Unite Share Discussion Threads

[maddox] 25/2/2021 17:34

My StockSlam pick is a property company specialising in Purpose Built Student Accommodation (PBSA) –called Unite (LON:UTG) . It is by far the largest in this sector with c. 75,000 beds a Mkt Cap £3.4bn and features in the FT250. Its shares peaked at £13.38 in Feb 2020 but was then hit by Covid-19 and is now down at 963p (down about 27%). This price I think presents a good short-term buying opportunity with the end of Covid restrictions in sight.

Student Accommodation is a resilient investment, its asset backed and its market is uncorrelated with the general economy. Student Accommodation was the best performing property asset class during the Global Economic Crisis of 2008/9. One of Unite’s strengths is that 55% of its beds are guaranteed to be occupied by its agreement with Universities.

Unite (LON:UTG) is a REIT (Real Estate Income Trust), which allows exemption from UK corporation tax on its rental profits and to qualify as a REIT it has to distribute 90% of its income to investors by way of dividends. Which should be attractive to income seekers, but Unite's yield is relatively low, this is because it is expected to grow, both by its development pipeline and also by acquisition. It took over the markets' third largest player Liberty Living in 2019.

The Covid Impact: Covid-19 has hit Unite’s business - they released students from their contracts very early on, also given discounts and rental free periods. Typically, they would achieve 98% occupancy – but managed only 89% in 2020. So Covid has hit its income and consequently its property values have fallen.

Unite has published a Student Survey this morning:



The findings are:

>> 77% students struggled with mental health and wellbeing as a result of Covid-19, but 84% say engaging in university life has been positive for their mental health;

>> Students' biggest challenge this year is the lack of face-to-face teaching, practical experience or facilities;

>> Traditional face-to-face university experience is key for students: 86% are keen to get onto university campus once it is safe to do so; 75% agree that living in university accommodation and being on campus is as important a part of the university experience as lectures and tutorials; and

>> Four in five (79%) students would like a return to face-to-face tuition after the Easter break.

This based on a survey of 2000 students.

Covid-19 has been very instructive: It has demonstrated just how robust the demand is for the 'university experience'. Going to University is clearly a culturally entrenched 'right of passage' for the UK's young adults.

It has often been postulated that on-line learning would disrupt this tradition. Covid-19 has provided the opportunity to test this hypothesis. Whilst, on-line learning has clearly allowed teaching to continue during the Covid-19 Lockdowns - it is certainly not a substitute for the uni experience. Students want the 'real-life' full-fat university experience - it's not just about learning ( ;-)

These are two extremely significant points for anyone assessing the risks of investing in this sector. So, I’m expecting a full recovery in demand once Covid-19 restrictions are removed.

The market back-ground is supportive: The market is under-supplied, there is a short-fall of c. 243k beds of those required for first years and international students - that universities like of offer 'in-hall' accommodation.

Secondly demand is growing: Demographics are positive - the number of 17/18 year olds is increasing - and, a higher proportion of them are opting to go to university.

The Government has at long last recognised the value of international students to the UK. The Govt has changed the rules to now allow foreign students studying in the UK to stay-on to work for a further two years. Also, the Govt are targeting to increase the number of international students by c. 33% to 600k by 2030 - from c. 450k previously.

In addition to income Unite also offers growth: It has a development pipeline of 5000+ new beds to be delivered by 2024. It raised £300m in June 2020 by way of a placing at 870p – now you might think that this was to repair the balance sheet – but no it was to take advantage of depressed land prices and fund the acquisition of three more prime development sites. It has a strong balance sheet with a 33% debt to asset value ratio.

To summarise: Covid-19 presents the opportunity to get on-board this high quality REIT that offers the prospects of both growth and income. With the end of Covid restrictions now in-sight I’m expecting to see a full recovery in demand for Unite's accommodation and a bounce in the share price. But, due to its resilient market, this is a share I’m very happy to hold in the face of a possible UK recession.

Maddox

(Declaration: I am very long Unite (LON:UTG))
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and in answer to some questions:

Watkin Jones (LON:WJG) is a great business but I haven't invested. I particularly like that they de-risk their business by pre-selling their developments and thus finance their developments using the customer's cash - perfect.

I favour Unite (LON:UTG) because it retains its developed PBSA assets and is thus inexorably growing in size and efficiency. WJG OTOH has to keep expanding its development operations in order to grow - this will at some point cause difficulties.

£UTG has a further advantage over Empiric Student Property (LON:ESP) and CPG Student Living (LON:DIGS) in its unique capital structure that provides substantially greater financial deal capacity. Its property development and management company is supported by two own managed property funds. This distinguishes it strategically from it's competitors, the funds are:

USAF £2.8bn – Unite own c.22%; and

LSAV £1.3bn – Unite own 50%.

This means that Unite (LON:UTG) is not restrained by its own balance sheet debt capacity (a conservative 33% debt to value), once the yield on a developed property matures it can sell the property into the funds and re-finance its development pipeline. The funds can also be leveraged in takeovers, such as Aston University's Campus and Liberty Living.

The financial firepower that this structure provides is a key strategic advantage in what is likely to be a consolidating sector.

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Cladding - Grenfell tragedy

Unite have been hit by this dreadful scandal but are in a good position to quickly fix it. They have 19 buildings with unsafe cladding, which will be removed within the next 12 months at a total estimated cost of about £15 - £20m.

[speedsgh] 25/2/2021 11:30

Hi Maddox. Maybe you could post your write-up here after a few days once Stocko subscribers have had a chance to digest? I would certainly be interested to read it. Regards

[maddox] 25/2/2021 10:59

I've written-up and fleshed out my StockSlam pitch on Stockopedia:

www.stockopedia.com/content/my-stock-slam-pick-unite-group-utg-a-post-covid-recovery-opportunity-764584?order=createdAt&sort=desc&mode=unthreaded

Apologies to non-subscribers but you'll be very familiar with the points made.

Now that the 'road to freedom' is now in view UTG's re-rating appears to have started. The next issue beyond-Covid will be the dyer state of the UK economy. Once Mr Market starts to look for resilient performers that are uncorrelated with the economy UTG will look a very attractive prospect.

[madengland_] 23/2/2021 10:22

The post pandemic stock rotation has definitely started in all earnest

[its the oxman] 23/2/2021 09:40

Pushing higher so perhaps the worst is behind us now.

[madengland_] 22/2/2021 13:42

Well it was a wishy washy article as you say Maddox, most seem to be in the Times these days. Whether that hit the share price or whether it's down to technical trading around these levels as per Oxman who knows. I'm happy to keep topping up this holding with a long view. I'd be surprised by less than 30% return over the next 3 years

[maddox] 22/2/2021 10:33

I suspect that the price fall today is prompted by an article in the Times 'Money laundering fears as universities accept £52m in cash' and 'Institutions are accused of laying a welcome mat for criminals'

www.thetimes.co.uk/article/money-laundering-fears-as-universities-accept-52m-in-cash-vrc7q6s9b

Few points to make about this:

>> the first and obvious one is that this relates to 49 universities - so averages at about £1.06m each; and

>> secondly, for money laundering to have taken place the money accepted would have to be the proceeds of crime - a predicate crime would have needed to have been committed. I doubt the Times has any evidence of this.

>> thirdly, the identity of the student will be clearly identified and the purpose of the funds is clear. If the source of the funds appears plausible it will be very difficult to find fault with the universities.

The Times article is pitched such that the universities 'inadvertently' and 'may' have committed the offence. It then adds some juicy quotes from un-named 'financial crime experts'.

Can't see this story running long.

Regards Maddox

[its the oxman] 20/2/2021 11:04

Have reduced slightly myself to fund other opportunities, but chart says to me we are due a bounce from the trend line. Though if the price breaks much lower than 950p then the bull case could struggle for a while. Hoping it goes up for all concerned.

[maddox] 19/2/2021 23:35

I can certainly confirm that in my day and for me socialising was the top priority!

I see that we have UCAS' university application data for 2021 just published - numbers are up again:

'Overall, a total of 616,360 people had applied, an increase of 8.5% and a new record for this point in the application cycle.'

and, significantly International students (excepting the EU) are also up:

'Applicants from outside of the EU continue to rise and are up this year by 17% to a record 85,610.

Applicants from China and India have increased to 25,810 (+21%) and 7,820 (+25%) respectively. The USA has seen the largest proportional increase of any major nation as applicant numbers have risen 61% to 6,670.

EU applicant numbers have decreased to 26,010 (-40%) as the short term effects and uncertainty at the end of the last calendar year surrounding the UK’s withdrawal from the European Union, and changes to student support arrangements, have impacted on applications from the continent. However, applicants from Ireland have increased by 26% to reach 4,850.'

www.ucas.com/corporate/news-and-key-documents/news/nursing-applications-soar-ucas-publishes-latest-undergraduate-applicant-analysis

and if you want to delve into the detail UCAS provide a very useful tool:

www.ucas.com/data-and-analysis/undergraduate-statistics-and-reports/ucas-undergraduate-releases/applicant-releases-2021/2021-cycle-applicant-figures-january-deadline

Significantly, this confirms expectations that the University Sector should bounce back in academic year 2021/22.

Regards Maddox

[speedsgh] 19/2/2021 18:46

Thanks for your thoughts, Maddox. Good question re possible re-basing of rental prices. I guess there is a possibility shorter term but I would've thought that, if the demand returns as is anticipated once the world starts opening up again, then rents ought to return to previous levels fairly pronto. At the end of the day rental prices will be driven by supply-and-demand (assuming that there is no regulation/controls of student accommodation prices). I know if I had been a student now, I would have been itching to get back to uni. As you stated in your presentation, for students the socialising is just as important as the studying... in fact for many it is probably for more important!

I kind of see the current share price as a reasonable entry level if you are willing to wait a couple of years or so for life to fully revert to normal. Unite's track record speaks for itself.

[maddox] 19/2/2021 17:48

Hi speedsgh and thank you.

The Stockopedia figs are one year 'rolling' figures so partly historic and forward looking. As the dividends are suspended I'm not clear how that yield is derived.

A few thoughts on dividends:

>> My base case is that when income fully recovers in fin year 2022 I would see UTG paying 33p (equal to expected but shelved 2019) and a 3.45% yield (on current 955p share price);

>> Then there are further synergies and cost efficiencies from the integration of Liberty Living to be gained. This might add 6p and give a prospective 4% on current share price, but I'm unsure whether or not Covid-factors might off-set some of this.

>> The NAV is directly linked to the rental yield - so when income is hit so are the values, similarly reversed when income recovers. The premium to NAV I interpret to reflect the growth potential (pipeline and uni deals).

Whilst I'm persuaded that demand will return, has their been some re-setting of rental prices that will take longer to recover?

Regards Maddox

[speedsgh] 19/2/2021 15:26

And a very good pitch it was too, Maddox. What is the dividend outlook? Is some kind of payment likely to be reintroduced in the FY20 finals to be released on 16/3? The Stocko figures in your presentation showed a yield of 2.67%. Is that historical or forecast?

The share price is currently at a 15% premium to the 30/6/20 EPRA NAV. Does that mean that the market is expecting NAV growth to have resumed again in the finals or is it rather looking forward anticipating future NAV growth on the horizon once the world hopefully start reverting to some kind of normal?

Histroical NAV:
833p as at 30/6/20
853p as at 31/12/19
820p as at 30/6/19
790p as at 31/12/18
761p as at 30/6/18
720p as at 31/12/17
669p as at 30/6/17
646p as at 31/12/16
620p as at 30/6/16
579p as at 31/12/15
521p as at 30/6/15
434p as at 31/12/14

[maddox] 19/2/2021 14:56

I pitched UTG as my StockSlam pick 17 Feb 2021:

www.piworld.co.uk/2021/02/19/stockopedia-piworld-virtual-stockslam-february-2021-with-damian-cannon/

This was the first virtual StockSlam and it attracted an audience of c. 1,200 investors. StockSlammers are restricted to just three minutes to pitch a share - which is a very tough ask, when you have a lot to say.

Anyway, great fun and a great event very well run, hosted by Damian Cannon, and webcast by Tamzin and Tim of PI World. Very well done to all the other presenters, with an eclectic mix of shares worthy of further research.

Regards Maddox

[maddox] 17/2/2021 10:27

Unite has published a Student Survey this morning:



The up-shot is that we can expect a rapid recovery in Unite's trading, once Covid-19 restrictions allow. The findings are:

>> 77% students struggled with mental health and wellbeing as a result of Covid-19, but 84% say engaging in university life has been positive for their mental health;

>> Students' biggest challenge this year is the lack of face-to-face teaching, practical experience or facilities;

>> Traditional face-to-face university experience is key for students: 86% are keen to get onto university campus once it is safe to do so; 75% agree that living in university accommodation and being on campus is as important a part of the University experience as lectures and tutorials; and

>> Four in five (79%) students would like a return to face-to-face tuition after the Easter break.

This based on a survey of 2000 students.

Covid-19 has been very instructive: It has demonstrated just how robust the demand is for the University experience. Going to University is clearly a culturally entrenched 'right of passage' for the UK's young adults.

It has often been postulated that on-line learning would disrupt this tradition. Covid-19 has provided the opportunity to test this hypothesis. Whilst, on-line learning has clearly allowed for teaching to continue during the Covid-19 Lockdowns - but is certainly not a substitute for the Uni experience.

These are two extremely significant points for anyone assessing the risks of investing in this sector.

Regards Maddox

[madengland_] 15/2/2021 12:01

Well good luck on timing the market oxman. Over the years I've come to rest on the old adage it's time in the market as oppose to timing the market that works best, but probably because I am an awful trader. This would seem a decent entry point and am pretty sure when our pubs are open, the sun is shining and the university cities bustling sub 1100p will feel like a steal.

[its the oxman] 14/2/2021 23:49

Thinking I should of I sold out completely at 1100p, asking myself now if this is dead money for 12 months and should I sell and move on. Still see utg as long term winner , more a case of short term opp cost I guess.

[madengland_] 04/2/2021 11:23

Well if we hit 850 I will be filling my boots for sure!

[okosling] 03/2/2021 19:10

Barclays has downgraded UTG on the back of their ongoing exposure to the Covid-19 pandemic. The bank cut its rating to 'underweight' from 'overweight', and reduced its target price for the shares by 22% to 850p.

It said there were four key reasons behind the rating shift.
"The drivers of the change are: assumed negative news flow in the near term; our expectation of more negative earnings per share impact in the 2021 full year than currently assumed by the market; deferred total accounting returns, which we do not think are reflected in the group’s premium rating (18% premium to full-year 2021 net asset value versus our coverage average around 14% discount); and an increase in our discount rate," said the analysts, who put their earnings per share forecasts 19% below consensus.

I've bought a few today. I also hold Empiric, a much larger holding, which I've held for a while.

[maddox] 03/2/2021 18:23

Yep, UTG always manage to get themselves ahead of the pack.

In the round the positive sentiment and credibility they are creating will be paid back several-fold if it helps them win University deals. For example, the London Development Plan means that any PBSA developments in London will in future need a University partner - no partner, no planning permission.

These PBSA deals are very long-term relationships where the Universities students are the customers. They'll want to pick a trustworthy fair-dealing partner like Unite, particularly if they are prime on-campus locations.

[madengland_] 03/2/2021 14:49

Surprised by the drop today it's got to be said. Looks tempting to buy a few more

[madengland_] 03/2/2021 10:03

UTG continuing to play the long game well. 4p EPS is a small price for trust with the students, government and universities and at the same time encouraging to see we are 84% paid for term 2 at this point.

[madengland_] 19/1/2021 09:33

Beware the curse of the IC tip :-)

[maddox] 18/1/2021 09:53

It always 'appears darkest just before dawn' it is often said. With the rapid roll-out of vaccines the dawn cannot be too far away. The above 65s vulnerable and front-line worker total 13.5m people and we're getting to wards high coverage in nursing homes and 70+. However, there is a delay before the vaccine becomes effective and the hospitals are facing the peak pressure so news is still very grim.

The share price appears to have faltered due to the discounts being offered to students unable to occupy their accommodation. But it's difficult to see Covid-19 as anything other than a short-term hit. The limits to the desirability of Zoom meetings and on-line learning have been revealed. Student's have a compelling need for physical social interaction and are longing to get back to normal. This suggests that the bounce back and sentiment towards the sector could change very fast.

Investors Chronicle are looking to a strong recovery 'with analysts forecasting earnings to grow at a compound annual rate of 36.7 per cent, over the next 24 months' and earnings to be 14% above 2019 levels. With prospects for the rest of the economy looking uncertain, and property sector (esp. retail and office) looking challenged - the Purpose Built Student Accommodation (PBSA) will look to be a stable and attractive source of income and growth.

High expectations for student landlords