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Unite raises £300m to cut debt and boost developments

The student accommodation provider believes it can take advantage of cheaper land and construction prices
June 25, 2020

Unite (UTG) has raised £300m to pay down debt and invest in new developments and partnerships with cash-strapped universities. 

IC TIP: Hold at 893p

The student accommodation developer and landlord will repay £207 in secured debt, bringing the loan-to-value ratio down to 32 per cent, back within management’s 35 per cent targeted ceiling, and push out the nearest debt maturity date to November 2022. 

The shares were priced at 870p, a 3.1 per cent discount to yesterday’s closing price, and the new funds raised represent 9.5 per cent of the group’s outstanding share capital.  

It will also use the proceeds to contribute towards three schemes that are under offer, one of which is forward funded, costing a total £250m to complete. Management is targeting developments that it believes will produce yields on cost of 7.5 per cent in London and 8.5 per cent outside the capital, 50-75 basis points above pre-Covid-19 levels due to reduced land and construction prices. 

It also believes it will be able to secure an increasing number of nomination agreements with universities, who are facing operational and financial pressures due to the pandemic. 

However, reservations for the 2020/21 academic year are still lagging at 80 per cent, down from 88 per cent this time last year, of which half are underpinned by contracted nomination agreements. However, the group conceded that the potential for cancellations was higher than normal this year, particularly among international students. It has set a target of 90 per cent reservations for the coming year. 

Forgoing rent for the summer term, as many students left campus, is expected to cut income this year by 15 per cent and EPRA earnings per share are guided to be between 22 and 25p, which also reflects zero summer income and a 10-20 per cent reduction in rental income for the autumn term of 2020/21.