The student property trust cancels dividends after taking £90m-£120m cashflow hit telling students who have gone home that they do not need to pay rent for the remaining academic year.
Unite (UTG), the UK’s largest student property company, has scrapped its final dividend and suspended further income distributions in order to conserve enough cash to see it through the coronavirus crisis.
The £2.6bn real estate investment trust (Reit), which had been yielding 4% in dividends, made the decision to cancel the final payment and suspend further distributions ‘until market conditions stabilise’ in order to save £124m of cash this year.
The trust said the measures ‘will ensure the company retains cash headroom through the remainder of 2020’ and hopes to ‘reinstate dividend payments as soon as possible once market conditions stabilise’.
The shares moved little on the news but over the past month have fallen 38% from £12.71 to 782p while the 33% average premium to net asset value (NAV) the trust enjoyed over the past year has been decimated and it now trades at a 16.3% discount. Over five years shareholders have received an annualised return of 8%, according to Morningstar.
The group said it had £1.8bn of debt facilities and £141m of cash, as well as £150m of undrawn revolving credit facilities meaning it has total liquidity of £291m.
‘We have recently drawn £100m from our revolving credit facilities and will draw the remaining £150m over the coming few days,’ said the board.
‘In addition, we are in discussions with our banks around our future funding requirements and are considering a £100m extension of our group revolving credit facility.’
Unite also qualifies for the Treasury and Bank of England’s ‘Covid-19 corporate financing facility’ which it said it was ‘exploring’ as an option if additional liquidity is required.
Numis analyst Robert Duncan said Unite had been ‘proactive’ in its approach and its balance sheet was ‘solid’.
‘With limited visibility on the extent and duration of the disruption, we believe these actions will help ensure Unite remains well placed to weather the storm and take additional market share,’ he said.
The deepening coronavirus crisis is not just a exercise in financial management but also reputational management and in a bid to protect its brand Unite has offered to forgo rent for students who choose to return home for the remainder of the academic year at a cost of £90-125m in 2020.
‘In addition, for international students who are unable to return home at the end of their tenancies, we will provide accommodation over the summer months at no further charge,’ it said.
To cover some of these additional costs, Unite has implemented a cash saving programme, suspending all non-essential expenditure, and deferred developments, which should add £95-105m to its cash pile.
‘We continue to review the cost base of the business and have the ability to make further savings if required,’ it said.
Despite the emergency short-term measures, the trust said its longer term outlook remains ‘positive’ due to ‘demographic growth in the UK, rising participation for higher education and supportive government policy to grow international student numbers over the next decade’.
‘We aim to emerge from this uniquely challenging time with our reputation with students and universities, not only protected by enhanced,’ said the board.