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Excellent news today for all UK Universities and Purpose-Built Student Accommodation (PBSA) providers. The Govt is to change the rules to now allow foreign students studying in the UK to work for a further two years unrestricted. There are currently 450k international students in the UK. This move will undoubtedly boost numbers as the UK has been far less attractive than other top destinations, specifically Australia and US, that already allow students to stay-on to work.
This thankfully reverses the disastrous bone-headed approach introduced by Theresa May as Home Secretary to require students to leave after 4 months. May saw students as a soft target to hit her hopeless immigration targets - despite the hard evidence that very few were over-stayers.
This move applies to all trusted higher education providers and will thus exclude the dodgy language schools that were flouting the immigration rules.
https://www.bbc.co.uk/news/uk-49655719
Regards, Maddox
A few select quotes from the Guardian today.....
'Applications from Chinese students to study at UK universities have gone up 30% since last year'
'The Ucas figures also revealed an increase in the number of British 18-year-olds applying for places, up 1% on last year to 275,520 despite a 1.9% fall in the overall 18-year-old population of the UK. EU applicants have also risen 1%, to 50,650 despite the Brexit uncertainty, and Ucas reported a record number of applicants from outside the EU at 81,340, an increase of 8%.'
hTTps://www.theguardian.com/education/2019/jul/11/chinese-students-applications-to-uk-universities-up-by-30
Market fundamentals appear strong, and this also highlights the defensive nature of this sub-sector of the property market.
Regards Maddox
As I said in my post on the 3 June I thought a large deal was in prospect - I didn't however think it was going to be this big! The news that Unite is in the late stages of taking over Liberty Life for c. £1.4bn is clearly a very significant deal.
We don't know the details but a few points to reflect upon:
aa) The price paid will around LL NAV so no premium;
bb) This significantly scales up the student property management arm of Unite; and
cc) Unite's unique structure gives it substantial financial deal capacity.
On this last point Unite's structure of a property development and management company supported by two own managed property funds distinguishes it strategically from it's competitors, the funds are:
USAF £2.26bn – Unite own c.23%; and
LSAV £1.26bn – Unite own 50%.
The financial firepower that this structure provides is a key strategic advantage in what is likely to be a consolidating sector.
Regards, Maddox
Marcus Phayre-Mudge, Fund Manager,TR PROPERTY INVESTMENT TRUST PLC on Unite:
'Student accommodation remains a core holding through Unite Group which returned 19% in the period. The sector has matured since Unite's first purpose built student building 28 years ago and the estimated sector value in the UK alone is now c.£50bn. Given the well flagged 3% fall in the number of UK 18-20 year olds this year ('the Millenium dip'), the drop of just -0.1% in university acceptances is encouraging.
Overseas student numbers from non-EU applicants are up strongly (+6.5%) but it was also encouraging to see EU numbers rise by 2.8% given the Brexit uncertainty. Looking forward the rapid reversal of the demographic dip from 2021 and the steady growth in university participation rates (35% in 2015 to 38% in 2018) remain key positive tailwinds. Unite is constantly improving its portfolio (focusing on 22 key markets) through its development pipeline alongside an exit strategy from subscale locations.'
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TRY/14091571.html
On 20 May Unite's property fund USAF reported strong demand for their equity raise of £250m. Some of this is going towards purchasing 3 properties off Unite for £111m. As a result Unite's loan-to-value (LTV) drops to 25% and Unites stake in USAF will fall from 25% to 23% as UTG did not put any funds into the equity raise.
So, Unite continues to amass financial firepower that might suggest a large deal is in prospect?
However, this is optimistic speculation on my part – the Uni-deals aren’t exactly coming in thick and fast. Expectations are being set lower – whilst 10 under discussion – the forecast is one to two a year.
The Universities are probably distracted by Brexit and the Higher Education funding review - and sitting tight in the midst of this uncertainty.
Regards Maddox
As Unite bounces around its 52 week high I thought I'd highlight a some very interesting research from property agent Knight Frank:
hTTps://www.knightfrank.co.uk/research/results.aspx?query=student&typeid=research&ordertype=relevance
It appears that Financial Institutions (FIs)continue to be extremely attracted to this sector of the property market. Knight Frank have advised Aberdeen Standard Investments that have made its first investment buying Fulham Palace Studios (74 beds) for £22.6m.
They estimate that global investment into this asset class topped $15bn for the third year in a row. Why is this interesting? Well the UK has an attractive PBSA (purpose-built student accommodation) market and this interest will drive-up prices. this will be reflected in Unite's (and others) portfolio valuations (called 'yield-compression' in the trade.
Demand from overseas students is robust, Brexit or no-Brexit, with a 7.6% rise in overseas student applications for 2018/19. Frank Knight forecast this trend to continue. This demand, and that from first year students remaining in PBSA for their second and third years, will more than off-set the demographic dip in 17/18 year-olds. This will serve to underpin the steady growth in rental income that characterises this sector.
The long-view: Frank Knight forecast an additional 220,000 full-time students by 2030 a 15% rise. As PBSA beds are being built at c.20,000 - 25,000 per year it seems to be unlikely that the current significant under-supply of student beds is going to be reduced.
So, not really surprising that the 52 week high bar is being re-set.
Regards, Maddox
The full year 2018 results are as strong as expected. The highlight for me being the uplift in the dividend by 28% year-on-year to 29p. With the share price closing at 916p as I write the yield is 3.71% which is in it's range of 3 - 4%. However, the advantage of buying into a share like Unite that is growing its income year after year and increasing the dividend pay-out is that on my historic cost of purchase I'm now getting an equivalent yield of over 15%. The much used description of a share like Unite as being a 'bond proxy' couldn't be more wrong in my opinion: It ignores the key attribute that these shares tend to have of increasing their payout whereas bonds don't.
Other key highlights:
EPRA earnings - +25%
EPRA eps - +13% (less due to share issue to buy properties)
EPRA NAV - +10% (following some disposals for re-investment)
The LTV is a highly conservative 29% with the cost of debt falling to 3.8% (4.1% - 2017) and destined to fall to 3.6% as they increase the debt to build-out their current forward development pipeline of 6,579 beds.
When this current pipeline (further additions will be made to it) Unite forecast an EPRA eps of 47p - 51p so a circa 38% - 50% uplift. As 85% of these earnings will be paid-out as dividends we are looking at 39.95p - 43.35p in divs and a projected share price of 1077p - 1168p (based on the current yield). On top of this there are prospective Unite's university partnership deals - that are taking longer to come to fruition than I had hoped.
I'd recommend anyone interested in Unite to look at their H2 Results presentation:
http://www.unite-group.co.uk/investors/reports
that gives excellent background information on the market. There is still a large under capacity of student accommodation, numbers are rising and supply is falling. All this underpins an optimistic outlook despite Brexit or further economic travails.
Regards Maddox
Totally agree , very expensive at this level though but some profit taking is to be expected sooner or later so if the sp comes down to the 850 level again, i would be a buyer again !!!
Hi afrc,
With respect to Brexit some buy-side analysts had argued that Unite would suffer from a drop in EU students. However, as they comprise only 6% of the total student population a drop will not have a significant impact, and it is unlikely that they would stop coming all together even if they have to pay the same rate as other international students. In fact, applications from EU students were up 2% last academic year. Also, if Brexit drives Sterling down then UK becomes a more affordable destination.
Similarly, Unite is often competing for development land against other commercial developers - which if affected by a slow down causes land prices to drop and improves margins.
Nevertheless, have a look at the Unite chart following the Brexit referendum - Unite's share price fell dramatically as Mr Market seemed to see it, incorrectly IMO, the same as commercial property; which was seen as being very much at-risk. It was a wonderful buying opportunity and one cannot guarantee how Mr Market will perceive a hard Brexit for example?
One of Unite's attractions to Institutional investors as part of a portfolio is that it is uncorrelated with the other investments and thus adds risk-diversity. For example, most other investments will be susceptible to a market recession, whereas the education sector doesn't tend to be affected. If job opportunities are few, people will often decide to study and improve their qualifications, so demand might actually increase. Purpose-Built Student Accommodation (PBSA) was the best performing asset class during the last Global Economic Crisis - when it wasn't very mature as an asset class.
Unite isn't a share that keeps you awake at night, asset backed, strong demand, with long-term university contracts and a pipeline stretching out three to four years - it looks a pretty safe investment to me.
Regards, Maddox
What a performance though !!! Among all the uncertainty with brexit and other issues, UTG has been a great share to own, with more to come .
Unite has staged a dramatic climb in share price from the recent low of 797p on the 27th Dec to what today looks to be, if it holds, a new all-time high. Currently over c.925p as I post. So c.16% in about a month.
I get the impression that there aren't many personal investors in Unite and that it's Financial Institutions that are moving the sp; which is why the moves can be large in either direction as they look to transact at scale.
What is also interesting is that looking at the recent reported daily transaction volumes seem to be declining whilst the share price is rising? This suggests that the Unite stock is tightly held and that the price rise is not managing to entice-out sellers to satisfy demand.
Regards Maddox
Totally agree , a excellent defensive share to own , but i was expecting a much better reaction to today's news.
Unite provide additional updates on the progress of the two student property funds that they run.
Today’s RNS provides the independent Quarterly Fund Valuation Report for these funds’ performance for the year to 31st Dec 2018.
The two funds are:
USAF – Unite own 25% - like-for-like asset value growth of 5.0% for the year; and
LSAV – Unite own 50% - like-for-like asset value growth of 8.4% for the year.
So, an excellent performance for the year, and obviously a very encouraging read-across to Unite's full year results to be reported on 27 February.
The current year trading has also "started strongly" with 67% rooms sold for the 2019/20 academic year that starts Autumn 2019.
With Brexit-deal, or no-Brexit deal Unite's investment case is looking compelling. I find Unite a very reassuring place to have one's money against a backdrop of economic and political uncertainty.
Regards, Maddox
At very long last Sajid Javid, The Home Secretary has published the White Paper proposals for the post-Brexit Immigration System. Obviously the more controversial proposals have taken the headlines, such as the £30k salary threshold debate, however there are some welcome proposals for UK Universities catering to foreign students:
"The White Paper proposals will also ensure there is no limit on the number of genuine international students, who can come to the UK to study. Proposals extend the time they can stay post-study to find employment to six months for those who have completed a bachelor’s or master’s degree and 12 months for those who have completed a PhD."
hTTps://www.gov.uk/government/news/home-secretary-announces-new-skills-based-immigration-system
The UK has been taking a very hard line on foreign students by not allowing them, as other counties do, to stay on for a period to gain work experience after graduating. Essentially, they are a soft target towards reducing UK immigration numbers.
However, a The Home Office paper published last year on “exit checks” data – a proper count of all people who are actually known to have left the UK – found 176,317 – 97.4% – of 181, 024 international students from outside the EEA left on time. This itself is probably an underestimate as others in the remaining 2.6% might have also left but via routes not subject to exit checks, such as via Northern Ireland.
Foreign Students are estimated to contribute £25bn to the UK economy and play an important role in supporting the UK University Sector through the high fees they pay. Other countries' more welcoming attitude towards foreign students means that they are growing their numbers far more strongly than the UK. Hopefully, this White Paper will make the UK more attractive once more.
Regards Maddox
Keep coming down and at the 800 level this share becomes very attractive. The Italy situation is making investors very nervous and many very profitable and healthy co's are now becoming very attractive. More downwards pressure to come though so the trick will be when to buy.
Unite has been bumping up against the 900p mark over the last month - but have smashed through that and up 13p as I post to 912.5p. I'm patiently waiting to see to see another University Partnership deal announced - they have been clearing the decks for action for several months. Perhaps Mr Market has picked up on something?
I am amazed the sp did not go even higher on the back of what were very good results today. The sp even went down this am . This is way undervalued for me !
The sp keeps hitting new highs , what a solid performance . Although UTG is the market leader in this industry and the co is doing very well financially, is it worth buying at this very high level ? I would be much happier coming back in at the 800 level which would be a 8% profit taking from the current level ,but i don't see it coming down so much. Tricky one really !!!!!!!!!!
Unite returns to the London market for the first time since 2013 with a University Partnership Deal for a 1000 bed development. The advantage of a partnership agreement is that the financial return is underwritten by the University, in this case Kings College. There is a shortage of accommodation for Universities to place their first year and foreign students. So a 'nomination' agreement with Unite to allow the Uni to allocate the beds to their students suits both partners. Regards Maddox
Unite have issued a strong trading update and positive outlook statement today that supports the recent momentum we�ve seen in the share price. The full year results to 31st Dec 2017 will be out 21st Feb. As well as Unite�s wholly owned student digs Unite runs two student property funds of which they own a percentage. Today�s RNS also provides the independent Quarterly Fund Valuation Report for these funds� performance for the year to 31st Dec 2017. The two funds are: USAF � Unite own 23% - like-for-like asset value growth of 5.6% for the year; and LSAV � Unite own 50% - like-for-like asset value growth of 9.2% for the year, I presume benefiting from the Aston deal. As a result of this Unite expects to receive an additional performance bonus of c.�3m. So it�s safe to say the full results are going to be strong in February. This will also be Unite�s first year as a REIT and will now have to pay-out 75% of EPRA earnings (bonus excluded) as dividends. I�m thus expecting to see a nice uplift in the 2H dividend - target 23p for the year up 25%+ on the previous year. Nevertheless, there are good prospects for more to come. The base investment case is underpinned by the pipeline of 7,500 new beds to be delivered by 2020. On top of that they will be looking for more University Partnership deals, like Aston - where they bought the whole campus accommodation or Oxford Brookes - where they are building to-order with a pre-let agreement. They have a number of these under review. The impact of a good deal can I think be seen in the heightened performance of the LSAV fund over that of the USAF in the figures above. With a loan to value below 32% currently, a new �500m loan and with their fund support they have plenty of capacity to do similar deals. Regards, Maddox
What a performance recently from UTG . new highs and more to come . The company is the leader by far in the student accommodation market and by far the market leader.. What a good investment this has been !
Thanks Maddox-makes sense. Apologies for late reply.
Hi EJL7, happy to attempt an explanation of: "The reduction in profit before tax in the first six months of 2017 is the result of lower valuation gains due to property valuation yield compression experienced in 2016." In straightforward terms Unite's property portfolio value didn't increase by as much in 2017 as in 2016. The gains or losses on revaluation are included in the statutory profit figures reported. As they had a large uplift in property values in 2016, not repeated in 2017, it made it appear that profits had fallen on a comparative basis. The substantial rise in values in 2016 was driven by Financial Institutions chasing this class of property - as they were prepared to pay more to acquire a property the rental yield received falls or is "compressed" in the jargon. Hopefully, that makes it more clear? Regards Maddox
Unite have delivered another strong set of results at the half year. The EPRA *(standard measure) Net Asset Value per share rose 7.9% year-on-year to 669p per share and EPRA earnings 11.9%. The interim dividend has been raised 22% to 7.3p. I've spotted an article by Josh White on Sharecast 'Unite Group lifts dividend as profits slide' HTTP://www.digitallook.com/news/news-and-announcements/unite-group-lifts-dividend-as-earnings-slide--2787311.html) This 'slide' is because the property valuations haven't risen as strongly this year than last. So, as this is included in that statutory figures - on a comparative basis profits have fallen. It is due to this distortion that EPRA figures are used to standardize the measures of performance. So Josh ain't wrong but that headline is somewhat misleading. Unite's outlook is positive for the 17/18 academic year with record levels of bookings at 91% reservations - and with the clearing yet to take place. The development pipeline is also looking very strong with 7213 beds through to 2020 (wholly owned) and a further 1407 in USAF (23% owned). Regards Maddox * EPRA = European Public Real Estate Association - the industry body for REITS. 'EPRA eps' is their defined measure of profit after taxation excluding property revaluation gains/losses and intangibles.
The following is from the interim results report- "The reduction in profit before tax in the first six months of 2017 is the result of lower valuation gains due to property valuation yield compression experienced in 2016." Can someone translate this for me, along with the ramifications of the above statement. Thanks-