|.... and now a strategically significant disposal.
Following a huge £227m purchase of assets comes and even bigger £295m disposal. A few points of significance:
>> Unite have been able to sell a ready-made student property portfolio to a large US investment fund Brookfield Asset Management;
>> This transaction demonstrates the continuing demand from large institutional investors for this asset class; and
>> This deal further highlights Unites' unique capability to transact deals of substantial scale.
This deal effectively restores Unites financial capacity bringing Unites LTV down to a conservative 34%. One wonders what else Unite has up its sleeve?
|I think that the 'penny is starting to drop' as to the strategic significance of this last deal.|
|Unite have made a substantial £227m acquisition of Aston Student Village comprising 3067 beds over five properties on the campus of Aston University in central Birmingham. Although it doesn't say so I presume bought from Aston University.
Reflecting this hot sector of the property market and quality of the asset the yield on purchase is 5% - but Unite intend to grow this to over 6%. I'd pick out a couple of points of significance:
>> The yield of 5% is pretty good as it's as good as guaranteed as these properties are the only accommodation offered to Aston's c. 11,000 students;
>> The deal reflects UTG's access to substantial funding;
>> UTG's existing scale of operation and infrastructure puts it in a strategically strong position in the likely consolidation of the sector; and
>> This deal will put Unite as prime candidate for similar deals by other universities looking to realize the value in their student accommodation assets.
Whilst, we're foregoing the 3% development yield gain on this new approach we'll be seeing the benefit far earlier in NAV and EPRA earnings. It's also worth noting that Unite is still very conservatively financed with loan-to-value (LTV) rising to 38% from 35% previously; and with the ability to sell its developed properties into either of its two managed funds (USAF or LSAF). Unite has unique advantages to compete effectively in this attractive sector of the property market.
|More good news....
Unite has secured planning consent for two city centre developments in Birmingham and Sheffield totalling 1,186 student bedrooms. These latest consents take the total development pipeline to be delivered in the next three years to 6,500 beds, providing further visibility to our earnings growth outlook.
|As well as its fully owned property Unite run a couple of student property funds of which they own a percentage. As well as earning management fees from these funds, there is also the possibility for a performance based bonus. So great news today, rental growth is continuing to drive the property fund portfolio values up - and Unite will receive a £6m bonus!
The two funds are:
USAF - Unite own 23%
LSAV - Unite own 50%
These funds are independently valued - as announced today:
'At 31 December 2016, USAF's property portfolio was independently valued at £2,288 million, representing a like-for-like increase of 0.6% during the quarter and 5% over the full year. The portfolio comprises 27,441 beds in 76 properties across 24 University towns and cities in the UK.
LSAV's property portfolio was independently valued at £1,009 million, up 0.5% on a like-for-like basis in the quarter and 4% over the full year. LSAV's portfolio comprises 6,197 beds across 14 properties in London and three properties in Edinburgh.
The increase in like-for-like valuations is driven by rental growth in the quarter. Valuation yields have remained stable in the quarter with 9 basis points of yield compression across the year. The USAF portfolio is valued at an average yield of 5.6% and LSAV's portfolio at 4.9%.
As a result of the strong total return in USAF during 2016, Unite expects to earn a net performance fee in the region of £6 million. The fee will be paid in units in the first quarter of 2017.'
|Interesting RNS from Norges Bank Holdings - it appears that whilst they hold 3.09% of Unite Group - they have leant 0.9% to the shorters. Now Norges Bank is in fact the Central Bank of Norway - and they are managing what I believe is the largest sovereign wealth fund on the planet. All that North Sea Oil and only 5.2m Norwegians.
So you wouldn't think that Norges Bank (the state bank of that moral superpower Norway) would need to nickle and dime it with those nasty hedge funds?!? The fees from stock lending must be insignificant against the decline in the capital value of their 3.09% holding. OK, so they are long-term investors and so the shorting driven share price dip may not matter on a longer term view.
However, I just wonder whether Norges Bank has a different cunning plan - to increase their holding taking advantage of the now lower price and increased liquidity? As the amount of short positions declared above 0.5% totals 4.52% Norges Bank represents 20% of that on loan and this stock can be recalled. So they appear to be in an influential market position.
Anyway I'm just speculating but ....
Regards and a Happy New Year!
|As reported in Landlord News.....
'A new survey has revealed that rents paid by students look certain to increase, due to a housing shortage in many key university cities in the UK.
Data released by student rentals platform Studenttenant.com has assessed the demand for property in locations around the top universities in Britain. It has revealed that many students beginning their studies struggle to find suitable living accommodation beforehand.'
Yes I'm a UTG shareholder.
In my opinion the shares (trading at a discount to the last reported NAV) are currently undervalued when you compare them with other shares in the sector which trade at a premium. Based on recent forecasts the dividend should increase following conversion to a REIT and I am still expecting good increases in NAV going forward bearing in mind that dividends should be fully covered by EPRA EPS. An increase in NAV combined with a reduction in the discount should hopefully drive a reasonable increase in the share price.
As a private investor this is just my personal opinion and I might be completely wrong, but I remain a long term holder.|
Are you a UTG holder and what are your views?
Yes I think you're right. It must be adjusted EPRA EPS as a percentage of EPRA NAV. That seems to tie in with consensus estimates for FY16.|
Thanks for your question. I can see what your saying but if an EPS yield of 4.5% - a yield on what? It would be difficult to get to a yield figure of 4.5% based on rental income. The Net Operating Income margin is c.76% and EPRA earnings are c. 40% of Gross Rental Income. So perhaps its Adjusted EPRA EPS on EPRA NAV per share?
Then at 620p EPRA NAV per share (30th June) a 4.5% yield = 27.9p with a 65% pay-out ratio = 18p dividend versus 15p for last year - which looks about right. However, the EPRA NAV is likely to be higher and the dividend likewise by a corresponding amount. MHO only of course.
Why don't you email Unite and seek clarification?
|Maddox - please see my previous post. The trading update refers to an EPS yield of 4.5% and not yield growth of 4.5%.
Is this just based on EPRA earnings?|
|Another positive trading update from Unite this morning covering the current 2016/17 academic year.
>> Occupancy 98%
>> Rental growth + 3.8%
>> On track for EPS yield growth of 4.5% for 2016.
>> Market - 2016/17 sees record student numbers up c.40k
The growth in student numbers is further exacerbating the existing under-supply of student accommodation. Another positive point is that the growth has been strongest in Unite's target locations. With a positive outlook and development pipeline of a further 5,500 beds transparency of future growth in NAV and income is excellent and with Reit conversion will be seeing a likely 10% increase in the payout ratio.
The future is of course uncertain but it's difficult to find any points of concern that would explain the recent fall in the share price. As I post the share price is 566p against last reported NAV of 620p as at 30 June.
|The trading update this morning is forecasting an "EPS yield" of around 4.5% for FY16.
This as I understand it is earnings as a percentage of the share price - in effect the PE ratio expressed the other way round.
If so, then presumably the 4.5% refers to the EPRA earnings (ie based on rental income only) and not statutory earnings, since based on the statutory EPS already reported for H1 (48.3p), you would expect the yield to be much higher for the full year.
Can anybody help to explain this please.|
|....and as I've said previously - for anyone tracking UTG the shorters are presenting a great opportunity to get in at a good price. But you may need to be quick.
The trading pattern of Unite, and the lack of RNSs suggest that the shares are tightly held by FIs.|
|A tip for Unite investors....
The hedgies have to borrow stock in order to sell short. Typically, the Nominees holding investors' shares will lend the stock to shorters for a fee. If you object to your shares being used to drive down the share price of your holding - you can prevent it. Just place a Limit Order to sell your holding at a much higher price - say for UTG the 770p JPM target. This prevents the Nominee from lending your stock or makes them have to recall it from the shorter.
JPM and Numis are joint advisors and brokers.
Yes, I'm not a great believer in coincidence. I'm sure that Morgan Stanley had a good reason for changing their opinion so radically? I love the phrase they use 'the timing of our downgrade may not be perfect' covering their back side then!
|Hi MaddoxI think 549 could be the floor. One broker comes to the rescue. Not sure if JP Morgan is the house broker. At present, all eyes on the American election till we see any definitive moves. Regards your bear raid theory, it is hard to fathom for a FTSE 250 co.However, American banks are known for this and the worst is JP Morgan.Spin a story, make it believable and then short it.|
Hmmm interesting - the share price rose 4.5p today as a couple of the hedgies trimed their short positions only a tad. I wonder which of the hedgies is going to be left holding the baby?
Thanks, and JP Morgan Cazenove are sticking with a 770p share price target which emphasizes the disparity of view with MS.
However, the shorters have the upper hand at the moment - especially as they appear to be concentrating their fire power towards the end of the day to force a lower close share price
It'll be interesting to see how easily they are able to buy-back stock to close their positions? Recent rapid share price movements suggests that a small amount of demand can send the share price up like a rocket. A bit of competition for stock between the hedgies and they might generate their own bear-squeeze.
|WowA view contrarian to Morgan Stanleyhttp://www.directorstalkinterviews.com/unite-group-plc-37-7-potential-upside-indicated-jp-morgan-cazenove/412714553|
Thanks for your bio - obviously I'm somewhat wary as I usually get very little chat on this board and then your profile is just like a de-ramper's and together with the timing. However, welcome I do appreciate anyone posting, whether positive or negative, but negative comments are actually more useful. It's far better to form an opinion following a constructive challenge.
On the Morgan Stanley opinion piece - yep there is a lot of valid points, however:
#1 Despite the dog-whistle politics of Amber Rudd I find it difficult to believe that the Tory Govt is going to sacrifice the UK Higher Education Sector on the alter of immigration control. A recent report estimated that only 1% overstay! Foreign students are worth about £15bn p.a. to the UK's balance of payments and they don't tend to be clogging up GP surgeries, nurseries with their children, or competing for jobs. Whereas, the Govt have in fact guaranteed the funding arrangements for EU students for three years.
#2 Yes, student accommodation isn't cheap but it's now of superb quality and whilst students are given the loans, those that wish to, can afford to pay the rent. This with a back drop of rising rental sector prices.
#3 Oversupply of student accommodation - this is the really dodgy point. As I said above, there is an existing under supply of new student property and the new-build is running behind the growth in student numbers. Also, there were 180,000 more applicants than places in 2015/16. So it's difficult to draw the same conclusions as MS on this key point.
|Hello MaddoxI started tracking Unite last year when my son started studying in UCL and stayed in their accommodation. Excellent brand new building in St Pancras at £230 per week.It costs £350 but the difference is covered by UCL. They had 100% occupancy and it was slickly managed.I was surprised by the fall as well and see it as a buying opportunity too. However, there is the risk of Brexit affecting the EU and non EU student intake. There is also a strike by the UCL students about the high rentals.As regards my profile, I keep it low. I thought this report could would be of interest to others here and hence posted it. Nothing more, nothing less.BTW, I do follow your posts on Unite avidly.|
Interested to know what you've been doing between now and your last bb post in 2006? You've got no profile info?