- Much-improved occupancy rate to grow further as grade inflation and fewer Chinese students ease off
- Almost £1bn development pipeline to provide 6,000 more beds
Students are returning to the UK’s universities en masse, with applications for the 2022/23 academic year 7 per cent higher than their pre-pandemic levels, spelling good news for student landlord Unite (UTG). The purpose-built housing firm’s shares reversed their downward trajectory this year with a 7 per cent jump on results day.
Occupancy of Unite’s 70,000 beds across England, Wales, and Scotland has recovered to 94 per cent from 88 per cent in the previous academic year, when the pandemic’s disruption of face-to-face teaching left beds unoccupied and rents discounted.
While current occupancy rates are a full 11 percentage points higher than industry peers, they still lag pre-pandemic levels of 98 per cent. This was mostly down to distortions in the student housing market, caused by lower numbers of Chinese and European students, as well as grade inflation, which left more UK students able to attend their first choice university and changed the distribution of students across cities and towns.
These conditions look likely to ease up. The government has promised to bring grade boundaries back down to earth over the next two years, and record high numbers of UK school leavers entering university may help make up for the international shortfall, which typically accounts for 30 per cent of the company's customers.
Two-thirds of Unite’s rooms are already reserved for the coming year, and the housing firm predicts occupancy will reach 97 per cent in the next year, with average rent increases of 3.5 per cent.
Miranda Cockburn at Panmure Gordon said shares are trading at a 12 per cent premium to the reported net asset value, which “looks good value” given the landlord’s ambitious £967mn development pipeline. Three-quarters of this will be spent on extra beds in London, and with a 6.2 per cent yield on cost, the broker says this could add 10p to earnings per share.
This is hard to argue with. Unite has positioned itself well to take advantage of fast growth in the student population, while its agreements with universities covering half of its beds lends some stability to demand. Buy.
Last IC View: Hold, 1143p, 27 Jul 21
|ORD PRICE:||1,065p||MARKET VALUE:||£4.3bn|
|TOUCH:||1,063-1,067p||12-MONTH HIGH:||1,250p||LOW: 927p|
|DIVIDEND YIELD:||2.1%||PE RATIO:||12|
|NET ASSET VALUE:||884p||NET DEBT:||32%|
|Year to 31 Dec||Net asset value (p)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|