Unite Share Discussion Threads

[maddox] 08/11/2019 16:23

I've been waiting for the CMA to sign-off on the takeover of Liberty Living. Now received, this is a huge step forward for Unite - the number one in the market taking over the number three. It consolidates Unite's position as the market leader and delivers a significant operational scale-up and with it the prospects of efficiency gains.

What I was somewhat surprised by was the quality of the Liberty Living property portfolio, focused similarly to Unite, on top-flight universities and how good the fit is with Unite's own portfolio. There is certainly no drop in quality as a result of this takeover.

One aspect where Liberty were performing better than Unite is half-term lets - filling vacant rooms when the students are at home or on holiday. So there may be a few learning points to be taken on board along with the portfolio.

The deal also brings Liberty's owner, Canada Pension Plan Investment Board ("CPPIB"), on-board as an investor. It is having deep-pocketed long-term strategic investors that gives Unite the fire-power for similar large deals. This is a huge differentiator from the other purpose-built student accommodation (PBSA)specialist developers and managers.

So a fantastic deal in a market that still exhibits positive demand and rental growth. This set against an increasingly worrying macro-economic back-drop. The un-correlated nature of this sector of the property market is a highly attractive characteristic. If, as seems possible, the Treasury feels the need to drop interest rates - our asset-backed cash machine will look ever more a safe haven for financial institutions' money.

Needless to say my Dec 2020 share price target of 1035p has been passed a year early (1135p as I post). So congratulations to all holders and I'm looking forwards to see how the portfolio integration proceeds and additional value is generated.

Regards Maddox

[maddox] 13/9/2019 09:57

The Govt now is aiming to increase the number of International Students to 600k from the current 450k over the next 10 years.



On the basis that PBSA beds are being built at a rate of 25,000 per year - and UK demand is still rising - it appears that the under-supply that supports rental growth is likely to be maintained.

Regards, Maddox

[jonut] 11/9/2019 15:13

Very reassuring update today, topped up to full weight on the strength of it. Intended to take a trading stake around £10 anyway but will probably keep them tucked away long term.

Thanks for the posts Maddox - always of interest. Well kept secret, this board.

[maddox] 11/9/2019 12:33

Unite report strong demand in their trading update today should deliver on-target rental growth.

The Competition and Markets Authority have started their investigation into their £1.4bn acquisition of Liberty Living.

This takeover is the number one in the PBSA sector taking over the number three. However, the market is far larger than the PSBA Sector and includes University-owned accommodation and also large number of HMOs(home of multiple occupation).

The review is expected to report in 4Q 2019.

Regards, Maddox

[maddox] 11/9/2019 11:45

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 stay-on 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.



Regards, Maddox

[bothdavis] 18/8/2019 11:55

BBC reports over 364,000 A-level students flood clearing.

[maddox] 12/7/2019 12:00

Hi Ben,

Certainly, nothing I like better. Where are you based?

I'm based in London and often at Mello events, ShareSoc, Stockopedia Stockslams, Proactive and the like...

it's more a personal stream of consciousness that a BB - lol.

Best regards Maddox

[ben gunn] 12/7/2019 00:05

Maddox, you really do make this site work. Thank you

I have pushed my wife and kids portfolios into about 10% Unite. It continues to tick all the boxes for rising cash flows, rising sales and strong balance sheet.

This is not the place to do it but I should be delighted to show you how my holistic company valuation process indicates significant price headroom even before the new deal. Do you fancy a jar and discussion one evening?
Yours, Ben

[maddox] 11/7/2019 11:10

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%.'



Market fundamentals appear strong, and this also highlights the defensive nature of this sub-sector of the property market. I wonder whether Fergal O’Reilly of EY will be revising and re-issuing their report?

Regards Maddox

[maddox] 01/7/2019 10:01

The A1 Alpha student property scheme - I looked at it and didn't like the risk involved. it had all the characteristics of the investments scams of old, a plausible story, far too optimistic projections (an 8% yield) - I filed it along with the building land plot scam, wine investments and ostrich eggs fiasco.

I don't think it has any bearing on the real PSBA Sector.

Regards, Maddox

[maddox] 01/7/2019 09:39

Hi jonwig,

Thanks for raising these issues, which arn't of concern having looked into them. The proposal by the Mayor of London is that student accommodation will need planning proposals to have a university sponsorship. This really plays to Unite's strengths as this is the approach Unite has been taking and thus already has long established uni-relationships. Sixty per cent and rising of Unite's accommodation is pre-allocated to university for their first year and foreign students (termed 'nomination agreements') that have been promised in-hall accommodation. This is an advantage for Unite against Financial Institutional funded speculative development, ESP and DIGS.

EY wrote a report Dec 2016 stating that the sky was going to fall in on the PSBA sector. Essentially, it argued that student numbers are in decline due to demographics. It's a classic consultants ploy to drum up work to create fud (fear, uncertainty and doubt). I used to be a strategy consultant so I recognise the tactics. Can't find an online link for it or on EY's web site? I have a copy if you send me an email [e-mail].

Suffice to say the report's predictions are not proving to be correct. Whilst of course the demographic decline is real enough it has been more than off-set by:

1. Proportionately more of those 17/18 year olds opting to go to university;
2. More foreign students coming to he UK; and
3. More second and third year students opting to stay in-hall.

EY chose to ignore the potential for points 1 and 3 in what is a chronically under-supplied market.

Regards, Maddox

[maddox] 29/6/2019 10:39

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 Living 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

[maddox] 04/6/2019 12:24

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.'

[maddox] 03/6/2019 14:06

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

[maddox] 26/4/2019 16:30

As Unite bounces around its 52 week high I thought I'd highlight a some very interesting research from property agent Knight Frank:



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. Knight Frank 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

[maddox] 17/4/2019 09:06

Hi Ben,

Happy to explore your point, in fact I hope you are correct.

I think the explanation lies in the statutory figures that will include other items such as valuation gains, gains on disposal, and performance fees. This then gives a Basis eps of 90.8p several times larger than the rental income alone - epra eps of 34.1p.

Are these the figures you are comparing?

Regards Maddox

[maddox] 12/4/2019 10:38

Hi Ben,

Interesting interpretation - why do you think they are doing such a thing?

To qualify as a REIT they are required to distribute at least 90 per cent of profits arising from their qualifying property rental business. The property portfolios are independently valued every half-year. REIT status has tax advantages and is subject to rules that HMRC will oversee in order for Unite to continue to qualify as a REIT.

REIT Compliance is a specific key audit matter - from the 2018 Annual report:

On 1 January 2017, the Group converted to a Real Estate Investment Trust ‘REIT’, with HMRC confirming that the election to REIT status has been validly made. The primary tax consequences of conversion and ongoing maintenance of REIT status are that future UK property business profits and gains on investment properties are not subject to UK corporation tax. Most notably, this means that the Group no longer recognises deferred tax in relation to the valuation gains on the investment property portfolio.

In order to maintain REIT status, the Group must comply with certain tests and other conditions to ensure its continuation under the regime. Due to the material impact on the Group’s financial results of remaining in compliance with the REIT regime requirements, we consider REIT compliance to be a key audit matter.

Whereas Unite follows the EPRA rules as a basis for comparison with other firms in the sector.

Regards Maddox

[ben gunn] 31/3/2019 23:02

Hi Maddox,
I see UTG as significantly undervalued as they fudge their NAV and Dividend cover percentage. i.e the £761m. income in your note 568 above is just two thirds of NAV.
If you rerun their figures ignoring EPRA rules they are a business with 50,000 customers that pretends to have only 30,000 customers so that they are not under pressure to pay a reasonable dividend out of their profits and cash flow.

Regards, Ben (It will be great for holders when they stop hiding behind EPRA)

[maddox] 03/3/2019 15:50

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:



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

[maddox] 29/1/2019 13:27

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 c.920p as I post. So c.15% 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 transact in 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

[maddox] 09/1/2019 10:02

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

[maddox] 20/12/2018 12:50

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."



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