Unite extends dividend freeze as campus Covid chaos deters students

UK’s largest student property company postpones reinstatement of its dividend as occupancy rates drop below 90% target for the start of the academic year.

Unite Group (UTG), the UK’s largest student property company, has decided not to reinstate its dividend due to lower demand for its accommodation this year and uncertainty as to whether a fifth of students will turn up due to the resurgence of coronavirus.

The £3.5bn real estate investment trust (Reit) scrapped payouts to shareholders in March, before which it had yielded 4% in dividends, to conserve cash through the pandemic crisis.

Unite noted that universities and all its buildings were now open, but told investors that the spread of Covid-19 meant it still lacked the clarity needed to resume payouts.

An 8 October trading statement read: ‘The resurgence of Covid-19 cases and changing nature of lockdown measures means that we have lower visibility over income than in a typical year due to delayed term start dates, extended check-in periods for students and an increased risk of cancellations.

‘Given current uncertainty, it is too early to commit to the reinstatement of dividends. However, the board will keep this decision under review during the first term of the 2020/21 academic year.’

In line with expectations in its interim results, Unite forecast a 10%-20% reduction in rental income in the current academic year compared to last year.

Entering the ‘final stages’ of letting for the current academic year, it reported 88% of bed spaces had been let, versus 98% last year. That is also below its 90% occupancy target.

There is also much more uncertainty than in previous years as to the final level of uptake. 

Unite said it had ‘high visibility’ over 79% of bookings, reflecting either students who have now checked in to their digs or block bookings, where the company receives rent directly from universities.

A further 21% of bookings are still due to check in, either in October or January, which compares to 4% at the same point last year.

‘Many of these later starts reflect our flexible approach to tenancies this year, given later university course start dates,’ the company said.

Outbreaks on campuses are also playing a part, with a shift to online teaching discouraging some students from taking up places. Unconnected to Unite, well-publicised instances of students being ‘locked in’ to their halls in response to outbreaks, such as at Manchester Metropolitan University, may also discourage broader uptake. 

Unite also said it had made cost savings and could cope if occupancy rates fell to around 55% for the current academic year before it would start to breach the terms of some of its loans.

The Reit retained guidance of earnings per share of 22-25p for 2020, falling well short of the total dividends of 33.2p it paid last year.

That guidance also assumes universities staying open. Numis Securities, which is the company’s corporate broker, said that remained the most likely outcome.

‘Current government guidance is for unis and campuses to remain open but to flex the ratio of virtual to physical learning in response to the evolving shape of the pandemic; at this stage, in the absence of a Government policy U-turn, the likelihood of campus closures and students consequently being sent home is considered low,’ the broker’s analysts wrote.  

Conversely, Unite pointed to the latest UCAS data, demonstrating rising university attendance despite the pandemic, which should drive long-term demand for purpose-built student accommodation. 

According to the company, for the 20/21 academic year UK university acceptances have increased by 4%, driven by a record 36.4% participation rate for 18-year-olds, up from 33.8% last year. International acceptances also rose by 4%, with a 9% increase for non-EU students offsetting a 2% decline in EU acceptances.

After staging something of a recovery, the impact of Covid-19 on British universities has seen the shares of Unite and the UK’s two other listed student property funds sent down again. 

Unite’s shares were down over 30%, while GCP Student Living (DIGS ) had seen a nearly 40% fall and Empiric Student Property (ESP )’s stock was down just over 40%. DIGS has been the only member of the trio not to halt dividends. 

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