Unite Group reinstates dividend as outlook improves

Unite Group reported EPRA earnings of £97.3m in its final results for 2020 on Tuesday, down 12% year-on-year, while EPRA earnings per share fell 35% to 25.5p, in line with the board's expectations.

The FTSE 250 student accommodation developer and operator said the fall in earnings reflected the acquisition of Liberty Living, rent forgone for the summer term of the 2019-2020 academic year, and reduced occupancy as a result of the Covid-19 pandemic.

It recorded an IFRS loss before tax of £120.1m, widening from £101.2m year-on-year, driven by a valuation loss of £178.8m.

EPRA net tangible assets stood at 818p at year-end on 31 December down 3% on the prior year, resulting in a total negative accounting return of 3.4% for the year, swinging from a positive 11.7% in 2019.

The company’s loan-to-value ratio reduced to 34% from 37%, however, through placing proceeds, with its 35% target maintained.

Unite’s board announced the restart of dividend payments, with a full year dividend of 12.75p, rising from 10.25p year-on-year and reflecting a payout ratio of 50% of EPRA earnings per share, up from 26% in 2019.

The directors said they were targeting an increased payout ratio as earnings visibility improved.

Looking at the 2020-2021 academic year, Unite Group said it had 88% contracted occupancy and 1.1% growth in weekly rents, compared to 98% occupancy and 3.5% rent growth in the prior year.

Rent collection to date for the 2020-2021 academic year stood at 95%.

Unite said it was expecting “strong” student demand for the 2021-2022 year, with reservations at 66% and a later booking cycle expected due to Covid-19.

It said it anticipated occupancy of 95% to 98%, and 2% to 3% rental growth for that academic year.

On its pipeline, the board said secured development and university partnerships stood at £599m, or around 4,000 beds, for delivery over the next four years, generating a 6.4% yield on cost.

It said there were opportunities to add to university partnerships and the development pipeline, at “enhanced” returns.

“We were the first purpose-built student accommodation provider to forgo rents during the first national lockdown and to date have provided rental discounts to students totalling over £100m alongside a number of other supporting measures,” said chief executive officer Richard Smith.

“The pandemic has also showcased the resilience of our best-in-class operating platform, which successfully delivered the integration of Liberty Living's 24,000-bed portfolio during the year.

“The outlook for the business and the UK higher education sector is strong.”

Smith said a “record share” of school leavers were choosing to attend university, with demographic growth expected to be “significant” over the next decade and international student numbers set to increase.

“We expect strong demand for the 2021-2022 academic year, supporting a return to full occupancy and 2% to 3% rental growth.

“Together with our development and university partnership pipeline of around 4,000 beds, this provides high visibility over a rapid recovery in earnings as market conditions stabilise.”

While Covid-19 was providing some ongoing uncertainty, Smith said the firm was confident in the medium and long-term outlook thanks to its alignment to strong universities, as well as the significant growth opportunities from new developments, university partnerships and by attracting more of the 955,000 students living in houses of multiple occupancy.

“As a result, the board is recommending a final dividend of 12.75p.”

At 0902 GMT, shares in the Unite Group were up 2.51% at 1,023p.