of yesteryear had to put up with, the latest purpose-built student blocks are more like mini hotels, with high-speed WiFi, cooking and laundry facilities and 24-hour security.
- EPS expected to double 2014-18
- Development exposure limited to 20 per cent of balance sheet
- Shares at discount to forecast 2015 NAV
- Occupancy rates high at 99 per cent
- Modest dividend yield of less than 2 per cent
- Political risks surround student numbers
These little luxuries are important because overseas students sent to the UK by their parents can be reassured that they don't have to wander through a strange town just to service their basic needs, remaining, if so desired, within a secure environment. The overseas student appeal is particularly important at the moment because next year the government is expected to entirely lift the cap on the number of people allowed to come from abroad to study in the UK. True, there is a risk that these plans could change or be delayed by the outcome of next year's general election. Even so, the UK's student intake has been steadily increasing, and is likely to exceed 500,000 next year, even without restrictions being removed.
To meet this demand for safe, modern accommodation, Unite has a delivery pipeline currently stretching out to 2017. This makes sense because effectively all the rooms currently on offer for the 2014-15 academic year are already occupied. This level of demand is also good for rents, which Unite reckons will rise by at least 3 per cent in the current year.
In the development pipeline, planning consent has been secured for an 836-bed unit in Portsmouth for delivery in 2016, while further sites have been secured in Aberdeen and Liverpool for 1,250 beds to be completed in 2017. In London, construction work is expected to be completed next year on a 759-bed unit in Stratford, while work will commence shortly on an 862-bed unit in Islington and a 696-bed unit in Wembley. Both of these are expected to be completed by 2016. Secure planning consent for the 2016 construction programme is expected to be granted in the next few months, and Unite is confident of achieving an average 9.5 per cent yield on the cost of projects in the regions and 9.0 per cent in London.
| UNITE (UTG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 434p | MARKET VALUE: | £874m | |
| TOUCH: | 434-435p | 12M HIGH: | 453p | LOW: 385p |
| FORWARD DIVIDEND YIELD: | 1.9% | DEVELOPMENT PROPERTIES: | £118m | |
| DISCOUNT TO FORWARD NAV: | 9% | |||
| INVESTMENT PROP: | £1.1bn* | NET DEBT: | 83%* | |
| Year to 31 Dec | Net asset value (p)** | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 318 | 4 | 2.6 | 1.8 |
| 2012 | 350 | 16 | 9.9 | 4.0 |
| 2013 | 382 | 23 | 13.6 | 4.8 |
| 2014** | 423 | 34 | 17.2 | 6.5 |
| 2015** | 477 | 44 | 21.5 | 8.1 |
| % change | +13 | +29 | +25 | +25 |
Normal market size: 3,000 Matched bargain trading Beta: 0.71 *Includes share in joint ventures of £332m **Numis Securities forecasts, adjusted NAV, PTP and EPS figures | ||||
Finances are already in place for next year's development programme, and a new debt facility to cover 2016 and 2017 is expected to be in place early next year. These will also be acquired at a more favourable rate. Average cost of debt in 2013 fell from 5.5 per cent in the previous year to 4.7 per cent, with a weighted average loan maturity stretching out from 4.1 years to 7.1 years. And with capital values on the rise, the adjusted loan-to-book value - down to 44 per cent at the end of June - remains on target to narrow to 40 per cent over time. Sensibly, though, Unite is restricting its development exposure to 20 per cent of the balance sheet. Current exposure is around 16 per cent, although this is expected to rise to 20 per cent by the middle of next year.
The dividend yield is rather modest, forecast to be less than 2 per cent in 2015. However, it's twice covered by after-tax earnings, and Unite expects to double earnings per share in the four years to 2018, so there could be plenty of scope for an improved payout.
