Student housing provider Unite Group took a hit to its valuations at the start of the year due to measures announced in the Spring Budget but managed to claw back the loss due to rising rents.
In a trading update today, the FTSE 100 listed real estate investment trust credited the drop in the valuation of its student properties to the abolition of Multiple Dwellings Relief (MDR).
MDR was a cut on stamp duty when purchasing multiple dwellings for less than £250,000, which Unite said “benefitted a number of our properties”.
This hit pushed down valuations in its UK-wide portfolio by two per cent, compared to rent rises of 1.7 per cent.
However, in its joint fund with GIC in London, the abolition of MDR was much smaller, only causing a 0.3 per cent drop in valuations for its properties.
In total, Unite said it expected the abolition of MDR to cause the value of their portfolio to drop by around £70m (1.3 per cent) in the first half of 2024.
Other than this, Liberum analyst Bjorn Zietsman noted that property valuations had been “broadly stable” for the group throughout the month
A total of 86 per cent of beds for next year’s academic year have been sold so far, compared to 90 per cent for the current year, which Zietsman noted left the group confident that it could deliver six per cent rental growth next year.
The group also said today that it had gained planning approval for 1,450 new beds in London and Bristol.
Nevertheless, the analyst argued that competitor Empiric Student Property was a “cheaper entry point”, as it trades at a 25 discount to Liberum’s estimate of its assets, compared to Unite’s two per cent premium.
“Both companies offer similar growth profiles (ESP has guided for rental growth more than six per cent) and dividend yields (UTG offers a four per cent dividend yield vs. ESP’s 4.4 per cent),” he said.
The group’s stock price is down 0.3 per cent today. It has fallen nine per cent year to date.
Joe Lister, CEO of Unite Students, added: “Student demand is strong for the 2024/25 sales cycle, reflecting the continued appeal of our fixed-priced, all-inclusive offer and a growing shortage of high-quality student homes.
“Together with our alignment to the UK’s strongest universities, this supports a positive outlook for rental growth for the 2024/25 academic year and underpins our property valuations.
“We continue to progress the delivery of our record £1.3bn development pipeline, securing planning approvals on two schemes in London and Bristol. These projects will deliver much needed new student homes in two of the UK’s strongest university cities.”