 Another good set of results - Current EPRA NTA per share of 972p is 17.4% above the current share price of 828p and on a yield of 4.5%. 2024 delivered a 9.6% Total Accounting Return [NTA growth + dividends paid/opening NTA]. However, the share price has slid. As at 31 Dec 2023 the share price was at 1044p and at a 13% premium to the EPRA NTA. So, a disappointing share price decline of 20% not reflecting UTG's progress.
Of the future prospects: All the underlying drivers of demand are pointing in the right direction:
>> Demographics are supportive with more 17/18 year olds in the population;
>> International Student numbers are growing, and Govt now looking to grow numbers;
>> Back-ground rental prices appear to be inexorably rising;
>> Private landlords are leaving the market;
>> Universities have an aging portfolio; and
>> Limited new PBSA development, not keeping pace with growing demand.
Set against this there area number of challenges, for UTG:
>> Build-cost pressures;
>> Inflation - especially utility costs;
>> Higher interest rates are feeding through to debt funding costs; and
>> Development timeframes extending due to new building control regulations.
Overall, the positives driving rental growth should outweigh the negatives and then we have the development pipeline. This pipeline extends out to 2029, providing excellent foresight, with £71m of additional Net Operating Income (NOI) booked-in from 7676 new beds. That I calculate is 33% growth over that period. This might increase further, and substantially, with the possibility of new Uni joint ventures being negotiated.
Overall, the down-side risk is that the discount widens further - certainly possible but probably limited from here. On the up-side the outlook is solid if not spectacular:
'An encouraging outlook for student demand supports rental growth of 4-5% for the 2025/26 academic year and 2-4% growth in adjusted EPS in 2025. We see mid-single digit earnings growth over the medium term, driven by our operating performance and accelerating development completions, which supports attractive total accounting returns of c.10% before yield movements.'
OTOH if UTG land a couple more Uni joint ventures, that now seems likely, and sentiment improves the share price together with the yield should exceed my 12% target return. Clearly there are other potentially more exciting investments - but none are asset-backed, with such strong fundamentals, and a four-year growth horizon. |
Re final dividend payment of 24.9p/share
XD has now been confirmed as 17 April (record date 22 April). Payment date is 30 May.
see |
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2024 -
A lot to like in these results. Still reading through them but one or two items I have also noted:
~ "Cost of debt expected to increase to 4.1% in 2025 (2024: 3.6%)"
~ EPRA NTA per share increased 6% to 972p (31/12/23: 920p). However for context EPRA NTA at 30/6/24 was 969p so pretty much static in H2.
~ The record date for the 24.9p final dividend is stated as 22 April which is unusual as it is a Tuesday (record dates usually fall on a Thursday with XD the day beforehand). This may be an error (in which case i would expect it to be corrected in due course) or it may be due to Easter (in which case the XD date will be prior to the Easter break). Worth keeping an eye out for confirmation on the comapny's dividend calendar which should be updated in due course - |
Base rate cut today to 4.5%. Immediate response UTG 869p up to 872p 3p but there has been a c.75p rise over preceding couple of weeks. Let's see where we go from here? |
The current UK base rate is 4.75% with a market consensus on three UK base rate cuts in 2025, bringing the base rate down to 4% by the end of the year.
So based on my hypothesis that UTG is effectively being priced in-line with GILT yields; and we see a 0.75% decline in base rates; then UTG share price should rise to 1005p by end 2025 - a rise of 22% from 819p.
No doubt, real-life will pan out differently but it's useful to understand the dynamics. |
Just doing some rough back of the envelope calcs and at current share price 819p.
My projected 31 Dec EPRA NAV = 1017p and dividend of 37.2p would suggest we're trading at a 20% discount to NAV and a 4.5% yield. This places UTG's yield between a 5yr and 10yr UK GILT 4.44% - 4.72%. |
Exceedingly strong Trading Update this morning - although you would think UTG was in jeopardy looking at the recent share price performance. But when price and value diverge - that's an opportunity. So, back to the update:
>> Earnings guidance reiterated for adj EPS at upper end of 45.5-46.5p for FY2024;
>> Rental growth driving valuation increase FY2024 (USAF: 4.5%, LSAV 6.0%)- so positive read across to UTG balance sheet.
There were some significant statements that point to the strong drivers of demand and undersupply pressures supporting growing yields:
'Demand for the Group's accommodation has again been strong, reflecting the continuing shortage of high-quality student accommodation. The outlook for student numbers in 2025/26 is encouraging with domestic demand underpinned by a 2% larger population of UK 18-year-olds. We also see improving trends in international student demand thanks to a more settled policy backdrop after the uncertainty created by changes to student visa rules and the review of the Graduate Route in the first half of 2024. Positively, the latest recruitment data indicates a 14% increase in international student acceptances for courses starting in January 2025.'
Similarly, the outlook is for continued strong demand:
"We have seen a strong start to the 2025/26 sales cycle, highlighting the continued demand for our high-quality accommodation from both students and universities. The outlook for student numbers remains positive with a growing UK 18-year-old population and improving trends in international student recruitment given a more settled policy backdrop in recent months. This supports our confidence in delivering full occupancy and rental growth of 4-5% for the 2025/26 academic year."
The development pipeline now stands at 8 projects delivering 6,600 beds.
The only disappointment is the next big university project is expected to be announced in 3 - 6 months - originally it was due around now.
So, we can look forward to excellent full-year 2024 results and a big deal to be announced.
....................................................................................
Post-script: Opened 795.5p Closed 792p down 3.5p |
Bit of a shocker to see this back below 800p |
Excellent news - 0.25% base rate cut to 5% today. Hopefully this is the start of a series of cuts. The Base Rate moved up rapidly but one suspects they'll be brought down more gradually. |
Looks like UTG have another large partnership deal in gestation - similar in size and deal structure to the recent Newcastle deal - expect to make an announcement late 2H24.
The capital investment has historically been c. £250m p.a. now running at c. £300m but looking at £400m p.a. with Uni deals in the pipeline. Hence the fund raise - to keep the Loan-to-Value highly conservative at c. 30%.
Forecast total accounting return for FY24 is 12% - NAV growth + dividends, but excluding market yield movement. That is, ignoring a change in the interest rate environment. If and when the BoE starts to cut interest rates - there should be a positive effect on NAV valuations. I doubt what we're going back to near zero interest rates but cuts will certainly be beneficial. |
Excellent trading update from Unite indicating that rental growth has accelerated to 7%. This growth is driving property values up c.3% over the last six months. Unite also mention that the new Labour Govt should be more supportive of the University Education Sector - which is good to hear.
The economic environment remains highly supportive of PBSA with a widening gap between supply and demand. Unite are increasing their development pipeline in response. Add to this the prospect of more university partnership deals and the future is looking highly positive for the share price. |
As previously announced by UTG...
Unite Students receives planning permission for two major schemes in Bristol and London - |
Positive update this morning. Very strong demand such that UTG reaffirm guidance:
'Confident in delivering rental growth of at least 6% for the 2024/25 academic year'
and "We continue to progress the delivery of our record £1.3 billion development pipeline, securing planning approvals on two schemes in London and Bristol. These projects will deliver much needed new student homes in two of the UK's strongest university cities."
Looks a tad more certain we'll see another University deal landed:
'We are tracking further opportunities for development, university partnerships and acquisitions in London and strong regional markets at attractive returns and expect to add to our pipeline in H1 2024.'
So all looking very positive - just need Mr Market to take note. |
Cityam Report: MONDAY 25 MARCH 2024 3:41 PM
Almost 100,000 more student beds needed to meet London demand
'Almost 100,000 more student beds are needed to meet demand in London, according to new research from Savills, the highest across all of the UK.
Demand for purpose built student accommodation (PBSA) has risen in recent years as the capital battles low housing supply and property development, alongside the impact of inflation and interest rate hikes.
The student to bed ratio is in London also one of the largest across Britain, sitting at 3.6.
Jacqui Daly, director, residential research, Savills, said:: “A high student to bed ratio is a measure used to indicate a lack of supply in the student accommodation market. “The ratio in London is high at 3.6. Using the latest planning data, Savills estimate that the ratio will reduce to under 3 if all of the short-term supply pipeline is delivered in the capital. That’s sites [that are] under construction or with planning consent.”
She added: “This will increase the proportion of operational beds by 24 per cent but is still someway off the number of beds needed to bring the ratio down to an average of 1.5 students per bed.”
Outside of London, both Glasgow and Edinburgh also face a shortage, with a need for 22,000 and 17,000 additional beds, respectively.
Looking at the short-term pipeline, Bristol leads by some way with delivery set to increase PBSA in the city by 45 per cent of existing operational supply.
This will see the student to bed ratio reduce from 3.5 to 2.4.
Corranne Wheeler, research, Savills, said: “Ensuring cities have an adequate supply of suitable housing is key to balancing the needs of students and local communities.
“Many universities have recognised the need for more student housing to address the supply shortages and to mitigate against loss of housing in the private rented sector.
She added: “The next and perhaps even bigger challenge for universities is to secure both new supply and new private sector investment to upgrade their existing residences to meet government energy efficiency targets.”'
There is probably a Savills Report to go along with this but I can't find it? |
On a less optimistic note....
'UK universities hit by fall in overseas students taking up postgraduate places'
'Commercial data offers first broad snapshot of enrolment since government tightened migration policy'
International Students contribute £42bn to the UK economy each year and play an important role in subsidizing Undergraduate Courses. The Govt can't stop trying to put a spoke in the wheel of this highly successful and sizeable part of our economy and UK's Global soft-(super)-power.
However, Unite will not be effected as it isn't catering to mature International Students with families and is focussed primarily on the Undergraduate market. |
Thanks speedsgh,
Please to hear that on the Uni JVs - we have six meaningful discussions in progress.
The -1% decline in EPRA NTA is reflective of the higher interest rate environment - which I think it's safe to assume will grow again once rates normalise.
We are extremely conservatively financed with a Loan-to-Value of 28%. I'd suggest that this might be expanded to accommodate a more ambitious development pipeline (hopefully with Uni JV deals). |
Final dividend: 23.60p
Payment date: 24/5/24
Ex-div: 18/4/24
We are proposing a final dividend payment of 23.6p per share (2022: 21.7p), making 35.4p for the full year (2022: 32.7p) and representing an 8% increase compared to 2022. This represents a payout ratio of 80% of adjusted EPS. The final dividend will be fully paid as a Property Income Distribution (PID) of 23.6p, which we expect to fully satisfy our PID requirement for the 2023 financial year.
Subject to approval at Unite's Annual General Meeting on 16 May 2024, the dividend will be paid in either cash or new ordinary shares (a 'scrip dividend alternative') on 24 May 2024 to shareholders on the register at close of business on 19 April 2024. The last date for receipt of scrip elections will be 2 May 2024. |
920p as at 31/12/23 EPRA NTA
928p as at 30/6/23 EPRA NTA
927p as at 31/12/22 EPRA NTA
940p as at 30/6/22 EPRA NTA
882p as at 31/12/21 EPRA NTA
837p as at 30/6/21 EPRA NTA
818p as at 31/12/20 EPRA NTA
828p as at 30/6/20 EPRA NTA
847p as at 31/12/19 EPRA NTA
812p as at 30/6/19 EPRA NTA
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 |
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. |
The immediate fall-back in UTG's share price suggests that it's responding to the influence of the inflation rate/interest rate figures. The 'surprise' slight rise in inflation in December will perhaps cause interest rate cuts to be postponed.
The consensus remains intact - that interest rates have peaked - so it's perhaps just a matter of timing. |
Investors Chronicle Feature - Britain's three best REITS - IC's 'Mitchell Labiak selects three property companies with outstanding attributes for the long-term investor.'
Essentially, the market cycle (interest rates) is turning back in favour of property REITS but rather than solely rely on this ML looks at the fundamentals. He selects Unite, along-side Segro(SGRO) and Shaftsbury Capital (SHC) as the REITS with the highest quality fundamental characteristics to deliver the best long-term investment performance. |
Unite Students to build 600-bed student accommodation at Temple Quarter, Bristol - |
UTG appears to be breaking out of the channel we've been in since around March 2023. As I post 1040p and trailing yield of c.3%.
The outlook for UTG in 2024 is IMHO on-balance looking very positive.
The handover from Richard Smith CEO to Joe Lister current CFO, following a Board managed selection process, will undoubtedly be smooth. They have worked together for 13 years in their respective roles. Joe has been very impressive as CFO and is an excellent choice.
The market environment couldn't be more positive. Demand for PBSA is growing at the same time as private student landlords are exiting the market - such that the undersupply is widening. The effect of course is to drive up rents and make PBSA the lower cost option further supporting demand and occupancy levels.
It appears that we have hit peak UK interest rates and thus the attraction of Gilts will wane in 2024. Switching into assets with a growing yield will look increasingly attractive. However, there is a wide spectrum of opinion about when we'll see cuts to interest rates, how fast they'll come down and where they will rest.
On the risk side there are a few areas to keep an eye on:
Build cost inflation is likely to remain a dampening factor on the economics of new build. This may equilibrate as this is passed on to lower land prices assisted by less competition from other uses such as office and retail. Although we might anticipate Build to Rent (BtR) demand to grow in response to attractive rental yields to add competition for development sites. So, quite a dynamic picture may unfold - that might itself make investment decisions more difficult.
Thankfully, the Govt appears not to be acting against international students to any meaningful extent - despite the continuing stupidity of including students in ONS immigration figures. Nevertheless, with immigration remaining politically sensitive International Students are a soft target, so this risk remains to the fore.
Another pandemic I'm completely discounting - this is the most serious risk as we have witnessed first-hand but is extremely unlikely.
Substitution risk, from on-line learning - Covid-19 has proven this to be unattractive as a replacement to in-person teaching.
Up-side risk: A large Uni deal is a possibility but whilst much mentioned by mgt - doesn't seem to materialise.
I’d be very happy to be contradicted on any of the above – always better to have alternative views to avoid missing obvious risk factors or overly optimistic (a particular fault of mine). |
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