Unite Students performing well as it prepares for REIT conversion

Manager and developer of student accommodation Unite Students posted a trading update for the period to 7 November on Tuesday, and gave investors notice of a general meeting over its proposed conversion to a real estate investment trust.

The FTSE 250 company said it will convene a general meeting of shareholders on 30 November in Bristol, to seek approval for the various amendments required to convert to an REIT with effect from 1 January 2017.

With regard to its 2016/2017 performance, Unite said occupancy across the portfolio was at 98% for the academic year with average rental growth for the full year of 3.8%.

Given the high occupancy and rental growth performance in line with the board’s expectations, the firm said it remained on track to deliver an EPS yield of around 4.5% in 2016.

The student intake by UK universities in 2016/17 was again at record levels, driving growth in overall student numbers of approximately 40,000.

Growth was strongest at the upper and mid-tariff universities, Unite said, where its portfolio is concentrated - those were up 3% and 1% respectively compared to a slight reduction at the lower tariff universities.

Customer satisfaction remained “very high” and Unite said it received positive feedback on its new services, such as enhanced Wi-Fi speeds, longer opening hours to meet students' needs, the roll out of business-wide welfare training and its new ambassador programme in which the company recruited mature resident students to provide support to new students during their transition from home to life at university.

The ambassadors received the relevant training and were gaining valuable employability experience, the board claimed.

By the end of 2017, Unite will have created more than 100 opportunities for students.

Looking ahead, the group started taking bookings for the 2017/18 academic year on 2 November and 1,500 students had already re-booked for next year.

Universities confirmed 17,000 nomination beds, taking occupancy to 37% compared to 35% at the same point last year.

The strong start supported the board’s view of 3%-3.5% average rental growth for the 2017/18 academic year.

Unite was also continuing to make good progress with its regional development programme of more than 5,500 beds.

The company said it secured a site in Sheffield for around 570 beds in line with target returns of 8.0-8.5%, subject to planning.

It also obtained planning for its site on Skelhorne Street in Liverpool for more than 1,000 beds.

The board said both sites were in excellent central student locations and will complement its existing properties in each city.

Unite said it also remained confident that it will secure planning consents on the remaining 2018 and 2019 pipeline.

The development market in the company’s target regional locations remained attractive, the board explained, and it was reviewing a number of schemes in line with target returns.

Unite was also reviewing a small number of development opportunities in London, approaching target returns of 7.0-7.5%.

On the investment front, Unite said transaction volumes remained healthy with investment from a wide range of buyers in the market.

The quarterly valuation of USAF and LSAV both reported stable average net initial yields of 5.6% and 4.9% respectively.

The board said it expected to see further third-party transactions over the remainder of this year supportive of current valuations.

Greetham Street, Portsmouth and Gosford Gate, Coventry were sold to USAF in September for a combined value of £88.4m.

Both properties, comprising 1,122 beds, were completed in 2016 and were fully let on long-term nomination agreements to Portsmouth University and Coventry University, generating an income yield on cost of 9.3%.

Unite said it had now delivered its targeted level of disposals in 2016, having sold £113m of assets on a see-through basis.

It said it would continue to recycle assets from the portfolio to reinvest in its development programme and ensure the highest quality portfolio was available at a range of price points.

“The outlook for the student accommodation sector remains positive with an ongoing shortage of purpose-built accommodation available for the growing numbers of students,” said chief executive Richard Smith.

“We remain focused on owning and managing the highest-quality portfolio and retaining our competitive advantage by strengthening our relationships with universities while increasing the services we offer to students.

“Unite remains well positioned for continued strong performance and growth as we continue to grow the portfolio through selective, accretive development while maintaining a strong, flexible capital structure.”