Unite Group's earnings rise although profit falls, remains upbeat for 2017

Student accommodation manager Unite Group’s earnings for 2016 rose underpinned by an expansion of its portfolio through acquisitions, although profit halved for the year.

Adjusted earnings increased 24% for calendar 2016 to £61.3m or 27.7p, compared to the previous year, including the yield element of the Unite UK Student Accommodation Fund (USAF) performance fee with earnings of £62.7m.

Pre-tax profit dropped 48% to £201.4m, generating basic earnings per share of 101.3p down from 164.2p in 2015 due to lower level of revaluation surplus as a result of yield compression in 2015.

Increased dividend payout ratio to 75% of earnings, excluding USAF performance fees. The company declared a final dividend of 12p, up 26% resulting in a full year dividend of 18p, up 15p.

The net asset value per share grew 12% to 646p making, together with dividends declared, a total accounting return of 15% for the year.

The loan to value was at 34% with net debt at £776m, up from £732m and cost of debt reduced to 4.2% from 4.5%.

Like-for-like rental growth remained flat at 3.8% but the company is upbeat with a rise in student numbers expected to support occupancy show expects rental outlook to grow between 3% and 3.5% in 2017.

During the year, the FTSE 250 company increased its portfolio to 49,000 beds valued at £4.3bn with Unite share of £2.1bn and has a development portfolio of 7,000 beds with a potential yield of 8.4%, and together with rental growth, the company claims it could add 15p to 20p to earnings over the next few years.

Recently, the company bought Aston University's 3,100 bed on-campus portfolio for £227m - £113m on a see-through basis - which is expected to contribute to earnings growth and on Wednesday said that it is to buy a development site in Manchester, subject to planning rules, for around £41m, which is expected to provide accommodation for around 450 students and a development yield of between 8% and 8.5%.

Unite Group does not expect the Brexit vote to significantly impact student numbers and has further opportunities to extend its development pipeline in 2017.

Reservations for the 2017/18 academic year are at 75%, a record level for this time of year.

Chief executive Richard Smith said: "These are another excellent set of results that reflect the quality of our people, properties and service execution that sets us apart in our sector. Looking forward, we will maintain the quality of our portfolio through development and also strategic acquisitions such as our recent purchase of Aston Student Village, our first on-campus.

“Students and Universities remain our core focus and we will continue to invest in our operational capabilities, providing excellent service and ensuring consistently high satisfaction levels. This strategy, plus the ongoing strength of UK higher education, student numbers and the demand for beds means we are confident in further growth."