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Unite have landed a sizeable Uni deal - a joint venture with Newcastle University to develop 2000 beds.
Unite will act as developers and ongoing asset manager with a 51% ownership, putting in 51.2% of the £250m capital. The 51% share is all important in ceding overall control of the jv to Unite; this signifies the trust that Newcastle Uni is placing in Unite. Unite's strong reputation places them in pole position to secure such deals with Unis - deals which will be long-term and upon which the Uni's students' well-being will be dependent.
This is a nice Uni partnership deal that will hopefully be a model for others; the effect of which will be to accelerate development in a hugely under-provided market.
httpS://www.investegate.co.uk/announcement/rns/unite-group--utg/university-joint-venture-/8043328
After market close - UTG have just released their 1H23 Results and are looking to raise £300m via a placing and separate retail offer via Primary Bid. The funds will be used:
'The Placing will enable Unite to continue to invest in its market-leading platform and enhance future earnings growth. The Company intends to use the net proceeds of the Capital Raise (the "Net Proceeds") to commit to two new PBSA development schemes and accelerate asset management initiatives to enhance future returns.'
'Background to the Capital Raise' - Selective edits - link below.
'The Board believes the current market environment offers a compelling multi-year opportunity to accelerate the Company's growth.'
'structural factors continue to drive a demand/supply imbalance for the Company's product. Demographic growth will see the population of UK 18-year-olds increase by 140,000 (19%) by 2030. Application rates to university have also grown steadily over recent years, reflecting the value young adults place on a higher level of education and the life experience and opportunities it offers. Demand from international students also continues to grow, as reflected in the 2% increase in undergraduate applications for the 2023/24 academic year.'
'The Company also sees opportunities to secure new development opportunities at attractive returns and is in advanced discussions for a number of schemes in London and prime regional markets. Moreover, the Company has seen a growing willingness from universities to explore more strategic options to grow and improve their accommodation offer, given the vital role it plays in helping them to attract and grow student numbers. This includes a number of advanced discussions for strategic partnerships with universities for the development of new accommodation on- and off-campus, as well as the stock transfer and refurbishment of existing university accommodation.'
https://www.investegate.co.uk/announcement/rns/unite-group--utg/proposed-placing-of-new-ordinary-shares/7651606
I've been anticipating the Unis to be looking for partnerships for a long time - looks like it might now be happening.
Down 4% in 2 days - can't see any negative news etc... This stock is surprisingly volatile.
Highly positive Q1 trading update today:
Richard Smith, Unite Students Chief Executive Officer, commented:
" We continue to make strong progress with bookings for the 2023/24 academic year with 90% of rooms already sold, demonstrating the strength of student demand and the attractiveness of our fixed-priced all-inclusive offer. Reservations are significantly ahead of recent sales cycles, reflecting strong demand from both new and existing students as well as new nomination agreements with universities. This progress reinforces our confidence in delivering rental growth of 6-7% for the 2023/24 academic year. Rental growth also continues to support our property valuations as the market adjusts to a higher funding cost environment.
The supply of purpose-built student accommodation cannot keep pace with growing student demand at the same time as HMO landlords are leaving the sector. We are therefore tracking a number of new development opportunities at attractive returns, which we are uniquely positioned to deliver through our university relationships and development capability. "
Picking-out the key points:
>> Demand is out-stripping supply: the implication is full-utilisation can be anticipated looking at the forward bookings.
>> Pricing power: UTG is able to increase rents to mitigate inflation and interest rate rises. Despite the rises UTG is very competitively priced due to wider market rental price acceleration. Pricing power is extremely important for investors in an inflationary economic environment.
>> Development Pipeline: IMHO the pressure is mounting on Unis to resolve the growing accommodation crisis. This will provide the long-anticipated partnership opportunities for UTG. Something to keep an eye on.
Hopefully, with the development cost-pressures ameliorating we will see a further acceleration in the development pipeline - to meet the evident demand. Whilst pressures on yield cause property valuations to pause - new development and partnership deals are the likely pathway to growth.
Estate Agents Knight Frank have conducted a survey with UCSA that finds that Purpose Built Student Accommodation is better value than renting a room in HMO (house in multiple occupation). The gap was most extreme in London where it was found that students pay 33% less.
Students in HMOs are also going to be directly exposed to further gas and electricity price rises which must be a further concern.
htTPs://www.lettingagenttoday.co.uk/breaking-news/2022/8/agency-backing-purpose-built-student-accommodation-over-buy-to-let
Looks like Mr Market has looked past our CEO's doom-laden remarks and liked the performance and outlook. Strong bounce-back in the sp following the awful 91p -7.7% fall on the Results.
I judge UTG's management team to be highly competent - they hardly ever put a foot wrong IMHO - but the results rns' wording was poor. Their Financial PR, Powerscourt, need to sharpen up their act - they should have known how that statement would have been interpreted by the Mr Market.
Great set of results for 1H22 from UTG - showing a very strong bounce back from Covid and a very positive outlook. Just what you want to see in these uncertain times. However.....
So, why on earth did CEO Richard Smith have to put a negative slant upfront on the RNS!! With Mr Market in a particularly skittish mood he didn't need to give him an invitation to focus on the negatives rather than the positives. He said:
"We have seen continued momentum in the first half, as earnings and dividends have grown strongly and reservations for the 2022/23 academic year are now ahead of pre-pandemic levels.
"Our business model offers inflationary protection but, like others, we are not immune from the impact of rising costs and interest rates. We are also very conscious of the current cost of living pressures facing students and parents. Our customer offer provides students with significant savings on their bills, as part of a simple, fixed price all-inclusive rental payment.
"Despite increased economic uncertainty, we remain confident in our ability to deliver significant growth over the medium to long term. Demand for Higher Education has proven to be resilient through economic cycles and we have significant opportunities for growth through our alignment to the strongest universities and by leveraging our best-in-class platform ."
The irony is that UTG have hedged their utility costs out to 2024! They have also managed their salary costs, have LTV at a very conservative 30% and debt profile that will minimise the impact of rising interest rates.
Looking beyond that the figs are great:
'Earnings and dividend ahead of their pre-pandemic peak'
>> Adjusted earnings up 32% to £96.0 million (H1 2021: £72.6 million)
>> Adjusted EPS up 32% to 24.0p (H1 2021: 18.2p)
>> IFRS profit before tax of £334.1 million (H1 2021: £ 130.4 million), driven by adjusted earnings and a valuation gain of £214.9 million in the period (H1 2021: £54.3 million)
>> EPRA NTA per share of 940p, up 7% (31 December 2021: 882p)
>> IFRS NAV per share up 8% to 948p (31 December 2020: 880p)
>> Total accounting return of 8.3% for H1 (H1 2021: 3.9%)
>> Interim dividend of 11.0p up 70% (H1 2021: 6.5p), targeting 80% pay-out of adjusted EPS for full year.
Nice to see an impressive profit recovery in interims, but sp is already too high to motivate for additional investment.
Lots of positives in todays' trading update from Unite but first we have the Quarterly Fund Valuation Report as at 30 June 22 for the two funds that Unite manages. These are in addition to Unite’s wholly owned student accommodation portfolio.
The two funds are:
USAF – Unite own 28.2% (up from 22% due to recent investment) - like-for-like asset value increased 3.5% during the quarter; and
LSAV – Unite own 50% - like-for-like asset value increased 4.0% during the quarter.
Just to emphasise those above jumps in valuation are quarterly not annual rises. This is reflecting the strong demand for this asset class by Institutional Investors - the RNS mentions the acquisition of Student Roost by GIC and Greystar announced in May. It also points out that we can expect to see a similar uplift to Unite's own portfolio of property. Student Accommodation is uncorrelated with the wider economy and is thus highly attractive in the face of a potential recession. It was the best performing property asset class during the 2008/9 Global Economic Crisis (GEC).
Outlook is highly positive based on the forward bookings for 2022/23 academic year an UTG are confident in achieving 97% occupancy. Much of the portfolio's rental rates are inflation linked and there is strong demand for the other direct-let beds; so the 3 - 3.5% rental rate growth guidance might be beaten.
UTG are highly exposed to utility costs and wage inflation - but have hedged their utility costs out to a 'substantial proportion' of 2024. Hopefully the current price pressures will wain before their protection winds-out. They have shown great foresight here and similarly they have locked-in their finance at the pre-fiscal tightening rates.
Clearly, Covid is still a risk, not least in China, but accepting that, UTG is emerging from the Covid-19 disruption in a strong position.
Why is student property down around 3% today ?
Where is the news ?
Looking at the share price recently you'd think Putin had invaded Unite not Ukraine.
Yes, a very strong recovery is in-progress and the outlook for academic year (AY) 2022/23 is highly positive. A key positive is that International Students appear to be returning in droves, particularly Chinese students. The development pipeline is at an all-time high of 6000 beds (c.£1bn in value) that will increase the weighting 44% towards London (35%).
The dividends are recovering nicely with more to come as the Covid effect wears-off.
With the LTV ratio at 29% UTG have huge headroom should any peachy PBSA portfolio become available for acquisition.
On Covid IMHO the virus is following a clear evolutionary pathway where each new dominant variant is more infectious but less severe – making the likelihood of the emergence of a more serious variant highly unlikely. The 20+ different viruses that we refer to as 'the common cold' was each probably a deadly human pandemic in its time. So, I think that this threat is being over-exaggerated.
Some interesting strategic opportunities/initiatives were revealed today:
>> HMOs: The private landlord with Homes of Multiple Occupation (HMOs) rented to students is a specific target for UTG. UTG is already competitively priced with HMOs and landlords are now under significant new pressures to comply with energy efficiency standards. The cost of retrofitting insulation to old property to meet the minimum standards could be prohibitive. UTG have their electricity costs fully hedged in 2022 and 85% hedged for 2023, and gas (which accounts for less than 0.5% of rent) is hedged through 2023. HMO renters are unlikely to be as well protected from escalating energy prices.
>> Premium segments: UTG are also trialling greater segmentation of their portfolio to target some more premium-priced segments. One of these is the recently graduated professional requiring City Centre accommodation a.k.a build-to-rent. This closely associated market vertical could become an important new market for Unite and definitely something to watch.
So, a very welcome set of results and plenty of interesting growth opportunities in-sight. I'd recommend you listen to the replay of the presentation as there is far too many points of interest for me to only scratch the surface of in this summary:
https://webcasting.brrmedia.co.uk/broadcast/preview/61a62ec07aad4f60e33f6620
Regards, Maddox
Very encouraging update on trading and valuations from Unite this morning. Good news on all fronts - trading, development pipeline and asset values.
Current trading appears to be returning to normal levels despite the continuing Covid situation - which is fantastic news. Looking forward Unite are seeing strong demand for 2022/23 from both domestic and international students. They are not taking any chances on international students and are intending to retain their domestic students. UTG are clearly keen to hit their occupancy targets.
Competition for prime city centre locations is more favourable for Unite in the wake of Covid. So, the pipeline will hopefully be expanded further with some juicy development opportunities.
There is also strong investor demand for student accommodation as an asset class. This is leading to higher valuations and thus acceptance of lower yields - the 'yield compression' mentioned in the rns.
Covid has highlighted the robust demand from young people for the university experience. On-line learning has its obvious advantages but Covid has also revealed its limitations. The 'right of passage' that a degree course at a university represents has been fully stress-tested and has come through strongly.
The future outlook for Unite is looking very positive.
I think it's reasonable to expect SP to move back above 1300p in a few months time (if no more lockdowns).
UTG H1 Results - extremely solid. Covid has impacted income and thus also NAV so a double hit but UTG showing great resilience and this effect is starting to unwind. They also announced a new 1000 bed development in Stratford, London.
Whilst, market recovery is underway with a return to face-to-face teaching we're not out of the woods yet. We've still to see the return of a fresh intake of international students and UK clearing out-turn to determine the final level of demand. A few Universities are saying they will continue with remote teaching - but I can't see that lasting - it's not what students want and if that is what's on offer they will go elsewhere.
Just a couple of points I'll highlight.
UTG's revenue is 80% covered by nomination agreements or UK students. Of the remaining 20% exposure to international students - a third of these are already in the UK.
UTG have identified that student's top concern is climate change and are responding positively: UTG's development in Paddington is aiming for zero carbon rating. This green initiative will of course also enhance their ESG credentials.
Unite is having to absorb additional costs to remove HPL cladding on some of their properties. They are looking to recover costs from the developers but this will probably take some time.
University deals are under discussion - that should add additional NAV growth. The LSAV fund has capacity and are actively seeking more PBSA property in London. These deals take time to complete - so not expecting a rush of deals here.
Funding is looking rock solid and Unite has the prospect of further reducing the cost of its debt. LTV is a conservative 30% giving capacity to fund further deals and/or developments.
So we're on course for a full recovery and UTG are extremely well positioned for further growth - accepting that Covid may have further twists in its tail.
Regards Maddox
Is the student covid crisis distorting the vacancy rate? Or markets overreacting?
Methinks the latter and looking to top-up.
Government now confirmed May 17th for English Uni's to return according to BBC.
The article also confirms my anecdotal observations that many students have returned anyway-
'Even without in-person teaching, many students seem to have gone back to their university accommodation - with a survey from the Higher Education Policy Institute suggesting about two thirds of students had been in their term-time addresses.'
Positive update this morning, and optimistic outlook:
'2021/22 reservations
We have seen a strong sales performance since our preliminary results on 16 March, reflecting increased confidence from both UK and international students as lockdown restrictions begin to ease. Across the Group's total property portfolio, 73% of rooms are now reserved for the 2021/22 academic year with the deficit in sales to prior year continuing to narrow over recent weeks (2020/21: 80%).'
This is then reflected in the portfolio valuations. As at 31 Mar 2021 the two funds are:
USAF – Unite own 22% - like-for-like asset value increased 0.5% during the quarter; and
LSAV – Unite own 50% - like-for-like asset value increased 1.3% during the quarter.
Overall UTG are forecasting a "2-3% rental growth in 2021/22."
So looks like we're going in the right direction and back to normality.
From the FT-
'Universities must remain closed to most students until at least mid-May, after ministers rejected calls from the sector to ease lockdown restrictions on campuses from next week in line with other parts of society.'
I thought that they would be going back. So saying, nearly every student I know has now returned. I wonder if UTG will extend the discount again?
Still great value
A highly positive outlook and confident tone to the Full Year 2020 Results today - and justifiably, given their highly competent handling of the Covid challenge. Thankfully, they reflect the key points I recently made in my StockSlam pitch (www.piworld.co.uk/2021/02/19/stockopedia-piworld-virtual-stockslam-february-2021-with-damian-cannon/):
>> Students are as keen as ever to have the experience of University life;
>> Strong International demand is set to return - pleasingly, with India featuring; and
>> There is an increased recognition by Universities that they could benefit from partnerships.
Whilst, it's going to take 2021 to recover lost ground, the future looks far better and Unite (LON:UTG) are even better positioned for the post-Covid market. This last bullet point above, very much plays to Unite's strengths. Unite emerges from Covid with a substantially enhanced reputation - demonstrating commercial acumen, organisational excellence and social responsibility.
Let's look at London - a prime destination for students, as an example. The new London Development Plan will require future PBSA to be built with the sponsorship of a London University and have 30% affordable accommodation. Unite has an evident record of successful University partnerships (covering 60% of their accommodation) and is 'affordably' positioned on price to compete with HMOs (often very shabby private student rental flats and houses). Unite is thus ideally positioned for the London market ahead of other more premium-priced operators.
As centrally located office and retail development suffers - premium development land will be more attractively priced, and building costs suppressed. There is thus a highly attractive opportunity to build top-quality, affordable and profitable additions to Unite's portfolio in London.
There is a wealth of detail in the presentation pack - far more than I can do justice to - so take a look for yourselves: https://www.unite-group.co.uk/investors/reports
Regards, Maddox
From BBC-
'Universities can offer more face-to-face teaching for students after the Easter break, the Welsh Government has said.
Education Minister Kirsty Williams told a press conference that students could resume a mix of campus and learning from home from 12 April.'
They have extended the discount period for a further 3 weeks but the total predicted cost of this discount (including the three extra weeks) has now reduced from the previously expected £15 to £10M.
This is due to more students returning. It fits with what I have been seeing from students that I know how have nearly all now returned. I can see the sp starting to pick up, as this shows the risk of further extended vacancies is decreasing.
Agreed. What happened last year was the initial grades - being harsher marked drove applications to the mid to lower ranked uni's. When it was reversed to teacher assessment and grades were improved, they then moved away from the mid/ lower ranked institutions in droves and traded up. Unite focus on Russell Group cities or those locations with more than one university, so they're well placed.
'GCSEs and A-levels cancelled in England by the pandemic will be replaced by grades decided by teachers, the exams watchdog Ofqual has confirmed.'
This will ensure that there are plenty of applicants this year.
I pitched UTG as my StockSlam pick 17 Feb 2021:
hxxpS://www.piworld.co.uk/2021/02/19/stockopedia-piworld-virtual-stockslam-february-2021-with-damian-cannon/
This was the first virtual StockSlam and attracted an audience of c. 1,200. StockSlammers are restricted to just 3 minutes to pitch your share - which is a very tough ask, when you have a lot to say. Anyway, great fun and a great event very well organised by Damian Cannon and PI World.
Regards Maddox