Unite Group lifts dividend as profits slide

Student accommodation manager and developer Unite Group reported a “strong” financial performance in its first half, with EPRA earnings up 12% to £40.4m, or 18p per share.

The FTSE 250 firm said profit before tax in the six months to 30 June was down to £83.9m from £122.8m, with basic earnings per share falling to 36.7p from 48.3p year-on-year, which it put down to a lower level of revaluation surplus as a result of yield compression in 2016.

It still declared a 22% increase in the interim dividend to 7.3p per share, maintaining its policy of distributing 75% of full-year recurring EPRA earnings by way of dividends each year.

Its EPRA net asset value per share was 4% ahead to 669p, and the company reduced its leverage to 30% loan-to-value, with net debt at £696m, compared to a 34% leverage and £776m debt at the start of the period.

“It has been a highly active and successful first half of the year in which we have aligned the portfolio to the strongest universities and enhanced the service we provide, based on our unique insight into the needs of today's students,” said chief executive Richard Smith.

“Our high levels of service combined with our quality properties in attractive locations have resulted in continued demand from both first, second and third year students as well as from our University partners, with reservations currently at record levels of 91% for the 2017/18 academic year.”

Unite said 91% of its rooms were reserved as at 25 July for the 2017/18 academic year, up marginally from 89% at the same time last year.

Those reservations were at pricing that supported full-year rental growth of between 3% and 3.5%, the board claimed, with 59% of rooms let under nominations agreements with an average unexpired term of six years.

The company said it had increased its alignment to the “strongest” universities and enhanced its portfolio following disposals of £472m during the year, of which Unite’s share was £181m, generating a profit on sale of £5m on a see-through basis.

It also acquired of Aston University's 3,100-bed student village for £227m during the half, with Unite’s share being £113m, which was enhanced by a 2017/18 nominations agreement, the board said.

It also reported “continued enhancement” in its customer service through the 'Living with Unite' app, and initiatives to address the “major needs” of students.

“Safety and fire safety is a key priority for us,” Richard Smith said.

“Our buildings are specifically designed for students and have a wide range of fire detection and prevention measures in place, supported by our fire management processes and fully trained staff.

“Following the tragedy at Grenfell Tower, we have completed a full review of fire safety of our estate, together with advice and support from the relevant local fire authorities, our buildings remain safe for occupation.”

Student numbers remained strong, with applicants expected to outnumber university acceptances by around 150,000 in the 2017/18 academic year.

The company also claimed a focus on operational efficiencies was delivering £5m in full-year savings, of which Unite’s share would be £3.8m, to deliver cost efficiency targets in 2018 and fund ongoing customer service enhancements.

Unite’s development pipeline, which it described as “highly accretive”, currently contained more than 8,500 beds with stable rental growth, which the board said could add between 14p and 16p to earnings over the next few years.

“Looking ahead, our market leading brand, scalable operating platform and active development pipeline leave us on track to deliver earnings and dividend growth for the full year,” Richard Smith added.