Unite Group has raised £450m in a placing, with the proceeds earmarked for a number of student accommodation acquisitions and development projects.
A total of 49,686,114 new ordinary shares were placed, raising gross proceeds of approximately £447m. Shares were issued at a price of 900 pence, representing a discount of 2.6% to the closing price on 23 July 2024 of 924 pence.
Retail investors subscribed for a further 300,000 new shares raising an additional £3m.
Joe Lister, chief executive, commented: “This successful completion of our capital raise reflects the significant investor support for Unite Students and our growth prospects as well as recognition of the continued strong fundamentals of the student accommodation sector. The proceeds will support a doubling of our committed pipeline by year end to over £1 billion and see us acquiring assets with asset management potential from USAF to enhance our future returns. This capital raise enables us to accelerate the delivery of new, high quality, affordable student accommodation where it is needed most and support the growth ambitions of our university partners.”
Highlights
- The £450m raise provides Unite with total investment firepower of £700m, which it expects to fully allocate by the year end.
- The company will acquire seven income producing assets from its open-ended fund USAF – in Bristol, Liverpool and Cardiff for £243m for which Unite has identified an additional £45m of returns-enhancing asset management capex to generate a yield of 5.9% post refurbishment (5.4% yield on acquisition). The acquisition will be part funded by the sale of two assets in Bristol and Liverpool to USAF for £118m, resulting in a total net investment of £170m.
- It will also use £70m to fund its share of the previously announced Newcastle University joint venture development for £70m to deliver a 7.3% yield on cost.
- £200m will be committed to two development schemes, with planning, in Bristol and Glasgow, at a blended forecast yield on cost of 7.4%.
- Two additional developments will be funded for a total cost of £380m: a 444-bed scheme in central London at a forecast yield on cost of 6.5% and one in a prime regional market at a 7.5% yield. Both have a target delivery of 2027.
- The company expects the capital raise to be accretive to earnings and total accounting returns from 2025.
QD comment: [This proves that there is good support from capital markets for real estate companies that operate in sectors with strong fundamentals. We have seen SEGRO, Sirius Real Estate and now Unite raise significant amounts of money in recent months to deploy in a real estate market where pricing has reached attractive levels and where strong returns can be produced. It is encouraging to see and is another indication that we have reached the bottom and sentiment is recovering.]
Rationale
- The company said that the student accommodation market benefits from strong fundamental drivers – the UK’s globally recognised Higher Education sector, a UK housing shortage, and high demand for university places from 18-25 year olds:
- A positive long-term outlook for UK student numbers reflected by 16% growth in UK 18-year-olds by 2030.
- Significant unmet demand for the UK’s strongest universities to which Unite’s portfolio is aligned, which supports rising student numbers and increasing demand for high-quality accommodation.
- Strong international demand with 3% growth in applications versus pre-pandemic and no changes to student visas following the Migration Advisory Committee review, published in May.
- Supportive policy from a new Labour Government recognises the global appeal of education in the UK and the economic value of UK Higher Education.
- New Purpose Built Student Accommodation (PBSA) supply is down 60% on pre-pandemic levels and the number of Houses in Multiple Occupancy (HMO) has declined 8% since 2021, driving an acute supply-demand imbalance with many cities facing housing shortages.
The board also said that it believes the market now offers a compelling investment opportunity to accelerate the company’s growth in the strongest markets. Capital scarcity is leading to motivated sellers and attractive acquisition opportunities at valuations below replacement cost, with rental growth and value-add potential underpinning future returns, it added.
It also said that development returns were improving as vendors lower pricing expectations in response to far greater equity requirements. Demand from universities for strategic partnerships to support their growth ambitions and address challenges around the quality and sustainability of their legacy estates has also increased, it said.