Unite (UTG), the UK’s biggest student accommodation provider, is to pull out of nine cities in the next two years as the real estate investment trust reorganises its portfolio around the country’s 20 strongest universities. 

Under pressure after a 45% share price slump since unveiling its £634m top-of-the-market acquisition of Empiric Student Property last summer, Unite will accelerate its disposal programme and put assets with 15,000 to 20,000 beds up for sale this year. 

This is on top of £130m of sales made in the first half and over a dozen further disposals underway as Unite looks to deliver on its target range of £300m-400m sales this year.

Disposals over the next 12 to 24 months will reduce Unite’s presence in 29 cities to around 20. The current portfolio of 72,000 beds will fall to 55,000 to 60,000 once a pipeline of over 6,000 is completed, a chunk of them through lower-risk university partnerships. That would represent a contraction of 24%.

This compares to the 7,700 bed portfolio in 66 properties it bought from Empiric when the deal completed in January. 

Chief executive Joe Lister, who has been criticised by TR Property (TRY) fund manager Marcus Phayre-Mudge, said Unite was in talks with other “high quality” institutions having previously secured partnerships with Newcastle and Manchester Metropolitan universities.

Lister said proceeds from sales would be allocated to further university partnerships as well as share buybacks, words that will please Saba Capital, the activist hedge fund reported to have taken a 4% stake in the company. Unite has already returned £165m of capital to shareholders through buying back its cheap shares.

He said the strategy to increase “alignment” to the UK’s strongest universities, which began with the acquisition of Empiric, would position the group where student demand was “robust and growing”.

“Following a detailed portfolio review, we have set out an ambitious plan to focus our portfolio on those universities. We are creating a higher-quality business, with strong and sustainable long-term growth prospects,” he said. 

After announcing the purchase of Empiric, Unite was hit by a drop in booking levels leading to a reduction in earnings forecasts late last year. 

Lister said he was encouraged that half-year results to 30 June had seen the business stabilise. Reservations for Unite Students have risen to 89% from 87% a year ago and Empiric’s Hello Student brand to 77% from 68% with rents anticipated to grow by 1%-2% this year.

Meanwhile, applications to high-tariff universities in the academic year starting in September had grown by 7%. 

The interim report showed adjusted earnings fell 8% to 27.1p per share, covering an unchanged 12.8p of dividends. Debt taken on for the Empiric deal pushed net borrowing to 7.5 times earnings from 5.3 times a year ago. 

Net tangible assets (NTA) per share fell 9% from 955p in December to 865p at 30 June as a result of higher interest rates and uncertainty over bookings. 

Shares that stood at £12.07 last July today slipped 2.6%, or 14.5p, to 543p, valuing Unite at £2.7bn but 37% below asset value.

Our view

QuotedData’s head of investment company research James Carthew said: “Falling earnings per share and net asset value, rising gearing, and a flat earnings outlook paint a disappointing picture at Unite. The company says that outside London rents to justify new builds far exceed the rents it is achieving. The hope is the combination of that and private landlords fleeing the sector in response to the Renters Rights Act constrains new supply. The company has an active sales programme that will help strengthen its balance sheet, but much depends on whether we see a recovery in international student numbers, which have been falling for a couple of years now.”

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