As at 30 June, growth in overall UK university applications for the 2019-20 academic year was stagnant at 0.2 per cent. But Unite Group’s (UTG) strategy is to align its accommodation portfolio with high and mid-ranked institutions where student demand is strongest. As such, the group achieved a 16 per cent increase in EPRA earnings (those calculated in accordance with the recommendations of the European Public Real Estate Association) to £61.2m during the first half of 2019.
A record 92 per cent of beds are already reserved for the upcoming academic year. This is underpinned by nomination agreements with universities that represent 60 per cent of Unite’s beds. A weighted average unexpired lease term of six years provides good visibility and the group expects rental growth of between 3 and 3.5 per cent over the next two years.
A secured pipeline of 6,580 beds will be delivered over the next four years, with an anticipated yield on cost of 7 per cent. With the proportion of income from so-called gold and silver-ranked universities increasing by 5 percentage points to 90 per cent, this is expected to reach 91 per cent once the pipeline is complete.
The proposed £1.4bn acquisition of Liberty Living will deliver significant scale benefits, creating a combined portfolio of 75,000 beds with a gross asset value of £7bn. Unite currently has 51,200 operational beds for the 2019-20 academic year worth £5.5bn. Hoping to complete the deal in the fourth quarter, it is expected to be earnings accretive from 2020, supporting an EPS yield of around 6 per cent by 2021.
Net debt has risen by 5 per cent to £897m since 31 December, pushing the loan-to-value (LTV) ratio up 2 percentage points to 29 per cent. This is set to increase to 38 per cent following the Liberty acquisition, although £150m-£200m of asset disposals over the next five years are targeting a reduced LTV of 35 per cent by 2021.
Peel Hunt expects an adjusted net asset value (NAV) per share of 846p for the full year, rising to 902.6p in 2020.
| UNITE GROUP (UTG) | ||||
| ORD PRICE: | 1,050p | MARKET VALUE: | £ 3.05bn | |
| TOUCH: | 1,048-1,050p | 12-MONTH HIGH: | 1,060p | LOW: 793p |
| DIVIDEND YIELD: | 2.8% | DEVELOPMENT PROP: | £282m | |
| PREMIUM TO NAV: | 28% | |||
| INVESTMENT PROP: | £2.42bn* | NET DEBT: | 41% | |
| Half-year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 758 | 143 | 54 | 9.5 |
| 2019 | 820 | 126 | 53 | 10.3 |
| % change | +8 | - | - | +8 |
| Ex-div: | 19 Sep | |||
| Payment: | 01 Nov | |||
| *Includes joint ventures | ||||
