Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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April 9, 2024

UTG, RNWH

Company news

Unite Group (UTG, 950p, £4,139m mkt cap)

Owner, manager and developer of UK student accommodation. Q1 (Mar) trading update and fund valuations.

Guidance: Room reservations for 2024/25 academic year, 86% (2023/24, 90%) but “ahead of our typical leasing pace and slightly below the record reservation rates last year. Demand from universities continues to grow with a further 1,000 beds secured via nomination agreements since our preliminary results. Demand from international students remains robust despite recent changes to UK visa rules for dependents of postgraduate taught students. International direct-lets for 2024/25 currently account for 13% of rooms, broadly in-line with the 15% let at the same stage last year.

Tax changes: In the spring Budget, the Government abolished Multiple Dwellings Relief (MDR) for residential property transactions in England with effect from 1 June. MDR provided relief for Stamp Duty Land Tax when purchasing two or more dwellings valued at £250,000 or less, which benefitted a number of group properties. Independent valuers have fully reflected the increase in purchasers’ costs in the 31 March fund valuations, which has resulted in a £61m (2.0%) and £6m (0.3%) reduction in value for USAF and LSAV respectively. USAF is more significantly impacted due to the lower average value of dwellings (cluster flats or studios) for its portfolio. Valuations for the Wholly Owned portfolio at 30 June will also reflect the loss of MDR. In isolation, it is expected to reduce the Group’s EPRA NTA by around £70m (16p) in the first half, equivalent to a 1.3% reduction in asset values at Unite share.

Fund valuations: USAF’s portfolio was independently valued at £2,982m, a 0.5% LFL reduction during the quarter, reflecting the one-off impact of MDR removal, partially offset by quarterly rental growth of 1.7%. Property yields were unchanged over the quarter at 5.3%. The portfolio comprises 27,922 beds in 71 properties across 19 university towns and cities in the UK. LSAV’s portfolio was independently valued at £1,938m, a 0.8% increase, driven by quarterly rental growth of 1.3%, partially offset by the abolition of MDR. Property yields were unchanged over the quarter at 4.5%.

Outlook: “The ongoing strength of student demand supports our confidence in delivering rental growth of at least 6% and full occupancy for the 2024/25 academic year. Our balanced approach to rental growth will ensure sustainable returns over the long term, while also remaining good value for students”.

Renew Holdings (RNWH, 904p, £715m)

Engineering services group supporting UK infrastructure. Acquisition. Route One Holdings (Wakefield) acquired for an enterprise value of £5.0m. Route One is a multi-disciplinary specialist engineering business based in West Yorkshire and operating in the UK Highways sector providing comprehensive bridge deck maintenance and protection services. It has a number of long-term frameworks on the National Highways Scheme Delivery Frameworks across England. The cash consideration will be funded from the group’s existing cash resources, and there is no deferred or contingent consideration payable. “The acquisition represents an excellent strategic fit for the Group. The UK Government’s planned investment in the next Road Investment Strategy (RIS3) from 2025 to 2030 will provide good growth opportunities, where the structures renewal programme has been identified as a key priority”.

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