Unite Students plunges to £400m loss on falling property values
Unite Students has plunged to a more-than £400m loss after being hit by a £500m revaluation of its properties and “extremely challenging” building costs.
The UK’s largest student landlord slumped to a £417m pre-tax loss in the six months to June, reversing a £186m profit the year before, as its earnings slipped by two per cent to £142m.
The FTSE 250 firm has been battling with lower occupancy in recent months and has been cutting its rents in a bid to shift stock.
A revaluation of Unite’s property portfolio dealt a £530m hit to its profit, the firm said.
Following a strategic review, the landlord is taking “ambitious” measures to offload as much as £400m of property in a bid to focus on student tenants at the UK’s “strongest” universities.
The group took £130m from property disposals in the six months to June and aims to shift as many as 20,000 more beds as it slims down its footprint.
The group said it expects one to two per cent rental growth for the current academic year, following “targeted” price-cutting drives on campuses like Leicester, Nottingham and Sheffield.
The FTSE 250 business said these discounting efforts are due to pay off, with occupancy set to reach between 94 and 96 per cent this year, having been trailing behind previous years’ levels in recent updates.
Unite snapped up student accommodation rival Empiric in August last year, and told shareholders on Tuesday that this acquisition fuelled its 11 per cent jump in rents to £262m.
But analysts at Quilter Cheviot said that the deal was to blame for a seven per cent drop in earnings per share to 27.1p.
While most real estate acquisition deals are “immediately accretive to earnings,” Unite’s purchase of Empiric “came at just the wrong time,” said Oli Creasy, head of property research.
“Unite is a company under pressure. For investors, today’s results are a confirmation of earlier fears, with the company share price materially underperforming the wider real estate investment trust market year-to-date,” he said.
The landlord warned that it expects the supply of student accommodation to “tighten” in the next few years, as new construction slows and multiple-occupancy (HMO) landlords quit the sector.
“Higher build costs and new regulation have made development of new student accommodation extremely challenging,” the firm said.
The group said it would need to charge £300 per week, far above its average £190 rate, to make new development viable outside of London.
Unite also hit out at the Renters’ Rights Act, which it said is pushing private landlords to leave the sector, on top of rising mortgage costs. “Obsolescence of older student accommodation also continues to see beds removed from the market each year due to age, high running costs and the need to deliver a higher-quality experience for students,” the firm added.
Shares in Unite slipped by 3.4 per cent to 538p in early trading.