Unite - UTG - Calculation of NAV

Sunday, Jun 21 2015 by

Had a small holding since '11. Not really paid attention to it as it seemed to be doing just fine by itself.
Noticed sp has been fairly sideways since March '15.
IC said 'Buy' on 15/06 as the property portfolio has grown and noted it trades on a premium to NAV.

My calculation of NAV :-

(Accs 31/12/14) Net debt 448m, Long term investments 1284m

(RNS 1 April) "At 31 March 2015, USAF's property portfolio was independently valued at £1,641 million representing a like for like increase of 4.3% during the quarter."

(RNS 19 May) "The Unite UK Student Accommodation Fund ("USAF", "the Fund") successfully completed a fundraising, accepting unconditional subscriptions for £306m"

(RNS 1 June) As at 1 June 2015, the capital of the Company consists of 221,899,502


(1641+306-448) / 222 = 6.752

I am probably making a number of unspoken assumptions here - like the thing they just spent 271m on is still worth 271m.

(What makes me slightly confident is that 6.75 is not too different to the consensus broker forecast of 6.59 and if I was a broker I would forecast the NAV)

Either way, given a sp on 19/06 of 583, this is a discount to NAV.

What have I done wrong?

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The Unite Group plc is a United Kingdom-based developer and operator of student accommodation. The Company provides a home for over 50,000 students in approximately 140 properties in over 28 of England and Scotland’s University towns and cities. It operates through two segments: Operations and Property. The Operations segment is responsible for the Company's approximately 140 properties, including those owned by its co-investment vehicles. The Property segment is responsible for its development and asset management strategy, and oversees its two co-investment vehicles. The Company rents its rooms both directly to students and to approximately 60 Universities across the United Kingdom. Its properties provide accommodation close to University campuses, transport and local amenities. It offers study bedroom, insurance, round the clock security, cleaning services and Wireless-Fidelity throughout its buildings. It also operates and runs approximately three funds and joint ventures. more »

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5 Posts on this Thread show/hide all

Maddox 22nd Jun '15 1 of 5

Hi Andrew,

I've had a significant (for me) stake in Unite and I'm very happy with the management team, the business, their strategy and the market place. It's been a fantastic investment and I can't really understand why it's not been more popular with PIs - in a country obsessed with property. I've been posting on ADVFN and mostly talking to myself.

Anyway, to get to the point, Unite own c. 22% of the Unite Student Accommodation Fund (USAF) which I don't think you've factored in to your calculations. The last reported EPRA NAV 434p as at 31 Dec 2014 was independently assessed. However, the independent valuer was conservative and not reflecting fully the prices student accommodation assets were achieving in actual sales. There has been a lot of student accommodation put up for sale recently and proved popular with investors. Unite's management have stated that they expect to see their property portfolio rise to reflect these sales pricing.

Moreover, IMHO Unite is no longer just a NAV growth story, its starting to through off cash and increase its dividends. This is why, I believe, Institutional Investors have chased the sp above the reported NAV. You now have to consider total shareholder returns not just NAV.

So you have a dominant company, in growing market segment in a wider tight rental sector, driving both asset value growth and income. What's not to like?

Regards Maddox

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Maddox 13th Jul '15 2 of 5

The expected re-rating of Unite's assets has shown-up in impressive first-half portfolio revaluations.

"Joe Lister, Unite Students Chief Financial Officer, commented: "The demand for high-quality, well-located student accommodation, together with rental growth, has resulted in an 8.5% and 12.5% like-for-like increase in the values of the USAF and LSAV property portfolios respectively during the first half of the year. The yield compression has been supported by a strong operational performance with reservations already at 86% for the forthcoming academic year."

This effect should be further magnified when reflected in the NAV as the gross asset inflates but the debt remains unchanged. So, the H1 headline figs to be reported on the 5th August should make for some excellent headlines.

Regards Maddox


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Maddox 5th Aug '15 3 of 5

It was clear to me that these results would be good, but these exceed my expectations, these are excellent. The headlines:

'EPRA earnings up 45% to £29.6 million (30 June 2014: £20.4 million)

EPRA earnings per share up 30% to 14.2 pence (30 June 2014: 10.9 pence)

EPRA NAV per share up 20% to 521 pence (31 December 2014: 434 pence) equating together with dividends paid to a total return on opening EPRA NAV per share of 22.1% (30 June 2014: 6.1%)

On track to achieve like-for-like rental growth of 3.5% to 4.0% for the full year, up from 3.3% for 2014

Average portfolio yield compressed by 47 bps in the first six months to 5.8% (31 December 2014: 6.3%) and further compression expected over next 18 months

Interim dividend increased by 150% to 5.5 pence per share (2014 interim: 2.2 pence). Policy remains to distribute 65% of full-year recurring EPRA earnings by way of dividend each year.' (link below)

I am particularly pleased to see the continued transformation towards income generation as the business matures.

Regards, Maddox


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Maddox 25th Aug '15 4 of 5

Hi Guys,

After running up to over 700p post the interim results the China 'crisis' has caused a steep drop back to the ~630s. However, I'm intrigued that Unite hasn't yet started its recovery back up to c.700p. Whilst I appreciate that Mr Market has a tendency to mark down shares that have recently made big gains - this is particularly perverse in Unite's case.

Firstly, Unite is an extremely defensive investment in the nature of its business model, market and conservative capital structure.

Secondly, it is very difficult to see any adverse consequences for Unite from the China fall-out, quite the reverse. This market turbulence is likely to further postpone the envisaged rise in interest rates - that's good news for Unite. Also, there is probably an even greater incentive to park ones off-spring in the UK for their education than there was before.

It'll probably take a little while for Mr Market to take these points on-board but I expect he'll get there.

Regards, Maddox

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Maddox 27th Aug '15 5 of 5

As I posted above, low interest rates are good for Unite – and it is highly unlikely the UK would lead the US in raising rates. So the news that Bill Dudley, the president of the New York Federal Reserve, made it pretty clear that the Fed will not be putting up rate rise soon has got to be positive. As they say 'Every cloud….

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