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Unite ahead of Empiric on bookings thanks to UK students

However, both groups have reported an increase in interest since the government unveiled its lockdown exit roadmap
Unite ahead of Empiric on bookings thanks to UK students
  • Unite bookings for 2021/2022 academic year well ahead of Empiric Student Property
  • Demand from international students has been more subdued

A rise in applications to join UK universities in September offers hope for student landlords. For Unite (UTG), that has been reflected in bookings for 2021/22, which have risen to 66 per cent from 57 per cent in January. Management is expecting a return to an occupancy rate of 95-98 per cent and rental growth of between 2 and 3 per cent for the academic year. 

However, any confidence imbued by the UK government’s lockdown roadmap has yet to be markedly reflected in booking numbers for Empiric Student Property (ESP). Reservations are at just 20 per cent of the available beds, although like its larger peer, Empiric expects a late rush in uptake towards the second half of this year and has already started to see an uptick in interest. 

Empiric is more reliant on international students, which account for 60 per cent of occupants this year and traditionally around two-thirds. In contrast, Unite typically lets around 60 per cent of rooms to UK students, which it expects to rise to around 70 per cent for the upcoming academic year.

The government has yet to confirm rules around international travel, which has probably weighed on confidence for students booking rooms.  “There’s been general uncertainty in the market [around] how much face-to-face learning there’ll be,” added Empiric chief executive Duncan Garrood. That has likely been a deterrent for overseas students in booking accommodation, he said, but greater clarity from universities on their plans for blended learning should help. 

Earnings this year will be weighed down by refunds that have been granted to students that have not taken up their rooms at the start of 2021 and lower booked occupancy levels. The latter stood at 65 per cent for Empiric and 88 per cent for Unite. Consensus forecasts are for a marginal improvement in earnings for both groups this year, at 28.4p for Unite and 2.4p for its smaller peer, rising to 43.4p and 4.8p respectively, in 2022.  

That recovery will depend on whether the vaccine rollout results in a widespread return to in-person teaching in universities and lifting of travel restrictions. Until then, Empiric has secured covenant waivers across all its debt. Meanwhile Unite has to collect less than 10 per cent of rents due for the balance of 2020/21 to maintain covenant headroom at the March and June quarter-end tests. That is another reason why the latter should inspire more confidence in investors. Buy Unite and hold Empiric.

UNITE (UTG)    
ORD PRICE:1,020pMARKET VALUE:£ 4.06bn
TOUCH:1,017-1,020p12-MONTH HIGH:1,129pLOW: 577p
DIVIDEND YIELD:1.3%DEVELOPMENT PROP:£187m
PREMIUM TO NAV:26%  
INVESTMENT PROP:£4.46bn*NET DEBT:45%
Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201665320110118.0
201771722995.322.7
201878724690.829.0
2019845-101-31.510.25
2020809--12.75
% change-4--+24
Ex-div: 15 Apr   
Payment: 21 May   
*Includes investments in joint ventures

Last IC view: Buy, 952p, 28 Jan 2021 

EMPIRIC STUDENT PROPERTY (ESP)   
ORD PRICE:77pMARKET VALUE:£ 464m
TOUCH:76.9-77.4p12-MONTH HIGH:80pLOW: 50p
DIVIDEND YIELD:1.6%DEVELOPMENT PROP:£23.8m
DISCOUNT TO NAV:27%  
INVESTMENT PROP:£981mNET DEBT:55%
Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016*10631.06.53.05
201710420.83.85.55
201810640.36.75.00
201911054.89.15.00
2020105-24.0-4.01.25
% change-5---75
Ex-div: na   
Payment: na   
*In 2016 the group's year-end changed from Jun to Dec

Last IC view: Hold, 65p, 13 Aug 2020