Investors back Unite's growth plans

Timing is everything. Unite Group’s (UTG) £300mn equity raise, the biggest UK real estate investment trust (Reit) share issue since April last year, happened the same day the student accommodation landlord posted its half-year results and the week after lower-than-expected inflation numbers gave Reits across the board a share price bump. The end of the commercial property downturn looks to be in sight – at least for student accommodation.

Chief financial officer Joe Lister insists that the timing was accidental, with the share placing in the works for months following chats with investors, although he doesn’t deny that last week's news was “helpful”. It will spend the money on specific development projects in Bristol and London.

Unite and its investors have reason to be confident. Its assets are over 97 per cent occupied, which signals demand for more. And although higher interest rates hit its property values and caused pre-tax profit to slump, net rental income (which strips away those valuation changes) jumped up 15 per cent thanks to a combination of a 7 per cent like-for-like increase in rent and lower operating costs brought about by Unite’s ever-increasing scale.

Accordingly, Unite has upped its dividend and will likely continue upping it as demand for student accommodation continues. Of course, as Covid-19 has shown, should international students struggle to travel to the UK for whatever reason, demand for Unite's accommodation can drop.

Despite this, the investment case looks solid. The shares trade close to net asset value, but this is a fast-growing company. Quality comes at a price. Buy.

Last IC View: Buy, 1,000p, 28 Feb 2023